Nightcap

  1. “Make America Free Again” isn’t Trump’s agenda Jacob Levy, Cato Unbound
  2. What’s wrong with liberalism? Daniel Wootten, History Today
  3. China’s long history of trouble with Islam Ian Johnson, ChinaFile
  4. “A hot dinner and a bloody supper” Felix Schürmann, Age of Revolutions

Nightcap

  1. Lessons from World War I and British Grand Strategy John Bew, War on the Rocks
  2. Trump prefers spectacle to strategy Danny Sjursen, the American Conservative
  3. A better way to talk about politics Conor Friedersdorf, the Atlantic
  4. It’s not just about big government Scott Sumner, theMoneyIllusion

The Behavioural Economics of the “Liberty & Responsibility” couple.

The marketing of Liberty is enclosed with the formula “Liberty + Responsibility.” It is some sort of “you have the right to do what you please, BUT you have to be responsible for your choices.” That is correct: the costs and profits enable rationality to our decisions. The lack of the former brings about the tragedy of the commons outcome. In a world where everyone is accountable for his choices, the ideal of liberty as absence of arbitrary coercion will be delivered by the resulting structure of rational individual decisions limiting our will.

The couple of Liberty and Responsibility is right BUT unattractive. First of all, the formula is not actually “Liberty + Responsibility,” but “Liberty as Absence of Coercion – What Responsibility Takes Away.” The latter is still right: Responsibility transforms negative liberty as “absence of coercion” into “absence of arbitrary coercion.” The problem remains a matter of marketing of ideas.

David Hume is a strong candidate for the title of “First Behavioural Economist,” since he had stated that it is more unpleasant for a man to have the unfulfilled promise of a good than not having neither the good nor the promise of it. The latter might be a desire, while the former is experienced as a dispossession. The couple “Liberty – Responsibility” dishes out the same kind of deception.

It is like someone who tells to you: “do what you want, enjoy 150% of Liberty”; and suddenly, he warns you: “but wait! You know there’s no such thing as a free lunch, if you are 150% free, someone will be 50% your slave. Give that illegitimate 50% of freedom back!” And he will be -again- right: being responsible makes everybody 100% free. Right – albeit disappointing.

Perhaps we should restate the formula the other way around: “Being 100% responsible for your choices gives you the right to claim 100% of your freedom.” Only a few will be interested in being more than 100% responsible for anything. But if it happens that someone is expected to deal alone with his own needs, at least he will be entitled to claim the right to his full autonomy.

The formula of “Responsibility + Liberty” is associated with the evolutionist notion of liberties, which means rights to be conquered, one by one. Being responsible and then free means that Liberty is not an unearned income to be neutrally taxed. It is not a “state of nature” to give in exchange for civilization, but a project to grow, a goal, a raison d’etre.

Putting first Responsibility and then Liberty determines a curious outcome: you are consciously free to choose the amount of freedom you are really willing to enjoy. Markets and hierarchies are, then, not antagonistic terms, but structures of cooperation freely consented. Moreover, what we trade are not goods, not even rights on goods, but parcels of our sphere of autonomy.

Minimum wages: The economist as a psychologist

Both Ludwig von Mises and F.A. Hayek are known for arguing that there is no such thing as a good economist who is only an economist. For these two thinkers, a good economist-as-scientist also needs to know history, philosophy of science, ethics, and physics. Mises and Hayek are thinking of what an economist-as-scientist should be familiar with and have some minimum knowledge beyond his discipline.

I would add that the economist as public educator, that is, when the economist talks as an economist to non-economists, also needs some awareness of psychology. I may not be using the term “psychology” in the most proper way, but I mean the awareness to understand what the interlocutor feels and needs and then figure out how to communicate economic insights in a way that will not be automatically (emotionally or psychologically) rejected; how to make someone accept an economics outcome they do not want to be true. How to break the bad news with empathy? This is a challenge I try to get my students to understand as one day they, too, will be economists out of the classroom in the real world.

A few days ago I found myself unexpectedly in the “psychologist” position. Only seconds after meeting for the first time two persons dropped the question: “So, what do you think about increasing the minimum wages, should we do it?” I knew nothing about these two individuals, and the only thing they knew about me was that I’m an economics professor. The answer to such a question is an Econ 101 problem: if you increase the minimum wage (above the equilibrium price) some lucky workers will get a wage increase at the expense of other ones loosing their jobs.

The first question I asked myself was “what do these two nice ladies actually want, the analytical/scientific answer, or do they want instead the ‘professor’ to confirm their bias?” This might be a delicate discussion since they may well have a loved one in the minimum wage market.

The first thing to get out of the way is that my answer as an economist is not ideologically driven or does not respond to secret political agendas. How can that be made clear? One way is to show the economics profession’s consensus on the subject from an impersonal position. I explained to them that any economics textbook from any author from any country in the world used in any university would say the same thing: “If you put the price of labor above its equilibrium (a minimum wage), it will produce a disequilibrium (unemployment). You cannot fix the price outside equilibrium and at the same time remain in equilibrium.” Yes, as Ben Powell reminds us, even Paul Krugman agrees on this. By mentioning a worldwide consensus there is no room for ideological or political agendas. It is important to mention that economics is not always about politics. The economic analysis of minimum wages has nothing to do with being a Democrat or a Republican; the political position of each party may differ, but those are not economic analyses, those are political strategies.

The next step was to deal with the issue that if such a consensus exists, why are there mentions of studies showing no harmful effects of increases in minimum wages. This is no mystery either. A well known reason of why an increase in minimum wages does not increase unemployment is because in fact there is no such increase. The politician may say he is increasing the minimum wage, but he does not say that the minimum wage is being located just above the equilibrium level and therefore he is not doing much. Another reason is to look at the effect of a minimum wage increase in a small location where low skilled workers can get another job in the next town without the need to move and therefore they will not show up as unemployed. This is another case of an ineffective increase in minimum wages. Or maybe the minimum wage increases but a benefit goes down. The total compensation to the employee does not change, its composition does.

But can the economist show his claim? Is there more clear evidence that the effects of increasing minimum wages does do harm than the complicated cases where there are no harmful effects? Again, I went geographically large. First, I compared the U.S. with Europe, which has higher minimum wages with respect to the U.S. In Europe you find higher unemployment rates, higher unemployment in the youth population, and also higher long-term unemployment. Second, I brought the case of the U.S. Fair Labor Standard Act of 1938, which fixed the minimum wage at 25 cents per hour. This law included Puerto Rico where the many workers were earning between 3 to 4 cents. Bankruptcies and unemployment skyrocketed. It was in fact unions who asked Congress to make an exception for Puerto Rico, which took two years to consider. For two years people in Puerto Rico were forced to work in the black market or fail to make a minimum income. Want more cases? See here. “See,” the psychologist says, “minimum wages are very dangerous; you can seriously harm yourself. Is that a bet you really want to make?”

Two issues remain to be explained after dealing with these three problems, (1) objection to minimum wage increases is not (necessary) an ideological or political position, (2) studies that deny the effect are doubtful for easy reasons to understand, and (3) if you look at a sample broad enough the economist’s prediction is right there.

First, when an economist objects to an increase in minimum wages it does not mean we do not want wages to go up. We are just saying that a minimum wage increase is not the right way to do it. I wish it were so easy, but the laws of demand and supply inform otherwise. I guess most economists would advocate for minimum wages if their negative effects were not real. Second, explain Milton Friedman’s lesson that a policy is valued by its results, not by its intentions. The economist objects because of the unintended effects of fixing the price of labor outside equilibrium, not because we wouldn’t like to see real wages increasing.

On Evonomics, Spelling and Basic Economic Concepts

I am a big fan of exploring economic ideas into greater depth rather than remaining on the surface of knowledge that I accumulated through my studies. As such, I am always happy when I see people trying to promote “alternatives” within the field of economics (e.g. neuroeconomics, behavioral economics, economic history, evolutionary economics, feminist economics etc.). I do not always agree, but it is enjoyable to think about some of the core tenets of the field through the work of places like the Institute for New Economic Thinking. However, things like Evonomics do not qualify for this.

And this is in spite of the fact that the core motivation of the webzine is correct: there are problems with the way we do economics today (on average). However, discomfort towards the existing state of affairs is no excuse for shoddy work and holding up strawmen that can be burned at the stake followed by a vindictive celebratory dance. The most common feature of those who write for Evonomics is to hold such a strawman with regards to rationality. It presents a caricature where humans calculate everything with precision and argue that if, post-facto, all turns out well then it was a rational process. No one, I mean no one, believes that. The most succinct summary  of rationality according to economists is presented by Vernon Smith in his Rationality in Economics: Constructivist and Ecological Forms. 

Such practices have led me to discount much of what is said on Evonomics and it is close to the threshold where the time costs of sorting the wheat from the chaff outweighs the intellectual benefits.

This recent article on “Dierdre” McCloskey may have pushed it over that threshold. I say “Dierdre” because the author of the article could not even be bothered to write correctly the name of the person he is criticizing. Indeed, it is “Deirdre” McCloskey and not “Dierdre”. While, ethymologically, Dierdre is a variant of Deirdre from the Celtic legend that shares similarities to Tristan and Isolde, the latter form is more frequent. More importantly, Dierdre is name more familiar to players of Guild Wars. 

A minor irritant which, unfortunately, compounds my poor view of the webzine. But then, the author of the article in question goes into full strawman mode. He singles out a passage from McCloskey regarding the effects of redistributing income from the top to the bottom. In that passage, McCloskey merely points out that the effects of equalizing incomes would be minimal.  The author’s reply? Focus on wealth and accuse McCloskey of shoddy mathematics.

Now, this is just poor understanding of basic economic concepts and it matters to the author’s whole point. Income is a flux variable and wealth is a stock variable. The two things are thus dramatically different. True, the flux can help build up the stock, but the people with the top incomes (flux) are not necessarily those with the top wealths (stock). For example, most students have negative net worth (negative stock) when they graduate. However, thanks to their human capital (Bryan Caplan would say signal here), they have higher earnings. Thus, they’re closer to the top of the income distribution and closer to the very bottom of the wealth distribution.  My grandpa is the actual reverse. Before he passed away, my grandpa was probably at the top of the wealth distribution, but since he passed most of his time doing  no paid work whatsoever, he was at the bottom of the income distribution.

Nevermind that the author of the Evonomics article misses the basic point of McCloskey (which is that we should care more about the actual welfare of people rather than the egalitarian distribution), this basic flaw in understanding why the difference between a stock and flux leads him astray.

To be fair, I can see why some people disagree with McCloskey. However, if you can’t pass the basic ideological Turing test, you should not write in rebuttal.

From the Comments: Weber, Geloso on inequality

How did I not see these before? Rick chimed in on Zak’s post about inequality and libertarianism awhile back. As usual, he tries to give the opposition the benefit of the doubt:

Taking public choice logic seriously means considering the political distortions/impediments to proposed policy. Taking inequality seriously is the flip side of that. Perceptions of (and attitudes towards) inequality matter and libertarians (and conservatives) would do well to acknowledge it.

I suspect that the problem is that 1) (like any ideology) we’ve got a blind spot, and inequality is in that spot. 2) Our liberal friends can see into that blind spot. 3) They’ve got a blind spot that leads them to make silly policy prescriptions (e.g. ignoring public choice roots of inequality and instead calling for policies that would reduce growth). And as a result, 4) we’re turned off by discussion of inequality before considering it.

Vincent, in the usual French manner, has a different take:

Okay massive disagreement here:

A: Inequality is not something “measurable” in the sense of utility. I chose to be an economist. My income is X% below that of my wife who went to school fewer years than I did and her income grows faster than mine and she will live longer than me (in probabilistic terms given life expectancy differences M/F). According to that definition, my couple is an unequal one and growing more unequal. Yet, I would not trade her job for mine even if her job was twice as remunerative (she is an attorney). I chose a path of lesser income because it made me happy. Income maximization was, in that case, not synonymous with utility maximization. By definition, rich societies will have more cases like that since gains in marginal utility may not be associated with marginal gains in monetary income. See the issue of the backward-bending labor supply curve.

B: The literature on linking growth to inequality is VERY weak. Look at the empirical papers, the results often depend on the choice of variables and the time window. It NEVER accounts for what I mentioned in point A. More importantly, there is NO THEORETICAL LINK with neoclassical theory on this (with the notable exception of Herb Gintis and Sam Bowles and I am working on a paper tackling their logic) that is axiomatically consistent. An empirical observation without a theory that is logically sound (the most repeated is the general Keynesian argument about consumption, but that is very weak and that rebuttal is powerful in the theoretical papers) is basically rubbish.

C: The Great Gatsby Curve is also rubbish since most of the past observations are based on the weird assumptions that mobility based on father-sons is a proper estimate to compare with modern estimates. You can consult the very convincing rebuttals made by Scott Winship. Moreover, the Great Gatsby curve is again a case of empirical observations without theory. I don’t need any of this story to see that mobility is down (modestly) at the same time that labor market restrictions are up.

There is more discussion, too.

Dear Mr. Pirie, refrain from using the “neoliberal” label

A few days ago, Madsen Pirie of the Adam Smith Institute announced the publication of the Neoliberal Mind.  Basically, Pirie accepts the grab-everything-we-don’t-like tag that many would-be thinkers have tried for decades to stick upon what we can refer to as the “liberal right” (I prefer the French expression of droite libérale). All he does is take the same message that classical liberals have been using for centuries and puts a new label on it.

It is a PR stunt. To be fair, I have often made the joke that there should be a New Liberal Party of Canada so that its members may be called the “neoliberals” so as to ridicule those who use the word. As such, I am poorly placed to frown upon Pirie’s book. Nonetheless, I wish that Pirie (and the folks at the Adam Smith Institute) would refrain from using the label.

Why? Because for years, the word “neoliberal” has been the most efficient sorting tool to separate the wheat from the chaff.

There is no generally agreed upon definition of “neoliberalism”. Everyone has its own spin on it. Sometimes, academics who use that word sometimes to mean what classical liberalism entails. In other instances, they speak about subsidies to certain companies as “neoliberalism”. Once, and I am not joking, I debated a policy analyst from a left-wing think tank who told me that rising levels of public spending to GDP could be qualified as  part of a “neoliberal” agenda.

A concept without a concise definition which is meant to collect into a bag everything that is not liked is not a relevant one.

Generally, those who use the word have this épouvantail (the word strawman has a scarier sound in French) of the beast they claim to slay. But it is generally a caricature that does not hold basic scrutiny. They argue that “neoliberals” value profit and are “cold utility maximizers” who draw everything they believe from the cold hands of the economic sciences. They are generally unaware that economists (which are often lumped in the same bag as the main promoters of “neoliberalism”) adhere to no such simplicity. One merely needs to read James Buchanan, Vernon Smith, Elinor Ostrom, Deirdre McCloskey, Max Hartwell, William Easterly to be cleansed of this simplistic (and simpleton) view of the human mind. Using a concept that is ill-defined and does not even survive the most basic of ideological Turing tests has no value.

In the end, the sole value of those who spew the word “neoliberalism” is that they signal to readers and scholars that their work might be worth avoiding. To be fair, some of those who use the word produce interesting research and comments. Generally, they tend to use the word parsimoniously and they make it a point of honor to define it in clear and unambiguous terms. They are an exception and, generally, good research tends to be absorbed in the mainline if the point is valid. As such, the word “neoliberalism” is useful because it sorts out the wheat from the chaff.

I understand the PR value of accepting the cloak – which is what Pirie is doing. However, are we not forsaking the best weapon to identify bad social science in so doing?

Theory versus Common Sense? The case of Free Trade

[…] the [World Baseball Classic] allows Organized Baseball to sustain the structures that constitute its inner purity, maintaining the boundaries of its regular and post seasons above all against all challenge by foreign teams, all the while increasing its global reach in recruiting talent and vending its commodity […A]ll the champions and perennial powers of the world’s other leading leagues need not apply.

[…] To call [Organized Baseball] an empire, or even a monopoly, is to seriously underestimate it. It is to fail to see the form of power it wields in shaping the separateness of its own commodious world, controlling access, avoiding and deflecting competition, limiting liability, sustaining and elaborating fictions of separate but equal, and mostly separate.

[…] For all of our ease in understanding objections to racism, for all that we can see the flaws in separate but equal when it generated the Major Leagues and the Negro Leagues, most of us now, not only but especially Americans, have no inkling how strange and immoral will someday seem our sanguine acceptance of the legal fortresses of limited liability and nation-state self-determination. (170-172)

These passages are from the last few pages of American anthropologist John D Kelly’s short book The American Game: Capitalism, Decolonization, World Domination, and Baseball. You can read it for yourself, but my short summary of the book is that it pleads for free trade. Not the theoretical free trade of economists, mind you, but of a practical free trade that opens up borders to labor (Kelly points out that it is really hard to play in the Majors if you are not an American, but shortsightedly blames US policy when other nation-states harbor just as much of the blame; if anything, the US has one of the more open immigration policies in the world today) and to marketplace competition (i.e. capital) in the realm of goods and services. I don’t know if this is a conclusion that Kelly would be comfortable being associated with, given that he is a man of the Left, but what would you call a world where baseball teams from Cuba, the US, the Netherlands, Japan, etc. compete with each other on an even playing field for labor, fans, and prestige?

The stubbornness of the Left is sometimes astounding. Kelly is right to lament the fact that the American baseball league (“Organized Baseball”) wields so much power in international baseball, but he doesn’t spell out an explicit remedy for solving this issue. Instead, it seems as if he is mystified as to how this could possibly happen. He understands and acknowledges that Organized Baseball derives much of its power from being located in the world’s most powerful nation-state, but he also understands that free trade (of labor and capital) is the answer to this issue without explicitly acknowledging this fact.

It seems to me that this is an issue where libertarians and internationalist Leftists can work together, provided we clarify a few concepts. Free trade is the answer for a lot of problems in the world today. Internationalists on both the Left and the Right realize this (see also Delacroix). The New Left intelligentsia, though, wants a practical free trade, and it often accuses economists of arguing for a theoretical free trade. But this critique is made in bad faith: Because economists are more familiar with the theoretical version of free trade, they are, as a whole, more willing to make compromises in the form of small steps towards more free trade. The New Left intelligentsia, instead of taking into account all the various options that can be done to move toward a freer world, including political limitations on what can be done to open societies up more to each other, has decided instead to poo-poo the small steps advocated by economists, and all in the name of practicality!

I agree with Kelly and others about the nation-state being a tool of segregation in today’s world. Unlike the New Left, though, I wholeheartedly embrace the pragmatic steps being taken to erode this segregation through the peaceful medium of free trade, even if it is not True Free Trade.

BC’s weekend reads

  1. China’s Legalist Revival
  2. Does Europe need a new Warsaw Pact?
  3. Daniel Larison (PhD in Russian History) on Trump’s foreign policy speech
  4. The Anti-Trumplodytes
  5. Why Popular Sovereignty requires the due process of law

From the Comments: Ayn Rand on extremism

I’m glad you highlighted the Ilya Somin/Will Wilkinson debate [here – bc], but I just found the whole thing so damn confused. I’m not a libertarian (or an Objectivist) but I ended up leaning more toward Somin than toward Wilkinson. But the real problem is that the terms “moderation” and “extremism” are left undefined throughout. Extremism in the pursuit of clarity is no vice, and moderation in the pursuit of muddle is no virtue.

In that respect, at least, I think Ayn Rand’s analysis of “extremism” makes more sense than anything that either Somin or Wilkinson are saying. As she puts it, “‘extremism’ is a term which, standing by itself, has no meaning. The concept of ‘extreme’ denotes a relation, a measurement, a degree….It is obvious that the first question one has to ask, before using that term, is: a degree–of what?…Measurements, as such, have no value-significance–and acquire it only from the nature of that which is being measured” (Rand, Capitalism, pp. 196-97). The nature of what’s being measured is the one thing that neither Somin nor Wilkinson discuss (though Somin certainly comes closer). Which is why the debate they’ve having is relatively pointless.

Wilkinson treats his youthful encounter with Ayn Rand as nothing more than that. If he took a closer look at what she said, I think he’d find that there’s more there than he remembers.

That’s from the infamous Dr Khawaja, who does his blogging at the always excellent Policy of Truth group blog. You can find a link to Rand’s Capitalism here. I think Dr Khawaja is wrong to suggest that this debate is relatively pointless, though, at least to libertarians who care about electoral politics. I do agree with him that Wilkinson should revisit his familiarity with Rand’s work, though.

BC’s weekend reads

  1. Dank Federalism
  2. What About Capitalism? Jürgen Habermas’s Project of a European Democracy
  3. The IDF gets leaner as its enemies evolve (the US should do the same, by the way)
  4. A moderate defense of extremism in defense of liberty
  5. Why I lean libertarian
  6. Backlash grows to Schengen backlash

Go Broncos

McCloskey Review = Leftist Rhetoric in Tatters

Deirdre McCloskey has an excellent review of a new book focusing on the immorality of capitalism. An excerpt:

The poor have benefited the most from capitalism. The sheer, first-act, unanalyzed equality that Sandel advocates would have killed the modern world and kept us in the appalling poverty of the human condition down to 1800. In fact in some countries it did, such as India after 1947, under Gandhi-plus-London-School-of-Economics egalitarianism, the “License Raj” and “the Hindu rate of growth,” as the Indians themselves bitterly described their communitarian economy. When I talk to friends who think like Sandel I worry that their dispositions will kill, quite unintentionally, the only chance for the world’s poor to achieve the scope for a full human life.

[…]

Sandel worries properly that the market can crowd out the sacred. A corporate market in, say, instruction in elementary classrooms can crowd out unbiased teaching about capitalism. Yet Sandel does not tell his own classroom that state schools can crowd out unbiased teaching about, say, the environment.

Do read the whole thing. McCloskey is an expert writer and a prestigious scholar, so be sure to grab a cup of coffee before you settle in. (h/t Jason Brennan)

Apologies and Reaffirmations

My co-blogger Dr. Gibson alerted me to the rudeness of my tone regarding Dr. Delacroix in a previous post. Dr. Gibson rightly admonished me for three things:

  1. Using the term “Dr. J” instead of the formal Dr. Delacroix
  2. My insinuation that anybody who disagrees with my observations is insane or irrational
  3. My accusation of demagoguery on Dr. Delacroix’s part

I am guilty of all three of course. I referred to Dr. Delacroix as Dr. J because it is a self-administered nickname he gave himself on his other blog, Facts Matter (it’s on the right-hand side under “links”), and he has not objected to me using it before. I took Dr. Gibson’s critiques in stride and have made the corrections. I apologize again.

On point number two I shouldn’t have discounted the arguments in favor of imperialism or interventionism so brusquely. I again apologize and have altered the text accordingly.

On point number three, though, I feel like I hit the nail on the head. Check out the following three posts by Dr. Delacroix and tell me if I went too far by labeling his arguments demagogic:

In these three posts Dr. Delacroix insinuates that all who disagree with him are anti-Semitic (knowingly or otherwise), immoral, and cowardly. What do you guys think?

Around the Web, Kinda

No.  The master narrative of High Liberalism is mistaken factually.  Externalities do not imply that a government can do better.  Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers.  Efficiency is not the chief merit of a market economy: innovation is.  Rules arose in merchant courts and Quaker fixed prices long before governments started enforcing them.

I know such replies will be met with indignation.  But think it possible you may be mistaken, and that merely because an historical or economic premise is embedded in front page stories in the New York Times does not make them sound as social science.  It seems to me that a political philosophy based on fairy tales about what happened in history or what humans are like is going to be less than useless.  It is going to be mischievous.

How do I know that my narrative is better than yours?  The experiments of the 20th century told me so.

This is from Deirdre McCloskey’s blog post over at a new symposium being put on by Bleeding Heart Libertarians. It is probably the best thing I’ve read on the web in a couple of years. You can find the rest of the posts from the symposium here. I highly recommend all of them.

Co-editor Fred Foldvary recently participated in the last symposium that BHL held on Libertarianism and Land. You can find both of his entries here (be sure to read through his responses in the ‘comments’ section, too) and here.