A little more on Ron Paul

In the comment section of this post, James Miller somewhat vaguely notes that "Paul has already addressed them", referring to the racist newsletters that made the rounds in the 2008 election and are making the rounds again.

This is true - he has addressed them... a couple different times, in fact. Now that he's running for president, he says he didn't write them. In 1996 when he had no aspirations to be the leader of the free world and was more concerned about a local voting base, he did not deny writing them and he even reiterated his point from the newsletter that black teenagers that rob you are hard to catch because they're fast runners.

Politicians lie because they like staying in office. Ron Paul likes being a Congressman. He likes working in Washington. He loves being on TV. He loves people talking about him and thinking about him. Fine, it's intoxicating stuff I'm sure and all of them do. As I've said before, when I was born in Sugar Land, Texas, in 1984, Ron Paul was my Congressman and he represented that district for years before I was born. The man is a career politician and he obviously likes being a politician, and he's obviously very good at it.

That's all fine. They all have this sort of power-trip personality. It just comes with the territory.

I don't personally want a president that shows a very weak understanding of the economy (remember Andolfatto's criticism of Paul, which he had to take down because he was criticized so sharply by Paul's supporters?). And even though James Miller is reassured by recent denials (what is he gonna do in 2011 but deny it?), it bothers me. I don't want a president that was writing or editing this sort of stuff in the 1990s.

I really wish people would be less haphazard with the use of the word "libertarianism" - particularly if they're defending it

I use it on here to mean some variant of a minarchist - and when I talk about anarcho-capitalism I usually refer to it by that name ("anarcho-capitalism") or a similar one.

That definition in and of itself can mean a lot of things, of course, but this definition on the Bleeding Hearts Libertarian blog is next to useless. Fernando Teson writes:

"By “libertarian institutions” I mean here institutions that allow all kinds of mutually beneficial arrangements, which include exchanges in private markets and government-induced correction of market failures, along with constitutional constraints on the power of government to avoid government failure."

OK, but this is what almost every American that talks or writes about government and the economy supports. What is this supposed to demarcate, really? Not only do I support libertarian institutions under this definition, but I am an extremely partisan libertarian (if this is what a libertarian institution is).

I get the same sense from Mark Pennington and just about everything I've ever read about "robust political economy". It's a defense of a constitutionally limited, federal government in a market society. We all support that. To be sure, Pennington et al. do a superb job putting into words the reasons why we all support that. But we all do. It's not productive to call this libertarianism.

UPDATE: And a word of advice to commenters. If your instinct is to inform me that I don't actually think something that I am under the impression that I do think - stop. Stop writing. Just save us all the trouble.

Hitchens on Politics

Andrew Sullivan has been posting a lot of good stuff from Hitchens. One particularly interesting post is this exchange between Richard Dawkins and Christopher Hitchens, in what was apparently his last interview:

"RD I've always been very suspicious of the left-right dimension in politics.

CH Yes; it's broken down with me.

RD It's astonishing how much traction the left-right continuum [has] . . . If you know what someone thinks about the death penalty or abortion, then you generally know what they think about everything else. But you clearly break that rule.

CH I have one consistency, which is [being] against the totalitarian - on the left and on the right. The totalitarian, to me, is the enemy - the one that's absolute, the one that wants control over the inside of your head, not just your actions and your taxes. And the origins of that are theocratic, obviously. The beginning of that is the idea that there is a supreme leader, or infallible pope, or a chief rabbi, or whatever, who can ventriloquise the divine and tell us what to do."

I am, predictably, 100% with Hitchens on that one.

Another good quote is provided by Mario Rizzo. This is from a talk he gave at Cato, which is interesting (I'll have to read the whole thing at some point) because I've never heard of it and you don't usually hear it mentioned as being among Hitchens's engagements, but every libertarian in the blogosphere seems to be aware of it:

"The old slogan of the anarchist left used to be that the problem is not those who have the will to command. They will always be there, and we feel we understand where the authoritarians come from. The problem is the will to obey. The problem is the people who want to be pushed around, the people who want to be taken care of, the people who want to be a part of it all, the people who want to be working for a big protective brother."

I think one of the biggest blindspots of modern libertarians is that they hear something like this and they think that what Hitchens refers to as "the will to obey" is the same thing as "the will to self-govern". It's not at all, in fact it's exactly the opposite. This servility that Hitchens criticizes (this was in reference to some nanny state elements of Bloomberg's New York) is inimical to self-governance. But you have to remember that Hitchens was a democrat. He was in Orwell's tradition. He was a humanist. That - I think - is the real heart of the classical liberal tradition, so of course there's going to be some affinity with libertarianism which is one branch that grew out of the classical liberal tree. But it's important to remember what Hitchens stood for - for humanity, against authority. The first clause is as important as the second.

Assault of Thoughts - 12/17/2011

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- I truly do not understand the appeal of Ron Paul. I think he's wrong on a lot of policy, but of course if you're a libertarian you think he's right. I get all that. But as I've said in the past I don't get this view that he's above politics when he seems to me to be the quintessential politician. I am also really, really bothered by things like this, from 1992. I think I know much better than, for example, presumptuous New Englanders or Californians, the context in which a Southerner displays a Confederate flag. So I've been willing in the past to stick my neck out and defend such people, while agreeing that it is unintentionally offensive. I'm willing to stick my neck out and defend some old coot who was a segregationist in the 1950s and seems to have realized in the ensuing decades that he was wrong. I'm willing to stick my neck out and say "you know - the old guy probably genuinely realizes he was wrong". But something like this in the 1990s really bothers me. I don't want a man like this to be my president.

-Tyler Cowen keeps pointing to China as an example of Austrian business cycle theory. Is it just me, or does this seem really wrong? When we see bad investment decisions in China, it's because the government is making these decisions for political reasons. It's not because cheap money fosters a different capital structure than would have existed naturally. Ghost cities aren't examples of an elongated capital structure. What gives? Is it just me or does this have exactly zero to do with ABCT?

- Scott Sumner talks Wittgenstein, macro, and Ptolemy. At the end he ponders over "what future generations will think of the Keynesian/monetarist split. Which model will seem like the Ptolemaic system?" I think making a big thing of this alleged "Keynesian/monetarist split" says you're one of two kinds of people: (1.) you're a monetarist that is mistakenly under the impression that Keynesians are allergic to monetary policy, (2.) you're an old Keynesian that drank the post-war Keynesian Kool-Aid that turned "monetary policy alone isn't right - fiscal policy has a role" into "monetary policy alone isn't right - fiscal policy has a role". I think the future will see that the whole monetarism back and forth was just us coming to grips over the emphasis of the Keynesian paradigm.

- Brad DeLong defends Stiglitz, has some criticism for Nick Rowe, and cheers us Hicksians.

Christopher Hitchens

Christopher Hitchens has died after struggling with cancer for about a year and a half.

Speaking of Keynes's deep humanity...

Brad DeLong links to my discussion and highlights in particular many observations about how Keynes was not the man portrayed in the Keynes v. Hayek videos. That inspires me to post something Keynes wrote in The Economic Consequencs of the Peace that is one of the more powerful pieces of prose I've read recently:

"The following is by a writer in the Vossische Zeitung, June 5, 1919, who accompanied the Hoover Mission to the Erzgebirge:

"I visited large country districts where 90 per cent of all the children were ricketty and where children of three years are only beginning to walk.... Accompany me to a school in the Erzgebirge. You think it is a kindergarten for the little ones. No, these are children of seven and eight years. Tiny faces, with large dull eyes, overshadowed by huge puffed, ricketty foreheads, their small arms just skin and bone, and above the crooked legs with their dislocated joints the swollen, pointed stomachs of the hunger œdema.... 'You see this child here,' the physician in charge explained; 'it consumed an incredible amount of bread, and yet did not get any stronger. I found out that it hid all the bread it received underneath its straw mattress. The fear of hunger was so deeply rooted in the child that it collected stores instead of eating the food: a misguided animal instinct made the dread of hunger worse than the actual pangs.'"

Yet there are many persons apparently in whose opinion justice requires that such beings should pay tribute until they are forty or fifty years of age in relief of the British taxpayer."

It's not often that I have to put down a book and not continue reading because it just requires too much effort from me to keep reading, but a couple weeks ago, when I first read that passage, happened to be one of those times. When you read Keynes, you realize you are reading a man of profound humanity and spirit. Human life is hard and wracked with coercion on all sides. Sometimes collectively the right thing to do, and the liberal thing to do is seek out the option that minimizes those coercions. Sometimes that involves errecting an apparatus of coercion, like the state, to make sure that gets done. A coercive world puts real people in terrible situations. People who just accept that coercion passively - rejecting a countervailing coercion from the state as being always and everywhere illiberal - are fooling themselves if they think they are standing valiantly opposed to coercion. The task before a real classical liberal is immeasurably harder than that of consistently saying "no" to any democratic action. There was a time when democratic problem solving was central to the classical liberal vision. For a lot of people today it's considered antithetical. The task in front of a classical liberal is hard. The world is a very coercive place, and the task of a classical liberal is to minimize that coercion, not to pretend that anyone who breaths the word "democracy" is abandoning liberty. We used to consider people who thought like that "tories" or "royalists" or "reactionaries" - not classical liberals. I'm not willing to go that far quite yet. But I do wish democratic humanitarianism was taken more seriously than it is.

By the way - is anyone aware of Murray Rothbard's reaction to the incidents that Keynes described above? Google it. It's a fascinating read. Gene Callahan will get a kick out of it if he's not aware of it already.

An Entitlement Reform?

I used to work a lot with Bob Reischauer (former MedPAC vice chair and CBO director) on Medicare stuff, but have not followed it for several years. I'm also out of the loop on most high level tax discussion. But I've come to put a great deal of trust in the insights of the Urban Institute on both issues, so when they are responding positively towards the Medicare plan released by Ryan and Wyden today, I'm inclined to view it favorably. I'm curious if Bob will weigh in on it.

Thoughts?

In this graph that I made on the St. Louis Fed website, we have government employees divided by population in blue, with the scale on the left, and government spending divided by GDP in red, on the right. Any thoughts?

A lot of the narrative we are still fighting out today about government first got written in mid-century, when the role of government in society was changing rapidly (something that's quite clear from the figure). My view is that free people in a free society did what free people do: they evaluated how they wanted to live their lives and acted on it, and the market and democratic forces that allow for self-regulating orders to emerge from the interaction of free agents generated a new order, which has been fairly stable since around the early 1980s. In the 1980s the whole processes slowed down, universally recognized excesses resulting from the growing pains of mid-century were cleaned up as the years went on, and the system stabilized.

That's what I see here, and I think people who act like we're on some trajectory dating from mid-century are muddying the analysis. I think they would be less confused if they realized that emergent orders aren't always libertarian orders.

The red line is a little trickier, of course, because neither the numerator nor the denominator are as stable as the blue line. In addition, the numerator and denominator of the red line have a short term negative relation, while the numerator and the denominator really only have a long term positive relation. Most of the gyration in that red line after 1980 is attributable to the business cycle and fiscal policy. Once you recognize that, I think the red line tells the same story as the blue line of transition to a new order.

Going forward, we may see another transition related to health care. We may make the transition to socialized health care that Europe made earlier, and that will cause another blip up to a new equilibrium. I'm personally one that hopes that doesn't happen - I hope we can invest in health research and provide a safety net without socialization. But we'll see what happens.

Barely anyone alive today really lived in the old equilibrium. Many people alive today lived during the transition to the new equilibrium, and the new equilibrium itself. I haven't even lived in the transition - I've only lived in the new equilibrium. I rather like it, I don't think it's unreasonable, and I feel a little put off by people who tell me I don't like freedom because I won't relent and demand the sort of world they want to live in. I recognize I'm demanding the same thing of them, and I accept that I am, but they never quite seem to recognize that's what they're demanding of me.

Any thoughts?

Caplan on Wages and Labor

Bryan Caplan writes a post that I have a lot of issues with. First and foremost is this statement that he leads with: "Unemployment is just a labor surplus; since wages are the price of labor, the fundamental cause of unemployment has to be excessive wages."

This is how a lot of people think, and I often feel like I'm in the small minority on this - but I am more confident that I am right on this than I am on almost anything else I write about on here. Unemployment is not "just" a labor surplus (although obviously if there are labor surpluses, that can contribute to unemployment). The labor market could be in equilibrium and we could still have a lot of unemployment.

8.6% of the United States labor force is currently classified as "unemployed". That's 13.3 million Americans. Several million more aren't in this count but matter to us as "discouraged workers" or "underemployed" workers. To be in a labor surplus, you must (1.) have a reservation wage that is equal to or lower than the market wage, and you (2.) have to be jobless. Only the second criterion is involved in your classification as being "unemployed" - the phenomenon we allegedly care about and the data which we look at. We don't know how many people satisfy (1.) and (2.) - we don't know how many people comprise a labor surplus in this country. Nobody seems to have cared enough to even think about how to collect that data. We don't know if that number is cyclical or not. We don't even know if our unemployed uncle or unemployed friend is in that labor surplus or not. And we don't seem to care about that. The social fact we seem to care about is unemployment, not labor surplus. To be unemployed, it's perfectly possible to have a reservation wage above the market wage (and it's not even clear exactly what this means, since one person's labor can be sold in multiple labor markets). Nobody associated with the Current Population Survey will ever issue a survey to you asking you what your reservation wage is. It has nothing whatsoever to do with the phenomenon of unemployment. Unemployment is not the same as labor surplus.

Economists acting as economists care about market efficiency. Economists as human beings care about much more than that, and on the question of unemployment the economists' obsession with market efficiency has been very damaging - we often try to fit a square peg into a round hole. If you want to explain unemployment you can't just copy and paste other concepts like a labor surplus and pretend you've explained it. The best bet we have for explaining unemployment is explaining something that we have a better sense of: employment. We know the determinants of employment. Unemployment seems to increase when employment decreases (this sounds tautological but it's actually not at all). We also need to explain employment in a general equilibrium rather than a partial equilibrium framework. Finally, we need to explain why people might be jobless and unemployed vs. jobless and not unemployed (search theory helps with that). To the extent that we care about discouraged workers and those sorts of people, search theory becomes less essential for answering the questions we care about.

I know that only addresses Caplan's first paragraph - but take my argument seriously, think about it, then read the rest of Caplan's post and see what makes sense and what doesn't.

UPDATE: I also think it's worth clarifying something about "sticky wages". First, the observation of sticky wages doesn't necessarily imply a labor surplus at all (although certainly a wage floor would be great example of sticky wages!). An elastic labor supply curve to the left of equilibrium will give you sticky wages in the data. Why might a labor supply curve get elastic? People with jobs create lives with costs that they try to make predictable. Anyway - it's just important to remember that "sticky wages" just means "wages move less than employment". It doesn't have to mean "wage floor" or any sort of surplus. Second - it's important to know one of hte major reasons why economists talk about sticky wages that has little to do with any of this: sticky wages help explain why the long run aggregate supply curve is vertical but the short run aggregate supply curve is upward sloping. It's probably unfair to say that's the only reason why economists care about sticky wages, but it is a major reason why.

Happy Anniversary, Kate!

Wow - four wonderful years just flew by. This is a picture I like, from a trip we took to the Outer Banks with friends.

Happy birthday to Kate's mom too - one of the fun things about the wedding was we had a wedding cake and a birthday cake for her mom.