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Georg Thomas
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Image credit. Getting to know Laura Ebke, debating with her, and contributing to this blog, generously hosted by her, has been an incredibly enriching experience for me. In decisive ways, Laura has helped me shape and change my political views. Thanks, Laura, for a great opportunity to grow. Most notably, I have learned to appreciate an exceedingly important side of the world that previously I had little understanding of, namely: the importance of participating in the processes of political competition and influencing government in order to support, hone, and defend a free, open, and tolerant society. Not only has Laura been an important influence in making me aware of the problems and dangers of politics and the state, her thoughts and personal example have encouraged me to appreciate politics and the governmental dimension as critical factors in promoting, shaping, and protecting a free society. She is my ideal candidate for a political office. In my endorsement of April 2014, I wrote: Laura represents and lives a wonderful tradition unavailable to me in Germany; since getting to know her in 2007, I have been greatly enriched by sharing in that great American tradition. I wish I had someone of Laura's calibre to vote for over here. Principled and empathetic, Laura combines the discernment of a thoughtful political scientist with the best practical skills and instincts of a representative. I have not always agreed with Laura. What I remember most vividly from our occasional disagreements or differences in priorities is a sense that she was always sincerely interested in understanding the different perspective, and that, therefore, she was able to actually grasp my standpoint and to truly care for what mattered to me. Laura is genuinely sensitive to the concerns of those with different views - one of the rarest and most important qualities in a good politician. No post that I have written for RedStateEclectic has ever been coordinated with Laura, including the present post which will be a complete novelty to her once she gets round to reading it. I hope she will like it. Even more strongly, I hope that in running for the 32rd Legislative seat Laura will come out the winner, once more. Image credit. Related articles Ebke wants to revitalize rural communities and stem tide of population loss Continue reading
Posted yesterday at RedStateEclectic
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Image credit. A marvellous hymn to accompany the finish of Laura's campaign for the Nebraska 32nd Legislative District seat in 2014. Enjoy the music while leafing through Laura Ebke's great web-site. Continue reading
Posted yesterday at RedStateEclectic
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Image credit. Steve Kates summarises lucidly: Recessions occur because goods and services are produced that cannot be sold for prices that cover their costs. There are reams of possible reasons why and how such mistaken production decisions occur. But when all is said and done, the causes of recession are structural. They are the consequence of structural imbalances that result from errors in production decisions, not the fall in output and demand that necessarily follows. This cannot be emphasised enough. Modern macroeconomics is built around the notion of the level of demand, while prior to Keynes recessions were understood in terms of the structure of demand. The difference could not be more profound. To policy-makers today, the basic issue in analysing recessions is whether there is enough demand in total. To economists prior to Keynes, the central issue was to explain why markets had become unbalanced. In modern economic theory, rising and falling levels of spending are for all practical purposes what matters. That is why increasing public spending and adding to deficits are seen as an intrinsic part of the solution, not as the additional problem such spending actually is. Missing in modern economic debates is an understanding of the importance of structure, that the parts of the economy must fit together. What’s missing is an understanding that if the entire economic apparatus goes out of alignment, recession is the result and recession will persist until all of the parts once again begin to mesh. In 2009, Steve Kates warned: We are on the precipice of adopting economic policies that will drag us into a deep and ongoing recession and which will diminish our economic prospects possibly for years to come. We may, just as Keynes said, drift on from expedient to expedient and never get really fit again. These are issues of immense importance. To get them wrong may well leave our market economies in the wilderness for a generation. The question before us really is whether markets should be allowed to find their way with only minimal government direction, or whether the economic system should be directed from above by elected governments and the public service. This is not a mere matter of regulation but of actual direction and expenditure. No one disputes the importance of regulating the operation of markets. There is also a minor role that increased public sector spending might play in allowing some additional infrastructure projects to go forward while economic conditions are slack. But to believe it is possible for governments to spend our way to prosperity would be a major error in policy. There is no previous occasion in which such spending has been shown to work, while there are plenty of instances in which it has not. On every occasion that such spending has been used, the result has been a worsening of economic conditions, not an improvement. The only lasting solution also consistent with restoring prosperity, growth and full employment is to rely on markets. The repeated attack on the market economy, and the role of the private sector, is a mindset begging for trouble. Certainly there are actions that governments can take to relieve some of the problems of recession, but they are limited. Sure, this is a better time than most to build infrastructure. Absolutely, there need to be measures taken to assist the unemployed. Yes, the central bank should be lowering interest rates and ensuring the viability of the banking sector. All such steps are mandatory and largely non-controversial. But what must be explicitly understood is that recovery means recovery of the private sector. It is business and business investment that must once again take up the load of moving our economy forward. It is the banking system that must be allowed to allocate funds. To expect and depend on anything else will take this economy down deflationary pathways that will require years to reverse. The Keynesian model makes the engine of growth appear to be expenditure, irrespective of what that spending is on. And the most important element in the recovery process, according to these same models, is an increase in the government’s own level of expenditure, and again it appears to matter not much at all on what that money is actually spent. The source. (Via Law of Markets.) See also Structure of Demand ..., A Binge ..., The Long and the Short of It, Free Market Economics - A Must Read, QE - Financing the Inefficient Sector. Continue reading
Posted yesterday at RedStateEclectic
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Image credit. I am increasingly interested in the trans-ideological dimension of freedom. Following up on my post On Feeling Lovely, I think it is worth your while listening to what Jonathan Haidt has to say about the righteous minds of liberals (US meaning) and conservatives -- see the below video. Also pertinent: Arnold Kling classifies the fundamental paradigmatic reflexes of the preponderant political forces in contemporary America along the following lines: My hypothesis is that progressives, conservatives, and libertarians view politics along three different axes. For progressives, the main axis has oppressors at one end and the oppressed at the other. For conservatives, the main axis has civilization at one end and barbarism at the other. For libertarians, the main axis has coercion at one end and free choice at the other. The source. Adding a little flesh to the bare scaffolding, Arnold Kling illustrates: A conservative will exaggerate the extent to which a practice leads to barbarism. Again, I use the example of illegal immigration. A conservative emphasizes that it is illegal, therefore the immigrants are lawbreakers by definition, hence the threat to civilization is intrinsic. In general, I think that conservatives view social trends as much more dire than I do and see society in decline more readily than I do. A progressive will exaggerate the extent to which people fall into classes of oppressors and oppressed. If you look at the biography of UN Ambassador Susan Rice, she apparently both inherited and married into wealth, received an elite education, worked for McKinsey, and now has a net worth of over $20 million. Yet people on the left describe her as oppressed, because she is African-American and female. I want to say, “Really?” A libertarian will exaggerate the extent to which a practice represents coercion. They are fond of saying, “If you don’t comply with xyz policy, men with guns will come and take you to prison.” I understand this argument and I generally take it as valid. However, I can also understand how someone with a different point of view might argue that when they pay taxes what they get in return is a fair deal. I also believe that the three axes are different. A practice can be barbaric without being coercive or oppressive. Body piercing, for example. A practice can be coercive without being oppressive or barbaric. Social Security, for example. A practice can be oppressive without being coercive or barbaric. Owners of restaurants refusing to serve non-white customers, for example. The source. See also Trust and Democracy. Related articles Just-So Stories in Economics and Politics - Consequences for Liberty Continue reading
Posted 2 days ago at RedStateEclectic
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Image credit. I have never been drawn to the philosophy of Ayn Rand, rather to the contrary. Her rationalism strikes me as a naive craze, based on the fatal oversight of the many tools (markets, language, archival technologies, reckoning machines, social conventions etc.) that have evolved to complement the very limited human mind. On watching some of Ayn Rand's appearances on YouTube, I might betray a trace of admiration, or better, fascination. However, it is not the person nor her creed that thrill me, but rather the spectacle of poise which, in turn, reminds me of my admiration of people who have got the knack of success - the genuinely self-assured way of living, which Walter Benjamin describes in this way: The successful person is clear, determined, and courageous. He knows what he wants and therefore he can remain both calm and polite at all times. He understands how to attune himself to his opponent’s state of mind without sacrificing his dignity in the slightest. [...] [The successful person] is always prepared. Even in failure, he is composed. He is not easily discouraged. [He] considers his struggles to be a kind of sport, and he approaches them as he would a game. He contends with life’s difficulties in a relaxed and pleasant manner. He keeps a clear head even when things go wrong. And please believe me when I tell you: successful people are never sore losers; they’re the ones who don’t whine and give up after every failure. Indeed, they are the ones who keep their chins up, weather life’s misfortunes, and live to fight another day. Who will be first to fail the test? The timid and the faint of heart. The whiners, the complainers. He who goes to the exam cool and calm is already halfway there. Such people are in great demand today. That is, I believe, the secret of success. The source. It would seem to me that Walter Benjamin's "successful person" is an honest character, which makes her likable -- unless, of course, the purposes she honestly pursues are inadmissable. Ayn Rand - "I Do Not Fake Reality and Never Have." Ayn Rand never struck me as "a successful person" in the Benjaminian sense. However, she deals with the type of the "successful person" and his world. Charles Murray offers a readable reflection on Ayn Rand and two recently published biographies of her, where he explains: Objectivism’s epistemology is based on the capacity of the human mind to perceive reality through reason, and the adamant assertion that reason is the only way to perceive reality. In Rand’s view, notions of intuition or spiritual insight were hokum. One of the extensions of these premises to daily life is that “[o]ne must never attempt to fake reality in any manner,” in words from “The Virtue of Selfishness” (1964) that appear in variations throughout Rand’s work. To fake reality despoils that which makes human beings human. Wishful thinking, unrealistic hopes, duplicity, refusal to take responsibility for the consequences of one’s actions—all these amount to faking reality and, to Rand, were despicable. But Rand herself faked reality throughout her life, beginning in small ways and ending with the construction of a delusional alternative reality that took over her life. Read the entire piece at the source. See also On Feeling Lovely. Continue reading
Posted 4 days ago at RedStateEclectic
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Image credit. "Said a Blade of Grass" is a short poem [by Khalil Gibran] that speaks with great subtlety and great insight to our illusion of separateness and the self-righteousness it produces, our lamentable tendency to mistake others for interruptions and nuisances, to forget that everybody is simply doing their best in this shared experience called life. The source. Said a Blade Said a blade of grass to an autumn leaf, “You make such a noise falling! You scatter all my winter dreams.” Said the leaf indignant, “Low-born and low-dwelling! Songless, peevish thing! You live not in the upper air and you cannot tell the sound of singing.” Then the autumn leaf lay down upon the earth and slept. And when spring came she waked again — and she was a blade of grass. And when it was autumn and her winter sleep was upon her, and above her through all the air the leaves were falling, she muttered to herself, “O these autumn leaves! They make such noise! They scatter all my winter dreams.” The source. It has never been and it will never be easy to live the life of an honest person. However, it is one of the tremendous gifts of freedom that we can be honest more often, more systematically, and at lower levels of risk than in an oppressive society. In other words: a free society is a society that protects honesty. A free society is therefore also a society that keeps calling itself into question. On Feeling Lovely In a truly remarkable post, Arnold Kling ponders honesty among economists, insinuating, I feel, insights and precepts of much wider applicability: The conventional wisdom is that issues of professional ethics revolve around who pays you to do research. But money is not necessarily the driving force in economists’ capture. To borrow an expression from Roberts’ new book on Adam Smith, economists will respond to those who make them feel lovely. [...] I think that the challenge is to make feeling lovely align with intellectual honesty, as opposed to just getting articles accepted at journals or being a popular opinion-writer. That in turn requires thinking about, agreeing about, and caring about what it means to be intellectually honest. My thoughts (these ideas may overlap): 1. Fight against confirmation bias. Work very hard to convince yourself that you may be wrong, and work less hard to convince yourself that you are right. When you come across a paper that goes against your views, look for its strong points. When you come across a paper that aligns with your prior views, look for its weak points. (I think that failure to uphold this standard accounts for a lot of the degeneration of academic journals. More generally, it contributes to the tend toward conformity and unreliable research findings rather than open intellectual inquiry and genuine progress.) 2. Resist the temptation to write in ways that work to persuade those with whom you agree to keep their minds closed. Instead, seek to open their minds to possible problems with their ideas. 3. In the political realm, try to pass Bryan Caplan’s ideological Turing Test. State the other side’s case in a way that they would mistake you for being one of them. 4. Be charitable to those with whom you disagree. Try to engage their strongest arguments rather than harping on their weakest arguments. 5. Steer clear of asymmetric insight. That is, do not claim to understand your opponents better than they understand themselves. 6. In particular, steer clear of reductionism. Rather than trying to explain away other’s beliefs, assume that others have arrived at their views on the basis of reason. The source. Also see The Successful Person, and Ayn Rand ... Continue reading
Posted 4 days ago at RedStateEclectic
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... a thousand words. I expected serious disillusionment with Obama to occur within his first term; my timing was wrong: The source. I try to understand the left, but they are not always making it easy for me: The source. Continue reading
Posted 6 days ago at RedStateEclectic
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Image credit, and a respectable way of defending costliness. As a follow-up to QE - Financing the Inefficient Sector, consider why one ought to expect the public sector to be economically inferior to private enterprise. There are, of course, good political reasons to beware of government crowding out private suppliers; and there are - at least three - good economic reasons to keep government-as-producer at bay: Government is an inefficient producer, encourages over-consumption, and brings about tax distortions, all of which three factors reduce our wealth. Public provision of goods and services is politically popular because it appears to furnish us with a free lunch, when in fact it is a highly costly way of delivering, where some may receive a subsidy while overall more must be paid. Inefficient producer: government is politically exempt from the profit-and-loss system that private producers are relentlessly exposed to. The public sector is capable of production that is not economically viable. It is also often removed from establishing the degree of economic viability of its operations. Being insulated from the rationality and pressures of an economic enterprise, public providers of goods and services are not permanently forced to seek new, better, and more efficient ways of operating. Over-consumption: When the consumer bears the cost of goods and services, demand is self-limiting. You pay as long as something is (a) worth it - i.e. benefits exceeding costs - and (b) within your budgetary means. Replacing self-limiting consumption decisions by its own centralised discretion, and being exempted from economic rationality (see "inefficient producer"), which precludes private providers from producing at prices insufficient to cover their fixed and variable costs, while at the same time under political pressure to keep up the pretense of a free lunch, government tends to encourage over-consumption. Tax distortions: Were government an efficient producer and capable of preventing over-consumption, it would still be lagging private providers in that it depends for its financing on taxes, which are expensive to raise both for government itself and for taxpayers, and tend to impose further economic costs by punishing and thus discouraging productive economic activities, such as thrift or provision of employment. In conclusion: substituting public for private spending on providing goods and services is equivalent to shifting more resources to the high-cost producer. In writing this chapter, I have been leaning heavily on Arnold Kling's "Learning Economics" - Chapter 57: Government: The High-Cost Producer. Continue reading
Posted 6 days ago at RedStateEclectic
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Image credit. A question of which system is better adapted to which task. Law of Markets argues: With QE we are not talking about troubled assets or dealing with an emergency. It is just straight out inflation. Second, inflation has now come to mean rises in prices when once it meant printing money. The Keynesians switched the terminology to movements in prices in the 1930s so that their policies would no longer be immediately described as inflation (discussed in the 2nd ed of my Free Market Economics [FME2] pages 406-408). But let’s not quibble about this. What ought to be understood instead is that the effect of inflating the money supply to fund public spending has a number of possible effects of which higher prices is only one. Without militant unions and continuous labour market pressures to push wages up, inflation in the form of price increases is subdued. And whatever else may be the case at the moment pretty well everywhere, only those in very protected environments are in the mood to be pushing for significantly higher wages that would put their jobs at risk. The real issue is that the way in which the re-direction of expenditure to the public sector is and will continue to manifest itself in a crumbling capital stock (see FME2: p410). The economy of the United States is falling to bits. It will take a longish time since it has a massive asset base but it is being eroded fast enough, which is evident in the median income data and elsewhere. The source. Is this view in conflict with what Arnold Kling - in The Segmented Wealth of Nations (see especially the paragraph at the bottom of the post) - identifies as the sources of crisis and contemporary economic change? I don't think so. For a reminder why shifting toward public sector provision of goods and services is a decision for high cost production, take a look at Government - High-Cost Producer. Continue reading
Posted 6 days ago at RedStateEclectic
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Image credit. The other day, I was sternly encouraged by one of the figureheads of German liberalism to boycott Amazon and support retail booksellers by my patronage. The appeal struck me as incongruous. To me Amazon, including the whole new ebook culture, have brought about a welcome revolution that empowers - in the best tradition of freedom and capitalism - the consumer, as well as rewarding consumer-oriented suppliers and widening the options and commercial prospects of those seeking to publish their written work. Especially, as a rather undiscerning youngster, my mind was to a large extent shaped by the sales mix of the local book shops. With the additional help of newspapers and the school, uncontested sources of authority, my mind was being put on a one-track trail. I suspect that with the internet's dramatically widened spectrum of knowledge offerings and increased discretion in the choice of information (including information contained in books), we are lifting the level of tolerance among us, strengthening civil society's ability to resist the political ascendancy of radically one-sided views. In an article well worth reading, Matthew Yglesias argues that the publishing industry nowadays adds almost no value, it is going to be wiped off the face of the earth soon, and writers and readers will be better off for it. Make sure to read the entire post. See also Re: Joyce. Continue reading
Posted 7 days ago at RedStateEclectic
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Image credit. Evelyn Waugh admirably summarises the work of James Joyce, the Irish writer who has written one of my favourite books, as I explain in Best Novels (and Other Literary Pieces) - Part One: See also The Software Revolution in Publishing. Continue reading
Posted Oct 24, 2014 at RedStateEclectic
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Image credit. Have a little rest and take pleasure in the little appreciated fact that politics helps us live peaceful and productive lives, even though our ignorance is so vast that instead of holding the same views, we differ widely and passionately in our convictions. Those impatient with politicians tend to have good grounds for their discontent; however, there are also bad reasons to complain about politics, and we are prone to falling victim to these preconceptions once we lose sight of the full range of difficult functions that politics has evolved to serve. Ignorance and the symbolic function of politics When ignorance is a path the rational person should or simply must choose (as trade-offs in a persons's life demand, such as between earning a living and becoming knowledgeable about a political issue), and when ignorance is even insurmountable and constitutive as is the case regarding the unmanageable amount of information on all political issues considered important, we must find, or hope to chance upon special ways to interact that shield us from intolerably divisive or otherwise severely detrimental effects of the vast ignorance that affects all of us. I begin to believe that politics has a crucial role to play in organising peaceful forms of negotiations, competition, and ritual reassurance that flow together to build trust among strangers, and people of significantly differing views, a sense of orientation in an extensive society comprised of hundreds of millions of people, and the security of a common narrative frame, i.e. a common view of how to make sense of and cope with the world we live in. This may range from rituals of peaceful condemnation (as between partisan groups) to rituals of peaceful subordination ("okay, this time you guys won the election") or power splitting ("next time we'll prevail" and "the law you intend to issue must pass committees on which we too sit"). Data Mining, Number Crunching, and Our Old Friend Chaos I find the below article interesting, as it demonstrates just how difficult it is to authenticate offerings of conjectural knowledge so as to shift information from the status of "uncertain credibility" to "credible conjecture" or even "fact" and "truth". So, in any complex system, such as a football game involving complex aspects such as humans and weather, a significant component is simply not predictable and never will be, no matter how much data we collect. [...] The unarguable truth is the answer is not always in the data. There is a general tendency at present to believe the data will magically yield the answer if you try hard enough – that is wrong. It is vital that we understand the limitations of analytics as well as their seductive, beautiful, irresistible, elegant and undoubted power. The source. See also Just-So Stories in Economics and Politics - Consequences for Liberty. Continue reading
Posted Oct 21, 2014 at RedStateEclectic
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Image credit. The study of human institutions is always a search for the most tolerable imperfections. Richard A. Epstein Do you know what a just-so story is? I didn't, but looked it up: In science and philosophy, a just-so story, also called an ad hoc fallacy, is an unverifiable and unfalsifiable narrative explanation for a cultural practice, a biological trait, or behavior of humans or other animals. The source. In writing the following, Arnold Kling tempted me to add the below comment to his post Paul Krugman on the State of Macro: 4. So I have a PSST model for unemployment [see my post here, G.T.], and my “weak” model[s] for inflation. I think it is fair to criticize them as “just-so stories.” But I would say the same thing about the sorts of models preferred by Blanchard or Krugman. Just-so stories, dressed up in pretty math. To which I replied: Your concession as to the role of just-so theories in economics strikes me as significant, and even surprising. As I regard you as a serious thinker, I must rule out the conclusion that economics is idle prattle to you. But what is it? To the extent that economics is based on story telling, what is it in the nature of that narrative habit that sustains economics as a worthwhile form of thinking about human interaction? I hope, in writing this, I don't sound cynical or facetious. Increasingly, I get interested in the role of (rational) ignorance, which all conceivable societies are inevitably affected by in very considerable measure; and I wonder, how do we manage the vastness of our (rational) ignorance so well - in countries such as the US or Germany, where life is quite bearable? The consideration that (rational) ignorance is a virtually invariant phenomenon in all modern societies including all conceivable improved versions (such as, say, a significantly more libertarian society), has led me to become a lot more respectful of politics and the state (as a functional necessity that, of course, may fail) than I used to be, their tremendous dangers and deficiencies notwithstanding. Politics and the state seem to be (a) the result and (b) the instrumental basis of more or less successful story telling. For politics seems to be involved in seeking out procedures indispensable in dealing with large amounts of irreducible (rational) ignorance. We need to tell us reassuring stories to sustain sufficient levels of trust while living in a largely anonymous society. Politics is a spontaneous order - a hugely important aspect of spontaneous order totally disregarded by Hayek - that serves as a discovery procedure whose (functionally desirable) end product is at least a minimal level of trust etc. needed to support social order. A highly narrative enterprise, full of just-so stories. If there is something to this view, what role does economics play in it with its just-so stories? Arnold Kling replied: I limit the scope of “just-so stories” to macroeconomics. Microeconomics often generates predictions that are falsifiable. To which I replied: Politics is what happens when we have to tell people: “Sorry, serious economics cannot handle conclusively issues like unemployment or the nature of an advisable monetary regime.” And macroeconomics is what happens when economists participate in politics. Seriously, if there are vital topics of an economic nature that cannot be covered in a scientifically sound way, then there must inevitably develop a part of economics that deals in and is based on rhetoric and techniques of persuasion – not necessarily as something to be maligned, but possibly as a cultural pattern of mutual reassurance, just like free speech may work very well in maintaining peace (social order) even though what is being exchanged is partly of an acrimonious and a generally nonsensical nature, as the case may be. I believe, this has very serious implications for liberty. If vital social issues of an economic kind cannot be resolved conclusively in support of a certain vision of society, say a classical liberal society, then the case for classical liberalism is incomplete, inconclusive in vital regards, and thus open to severe contestation not only among classical liberals but all citizens, parties, and factions of a free society. The value of freedom lies in her ability to embrace and cope with the uncertainties and disunity underlying a community inevitably entertaining rhetorically constituted views of society. No less than free markets, politics ought to be conceived of in terms of a spontaneous order. Political structures evolve to seek out ways of attenuating the risks inherent in vast and widespread ignorance of the conditions giving rise to successful human coexistence. Freedom produces these risks, while at the same time providing an excellent laboratory in which to test insurance and abortive products to defend against the dangers of inevitable ignorance. Continue reading
Posted Oct 15, 2014 at RedStateEclectic
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Image credit. Small advances in freedom - small compared to the freedom we are taking for granted - can make a huge difference in the living conditions and outlook of people, and ultimately, in their political ambitions. The world barely noticed a remarkable achievement last year: For the first time in nearly three decades, North Korean farmers managed to produce enough food to meet the population's basic survival needs. In spite of a drought this spring, preliminary reports indicate that this year's harvest is likely to be good, too. This success, such as it is, arose out of necessity. In the 1990s, industrial output in North Korea halved and an agricultural collapse led to famine. The vast majority of North Koreans survived by establishing an underground market economy. They had little choice: With the shelves of state-run shops empty of food, rationing coupons suddenly became worthless pieces of paper. Most of these private enterprises started small. Farmers started growing their own food on mountainside plots. Workers began to use (or steal) equipment from state-owned factories to make their own products, which they then sold. Some people opened secret restaurants, others did informal tailoring. Markets, which the regime had barely tolerated, moved into the open. As one might expect, some elements of North Korea’s emerging entrepreneurial class became relatively rich and began to look for more lucrative opportunities. Private workshops, inns and eateries began to spring up. The source. True, revolutions seldom start when people are desperate; they are more likely to erupt when citizens have [attained a certain level of material advancement, G.T., and therefore] come to believe that life could be significantly better under different leadership. Economic growth brings more knowledge of the (more successful) outside world. The changes also make people less fearful of the government, since they are no longer as dependent on the state for their livelihoods. A brighter future for North Koreans could well mean a darker one for the regime. Continue reading
Posted Oct 12, 2014 at RedStateEclectic
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I like the discernment in Arnold Kling's three-pronged argument according to which: (1) economy-wide wage growth is too highly aggregated a performance figure for analysing the economy, (2) the Fed is trailing the real economy, (3) the economy can be and presently is segmented so that certain layers of it experience vibrant economic activity, while others are mired in recession. On (1), I would note that a few years ago wage growth was violating the Phillips Curve on the high side [meaning, I suppose: too high employment relative to the level of inflation, with strong demand for labour and correspondingly high wage growth, G.T.], and now it is violating the Phillips Curve on the low side [employment is too low given the level of inflation, with insufficient demand for labour and correspondingly weak wage growth, G.T.]. And yet mainstream macroeconomists stick to the Phillips Curve like white on rice. I would emphasize that the very concept of “the” wage rate is a snare and a delusion. Yes, the Bureau of Labor Statistics measures such a thing. Instead, think of our economy as consisting of multiple labor market segments, not tightly connected to one another. There are many different types of workers and many different types of jobs, and the mix keeps shifting. I would bet that in recent years the official statistics on “the” wage rate have been affected more by mix shifts than by a systematic relationship between “the” wage rate and “the” unemployment rate. On (2), I view this as evidence for my minority view that the Fed is not a big factor in the bond market. Instead, the Fed is mostly just following the bond markets. When it actually tries to affect the bond market, what you get are “anomalies,” i.e., the failure of the bond market to do as expected by the Fed. On (3), I think that we are seeing a Charles Murray economy. In Murray’s Belmont, where the affluent, high-skilled workers live, I am hearing stories of young people quitting jobs for better jobs. On the basis of anecdotes, I would say that for young graduates of top-200 colleges, the recession is finally over. The machinery of finding sustainable patterns of specialization and trade is finally cranking again. In Murray’s Fishtown, on the other hand, the recession is not over. I would suggest that we are seeing the cumulative effects of regulations, taxes, and means-tested benefits that reduce the incentive for firms to hire low-skilled workers as well as the incentive for those workers to take jobs. As Sumner points out, President Obama’s policies have moved in the direction of making these incentives worse. Read the whole post on Arnold Kling's theory of the segmented wealth of nations. See also Patterns of Sustainable Specialization and Trade. For a broader context of Kling's take, consider his intriguing account of contemporary economic change: I am inclined to treat the financial crisis as a blip, one whose apparent macroeconomic impact was made somewhat worse by the very policies that mainstream economists claim were successful. This blip took place in the context of key multi-decade trends: –the transition away from goods-producing sectors and toward the New Commanding Heights of education and health care –the transition of successful men away from marrying housekeepers and toward marrying successful women –the integration of workers in other nations, most notably China and India, into the U.S. production system –the increasing power of computer technology that is more complementary to some workers than others These trends are what explain the patterns of employment and relative wages that we observe. The financial crisis, and the government panic in response, pushed the impact of some of these developments forward in time. The source. Continue reading
Posted Oct 12, 2014 at RedStateEclectic
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Image credit. One of the biggest problems worldwide is the absence of state structures capable of protecting economic liberty. Hernando de Soto claims that about 2/3 of the world population are affected by this bad state of affairs. It is incumbent upon those who are conscious of the value of liberty to promote the liberal state in the Third World - and, of course, as the below article shows, at home as well. Free markets do not just happen, they must be politically fought for and defended. Once again: the state is important for liberty, and so is politics. Writes Mark J. Perry: In today’s WSJ, Hernando de Soto argues that the cure for terrorism in the Middle East is capitalism, economic empowerment, and private property rights to help rescue “extralegal entrepreneurs” who have become trapped in their own countries as “economic refugees” by cronyism and burdensome over-regulation of market activity. Here’s an excerpt of “The Capitalist Cure for Terrorism” (emphasis mine): It is widely known that the Arab Spring was sparked by the self-immolation in 2011 of Mohamed Bouazizi, a 26-year-old Tunisian street merchant. But few have asked why Bouazizi felt driven to kill himself—or why, within 60 days, at least 63 more men and women in Tunisia, Algeria, Morocco, Yemen, Saudi Arabia and Egypt also set themselves on fire, sending millions into the streets, toppling four regimes and leading us to today’s turmoil in the Arab world. These suicides, we found, weren’t pleas for political or religious rights or for higher wage subsidies. Bouazizi and the others who burned themselves were extralegal entrepreneurs: builders, contractors, caterers, small vendors and the like. In their dying statements, none referred to religion or politics. Most of those who survived their burns spoke to us of “economic exclusion.” The source. In an interesting complement to de Soto, George Will makes a similar argument in today’s Washington Post that America’s “teeth-whitening entrepreneurs” are being denied the right to earn a living, and have become “economic refugees” in North Carolina because of cronyism capitalism, protectionist rent-seeking, and the burdensome over-regulation of market activity. Here’s an excerpt of “Supreme Court Has a Chance to Bring Liberty to Teeth Whitening” (emphasis mine): On Tuesday, the national pastime will be the subject of oral arguments in a portentous Supreme Court case. This pastime is not baseball but rent-seeking — the unseemly yet uninhibited scramble of private interests to bend government power for their benefit. If the court directs a judicial scowl at North Carolina’s State Board of Dental Examiners, the court will thereby advance a basic liberty — the right of Americans to earn a living without unreasonable government interference. The source. See also Enculturated Poverty, Economic Illiteracy and Global Economic Worries, Egypt's Economy of Outcasts, A Shout for Inclusion, The Classical Liberal Constitution (1/2). And Tragedies of Arrest and Regression, with a great synopsis of P.T. Bauer's contribution to Development Economics, and an introductory text by myself that in its radicalism I find almost embarrassing today. Continue reading
Posted Oct 12, 2014 at RedStateEclectic
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Image credit and source of the below quoted text. In my youth, like many Germans, notwithstanding my admiration for the great country, to me America was a chaos of billboards. You must understand that - certainly in the 1960s, 1970s and 1980s - "Werbung" (advertisement) was almost a dirty word in Germany - something from the commercial world, yuck! A capitalist intrusion into your brain and soul. Billboard-plastered America was a symbol of how capitalism will run roughshod over decent citizens, if you let it. I still like a landscape free of ugly billboards, but is it right to ban advertisements? I am a great believer in capitalism. It should be possible for capitalism to advertise its products in pleasing and welcome manner, as indeed it already does in countless ways - see Freedom and Art. While relatively uncluttered by billboards, Germany must have been the world champion in awful TV ads, with patronizing scientists in white gowns admonishing the viewers to buy this, that, or the other. The idea being, I suppose - advertising is evil, so let's try symbols of respectable advice. In Britain in the 1980s, I learned that watching TV ads could be tremendous fun and that it was quite possible to draw crowds to "the telly" by entertaining them with funny advertisements. So how might capitalism cope with the billboard issue? See also my comments at The Season of Giving. Image credit. In 1968 the state of Vermont passed a landmark anti-billboard law and the landscape has been billboard-free ever since. The law was the result of the extraordinary efforts of one man, Ted Riehle (1924 – 2007), who was determined to preserve the natural beauty of Vermont. According to John Kessler, chair of the Travel Information Council, the law’s original goals remain the same today: “We need to provide information to the traveler, but do not want to compromise our natural scenery. Tourism is the number one industry in the state. And the lack of advertising is one of the most commonly reported things that visitors appreciate about Vermont.” [source] Nathaniel Gibson continues: “Businesses may display an on-premise sign up to 150 square feet… Off-premise signs — the official name for billboards — are not allowed, unless TIC grants an exemption. Exemptions are typically granted for reasons of public safety and convenience.” [source] Continue reading
Posted Oct 9, 2014 at RedStateEclectic
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Image credit. “The best way to get Keystone XL built is to make it irrelevant ...” Via Bloomberg: From the Canadian perspective, Keystone has become a tractor mired in an interminably muddy field. In this period of national gloom comes an idea -- a crazy-sounding notion, or maybe, actually, an epiphany. How about an all-Canadian route to liberate that oil sands crude from Alberta’s isolation and America’s fickleness? Canada’s own environmental and aboriginal politics are holding up a shorter and cheaper pipeline to the Pacific that would supply a shipping portal to oil-thirsty Asia. Instead, go east, all the way to the Atlantic. The source, including a useful synoptic map of the new pipeline project. See also Red Herring in the Pipeline. Continue reading
Posted Oct 8, 2014 at RedStateEclectic
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For more vintage pics from Lincoln, Nebraska, consult the image credit. My libertarian development Of a radical libertarian leaning until about two years ago, I have repositioned myself on many core issues. In particular, I have come to regret the shallow and dismissive handling of democracy in much of the libertarian discourse. I used to be strongly influenced by the Ludwig von Mises Institute (LvMI). Initially, I was much attracted to its message thanks to the vast and valuable stock of downloadable literature, and, of course, a coherent narrative of freedom and capitalism offered by the institute's exponents. Owing to a sense of friendly tolerance, I made rather light of two points of disagreement that would eventually manifest themselves as the cracks of a deep rupture: I always opposed (a) anarchism, and (b) aprioristic reasoning in the social sciences, and indeed, in any science whose subject matter is to be found in the empirical world. As for (a), structures of maximal power, i.e. the state in a modern context, are an irreducible feature of human interaction, especially in larger human communities. The whole point of a regime of liberty is to promote structures of maximal power that support an open society, where every citizen is reasonably free from arbitrary interference by other humans, private and public organizations, and most notably the state. The state is a precondition of liberty. Denying the indispensability of the state is to refuse giving attention to one of the most fundamental cornerstones of freedom. Anarcho-capitalism is, therefore, a distraction from freedom. Concerning (b), true science is by definition free science, it is based on recognising that no one has privileged access to (advances in our asymptotic convergence toward) truth. Apriorism makes the claim of having access to absolute, ultimate, and incontrovertible truth. It is contrary to freedom, which is, like science, based on the presumption that no one has privileged access to truth. Science, free markets and a free society are perfectly analogous in that they rely on advancement by trial and error, by conjecture and refutation, by respect for the constructive force of human fallibility. All three of them are constitutively open systems, producing in large measure unpredictable outcomes that feed back into the development of the overall system. While there is a firm structure to science, to markets, and to the system of freedom, their scaffoldings form a semi-circle, as it were, opening up to a vast frontier of indeterminacy. About two years ago, certain encounters with exponents of anarcho-capitalism and apriorism spurred me on to look very carefully at the moot issues between us. In the meantime, I have discovered that anarcho-capitalism is a great pointer to weaknesses in (classical) liberalism, as the former tends to radicalise the errors or fuzzy ends contained more or less pronouncedly in the latter, as well as ignoring its strengths. Liberty, democracy, and trust Anarcho-capitalism, and to a considerable extent (classical) liberalism as defended by Ludwig von Mises or Friedrich Hayek, offer at best a shallow theory of the embeddedness of markets, political institutions, and the state in modern civil society. The state is largely seen as the (1) adversary and saboteur of (a) personal autonomy and (b) the natural spread and viability of free markets, and (2) an agent of illegitimately dominant persons and groups (special interests). Politics and democracy as spontaneous order This conception of the state as an agent of evil is related to a truncated view of spontanenous order, which disregards the deeper level and still more comprehensive spontaneous order of conditions enabling, historically and presently, the development of relatively free markets and the open societies in which they thrive. A modern democracy is a web of complex negotiations functionally aiming to fit different, diverging, and adverse views and interests. A free society depends on democracy as an arsenal of tools to balance interests many of which can never be perfectly reconciled; it is the political bazaar that admits any comer among free citizens, ensures the permanent contestability of incumbents, as well as a constant flow of new entrants both in term of interest groups, ideas, and cultural preferences. Reconciliation among the ignorant One of the key insights of classical liberalism is that all of us are rationally ignorant of countless important issues - we do not have the resources to understand all the issues in the air with reasonable accuracy. Also, there are many issue that represent political scarcity (reconciliation cannot be established by market-type transactions), and there may be issues that are either for the time being or even in principle unresolvable, as we simply may never know enough to penetrate the subject matter fully. Just as the market helps us cope successfully with a plethora of information that we can not possibly ever fully absorb and comprehend, so is a political system a means to come to grips with forms and consequences of human interaction whose full information content we can never collect and assess. Like markets, a good political system is a think-tool, a means of orientation in a world that contains more information than we can ever hope to use for our personal orientation. At some point, good orientation, mutual respect, tolerance, and trust, become more important that exact and non-contradictory results. Trust Ultimately, the political system has the task of generating enough trust among human beings such that even in a population of 300 million most people are able to spend most of their life time without fearing destructive or even deadly distrust from their fellow citizens. Democracy is a complicated web of institutions and practices signalling that (a) we can trust each other by and large, or that (b) we are able do something about it if our expectations of trust are seriously challenged. Democratic politics is the way in which we keep our values and concerns in touch with those of others, so as to keep a balance between our differing convictions. The strong adversarial taste that politics often leaves us with is a... Continue reading
Posted Oct 6, 2014 at RedStateEclectic
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Image credit--including the history of wolves in Yellowstone. Following up on Wolves and Creative Destruction: The US economy has a competitive intensity problem, and [a] decline in startups is at its core. Startups are the straw that stirs the drink. They generate new innovation (and new jobs) and force incumbents to improve or die. They change everything, creating a healthier, more vibrant economy in the process. [...] In the US economic ecosystem, startups are wolves. And we need more of them, and the creative destruction they bring, to transform our stagnating economy. The source. See also Market Dynamism, Patters of Sustainable Specialization and Trade (PSST), Related articles Anthropocene Reinvention vs. Intervention Continue reading
Posted Oct 3, 2014 at RedStateEclectic
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Image credit. Today is Germany Unity Day, a public holiday. An occasion to ponder political developments in the country. German Christian Democrats, the CDU, and their sister party in Bavaria, CSU, have followed a policy since the 1960s which left no room for a sizeable political movement to their right. This worked well with only negligible groups of no consequence emerging. But German Chancellor Angela Merkel seems to have changed this strategy, writes Prince Michael of Liechtenstein. --- A new party, the AfD (Alternative for Germany), emerged in 2013, first with just an economic programme, promoted in principle by some well-recognised economists. The party’s main issue was criticism of the euro. Although it was not a populist or extreme party, the political establishment, including Chancellor Merkel, labelled it right wing and towards the extremist corner. Propaganda against the AfD by government, the established parties and large parts of the media, was enormous. However their programme was defendable and certainly not radical. Realising the deficiencies of the euro and questioning transfer payments is part of normal political debate. The new party took almost five per cent of the vote in Germany’s last national elections, despite the hostile propaganda. This was a real success, but just missed the five per cent threshold for a seat in the German Federal Parliament. The party reached some seven per cent in the European Elections in May 2014 and is now represented in the European Parliament in Strasbourg. The big leap came when the party topped some 10 per cent in elections for three German lander or states. AfD is a political factor now. Its members are fierce free market supporters who promote entrepreneurship. But analysis shows gains from the centre – their base – and from the left. Now the CDU has a real competitor in the centre right. Chancellor Merkel’s election tactics have been to destroy opposition campaigns by taking over their issues. Her decision to phase out nuclear energy left the Green Party without a popular cause. The introduction of minimum wages damaged the Social Democrats. This short-term tactic was successful for Mrs Merkel’s CDU, but may have alienated supporters on the centre right. The classic economic party, the liberal FDP, was Mrs Merkel’s coalition partner until the last elections and was almost annihilated by following her policies. So will Mrs Merkel continue to pursue her old tactics and adopt the AfD’s cause? Will she become less supportive of the euro and reduce or stop transfer payments to fiscally shaky eurozone countries? The AfD’s success in local elections could have European implications. The source. Continue reading
Posted Oct 3, 2014 at RedStateEclectic
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SS Great Eastern. Following up on Patterns of Sustainable Specialization and Trade (PSST), at Reason's Hit and Run, Stephanie Slade has a fine piece of incisive journalism on Austrian/Hayekian dynamic (as opposed to equilibrium) market theory: The belief that had (mistakenly) evolved among mainstream economists at the time [Austrian economics elicited a correcting view of the economy, G.T.] was that the goal of market competition was to bring about a general equilibrium in which all the facets of an economy are balanced with each other and all the resources are efficiently allocated. These economists thought it realistic to expect central planners to be able to replicate, and perhaps even improve upon, that equilibrium state. The Austrians were meanwhile busy reminding people that market competition is a process that creates value precisely when an economy is in disequilibrium. In equilibrium, profits converge to zero—there can be no new profit opportunities by definition. But outside of a perfect equilibrium, people who are clever enough can find gaps in the market and fill them. Entrepreneurs are therefore able to drive societal improvements through dynamic competition—to literally innovate their way to greater wealth. Markets are a process, not an equilibrium state, Hayek said. More specifically, they are a process for discovering new knowledge. The absolute best a central planner can hope to do is to aggregate the information that already exists at a given moment. But the market process not only gathers and makes sense of vast, disparate information—it ushers into being knowledge that was not there before at all. Vernon Smith, [...] a [...] Nobel laureate in economics, quoted Hayek as saying, "I propose to consider competition as a procedure for the discovery of facts as [otherwise] would not be known to anyone." This was actually a fresh and exciting revelation, Kirzner concluded [at the conference on which Slade is reporting], and it came at the very moment most onlookers were declaring the Austrian tradition dead. Mainstream economists at the time truly believed it was possible for central planners to acquire the requisite information and construct from it a utopia. Fortunately, Hayek and his Austrian school contemporaries were there to show the economics profession that the journey—an ongoing process of experimentation and discovery driven by the pursuit of profits—is far more important than the destination. The source. Related articles Forgotten Emergence - The Spontaneous Order of Politics Public Choice Continue reading
Posted Oct 3, 2014 at RedStateEclectic
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In the New York Times, Arnold Kling presents an outline of his intriguing theory of the conditions of economic health and dislocation, an approach to business cycles which he abbreviates as patterns of sustainable specialization and trade (PSST): How are jobs created? For Keynesians, job creation is simple. Entrepreneurs have knowledge of how and what to produce. All that is required is more demand, in order to induce them to undertake more hiring. In contrast, in our Smith-Ricardo story, the knowledge of how and what to produce has to be discovered. Entrepreneurs have to figure out ways to utilize resources that satisfy wants in an efficient way. The market mechanism first must undertake trial and error to create production processes that exploit comparative advantage. Until these new patterns of sustainable specialization and trade are discovered, there are no job slots. Experimenting with new patterns of specialization and trade is relatively easy. Discovering patterns of sustainable specialization and trade is much harder. Our economic well-being depends on the ability of entrepreneurs to make these discoveries. Make sure to read the rest at the source. For more click here. Related articles Reinvention vs. Intervention Rickety Economics An Archaic Habit of Thought ... Continue reading
Posted Oct 2, 2014 at RedStateEclectic
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Concerto for percussion Frozen in Time by Avner Dorman, conducted by Martin Grubinger and featuring one of the great contemporary percussionists - Simone Rubino: Continue reading
Posted Oct 2, 2014 at RedStateEclectic