Not content with just blaming his political opponents for causing the Arizona terrorist attack, Paul Krugman also seeks to show us how his morals are better than his oponents as well.

In usual fashion of course, his framework is built on faulty assumptions, each which help his argument out a great deal, but all of which prove the fallacy of his thinking (full article here via NY Times):

One side of American politics considers the modern welfare state — a private-enterprise economy, but one in which society’s winners are taxed to pay for a social safety net — morally superior to the capitalism red in tooth and claw we had before the New Deal. It’s only right, this side believes, for the affluent to help the less fortunate.

Well, we can stop here, because the New Deal did not magically arrive at a philisohpical moral imperative which has been around for centuries.  Sorry Mr. Krugman, but morals are actually shared by most humans and this one is included regardless of your self-serving ability to not see it.

No, this novel concept didn’t begin in the 1930′s.  Most of us probably know or have heard the axiom, when much is given, much is expected.  Or this one, the idea that a rich person’s trip to Heaven is analogous to threading a camel through the eye of a needle (historically this meant using smaller entrances to walled cities, not actually a needle and thread).

But no matter, as for Mr. Krugman, the New Deal is the beginning of it all….. So where to go from here?  How about a false dichotomy (article cont’d):

The other side believes that people have a right to keep what they earn, and that taxing them to support others, no matter how needy, amounts to theft…

Notice the word play here in these back to back statements.  He sets up the framework as side A against side B, and while he doesn’t actually state that side B believes the less fortunate should fend for themselves, the implication in the setup is that this is the case.

Moving to his point however, (more…)

Responding to a recent increase in self-immolation (suicide by setting oneself on fire in protest) among Muslims, Muslim scholars in Egypt spoke out (here via Jordan Times):

CAIRO — Egypt’s Al-Azhar, the most prestigious centre of religious learning in the Sunni Muslim world, said on Tuesday that Islam bans suicide for any reason.

“Sharia law states that Islam categorically forbids suicide for any reason and does not accept the separation of souls from bodies as an expression of stress, anger or protest,” said Al-Azhar’s spokesman Mohammed Rifa al-Tahtawi in a statement on state news agency MENA.

“Al-Azhar cannot comment on the cases of people who had burned themselves, as these may be suffering from a mental or psychological condition that forced them to do so,” he said.

It might seem odd to some, but the Muslim scholars are actively pushing an idea which devalues the Islamic terrorists’ main weapon, suicide bombings.  & they do so in a very definitive way.  Even though the escape hatch of narrowly aiming their critiques to only self-immolation is obvious, they still don’t speak in political terms or try to limit themselves to suicide by fire.

Instead of taking the easy path; they took the moral one and stated directly that suicide in any form is forbidden under Islam and recent attacks may well involve psychological issues.

Which interestingly enough, brings us back to the Arizona shooting debate (DA post here) where I argue that rhetoric or guns can’t cause a free and moral people to suddenly and irrationally take up arms.  Indeed by proffering so, people are ignoring the fact that America, as well as many other semi-free countries, has a culture whereby the vast majority agree that killing is not an appropriate reaction to someone else exercising their free speech (agree vocally & through our legal system).

I juxtaposed American culture against some religious fundamentalist examples.  One, the Muslim online magazine (Inspire), which in mid-2010 was still pushing for revenge against Danish media for daring to print Mohammed cartoons.  Not only pushing, but the cleric writing the article stated (paraphrased) assassinations, bombings, killings, etc, are all valid responses to religious “slander”.  Additionally, I used the recent assassination of a provincial governor in Pakistan in which clerics (500+) issued decrees that anyone caught grieving for the slain governor can be punished.

The governor’s sin?  Agreeing with the national government of Pakistan that blasphemy laws currently on the books should be repealed.

Both are examples of a different a culture where killing in response to slander or blasphemy (both forms of speech) is acceptable.  Therefore, a culture in which vitriol about the blood of patriots or having to get your pitchforks out means something entirely different than it means in America.

So much in the same way that America isn’t culturally like a lot of Pakistan when it comes to the belief that violence is a respectable tool in almost any case, neither is Egypt.  As Egypt also has a societal belief, proven in their laws and willingness to prosecute terrorists (more…)

An excellent publication overall, the Economist, is using their online debates to ask a question which doesn’t seem to have any useful answer (here):

This house believes that America’s political system is broken.

The current debaters are Matthew Yglesias, defending the motion and Peter Wehner arguing against.   In their second round of the debate, the house is winning with a full 75% agreeing to a broken US political system.

I say it doesn’t seem to have any useful answer as the most likely result from such a poll will be based mainly upon emotions.  Since most lay people don’t typically sit around and try to analyze political systems, the answers from the majority of respondents will have to fall back on other knowledge and human behavior demoonstrates this is likely to be emotions.  IE – if I like what’s going on, no fixing.  If I don’t like what’s going on, it needs fixing.

Reminds me a little of an argument I’ve seen a number of times in the health care debate.  Invariably, someone will put up a poll telling me how many people think their health care costs are too high.  & my retort stays the same, with some variation of Socratic questioning like… ”So?  Did you expect to see a poll that said most Americans want to pay more for anything?”

But I digress, the question has been asked and for Mr. Yglesias, things aren’t going well.  His baisc argument starts something like this:

American political institutions are in a period of crisis. The source of the crisis is relatively simple. Our institutions work only when leaders can reasonably expect broad bipartisan co-operation, but the emergence of more ideologically rigorous parties makes such co-operation extremely unlikely…

Which might make for a good thesis, assuming you can prove that broad bipartisan co-operation is indeed a requirement (hell, prove it’s useful…) as well as proving that more ideologically rigorous parties have come into existence.

His proof?  In the short, yet varied history of the US, he points to the last few election cycles – excluding all information about 9/11 and two wars and the nominal fact that the higher the consequence of any legislation the more ferocious the public debate – he starts his historical research by going all the way back to President Bush the younger; who entered the presidency with:

…an unprecedentedly weak electoral mandate. More voters marked their ballots for Al Gore than marked their ballots for Mr Bush. The median voter in the election supported Mr Gore. But thanks to a combination of litigation, stubbornness and the perversity of the electoral college, Mr Bush succeeded in prevailing and becoming president….

Just a quick note here – is it a little odd to start an arguement to theoretically prove that idealogically rigirous institutions are harming us, by being idealogically rigid… but whatever.

He contends that the result of the weak mandate  and an inability to overcome a Senate fillubuster worked well:

…This led to a fair amount of legislative co-operation in the first Bush term. A series of important changes to the Elementary and Secondary Education Act were approved; an extremely costly new prescription drug benefit was added to Medicare; income taxes were steeply cut—all on an at least somewhat bipartisan basis….

Somewhat bipartisan?  Like idealogically rigirous, “somewhat bipartisan” is undefinable in any concrete terms, but a quick look on just the tax cuts seems to indicate consistent partisan fighting.

What we know?

The cuts themselves were passed in two bills.

1. Economic Growth and Tax Relief Reconciliation Act of 2001 &
   1. Senate vote here, House vote here
2. Jobs and Growth Tax Relief Reconciliation Act of 2003.
   1. Vote totals here

In 2001: only 1 Republican voted against it in the Senate out of 33 nay votes (the other nays were Democrats), and in the House, all but one of the 154 nay votes were cast by Democrats.  & of course out of the yea votes, while less one sided, still doesn’t appear to be bipartisan.  In the Senate, 12 of the 58 yea votes were cast by Democrats and in the House 28 votes our of 240 yea votes were cast by Republicans.

& 2003?  I guess Mr. Yglesias would also be surprised to learn that in the 2003, the tax debate was even more lopsided (more…)

Writing in the NY Times, an MIT Professor for the Sloan School of Management, Simon Johnson explains how bad budget deficits will be if we allow the Bush tax cuts to continue.  Basically he tells us, if we fail, it will only be due to the fact that taxes aren’t high enough and we’re not spending enough money on the right things. (here):

According to the Congressional Budget Office, extending all the Bush tax cuts would add $2.3 trillion to the total 2018 debt. The single biggest step our government could take this year to address the structural deficit would be to let the tax cuts expire. Such a credible commitment to long-term fiscal sustainability should reduce interest rates today, helping to stimulate the economy….

According to Mr. Johnson, even though critics say letting the tax cuts expire would retard growth, that money could be used more effectively (he continues):

…If the goal is to boost growth and employment immediately, it would be better to let the tax cuts expire and dedicate some of the increased revenue to real stimulus programs…

You mean, stimulus programs like “Cash for Clunkers” (NBER working paper here)?

…Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of “clunkers” in the city as of the summer of 2008. We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended….

Or how about the stimulus plan we were told would keep unemployment rates to 8% (DA Post here), while they currently hover around 10% (here):

…in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today.

Or…maybe the government takeover/purchase of GM (post here):

…in reality, the US Treasury through pressure by the Obama administration spent $50 billion dollars to own 61% of the shares.  With roughly 500 million shares available, this means the US government current owns 305 million shares.  At the current stock price today of .375 dollars, their 50 billion dollar investment is worth roughly 115 million dollars….

Or maybe controlling healthcare costs by passing a bill no one understands…. which has already started failing as insurers have already started raising rates more than goverment predictions (post here):

…The economics and logic of these required rate increases are undeniable.  If someone, in this case the government through force of law, tells a private business that they must increase their spending, under force of law, some, if not all, of those new expenditures will be passed on to consumers…

So to sum up Mr. Johnson, even though evidence, extremely recent evidence, demonstrates what economic thinkers have told us for centuries:  government can not create jobs – the problem doesn’t lie with government spending, but instead in allowing people to keep their own money.

I don’t know when we start understanding what Albert Einstein expressed so eloquently so many years ago, “The definition of insanity is doing the same thing over and over again and expecting different results.” but let’s hope it’s soon.

For more, excellent Cato article The Stimulus: The Government Job Creation Myth

As most know, late last week, smaller health insurance companies sent out press releases detailing a simple fact – when mandates increase, so will premiums (via WSJ here):

…Aetna Inc., some BlueCross BlueShield plans and other smaller carriers have asked for premium increases of between 1% and 9% to pay for extra benefits required under the law, according to filings with state regulators….

To most, this might seem an obvious consequence of the legislation.  The economics and logic of these required rate increases are undeniable.  If someone, in this case the government through force of law, tells a private business that they must increase their spending, under force of law, some, if not all, of those new expenditures will be passed on to consumers (WSJ continues):

…Weeks before the election, insurance companies began telling state regulators it is those very provisions that are forcing them to increase their rates….

…Aetna, one of the nation’s largest health insurers, said the extra benefits forced it to seek rate increases for new individual plans of 5.4% to 7.4% in California and 5.5% to 6.8% in Nevada…

…Regence BlueCross BlueShield of Oregon said the cost of providing additional benefits under the health law will account on average for 3.4 percentage points of a 17.1% premium rise for a small-employer health plan…

…In Wisconsin and North Carolina, Celtic Insurance Co. says half of the 18% increase it is seeking comes from complying with health-law mandates….

Not only should this seem obvious, but in a free country, any company should be able to set their rates for their services.

This of course assumes you don’t work for the government – then the news is shocking (WSJ continues):

…The White House says insurers are using the law as an excuse to raise rates and predicts that state regulators will block some of the large increases.

“I would have real deep concerns that the kinds of rate increases that you’re quoting… are justified,” said Nancy-Ann DeParle, the White House’s top health official. She said that for insurers, raising rates was “already their modus operandi before the bill” passed. “We believe consumers will see through this,” she said….

Not only shocking – but so wrong that even more force is needed.

Enter the Department of Health and Human Services threatening private business, for making private decisions, solely because those decisions disagree with the government’s predictions (via HHS website – bold added):

It has come to my attention that several health insurer carriers are sending letters to their enrollees falsely blaming premium increases for 2011 on the patient protections in the Affordable Care Act.  I urge you to inform your members that there will be zero tolerance for this type of misinformation and unjustified rate increases….

…We estimate that that the effect will be no more than one to two percent….

…Given the importance of the new protections and the facts about their impact on costs, I ask for your help in stopping misinformation and scare tactics about the Affordable Care Act.  Moreover, I want AHIP’s members to be put on notice: the Administration, in partnership with states, will not tolerate unjustified rate hikes in the name of consumer protections….

Think carefully about some of  these words/phrases used by government officials against private businesses in a free country: zero tolerance, misinformation, not tolerate, unjustified….all for raising theirs rates at a greater rate than the government assumed.

Maybe it’s just me, but when the government threatens people for fishy emails, then moves forward to threaten private business for deciding what to charge for their services…. well, it certainly doesn’t appear to be a free society.

As Thomas Jefferson stated so many years ago:

When the people fear their government, there is tyranny; when the government fears the people, there is liberty.

Over at HBR Amar Bhidé has written an article discussing the housing market and subsequent crash (very interesting – entire thing here) and proposes that among the causes of the crash, a sort of self restriction had taken the market from a vibrant one to one controlled by centralized authority:

The modern economy creates and spreads unprecedented prosperity by drawing on the resourcefulness and enterprise of the many, not by blindly following the dictates of a few. Individuals today make and act on their own judgments to a degree that would have been unimaginable to our forebears….

In recent times, though, a new form of centralized control has taken root—one that is the work not of old-fashioned autocrats, committees, or rule books but of statistical models and algorithms. These mechanistic decision-making technologies have value under certain circumstances, but when misused or overused they can be every bit as dysfunctional as a Muscovite politburo….

His argument is one we’ve heard from the military and other agencies as well – what they needed was more human intelligence on the ground, not more technical complexity from high.

He continues:

…Consider what has just happened in the financial sector: A host of lending officers used to make boots-on-the-ground, case-by-case examinations of borrowers’ creditworthiness. Unfortunately, those individuals were replaced by a small number of very similar statistical models created by financial wizards and disseminated by Wall Street firms, rating agencies, and government-sponsored mortgage lenders. This centralization and robotization of credit flourished as banks were freed from many regulatory limits on their activities and regulators embraced top-down, mechanistic capital requirements. The result was an epic financial crisis and the near-collapse of the global economy. Finance suffered from a judgment deficit, and all of us are paying the price….

Even going so far as to invoke Hayek to make the case:

The great twentieth-century thinker Friedrich Hayek made the classic argument for decentralized choice in his essay “The Use of Knowledge in Society.” The stability of the economy depends on constant adjustments to small changes, he believed—“B stepping in at once when A fails to deliver.” No single individual has the knowledge to make those adjustments; rather, it is widely dispersed across many individuals. But information about “the circumstances of the fleeting moment” cannot be quickly and accurately communicated to a central planner. Therefore, individuals who have on-the-spot knowledge must be allowed to figure out what to do….

Adaptation to changes—the focus of Hayek’s article—is only part of the story. The success of the modern economy also depends on innovation. As it happens, decentralization beats central planning here, too. Innovations are unprecedented, one-of-a-kind developments. Even incremental ones require imagination. An innovator cannot simply rely on historical patterns in placing bets on future opportunities. Knowing what has worked before and what hasn’t is but a starting point. Innovation also requires considerable trial and error. Unforeseen technical problems—or customers not doing what they had told market researchers they would—demand recalibrations that combine on-the-spot observations and historical knowledge with leaps of imagination….

Of course like most writers who seem to espouse the virtues of decentralization, he still thinks some things need centralized control which don’t:

Technologically advanced societies couldn’t function without some centralized control, of course. Governments need to regulate how businesses drill for oil, develop genetically modified crops, and pick the paints they use in toys, for instance….

Either way, he goes on to argue that the financial industry, using mathematical formulas and statistical models, embraced a sort of top-down control giving rise to “Mechanistic Decision Making” & “Robotic Finance”.

This basic line of reasoning isn’t exactly new.  Wired had an article in February of 2009 (here) about the risk formula which killed Wall Street.  The formula worked well for 5 years as investors used it as a way to measure pooled risk in MBSs (mortgage backed securities), but the formula:

…still hadn’t solved all the problems of mortgage-pool risk. Some things, like falling house prices, affect a large number of people at once. If home values in your neighborhood decline and you lose some of your equity, there’s a good chance your neighbors will lose theirs as well. If, as a result, you default on your mortgage, there’s a higher probability they will default, too….

Now while both articles point to specific issues which helped the collapse, like most they conveniently left out all discussion in reference to the government’s role in perverting the incentives, but together I think they present an interesting challenge to those of us who believe in decentralization as a good (DA post on decentralization here).

& that is – can there be mechanisms put into place which actually help foster decentralized control since our history, both long term and recent, seems to indicate humans have a tendency towards centralized control at certain levels of complexity.

We see this through various disciplines such as anthropology, archeology, and history, that over the past 10,000 years or so, humans made a mass migration from the nomadic lifestyle which was practiced for nearly 200,0000 years, to villages, towns, and cities.

Using agricultural knowledge to help spur this transition, humans also started growing in population.  As more land became developed and could support more people, villages and towns grew into large cities & states.

With the advent of these new societal structures, came new power structures.  In nomadic communities, authority is handled from a tribal point of view.

This means that people don’t really have positions of authority which is spelled out by any specific power structure.  Their authority comes from their ability to influence.  So elders with specific knowledge are sought after for wisdom and help, without a formal power structure of say a judicial system.

With the growth of society, came the growth of power structures as they became necessary to handle the population explosion.  Things such as basic sanitation and clean water were large public work projects which required the control of enough resources (labor mostly) which heretofore had been impossible.

These beginning power structures, would eventually evolve into the world in which most of us find ourselves today: a world in which more of our daily lives are coming under scrutiny from centralized power structures.

& we’ve seen what these power structures are capable of doing, both good and bad.  While it allowed for greater sharing of knowledge through vibrant cities which pooled resources in denser areas, it also allowed for the pooling of resources for war.

Either way, in this case the centralized authority we can normally blame was there in multiple areas, but for this specific factor it was self imposed.

Indeed in looking at human history, it seems given some level of complexity we seek out centralized forms of control.  It might seem today as if humans would never pick governments and politicians as idiotic and with as much power as they have today, but these were gradual changes over generations.

Taken with the most recent example of self selected centralization, it may be we need to consider the possibility that humans tend towards this direction with or without institutions directly promoting centralized control.

More thoughts on complexity here

It the state of MO, like other states with large cities, St. Louis & Kansas City both have local earnings taxes.  Meaning, in St. Louis at least, by merely working inside the city limits of St. Louis, you have an additional 1% income tax.

Enter the voter initiative (whole thing here via ):

…Proposition A wouldn’t repeal the tax, but it would give residents in the two cities a chance to vote every five years starting in 2011 on whether to continue the tax. If voters approved a repeal of the tax, it would be phased out over 10 years, at one-tenth of a percent each year.

The measure also bans any other cities from enacting an earnings tax….

Seems pretty benign, though I’m sure legal challenges will surface if Prop A passes…. assuming of course Missourians are allowed to vote at all.

Enter Kansas City government with union backing:

KANSAS CITY (AP) — Kansas City’s city attorney has filed a lawsuit seeking to block a November ballot measure that would allow residents of Kansas City and St. Louis decide whether to keep their cities’ earnings tax….

A group called Let Voters Decide submitted the ballot measure after the petition drive. The suit was filed on behalf of acting Kansas City city manager Troy Schulte and Pat Dujakovich, president of the Greater Kansas City AFL-CIO, both as private citizens….

What’s their main complaint?

…The lawsuit argues that the required elections would cost both St. Louis and Kansas City about $500,000, and neither city would be compensated for the cost.

According to the suit, Proposition A “becomes a de facto appropriation by voters statewide on Kansas City funds for the purpose of this (local) election.”…

But…

…Let Voters Decide spokesman Marc Ellinger said the measure wouldn’t require either city to pay for a local election if they just wanted to skip the vote and let the tax phase out automatically….

Please don’t get me wrong here, Kansas City might have a good legal basis for their arguments, but I’m unsure we should be living in a government which chooses to sue the state in order to specifically prevent voters from casting their ballots.

Maybe I’m off here, but I always thought for a law to be challenged it had to exist first, then harm would have to exist to give any client standing.

Of course don’t tell that to the President or Arizona either, but I’m digressing.

The point is only that when the government seeks to actively prevent your voice from being heard through ballot initiatives, people should be concerned.

Over @ Concuring Opinions, Nate Oman has an interesting post about the defenses of a free market (whole thing here):

Broadly speaking, I think that there are three families of arguments that can be made in defense of markets. Most commonly within the legal academy markets are defended on the basis of efficiency….

The second defense of markets is libertarian. This looks a lot of like the efficiency argument but is actually quite different, notwithstanding the fact that libertarians frequently confuse the two. In the libertarian argument what matters is not welfare but freedom. Freedom is taken as a good in and of itself, even if choices might result in reductions of welfare for the chooser….

The third argument is a defense of markets as markets.

Both the efficiency and the libertarian defenses of markets are reductionist in the sense that they see the good of markets in a unitary way. Markets are good because — properly constructed — they move resources around to maximize welfare….

Markets are good because they provide cooperation in the face of disagreement over the definition of the good and “social stability.”…

It’s a very decent article, though as a non-card carrying libertarian, I need to disagree with some of his minor points.  Namely, that libertarians are by group interested in freedom alone.  In fact, libertarians, just like other demographic groups get to the same answers through different paths and all three paths are prevalent in the current party.

For some libertarians, it is an…. intellectual/efficiency argument alone.  They believe markets aren’t necessarily moral or perfect at rationing, but they firmly believe that a free market leads to the best possible solution for the most people.

For me, I take the freedom approach.  To maximize individual welfare means one must maximize individual choices.  This might seem as too moralistic or philosophical for some as to be practical or useful, but it seems logical that reducing one mans’ freedom is antithetical to maximizing welfare.

& to be thoroughish, lots of libertarians are just tired of all the other parties and joined that cool one with that goofy, “Who is Ron Paul” stuff.  In reality, like most organizations, libertarians are not absolutists either way using a combination of thoughts to form their basis for their beliefs, but I digress.

The author continues about the third way:

On this view, traders are not cowardly, greedy, souless parasites (see, e.g., Shylock) constantly tempting the virtuous away from the path of justice with filthy lucre. Rather, commerce encourages courage, honesty, and fidelity. It encourages cooperation rather than predation. It allows people with widely disparate views of the ultimate ends and purposes of life to peacefully cooperate with one another. Commerce rewards the frugal and the farsighted, while punishing the wastrel and the spendthrift…..

But he tells us….

The third, pluralist view of the good of markets gets scant attention…

While this maybe a true statement, but the reality is that all three defenses coexist to form both a cohesive political and philosophical framework (though I do have issues with libertarians on foreign policy).

If we can start with the idea that maximizing welfare includes maximizing freedom, efficiency, freedom, & moral markets work together.

When starting with the paramount of freedom in economics, one also gets into the land of (un)intended consequences and perverted incentives.  Hayek talked about this a great deal – the fact that due to the shear size and complexity of the market, any attempted centralized interference will change incentives and unlikely for the better.  Unlikely, because the “status quo” we all question exists through millions and millions of individual transactions.

For lack of a better term, a collective wisdom emerges, order out of chaos.  An answer, that we might not like, but something for which a centralized system is (highly) unlikely to do better than free individuals.  The result is the most efficient use of resources we can hope to achieve while maintaining the most individual freedoms we can.

What about the morals? Well….it’s not as if we don’t have recent examples to help us out.  Leaving out the current mess of a tax code, take the recent financial crisis.

Predatory lenders?  Sure.  Fraudulent and speculative borrowers? Sure.  The reason why it worked so well?  Government incentives pushed quasi-government agencies to purchase loans without much oversight.

Why no oversight?  No skin in the game.  They couldn’t fail.  The market believed it & they believed it.  & in the end, the government proved them right.  Do the wrong thing, over and over and over and over again until it finally collapses and someone else ends up paying the bill….

So while the author is probably correct that we don’t use a moral market argument much, especially in an atmosphere of language such as “fat-cats”, he’s incorrect that this moral option is a “third” argument.  It is indeed part and parcel of the framework that markets are more efficient, better at maximizing freedom, and yes, even better at incenting moral behavior as well.

More on market morals here