Tag Archives: statism

Do You Chronically Feel Cheated?

24 Tuesday Aug 2021

Posted by in Markets

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Economists are rightfully astonished when people act as if they’ve come up losers in almost every transaction they make. It’s often when they’re on the buying end, but here’s the paradox: almost all transactions are voluntary, a major exception being the coerced payment of taxes. There are few private transactions in which free choice is absent. A truly voluntary choice is an absolute proof of gain. In those trades, buyers reveal that they assign less value to choices not made, and foregone choices almost always exist, including the possibility of doing nothing. By their very nature, voluntary transactions are mutually beneficial. So why do people feel cheated so often?

Free To Lose?

Yes, we are free to choose and free to lose! But this isn’t about cases in which a product proves defective or quickly becomes obsolete. Nor is it about making a purchase only to learn of a discount later. Those are ex post events that might have been impossible to foresee. Here, I refer only to the decision made on the day and hour of the purchase, including any assessment of risk. 

A recent study confirmed a pervasive “loser’s” mentality in transactions: “Win–win denial: The psychological underpinnings of zero-sum thinking”, by Samuel B.G. Johnson, Jiewen Zhang, and Frank C. Keil. They also found that people judge the seller as the “winner” in most transactions. The authors considered a few explanations for these findings discussed in psychological literature, such as socially-ingrained mercantilist attitudes and a tendency to zero-sum thinking.

Roots of “Never-a-Buyer-Be” Phobia

Mercantilism was borne of zero-sum thinking — a belief in a hard limit to total wealth. Under those circumstances, accumulating gold or other hard assets was seen as preferable to spending on imports of goods from other nations. Imports meant gold had to be shipped out, but exports of goods brought it in. 

That uncompromising view led to efforts by government on behalf of domestic industries to stanch imports, and it ultimately led to decline. One nation cannot buy another’s goods indefinitely without corresponding flows of goods in the other direction. Nations gain from trade only by producing things in which they have a comparative advantage and selling them to others. In turn, they must purchase goods from others in which they do NOT have a comparative advantage. It’s cheaper that way! And it’s a win-win prescription for building worldwide wealth.

If You Gotta Have It…

People do have a tendency to regret money spent on things they reluctantly feel they must have. They suffer a kind of advance buyer’s remorse, but it stems from having to part with money, which represents all those other nice things one might have had, covering an infinite range of possibilities. This is the same fallacy inherent in mercantilism. The fact is, we purchase things we must have because they represent greater value than doing without. The phantom satisfaction of opportunities foregone are simply not large enough to keep us from doing the “right” thing in these situations.

The Contest For Surplus

There’s a more basic reason why people feel swindled after having engaged in mutually beneficial trade. The seller collects more revenue than marginal cost, and the buyer pays less than the item’s full “use value”. The latter is the buyer’s reservation price: the most they’d be willing to pay under the circumstances. The seller’s gain (over cost) plus the buyer’s gain (under reservation price) is the total “surplus” earned in the exchange. It’s the surplus that’s up for grabs, and both buyer and seller might view the exchange as a contest over its division. Competitive instincts and thrift being what they are, both sides want a larger share of the spoils!

So there truly is a sort of zero-sum game in play. You can try to bargain to capture more of the surplus, but not every seller will do so, often as a matter of policy or reputation. Or you can spend more time and incur greater personal cost by shopping around. Ultimately, if the offer you face is less than your “reservation price”, you’ll extract an absolute benefit from the exchange. Both you and the seller are better off than without it. You both do it voluntarily, and it’s mutually beneficial. Whatever the division of the surplus, you haven’t really lost anything, even if you have the gnawing feeling you might have been able to find a better bargain and captured more surplus.

Exceptions?

You might think the parties to a stock trade cannot both win. However, buyers and sellers have different reasons for making stock trades, which usually involve other needs and differing expectations. Ex ante, both sides of these trades earn a surplus, unless either the seller or buyer is at the losing end of a previous option trade now forcing them to buy or sell the stock.

There are other cases worthy of debate: buyers in monopolized or captive markets are unlikely to collect much of the surplus. Buyers at an informational disadvantage will gain less surplus as well, and they might incur greater risk to any gain whatsoever. Excise taxes allow government to capture some of the surplus, while government subsidies deliver “fake” surplus to the buyer and seller that comes at the expense of taxpayers. Now I feel cheated!

Beware Marxist Sympathies

Buyers and sellers both benefit by virtue of voluntary exchange. The gains might not be divided equally, but the false perception that buyers always get the “short end of the bargain” is a fundamental misunderstanding about how markets work. It also undermines support for basic freedoms allowing autonomous economic decisions and activity, and it strengthens the hand of statists who would fetter the operation of free markets. Like short-sighted mercantilists, those who would intervene in markets create obstacles to human cooperation and the creation of wealth. In fact, the idea that buyers are always cheated is a classist, Marxist notion. Policies acting upon that bias are rife with unintended consequences: small and large market interventions often strike at property rights, which ultimately inhibits the supply of goods and harms consumers. 

Note: This post also appears at The American Reveille.

TikTok Tax: The Heavy Wants a Cut

05 Wednesday Aug 2020

Posted by in Industrial Policy, Regulation, Trump Administration

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I have a certain ambivalence toward Donald Trump, and I could go on and on about why it’s so “complicated” for me. One thing for which I’ve credited the Trump Administration is its effort to “deconstruct the administrative state”, as Steve Bannon so aptly put it shortly after the 2016 election. Of course, the progress thus far hasn’t always lived up to my hopes, but the effort to deregulate continues. And after all, the regulatory state is deeply entrenched and difficult to uproot.

Then my eyes glazed over as Trump floated an idea so bad, an intervention so awful, that I can hardly gather it in! It has to do with TikTok, the Chinese video sharing service that has gained popularity worldwide. Crazy as this might sound, it’s not so much Trump’s threat to shut down TikTok’s U.S. operations. Like most libertarians, I’d find that appalling in and of itself, except for the legitimate data security issues at stake. The company’s ties to the Chinese Communist Party (CCP) are a national security concern and an ethical blot on the company, given the CCP’s brutal treatment of Muslim Uighurs, its roughshod treatment of Hong Kong, and its threats to Taiwan. In any case, at least Trump said he’s amenable to a sale of the company’s U.S. operations to a domestic firm. Several large tech firms have expressed strong interest, including Microsoft. So, while any government imposed shutdown or forced sale makes me squirm, it’s not my main issue here.

What really stunned me was to hear Trump say the U.S. Treasury must get a cut of the deal! This is “Hall-of-Fame” statism. Where in the hell does the U.S. government get a legitimate financial claim to the value of any private business that changes hands? Well, Trump seems to think the federal government is adding value as the heavy:

“But if you buy [TicTok], the United States, which is making it possible to buy, because without us they can’t do anything, should be compensated.”

Yes, the buyer would be the beneficiary of a shakedown, and the demand is another poke in the eye to the Chinese. Of course, it might well threaten the transaction, and I’m not even sure it’s in Trump’s interest politically. But that’s not even the worst of it: as Warren Meyer explains, it would be hard to think of a better way to weaponize financial regulation than having the Treasury at the bargaining table in private negotiations for corporate control:

“Already there are too many regulatory hurdles to doing about anything, and Trump wants agencies to use regulatory approvals to hold up corporations for payments. And you can be sure this is a precedent the Democrats will be only too happy to latch onto — want a pipeline built, where’s our vig? Who wants [this to be] the first Trump decision AOC comes out in support of? The Republican Party sure has come a long way in my lifetime.”

The Left would certainly love to exercise this kind of coercion as a revenue source, as a cudgel of industrial policy to wield against disfavored firms and industries, and as a way to favor cronies. It’s a ready extension of Barack Obama’s deranged “You-didn’t-build-that” theme.

Is this one of trade advisor Peter Navarro‘s brainstorms? I was relieved to see Trump economic advisor Larry Kudlow cast some doubt on whether the government would follow through on Trump’s idea:

“‘I don’t know if that’s a key stipulation. …. A lot of options here,’ Kudlow told ‘Varney & Co.’ on Tuesday. ‘Not sure it’s a specific concept that will be followed through.’“

I think Trump would really like to kill TikTok. Maybe his grudge is driven in part by the presumptive role that TikTok played in his under-attended Tulsa rally. But there are domestic competitors to TikTok, so consumers will have alternatives. The most popular of those seems to be another Chinese app called Likee. In any case, downloads of other video sharing apps have spiked over the past few weeks. If Trump’s real aim is simply to shut down TikTok in the U.S., I’d almost rather see him do that than start making a practice of horse trading with cronies over shares of corporate booty.

Cuomo Denies Tradeoffs, Cries Scarcity

12 Tuesday May 2020

Posted by in Pandemic, statism, Virtue Signaling

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Here’s an all-time dumbass bromide: “If it saves only one life, it’s worth it.” New York Governor Andrew Cuomo said it last week in a bit of sanctimonious posturing intended for consumption by the unthinking. A variant on this is, “You can’t put a value on a human life,” and Cuomo said that too. But of course we do that every day. Yes, we weigh lives against costs, and we must. Each and every decision involving any personal or public health risk entails an implicit and sometimes explicit valuation of human life. There are few costless decisions in a world of scarce resources, and lives are often one of those costs. These might be matters of probability in an ex ante sense, which might make it more palatable. Ex post, they add up to real lives.

Imagine a world in which we spared no expense to save lives. We’d shift massive resources into health care to the detriment of all production and consumption that does not save lives. No precaution would be too conservative. No driving or biking, because those prohibitions would save many lives. Many risky construction and maintenance jobs would be off limits. No smoking, of course, and no drinking! No chips! Every BMI greater than 25 and you’re off to mandatory fat camp. Sadly, the effort to save a life is sometimes fruitless, but as long as there’s a chance, we’d try and try, providing mechanical life support to every patient hanging on by a tattered thread. No, we don’t do these things because it’s too damn costly.

We face an infinite number of tradeoffs in medical care and in public health more generally. The question “Who Shall Live?” must be answered every day when deciding how health care resources are to be allocated. No matter how you answer that question, certain lives will be lost as the cost of meeting your preferred medical objectives. You can’t meet them all. Resources are scarce — or in more everyday language, budgets are tight.

So human life is often assigned an implicit or shadow value in decision making. But even explicit assignment of economic value to human life is not uncommon. Valuing lives is a standard practice in cost-benefit analysis. It’s also quite common for life values to be estimated as part of forensic analyses in support of legal proceedings.

Andrew Cuomo surely knows all this. That makes his statements all the more disingenuous. This article in The Nation from the end of March implies that Cuomo has valued life all too cheaply in light of his past budget proposals for health care programs. Along the same lines, see this eye-opening critique of the policies Cuomo has pursued that left NY poorly prepared for a pandemic. And now, he’d like to keep his costly lockdown order in place even if it saves “just one life”.

Beyond all that, Cuomo is a stupendous hypocrite, asserting that life is too precious to spare any expense after signing an order in March requiring nursing homes to accept individuals with active Covid infections. Nursing homes have been the very hottest of spots for Covid infections and deaths, so the order was glaringly dismissive in valuing the lives of vulnerable nursing home residents. The rationale for the order was to save hospital beds, but there was no shortage. 

In fairness, Cuomo was also clamoring for assistance to add hospital capacity. Millions were spent to convert the Javits Center to a temporary field hospital and to bring a U.S. Navy hospital ship up the Hudson, but they went almost completely unused. Why not send the elderly patients there, instead of back to the nursing homes?

Finally, he pouted for weeks about his state’s shortage of ventilators, only to quickly reverse course as it became apparent that the state had a surplus of ventilators.

Recently, Cuomo felt it necessary to demonstrate his anti-Western bona fides by labeling the coronavirus the “European Virus“. He must think that’s a clever poke in the eye to those who prefer “Wuhan Virus”, though it is quite correct (and not the least bit “racist”) to note that the virus originated in Wuhan, China. For what it’s worth, the genome of the European strain, like the others that hit New York, differs by less than 12 out of 30,000 base-pairs of DNA from the original Wuhan strain. And of course the New York metropolitan area has made a massive contribution to the U.S. case load and death toll from the virus. Travelers from New York did much to spread Covid-19 to the rest of the country. So, as some have suggested, perhaps a better name might be “New York Virus”.

Andrew Cuomo is nothing if not a politician, and I suppose he’s just behaving like one. I probably wouldn’t gripe were it not for the minions who fall for Cuomo’s sham virtue. But it’s worse than that: the claim that public intervention at any cost is worthwhile if it saves “just one life” is a deeply statist sentiment.

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!

Clinton Corruption Remedy: Keep Her Out

07 Monday Nov 2016

Posted by in Corruption, statism

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Would I ever vote for Donald Trump? I’ve been critical of Trump’s positions on foreign trade, immigration policy and eminent domain. I think he’s an extremely risky candidate for any supporter of small government. But I’ve been much more critical of Hillary Clinton: she is a statist through and through, and she so often finds herself in close proximity to corruption and some other highly suspicious circumstances. I consider myself a libertarian, and I like Gary Johnson. Unfortunately, Johnson has disappointed me with his selection of Bill Weld as a running mate, his goofs on foreign policy and his often poor presentation of libertarian principles.

FBI Director James Comey has again concluded that there was no intent on Clinton’s part to violate national security with her private email server, but he also concluded that she was reckless in conducting sensitive government business, including the transmission of classified information, on that server. Unfortunately, Comey limited his investigation to the period during which she was Secretary of State. The server, however, was put in place before she was confirmed by Congress. The question of intent makes that time period relevant, but Comey ignored it. She broke the law concerning the handling of classified documents, there is no question about that. No less than five of Clinton’s aides took the Fifth Amendment to avoid prosecution. Evidently, Mr. Comey has been under pressure from a highly-politicized Justice Department. There are other investigations underway at the FBI and by Congress involving the Clintons, however.

The deluge of information via Wikileaks over the past month reflects horribly on the Clintons. I don’t care whether the leaks came from government sources, the Russians, or from other foreign actors. No one has challenged the authenticity of these leaks. Again, Hillary Clinton compromised national security by conducting her duties as Secretary of State on a private computer server. That’s what got her into the email mess. Now, we’ve learned that she gave her housekeeper access to her computer to print documents! At least five foreign intelligence services hacked into that server. Clinton also obstructed justice on the matter by destroying evidence and perjuring herself before Congress.

Wikileaks has shed additional light on the Clinton Foundation as well. The foundation functions as a money laundering scheme intended to disguise influence-buying as charitable giving, with the Clinton’s and their cronies as the real beneficiaries. Foreign governments, including several middle eastern powers, funneled money to the foundation while Hillary served as Secretary of State. Here’s Deroy Murdock on the Foundation:

“… its 2014 IRS filings show that it spent a whopping 5.76 percent of its funds on actual charitable activities — far below the 65 percent that the Better Business Bureau calls kosher. That paltry figure also mocks Hillary’s Las Vegas lie, uttered at the final presidential debate on October 19: ‘We at the Clinton Foundation spend 90 percent — 90 percent of all the money that is donated on behalf of programs of people around the world and in our own country.’ The Clinton Slush Fund . . . uh . . . Foundation seems to be mainly a travel and full-employment program for Hillary’s government in waiting. It’s also a bribe pump that sucks in money and spews out favors.“

The Clintons also have had strong ties to individuals with criminal histories, such as the notorious child predator Jeffrey Epstein. And Hillary Clinton’s reputation for contemptuous behavior toward others was so strong that State Department security personnel requested reassignment. It’s been reported that members of her Secret Service detail called her plane “Broomstick One“.

A Hillary Clinton victory in the president election will not end the investigations. Congressional leaders such as Jason Chaffetz and Trey Gowdy have vowed to press on aggressively, given that Clinton lied before their committees and to the American people about the existence of classified emails on her server. Impeachment by the House might occur, though Clinton’s offenses have occurred prior to her term in office, and the Senate would never attain the two-thirds majority necessary to convict.

It is possible that the FBI investigation into the Clinton Foundation will be damaging, but it is unlikely to bring an indictment. The DOJ under Clinton would be headed by Loretta Lynch or some other Hillary/Obama sycophant. There will be no DOJ indictment or special prosecutor as long as the Attorney General reports to the criminal herself. (The FBI cannot indict; it can only recommend indictment.) There would hardly be a real opportunity to render justice to Hillary at the federal level.

A local jurisdiction could bring an indictment for criminal activity. The Anthony Weiner laptop investigation by the NYPD could be troublesome for Clinton, depending on the extent to which any Clinton dealings with Jeffrey Epstein were recorded there.

There remains only one sure constitutional remedy for Hillary Clinton’s corruption: Tuesday’s election. Preventing her from taking office must be priority one. Hillary Clinton’s days of insider dealing would then be over, as would the politicized government created by Barack Obama, who was just recorded encouraging illegal aliens to vote! But Gary Johnson obviously won’t beat Clinton… the only real option is Donald Trump.

Yes, Trump is risky, and I’ll have plenty to criticize on my blog if he takes office. He is plainspoken but sometimes crude and offensive. Naturally, that “style” is especially offensive to the tender snowflakes who cling to identity politics, but I do not believe Trump is a racist. It’s true, I don’t know exactly what we’d get with Trump. I suspect he has some statist tendencies of his own, but I prefer that risk to the corruption and certain statism of Hillary Clinton.

So I must vote for Donald Trump. Putting Hillary Clinton in the White House would compromise our system of government. She is an accomplished grafter and cronyist, expert at leveraging her position of power for personal enrichment, and she is prone to taking retribution against enemies. The IRS, the DOJ and other agencies have already become partisan organizations under Obama. And as I mentioned earlier, Clinton is a statist who desires centralized power. That is always dangerous.

Read this excellent essay: “The Case Against Hillary Clinton“, by Lisa Schiffren of the Independent Women’s Forum.

Here is a page with a number of past posts about Hillary Clinton on Sacred Cow Chips.

Willing Exchange With Capitalists

18 Wednesday May 2016

Posted by in Capitalism, Marxism

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Now and then I’m inspired to blog on the misshapen language of political discourse. I recently wrote about the misuse of words by the American left, including their use of the term “liberalism”. This time, the particular word in play is “capitalism”, which I use to describe the ideal laissez faire economic order. I have always viewed it as a force for good. Real capitalism means free markets, consumer choice, strong private property rights, rewards to private initiative, and competition among producers. Even under conditions of concentrated market power, capitalism is preferable to government monopoly. Nevertheless, Gary Galles writes at The Beacon that capitalism is an inferior description of the laissez-faire ideal than”willing exchange“, or alternatively, unforced or voluntary exchange. Perhaps he has a point.

Capital and labor are the primary factors of production and both must be compensated. Labor earns a wage and capital earns a profit. Generally, the more capital a worker has available on the job, the greater the worker’s productivity and the greater the worker’s wage. However, any profit or return to capital is viewed by the left as an undeserved rent. The question of compensation is quite aside from the valuable social role profits play in directing resources to their most valued uses. Robert Murphy’s drives this home in an excellent recent essay entitled “There’s No Such Thing As Excessive Profits“. Here, here! In another post related to the crucial social role played by capital and profit, Patrick Barron explains “Why We Need Private Property To Deal With Scarce Resources“.

Again, any return to capital, normal or extra-normal, is seen by the left as a reward that should flow to labor in a just world. That is the upshot of Karl Marx’s labor theory of value. Thus, owners of capital are characterized as “takers”. Galles notes the belief that Marx coined the term “capitalism” in order to:

“…falsely imply that the system benefited capitalists at others’ expense, when, in fact, workers have been the greatest gainers from all the productivity enhancements the system has generated.“

He quotes Leonard Read on the value of “willing versus unwilling exchange” as an effective way to delineate and contrast the positions of adherents of laissez faire and statism:

“Standing for willing exchange, on the one hand, or for unwilling exchange, on the other, more nearly accents our ideological differences than does the employment of the terms in common usage…there is a minimum of verbal facade to hide behind.

Willing exchange…has not yet been saddled with emotional connotations …Further, its antithesis, unwilling exchange…no one, not even a protagonist, proudly acknowledges he favors that; it does offense to his idealism.

If we cut through all the verbiage used to report and analyze political and economic controversy…much of it boils down to a denial of willing and the insistence upon unwilling exchange. …

The concept of willing exchange unseats Napoleonic behavior—all forms of authoritarianism—and enthrones the individual. The consumer becomes king. Individual freedom of choice rules economic affairs… [It] is for me, and a willing seller, to decide; it is no one else’s business!“

The hallmark of the state as an actor is coercion. After all, it derives its power via “legitimized” coercion. Individuals are bound under its authority to participate in involuntary exchanges and to make do with a constrained set of willing exchanges. As much as we might amuse ourselves with the notion that our Constitution keeps the state in check, it grows and grows, and where it stops, nobody knows. One wonders how strongly the demonization of so-called “capitalists” plays into this process.

I often refer to voluntary exchange in one form or another. The term recommends itself by virtue of its implication of mutual benefit among parties. Nevertheless, I would have a difficult time abandoning the term “capitalism” in my writing. Here’s the thing: capitalism and free markets have had tremendous success over the last two centuries in improving material conditions and ending human poverty around the globe. Meanwhile, Marxism as a philosophy, and collectivism as a form of social organization, have done nothing to recommend themselves to humankind. So the joke’s on Marx, though we haven’t heard the last of the efforts to besmirch capitalism.

Don’t Call Leftists “Liberal”; They’re Not!

29 Wednesday Jul 2015

Posted by in Liberty

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Nor are statists, collectivists and socialists, but I repeat myself. The simple plea above is made by Daniel Klein in an essay appearing in the Intercollegiate Review and in Modern Age. He asserts that libertarians (and conservatives) fall into a semantic trap when they use the term as a pejorative for leftists. I have touched on the mangled, modern usage of “liberalism” several times on Sacred Cow Chips, but Klein brings some interesting empiricism into consideration and makes several points worth emphasizing.

First, Klein traces the historical record of appearances of certain words related to liberalism in published literature using the “n-gram viewer” on Google. He shows that the political use of “liberal” began around 1770. For the next 110 years, liberalism referred to a philosophy and policies associated with small government and individual autonomy. In the U.S., however, the term began to be co-opted by the political left in the late 1800s. Around the turn of the twentieth century, references to “New Liberalism” and “Old Liberalism” became more frequent. So the term was subverted in that time frame, a decade or two before the term “left-wing” came into use.

“The literature of the so-called New Liberals declaimed openly against individual liberty and in favor of state collectivism and socialistic reform.“

Today, the association of “liberalism” with the left is confined mostly to the U.S. and Canada:

“…when we step outside North America, we see that, by and large, liberal still means liberal (in the UK, usage is in-between). …

Where liberal still means liberal, such as in Europe and Latin America, leftists have no reluctance in calling their imaginary bogeyman ‘neoliberalism.’“

By way of suggestion, Klein reviews a few alternative labels for the left. In doing so, he notes that in general, the left supports the “governmentalization of social affairs”. For that reason, one of my favorite labels is “statism”. Oddly, Klein never mentions this as a possibility. (Klein concedes that the left supports liberty on a few issues, which happen to be issues upon which most libertarians are in agreement.) He does refer to the old standby “collectivists” in passing.

Klein likes the label “Progressivism” for the left, despite the positive associations some might make with that term. He argues with some merit that progressivism implies activist, goal-directed policy, as opposed to non-intervention and the spontaneous social order favored by true liberals.

“That collectivists should join together for what they imagine to be progress is perfectly fitting. For them the term progressive is suitable. By contrast, conservatives and libertarians look to, not progress, but improvement. …

Another fitting term for leftism is social democracy, which is standard in Europe. Social democracy is a compromise between democratic socialism and a tepid liberalism. The socialistic penchant is foremost, but a vacillating liberalism gnaws at the social democrat’s conscience.”

I fully agree with Klein that we should never refer to leftists as liberals. They are completely undeserving of the description, and doing so concedes a glaringly false premise. Every leftist I know advocates the increasing governmentalization of social affairs and a naive acceptance of an impossible proposition: that government can ever possess the detailed knowledge necessary to successfully regulate individual actors from above. And leftists are foolishly willing to place faith in the benevolence and wisdom of political agents and central controllers. Klein mentions a recent editorial by Kevin Williamson in National Review:

“Williamson ends the piece by quoting two leftist authors writing in The Nation, one decrying ‘unbridled individualism,’ the other ‘unfettered capitalism.’ Williamson concludes: ‘A ‘liberalism’ that is chiefly concerned with the many clever uses of bridles and fetters does not deserve the name. It never has.’”

Will SCOTUS Grant Executive License To Rewrite Laws?

07 Saturday Mar 2015

Posted by in Obamacare

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Can a piece of legislation say any old thing, leaving the executive branch as the arbiter over what the law “should” say?  Can the executive decide a law means one thing ex ante and another ex post? That would be bizarre under the U.S. Constitution, but the Obama Administration has arrogated to itself the role of legislator-in-chief in its implementation the Affordable Care Act (ACA), aka Obamacare, effectively rewriting the law by repeatedly granting waivers and delaying key provisions. And the apparent legal doctrine of “executive license” to rewrite laws would be affirmed if the Supreme Court rules for the government in King v. Burwell.

The case, which was argued before the Court this week, revolves around whether the ACA allows subsidies to be paid on health insurance purchased by qualified consumers on federal exchanges. The plaintiffs say no because, in the “plain language of the statute”, subsidies can be paid only for health insurance purchased on exchanges “established by the state”. A ruling is expected in June.

The provision in question was intended to incent state governments to establish their own exchanges. Most states chose not to do so, however, instead opting to allow their citizens to purchase insurance on a federal exchange. Subsequently, the IRS overrode the provision in question by granting subsidies for purchases on any exchange. The case will be historic if the federal exchange subsidies are overturned, but if not, the ruling will still be historic in setting a precedent that the executive branch can enforce a view of Congressional intent so divergent from written law.

The most interesting aspect of the SCOTUS hearing was Justice Kennedy’s expressed concern that a ruling for the plaintiffs would create a situation in which the federal government coerced states into establishing exchanges, posing a conflict with principles of federalism. The Wall Street Journal was fairly quick to point out that the subsidies were intended as an incentive for states, not unlike many other incentives for state participation incorporated into a wide variety of federal programs:

“If Governors decline to establish an exchange, their citizens are not entitled to benefits, but that is not coercion. That is the very trade-off that is supposed to encourage states to participate. If the subsidies will flow no matter what, few if any states would become the partners the Administration wanted.

More to the point, federalism is supposed to protect political accountability. Two-thirds of the states made an informed decision to rebuff ObamaCare, but if voters prefer otherwise, they can elect new Governors who won’t. If federal subsidies flow no matter what, then states aren’t presented with a real choice. That isn’t how federalism works in the American system. As Justice Kennedy rightly noted, the exchange decision was partly ‘a mechanism for states to show they had concerns about the wisdom and workability of the act in the form that it was passed.’”

Jonathan Adler has some thoughts on the same issues here and here. At the second link, Adler gives a more detailed explanation of Kennedy’s concern, which involves additional regulatory implications for the states. Adler also  covers some court precedents for the kind of “coercion” at issue in King. On one case, New York v. United States, Adler says:

“In the very case that established the current anti-commandeering doctrine, the Court said there was no problem with Congress using its regulatory authority to encourage state cooperation.”

The Court would be reluctant to rule for the plaintiffs based on a principle contrary to so many of its own previous rulings. Such a justification would appear to undermine the existing extent of federal direction of state activity — a possible silver lining to a ruling for the government. But Adler also notes that what is so unique about the ACA relative to earlier precedents is that so many states decided to opt out, and there is plenty of evidence that they did so with their eyes wide open. The loss of the federal subsidies was not the only consideration in those decisions:

“… while states that choose to forego subsidies are exposing their citizens to an increase in one regulatory burden, they are relieving their citizens of others, and at least some states are perfectly happy to make that choice.”

An amusing analogy to the distinction between federal exchanges and state-established  exchanges is made by Jonathan Cohn in the Huffington Post. He contends that federal and state exchanges are comparable to the the choice between butter and oil in a pancake recipe from The Joy of Cooking. You get pancakes either way, says Cohn. Therefore, he asserts that the case against the government in King is based on a specious distinction. Sean Trende at Real Clear Politics point out that the two kinds of pancakes are not the same. If Congress wishes to reward the use of butter, then one should expect the government preserve that distinction in distributing rewards.

Trende points to another distinction missed by Cohn: suppose Congress also said that the batter must be whipped by a blender at 300 rpm. In the case of Obamacare, Congress stated that an exchange must be established by a state to qualify buyers for subsidies, and it did so with the full intent of gaining cooperation from states in shouldering the administrative burdens of the law. Of course, different pancakes might be close enough, but in the end, specific language was used by Congress to create incentives for the use of certain ingredients and a particular mixing technique. The meaning of the pancake law is clear enough and is independent of whether administration officials can dream up substitutes, even if they are right out of The Joy of Cooking.

The four statist justices (some claim they are liberal) emphasized the dire consequences that a ruling for the plaintiffs would have on the insurance market and on individual buyers in states using the federal exchange. While the impact could be mitigated by the Court in various ways, the impact itself has been exaggerated by Obamacare supporters. This piece at Zero Hedge examines the likely impact in detail, but it fails to discuss a few significant benefits related to the employer and individual mandates to residents of states without their own exchanges.

Justice Kennedy is unlikely to side with the government in this case, despite his concerns about coercive federal policy. Justice Roberts was silent for almost the entire hearing, and it is not clear whether he will side with the consequentialists, find another avenue for upholding the subsidies, or defer to the plain language of the law. The Court might engage in a form of avoidance, finding  a way to dismiss the case on unexpected grounds such as a lack of standing (though few consider the plaintiffs’ standing to be an issue). That would effectively grant the administration carte blanche in rewriting legislation.

Dismal Implications of Aggregate Analysis

12 Thursday Feb 2015

Posted by in Macroeconomics

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Economic aggregation is basic to traditional macroeconomic analysis, but it distorts and drastically oversimplifies the enormous number of transactions and the vast network of decision-makers that comprise almost any economic system, especially a market economy. There are some basic problems with aggregating across individuals and markets, but these are typically glossed over in macro-policy analyses. Instead, the focus is on a few key outcomes, such as aggregate spending by sector and saving, masquerading as collective “decisions” amenable to behavioral analysis. In this kind of framework, the government sector occupies an equal place to consumers and business investors. It is usually depicted as a great exogenous demander of goods and services, capable of “stabilizing” demand in the event of underconsumption, for example.

An insightful post by Gary Galles at the Mises blog drives home the inherent distortion involved in the analysis of macro-aggregates: “How Economic Aggregation Hides the Problems of Interventionism“.  The problems start with a nearly complete misapplication (if not neglect) of the basic problem of scarcity, as if that problem can be solved via manipulation of aggregate constructs. Galles offers a simple example of the macro distortion of “net taxes,” or aggregate taxes minus government transfer payments. Both taxes and transfers are complicated subjects, and both are subject to negative incentive effects. The net-tax aggregation is of little use, even if some rudimentary supply function is given treatment in a macro model.

By its very nature, aggregate government activity is distorted by the prices at which it is valued relative to market activity, and intervention in markets by government makes market aggregates less useful:

“For example, if government gives a person a 40 percent subsidy for purchasing a good, all we know is that the value of each unit to the buyer exceeded 60 percent of its price. There is no implication that such purchases are worth what was paid, including the subsidy. And in areas in which government produces or utilizes goods directly, as with defense spending, we know almost nothing about what it is worth. Citizens cannot refuse to finance whatever the government chooses to buy, on pain of prison, so no willing transaction reveals what such spending is worth to citizens. And centuries of evidence suggest government provided goods and services are often worth far less than they cost. But such spending is simply counted as worth what it cost in GDP accounts.”

Galles article emphasizes the unintended (and often unpleasant) consequences that are bound to flow from policies rationalized on the basis of aggregate macro variables, since they can tell us little about the impact on individual incentives and repercussions on the ability of markets to solve the problem of scarcity. In fact, the typical Keynesian macro perspective lends itself to slow and steady achievement of the goals of collectivists, but the process is destined to be perverse: more G stabilizes weak aggregate demand, or so the story goes, but as G expands, government entwines itself into the fabric of the economy, and it seldom shrinks. Taxes creep up, dependencies arise, regulation grows and non-productive cronies capture resources bestowed by their public sector enablers. At the same time, the politics of taxes almost ensures tat they grow more slowly that government spending, so that the government must borrow. This absorbs saving that would otherwise be available for productive, private investment. As investment languishes, so does growth in productivity. When economic malaise ultimately appears, we hear the same policy refrain: more G to stabilize aggregate demand! All the way down! Perhaps unemployed dependents are simpler to aggregate.

Aggregation masks the most basic issues in economics. A classic lesson in the complexity of creating even a simple product is told in “I, Pencil“, by Leonard Read. In it, he allows the pencil itself to tell the story of it’s own creation:

“Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this: Each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

There is a fact still more astounding: The absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred. “

How many individual decisions and transactions are involved, throughout all intermediate and final stages of the process? How many calculations of marginal value and marginal cost are involved, and ultimately how many prices? While the consumer may think only of the simple pencil, it would be a mistake for a would-be “pencil czar” to confine their planning to final pencil transactions. But macro-analysts and policymakers go a giant leap further: they lump all final transactions together, from pencils to pineapples (to say nothing of the heroics involved in calculating “real values”, an issue mentioned by Galles). They essentially ignore the much larger set of decisions and activities that are precedents to the final transactions they aggregate.

Statists Make a Mess of Markets

20 Tuesday Jan 2015

Posted by in Markets, Regulation

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Government is not well suited to regulate markets in many respects. In the first place, regulation is never absent from free markets: consumers, competitors, technology and all factors of production such as labor ultimately represent a network of forces that regulate market outcomes. The power of market self-regulation, and the often destructive results of government regulation, are discussed by Howard Baejter in “There is No Such Thing as an Unregulated Market“. Beyond the efficiency with which markets direct resources, Baejter notes that markets regulate the quality and pricing of goods and services. Mark Perry reviews Baejter’s post approvingly and adds some thoughts of his own:

“… the ruthless consumer-regulators also waste no time praising, endorsing and recommending the products, restaurants, movies, services, sellers, contractors and businesses they like, both by supporting them with plenty of their regulatory certificates of approval (dollars), and by giving them positive, sometimes even glowing reviews on Amazon, Yelp, Rotten Tomatoes, eBay, Angie’s List, Uber, etc….”

Baejter’s concluding section covers some ways in which government regulation short-circuits healthy market regulation. Regulatory actions not only impose significant compliance costs, but they often have the effect of suspending market price signals and hampering voluntary adjustments to change that would otherwise lead to improved welfare. Furthermore, regulated firms are often successful in “capturing” regulators, enabling the most powerful players in an industry to manipulate and obtain regulatory treatment that blunts competition. As Baetjer says:

“… government regulation often “crowds out” regulation by market forces and consumer-regulators, and markets therefore operate less efficiently because the interests of the producers take priority over the interests of consumers…”

The Mises Daily ran a post in early January by Patrick Barron in which he elaborates on the truism that peaceful, voluntary exchange necessarily improves well-being relative to third-party interference. Such interference may take the form of forced exchanges, rules, mandates, price controls, or distortions from taxation. A recent post on Sacred Cow Chips, “The State and the Invisible Future Lost“,  emphasized the sacrifice of human well-being brought on by over-regulation. From that post:

“Our society routinely destroys economic opportunities as a matter of policy. This includes immediate discouragement of economic activity via tax disincentives and regulatory obstacles as well as lost capital investment and innovation. And it includes actions that grant protected status for monopolists, a steady by-product of the regulatory state.“