1

On Certification Instead of Regulation

What started as a “Ha, do you libertarians endorse this?” dare by Mike of Rortybomb has turned into a somewhat interesting discussion between him and Megan McArdle about to what extent it’s possible to protect people who are not good at understanding complex financial products (the elderly, or people who just aren’t good at understanding complicated service agreements) from being victimized by banks without in the process hurting the people you’re trying to help. This as the new credit card legislation is going into effect, trying to crack down on banks which raise interest rates quickly if you’re late paying, have hidden fees, or move due dates around (theoretically in an attempt to keep people from paying on time.)

Mike suggests that banks should be required to offer a “plain vanilla option” of products such as credit cards or checking accounts.

And that solution would be mandating financial services to provide Vanilla Option financial products. Boring, low-reward trap-fee products you’d probably have to pay a yearly fee for.

So much of our financial services are predicated on tricks and traps but also have a lot of benefits. You get free checking, but if you overdraft you lose more than you gained. Now with a vanilla option, you could pay more upfront to not take the risk of losing later. This is banking how it used to be, boring. And this is exactly the kind of product that people with weak cognition would want to have available. Someone approaching older age, but before getting there, could opt for the “extra boring” financial services package. People buy renter’s insurance; some might view a yearly-fee on their checking account or credit card as a “trap insurance.”

Megan doesn’t think the idea would be very successful: Continue Reading

18

Difference and Equality

Individualism is one of those terms which a great many people use in a great many different ways, so it has been with interest that I’ve been reading Individualism and Economic Order by F. A. Hayek. The book is a collection of essays dealing the individualism, its definition and its place in the economic order.

From the first essay, “Individualism: True and False” comes an interesting thought:

Here I may perhaps mention that only because men are in fact unequal can we treat them equally. If all men were completely equal in their gifts and inclinations, we should have to treat them differently in order to achieve any sort of social organization. Fortunately, they are not equal; and it is only owing to this that the differentiation of functions needs not be determined by the arbitrary decision of some organizing will but that, after creating formal equality of the rules applying in the same manner to all, we can leave each individual to find his own level.

There is all the difference in the world between treating people equally and attempting to make them equal. While the first is the condition of a free society, the second means, as De Tocqueville described it, “a new form of servitude.”
(Individualism and the Economic Order p. 14-15)

This strikes me as touching on the sense in which classical liberals in the tradition of Burke and Smith can still be considered “conservative” in the old sense of the term. Although Burke is commonly accepted by those who argue that classical liberalism is not “truly conservative” as being conservative in his outlook because of his reaction to the French Revolution, he was (like Smith) Whig, though they were Old Whigs, not True Whigs or Country Whigs. Prior to the French Revolution, Burke had been generally supportive of the cause of the colonists in the American Revolution.

Taking Hayek’s point, classical liberals in the tradition of Burke and Smith do not reject the necessary hierarchy of society. Nor do they embrace sudden, transformative social change. As such, they can certainly be seen as conservative. However, they do seek sufficient freedom within society to allow people to “find their own level”, believing that there is a natural hierarchy of ability which will thus result in an ordered society, and a more desirable one than one in which hierarchy comes strictly from birth and rank.

In this sense, the freedom of a classical liberal society creates social order, and a more stable one than the sort that an ancien regime conservatism maintains. Indeed, arguably, at this point in history, it is only this Whig-ish conservatism which is commonly found within society. Ancien regime conservatism has virtually died out.

Entirely different are notions of politics or the human person in which it is held which all people are truly and fully equal — in ability and inclination as well as in human dignity. Such systems would indeed seem to lead quickly to a most undesirable oppression.

5

An Interesting Thought on State Universities

Some interestingly counter-intuitive thoughts on the UC student protests against rising tuition from David Henderson of EconLog:

Taxpayer funding of higher education is a forced transfer to the relatively wealthy

Socialist author Robert Kuttner once called Proposition 13, California’s 1978 property-tax-cut initiative, the revolt of the haves. The latest opposition by UC students to a 32% increase in tuition is a revolt of the “will-haves.”

Milton Friedman used to remark that the California government, with its state funding of higher education, taxed the residents of Watts to pay for the residents of Beverly Hills. I think Friedman exaggerated substantially. Even though the California’s tax system relies heavily on sales taxes, which probably makes the state tax system on net somewhat regressive, it’s still the case that a given Beverly Hills family pays much more in taxes than a given family in Watts. But Friedman also focused on family income of the student, and that’s misleading.
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5

The Road to Serfdom

I do not endorse some of the overheated added commentary, but I believe Friedrich von Hayek’s warnings of the long terms dangers of a planned economy are just as prescient today as when the book The Road to Serfdom was published in 1944.  It is a short book and well worth the time it takes to read it. Some memorable quotes of von Hayek: Continue Reading

1

I Want One Of Them Stimulous Jobs

There is something in me which, when it sees to related numbers, wants to immediately do a calculation, so when I saw a news story stating that the $215 billion in stimulous money given out thus far had resulted in 640,329 jobs, my first question was, “How much is that per job?”

Answer? $312,339.44

Not too shabby, eh? I’d like one of them jobs just fine.

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2

Beatrix Potter, Capitalist Swine

[This is neither American nor Catholic, but it is, I like to imagine, mildly amusing in a bored-parent-on-a-Friday kind of way.]

As you can perhaps imagine, there is much reading in the Darwin family, as we consider it necessary to corrupt the dear little tabula rasas of our children with a mixture of facts and fairy stories from the very youngest possible age. And how better may one corrupt the youth then by wrapping up the harsh teachings of the dismal science in the charming trappings of a bevy of dear little fuzzy animals? Do not allow these subtle deceptions, gentle reader! As I shall demonstrate, under the cover of a whimsical, Edwardian children’s authoress, lurks a deadly capitalist in sheep’s clothing.

Attend, to The Tale of Ginger and Pickles (ebook available here)

THE TALE OF
GINGER & PICKLES

BY
BEATRIX POTTER


Once upon a time there was a village shop. The name over the window was “Ginger and Pickles.”
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39

They Only Donate Money

Every so often, when dealing with Church projects and non-profit work in general, one hears someone who does a lot of volunteer work toss off a disparaging remark alone the lines of, “Oh, those people. They only give money. You’d never see them down here working.”

Sometimes this is used to support a claim as to “who really cares” about an issue, along the lines of:

“Sure, you’ll find lots of [members of group X] a pro-life fundraising banquets, but you’ll never see them working at a crisis pregnancy center.”

or

“[Members of group X] may give money to ‘charity’, but you’ll never find them filling boxes down at the foodbank or working with at-risk kids.”

This has always struck me as a somewhat unfair criticism, for reasons I will get into in a minute, but I was particularly reminded of this last week when I had to go down to the diocesan offices to be trained to count and report the collections for the diocesan Catholic Services Appeal. The annual appeal provides a about the third of the operating expenses for the diocese — and since I deal with financial-ish stuff at work and I’m going to be rotating off the pastoral council in a couple months, I half volunteered, half was dragooned, into helping out with the processing of the collection this year at the parish. At the training session, I was particularly struck by the numbers of where the money in the appeal comes from:
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7

Do you trust people who profit from you?

We’re often told that we shouldn’t trust people whose only interest is to make a profit from us. I ran into a brief piece by economist Russ Roberts which stands that conventional wisdom on its head in an interesting way.

The other day I had to get some important tax receipts to my accountant. He’s in St. Louis, it was getting close to April 15, and it was very important that the papers didn’t get lost. To give my accountant plenty of time, I wanted the papers to arrive the next morning.

So what did I do? My first choice was to get on a plane and deliver the letter myself. Too expensive. Too much time.

So I did the next best thing. I went down to the airport and found someone headed to St. Louis. I told her how important it was for my accountant to have my receipts by the next day. Fortunately, she seemed really nice. She said she’d be happy to help me out. I sealed up the envelope, and she promised not to open it after I left.
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8

Income Gap Narrowing

A year into the economic downturn, the much decried income gap has narrowed.

The deepest downturn in the U.S. economy since the Great Depression may finally shrink the gap between the very best-off Americans and everyone else.

If so, it won’t be by lifting up the bottom. It will be by pulling down the top.

Over the past 30 years, chief executives, Wall Street bankers and traders, law-firm partners and such amassed ever-greater incomes, while the incomes of factory workers, teachers, office managers and others in the middle grew much more slowly. In 2007, the top 1% of U.S. families accounted for 23.5% of all personal income in the U.S., according to economists Emmanuel Saez of the University of California at Berkeley and Thomas Piketty of the Paris School of Economics. That was a level not seen since the Roaring Twenties.

The top 1%’s share appears to be falling fast. Mr. Saez and other economists expect income going to the top 1% of taxpayers — currently, those with about $400,000 a year — will drop to somewhere between 15% and 19% of all income by 2010. That still would leave income distribution more top-heavy in the U.S. than in many other countries.
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5

Smith, Hume and the Servile State

I was recently listening to an interview with Stanley Engerman, co-author of Time on the Cross: The Economics of American Slavery. It was an interesting discussion overall, but what particularly caught my attention was basically a side-note.

Engerman referenced Adam Smith’s understanding of slavery which he described as being that slaves had no incentive towards greater productivity, with the result that using slave labor rather than free labor was inefficient. Smith thus attributed the fact that people use slavery despite it’s inefficiency to the will to domineer over others:

But if great improvements are seldom to be expected from great proprietors, they are least of all to be expected when they employ slaves for their workmen. The experience of all ages and nations, I believe, demonstrates that the work done by slaves, though it appears to cost only their maintenance, is in the end the dearest of any. A person who can acquire no property, can have no other interest but to eat as much, and to labour as little as possible. Whatever work he does beyond what is sufficient to purchase his own maintenance can be squeezed out of him by violence only, and not by any interest of his own. In ancient Italy, how much the cultivation of corn degenerated, how unprofitable it became to the master when it fell under the management of slaves, is remarked by both Pliny and Columella. In the time of Aristotle it had not been much better in ancient Greece. Speaking of the ideal republic described in the laws of Plato, to maintain five thousand idle men (the number of warriors supposed necessary for its defence) together with their women and servants, would require, he says, a territory of boundless extent and fertility, like the plains of Babylon.
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Concord Coalition: 14.4 Trillion Dollar Deficit

14.4 trillion

In this earlier post I reported that the Obama administration is predicting a 9 trillion dollar deficit over the next ten years.  Now, the non-partisan Concord Coalition is predicting here a 14. 4 trillion dollar deficit over the next 10 years.

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10

The Prudential Science

I ran into this quote going through an old EconTalk the other day, and thought it interesting:

As economists, we’re specialists in prudence only.

That, as you say, is not what Adam Smith recommended. Not at all. I and a number of other people would like to get back to a Smithian economics, which although it didn’t throw away the very numerous insights that we get from thinking of people as maximizers — maximizers in this narrow sense — acknowledges that temperence and justice and love and courage and hope and faith can change the way the economy works.

UIC Economist, Deirdre McCloskey

I’m trying to decide if I agree with it or not. I would certainly agree that economics basically only looks at certain prudential concerns, it doesn’t consider humanistic or theological questions. However, I’m not sure if economics should acknowledge those concerns, or if it is more the case that economists (and others dealing with the field) should clearly acknowledge that there is much more to any question than the question of what is most economically efficient.

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9

How to Get There from Here

There’s been much discussion of late about what other country’s health care apparatus the US should consider emulating, and in such discussions France is often mentioned. Now, all cheerful ribbing against the French aside, their health care system is not nearly as “socialized” or nearly as afflicted by treatment denials and waiting lists as those of the UK or Canada. It is also rather more like the system that the US already has, in that it is a hybrid public/private system, though in their case there is a guaranteed base level of coverage everyone has through the government (funded via a hefty payroll tax — not unlike Medicare) which most people supplement with private coverage. Most doctors are in private practice, and 25% do not even accept the public plan, just as some practices in the US do not accept Medicare. However, everyone does have that minimum level of coverage, and the French spend a lower percentage of their GDP on health care than the US (11% versus 16%) which when you take into account that France’s GDP per capita is a good deal smaller than that of the US (which is the polite, economist way of saying it’s a poorer country) works out to the US spending about twice as many dollars per person on health care, while still not having universal coverage.

So what are we waiting for? Why don’t we go enact the French system here right now? Why doesn’t Obama put on a jaunty beret, dangle a cigarette coolly from the corner of his mouth, hoist a glass of wine, and just say, “Oui, nous pouvons.”
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"Federal Budget on an Unsustainable Path"

Federal Debt Projections

As regular readers of this blog know, I have been sounding the tocsin regarding government spending since the Bailout Swindle of 2008.  Here is one of my posts in which I list other posts I have written on the subject.

Yesterday the Director of the Congressional Budget Office had a chilling post on his blog which you may view here.  He states in part:

“Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy. The following chart shows our projection of federal debt relative to GDP under the two scenarios we modeled.” 

His chart is at the top of this post.

Keeping deficits and debt from reaching these levels would require increasing revenues significantly as a share of GDP, decreasing projected spending sharply, or some combination of the two.

He concludes on this somber note:

The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.

This is fiscal madness.  We have the wealth and the ability to solve this problem by spending cuts, and minor tax increases if, and only if, combined with meaningful and deep spending cuts.  What we lack is the political will.  We are destroying the future prosperity of our kids because of current political cowardice, folly and inertia.

4

Will Health Care Reform Create (More) Health Care Shortages?

MSNBC recently did an interesting piece on the shortage of primary care practitioners, which has become particularly acute in rural and low-income areas. As a result, many older doctors feel that they cannot retire because there is no one to take their place:

There are not enough general care doctors to meet current needs, let alone the demands of some 46 million uninsured, who threaten to swamp the system.

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8

Capitalism — When People Sell Things I Don't Like

With the garden currently shooting up, I’ve found myself again disposed to read gardening and food related books. I finished reading The Omnivore’s Dilemma last week, and aside from a few gripes in regards to Michael Pollan’s understanding of economics, I enjoyed it quite a bit. On the last run by the library, I picked up a copy of Barbara Kingsolver’s Animal, Vegetable, Miracle: A Year of Food Life. The idea of moving out onto acreage and growing much of one’s own food is something that I find interesting. I enjoy gardening, I enjoy cooking gourmet food, and I think there’s a cultural and psychological value to remaining in touch with the way that humans have gained food for themselves in past centuries.

However, Kingsolver is far more passionate (and less balanced) in her jeremiads against “industrial food” than Pollan, and more prone to denunciations of what “capitalism” has done to our food culture. Indeed, so much so as to crystallize for me a trend among those who denounce “capitalism” and its impact on Western Culture. Kingsolver had just reached the crescendo of a complaint in regards to large seed companies peddling hybrids and genetically modified strains, when she turned to the subject of heirloom vegetable varieties, and her joy at paging through lengthy seed catalogs full of heirloom seeds.

…Heirloom seeds are of little interest to capitalism if they can’t be patented or owned. They have, however, earned a cult following among people who grow or buy and eat them. Gardeners collect them like family jewels, and Whole Foods Market can’t refrain from poetry in its advertisement of heirlooms….

So you see, when large agribusiness firms sell farmers seeds for field corn which are genetically modified to repel pests,
that’s capitalism. But when catalog and internet businesses build a thriving niche selling heirloom vegetable seeds, and Whole Foods ad men wax poetical over $7/lb tomatoes, that’s… Well, it certainly can’t be capitalism, can it? Not if it’s good.

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5

Your Wealth Makes Me Wealthy

One of the concepts in economics that people seem to have difficulty grasping at an intuitive level is how other people’s income affects one’s own income. Many people instinctively ascribe to the “lump theory” of money, in which one may imagine all wealth to consist of a set amount of money, like a dragon’s hoard. If you capture more of it, that means that someone, somehow, has ended up with less.

In certain circumstances, this theory might describe things pretty well, but in most times and places wealth grows and shrinks with productivity. Basically, if I am able to produce more goods and services of value to othe people in the same amount of time, then my income grows.

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5

Picturesque and Primative

From last weekend’s Wall Street Journal, an article on the not-yet-crowded heritage treasures in the world:

As dawn breaks on top of a mountain near the China-Vietnam border, hundreds of water-filled rice terraces reveal themselves, clinging to the mountainside in geometric patterns in every direction. The rising sun, reflecting off the water, turns some of the terraces bright shades of orange and gold. Then solitary figures appear, black against the rising sun — peasants with their water buffaloes hitched to wooden plows.

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7

The Culture of Death and Consumerism

Contributor Joe Hargrave posted a link to an interesting new essay of his today on the topic of the Culture of Death and its connections to consumerism. It’s an interesting essay, and I encourage people to read it. I do not pretend to similar length or erudition in this piece, but in formulating some thought about Joe’s essay I realized that it would be very long for a comment, so I’m writing it up as a post here instead.

There are a lot of things I found interesting and wanted to discuss (or dispute) in your essay — perhaps in part because I get the impression that our areas of historical knowledge are somewhat non-overlapping (I know most about 3000 BC to 400 AD, you seem to be most expert on the last two centuries), and the person who imagines himself an expert in anything invariably has all sorts of quibbles with what the “outsider” writes. However, I’m going to try to stick to what I think is my most central critique.

Joe finds at the root of the culture of death the materialistic and individualistic phenomenon of modern consumerism, and about consumerism he says the following, beginning with a quote from Pope John Paul II:

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30

Capitalism, A Beneficial Exchange

Blogger Sam Rocha wrote a post the other day titled, “A Brief Defense of ‘Capitalism'”. However, Rocha’s attempt is, I think, somewhat hampered by the fact that he by his own description does not think much of capitalism.

For the most part we (by “we” I mean those of us on the left, yes I will own up to being something of a leftist, whatever that means) like to say that all capitalism, and its governing libertarian sentiment, desires is for there to be no limit at how much one can take for one’s self. It is a creed of the indulgent and the rich. Greed, selfishness, isolationism, sterile individualism and other nasty things, are what we enjoy making capitalism out to be.

With such an opener, what might wonder what it is that Rocha then finds to praise in capitalism. What he find is, I think, not at all unique to capitalism narrowly defined, but it is something which those of us in the West are much attached to:

If we can cut-out the name calling, I think we can find a powerful meaning within capitalist sentiment. Namely, the much-abused, taboo, and rejected idea of the individual, the person-singular. I think that if we take notions of private property and negative freedom (“freedom from”) inherent in capitalist sentiment, and ponder what they mean, we will find that we all value such things privately….

Here is my defense: Capitalism, as it is believed in benevolently, reminds us of our radical existence as images of God with a potency to as we wish within the vast sea of possibility. What we need next is the ability to control ourselves with the prudence, grace, and love of our Creator in this stormy sea of freedom. But we should never be too quick to accept external-control over our bodies, minds, and hearts. We need to be free. And perfect freedom is not the raw, brute force of libertarianism, to be sure. At the same time, it also is that imposing force.

I don’t find what Rocha finds to praise unappealing, but at the same time I think that there is something more to be found in capitalism as described by Adam Smith and others which even many of those who frequently condemn capitalism would find it in themselves to admire if they could look past their preconceptions and see Smith-ian capitalism for what it is.

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2

No Guarantees

I was struck by this Megan McArdle post, of which I will go ahead a quote a large chunk:

Guess what, honey? You’re not entitled. You can do everything right, and the universe doesn’t owe you anything. Neither do your fellow taxpayers. If there is any way to save the banking system without paying you $2 million a year, I will do it, not because I hate you and want to rob you, but because I don’t want to pay more than I have to. You may have come across this concept in business school. At Chicago, we called it “a market”.

The real problem with investment bankers goes deeper, and is the problem of the entire upper middle class: we have come to believe that complying with the rules produces excellent results as by some natural law. In school, if you do your work, teacher gives you an A. It comes to seem like a sort of a natural law: if you have a good education and work hard, the universe is supposed to reward you. After school, the upper middle class gravitates towards careers with very well defined advancement hierarchies: medicine, law, finance, consulting, where this subtle belief is constantly reinforced. Continue Reading

22

Unreasonable Compensation

With people focused on the economic downturn, many have found it a good time to give a little extra thought to whether other people are making more than they ought to. The president has spoken out several times against “excessive compensation” of executives, and a number of people have floated the idea of adjusting the top marginal income tax rate to effectively cap total compensation at ten million dollars a year. MZ tackled the question somewhat humorously here.

Beyond question, $10 million is a lot of money. Most of us will never see anything like that much money, and so it seems entirely reasonable to demand: Why should anyone be paid so much? What’s so special about CEOs and actors and baseball players that they deserve tens of millions of dollars? Aren’t they running off with the money that we should be getting instead?

I certainly wouldn’t claim that executives are not often paid more than they are worth. A board of directors is still a group of people with emotional commitments (including wanting to assure themselves that they made the right pick in choosing the current CEO) and they will certainly not always do what is in their own best interest. Though we may be comforted that in a free economy the incentives are in place to automatically punish them for not doing so.

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9

EconTalk

For something over a year now, I’ve been enjoying the EconTalk podcast, something which Blackadder of Vox Nova turned me on to. EconTalk is a weekly, one hour podcast put out by the Library of Economics and Liberty. It’s hosted by Dr. Russ Roberts, a professor of economics at George Mason University and regular National Public Radio commentator on economics, and the format is usually one of Prof. Roberts interviewing an economist about his/her recent book, or about an topic of current interest. And generally it succeeds in pursuing that fascinating middle ground of being accessible to the general listener while not shying away from discussing highly technical/academic topics.

I was inspired to post on them at this point because this week’s podcast was of a different format than usual, consisting of an extended interview of Prof. Roberts by a journalist on the difference between wealth and income, and what it means to say that we have “become much less wealthy” over the course of the recession of the last 6-9 months. Roberts also discusses the inexact nature of economics as a science and how the uncertainties of interpreting data play into policy debates.

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6

Krugman's Foundation

This Newsweek article about Nobel Prize-winning economist and NY Times columnist Paul Krugman contained an interesting biographical detail:

Krugman says he found himself in the science fiction of Isaac Asimov, especially the “Foundation” series—”It was nerds saving civilization, quants who had a theory of society, people writing equations on a blackboard, saying, ‘See, unless you follow this formula, the empire will fail and be followed by a thousand years of barbarism’.”

His Yale was “not George Bush’s Yale,” he says—no boola-boola, no frats or secret societies, rather “drinking coffee in the Economics Department lounge.” Social science, he says, offered the promise of what he dreamed of in science fiction—”the beauty of pushing a button to solve problems. Sometimes there really are simple solutions: you really can have a grand idea.”

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On The Question of Inequality

There’s been some discussion of inequality in posts and comments here recently. I have ambitions to write a series of the particular challenges I believe our country is facing in regards to inequality in a modern high-skill-based economy, but given recent discussion I’d like to open with something fairly open-ended.

John Henry pointed out that the Catechism of the Catholic Church addresses the question of equality to some extent in its section on Human Solidarity:

1935 The equality of men rests essentially on their dignity as persons and the rights that flow from it:

Every form of social or cultural discrimination in fundamental personal rights on the grounds of sex, race, color, social conditions, language, or religion must be curbed and eradicated as incompatible with God’s design.40

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10

Fraud, Folly or Probability

As the government continues to pump money into AIG, the foundering insurance giant which found itself at the center of the real estate and financial crashes, I’ve seen increasing numbers of commentators demand to know why no one is calling for the jailing of AIG executives on charges of fraud. How, the argument goes, was their selling of financial insurance products any different from the sort of fraud Maddoff carried out? They sold insurance policies they couldn’t cover! They took money and gave nothing in return!

I think this tends to underline that people don’t actually understand insurance and how it works very well. This is doubly concerning in that insurance has become increasingly central to people’s ideas of economic security in the last few decades. Indeed, we’ve reached a point where lacking health insurance is itself considered a health problem, regardless of whether this actually results in someone failing to receive needed treatement.

What is insurance? Basically, insurance is a way of extending your savings for unlikely but high cost eventualities.

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2

Capitalism is 3rd World's Safety Net

While Americans weather layoffs and watch their 401ks dwindle, the developing nations in which many of our products originate are being hit even harder by the global downturn. Many of these developing nations have virtually no social safety net, and job loss can be crippling. However, as jobs manufacturing good to be sold to the West dry up, many are turning to the “informal economy” the open air markets, street vendors, and in-home manufacturers which make up more than half the economy in countries ranging from India and Mexico to much of sub-Saharan Africa.

The informal economy consists of cash and in-kind transactions and its practitioners do not pay taxes, hold licenses, or obey regulations. Pay is simply however much money is made, and there are no benefits. Because informal businessmen pay no taxes and work on a cash only basis (they seldom capitalize through loans, nor do they put savings into banks) economists have generally seen them as a drag on the economy. But as export-based jobs dry up, it provides a fallback safety net for many workers:

pilaporn_jaksuratUntil late December, Pilaporn Jaksurat, 33, was working full-time on a cotton spinning machine in a textile mill in Bangkok. She made about $7 a day and her benefits included bonuses of $30 a month for good attendance and a severance package worth about $800.

Then she was laid off when her factory, which sells fabric to clothing manufacturers in Europe, said it had to cut costs to cope with the global economic crisis.

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Partisanship and Empty Rhetoric

It seems in recent week that an ever-increasing focus has fallen on Rush Limbaugh and his radio show.  Not only have the usual suspects worked themselves into a frenzy over him, but we’ve even had President Obama command Congressional Republicans to ignore him.  And the White House has yet to let up on speaking against him.  White House Press Secretary Robert Gibbs has even taken a few stabs at Limbaugh.  Even more amazingly, Republican Chairman Michael Steele has voiced disapproval of Limbaugh’s talks.

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Don't Make It Hurt

So here’s an argument against irreducible complexity.  Take a family that works hard for a living, saves a large chunk of its earnings for old age, emergencies, sending kids through college, and so on.  Then create (through some combination of amino acids and other proteins) an institute that offers insurance against disaster.  The family, being prudent, realizes that the insurance, while it costs them a little more each month, could potentially save them thousands of dollars in the long run, and so it buys into the insurance company.  Now introduce a mutation: the family decides that since disasters are covered, they can divert a little more money into luxuries. Repeat this process with a health care institute that helps cover the soaring prices of medication; a loan agency to cover college tuition (which is steadily outpacing what the normal family can afford); a loan agency to cover the cost of a business; a house; a car; anything at all with the swipe of a plastic card with a magnetic strip.  With that final mutation, we now have a system in which the removal one component causes the whole organism to fail, and yet was built up by increments.

Nearly half a year after the great crash that marked our current recession as one of the worst in decades, we are still bleeding.  Our economy continues to shed jobs; the stock market wavers, falls, stabilizes, wavers, and falls again; big businesses, like the insurance titan AIG, continue to need billions of dollars of bailout money just to survive; and the government continues to scramble to pass legislation that supposedly will fix all our problems, but in reality will simply make matters worse.  The gigantic stimulus package was laughable (in more a mad, gibbering, hysterical laughter than a ha-ha laughter) in that hundreds of pet projects suddenly found funding, but precious little in the bill actually targeted economic stimulus, and much of the spending won’t happen immediately.

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Some Pseudo-Random Thoughts

A decrease in solidarity means people have fewer resources to turn to in time of crisis.

With a decrease in solidarity, a man either makes it on his own or fails on his own.

If a man is struggling to make it on his own, a child becomes an unwelcome hindrance.  A child is an economic drain, and if a man has no other resources, a child might destroy his chances of success.

Thus it should come as no surprise that programs to provide economic aid to poor soon-to-be-parents would decrease abortion rates to some extent.

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7

Lessons of the Financial Crisis

While I’m on the topic of narratives, Matthew Boudway at dotCommonweal has a post up entitled “They Cannot Fathom Their Failure”.* The post is based on a George Packer column, which basically makes the argument that conservatives “cannot fathom the failure of their philosophy” after the recent financial crisis, and that to deny they have been discredited is a form of self-delusion. This is a charge, I suppose, to be approached with trepidation; false consciousness is notoriously difficult to disprove. That said, it may be worthwhile to offer some thoughts in response. Here is an excerpt from the post:

…“[T]hey cannot fathom the failure of their philosophy.” Not “they will not fathom” it. They cannot. Sure, the response of many conservatives to the bailout and the stimulus package has been opportunistic and cynical. Many of them, though, simply cannot imagine what it would mean — what it now does mean — for the premises of their policy agenda, and indeed of their entire political philosophy, to have failed.  Not even the most spectacular failure can force anyone to learn a lesson he desperately wishes not to learn. Historical events are always complicated and contingent enough to admit of more than one interpretation, and the most plausible interpretation is often not the most attractive.

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5

Am I My Brother's Keeper?

One of the great principles that tends to be ignored in our debates about economics, social justice, and governmental involvement in the lives of the people is solidarity.  We argue about how involved the government should be in our lives, what kinds of safety nets it should provide, and to what extent it should mandate and appropriate in order to provide for the most needy of society.  We argue about how well certain economic theories–capitalism, Keynesian economics, socialism, etc.–work in providing justice, or even providing just shelter and food.  We argue about subsidiarity, and how it should be practiced, and while that touches on solidarity, it doesn’t fully overlap.

One of the arguments about governmental involvement is how the aid provided is cold and distant.  By the time  the welfare check is spat out of the massive, convulsing, bureaucratic mess that is the government, any principle of charity has been rendered flat.  The recipient is a name on the list, judged worthy to receive a handout based upon an entry in a database.  At first this seems like an argument of aesthetics.  If a man receives a welfare check from the government rather than from friends in the community or local charities, he still receives the money he needs to survive.  Yet there is a deeper problem here than merely looking at from whom the money comes, or how much charity exists in the entity delivering assistance.  The continual reliance on the federal government to solve our problems aids in the breakdown of solidarity.

Is it any wonder that we have become so polarized, so factious, so estranged?

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13

Econ 101

While most of our recent public debates have centered around topics on which economist’s disagree, Harvard Economist Greg Mankiw recently posted a list of fourteen propositions that most economists accept, which is an excerpt from his popular macroeconomics textbook. I thought it might be of interest to some of our readers, as discussions of the common good and public policy often touch on these subjects:

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6

Res Ipsa Loquitur (II)

I posted last week about the negative reception to Geithner’s bank plan. Here, for instance, was Paul Krugman’s take:

It’s really not clear what the plan means; there’s an interpretation that makes it not too bad, but it’s not clear if that’s the right interpretation….So what is the plan? I really don’t know, at least based on what we’ve seen today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into place.

Not exactly an enthusiastic endorsement. Today’s Washington Post has some of the back story:

Just days before Treasury Secretary Timothy F. Geithner was scheduled to lay out his much-anticipated plan to deal with the toxic assets imperiling the financial system, he and his team made a sudden about-face.

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14

Inequality and the New Aristocracy

Running into this article the other day, I was startled to find how many of my own intellectual hobby horses it touched upon. Arnold Kling and Nich Schulz are economists, and their topic is in equality in the modern economy. They cite Google co-founder (and billionaire) Sergey Brin as an example of many of the forces they believe are driving inequality and list the following major forces:

Technology: Brin’s wealth comes from the famous search engine he pioneered with cofounder Larry Page. Their company is a mere ten years old. And yet in the blink of an eye, he has become one of the richest men in the world.

Winners-take-most markets: Certain mass-market fields tend to simulate tournaments in that they produce just a few big winners along with many losers. These include technology/software, as in the case of Google, but also entertainment (Céline Dion), book publishing (Stephen King), athletics (Tiger Woods), and even some parts of academia, finance, law, and politics (as the impressive post-presidential earnings of George H. W. Bush and Bill Clinton demonstrate).
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3

Political Philosophy or Ideology?

While we’re discussing libertarianism and its derivations, Randy Barnett at The Volokh Conspiracy recently flagged a post by a libertarian that I found interesting:

I’ve always found libertarianism to be an attractive political philospohy. But…the libertarian perspective has a couple of traps. The trap Barnett describes is a particularly tough one to get out of: once seduced by a libertarian idea, like “goods and services are produced & distributed more effectively when markets are not interefered with by coercive agents like government”, its apparently obvious correctness turns it into a sort of semantic stop sign.

I went through a phase where if, say, education or healthcare policy came up in conversation, I’d say “Markets! Markets markets markets! MARKETS!” I found these conversations astonishingly unproductive, but I didn’t think to blame myself.

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2

Does It Really Stimulate?

It seems a bipartisan effort to ensure that there is some sort of stimulus bill, and only a few politicians think there should be no package at all.  Many economists have warned in the past, and continue to do so now, that stimulus packages like the one currently waiting final approval, do not work.  Let’s take a moment and examine the arguments as to why they don’t work.

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7

Viewing the Stimulus Package, Part A

I decided to find out for myself what is in the Stimulus Package being debated. The version I’ve looked at is the version the House passed, and I can’t image the Senate version looks much better. Here is the results of Division A (the first 250 pages or so).

Things this package will not be used for: casinos and other gambling establishments, aquariums, zoos, golf courses, or swimming pools; any public work (airports, bridges, canals, dams, dikes, pipelines, railroads, mass transit, roads, etc) that does not purchase all iron and steel from within the U.S. (unless there simply isn’t enough iron available, or buying locally increases cost by 25% or more, or it is “in the best interest of the public” to buy abroad).

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2

True Bread

ecce-agnus-dei
We all know that there is a global economic crisis and no one can predict how it will play out. Will it be short or will the world seek deeper and deeper into a global economic depression? These questions cannot be answered by any man or woman on earth. Many have lost all hope? We should remember that all economic systems are man made and thus imperfect. During the dot com boom of the late 90’s economists were stating that we had conquered the economic cycle and entered an age of unstoppable economic growth. When that flopped, they looked to housing and real estate. It never goes down, right? Any person who had studied property prices knew that to be incorrect, nevertheless, many fell for the lie. But how many people believe the words of Christ? Seems to me that these economic times call for heeding the words of Christ in Matthew 6: 25-33:

“Therefore I tell you, do not worry about your life, what you will eat (or drink), or about your body, what you will wear. Is not life more than food and the body more than clothing? Look at the birds in the sky; they do not sow or reap, they gather nothing into barns, yet your heavenly Father feeds them. Are not you more important than they?Can any of you by worrying add a single moment to your life-span? Why are you anxious about clothes? Learn from the way the wild flowers grow. They do not work or spin. But I tell you that not even Solomon in all his splendor was clothed like one of them. If God so clothes the grass of the field, which grows today and is thrown into the oven tomorrow, will he not much more provide for you, O you of little faith? So do not worry and say, ‘What are we to eat?’ or ‘What are we to drink?’ or ‘What are we to wear?’ All these things the pagans seek. Your heavenly Father knows that you need them all. But seek first the kingdom (of God) and his righteousness, and all these things will be given you besides.”
 
 

Of course, there is some good news that has come out of the financial turmoil and scandal:

“Madoff fallout drains funding of abortion advocacy groups”