Detailed Abstractions

In a great piece over @ The Christian Science Monitor, Arnold Kling & Nick Schultz argue well that Markets fail. That’s why we need markets:

…This seemingly paradoxical view is based on several overlapping strands of research in economics as it pertains to development, history, technology, business expansion, and new-firm formation. According to this view, entrepreneurs at work in the economy – in finance, high tech, manufacturing, services, and beyond – are constantly experimenting, creating new business models, techniques, and technologies that upend the established order of things.

Some new technologies and innovations are genuine improvements and are long-lasting welfare enhancers. But others are the basketball equivalent of pump fakes – they look like the real deal and prompt market actors to leap hastily into action, only to realize later that their bets were wrong.

Given this dynamic, markets are unpredictable, prone to booms and busts, characterized by bouts of exuberance that are rational or irrational only in hindsight.  But markets are also the only reliable mechanism for sorting out this messy process quickly. In spite of the booms and busts, markets drive genuine long-run innovation and wealth creation.

Not as eloquently as they did, I wrote about this earlier in the year (here):

…the dynamic system of the United States might have felt more pain that other countries during this crisis, but due to the mostly decentralized economic model, we will recover more quickly than most…

It then seems for most people to become a question of risk adversity.  Do we allow for individual freedom and understand that sometimes failure is a part of the process?  Or do we constantly attempt to control individual behavior for fear of potential negative consequences?

Only if we first believe in the premise that by trading freedom for stability, we actually get stability.  The CSMonitor article continues:

…When governments attempt to impose order on this chaotic and inherently risky process, they immediately run up against two serious dangers.

The first is that they strangle new innovations before they can emerge. Thus proposals for a Consumer Financial Protection Agency, a systemic risk regulator, a public health insurance plan, a green jobs policy, or any attempt at top-down planning may do more harm than good.

The second danger has to do with the nature of political economy. Politics creates its own kind of innovators who can be as destabilizing to markets as market actors themselves – but in far more pernicious ways.

Economists call these political entrepreneurs “rent-seekers.”…

…This gets to the key difference between markets and governments. When innovation-driven excesses and imbalances are recognized in the marketplace, the system can correct itself quickly. This is less the case when government policy failure occurs.

Because political failure is less publicly tolerable than market failure, the temptation becomes for policymakers to avoid acknowledging their role in creating or perpetuating problems.  Or they double down on bad bets. So rather than recognize the government’s central role in the housing boom and bust and quickly changing its ways, we see the federal policy apparatus continuing to throw good money after bad in the mortgage market and on Wall Street….

I wrote about this “doubling down”  (here):

…For those playing the home game, this means we are taking a problem caused by excessive credit and government incentives and trying to fix it by:

1. Preventing the normal contraction that needs to happen by artificially propping up failed business and bad home purchasing decisions.
2. Keep money cheap by keeping interest rates very low.
3. Then, repeat the same process that got you to the recession in the first place by incentivizing the market to buy a commodity (housing) which is still overvalued in some places….

…I’m not really into prediction making as it’s obviously fraught with so many problems, but I’ll never understand how the solution to cheap money and an over investment of housing, is to keep money cheap and incentivize home buying…

As historically known, the vast majority of centralized government intrusions into free markets and free people has led to disastrous consequences.  NBER research suggests that two of the reasons for the current global economic crisis are due to unfree markets:

…The inability of emerging economies to absorb savings through domestic investment and consumption due to inadequate national financial markets and difficulties in enforcing financial contracts; the currency controls motivated by immediate national objectives;…

Everywhere we look objectively, freedom gives us more of everything.  Do you want to fix healthcare?  Using the government will likely lead to higher rates and more control, using individual freedom however doesn’t cost much as has been proven in other avenues such as food.  Something I think is just as important as healthcare, but been left to the market unlike health care.

& the market has responded.  Food costs as a percentage of disposable income has decreased from 23.4% in 1929, to just 9.6% in 2009 (here).

Meanwhile health care costs continue to increase with government regulation.  In just the past 5 years spending on health care as a percentage of GDP has continue to go up and is projected on that trend still.  In 2005 spending was 15.9% of GDP whereas in 2009 is it 16.9% and projected to be 19.5% in 2017  (here).

It seems that the overwhelming majority of evidence suggests to honestly help the most needy, freedom is not only a moral good, but a requirement for anything approaching success…. yet what seems to be an irrational fear of “economic crisis” many people can’t see the forest for the trees.

Gun advocates have long contended the anti-gun lobby is only using guns as a stepping stone to slowly remove other freedoms.  Like the saying, “They first came for the communists, but I wasn’t a communist.”  Indeed, this is truism that writers have told us for centuries: freedom is precious and must be protected.  As Hayek stated:

“If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion.”

Well, not to be ones to go against a historical truth nor stop our descent into statism,  statists moved from guns, to smoking, to obesity.   We’ve seen smoking bans in most states, some so restrictive that it makes illegal smoking in tractor trailers as they are assumed to be a “place of business”, banning handguns in major cities,  to the banning of actual cooking ingredients such as transfats.

It never seems to dawn on any of the proponents, that each of these laws removes one additional freedom.  Nor do statists seem to understand that humans will find ways to behave exactly as they wish regardless.  This is especially true of economic regulations, but also of business regulations meant to influence individual behavior.

For instance, during the recent concentrated attacks on America’s obesity “problem”, many local and state governments have looked into legislating calorie counts and nutritional value be available on the menu itself.  Apparently, having to ask for the nutritional value which is already available was too difficult, hence the reason to further regulate.

It matters little that giving nutritional value by request or forcing it on the menu doesn’t to change behavior.  Than proposed bans on food advertising will have little effect:

George Mason University’s Todd Zywicki noted at a forum last summer that the average American child actually watches less TV than he did 15 years ago. What’s more, children face less exposure to food ads now than they did then, for a variety of reasons. The remote control has made ad-watching optional over the last 20 years, and more recent technology like TiVo may make traditional commercials completely obsolete…

Indeed, the reason also has little to do with good business, such as McDonald’s excelling by giving clients good tasting food at relatively cheap prices very quickly.  Research has shown:

…The economist Tomas Philipson and I have written about the economics of obesity. We have pointed out that the decline in the price of fatty foods, along with the rise in the opportunity cost of physical activity (work is more sedentary than it used to be, so one has to invest extra time to get exercise, and television and video games have increased the utility that people derive from sedentary leisure pursuits), explains the dramatic long-term increase in the percentage of Americans who are seriously overweight….

Same with gun control advocates.  They don’t seem to worry about inconvenient facts like banning handguns in very high crime areas does little to prevent crime, but does a lot in preventing citizens from exercising their freedom to self-defense.  In Chicago:

Far more of the guns seized at crime scenes in Illinois come from Illinois than any other state.

It doesn’t even matter that we can see the slippery slope happening right in front of us.  For instance,  if we can ban smoking in private business establishments, why not private vehicles?  Crazy you say?  It’s already happening in limited fashion as we speak for child custody cases.

No, proponents everywhere of using government force for your own good, don’t seem to be able to see any consequences other than their pet project.  All that seems to matter today, is that enough people think the action is bad and are willing to use government coercion as a means to an end.

For a country with a history of trying to prevent the exploitation of minority groups by the majority, and indeed a Constitution to enshrine that very ideal, we’re moving quickly into tyrannical rule by the majority.  Let’s all remember, that we are a Constitutional Republic, because true Democracy is nothing more than allowing 51% of the population to enslave 49% of the population by simple majority vote.