Tag Archives: Friedrich Hayek

Great Moments In Projection: Il Doofe Says His Opponents Are Anti-Democratic, Fascist

06 Tuesday Sep 2022

Posted by in Democracy, fascism, Uncategorized

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When partisans want to make sure they get their way, perhaps we shouldn’t be surprised to hear them claim their opponents are “anti-democratic”. Well, one-party rule is not democratic, just in case that’s unclear to leftists prattling about “hunting down” the opposition. We now have those forces hurling cries of “fascism” and “semi-fascism” at political adversaries for opposing their use of the state’s coercive power to get their way and to punish political enemies.

Restrained Democracy

The U.S. is not a democracy; it is a constitutional republic. The reason it’s not a democracy is that the nation’s founders were wary of the dangers of majoritarianism. There are many checks on unbridled majoritarianism built into our system of government, including the many protections and guarantees of individual rights in the Constitution, as well as federalism and three branches of government intended as coequals.

In a short essay on democracy, Dan Klein refers to a mythology that has developed around the presumed democratic ideal, quoting Friedrich Hayek on the “fantasy of consensus” that tends to afflict democratic absolutists. Broad consensus is possible on many issues, but it might have been an imperative within small bands of primitive humans, when survival of the band was of paramount concern. That’s not the case in modern societies, however. Classical liberals are often derided as “anti-democratic”, but like the founders, their distaste for pure democracy stems from a recognition of the potential for tyrannies of the majority. Klein notes that the liberal emphasis on individual rights is naturally at tension with democracy. Obviously, a majority might selfishly prefer actions that would be very much to the detriment of individuals in the minority, so certain safeguards are necessary.

However, the trepidation of classical liberals for democracy also has to do with the propensity for majorities to “governmentalize” affairs so as to codify their preferences. As Klein says, this often means regulation of many details of life and social interactions. These are encroachments to which classical liberals have a strong aversion. One might fairly say “small government” types like me are “anti-pure democracy”, and as the founders believed, democratic processes are desirable if governing power is distributed and restrained by constitutional principles and guarantees of individual rights.

Democracy has vulnerabilities beyond the danger posed by majoritarian dominance, however. Elections mean nothing if they can be manipulated, and they are easily corrupted at local levels by compromises to the administration of the election process. Indeed, today powerful national interests are seeking to influence voting for local election officials across the country, contributing substantial sums to progressive candidates. It’s therefore ironic to hear charges of racism and anti-democracy leveled at those who advocate measures to protect election integrity or institutions such as federalism.

And here we have the White House Press Secretary insisting that those in the “minority” on certain issues (dependent, of course, on how pollsters phrase the question) are “extremists”! To charge that someone or some policy is “anti-democratic” usually means you didn’t get your way or you’re otherwise motivated by political animus.

Fascism

Biden and others are throwing around the term fascism as well, though few of these partisans can define the term with any precision. Most who pretend to know its meaning imagine that fascism evokes some sort of conservative authoritarianism. Promoting that impression has been the purpose of many years of leftist efforts to redefine fascism to suit their political ends. Stalin actually promoted the view that anything to the right of the Communist Party was inherently fascist. But today, fascism is an accurate description of much of Western governance, dominated as it is by the administrative state.

I quote here from my post “The Fascist Roader” from 2016:

“A large government bureaucracy can coexist with heavily regulated, privately-owned businesses, who are rewarded by their administrative overlords for expending resources on compliance and participating in favored activities. The rewards can take the form of rich subsidies, status-enhancing revolving doors between industry and powerful government appointments, and steady profits afforded by monopoly power, as less monied and politically-adept competitors drop out of the competition for customers. We often call this “corporatism”, or “crony capitalism”, but it is classic fascism, as pioneered by Benito Mussolini’s government in Italy in the 1920s. Here is Sheldon Richman on the term’s derivation:

‘As an economic system, fascism is socialism with a capitalist veneer. The word derives from fasces, the Roman symbol of collectivism and power: a tied bundle of rods with a protruding ax.’”

Meanwhile, Hitler’s style of governing shared some of the characteristics of Mussolini’s fascism, but there were important differences: Hitler persecuted Jews, blaming them for all manner of social problems, and he ultimately had them slaughtered across much of Europe. Mussolini was often brutal with his political enemies. At the same time, he sought to unite an Italian people who were otherwise a fairly diverse lot, but once Mussolini was under Hitler’s thumb, Italian Jews were persecuted as well.

Angelo M. Codevilla provides an excellent account of Mussolini’s political career and the turns in his social philosophy over the years. He always considered himself a dedicated socialist, but the views he professed evolved as dictated by political expediency. So did his definition of fascism. As he took power in Italy with the aid of “street fighters”, fascism came to mean nationalism combined with rule by the administrative state and a corresponding preemption of legislative authority. And there were concerted efforts by Mussolini to control the media and censor critics. Sound familiar? Here’s a quote from Il Duce himself on this matter:

“Because the nature of peoples is variable, and it is easy to persuade them of things, but difficult to keep them thus persuaded. Hence one must make sure that, when they no longer believe, one may be able then to force them to believe.”

Here is Codevilla quoting Mussolini from 1919 on his philosophy of fascism:

“The fascist movement, he said, is ‘a group of people who join together for a time to accomplish certain ends.’ ‘It is about helping any proletarian groups who want to harmonize defense of their class with the national interest.’ ‘We are not, a priori, for class struggle or for class-cooperation. Either may be necessary for the nation according to circumstances.’”

This framing underlies another basic definition of fascism: a system whereby government coercion is used to extract private benefits, whether by class or individual. Codevilla states that Mussolini was focused on formal “representation of labor” in policy-making circles. Today, western labor unions seem to have an important, though indirect, influence on policy, and labor is of course the presumed beneficiary of many modern workplace regulations.

Modern corporatism is directly descended from Mussolini’s fascist state. The symbiosis that exists between large corporations and government has several dimensions, including regulatory capture, subsidies and taxes to direct flows of resources, high rates of government consumption, rich government contracts, and of course cronyism. This carries high social costs, as government dominance of economic affairs gives rise to a culture of rent seeking and diminished real productivity. Here is Codevilla’s brief description of the transition:

“Hegel, as well as the positivist and Progressive movements, had argued for the sovereignty of expert administrators. Fascist Italy was the first country in which the elected legislature gave up its essential powers to the executive, thus abandoning the principle, first enshrined in the Declaration of Independence and the U.S. Constitution, by which people are rightly governed only through laws made by elected representatives. By the outbreak of World War II, most Western countries’ legislatures—the U.S. Congress included—had granted the executive something like ‘full powers,’ each by its own path, thus establishing the modern administrative state.”

Mussolini saw Italian fascism as the forerunner to FDR’s New Deal and took great pride in that. On this point, he said:

“… the state is responsible for the people’s economic well-being, it no longer allows economic forces to run according to their own nature.”

The Babylon Bee’s take on Biden and fascism would have been more accurate had it alluded to Mussolini, but not nearly as funny! The following link (and photoshopped image) is obviously satire, but it has a whiff of eerie truth.

Biden Condemns Fascism in Speech While Also Debuting Attractive New Mustache

Conclusion

Biden’s slur that Republicans are “anti-democratic” is an obvious distortion, and it’s rather ironic at that. The nation’s support for democratic institutions has always been qualified for good reasons: strict majoritarianism tends to disenfranchise voters in the minority, and in fact it can pose real dangers to their lives and liberties. Our constitutional republic offers “relief valves”, such as “voting with your feet”, constitutional protections, and seeking recourse in court. Biden’s party, however, has a suspicious advantage via control of election supervision in many key urban areas of the country. This can be exploited in national elections to win more races as long as the rules on election administration are sufficiently lax. This is a true corruption of democracy, unlike the earnest efforts to improve election integrity now condemned by democrats.

Joe Biden hasn’t the faintest understanding of what fascism means. He uses the term mostly to suggest that Trump, and perhaps most Republicans, have authoritarian and racist sympathies. Meanwhile, he works to entrench the machinery and the breadth of our own fascist state, usurping legislative authority. He is buttressed by a treacherous security apparatus, “street fighters” under the guise of Antifa and BLM, and the private media acting as a propaganda arm of the administration. Joe Biden, you’re our fascist now.

A Fiscal Real-Bills Doctrine? No Such Thing As Painless Inflation Tax

14 Tuesday Jun 2022

Posted by in Fiscal policy, Inflation, Uncategorized

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A remarkable proposal made recently by Representative Ro Khanna (D -CA) would have the Biden Administration impose price controls, which would be bad enough. Khanna also would like the federal government to cover the inflation losses incurred by Americans by having it directly purchase certain goods and services and resell them “cheap” to consumers. In fairness, Khanna says the government should attempt to take advantage of dips in prices for oil, food commodities, and perhaps other necessities, which of course would limit or reverse downward price changes. When asked about Khanna’s proposal, Pete Buttigieg, Joe Biden’s Transportation Secretary, replied that there were great ideas coming out of Congress and the Administration should consider them. Anyway, the idea is so bad that it deserves a more thorough examination.

Central Planners Have No Clothes

First, such a program would represent a massive expansion in the scope of government. It would also present ample opportunities for graft and cronyism, as federal dollars filter through the administrative layers necessary to manage the purchases and distribution of goods. Furthermore, price and quantity would then be shaded by a heavy political component, often taking precedence over real demand and cost considerations. And that’s beyond the crippling “knowledge problem” that plagues all efforts at central planning.

One of the most destructive aspects of allowing government to absorb a greater share of total spending is that government is not invested with the same budgetary discipline as private buyers. Take no comfort in the notion that the government might prove expert at timing these purchases to leverage price dips. Remember that government always spends “other people’s money”, whether it comes from tax proceeds, lenders, or the printing press (and hence future consumers, who have absolutely no agency in the matter). Hence, price incentives take on less urgency, while political incentives gain prominence. The loss of price sensitivity means that government expenditures are likely to inflate more readily than private expenditures. This is all the more critical at a time when inflation is becoming embedded in expectations and pricing decisions. Khanna thus proposes an inflation “solution” that puts less price-sensitive bureaucrats in charge of actual purchases. That’s a prescription for failure.

If anyone in Biden’s White House is seriously considering a program of this kind, and let’s hope they’re not, they should at least be aware that direct subsidies for the purchase of key goods would be far more efficient. It’s also possible to hedge the risk of future price increases on commodities markets, perhaps simply distributing hedging gains to consumers when they pay off. However, having the federal government participate as a major player in commodities options and futures is probably not on the table at this point … and I shudder to think of it, but it might be more efficient than Khanna’s vision.

A Fiscal Real Bills Doctrine

Khanna’s program would almost surely cause inflation to accelerate. Inflation itself a form of taxation imposed by profligate governments, though it’s an inefficient tax since it creates greater uncertainty. Higher prices deflate the real value of most government debt (borrowed from the public), assets fixed in nominal value, and incomes. Read on, but this program would have the government pay your inflation tax for you by inflating some more. Does this sound like a vicious circle?

Khanna’s concept of inflation-relief is a fiscal reimagining of a long-discredited monetary theory called the “Real Bills Doctrine”. According to this doctrine, rising prices and costs necessitate additional money creation so that businesses have the liquidity to pay the bills associated with ongoing productive efforts. The “real” part is a reference to the link between business expenses and actual production, despite the fact that those bills are expressed in nominal terms. The result of this policy is a cycle of ever-higher inflation, as ever-more money is printed. This was the policy utilized by the Reichsbank in Weimar Germany during its hyperinflation of 1922-23. It’s really quite astonishing that anyone ever thought such a policy was helpful!

In Khanna’s version of the doctrine, the government spends to relieve cost pressure faced by consumers, so the rationale has nothing to do with productive effort.

Financing and the Central Bank Response

It’s reasonable to ask how these outlays would be financed. In all likelihood, the U.S. Treasury would borrow the funds at interest rates now at 10-15 year highs, which have risen in part to compensate investors for higher inflation.

My bet is that Khanna imagines the Fed would simply “print” money (i.e., buy the new government debt floated by the Treasury to pay for the program). This is the prescription of so-called Modern Monetary Theory, whose adherents have either forgotten or have never learned that money growth and inflation is a costly and regressive form of taxation.

Most economists would say the response of the Federal Reserve to this fiscal stimulus would bear on whether it really ignites additional inflationary pressure. Of course, rather than borrowing, Congress could always vote to levy higher taxes on the public in order to pay the public’s inflation tax burden! But then what’s the point? Well, taxing at least has the virtue of not fueling still higher inflation, and the Fed would not have a role to play.

But if the government simply borrows instead, it adds to the already bloated supply of government debt held by the public. This borrowing is likely to put more upward pressure on interest rates, and the federal government’s mounting interest expense requires more financing. What then might the Fed do?

The Fed is an independent, quasi-government entity, so it would not have to accommodate the additional spending by printing money (buying the new Treasury debt). Either way, investors are increasingly skeptical that the growing debt burden will ever be reversed via future surpluses. The fiscal theory of the price level holds that something must reduce the real value of government debt (in order to satisfy the long-term fiscal budget constraint). That “something” is a higher price level. This position is not universally accepted, and some would contend that if the Fed simply set a nominal GDP growth target and stuck to it, accelerating inflation would not have to follow from Khanna’s policy. The same if the Fed could stick to a symmetric average inflation target, but they certainly haven’t been up to that task. Hoping the Fed would fully assert its independence in a fiscal hurricane is probably wishful thinking.

Conclusion

There are no choke points in the supply chain for bad ideas on the left wing of the Democratic Party, and they are dominating party centrists in terms of messaging. The answer, it seems, is always more government. High inflation is very costly, but the best policy is to rein it in, and that requires budgetary and monetary discipline. Attempts to make high inflation “painless” are misguided in the first instance because they short-circuit consumer price responses and substitution, which help restrain prices. Second, the presumption that an inflation tax can be “painless” is an invitation to fiscal debauchery. Third, expansive government brings out hoards of rent seekers instigating corruption and waste. Finally, mounting public debt is unlikely to be offset by future surpluses, and that is the ultimate admission of Modern Monetary Theory. A fiscal real bills doctrine would be an additional expression of this lunacy. To suggest otherwise is either sheer stupidity or an exercise in gaslighting. You can’t inflate away the pain of an inflation tax.

Rewarding Merit Is The Key To Growth

21 Monday Jun 2021

Posted by in economic growth, Meritocracy, Redistribution

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Outward trappings of success, even at very modest levels, are seldom durable or predictive of future achievement if not backed by actual performance. That’s one reason why redistributionist policies are so unsuccessful at fostering upward mobility. They fail by focusing on outcomes rather than on addressing more fundamental causes, like skills, training, and well-functioning markets for low-skill labor. The same applies to programs that prescribe quotas on admissions, tuition aid, and hiring. The beneficiaries of these programs are often placed into situations in which they are unprepared. This makes them vulnerable to stigmatization and ultimately failure. And when poor performance is in any way ignored or forgiven, it has an impact on the psyche of the individual and their reputation, and it creates losses to the rest of society.

On the other hand, conditions and policies that lead to economic growth are likely to benefit the lower strata of society and minorities, to the extent that minorities are more concentrated in lower income quantities than non-minorities. We know incentives always matter, and incentives rely on the ability of individuals to act and succeed. Success implies gains to others who have occasion to avail themselves of the individual’s efforts. They are offering rewards for merit! Furthermore, those offers are always increasing in the value created, and thus, in levels of accomplishment. In that way, individuals always have opportunities to strive for growth.

But none of that works unless meritocracy holds sway. LittlBut none of that works unless meritocracy holds sway. Little wonder that meritocracy is so closely tied to a society’s prosperity, as documented in this article and a forthcoming book by Adrian Wooldridge. John Cochrane provides an excellent review and critique of Wooldridge’s thesis along with several lengthy quotes.

Wooldridge disputes the widely-accepted theory that democracy is a determinant of economic growth (also see here), noting that democracy can create economic pitfalls related to majoritarian excesses, whereas merit-based systems of rewards are common to almost all successful economies, including autocracies (Singapore, China) and democracies/republics (the U.S., Japan, Scandinavia), irrespective of the size of government. He offers examples of countries in which meritocratic systems are weak but nepotism or political “clientelism” are strong, with unfortunate results (Greece, Portugal, Italy). You certainly won’t get efficient outcomes when leaders prioritize family, friends, cronies, and political contributors for plum jobs and other rewards.

Of course, there is no pure meritocracy in the world. Rather, there are varying degrees of meritocracy across different societies. Traditionally, the U.S. economic system has relied on merit to a great extent; returns to merit are largely a matter of equal opportunity, though not entirely. Equally talented individuals do not always have access to the same opportunities. In fact, that is the major point of attack against the concept of meritocracy, but it does not imply that the benefits of meritocracy are a myth. There are many institutional dysfunctions that can and should be fixed to overcome the kinds of problems cited by critics, primarily public education, but the old expression “don’t throw the baby out with the bathwater” seems especially apt.

In fact, meritocracy promotes upward mobility. Here is Cochrane on the great paradox underlying the backlash against meritocracy:

“The US paternalistic/aristocratic elite is running away from meritocracy under the banner of ‘social justice’ and ‘racial equity.’ Yet meritocracy throughout history has been a great equalizer, a great leveler, the main way that excluded out-groups could get ahead.”

And on this point, Cochrane quotes Wooldridge:

“… Meritocracy is one of the great building blocks of modernity, along with democracy, capitalism and liberalism. … Is it really the case that meritocracy is a tool of White male privilege? W.E.B. Du Bois and Ruth Bader Ginsburg might have something different to say. Are lotteries or holistic assessments really better ways of distributing educational opportunities than standardized tests? Most of us would hesitate before flying with a pilot who had been chosen by lottery. Do we really want a society in which group identities trump individual abilities? “

To give the critics their due, however, a more refined version of their argument is that “meritocracy is a myth without inclusion”. Fair enough, but again, any shortfall in participation is not the fault of meritocracy per se, but of underlying conditions and policies fostering substandard education, family instability, high crime and incarceration rates, and high rates of unemployment among those with low skills.

An important strand of Wooldridge’s work is the implication that meritocracy is a redeeming feature of some autocratic regimes. Indeed, Wooldridge is not the least bit skeptical that autocratic rule is sustainable, just as long as merit drives rewards. This is a point on which Cochrane differs. An autocracy in which high echelons are populated by the meritorious will constantly grapple with temptations of the powerful to reward their pals. Lines of accountability must be all the stronger to prevent such decay. Furthermore, autocracy usually weds itself to meritocracy only in a conditional sense. For example, in China, one must support the party. These restraints undermine the benefits of meritocracy by offering less autonomy for individuals to leverage their talent.

“Pure” democracy has its own drawbacks, b“Pure” democracy has its own drawbacks, but at least leaders have autonomy while being accountable to a broader class. And as Cochrane says, the greatest dangers of democracy can be addressed under representative democracy along with other means of protecting minorities and individual rights.

The effort to banish meritocracy is madness and the product of a totalitarian mindset. To speak of the “illusion” or “myth” of meritocracy is to contend that talent, preparedness, sound decision-making, workmanship, precision, effort, and value-delivered represent trickery of some sort. Such is the viewpoint of those who take human well-being to be a zero-sum game. But it’s even worse than that. For example, placing lives in the hands of “randomly selected” pilots would invite catastrophe, and while that example is extreme, it clearly illustrates how non-meritocratic approaches are likely to produce negative sums! Putting resources into the hands of individuals with lesser qualifications is always a prescription for waste. Make no mistake: the road to serfdom is well-traveled and can be a very quick trip. Abandoning merit-based rewards would get us a fast start.

COVID Interventions: Costly, Deadly, and Ineffective

14 Monday Dec 2020

Posted by in Coronavirus, Liberty, Lockdowns, Public Health

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What does it take to shake people out of their statist stupor? Evidently, the sweet “logic” of universal confinement is very appealing to the prescriptive mindset of busybodies everywhere, who anxiously wag their fingers at those whom they view as insufficiently frightened. As difficult as it is for these shrieking, authoritarian curs to fathom, measures like lockdowns, restrictions on business activity, school closures, and mandates on behavior have at best a limited impact on the spread of the coronavirus, and they are enormously costly in terms of economic well-being and many dimensions of public health. Yet the storm of propaganda to the contrary continues. Media outlets routinely run scare stories, dwelling on rising case numbers but ignoring them when they fall; they emphasize inflated measures of pandemic severity; certain researchers and so-called health experts can’t learn the lessons that are plain in the data; and too many public officials feel compelled to assert presumed but unconstitutional powers. At least the World Health Organization has managed to see things clearly, but many don’t want to listen.

I’ll be the first to say I thought the federalist approach to COVID policy was commendable: allow states and local governments to craft policies appropriate to local conditions and political preferences, rather than have the federal government dictate a one-size-fits-all policy. I haven’t wavered in that assessment, but let’s just say I expected more variety. What I failed to appreciate was the extent to which state and local leaders are captive to provincial busybodies, mavens of precautionary excess, and fraudulent claims to scientific wisdom.

Of course, it should be obvious that the “knowledge problem” articulated by Friedrich Hayek is just as dangerous at low-levels of government as it is in a central Leviathan. And it’s not just a knowledge problem, but a political problem: officials become panicked because they fear bad outcomes will spell doom for their careers. Politicians are particularly prone to the hazards of “do-somethingism”, especially if they have willing, status-seeking “experts” to back them up. But as Scott Sumner says:

“When issues strongly impact society, the science no longer ‘speaks for itself’.

Well, the science is not quite as clear as the “follow-the-science” crowd would have you believe. And unfortunately, public officials have little interest in sober assessments of the unintended effects of lockdown policy.

In my last post, I presented a simple framework for thinking about the benefits and costs of lockdown measures, or non-pharmaceutical interventions (NPIs). I also emphasized the knowledge problem: even if there is some point at which NPI stringencies are “optimized”, government does not possess the knowledge to find that point. It lacks detailed information on both the costs and benefits of NPIs, but individual actors know their own tolerance for risk, and they surely have some sense of the risks they pose to others in their normal course of affairs. While voluntary precautions might be imperfect, they accomplish much of what interventionists hope will be gained via coercion. But, in an effort to “sell” NPIs to constituents and assert their authority, officials vastly over-estimate benefits of NPIs and under-estimate the costs.

NPI Stringency and COVID Outcomes

Let’s take a look at a measure of the strength of NPIs by state — the University of Oxford Stringency Index — and compare those to CDC all-cause excess deaths in each state. If it’s hard to read, try clicking on the image or turn your phone sideways. This plot covers outcomes through mid-November:

The chart doesn’t suggest any benefit to the imposition of greater restrictions, or more stringent NPIs. In fact, the truth is that people will do most of the work on their own based on perceptions of risk. That’s partly because government restrictions add little risk mitigation to what can be accomplished by voluntary social distancing and other precautions.

Here’s a similar chart with cross-country comparisons, though the data here ended in early October (I apologize for the fuzzy image):

But what about reverse causality? Maybe the imposition of stringency was a response to more severe contagions. Now that the virus has swept most of the U.S and Europe in three distinct waves, and given the variety and timing of NPIs that have been tried, it’s harder to make that argument. States like South Dakota have done fairly well with low stringency, while states like New Jersey with high stringency have fared poorly. The charts above provide multiple pair-wise examples and counter-examples of states or countries having faced hard waves with different results.

But let’s look at a few specific situations.

The countries shown above have converged somewhat over the past month: Sweden’s daily deaths have risen while the others have declined to greater or lesser degrees, but the implications for mask usage are unaltered.

And of course we have this gem, predicated on the mental gymnastics lockdown enthusiasts are fond of performing:

But seriously, it’s been a typical pattern: cases rise to a point at which officials muster the political will to impose restrictions, often well after the “exponential” phase of the wave or even the peak has passed. For the sake of argument, if we were to stipulate that lockdowns save lives, it would take time for these measures to mitigate new infections, time for some of the infected individuals to become symptomatic, and more time for diagnosis. For the lockdown arguments to be persuasive, the implementation of NPIs would have to precede the point at which the growth of cases begins to decline by a few weeks. That’s something we’ve seldom observed, but officials always seem to take credit for the inevitable decline in cases.

More informed lockdown proponents have been hanging their hats on this paper in Nature by Seth Flaxman, et al, published in July. As Philippe LeMoine has shown, however, Flaxman and his coauthors essentially assumed their result. After a fairly exhaustive analysis, Lemoine, a man who understands sophisticated mathematics, offers these damning comments:

“Their paper is a prime example of propaganda masquerading as science that weaponizes complicated mathematics to promote questionable policies. Complicated mathematics always impresses people because they don’t understand it and it makes the analysis look scientific, but often it’s used to launder totally implausible assumptions, which anyone could recognize as such if they were stated in plain language. I think it’s exactly what happened with Flaxman et al.’s paper, which has been used as a cudgel to defend lockdowns, even though it has no practical relevance whatsoever.”

The Economic Costs of Stringency

So the benefits of stringent lockdowns in terms of averting sickness and death from COVID are speculative at best. What about the costs of lockdowns? We can start with their negative impact on economic activity:

That’s a pretty bad reflection on NPI stringency. In the U.S, a 10% decline in GDP in 2020 amounts to about $2.1 trillion in lost goods and services. That’s just for starters. The many destroyed businesses and livelihoods carry an ongoing cost that could take years to fade, as this graphic on permanent business closures shows:

If you’re wondering about the distributional effects of lockdowns, here’s more bad news:

It’s possible to do many high-paying jobs from home. Not so for blue-collar workers. And distributional effects by size of enterprise are also heavily-skewed in favor of big companies. Within the retail industry, big-box stores are often designated as “essential”, while small shops and restaurants are not. The restaurant industry has been destroyed in many areas, inflicting a huge blow to owners and workers. This despite evidence from contact tracing showing that restaurants and bars account for a very small share of transmission. To add insult to injury, many restaurants invested heavily in safety measures and equipment to facilitate new, safer ways of doing business, only to be double-crossed by officials like Andrew Cuomo and Eric Garcetti, who later shut them down.

Public Health Costs of Stringency

Lives are lost due to lockdowns, but here’s a little exercise for the sake of argument: The life value implied by individual willingness-to-pay for risk reduction comes in at less than $4 million. Even if the supposed 300,000 COVID deaths had all been saved by lockdowns, that would have amounted to a value of $1.2 trillion, about half of the GDP loss indicated above. Of course, it would be outrageously generous to concede that lives saved by NPI’s have approached 300,000, so lockdowns fall far short at the very outset of any cost-benefit comparison, even if we value individual lives at far more than $4 million.

As AJ Kay says, the social and human costs go far beyond economic losses:

I cited specific examples of losses in many of these categories in an earlier post. But for the moment, instead of focusing on causes of death, take a look at this table provided by Justin Hart showing a measure of non-COVID excess deaths by age group in the far right-hand column:

The numbers here are derived by averaging deaths by age group over the previous five years and subtracting COVID deaths in each group. I believe Hart’s numbers go through November. Of greatest interest here is the fact that younger age groups, having far less risk of death from COVID than older age groups, have suffered large numbers of excess deaths NOT attributed to COVID. As Hart notes later in his thread:

These deaths are a tragic consequence of lockdowns.

Educational Costs of Stringency

Many schools have been closed to in-person instruction during the pandemic, leading to severe disruptions to the education f children. This report from the Fairfax County, VA School District is indicative, and it is extremely disheartening. The report includes the following table:

Note the deterioration for disabled students, English learners, and the economically disadvantaged. The surfeit of failing grades is especially damaging to groups already struggling in school relative to their peers, such as blacks and Hispanics. Not only has the disruption to in-person instruction been disastrous to many students and their futures; it has also yielded little benefit in mitigating the contagion. A recent study in The Lancet confirms once again that transmission is low in educational settings. Also see here and here for more evidence on that point.

Conclusion

It’s clear that the “follow-the-science” mantra as a rationale for stringent NPIs was always a fraud, as was the knee-jerk response from those who conflated lockdowns with “leadership”. Such was the wrongheaded and ultimately deadly pressure to “do something”. We can be thankful that pressure was resisted at the federal level by President Trump. The extraordinary damage inflicted by ongoing NPIs was quite foreseeable, but there is one more very ominous implication. I’ll allow J.D. Tucille to sum that up with some of the pointed quotes he provides:

“‘The first global pandemic of the digital age has accelerated the international adoption of surveillance and public security technologies, normalising new forms of widespread, overt state surveillance,’ warned Kelsey Munro and Danielle Cave of the Australian Strategic Policy Institute’s Cyber Policy Centre last month.

‘Numerous governments have used the COVID-pandemic to repress expression in violation of their obligations under human rights law,’ United Nations Special Rapporteur on Freedom of Expression David Kaye noted in July.

‘For authoritarian-minded leaders, the coronavirus crisis is offering a convenient pretext to silence critics and consolidate power,’ Human Rights Watch warned back in April.

There’s widespread agreement, then, that government officials around the world are exploiting the pandemic to expand their power and to suppress opposition. That’s the case not only among the usual suspects where authorities don’t pretend to take elections and civil liberties seriously, but also in countries that are traditionally considered ‘free.’ … It’s wildly optimistic to expect that newly acquired surveillance tools and enforcement powers will simply evaporate once COVID-19 is sent on its way. The post-pandemic new normal is almost certain to be more authoritarian than what went before.”

COVID Externalities: the Costs and Benefits of Intervention

13 Sunday Dec 2020

Posted by in Coronavirus, Public Health, Social Costs

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This post offers a simple representation of the argument against public non-pharmaceutical interventions (NPIs) to subdue the COVID-19 pandemic. The chart below features two lines, one representing the presumed life-saving benefits of lockdown measures or NPI stringency, and another representing the costs inflicted by those measures. The values on the axes here are not critical, though measures of stringency exist (e.g., the University of Oxford Stringency Index) and take values from zero to 100.

The benefits of lives saved due to NPI stringency are assigned a value on the vertical axis, as are the costs of lives lost due to deferred health care, isolation, and other stressors caused by stringency. In addition, there are the more straightforward losses caused by suspending economic activity, which should be included in costs.

One can think of the benefits curve as representing gains from forcing individuals, via lockdown measures, to internalize the external costs of risk inflicted on others. However, this curve captures only benefits incremental to those achieved through voluntary action. Thus, NPI benefits include only extra gains from coercing individuals to internalize risks, while losses from NPI stringency are captured by the cost curve.

My contention is that the benefits of stringency diminish and may in fact turn down at some point, and that costs always increase in the level of stringency. In the chart, for what it’s worth, the “optimal” level of stringency would be at a value of 2, where the difference between total benefits and total costs is maximized (and where the benefits of incremental stringency are equal to the marginal costs or losses). However, I am not convinced that the benefits of lockdown measures ever exceed costs, as they do in the chart above. That is, voluntary action may be sufficient. But if the benefits of NPIs do exceed costs, it’s likely to be only at low levels of stringency.

To the extent that people are aware of the pandemic and recognize risk, the external costs of possible infectiousness are already internalized to some degree. Moreover, there is mutual risk in most interactions, and all individuals face risks that are proportional to those to which they expose others: if your contacts are more varied and your interactions are more frequent and intimate, you face correspondingly higher risks yourself. After all, in a pandemic, an individual’s failure to exercise caution may lead to a very hard internalization of costs if an infection strikes them. This mutuality is an element absent from most situations involving externalities. And to the extent that you take voluntary precautions, you and your contacts both benefit. Nevertheless, I concede that there are individuals who face less risk themselves (the young or healthy) but who might behave recklessly, and they might not internalize all risk for which they are responsible. Yes, stringency may have benefits, but that does not mean it has net benefits.

Even if there is some meaningful point at which NPIs are “optimized”, government does not possess the knowledge required to find that point. It lacks detailed knowledge of both costs and benefits of NPIs. This is a manifestation of the “knowledge problem” articulated by Friedrich Hayek, which hampers all efforts at central planning. In contrast, individual actors know their own tolerance for risk, and they surely have some sense of the risks they create in their normal course of affairs. And again, there is a strong degree of proportionality and voluntary internalization of mutual risks.

While relying on voluntary action is economically inefficient relative to an ideal, full-information and perfectly altruistic solution, it is at least based on information that individuals possess: their own risk profile and risk preferences. In contrast, government does not possess information necessary to impose rules in an optimal way, and those rules are rife with unintended consequences and costs inflicted on individuals.

My next post will present empirical evidence of the weakness of lockdown measures in curbing the coronavirus as well as the high costs of those measures. The coronavirus is a serious infection, but it is not terribly deadly or damaging to the longer-term health of the vast majority of people. This, in and of itself, should be sufficient to demonstrate that the array of non-pharmaceutical interventions imposed in the U.S. and abroad were and are not worthwhile. People are capable of assessing risks for themselves. The externality argument, that NPIs are necessary because people do not adequately assess the risk they pose to others, relies on an authority’s ability to assess that risk, and they invariably go overboard on interventions for which they underestimate costs. COVID is not serious enough to justify a surrender of our constitutional rights, and like every concession to government authority, those rights will be difficult to recover.

Central Planning With AI Will Still Suck

23 Sunday Feb 2020

Posted by in Artificial Intelligence, Central Planning, Free markets

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Artificial intelligence (AI) or machine learning (ML) will never make central economic planning a successful reality. Jesús Fernández-Villaverde of the University of Pennsylvania has written a strong disavowal of AI’s promise in central planning, and on the general difficulty of using ML to design social and economic policies. His paper, “Simple Rules for a Complex World with Artificial Intelligence“, was linked last week by Tyler Cowen at Marginal Revolution. Note that the author isn’t saying “digital socialism” won’t be attempted. Judging by the attention it’s getting, and given the widespread acceptance of the scientism of central planning, there is no question that future efforts to collectivize will involve “data science” to one degree or another. But Fernández-Villaverde, who is otherwise an expert and proponent of ML in certain applications, is simply saying it won’t work as a curative for the failings of central economic planning — that the “simple rules” of the market will aways produce superior social outcomes.

The connection between central planning and socialism should be obvious. Central planning implies control over the use of resources, and therefore ownership by a central authority, whether or not certain rents are paid as a buy-off to the erstwhile owners of those resources. By “digital socialism”, Fernández-Villaverde means the use of ML to perform the complex tasks of central planning. The hope among its cheerleaders is that adaptive algorithms can discern the optimal allocation of resources within some “big data” representation of resource availability and demands, and that this is possible on an ongoing, dynamic basis.

Fernández-Villaverde makes the case against this fantasy on three fronts or barriers to the use of AI in policy applications: data requirements; the endogeneity of expectations and behavior; and the knowledge problem.

The Data Problem: ML requires large data sets to do anything. And impossibly large data sets are required for ML to perform the task of planning economic activity, even for a small portion of the economy. Today, those data sets do not exist except in certain lines of business. Can they exist more generally, capturing the details of all economic transactions? Can the data remain current? Only at great expense, and ML must be trained to recognize whether data should be discarded as it becomes stale over time due to shifting demographics, tastes, technologies, and other changes in the social and physical environment. 

Policy Change Often Makes the Past Irrelevant: Planning algorithms are subject to the so-called Lucas Critique, a well known principle in macroeconomics named after Nobel Prize winner Robert Lucas. The idea is that policy decisions based on observed behavior will change expectations, prompting responses that differ from the earlier observations under the former policy regime. A classic case involves the historical tradeoff between inflation and unemployment. Can this tradeoff be exploited by policy? That is, can unemployment be reduced by a policy that increases the rate of inflation (by printing money at a faster rate)? In this case, the Lucas Critique is that once agents expect a higher rate of inflation, they are unlikely to confuse higher prices with a more profitable business environment, so higher employment will not be sustained. If ML is used to “plan” certain outcomes desired by some authority, based on past relationships and transactions, the Lucas Critique implies that things are unlikely to go as planned.  

The Knowledge Problem: Not only are impossibly large data sets required for economic planning with ML, as noted above. To achieve the success of markets in satisfying unlimited wants given scarce resources, the required information is impossible to collect or even to know. This is what Friedrich Hayek called the “knowledge problem”. Just imagine the difficulty of arranging a data feed on the shifting preferences of many different individuals across a huge number of products,  services and they way preference orderings will change across the range of possible prices. The data must have immediacy, not simply a historical record. Add to this the required information on shifting supplies and opportunity costs of resources needed to produce those things. And the detailed technological relationships between production inputs and outputs, including time requirements, and the dynamics of investment in future productive capacity. And don’t forget to consider the variety of risks agents face, their degree of risk aversion, and the ways in which risks can be mitigated or hedged. Many of these things are simply unknowable to a central authority. The information is hopelessly dispersed. The task of collecting even the knowable pieces is massive beyond comprehension.

The market system, however, is able to process all of this information in real time, the knowable and the unknowable, in ways that balance preferences with the true scarcity of resources. No one actor or authority need know it all. It is the invisible hand. Among many other things, it ensures the deployment of ML only where it makes economic sense. Here is Fernández-Villaverde:

“The only reliable method we have found to aggregate those preferences, abilities, and efforts is the market because it aligns, through the price system, incentives with information revelation. The method is not perfect, and the outcomes that come from it are often unsatisfactory. Nevertheless, like democracy, all the other alternatives, including ‘digital socialism,’ are worse.”

Later, he says:

“… markets work when we implement simple rules, such as first possession, voluntary exchange, and pacta sunt servanda. This result is not a surprise. We did not come up with these simple rules thanks to an enlightened legislator (or nowadays, a blue-ribbon committee of academics ‘with a plan’). … The simple rules were the product of an evolutionary process. Roman law, the Common law, and Lex mercatoria were bodies of norms that appeared over centuries thanks to the decisions of thousands and thousands of agents.” 

These simple rules represent good private governance. Beyond reputational enforcement, the rules require only trust in the system of property rights and a private or public judicial authority. Successfully replacing private arrangements in favor of a central plan, however intricately calculated via ML, will remain a pipe dream. At best, it would suspend many economic relationships in amber, foregoing the rational adjustments private agents would make as conditions change. And ultimately, the relationships and activities that planning would sanction would be shaped by political whim. It’s a monstrous thing to contemplate — both fruitless and authoritarian.

Statism and Self-Harm

18 Tuesday Feb 2020

Posted by in Free markets, Government Failure, Uncategorized

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Some have a tendency to think their problems can be solved only through the intervention of some powerful, external force. That higher power might be God, but at a more temporal level, government is often presumed to be a force to fix all things that need fixing. “There oughta be a law” is a gut reaction to things we find injurious or that offend; government has the resources, or the coercive power to get the resources, to undertake big, appealing projects; and of course government has the coercive power to “rearrange the deck chairs” in ways that might satisfy anyone’s sense of justice and fairness, so long as they get their way. Whenever people perceive some need they believe to be beyond their private capacity, or mere convenience, government action is the default option, and that’s partly because many think it’s the only option.

That’s the appeal of “democratic socialism”, to use a name that unintentionally emphasizes a very real danger of democracy: the tyranny of the majority. It’s a dismal way station along the road to serfdom, to borrow a phrase from Hayek.

Government, however, repeatedly demonstrates it’s sheer incompetence and its expedience as a vehicle for graft. And it’s not as if these failures go unrecognized. Everyone knows it! This is nowhere more true than when the state interferes with private markets or attempts to steer the economy’s direction at either an aggregate or industry level. But here we have a dark irony, as told by Nick Gillespie at Reason:

“Again and again—and in countries all over the world—declines in trust of government correlate strongly with calls for more government regulation in more parts of our lives. ‘Individuals in low-trust countries want more government intervention even though they know the government is corrupt,’ explain the authors of a 2010 Quarterly Journal of Economics paper. That’s certainly the case in the United States, where the size, scope, and spending of government has vastly increased over exactly the same period in which trust and confidence in the government has cratered. In 2018, I talked with one of the paper’s authors, Andrei Shleifer, a Harvard economist who grew up in the Soviet Union before coming to America. Why do citizens ask a government they don’t believe in to bring order? ‘They want regulation,’ he said. ‘They want a dictator who will bring back order.'”

Against all historical evidence and forebodings, the wish for a benevolent dictator! As if it’ll be different this time! Are we all statists? Certainly not me, but the Left is full of them. One prominent example is columnist Tom Friedman of the New York Times, who has expressed the sometimes fashionable view that “things get done” under dictatorships:

“One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. … That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century.”

Tell it to the interred Kazakh and Uighur Muslims undergoing “reeducation” in China. The Right has its share of statists as well, and it is typically expressed in desires for enforced social conservatism.

People seem to have a vague idea that everyone else must either be misbehaving or in misery. And despite the well-tested fallibility and lack of trust in government, people persist in believing that the public sector can conjure magic to solve their problems. But the state gets bigger and bigger while solving few problems and exacerbating others. In fact, as government grows, it makes rent seeking a more viable alternative to productive effort. Like the giant zero-sum game that it is, the expansion of government provides the very means to pick away at the wealth of others. When faced with these incentives, people most certainly will misbehave on small and large scales!

The truth is that individuals hold the most potent regulatory force in their own hands: the voluntary nature of trade. It protects against over-pricing, under-pricing, and inferior quality along many dimensions, but it demands discipline and a willingness to walk away. It also demands a willingness to put forth productive effort, rather than coveting the property of others, and taking from others via political action. To paraphrase P.J. O’Rourke, if you think things are expensive now, wait till they’re free!

Authoritarian Designs

31 Sunday Jan 2016

Posted by in Progressivism, racism, Uncategorized

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Why condemn today’s progressives for their movement’s early endorsement of eugenics? Kevin Drum at Mother Jones thinks this old association is now irrelevant. He furthermore believes that eugenics is not an important issue in the modern world. Drum’s remarks were prompted by Jonah Goldberg’s review of Illiberal Reformers, a book by Thomas Leonard on racism and eugenicism in the American economics profession in the late 19th century. Tyler Cowen begs to differ with Drum on both counts, but for reasons that might not have been obvious to Drum. Eugenics is not a bygone, and its association with progressivism is a reflection of the movement’s broader philosophy of individual subservience to the state and, I might add, the scientism that continues to run rampant among progressives.

Cowen cites John Stewart Mill, one of the great social thinkers of the 19th century, who was an advocate for individual liberty and a harsh critic of eugenics. Here is a great paragraph from Cowen:

“The claim is not that current Progressives are evil or racist, but rather they still don’t have nearly enough Mill in their thought, and not nearly enough emphasis on individual liberty. Their continuing choice of label seems to indicate they are not much bothered by that, or maybe not even fully aware of that. They probably admire Mill’s more practical reform progressivism quite strongly, or would if they gave it more thought, but they don’t seem to relate to the broader philosophy of individual liberty as it surfaced in the philosophy of Mill and others. That’s a big, big drawback and the longer history of Progressivism and eugenics is perhaps the simplest and most vivid way to illuminate the point. This is one reason why the commitment of the current Left to free speech just isn’t very strong.“

Eugenics is not confined to the distant past, as Cowen notes, citing more recent “progressive” sterilization programs in Sweden and Canada, as well as the potential use of DNA technologies like CRISPR in “designing” offspring. That’s eugenics. So is the child quota system practiced in China, sex-selective abortion, and the easy acceptance of aborting fetuses with congenital disorders. Arguably, Obamacare “effectiveness research” guidelines cut close to eugenicism by proscribing certain treatments to individuals based upon insufficient “average benefit”, which depends upon age, disability, and stage of illness. Obamacare authorizes that the guidelines may ultimately depend on gender, race and ethnicity. All of these examples illustrate the potential for eugenics to be practiced on a broader scale and in ways that could trample individual rights.

Jonah Goldberg also responded to Drum in “On Eugenics and White Privilege“. (You have to scroll way down at the link to find the section with that title.) Goldberg’s most interesting points relate to the racism inherent in the minimum wage and the Davis-Bacon Act, two sacred cows of progressivism with the same original intent as eugenics: to weed out “undesirables”, either from the population or from competing in labor markets. It speaks volumes that today’s progressives deny the ugly economic effects of these policies on low-skilled workers, yet their forebears were counting on those effects.

Scientism is a term invoked by Friedrich Hayek to describe the progressive fallacy that science and planning can be used by the state to optimize the course of human affairs. However, the state can never command all the information necessary to do so, particularly in light of the dynamism of information relating to scarcity and preferences; government has trouble enough carrying out plans that merely match the static preferences of certain authorities. Historically, such attempts at planning have created multiple layers of tragedy, as individual freedoms and material well-being were eroded. Someone should tell Bernie Sanders!

Eugenics fit nicely into the early progressive view, flattering its theorists with the notion that the human race could be made… well, more like them! Fortunately, eugenics earned its deservedly bad name, but it continues to exist in somewhat more subtle forms today, and it could take more horrific forms in the future.

Two earlier posts on Sacred Cow Chips dealt at least in part with eugenics: “Child Quotas: Family as a Grant of Privilege“, and “Would Heterosexuals Select For Gay Genes?“.

 

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The Virtue of Libertarian Consistency

25 Wednesday Nov 2015

Posted by in Liberty

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Many on the Right of the political spectrum sincerely believe that they hold libertarian views. They might be close on some economic matters, but only some, and not on a host of social issues. Fewer on the Left make the same mistake, but it happens. Some uninformed lefties might imagine that the American Civil Liberties Union (ACLU) is representative of libertarianism, and occasionally the ACLU does take positions consistent with libertarian views. Many of these individuals, left and right, probably self-identify as libertarian only because they think it “sounds good”. After all, the root “liberty” might ring a compelling (if distant) bell, but perhaps I’m congratulating myself.

Jonah Goldberg, the conservative senior editor of National Review, wrote an interesting article a few weeks ago called “Fusionism, 60 Years Later“. In it, he describes the historical relationship between libertarianism and conservatism. Fusionism, Goldberg says, is the longstanding effort to find common ground between these two camps. He contends that most support for libertarian ideas comes from Conservatives:

“In other words, conservatives tend to be libertarian, but libertarians tend not to be conservative. …libertarians want to have their own identity, separate and distinct from that of conservatism. They’re a bit like the Canadians you meet abroad who go to almost obsessive lengths to show everyone that they aren’t American.“

I got a laugh out of that quote because it contains a grain of truth, but Goldberg knows all too well that there are substantive differences between Libertarians and Conservatives on the role of government. There are not-so-subtle departures on the basic role of government in regulating personal behavior. Libertarians, of course, believe that government almost never has a legitimate role in that area, with exceptions for the prevention and redress of various forms of aggression. Another difference is that Conservatives, like the political Left (not a typo), often favor government promotion of private business objectives, including protectionist anti-trade legislation, policies which Libertarians consistently oppose. And unlike Libertarians, Conservatives make a glaring exception to their avowed dedication to small government in their support for massive military outlays and foreign incursions in the name of protecting vital U.S. interests, which usually amount to safeguarding private economic interests abroad.

Nevertheless, Goldberg contends that Libertarians and Conservatives are all classical liberals, defined broadly:

“The Founding Fathers were all classical liberals, but … they were largely conservative in manners, morals, and faith. Their conservatism was not labeled as such because it suffused the culture and was simply taken for granted. …

Until the middle of the 20th century, the conservative side of the classical-liberal tradition in America was not cultivated the way the libertarian side was, in large part because no one thought it needed to be cultivated.“

That may be, but it does not diminish the differences that exist. Insofar as “conservatism” is about the preservation of certain institutions, such as private property, free speech, and other individual liberties, then there are areas of commonality between Conservatives and Libertarians, but full “fusion” is impossible if Conservatives cannot consistently recognize the appropriate limits of government. The power of government derives from its police power, or “legitimized” aggression to accomplish public objectives. That power must be restrained by adherence to the kinds of checks embodied in the U.S. Constitution.

Here is a quote from Goldberg’s piece giving just a bit too much relative credit to Conservatives on the subject of morality:

“… conservatives borrowed heavily from the libertarian tradition, but they also borrowed from the religious, patriotic, and moral arsenals of the Founders. That is why the libertarians have stood apart like Coptic Christians, who claim a lineage and authenticity that needs no sanction from the larger, more powerful, and more syncretic Catholic Church.“

The libertarian philosophy is grounded in two moral principles to which I’ve already referred: liberty and non-aggression (or non-coercion). The liberty of individuals is sacrosanct (as it was to the Founders) but does not extend to physically aggressive actions, including any form of theft. Liberty includes freedom of speech (the notion of “micro-aggression” is unlikely to carry much (if any) weight with most libertarians) and the freedom to defend oneself. Defined properly, aggression includes the imposition of external costs on others, such as unchecked pollution of the environment.

Ideally, “legitimized” aggression or coercion by the state extends only to preventing aggression by private parties or foreign aggressors, and to the revenue collection necessary to provide public goods desired by the polity. Defining strict limits on aggression by private and public parties provides a direct mapping to the broad extent of liberty. In other words, non-aggression itself implies liberty.

The libertarian philosophy provides a moral framework that exists comfortably alongside a wide range of religious beliefs as well as atheism. However, it cannot be denied that differing religious beliefs among libertarians often inform different positions when the rights of individuals stand in conflict.

There is no reason to assume that Libertarians lack patriotism, as Goldberg comes close to implying. However, patriotism should never be used to justify aggression, whether that involves limiting expression or unnecessarily entering into conflicts abroad. So Goldberg is stretching when he credits Conservatives with a better grip on moral or patriotic principles than Libertarians.

Goldberg ends his piece with misgivings about the potential for Donald Trump to hijack the conservative movement, and in this I am sympathetic. About Trump, he says:

“He makes little or no effort to celebrate conservatism as a defense of the American tradition of liberty. He never talks about the Constitution, nor plausibly about religion. He makes scant mention of freedom. Instead, he taps into deep reservoirs of resentment and a kind of nationalism that has little to do with patriotism rightly understood.“

Goldberg’s piece serves as a reminder of Friedrich Hayek’s great essay, “Why I Am Not a Conservative“. While not referencing this essay explicitly, Goldberg mentions that Hayek and other European political philosophers have known a different kind of conservatism than what we know in the U.S. In Europe, conservatives:

“... sought to conserve the absolute rule of Church and Throne. The American Founders sought to overthrow even the partial rule of Church and Throne. And therein lies all the difference. In Europe, conservatism was understood as the opposite of classical liberalism. The reverse was the case in America, as Friedrich Hayek observed: ‘What in Europe was called ‘liberalism’ was here the common tradition on which the American polity had been built: thus the defender of the American tradition was a liberal in the European sense.’“

Point well taken, and Hayek understood that difference all too well. His essay focuses on certain unflattering aspects of conservatism that ring true of the American version as well, including certain nationalistic and authoritarian tendencies, and a penchant for government involvement when it suits them:

“… neither moral nor religious ideals are proper objects of coercion, while both conservatives and socialists recognize no such limits. I sometimes feel that the most conspicuous attribute of [classical] liberalism that distinguishes it as much from conservatism as from socialism is the view that moral beliefs concerning matters of conduct which do not directly interfere with the protected sphere of other persons do not justify coercion.“

My attraction to libertarian philosophy has much to do with the simple appeal of liberty and the ugliness of aggression. However, I think my original attraction to libertarianism was strongly related to the superiority of market forces as a form of social organization. Market forces cannot operate very effectively without liberty, and the healthy maintenance of liberty is facilitated by the superior resource allocation made possible by market forces. What a beautiful symbiosis!

Ev’rybody’s Gone Serfin’, Serfdom USA

11 Tuesday Aug 2015

Posted by in Big Government, Regulation

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Any new or existing enterprise can be strangled with ease when regulatory coercion is brought to bear. Whole industries can be strangled. And the strangulation of freedoms is not limited to business concerns. Individuals are impacted as well by the loss of employment choices and opportunities, choices in the marketplace, and even more basic freedoms such as speech and assembly. In an excellent paper, “The Rule of Law in the Regulatory State“, John Cochrane of The University of Chicago highlights the negative consequences of growth in the scope and complexity of regulation. It looks like a working paper with a few items in need of editorial attention. Nevertheless, it contains several interesting ideas, some noteworthy examples of regulatory overreach, and useful dimensions along which to think about regulatory power and its application.

Cochrane’s first two paragraphs give an overview of the pernicious social effects of regulation gone wild, yet they only scratch the surface:

“The United States’ regulatory bureaucracy has vast power. Regulators can ruin your life, and your business, very quickly, and you have very little recourse. That this power is damaging the economy is a commonplace complaint. Less recognized, but perhaps even more important, the burgeoning regulatory state poses a new threat to our political freedom.

What banker dares to speak out against the Fed, or trader against the SEC? What hospital or health insurer dares to speak out against HHS or Obamacare? What business needing environmental approval for a project dares to speak out against the EPA? What drug company dares to challenge the FDA? Our problems are not just national. What real estate developer needing zoning approval dares to speak out against the local zoning board?“

The centerpiece of Cochrane’s paper is his elaboration on a list of bullet points, or dimensions for assessing a regulatory process. The list is given below in italics (without quote marks), and each bullet is followed by my own brief clarification:

  • Rule vs. Discretion? – Rules are better. How much latitude shall a regulator have?
  • Simple/precise or vague/complex? – Simple is better. Vague/complex ≈ discretion.
  • Knowable rules vs. ex-post prosecutions? – Surprise! You’re busted. Vague ≈ unknowable. 
  • Permission or rule book? – Don’t make me ask. Review my plans non-arbitrarily. 
  • Plain text or fixers? – Must I hire a specialist with agency connections?
  • Enforced commonly or arbitrarily? – Objective vs. motivated enforcement.
  • Right to discovery and challenge decisions. – Transparency of evidence & standards.
  • Right to appeal. – to courts, not the agency.
  • Insulation from political process. – Limit discretion and scope of powers.
  • Speed vs. delay. – six months or approve by default.
  • Consultation, consent of the governed. – Formal representation in rule-making.

Sorry if lists make you snooze, but I think it’s a good list, even if the bullets aren’t mutually exclusive. The items highlight the always-present choice between restraining government’s exercise of coercive power versus restraining and coercing the governed.

Cochrane then takes the reader on a “tour” of regulatory areas, including several aspects of financial regulation, health care, foods & drugs, the environment, the internet, campaign finance, national security, immigration and education. These sections are brief, but in each of these areas, Cochrane highlights negative consequences of regulation that illustrate government failure based on the dimensions given in his list of bullets. Here’s an anecdote from his section on environmental regulation:

“Already, anyone opposed to a project for other reasons — like, it will block my view — can use environmental review to stop it. Delay is as good as denial in any commercial project.

The small story of Al Armendariz, head of EPA region 6 who proposed ‘crucifying’ some oil companies as an example to the others is instructive. He was caught on tape saying:

‘The Romans used to conquer little villages in the Mediterranean. They’d go into a little Turkish town somewhere, they’d find the first five guys they saw and they would crucify them. And then you know that town was really easy to manage for the next few years.

…we do have some pretty effective enforcement tools. Compliance can get very high, very, very quickly.’

According to the story, Armendariz shut down Range Resources, one of the first fracking companies. Range fought back and eventually a Federal Judge found in its favor. But an agency that operates by “crucifying” a few exemplars, explicitly to impose compliance costs, is ripe to choose just which exemplars will be crucified on political bases.“

Cochrane closes by describing his vision of a “Magna Carta for the regulatory state” in order to protect “citizens from arbitrary power“:

“It is time for a Magna Carta for the regulatory state. Regulations need to be made in a way that obeys my earlier bullet list. People need the rights to challenge regulators — to see the evidence against them, to challenge decisions, to appeal decisions. Yes, this means in court. Everyone hates lawyers, except when they need one.

People need a right to speedy decision. A “habeas corpus” for regulation would work — if any decision has not been rendered in 6 months, it is automatically in your favor.“

Accomplishing great things is difficult, both in the physical world and in creating value in any form for which other free individuals will trade. By comparison, failure is easy, and so are regulatory decisions that precipitate failure. So often, so easily, so arbitrarily, and with little accountability, those decisions destroy freedom, value and our ability to improve human welfare.