Open Question to the Macroeconomic Community

By now, everyone is talking about Scott Sumner's NGDP targeting idea for central banking.

Here's an open question to macroeconomists: Can you provide a compelling reason why the expenditure levels in an economy "should" grow at any particular rate?

Don't brush me off just yet. I understand that in good times, people will have more money and want to consume more stuff - and they'll be able to buy much of that stuff despite scarcity. This points to growth. I understand that in bad times, people will save for that hypothetical "rainy day" in the future rather than spending their money today; this points to slow growth or no growth.

But aren't the motives behind these spending decisions the real economic story here? Sure, you can target economic growth and screw with the money supply, but doesn't that just gloss over the fact that economic conditions have caused people to change their spending behavior? Isn't that what economists should be focusing on, rather than just skipping that step altogether and going straight to a "solution?"

How would you feel if a doctor treated you that way? "Well, Sam, the thing of it is, no one really knows why you cough up blood every night. We just know that for whatever reason, your body does this. So what we're proposing is to inject a tranquilizer into your lungs to stop the coughing..."

Big difference between attempted symptom-alleviation and an actual cure.


Definition of a Bubble

This question has been floating around the economics blogosphere recently. My consideration of the topic came after reading Arnold Kling's What is a Bubble? I started this as a blog comment, but ultimately realized I had typed too much and decided to cut-and-paste it here:

All popular definitions of a bubble come down to this: "Bubbles occur when most people get the future price of an investment incorrect."

When a minority of investors do this, however, we don't call it a bubble. We call it poor market savvy.

For me, it's difficult to understand asset bubbles in any context other than Austrian theory. Bubbles occur when investments in a given asset exceeds the economy's ability to realistically make use of that asset for its intended purpose.

It should be obvious that the problem with most bubble definitions provided is that they provide no reference to the actual economic use of a good. They speak only to esoteric figures for price, interest, and expectations as though the numbers themselves were ultimate abstract unquestionable concepts like the set of All Real Numbers.

So maybe bubbles occur when a critical mass of investors forget that the price of an asset reflects its price as a utilizable product, and instead come to believe that the price is a reflection of expectations about future prices, i.e., when perhaps the majority of investors plan to sell the asset to someone else later, rather than consume the asset themselves.



Making an even better case that Theory and History should be my next purchase from the Ludwig von Mises Institute, Mises Daily produces another gem, an excerpt from said book. Here's a highlight:
Rationalization is the name psychoanalysis gives to the construction of a pretext to justify conduct in the actor's own mind. Either the actor is loath to admit the real motive to himself or he is not aware of the repressed urge directing him. He disguises the subconscious impulse by attaching to his actions reasons acceptable to his superego. He is not consciously cheating and lying. He is himself a victim of his illusions and wishful thinking. He lacks the courage to look squarely at reality. As he dimly surmises that the cognition of the true state of affairs would be unpleasant, undermine his self-esteem, and weaken his resolution, he shrinks from analyzing the problems beyond a certain point. This is of course a rather dangerous attitude, a retreat from an unwelcome reality into an imaginary world of fancy that pleases better. A few steps further in the same direction may lead to insanity.
However, in the lives of individuals there are checks that prevent such rationalizations from becoming rampant and wreaking havoc. Precisely because rationalization is a type of behavior common to many, people are watchful and even often suspect it where it is absent. Some are always ready to unmask their neighbors' sly attempts to bolster their own self-respect. The most cleverly constructed legends of rationalization cannot in the long run withstand the repeated attacks of debunkers.
It is quite another thing with rationalization developed for the benefit of social groups. That can thrive luxuriantly because it encounters no criticism from the members of the group and because the criticism of outsiders is dismissed as obviously biased. One of the main tasks of historical analysis is to study the various manifestations of rationalization in all fields of political ideologies.
More here.


Sumner Addresses the Conservatives

Today Scott Sumner takes on some conservative objections to QEII. He provides seven refutations for seven conservative arguments. I'm not a conservative, but I think Sumner would consider me one. Here I will address his points:
1. The Fed isn’t really trying to create inflation.

The Fed doesn’t directly control inflation; they influence total nominal spending, which is roughly what Keynesians call aggregate demand. Whether higher nominal spending results in higher inflation depends on a number of factors, such as whether the economy has a lot of underutilized resources. But it’s certainly true that for any given increase in NGDP, the Fed would prefer more RGDP growth and less inflation.
I am getting more familiar now with Sumner's style of argumentation, so I am understanding his blog posts much better these days. Here he is being a little tricky by saying that the Fed controls something called "nominal spending." But what is "nominal" spending as opposed to "real" spending? If you spend $5 on a block of cheese, is that $5 nominal or real? If the full $5 is real, then you have engaged in "real" spending. If part of that $5 (say, $1 of it) is unreflective of the true value of the cheese, then $1 is "nominal" spending and $4 is "real." How exactly does this differ from inflation?

This is an obvious ruse. People know that the money supply is increasing. They see prices rising, and they see their purchasing power disappearing. The only exceptions to this are the inside bankers hoarding the Fed monopoly money. People are not stupid.
2. “But doesn’t economic theory teach us that printing lots of money creates high inflation?”

In general that is true. But there are three important exceptions:
Rather than respond to Sumner's three scenarios, I will simply re-post the following quote from Human Action:
The boom-creating tendency of credit expansion can fail to come only if another factor simultaneously counterbalances its growth. If, for instance, while the banks expand credit, it is expected that the government will completely tax away the businessmen’s “excess” profits or that it will stop the further progress of credit expansion as soon as “pump-priming” will have resulted in rising prices, no boom can develop. The entrepreneurs will abstain from expanding their ventures with the aid of the cheap credits offered by the banks because they cannot expect to increase their gains.
Alright, on to point #3:
3. “But isn’t the gold market signaling high inflation?”

Possibly, but the indexed bond market is superior to gold prices for two reasons. First, gold is trading in a global market, and we are interested in US inflation. More importantly, gold prices reflect all sorts of factors (industrial demand in Asia, central bank demand, a recent drop-off in new discoveries, a hedge against all sorts of financial risks, including eurozone turmoil.) Furthermore the indexed bond market (TIPS spreads) has recently been more accurate than gold—correctly predicting low inflation in the US since late 2008.
I don't believe in cherry-picking inflation indicators to get the desired result. We know that the Fed increased the money supply with QEI, and we know that the reason we haven't yet seen inflation is because banks are hoarding the cash and making easy money off of risk-free investments. The spike in commodities reflects a surging lack of faith in fiat currency.
4. “Doesn’t printing money just paper over real (structural) problems in the economy?”

There are structural problems, but there is also a shortfall of nominal GDP. The structural problems showed up when growth slowed in late 2007 and early 2008 as a result of sharply lower housing construction. This is necessary re-allocation of resources and should not be resisted. But even Friedrich Hayek suggested that we needed to avoid a “secondary deflation”, which would show up as falling NGDP, and would depress output in even those healthy industries that had not over-expanded... Furthermore, more nominal spending would boost employment, which would speed up the time when Congress eliminates the 99 week extended UI benefits–which is one of the structural problems.
Sumner has been waving this Hayek quote at Austrians for a few days now. I'm not convinced.

First of all, just because someone subscribes to ABCT doesn't mean they must necessarily agree with everything Hayek ever said. That would be as stupid as constantly speculating about what Milton Friedman would do (Sumner and DeLong, I'm looking at both of you).
Second of all, boosting employment by printing money is precisely what ABCT-adherents are warning about: malinvestment fed by the printing press. How does this in any way address our objections?
5. “Isn’t this just hubris—the idea that money can be centrally planned?”

Most right wing economists are not comfortable with the idea of giving discretion to the central bank. I am no exception.
Sumner should have stopped there. He goes on to rationalize that Friedman was okay with this kind of hubris in certain cases, so what's the problem? The problem is that Friedman - like everyone else - was fallible. Just because X million people do stupid things does not mean it is okay for one person to do stupid things. This is a silly bandwagon fallacy.
6. The conservative critique of stimulus is incoherent

Sumner is right on this one - Conservatives who say what he says they say (ha ha) are wrong. But it's still not an argument for QEII.
7. “Won’t monetary stimulus just paper over the failures of the Obama administration, allowing him to get re-elected?”

That’s an argument unworthy of principled conservatives.
Similarly, Sumner is right on this point. But it's still not an argument for QEII.


Alan Blinder's Embarrassing Defense of Ben Bernanke

Alan Blinder argues in a recent Wall Street Journal op-ed (gated) that The Federal Reserve is making the right moves to help the economy. Here is his fool-proof argument:
I know Ben Bernanke. Ben Bernanke is a friend of mine. And critics ranging from Mr. Schauble to Ms. Palin are no Ben Bernankes.
Well, QED.

If all it takes to exonerate reprehensible fiscal policy is the personal voucher of Alan Blinder, then macroeconomics has come a long way indeed! You know, they used to demonstrate this stuff with models and assumptions and diagrams and such. Gone are the days. Blinder's embarrassing column has two main thesis statements:
  1. Current Fed policy is no different than past Fed policy.
  2. Bernanke is smart and Sarah Palin isn't.
The really embarrassing thing about this article is that it is simultaneously economically weak and dismissive of all criticism. It is a classic straw-man fallacy, where all critics are dismissed as "the economic equivalent of the Flat Earth Society" if they disagree with Blinder's buddy.

Get real.

No, I mean it, Alan Blinder. Get real. If you want to defend your friend's policies, then try engaging the opposition in genuine and open debate, rather than dismissing them all as a bunch of Sarah Palins. You ought to be ashamed of yourself.

I expect this article will cause a lot of controversy in the economics blogosphere, and rightly so.


Sweetliberty on Freedom of Speech

Blogger sweetliberty brings us an excellent blog post on the essence of the freedom of speech. Here's a sample:
"Freedom of speech" in this country is a given in the minds of many, but when it's explained by liberty-minded folks -- even folks like Michael Bednarik -- there are always exceptions. You have total freedom of speech... except you can't yell "Fire!" in a crowded theater. You have total freedom of speech... except you can't say certain words on the radio or on TV during certain hours or without a paid subscription. You can say anything you want about the government... except you can't say you want to kill the President.

Guess what, guys. That ain't freedom!
Excellent. I agree.

The way I tell it is: Freedom of speech in inalienable. So long as you are capable of speech, you can say anything you please. The only way to take it away is to kill the speaker. That's how you know something is truly a human right. The "exception" is not really an exception: When people talk of "exceptions" to freedom of speech, what they really mean is that you are free to speak, but not free to escape responsibility for your words. So if your words defraud someone or send an innocent man to jail, then you can and should be held liable for having engaged in fraud or perjury.

...But not for speech. Speech is an inalienable right. And yes, that should include the ol' death threat to the president thing... Words don't kill people. But it's probably not smart to announce criminal intent in a public forum, either (you may be held responsible later.


Economic Fallacies in the Popular Press

Today, I bring what I hope to be the first of a recurring blog feature: Economic Fallacies in the Popular Press.

Here's a quote from Matt Yglesias:
In a normal year, government employment goes up. After all, the population is growing so providing the same quantity of public services requires more personnel.
That's the opening sentence of the blog post. This very crude, two-sentence logic suggests that production can only increase by increasing the quantity of labor. To accept this view of the world, we must ignore the role of capital, technology, and productivity (i.e. the quality of labor).

I hardly think Yglesias would stick to this line of reasoning if pressed, but it's worth pointing out how quickly the politically motivated will do away with cogent economic reasoning for the sake of making a political point.

Three jeers.


Count Down to Expiration of the Term "Tea Party"

How much longer do you give it, now that it has served its purpose?

Personally, I don't think it will be around much longer. We have to wait until at least March 2011, so that the so-called "Tea Party Candidates" who were elected can make a few PR errors. After that, both Democrats and Republicans will have a vested interest in burying the phrase "Tea Party."

I just want to see a few less government agencies, myself.

Social Security - I'll Be Brief

Every American citizen and policy-maker agrees that the current Social Security situation is unsustainable. There are not enough revenues to sustain current expenditures, and the problem is getting worse.

Virtually everyone in the country also agrees that current Social Security benefits are inadequate for any senior citizen to live on.

So, if a government pension plan is both financially unsustainable and financially inadequate, then we would be better off eliminating it.



Take Your Pick

Which seems more plausible to you – (1) or (2)?

[A] liquidity trap resulted when demand for money becomes infinitely elastic (i.e. where the demand curve for money is horizontal) so that further injections of money into the economy will not serve to further lower interest rates. Under the narrow version of Keynesian theory in which this arises, it is specified that monetary policy affects the economy only through its effect on interest rates. Thus, if an economy enters a liquidity trap, further increases in the money stock will fail to further lower interest rates and, therefore, fail to stimulate.
The boom-creating tendency of credit expansion can fail to come only if another factor simultaneously counterbalances its growth. If, for instance, while the banks expand credit, it is expected that the government will completely tax away the businessmen’s “excess” profits or that it will stop the further progress of credit expansion as soon as “pump-priming” will have resulted in rising prices, no boom can develop. The entrepreneurs will abstain from expanding their ventures with the aid of the cheap credits offered by the banks because they cannot expect to increase their gains.


Robert Murphy on Legal Anarchism

Robert Murphy has a good article in today's Mises Daily. He attempts to explain how legal appeals might occur in a stateless society. It is a good effort.

But anarchy is impossible.

In Murphy's world, whenever there are disputes, we could simply present our adversaries to choose from a list of local private-sector judges and make our cases evenly. The problem I have with anarchy is that this assumes everyone wants to comply with the ongoing dispute. What if someone refuses to participate? Well, here's Murphy's answer to that question:
But what if Thad didn't agree to any of the judges on my list? Suppose he recommended instead that we use his brother-in-law, who was actually a car mechanic but, according to Thad, "is a really stand-up guy"? Obviously every reasonable person in the community would see that Thad almost certainly was a thief, and that I was telling the truth. If I went to a reputable judge and presented my case against Thad in his absence, and if the judge agreed with me, then the community would have little sympathy for Thad if I went with professional repo men to retrieve my laptop from Thad's house.
This sounds peaceful enough, except that it is quite a grand euphemism for hiring a gang and stealing back the disputed laptop. Rand often criticized anarchy by reasoning that as soon as there was a legal dispute between what she called "two competing governments," the result was war. In the above quote, however nicely he phrases it, Murphy reiterates her point.

Anarchy would never fall apart as a result of people who can't cooperate with each other. The world is full of people who are happy and willing to cooperate. People are inherently good, or so I believe.

No, the reason anarchy is impossible is because as soon as someone engages in abhorrent behavior, the inevitable result is war. The state exists as a means to prevent this kind of state-of-nature warfare. It surprises me that so many modern "anarcho-capitalists" have forgotten the hard-learned lessons of the Enlightenment.

Mr. Yglesias, Have You No Shame?

I don't want to make this "pick on Matt Yglesias day," but his latest writing on why people arrive at political conclusions is really beyond the pale. Quoting the New York Times, which is quoting a couple of poorly designed psychological studies, Yglesias reasons that "people aren’t making up their minds about political issues based purely on judicious consideration of the evidence."

And by people, he means those outside his sphere of influence. And by "making up their minds," he means "coming to the same conclusion as Matt Yglesias."

I'm really getting tired of this. The pervasive left-wing condescension to all those who disagree is now completely out in the open. To disagree with the left is to reject all reason and science and evidence.

Can anyone really hold that belief in earnest? How can a whole group of leftists political class members have forgotten that political opinions are just that - opinions?

The only explanation can be that these jokers are in their political death throes. We're on the cusp of something big and important. Politics as we know it is about to change drastically, significantly, and permenantly. You heard it here first.


Matt Yglesias hilariously tries to rebuke Charles Murray's recent Washington Post article, but only manages to demonstrate the very obliviousness Murray describes. See if you can spot the error:
For example, what is one to make of this?
Talk to [the New Elite] about sports, and you may get an animated discussion of yoga, pilates, skiing or mountain biking, but they are unlikely to know who Jimmie Johnson is (the really famous Jimmie Johnson, not the former Dallas Cowboys coach), and the acronym MMA means nothing to them.
Of course this paragraph doesn’t make sense to publish unless you assume that a large proportion of Washington Post readers know that “MMA” stands for “mixed martial arts.” And the non-NASCAR Jimmie Johnson isn’t just some former coach, he’s familiar to 100 percent of NFL fans thanks to his ubiquity on Fox’s Sunday broadcasts. And pro football is hardly a pursuit of the narrow elite—it’s the most popular sport in America and one of the relatively few endeavors that, in this era of media fragmentation, united people (or men at a minimum) across race and class lines.


Idiot Savants

Re-posted from a comment to Arnold Kling:
I think both you and Murray are right, to a certain extent.
You are obviously correct that the political class thinks they know more than they really do.
Murray is right that the elites are completely isolated from some of the most basic parts of the human experience. And I really mean that. And I think this explains why they think they know more than they do.
For example, one of the reasons why there is such a huge "buy organic/local" trend is because the people who believe in that garbage have no concept of how little food we really have with respect to the global population. They have never seen or worked on a real, commercial farm in the West or Mid-West, they have never seen pests wither up an entire crop of otherwise beautiful apples or lettuce... etc.
Their opinions are based on the "everything comes from the grocery store" school of epistemology. The people who actually grow food for a living (or mine coal, or drill for oil, or ship/receive, or build houses, or whatever) are baffled that people so rich and educated know so little about where stuff comes from and what that means about public policy.


Landsburg the Accidental Austrian?

Steven Landsburg brings us another wonderful article about rationality, utility, and probability. Over the past week or so, he has been discussing the implications on economic rationality embedded in answers to the following questions:
Question 1: Which would you rather have:

A.A million dollars for certain

B.A lottery ticket that gives you an 89% chance to win a million dollars, a 10% chance to win five million dollars, and a 1% chance to win nothing.

Question 2: Which would you rather have:

A.A lottery ticket that gives you an 11% chance at a million dollars (and an 89% chance of nothing)

B.A lottery ticket that gives you a 10% chance at five million dollars (and a 90% chance of nothing)
Statistical and probability concepts imply that a rational person must answer either A to both questions or B to both questions. However, when people consider these questions, they frequently answer A to one question and B to the other.
To explain the discrepancy, Landsburg provides the following possibilities, ultimately concluding, "I lean toward number 4":
1. Maybe people don’t take surveys seriously. Actual experiments with real money might give more trustworthy results. Unfortunately, it’s difficult to find funding for experiments that involve disbursing millions of dollars (and it’s not at all clear that you’d get the same responses if you cut all the amounts by a factor of, say, a million).

2. Maybe people have no stable preferences. In Savage’s day, this conclusion would have meant throwing in the intellectual towel. If preferences fluctuate randomly, then it seems there’s no hope of modeling or predicting behavior. Today, the emerging field of behavioral economics (with much input from psychology) holds out hope that preferences might fluctuate systematically in ways that can indeed be modeled. Going down this road means throwing out — or at least reworking — a lot of successful economic theories. Maybe that will eventually prove worthwhile, but it comes at a high cost. It also makes it almost impossible to choose economic policies that will make people happier, since what makes them happy at 2:00 might not be the same thing that makes them happy at 2:30.

3. Maybe people value ignorance. I explained here how this might just barely account for the 1A/2B answers. On the other hand, I also explained how some simple experiments with urns and colored balls might show that the paradox survives even when the prospect of ignorance is removed from the equation.

4. Maybe people sometimes make mistakes — even smart people like Jimmie Savage. This really isn’t so surprising or so troubling. Someone (I forget who) once pointed out that great mathematicians make arithmetic mistakes all the time, but we don’t conclude that something must be wrong with the foundations of arithmetic. If this is all that’s going on, it’s both bad news and good news for economists. It’s bad news because those mistakes are a part of human nature that we’re not good at predicting (though once again the behavioral economists might someday ride to the rescue). But it’s good news because it means that we can make ourselves useful by pointing out some of these mistakes and helping people make better decisions. If you’re sure that 1A will make you happier than 1B, then I’m sure that 2A will make you happier than 2B, and I can explain why.
Note, however, that #2 is completely described by Misesian/Rothbardian subjective utility theory and time-preference. Notice how Landsburg acknowledges that "going down this road means throwing out - or at least reworking - a lot of successful economic theories."

It appears to me that Austrian School theories are starting to squeak their way into the mainstream. People are starting to consider the possibility that Austrian School reasoning is workable, but painful because it involves throwing out a lot of commonly accepted theory.

But isn't that what creative destruction is all about?


Some Words About the Credit Economy

There is probably no need for a guy like me to comment on the recent mortgage foreclosure fraud hubbub. It has already been over-analyzed. Adding my thoughts would be duplicitous.

However, this debauchery is the predictable result of the world we live in. Government-guaranteed loans are sure to result in widespread fraud and/or rent-seeking. On this point, I do have a few words to say.

I think is that the whole US economy has learned to run on credit. There are good aspects of this - Most notably, that it flattens out the business cycle. A car company, for example, can sell a steady number of cars regularly if people agree to affordable monthly payments. The alternative is relying on people to pay cash. They'd still sell cars, but a lot less regularly, because it would be entirely dependent on economic conditions.

This is also what happened to the market for personal computers. In the 80s/90s, there was a huge cyclical component to buying PCs because people would only need a new computer once every few years. By the time a company had completely "wow-ed" the consumers into buying the latest PC, they'd go through a huge drought where no one would buy anything, because they got last year's cool PC instead.

ENTER: DELL. Dell specialized in making "custom" computers and selling them to college students for affordable monthly credit payments. ("Dude, you're gettin' a Dell!") Suddenly, it wasn't a market for PCs anymore, it was a credit market.

This business model has spread all across the US economy. As soon as there is sufficient demand for something, it becomes a credit market. If demand increases, then before you know it, it becomes a "necessity." ("You can't be in college without a laptop!") Once that happens, the government is sure to step in and start guaranteeing these loans. Already students can apply their student loans to things like laptops. So once the government steps in, in come the rent-seekers and fraudsters, and the rest is history.


Qatar's Step in the Right Direction

While virtually every nation on Earth seems to be losing its mind with respect to economic policy, Qatar appears to be getting it right.
Qatar is to abolish government controls on medicines prices and open up the market to competition, in order to tackle current drug shortages and high price levels.


Sumner, Krugman, Rational Expectations, the EMH

This morning, Scott Sumner writes:
Here’s what I find so ironic.  Everyone talks about how the profession became obsessed with ratex and the EMH after 1980, but from my perspective most economists still seem stuck in the adaptive expectations era.  If you really believed in ratex and the EMH, wouldn’t you be really, really interested in market forecasts of the policy goal variable?  I would be.  Yet instead of trying to infer market forecasts, they built elaborate structural models to try to forecast the goal variables.  In the 1980s when I tried to peddle my futures targeting approach, no one seemed interested.  I presented papers at the AEA meetings, the NY Fed, the Philly Fed, and everyone just yawned.  So from my perspective we face exactly the opposite problem; the profession doesn’t take ratex and the EMH seriously enough.  If the Fed really believed in ratex and efficient markets, they would have put the pedal to the metal in the infamous September 16, 2008 meeting.  Instead they yawned, and left rates unchanged at 2%.
I agree with this point of view.  Since this whole "crisis of economics" debacle started unfolding in 2008, I have been struck by the degree to which Krugman and his ilk fail to understand what rational expectations and the EMH are all about.

Which is not to say I agree with either. As modelling tools, they obviously fall far short. As theoretical tools, however, it makes little sense to assume - as Krugman and many other modern economists do - that people are inherently irrational.

Now I'm going to toss my own crazy theory into the mix. Could it be that economists formulate their ideas as a way to confirm what they already believe about the market?

Here’s something Robert Lucas said in 1993:
“What troubles me about neo-Keynesians is not so much that they have a definite clear-cut ideology that I dislike, but that they have too little ideology. They’re too good at rationalizing anything…. These guys have enough talent to put a kind of semi-respectable economic rationale on whatever the hell the politicians come up with. I don’t see a neo-Keynesian agenda on policy issues.”
Say what you want about Lucas and others, I think what the above quote demonstrates is that there is a lot empty rationalization in economics. From Lucas’ side, there is an ideology driving his modelling (at least according to that quote). From the “neo-Keynesian” side, there is a handy ability to justify anything with a model.

For what it’s worth, I think the real shortcoming of economics for the last couple of decades has been a virtual absence of theory and an overabundance of models.


Is This a Joke?

Becker and Posner discuss which form of government is more conducive to economic growth: democracy or autocracy. Here's Becker:
Whether on average democracies are more conducive than autocracies to economic growth is far from well established. What is clearer is that democracies produce less variable results: not as many great successes, but also fewer prolonged disasters. Since the bad outcomes tend to produce more damage than the good ones, less variable outcomes would be an attractive feature of democracies compared to autocracies, even if democracies on average did not produce greater economic growth.
 And here's Posner (emphasis mine):
In general, then, the simpler the economy (all-out low-tech war is the limiting case: there is only one demander, and for a limited range of goods and services, thus making supply simple), the more adaptive a dictatorial political system; the more complex the economy, the more adaptive democracy is. A dictatorship is apt to limit information flows and business autonomy, and by doing so to reduce flexibility and innovation, fearing the private sector as a potential power rival to the dictator. At the same time, the dictatorship wants the population to be content, for then it is more easily controlled. The competing aims of limiting private freedoms and producing contentment may lead the dictator to relax control over the economy as increasing complexity makes a command and control economy increasingly inefficient. As that happens and people become wealthier, they also become more self-confident and assertive, creating pressure for self-government and therefore democracy.
Dictatorship will often by optimal for very poor countries. Such countries tend not only to have simple economies but also to lack the cultural and institutional preconditions to democracy. Dictatorship is much less likely to be optimal for advanced economies. This pattern seems to be broadly observed. 
I suppose we should laud Becker and Posner for being so "objective" about autocracy. Get it? They give autocracy a "fair chance," and conclude that autocracy produces better economic results in some cases.

But the discussion itself is disingenuous. It is not the autocracy or the democracy that determined economic success. Rather, it is the absence of government interference in the economy. Becker and Posner make the point that, provided a dictator is willing to do it, he has an easier time gutting the bureaucracy and letting people alone.

But what kind of nonsense is this? Autocracies are singlehandedly responsible for enacting China's barriers to trade in the first place. The kings, rajahs, mercantilists, etc. are now in the unique position of being praised for their ability to remove their own obstacles.

Here's a thought for Becker and Posner to consider: How much more efficient had the autocracies never existed in the first place?

Here's a Thought

I am not one to be concerned with the "military superiority" of the USA. A peaceful nation who desires nothing but free trade with other peaceful nations doesn't need to have the strongest military.

But, as faithful readers know, I have a growing concern about the way we view science and technology in this country. It is only a matter of time before we become a nation of pill-popping, fame-obsessed monkeys with no functional numeracy and only passable literacy. Oh, wait... it's already happened.

File this under the same category:

I just published this on Huffington Post. Maybe some policymakers will consider adding programming to the US public school curriculum....
Just last year, while researching a book on America's digital illiteracy, I met with the Air Force General then in charge of America's cybercommand. He said he had plenty of new recruits ready and able to operate drones or other virtual fighting machines - but no one capable of programming them, or even interested in learning how. He wasn't even getting recruits who were ready to begin basic programming classes. Meanwhile, he explained to me, colleges in Russia, China, and even Iran were churning out an order of magnitude more programmers than universities in the US. It is only a matter of time, he said - a generation at most - until our military loses its digital superiority.


Freedom of Speech: A Tribute to Liu Xiaobo

Liu Xiaobo's being awarded the Nobel Peace Prize has made me realize how many articles exist in the world in defense of liberty - but how few of those articles are intended for a non-American audience. Truly, the world deserves a better defense of liberty. We in America arguably enjoy more rights than our brothers and sisters elsewhere in the world. It is our brothers and sisters who must learn to love liberty as we do. Only a universal love of liberty can defend liberty itself in this modern, globalized world.

So I present the following article, a modest attempt to fill whatever part of that void I can. The fact that this article is blocked by the Chinese government's firewall is an irony not lost on me. I dedicate this article to you, my Chinese friends.

How very lucky we are to feel comfortable sharing “bigger thoughts” with each other, and luckier still that the miracle of technology allows us to share these thoughts freely. I would like to offer another perspective. Of course, my perspective is limited. I have been to China, but have never been outside of North America otherwise. What I know of history, I have only learned here in America.

Given these limits, from what authority can I speak? Some write about the importance of rights, others write about the importance of cultural values. In America, our rights are our cultural values. We Americans are a strange group, a band of wayfarers from across the globe. We hold nothing in common except our government’s Constitution. You can see that we Americans even capitalize the word “Constitution!” Why should this be?

As I said, we Americans are a band of wayfarers. We did not originate from North America; we came here individually, for our own individual reasons. Our system of government did not come from our culture or our rulers from thousands of years ago. Other nations draw from culture and heritage, but we Americans have drawn from philosophy. Unlike all others, ours is a nation founded on philosophy. Even our Civil War was not about slavery, but rather about the Constitution, about philosophy. What a strange culture we are that we went to war three times in less than 100 years on matters of pure philosophy!

As you can see, ours is not a culture of tradition, race, or religion. We, like the Chinese and Bangladeshis, experienced the horrors of British Colonialism. I believe that there are no cultural values except for human values. Humans are the same all over the world, and they hunger for the same things.

Now, there is a man in China who is in prison for presenting controversial views against his government. I cannot comment on that. I know nothing about it. It would not be right. But I can comment on a man who only narrowly escaped imprisonment in my own country for holding fast to his freedom of speech. This is how he spoke publicly about it:

No man thinks more highly than I do of the patriotism, as well as abilities, of the very worthy gentlemen who have just addressed the House. But different men often see the same subject in different lights; and, therefore, I hope it will not be thought disrespectful to those gentlemen if, entertaining as I do opinions of a character very opposite to theirs, I shall speak forth my sentiments freely and without reserve. This is no time for ceremony. The questing before the House is one of awful moment to this country. For my own part, I consider it as nothing less than a question of freedom or slavery; and in proportion to the magnitude of the subject ought to be the freedom of the debate. It is only in this way that we can hope to arrive at truth, and fulfill the great responsibility which we hold to God and our country. Should I keep back my opinions at such a time, through fear of giving offense, I should consider myself as guilty of treason towards my country, and of an act of disloyalty toward the Majesty of Heaven, which I revere above all earthly kings.

Who can deny that this man loved his country and his people, even though both had turned against him? You may never have read this paragraph before, but this public speech is known all over the world: it is the opening paragraph of Patrick Henry’s famous “give me liberty, or give me death” speech.

So we Americans are a strange bunch, because we take our freedoms so seriously. If the question is “why?” then the answer is: Because we always have. It is our culture. It is the way we are in America.

But as I said, I believe that there are no cultural values other than human values, and humans are the same the world over. Some of us were lucky to be born in a country that could overthrow its king at a time when kings did not hold a monopoly over tanks and bombs. However, I do not believe that people today hunger any less for freedom than they did 300 years ago, just because their governments are more powerful. When the US government throws Muslim people (or non-Muslim people) in jail and tortures them without due process of law, it is not because “American culture accepts this,” nor is it because “all governments are imperfect.” When this happens, the US is violating its own Constitution (the 5th, 6th, 7th, and 8th items in the US Bill of Rights, to be specific). We Americans all know this full well. It is not because we accept this violation of human rights that we cannot act. It is because the US government holds a monopoly of force against us. The government holds all the guns. Our only ability to protest is through our freedom of speech and our courage in front of a gun. Patrick Henry knew this when he gave that speech.

I believe it is this way in every country. When the British government acts, it is on its own behalf, not on behalf of British citizens. When the Bangladeshi government acts, it acts on behalf of itself, not on behalf of ordinary Bangladeshi citizens. There is a big difference between the values of a nation and the values of a nation’s government. In America, you will often see stickers on cars that say “I love my country, but I hate my government.” Perhaps this is why some can feel so strongly about freedom of speech, but can still be disillusioned by politics in general. Our nations are not our governments. A citizen is not the same as a President or a prison guard. Citizens serve citizens – governments serve only themselves.

America’s success is not due to savvy government planners, but rather due to our understanding that people are most successful when the planners “let us alone” (laissez-faire). If prosperity is a measure of success, then what can be said about a government that prospers while its citizens starve? In America, we want our government to starve while citizens prosper. This is a true separation of politics and economics. Unfortunately, even in America that separation is disappearing.

So I agree with those who point out imperfections everywhere, but I disagree with them on one point. When it is said, “Freedom of speech does not mean you can say and do anything,” I disagree. A man can be imprisoned or tortured, but so long as he can speak, he can say anything. This is what Thomas Jefferson meant when he wrote: “We hold these truths to be self-evident: That all men… are endowed with certain inalienable rights…[.]

Freedom of speech does not come from a government or culture. Freedom of speech comes from being a human being. It is self-evident: human beings speak; therefore we can speak anything we please. The only way to stop us is to take our lives. But then, you have not taken away our freedom of speech, you have merely terminated our ability to speak further. Governments can turn us into piles of dust that are no longer human – but so long as we are human, we hold the human right to speak and say anything. We hold this right because it is a natural and inalienable part of being a human being.

This, at least, is how we Americans understand our rights. But, as I said, we are a strange culture.


A Bit About Austrian Relevance

The excellent Jonathan Finegold Catalan makes a point about math and the Austrian School (emphasis in the original):
There is a lot of discussion, even within Austrian ranks, on the merit of econometrics, including the use of empirical evidence and mathematics.  I am not sure what the debate is about, because Austrian methodology is not really opposed to the use of statistics or mathematical formula,depending on the intentions of their use.
Catalan rightly points out that the Austrian School doesn't oppose math, but rather the tendency of modern economists to replace economic theory with mathematical derivation. This is an important stipulation.

It got me thinking about the relevance of the Austrian School in general. There is no question that we are outside the mainstream of economics - the question is simply why? Catalan suggests we need a new thinker to write another treatise on par with Human Action, or Man, Economy, and the State.

On the contrary, I think the last thing Austrian economists should do is engage in more navel-gazing and introspection. I think it's incumbent on Austrian School economists to engage modern theories point-by-point. We need to participate in ongoing discussions, rather than sitting back and lamenting that the whole universe has it wrong.

I think we also need to spend some time away from macroeconomics. This is the bread-and-butter of the Austrian School, but it is also the arena in which the Establishment has the most arguments against us. Far better to delve into rich microeconomic discussions and tackle new theories from outside the Austrian School. Perhaps Austrian economists should also think about endorsing theories posited by non-Austrians that are entirely Austrian in nature (Caplan? Kling? etc...)

Participation is how we will start to be taken more seriously.


How Long Until These Words Are Understood

In honor of the neighbor of mine who went on a 7-hour marijuana bender last night, I'd like to put forth some food for thought.
In this crusade, let us not forget who we are. Drug abuse is a repudiation of everything America is. The destructiveness and human wreckage mock our heritage. Think for a moment how special it is to be an American. Can we doubt that only a divine providence placed this land, this island of freedom, here as a refuge for all those people on the world who yearn to breathe free? 

The revolution out of which our liberty was conceived signaled an historical call to an entire world seeking hope. Each new arrival of immigrants rode the crest of that hope. They came, millions seeking a safe harbor from the oppression of cruel regimes. They came, to escape starvation and disease. They came, those surviving the Holocaust and the Soviet gulags. They came, the boat people, chancing death for even a glimmer of hope that they could have a new life. They all came to taste the air redolent and rich with the freedom that is ours. What an insult it will be to what we are and whence we came if we do not rise up together in defiance against this cancer of drugs.

How long until we understand these words? Let us not forget who we are. Drug abuse is a repudiation of everything that America is.

Now, the specific question of the "legalization" of drug abuse is entirely political. Those who favor legalization believe it would alleviate some of the serious problems attached to the drug trade. Those who oppose it, believe that making drugs illegal is a good way to combat their effects on our society. Clearly, there are good intentions on both sides.

In general, I opt not to tackle that question. What is important to me is promoting a society that ideologically opposes drug consumption, regardless of the politics. When people understand that to blot out your rationality is to blot out yourself and to kill yourself piece by piece, when people finally realize that America is a nation founded on philosophy, individual value, achievement, and excellence, then perhaps they will take a little time to reflect on these words, and realize how right he was when he spoke them.

What is America, to you? How does your behavior reflect on that?


Quote of the Day

"It is only our decision not to do drugs that keeps our species alive. Monkeys prefer drugs over food."
-- Anonymous


This is a pretty interesting article on the price of gold:

The first half of the article largely gets it wrong (I believe). It isn't until the second half that he makes two really good points:
  1. A lot of gold's increase is being driven by the economic expansion of "emerging markets." As countries become better developed, their central banks require more gold reserves for currency stability, and that increases demand and therefore price. That's his point. I'd take that a bit further and suggest that this also presents reduced demand for the US dollar, and increases the probability that the world could return to commodity-backed currency in the future.
  2. Gold is sensitive to interest rate futures. I am still kind of cautious on gold, because I think if I invested in it now and the U.S. decided to pursue saner economic policies, I'd lose my gold investment in the short-run. Sadly, I am a short-run investor at this stage in my life, thanks to upcoming financial commitments.
I retain some belief that non-gold commodities may present the better investment opportunity. I still think copper is a really sound investment, because its price is basically a dual price (or that's how I see it, anyway). Half of its price is a "precious metals price," and the other half is a "raw goods" price. So if the dollar tanks, then copper's precious metals price component should increase; but on the other hand, if the dollar stays strong and the economy stabilizes, then manufacturing will increase and the "raw goods" component of the price will increase.

So I'm basically talking myself into copper at this point.

HT: Greg Mankiw


Caplan Does Socrates

Bryan Caplan presents an entertaining ficticious dialogue between Socrates and Glaucon, regarding immigration. Please read it, it is fantastic.

I intended to post a comment lauding Prof. Caplan, but browsing through the comments I noticed so many objections to what is basically Econ 101 stuff. It is really too bad. Economics is becoming a lost discipline.

At any rate, I have three brief items to add:
  1. Even if immigration reduces the nominal wage rate, the corresponding reduction in prices gained by efficiency and a larger labor force bring the real wage rate up (we can now buy more with our lower salaries). Every laborer is also a consumer.
  2. Those who have the most to gain from abolishing minimum wages are teenagers and students. While many low-wage workers are poor and/or immigrants, the majority are part-time students saving for their future. That we would punish our children with minimum wages is unconscionable.
  3. Anti-immigration policy (including anti-illegal-immigration policy) is basically institutionalized racism. Pretending otherwise is untenable.


Optimism and Human Relationships

Our belief in the gooness of other human beings ultimately determines the success of our relationship to others. To see what I mean, I have to lay out a few basic assumptions, with which you are naturally free to disagree. :)

1. Humans are naturally good, i.e. Locke's state of nature is a more accurate vision than Hobbes'.

I won't spend too much time on this. Suffice it to say, I consider the fact that human beings are willing to cooperate at all to be positive proof that cooperation is our nature. The more advanced our society becomes, the better we get at cooperating with larger (even global) groups.

2. If something is physically possible for a human being to accomplish, then any particular human being can accomplish it if he/she does all that is required.

This one might seem a little tautological to you, but it's important. What I'm talking about is this: If you have two functional legs and a lifetime ahead of you, you can be an Olympic runner, if you put in the work. Not just you, but anyone with two functional legs.

A corollary to this is that the same holds true for personality traits. You are not stuck to your ways simply because you are a Gemini, or a Green Personality Type, or an eSTj or whatever else. Just because someone has observed something that you tend toward doesn't mean that you don't have any control over it. If you have been a pathological liar, you can make the decision to become a truth-teller any time you please. Because we are all capable of telling the truth, even a pathological liar can become a truth-teller if he is willing to actually follow-through.

3. Negative reinforcement is far less effective than positive reinforcement.

If someone behaves a certain way, and you constantly point it out, how could you ever reasonably expect them to decide to change their behavior? Undoubtedly, they will simply begin think, "Well, what's the use? If everyone thinks I'm a jerk, then why try?" Or whatever. Either the other person will start playing their negative role, or you yourself will filter out those actions that are contrary to the behavioral expectation you have set up for yoruself.

On the other hand, if you constantly and consistently reward a naughty child for any good turn he does, reward a stubborn person's occasional flexibility, reward a greedy person's rare generocity, etc., you will soon start seeing a behavioral change.

The reason for this is obvious. People enjoy doing things that benefit them. So if being good benefits them more than doing otherwise, they will learn to act in accordance with good over not-so-good.

Put it all together, and what have you got?

Really what all this comes down to is that people are good, people can change, and people will cease to do bad things if you reward their good behavior with good behavior of your own. Sounds pretty simple, but there is some philosophical optimism involved here. Why?

Well, in order to make this work, you have to have some optimisim that people who have done something bad in the past won't just keep being bad in the future, no matter what. You have to believe that being nice to people and recognizing their good deeds will make your relationship better. You have to believe that people aren't just jerks through-and-through, unless society beats it out of them.

There is optimism involved every step of the way. In order to maintain good human relationships, you have to believe that they're good relationships! You have to build that belief into your forward-looking expectations.

If you do, you'll be happy. Guaranteed.


Income Distribution

Matt Yglesias blogged a graph that has been making the rounds across the economics blogosphere today.

I note, however, that these graphs can appear wildly different, depending on the rules one applies to the data in question.

Consider, for example, what would appear in the graph if I a person migrated from one income percentile to another during the nearly 40-year study period (not implausible). Such growth wouldn't show up in the graph. It is merely a comparison of income growth between the same percentile in two different periods. It is *not* (at least, not as far as I understand it) a comparison of the income growth experienced by the same individuals in both periods.

There are four different time periods expressed in that graph:
  1. The 1979-1997 Study Period.
  2. The 1998-2008 Study Period.
  3. The *INDEX PERIOD* for the 79-97 Study Period. This is the time period during which I was determined to be in any particular income percentile. Was this index period Dec. 31st 1979? Dec 31st 1997? The midpoint of those two?
  4. The *INDEX PERIOD* for the 1998-2008 Study Period. The same observations/questions apply here.
As you can (hopefully) see, the graph will appear quite different, depending on how the Index Periods are determined. If my income as of 1979 determines what percentile I am in for the rest of the study, then the graph will look much different than if my percentile is determined both in 1979 and 2008 - or if it is determined by the sum of my income for each individual study period - or if it is determined by the sum of my income for all years from '79 to '08 - or if it is determined only in '08 and applied retrospectively - etc. etc. etc...

These sorts of issues are at the heart of any graph. With income comparisons like these, you can make the story look very different depending on what your aggregation rules are, as applied to the data.

HT: Too many to note...

Addition Note for Today:

I am adding a "Scientific Method" tag. As I continue to explore the economic blogosphere, I am encountering questions that pertain not merely to economics, but to the method by which rules for analysis were established. Today's blog post is a great example. I can think of a few blog posts from the past that dealt with similar issues. It is a pet interest of mine, so I look forward to the new tag.

In general, I continue to refine the labels I have used. I see that I have separate tags for "joy" and "happiness," for example. Clearly, this was an unintentional redundancy. I will endeavor to clean that up a little bit, going forward.

Questions of Equality

Coilhouse.net reports on a transgendered male enrolled in school as a female. This year, the students voted for him as Homecoming King. He won by a landslide, but was disqualified because he is enrolled in school as a female. The students are scandalized, and we can all surely understand their frustration.

But what's the right thing to do here? Would he have been disqualified were he elected Homecoming Queen? Is holding him to his professed gender as per his school enrollment forms an act of discrimination?

The ACLU wants to get involved - and typically I agree with the ACLU - but in this case it seems a little different to me. Which outcome would yield the fairest results for transgendered individuals: official acknowledgement that they are whichever gender they claim to be, or official acknowledgement that they may be either gender, depending on the situation they are in? Which outcome sends the clearest signal to others regarding how the transgendered should be treated?

More importantly, is election of Homecoming Royalty something the ACLU should be chiming in on? Seems a little trivial. It is a voluntary popularity contest, after all...

IMPORTANT UPDATE -- My sister pointed out to me that I have it backwards. The student is enrolled as a female because he has not yet gone through a surgical gender-change. Despite considering himself a male, he is forced to go school as a female.

This basically explains everything. I should read more carefully next time.


Kinsella Falls Short on Anti-IP

Over at the Ludwig von Mises Institute blog, Stephen Kinsella writes:
And once we see that this third category does not exist, we see that the creationist case for IP evaporates.

However, Kinsella's own case against IP appears to evaporate as soon as we call into question his insistence that people do not own their own labor. Here, I do just that. Kinsella says:

This is manifest in the argument that one homesteads unowned property with which one mixes one’s labor because one “owns” one’s labor. However, as Palmer correctly points out, “occupancy, not labor, is the act by which external things become property.”
However, I counter that it is impossible to "occupy" an acorn or an apple. How might one occupy an apple? There is a deliberate reason Locke noted that labor was necessary to take possession of the apple in the first place.

Furthermore, the word "occupy" itself means "to take possession of," so Kinsella is essentially arguing a tautology, i.e. that possession is the fundamental requirement for possession. Well, of course it is!

The idea that one cannot own one's actions is completely untenable. Someone employed in a service industry (law) ought to know this full well. When hiring Kinsella's services, one is purchasing an action - it is by definition an agreement for Kinsella to act on behalf of the purchaser. Suggesting that nothing owned is exchanged in this transaction is, again, untenable. The mere fact that economics under the Misesian framework is founded upon human action - that action is the fundamental atom of economics itself virtually demands that actions are property.

If actions are not property in the above respect, then I suggest we clearly define what property is. I can guess, however, that Kinsella's definition of property will be such as to exclude action, and mine will be such as to include it.

The debate continues... However, I don't think Kinsella has punched a hole in IP with this line of reasoning, simply because he have not yet dealt with the fact that action is ownable. He will first need to establish once and for all that it is not in order for the above argument to work.


This Might Be Extremely Important


A 35-year-old man wrote a 1900+ page treatise on nihilism, conceived as the pinnacle of rational Western thought. Then he shot himself in front of a tour group at Harvard University.

I read the introduction to his treatise, and it seems that it is a work worth reading, despite being an argument for the exact opposite view that I espouse. I think Ayn Rand would have found much significance in this man’s work and death. Recall Jim Taggart’s wife when she realizes that if she does not believe in a philosophy of life, she must necessarily believe in a philosophy of death.

It appears that in 1900 pages, this man finally proved it. This might very well be the apex of polylogistic thought, the final proof that if one accepts the tenets of modern philosophy, one can only conclude in nihilism and ultimately death. The only way to conclude otherwise is to reject the if.

Hat tip to Lubos Motl at The Reference Frame.


Apt Quote

“There are 10^11 stars in the galaxy. That used to be a huge number. But it’s only a hundred billion. It’s less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.”

-- Richard Feynman
Hat tip: Damn, Gina


Cheap Asian Dry Goods - Is the Party Over?

Image courtesy www.rondomusic.net

Agile Guitars is a brand of guitars made it Korea that are priced in some cases up to 10% of what an American company would price a comparable instrument. I own two Agile guitars: one is a black "Valkyrie" model, that is something like a cross between a Gibson "SG" model, and a Guild S-100; the other is a Valkyrie double-neck guitar with a 12-string neck on top and a 6-string on the bottom.

These instruments are gorgeous, sound great, and have been - up to now - priced much cheaper than the competition. They have developed a strong reputation. Everyone loves them.

The image that appears at the top of this post is an Agile Pendulum Pro 7-string guitar, and it is currently selling for $1,295. This is at least double what 7-strings were selling for last year. Granted, this particular instrument comes with a lot of features, however the sea change is undeniable.

Now, as economists we may disagree as to whether this price point increase stems from excess demand, or whether the market price for guitars has been set artificially high (like diamonds) for the last few decades. My experience with the guitar market leads me to conclude the latter, but your mind may vary.



Read this and learn.

Hat tip to Russ Roberts at Cafe Hayek.

Stark Data reported by the WSJ Economic Blog

Real Time Economics (WSJ) reports today:
In a presentation as part of its wider report on income, poverty and health insure, the Census Bureau noted a big jump in the number of individuals and families doubling up. ( See slide 18) The number of multifamily households jumped 11.6% from 2008 to 2010 compared to an increase of just 0.6% in the number of households.

“If the poverty status of related subfamilies were determined by only their own income, their poverty rate would be 44.2%,” David Johnson chief of the Housing and Household Economic Statistics Division at the U.S. Census Bureau said. “When their poverty status is determined based on the resources of all related household members, it is about 17%.”
This strikes me as a horrendous statement about the current economic condition - that poverty is not just high, but largely hidden deep in the data. The WSJ goes on to suggest:
Fewer households means fewer consumers for businesses desperate for demand. At the same time, it continues to drag on a housing market that needs to burn off excess supply.
So they obviously interpret these data in the common New Keynesian framework of demand and credit availability. My take is a little different.
  • First, from an Austrian perspective, we have evidence of some pretty serious wealth descruction. Likely, the bulk of this is still coming from the Fed-enabled real estate malinvestment bubble. But as time goes on, if this continues, then we will also be seeing the destruction of that wealth which would have been created, had these "subfamilies" not been encouraged to avail themselves of the social welfare system.
  • Second, from a philosophical perspective, what does it say about our society that people are moving back home, or never moving out. This has been common in Europe and Asia, for cultural reasons. North American culture, by contrast, has always valued the independent spirit, the man who would never move his family in with the parents, because that would compromise his independence.
Of these, I think the second is most important (although it may be a product of the first). What becomes of a society that no longer values social independence?

Off-Label Promotion

Pharmatimes reports the following story, which is largely uninteresting from an industry perspective because such things are rather commonplace:
Forest Laboratories is the latest drugmaker to plead guilty to accusations of illegal marketing of its products in the USA.
Let me sum up the gist of this for industry outsiders: Forest Laboratories must pay a penalty for suggesting to doctors that their antidepressant products can treat more illnesses than just depression. That's it.

To be sure, doctors are not idiots. You can't just walk up to a doctor and say, "Hey, doc, guess what - you can cure cancer with aspirin, so please start diagnosing aspirin to cancer patients" and expect to sell more aspirin pills. Doctors, like most experts, require clinical evidence and logical, persuasive reasoning in order to become convinced that Drug X is a viable therapeutic option for Disease Y. Even then, there is no guarantee that a doctor will prescribe Drug X. The goal of a pharmaceutical rep is simply to make doctors aware of therapeutic options. If Drug X is an option, it's an option, period. The great crime here is that Forest Laboratories decided to do this in advance of an indication submission to the FDA.

Do you think this is a crime? Really? Then consider this...

When was the last time you shopped at a farmers' market? Are you aware of the fact that when you buy local produce from small farmers, those carrots and peas and bell peppers haven't been through the FDA-mandated inspection process? Are you worried that it will kill you? You're not, right? Why not? Because it's not FDA approval that determines the efficacy of products. It's biochemistry.

Before you suggest that drugs are "a big deal" and therefore "require" FDA approval, ask yourself when was the last time you used a Netti pot, ear candles, chicken soup, saline solution, echinacea, ginseng, zinc tablets, or any other home remedy to make yourself feel better. These things have no "FDA-approved indication" to treat your ailments, and yet you do not at all feel bad for consuming these products.

Furthermore, Forest Laboratories probably has good evidence for its products' efficacy in off-label applications.

People often demonize "Big Pharma" for supposedly not bringing life-saving treatments to market because they can supposedly make more money selling lesser treatments. But whose fault is it, really? Forest has safe products with proven efficacy, that they wish to apply to a new disease class, and this legitimate desire cost them over $300 million.

I don't want to be a shill, but it's important to keep in mind that it's pharmaceutical companies who produce medicine, not the FDA.


Bangla Word of the Day - Phrase Edition!

Shobkichhui shawmbhob - [SHAWB kee chhoo ee SHAWM bhohb] expression of optimism Anything is possible!


Learning Styles

I wasn't going to blog this, but it's interesting enough.


I love reasearch like this because it demonstrates how completely unscientific it is to place people into boxes and say "You're good at this, I'm good at that." Psychologists reviewed the scientific evidence and concluded that there basically is no such thing as "right-brained versus left-brained," "visual thinker versus auditory thinker," and so forth.

What this means is that you can learn in whatever way is available to you. You can think in a variety of different ways. You can do anything you want to, all you have to do is try.

Stuff like this is important to me because for years I told myself I was bad at math and logic problems; then I forced myself to take math classes and try really hard, and it turns out that I'm actually good at it. For years people told me that I'm a nice guy who needs a more technical background, and then one day I became the local "technical expert."

Eventually I concluded that I behave all kinds of different ways, I'm better with practice than without, the more I do something, the better I understand it, etc. It's not about any natural predisposition to one type of thinking or another, it just comes down to what I actually try to do.

And if it's true for me, then it's true for everyone! :)

What is Obamanomics?

There are too many people out there using the term "Obamanomics" for me to point you to any particular reference. The point is that the term has caught on. My question is: Fine, it's caught on, but what is it?
  • The first example of Obamanomics would probably be the TARP bailout and other stimulus programs. So, fiscal stimulu policy is arguably one aspect of Obamanomics.
  • Next, we have ObamaCare and a host of other new government, uh... infrastruture initiatives. In the traditional Keynesian framework, this, too, is fiscal stimulus spending. I'm not sure this is really an economic policy so much as it is a political move on Obama's part, but perhaps we can modify point one above to suggest that Obamanomics is heavily weighted toward infrastructural stimulus spending and lender-of-last-resort policy initiatives.
  • Tax increases appear to be a pivotal aspect of Obamanomics.
  • Finally, we've heard Obama speak a lot about "spreading the wealth around," so we can assume policy initiatives aimed at wealth redistribution are also a key component of Obamanomics.
So uh... how exactly does any of this differ from any president, Republican or Democrat, from the last 100 years or so? If, as the conservatives say, we are supposed to oppose Obamanomics, then what are they offering that presents us with any real difference? If, as the liberals say, electing more Republicans would mean throwing the poor to the wolves and so forth, why? Won't the Republicans just do more of the same kind of stuff?

More and more, I'm starting to feel that Republicans are the "tax cuts for the rich" party, while Democrats are the "tax hikes for the rich" party. Isn't there a better option? Say, tax cuts for everyone, including the rich? Tax hikes for no one?



A Brief Post on A=A

The recent Ayn Rand entry at the Mises Institute Blog got me thinking about A=A. One commenter asks, "What if I say A=B?" This, of course, was part of a broader point that if one perceives A to be B, then for that person A=B even though it might be A=A for you. I'm going to side-step the polylogism argument for now so that I can focus on what A=A actually means.

A=A means that A is something that we know, that it exists outside of our perception, that it is what it is. Simple, right?

A=B is nonsense. The statement A=B used in the capacity to describe an alternate scenario to A=A means that one is aware of two things: A, and B, and that upon closer inspection they are in fact the same thing.

In the context of a philosophical debate, the assertion A=B doesn't mean that A could be something else other than A, it means that what you mistook for two things is actually one.

To put it the way Rand might have, in order to assert that A=B, you'd have to first know that A and B are two separate things, and choose to pretend otherwise. This is very definitely nonsense. When people make assertions like these, they don't just misunderstand Rand - they misunderstand logic and philosophy themselves.

That's all I have to say for now. I told you this one would be brief. ;)


Ethics and Landsburg's Runaway Train

I recently had the pleasure of reading a book called The Big Questions, by Steven Landsburg. Landsburg is an economist of some note, who teaches at the University of Rochester. (You can follow his blog - largely along the same lines as his most recent book - here.) Landsburg has the delightful distinction of being well-versed in economics, philosophy, mathematics, and physics. If that sounds like a diverse range of expertise to you, you may want to brush up on whichever of those subjects is your particular weak point. :) They are remarkably complimentary.

Landsburg's most recent book is fully of gems to get you thinking, but I want to be clear that I object outright to many of his affirmations. His book is so darn good, though, that I'm recommending it even though I disagree with much of it. 

In particular, Landsburg summarizes a common ethics problem that goes something like this:
Five total strangers are kidnapped by a mad philosopher and tied to a railroad track. A speeding train is en route to run them over. You can divert the train by throwing a switch, but if you do, the train will take an alternate route that will run over one other person tied to the other set of tracks. What should you do?
Landsburg considers this an easy problem. Before I tell you how he answered, please take a moment to consider how you would answer. 

Landsburg's answer is as follows: Saving five people is better than saving one, therefore the moral thing to do is to divert the train by throwing the switch. Landsburg's view seems to be based on a "greatest good" principle. Because throwing the switch means maximizing total human happiness in the system, the "right answer" is to throw it.

Now here's my answer: Before the mad philosopher came along, no one was tied to any railroad tracks. Obviously, the mad philosopher is the bad guy here. Now the choice you face is to murder one person to save five, murder five people to save one, or murder no one by saving no one.

Landsburg is quite critical of deontological ethics, but let's take a deeper look at his greatest good principle. If any one of the five people tied to the first tracks is a serial killer, the greatest good principle is shot to hell. If the one person tied to the alternate route is, for example, a heart surgeon, he saves lives virtually every time he goes to work (or she), so running him (or her) over also thwarts the greatest good. Landsburg would likely respond with an exercise in expected value; in other words, what are the odds that one or more of the five people are extremely bad people, and what are the odds that the one person tied to the alternate route is a an extremely good person? After weighing the "expected payoff" of this, one could arrive at the most likely scenario supporting the greatest good, and that would be that. (Of mathematical note, I believe the five people would still win out, since there are "more chances for good." On the other hand, there are also "more chances for evil," so maybe it really comes down to whether there are more good people or evil people in the world.)

I have a couple of objections to all of this. First, the train is speeding, and there is likely no time to calculate expected values to determine the correct answer. Second, and more importantly, there is no such thing as probability for goodness. In other words, a person is either good or not, and there is no "probability" attached to it. It is a personal choice, it is a matter of integrity. It is a question of free will, if you believe in it, or years of environmental stimulus, if you don't believe in free will. 

In short, human action cannot be calculated. It is impossible to know in advance if the person you condemn to death would have saved dozens of others (or even five others). On the other hand, killing someone always ends in the termination of a life. And that - assuming you respect human life - is an unequivocal tragedy. (Side note: I do not believe in capital punishment, but I'll save that for another day.)

The bottom line is that it is extremely presumptuous, and perhaps even megalomaniacal - to assume that you know better than six other potential murder victims which of them is more "worth saving" than the other(s). The absolute most moral course of action in this case, then, would be to avoid the switch entirely and try some other means of either saving the people or stopping the train. Anything else would be murder.

Landsburg's book criticizes deontological ethics, and I admit that I don't know enough about ethics to defend them. But if rejecting them means making the choice to murder even one person, as opposed to zero, then I can't say much for their value when it comes to ethical outcomes. 

What's your opinion?


Bangla Word of the Day

Bhetki - [BHET kee] n. Either this fish:

Or the face it makes when it dies! Hahaha...

Boettke in the Wall Street Journal

A good article in the Wall Street Journal today focuses on Peter Boettke, the man they see behind the recent resurgence of Austrian Economics. I'll freely admit that I have no idea who is behind the resurgence, however, I vividly recall a resurgence in about the year 2000 or 2001. There, a professor of mine routinely posted articles about Josef Schumpeter on her door. She was the odd-one-out in the economics department, but she was a fantastic professor who impacted my economic thinking deeply.

But I digress. The point is that Austrian economics is not experiencing a resurgence or revival - it never went away. Great ideas don't just wither when they fall out of favor among the most popular people. Dweezil Zappa is bringing down arenas all over the world with his Zappa Plays Zappa shows; is Frank's music experiencing a revival, or is it more apt to suggest that great music will always have an audience?

This is popular culture. We always look for a face or a name, someone we can herald as our pop messiah. We love a good comeback story, and we love the triumph of the little guy. That's all that's going on here in the popular press. Among the rest of us, we know that Austrian ideas never went anywhere. They have always been relevant and always will be. The truth never goes out of style.

At the end of the WSJ article, Kelly Evans writes:

But as much as the Austrian diagnosis may resonate now, it doesn't provide a playbook for what to do next, which could limit its current resurgence.
Mr. Hayek rightly warned of the dangers of central planning, Mr. Boettke says, but "he didn't give a prescription for how to move from 'serfdom' back."
 The answer is simple: Laissez faire.


Grand Staircase Escalante and the "Ground Zero Mosque"

With no end in sight, the controversy surrounding the so-called "ground zero mosque" continues to bring out the worst in all of us. As the controversy continues, I'm struck by a parallel between this proposed mosque and another American monument established in 1996.


Almost fifteen years ago, President Bill Clinton designated a large expanse of land in Utah the "Grand Staircase Escalante National Monument." Seen largely as a political ploy to win favor among voting environmentalists, the designation of this national monument immediately halted business development in the area, including a proposed coal mine, and stifled Utah's ability to make use of some of its designated Schools and Institutional Trust Lands to pay for the state's school system (until other SITL lands were designated two years later, thanks in part to the controversy created by the Monument). Creation of the Monument also sparked a conflict between local county officials and the Bureau of Land Management over which authorities have jurisdiction over the dirt roads throughout the Monument. This controversy continues to this day, and is quite emblematic of the frustration felt by many of us in the more rural western United States over BLM practices and fair use of what we see as "our own land."

Make no mistake; these matters are conflicts of law with no easy solutions. The controversy over Grand Staircase Escalante is very much alive in Utah today, with local ranchers and miners still angry about what they see as federal usurpation of important economic resources, and local environmental activists equally as passionate in their support of the Monument. However, we must pause to note that this issue no longer has a place on the national stage.

Our Right to Resolve Local Issues Locally

One root of the issue is the question of why the use of local land that most Americans will never see in their entire lives was elevated to the national stage. At the time, I recall wondering why people from such places as California, Chicago, New York, and Washington had such strong opinions on land about which they knew nothing and in which they had no stake. Fifteen years later, I still don't know. Nevertheless, President Clinton was able to leverage a national appetite for environmental protection toward the resolution of an entirely local land-use issue. Many locals rightly felt that their views were trounced by far-away opinions that were completely distanced from the very real local issues Utahns were living every day. Their question rings as true today as it did in 1996: How much weight does "national opinion" carry with regard to local issues, especially when it comes to land use?

I ask this question now because the fundamental issue is very similar in New York City today. Put to a local vote, it seems virtually guaranteed that the majority of New Yorkers would back the mosque's right to exist. As a result, the controversy today - as it was in Utah fifteen years ago - is being generated and exploited by a national public with no immediate connection to the particular lands in question. Of what relevance, really, are the opinions of Utahns, Arizonans, Californians, Washingtonians, et al in matters of private property in New York City? The obvious answer is, none, of course.

And yet, as a former resident of Utah, I cannot help but feel that some in New York City are now getting their just desserts from weighing in on extra-local private property issues. Herein lies a lesson to be learned by all of us: One day, you are the one determining what some extra-local group should do with their own land; the next day, they may very well be determining how you use yours!

This is the inherent danger of elevating local matters to the national stage. What right does any New Yorker have to object to a national discourse on this mosque, when they were so quick to weigh-in on analogous controversies elsewhere in the country?

Civic Duty and Personal Responsibility

If it is not already clear, let us take a moment to be unequivocal: The use of one's own private property is determined by the owner, subject to local zoning laws. What this means is that if a religious group purchases land fair and square with the intention of constructing a religious building, they are well within their rights to do so. On this point, all sides agree. Let this be the end of the question "Can they do that?"

There is a question of land value at work here. To wit, if what is now known as "Ground Zero" is hallowed ground for our country, then where are all the patriots willing to put their money where their mouths are? Throughout the Amazon rainforest, environmental groups and green-minded individuals have purchased great expanses of land because they, as private individuals, wish to see that land untouched by developers. Rather than coerce the locals through the machinery of government, they simply (and peacefully) purchase what they value so that the land may continue to exist in a way that they prefer. If it is important to some Americans that "Ground Zero" remains free of monuments to Islam, then one may very well ask how much New York City land they have purchased to ensure that it exists as a patriotic monument consistent with their own preferences.

Ironically, this argument was just as easy to apply to environmentalists in 1996, who decided to use the Federal Government as a tool to determine land use, rather than peacefully purchasing land and using it in accordance with their values. There can be no doubt that some of the same voices who criticize mosque opponents today were those who emphatically backed the creation of Grand Staircase Escalante National Monument.

It is easy to see the discrepancy between what people claim to value, and what values they are truly willing to stand behind (e.g.  financially). Those who wish to conserve natural landmarks or patriotic hallowed ground are certainly free to exercise their rights, purchase property, and invest themselves in the values they hold dear. Those who elect not to exercise this right have no place criticizing those who do, no matter to what legal use the land is eventually put.


In an ideal world, we could transcend allegedly "polarizing" issues like this and exist in a harmonious, free society. Rather than rushing to condemn a monument to Islam near the former World Trade Center, concerned Americans could financially contribute to the erection of such a monument with the proviso that the eventual landmark properly reflects donors' values. Those in charge of erecting the landmark, eager to display the open-hearted intentions, would be eager to create such a monument to the peaceful, free, and cooperative society that America has always been.

In the real world, pundits fan the flames of bonfires of vanities. It is tempting to participate in the controversy, lending our own unique take on a multi-faceted issue. When liberals label their opponents bigots and conservatives become enemies of private property, it is important for libertarians to adhere to principle. At issue is more than just freedom to worship and private property, but one of the most attractive and important principles of classical liberalism: civic duty.

Of course all Americans have a right to worship as they please. Of course all Americans have a right to use private property as they see fit. Beyond that cursory glance lie the more important concepts of putting our money where our mouths are if we wish to see land used the way we want it to be, and letting local people sort out their own local issues on the local stage.