Saturday, November 14, 2009

... But Hayek was Wrong...

When I think about the hyperbolic claims about welfare and tyranny, it reminds me of Hayek's predictions about social welfare states. As Bruce Bartlett (pal of Art Laffer among other supply-siders, and guru of the Reagan tax cuts) points out in an article which partially debunks Hayek's claims:
In 1944, the Austrian economist F.A. Hayek published an extraordinarily influential book, The Road to Serfdom. In it, he argued that liberalism eventually leads to totalitarianism; that is, once a nation has embarked on the creation of a welfare state, there is no natural limit to the size of government until it controls everything, socialism becomes pervasive and political freedom evaporates.

I have my doubts about the extent to which the rank-and-file member of the recent conservative backlash is familiar with the economic philosophy of Hayek, but these are the ideas from which they have taken their intellectual cues. Hayek made a lot of significant contributions to the field of economics, and his ideas about Creative Destruction were revolutionary in their time. However, his argument about social welfare is both a logical fallacy and inconsistent with the empirical evidence of the last 20 years.
Logically, the argument rests on a flimsy and fallacious "slippery slope" argument. As Bartlett notes:
Since Hayek's book appeared, it has been an article of faith among American conservatives and libertarians that every expansion of government is a step on the slippery slope to totalitarianism. National health insurance today, the gulag tomorrow, many of those on the right genuinely believe, often citing Hayek in support.
Consequently, it is axiomatic that Europe, which is much further along the road to a welfare state than the U.S., is also further along the road to socialism and totalitarianism.

But this turns out to be false, both when it comes to Europe, and when it is compared with evidence from the rest of the world. Economies (many of which developed and still have sizable social welfare programs) have been liberalizing the industrial sectors of their economies at a tremendous pace, political and economic freedoms have been extended to more people than ever before, poverty has fallen dramatically, the number and intensity of violent conflicts have subsided considerably, and more countries' political systems are based on democratic institutions than ever before. Empirically, much of this progress on economic, political and social fronts has been credited to globalization and the retreat of government from industry. But even as economists laud these sorts of liberalizations, the mainstream view (advocated by, for example, Bhagwati, Stiglitz, and others) continues to stress the importance of the social safety net to avoid a socialist backlash.
Also, with respect to the "Europeanization" of the US, it is false to assert that European countries are less politically free because of their higher taxes and more pervasive welfare states. Conservative think tanks such as Freedom House and the Heritage Foundation, Consistently rank countries like Denmark, which has an average tax rate of 49% compared with 28% in the US, on a par with the US.
The bottom liine is that the intellectual argument that the 9/12 and teaparty activists have founded their protests on has a number of holes in it.

Friday, November 13, 2009

Thursday, November 12, 2009

Endogenous Change in Tort

Maybe the Return on Investment for lawyers will either (a) run up the costs of legal action; or (b) decrease the supply of lawyers to the point where tort reform is not an issue.
Funny how the Right trusts the market to allocate doctors efficiently, but not legal services. Seems like market signals are working more appropriately in the latter than the former.

Power laws

Statistical power laws relating size to frequency, discussed by Aaron Clauset. Interestingly absent: wealth.

Differing views on 900b.

Tyler Cowen brings together two sides of thought on the $900b. figure from the CBO.
Arnold King says the costs will be higher because people will game the system.
Jonathan Gruber says the costs will be lower because reducing costs and lifting the implicit tax of having to pay employee health benefits will increase wages and create jobs.
They're both probably right.

Lies, Damn Lies, and Lou Dobbs

Lou Dobbs has lied about:
1. Leprosy;
2. Immigrant Crime Rates (immigrants ACTUALLY commit less crime, on average, than natives);
3. The "North American Union" (which doesn't exist);
4. Immigration in general;
5. Trade in general;
He has also hosted known white supremacists.
I wonder why rumors have it that he will be going to FOX after having left CNN?

Wednesday, November 11, 2009

Math in Stalin's Russia

Three reasons Russia stayed good at math.

Thought US taxes were progressive?

Wait till you see this. And, by the way, it's from the conservative Ludwig von Mises Institute, not some hippie liberal thinktank. This is why a negative income tax on income below a certain threshhold (first proposed by Milton Friedman) would be a better way to flatten out the income distribution than lump-sum cash subsidies.

Federal Budget Challenge

Think you can do it? Good luck - I cut the 10-year estimated deficit substantially, but there's no way I'm getting re-electid because I had to screw seniors, and raise some taxes. I wonder if anyone can do it without raising taxes. My guess is no.

Tuesday, November 10, 2009

Who is Mike and Why did His Dog Eat a Frog

This is from the Journal of Differential Geometry:
And they say the peer review process in economics is imperfect!

Poland 20 Years after the Fall of the Wall

Might higher wages in China and India Hurt US Workers?

Found this interesting summary of a paper by Gavin Wright on Free Exchange:

What broke the south's isolation? According to Mr Wright, it was the labour policies of the early 20th century and the New Deal, which served to increase southern labour costs. That's right—policies which pushed southern wages above the market rate saved the southern economy. And what's fascinating to note is that northern industrialists favoured many wage-increasing policies specifically because they believed that those policies would limit job growth in the south, and low-wage southern industrial competition. As Mr Wright notes, the 1939 minimum wage increase affected only 6% of northern workers, but 44% of southern workers.

How could this have benefitted the south? Well, the region's isolation was in no small part self-chosen. Southern leaders wanted to maintain a certain way of life and culture, and they resisted any policy out of Washington which would lead to increased interdependence with the rest of the nation. Suddenly high southern wages broke this world open. Farmers and other producers rushed to trim labour forces and adopt labour saving technologies, which led to high unemployment and waves of migration to the north. This meant, first, that there was finally significant cross-regional labour movement involving the south and, second, that southern leaders had to begin attracting investment or face total depopulation.
FE offers another interesting parallel from East Germany:

Of course, everyone knows the argument in favour of rapid wage convergence, i.e. the danger of migration, time and again castigated by politics. If wages lagged, there might be west-migration of many people and that had to be prevented. But why? ... Even under favourable conditions, it would take at least one decade for the necessary investments to restore an industrial base. ... In the end, East Germany would have grown faster without the push for higher wages, and most people would meantime have returned home again when a flourishing economy would have developed. 

Mass unemployment, caused by aggressive wage politics, probably resulted in much more emigration [emphasis mine] (and much less immigration) than would have been the case with lagging wage convergence. The wage push became a program for “deconstruction of the east” and, if at all, “reconstruction of the west“, i.e. the opposite of what had been intended.

So, might imposing "higher labor standards" in the rest of the world (India and China being the usual scapegoats) actually lead to technological innovation in China, increased emigration pressure from South and East Asia, and ultimately hurt workers in the US? We'll see. Oh, and by the way the net direction of capital flow for china is OUT.

All this Nonsense about Tyranny

From the TC at MR:

I first visited Berlin in 1985, while traveling with Randall Kroszner.  We drove to West Berlin by car and we were terrified for the few hours we were underway in East Germany.  Randy did not drive over the speed limit once.  I was hardly a communist sympathizer but still I was unprepared for the day trip to East Berlin.  I saw soldiers goose-stepping down one of the main streets.  In the stores old ladies yelled and swung their brooms at me.  Many buildings still had bullet marks or bomb damage from World War II.  In a restaurant we ate a rubber Wiener Schnitzel and shared a table with an East German family; they did not have enough trust in their government to speak a word to us.  I was unable to spend my mandatory thirty-mark conversion on anything useful; I carried back some Stendahl and Goethe but didn't want the Lenin.  This was in the capital city in the showcase of the communist world.   

My biggest impression was simply that I had never seen evil before.

This sums up my feelings about why all this nonsense people are histrionically throwing around about tyranny and oppression in a simple social welfare bill in a democracy with free speech is so disgusting. Most of us have never seen tyranny, oppression or evil in our own lives. In Leipzig and East Berlin there are a museums devoted to documenting the horrors of the East German Communist secret police, the "Stasi." I've visited them.

I guess this makes me ruminate about the importance of getting a little perspective and not being a psychotic lunatic who pretends that the health care bill is the end of democracy in America. Maybe more folks (especially college students at VMI and around the country) would benefit from taking real trips abroad and seeing some of the museums and monuments established around the world in memory of those who were terrorized, imprisoned, and killed by truly tyrannical governments; usually for no more than speaking out.