Sunday, December 05, 2004

Jerry Lewis is a Comic Genius

Well, in France.

And now I see why: Inspector Clouseau actually runs their security system.

(Nod to Cap'n Ed)



Democracy is Overrated, IV


It [is impossible] to separate the democratic idea from the theory that there is a mystical merit, an esoteric and ineradicable rectitude, in the man at the bottom of the scale—that inferiority, by some strange magic, becomes superiority—nay, the superiority of superiorities. What baffles statesmen is to be solved by the people, instantly and by a sort of seraphic intuition. This notion . . . originated in the poetic fancy of gentlemen on the upper levels—sentimentalists who, observing to their distress that the ass was overladen, proposed to reform transportation by putting him in the cart. (H.L. Mencken, from Notes on Democracy, 1926)

What people mean by “democracy” is some combination of good government, protection of individual rights, extremely broad political participation, and widely shared economic prosperity. One might as well throw in an ideal body mass index and a cure for influenza. It’s all good, but meaningless. Democracy has no useful definition. The reason we say we like it is that we refuse to think about what it means.

There is a definition many people pretend to believe, unless they are pressed. It is much narrower, and goes like this: If a group is constituted to decide as one, then any numerical majority of that group can make decisions. These decisions can be binding on all (majority rules the totality), or binding just on some class or group specified in decision itself (majority rules the minority). While I have already said that all definitions are not really useful, this version seems to be the one that many people hold.

The problem with the narrower definition I stated is that no one could really believe it, at least not in isolation from lots of other assumptions. One is left to wonder whether democracy, in the sense of rule by the people, is a conceit or a fraud. As a conceit, it may be harmless enough. It may even be useful, because it celebrates the wisdom and good will of the common person. This sort of mythology has a calming, leveling effect on public discourse.

If a fraud, however, then we are in darker and more forbidding terrain. The pretense that we found rectitude in the multitude is dangerous. The public invocation of the public wisdom simply holds citizens down whilst we steal their purses, or send their children off to war.

There are two linked ideas about democracy, and it is important to keep them separate. The first is the existence of a good, of a right (best) thing for the society to do. This is a question that has both normative and positive elements. It may seem strange to question the existence of “the good” in politics, but in fact it is simply not obvious that a society can discover transcendent principles of the good through voting.

The second aspect of the democratic idea is the problem of choosing rules or institutions most likely to lead to the discovery of the good (assuming it exists). There are two very different approaches to the problem. The positive, ends-based approach emphasizes the properties of the voting or preference revelation techniques as if they were estimators. One can then apply quasi-statistical techniques, much as if an estimator were being subjected to Monte Carlo testing. That is, given a configuration of preferences in which some “good” alternative is embedded by construction, what are the relative frequencies with which different techniques discover it?

The other approach, normative and process-based, focuses on the fairness or legitimacy of rules themselves, as means. There is an obvious assumption in this approach, one that has led two generations of public choice scholars (see, for example, Riker, 1982, Liberalism Against Populism) to question it, but it persists nonetheless. That assumption is that “fair” processes necessarily lead to “good” outcomes.

Republican elections in the nineteenth century were seen as a means of exerting control over elected officials, and little more. We have to balance this against the expansive modern faith in, and practice of, democratic governance. The rules, procedures, and the basic “machinery” of democratic choice have not kept up with the faith people seem to have in the wisdom of the majority. To some extent, this is the fault of officials in the states, who have failed to give enough thought to problems involved in implementing new paperless voting technologies. (Sure, some of these folks are crackpots, and Keith Olbermann is a nutjob, but Caesar's wife has to be above reproach) (More accurately, Plutarch has Caesar say, "I wished my wife to be not so much as suspected.")

But the other problem, at least as important, is that the academic establishment in the U.S. has done a poor job making students understand the limitations and dangers of unlimited democratic choice. For both reasons, the mismatch between what we demand of democratic institutions and what they can reasonably deliver endangers the stability of our system of government.

While this danger may be most significant in the U.S., there are also dangers when we foster the secular trend toward reliance on “democracy” as a means of reconciling disagreement in other nations. What social choice theory teaches us is that we cannot expect institutions to produce consensus in the face of disagreement, unless (a) certain arguments or positions are outlawed, or (b) choice is left up to a single individual, or dictator.

People seem to believe in the value of consensus, but they do not appear believe in either domain restrictions or dictatorship. Policy makers must face the fact that the failure of voting institutions to produce consensus is really two separate problems:

  • Our technology of democracy is too old, and prone to abuse or at least distrust. We must bring voting technology into the 21st century, because we accept much less than is possible.
  • Our ideology is utopian science fiction. So, we must also take voting ideology back to the 19th century, because we have come to expect much more than is possible.

Saturday, December 04, 2004

Treebeard

I get emails asking why I am so inconsistent in my political views.

Well...at the risk of sounding like John Kerry, I haven't been inconsistent. It is just that I don't agree much with anybody. (Okay, John Kerry was different. He was trying to AGREE with anyone. Any idiot can do that, and most do).

Here is the problem, as I see it, boiled down to two propositions:
1. There are no self-evident truths.
2. Even #1 is not self-evident. You don't understand it until you think about it a long time.

Since people in politics all seem to deny #1 constantly, I try to critique all of them.

...Or, you could say it like Treebeard did: "I am on nobody's side for nobody is on my side."

Budget Deficits II: You Can't Blame Dogs for Eating Out of the Garbage

"Why does Camelot lie in ruins? Intellectual error of monumental proportion has been made, and not exclusively by the politicians. Error also lies squarely with the economists. The ‘academic scribbler’ who must bear substantial responsibility is Lord Keynes ...” Buchanan, Wagner, and Burton, 1978.

(Continuing yesterday's rant on deficits...)

Government deficits are not (usually) earthquakes or floods, the natural consequence of random or deterministic process. Instead, deficits are the aggregate consequence of the self-interested individual actions of hundreds of elected and appointed officials, the sine qua non of the public choice approach. A more traditional view of the “public interest” in political science, of course, imagines that government officials work to advance the public good, or at a minimum their own vision of that good. Keech (1995) describes the “public choice” alternative:

… [The] democratic process is not so benign. In that view, politicians are opportunistic, and voters are naïve. Incumbents manipulate their performance to appear misleadingly good at election time, and both challengers and incumbents make unrealistic and insincere promises. Voters are myopically oriented to the present, which makes them unprepared to hold incumbents accountable for their performance over entire electoral periods, or to relate electoral choices to future well-being in a meaningful way. Economic performance deteriorates. Politicians exploiting popular discontent propose superficial reforms that fail to solve the problems, such as the Gramm-Rudman-Hollings deficit-reduction acts of 1985 and 1987. (p. 3).

The public choice model of government decision-making predicts that government surpluses have the life expectancy of an adult mayfly. There have been several published collections that have made this point clearly, including Buchanan and Wagner (1977), Buchanan, Rowley, and Tollison (1987), and Rowley, Shughart, and Tollison (2002). Of course, Keynes himself accepted, and in fact was one of the foremost advocates of, the idea that ideas matter, in his over-quoted passage on how “the world is ruled by little else.” But it is worth quoting the entire passage, to show what argument (interest groups and self-interest) Keynes thought he was refuting.

But apart from this contemporary mood, the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. (Keynes, General Theory)

One key to understanding the public choice approach, particularly in its application to the study of debt and deficits, is this: Keynes is posing an absurdly false dichotomy. Ideas are not opposed to “the interests,” but are more often tools, even rhetorical weapons, used in service of those interests. That is not to say that ideas don’t matter, but rather to insist (contra Keynes) that interests do.

Let me link this back to deficits and the debt, and the contribution of the public choice school of political economy. It is easy to think that debt is not really a problem. For “functional finance” scholars (see, e.g., Lerner, 1943), deficits are simply the harmless means of accomplishing good ends. After all, we owe the debt to ourselves, and rational income earners will always save now to meet future tax obligations. As Abba Lerner famously put it, "national debt is not a burden on posterity because if posterity pays the debt it will be paying it to the same posterity that will be alive at the time when the payment is made." (Lerner, 1944: p.303).

What this idea implies, as Buchanan (1976) pointed out in response to Barro (1974), is the strong claim that the issue of new public debt is simply a form of new taxation. Barro had argued that the society could spend out of tax revenue now, or spend out of future tax revenues by borrowing. Buchanan notes that this is precisely the issue raised by “Ricardian Equivalence,” if taxpayers perceive future taxes as claims on the next generation, with the added understanding that the next generation is made up of our children. If we look “forward” in this way, it can be argued that debt will have no impact on total spending, because the spenders in a democracy recognize that they are also the payers, and are no more likely to authorize increased spending out of debt “revenue” than they are out of tax revenue.

The point is that the extreme form of Ricardian Equivalence, combined with the Keynesian policy prescription for deficit spending as a positive good, constitute an important “idea.” What this idea has enabled, however, is the empowerment of a set of interests whose political goals have little to do with the abstract utopian economysticism of the Keynesian macro-control scholars. In an important series of papers (Buchanan, 1958; Buchanan, 1976, and Brennan and Buchanan, 1980) James Buchanan took on the problem of “future generations,” and at a minimum showed that facile “equivalence” claims simply do not follow from the arguments given for them. In fact, he is able to show that some of the claims Barro made for equivalence imply absurd predictions about the world. On the other hand, the absurdities Buchanan points out highlight the debt and deficit experience of the last 30 years.

One implication of his analysis would be that the social security system as it has operated should not have modified the rate of private saving in the economy…If politicians are ultimately responsive to the desires of their constituents, we may infer something about constituents’ evaluations by observing the behavior of politicians. The 40-year history of social security financing yields ample evidence that politicians are extremely reluctant to adopt anything which smacks of full funding for the system. Under the Barro hypothesis, there should be roughly indifferent public reaction to a fully funded and to an unfunded pension system.

If we shift to the more general model, governments should be roughly indifferent as between financing current outlays from taxation and from genuine debt issue. There should be no effect of debt-financed deficits on aggregate spending... [The] behavior of legislators seems to offer indirect evidence against the capitalization hypothesis. Can anyone in the post-Keynesian world of 1975 seriously question the proclivity of politicians to expand the public debt in preference to tax increases? (Buchanan, 1976, p. 341).

From the vantage point of 2004, rather than 1975, it is easy to understand Buchanan’s skepticism. The level of under-funding of Social Security obligations has now reached the point where the discussion no longer centers on whether the system will default. What analysts wonder is when, and by how much, benefits will have to be slashed, or perhaps even eliminated. In this context, it is difficult indeed to sustain the claim that the constraint imposed by Ricardian equivalence describes political choices of either citizens or elected officials.
An interesting perspective, which connects the “public interest” and “public choice” view of budgeteering, is that of Higgs (1987), which argues that decision-making is motivated (or supported) by an ideology we might call “Keynesianism” or fiscal activism. Higgs describes “ideology” this way:

By ideology I shall mean a somewhat coherent, rather comprehensive belief system about social relations.... Ideology has four distinct aspects: cognitive, affective, programmatic, and solidary. It structures a person's perceptions and predetermines his understandings of the social world, expressing these cognitions in characteristic symbols; it tells him whether what he "sees" is good or bad or morally neutral; and it propels him to act in accordance with his cognitions and evaluations as a committed member of a political group in pursuit of definite social objectives. (Higgs 1987, 37)

Higgs incorporates Keynes’ claim that ideas matter, but there is a twist. The growth of government and the increase in the acceptable size of deficits, accumulated in the debt, are linked to a fundamental change in the conception of government. People changed their view of the obligations of citizens, and of the role of government in their lives. So, part of the reason that the size and scope of government has increased is simple interest group politics: every program creates an interest that depends on the program for its survival. But programs are also protected by the idea, now widely held among citizens, that it is right and proper for government to regulate and subsidize the everyday activities of citizens.

Charles Rowley (Rowley, 1987a; 1987b) independently develops a more specific, but related, set of analytic themes about the macroeconomy. He approaches Keynes and Keynesianism in a way that should receive more attention from macroeconomic scholars, because he links the ideas of what we now think of as Keynesianism to the “public choice” arguments that require attention to interest and political consequence. And there we have the reason that debt and taxes are quite radically different: even if one concedes the Barrovian logic of economic equivalence, the process is driven by political interest, in which debt is nearly always preferable to but they emphasize the political sense in which debt and taxes are radically different.

When one tries to draw together the independent strands of thought of Buchanan, Higgs, and Rowley on deficits, it is hard not to be reminded of von Mises’ famous observation about economic theory and its use in making policy prescriptions.

Scarcely anyone interests himself in social problems without being led to do so by the desire to see reforms enacted. In almost all cases, before anyone begins to study the science, he has already decided on definite reforms that he wants to put through. Only a few have the strength to accept the knowledge that these reforms are impracticable and to draw all the inferences from it. Most men endure the sacrifice of the intellect more easily than the sacrifice of their daydreams. They cannot bear that their utopias should run aground on the unalterable necessities of human existence. What they yearn for is another reality different from the one given in this world...They wish to be free of a universe of whose order they do not approve. (Mises, Chapter 4, Section 6, Epistemological Problems of Economics).

To most politicians, of any of the main partisan affiliations, it now seems established that deficits and large accumulations of debt are benign, or at worst only pose a danger far off in a distant future. The problem is that these political “leaders” may be sending a message that the electorate would take issue with, if it were presented as a package rather than piecemeal. The problem is not just that voters are too passive and disorganized to respond. The real problem is that voters want is perfectly sensible, but impossible to deliver because it is not feasible. Voters want three things: (a) lower taxes, (b) increased spending on “needed” programs, and (c) lower deficits.

Of course, I want these things, too. We just can’t have them, at least not all the time. And it now seems clear that the salience, or marginal utility (depending on whether you are a political scientist or an economist) of these three is not equal. Every time a politician offers lower taxes and increased spending, voters act they just got a prom date with the prettiest cheerleader, or that handsome striker, or maybe both. Voters actually want lower deficits, but only at the cost of raising someone else’s taxes, or cutting someone else’s needed programs.

Given what we now know, or think we know, about the problem of fragility and contagion in the remarkably interconnected and interdependent financial systems of the world, it is clear that voters are making a mistake, putting deficits last, or allowing political leaders to do so. Putting aside the (quite real) ethical problems of financing current consumption on the pocketbooks of future generations of taxpayers, one can make a strong argument that voters are being misled, or at least badly led. One cannot blame our political leaders for cravenly exploiting the political advantages of deficits, any more than one can blame dogs for eating out of uncovered garbage cans. It's what they do.

Here's the thing: my liberal friends often make two complaints....(1) We should use government to do pretty much everything, because it is better, more rational, and more responsive to the needs of the people. (2) We hate George Bush, because he pursues political advantage ruthlessly. Why don't liberals see that investing huge powers in government and trusting government to do the right thing is EXACTLY what causes George and his policies to be such a dangerous force in our lives.

"For they have sown the wind, and they shall reap the whirlwind.". ~ Hosea 8:7

Social scientists must do a better job of explaining the trade-offs that an economy, and a political society, make when considering the shadow their choices cast into the future.

References
Barro, Robert. 1972. “Are Government Bonds Net Wealth?” Journal of Political Economy. 82: 1095-1117.
Brennan, H.G. and Buchanan, J.M. (1980). “The logic of the Ricardian equivalence theorem.” Finanzarchiv 38 (1): 4–16.
Buchanan, J.M. ([1958] 1999). Concerning future generations. In Public principles of public debt: A defense and restatement, 27–37. The collected works of James M. Buchanan, vol. 2, ed. by H.G. Brennan, H. Kleimt and R.D. Tollison. Indianapolis, IN: Liberty Fund.
Buchanan, J.M. (1976). “Barro on the Ricardian Equivalence Theorem.” Journal of Political Economy. 84: 337-342.
Buchanan, James M., Charles K. Rowley, and Robert D. Tollison. Deficits. Oxford: Basil Blackwell, 1987, pp. x, 417
Buchanan, James M. and Richard E. Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes. New York: Academic Press, 1977.
Buchanan, James M., Richard Wagner, and John Burton. (1978). “The Consequences of Mr. Keynes” Hobart Paper 78 (London: Institute of Economic Affairs, 1978).
Buchanan, Neil. (1996). “Which Deficit? Comparing Thirteen Measures of the U.S. Fiscal Deficit on Theoretical and Empirical Grounds,” Working Paper No. 170, Levy Institute, Bard College Department of Economics,
http://www.levy.org/docs/wrkpap/pdf/170.pdf
Federal Reserve Board, 2003, Household Debt Service and Financial Obligations Ratios,
http://www.federalreserve.gov/releases/housedebt/default.htm
Higgs, R. (1987). Crisis and Leviathan: Critical episodes in the growth of American government. New York: Oxford University Press.
Hinich, Melvin, and Michael Munger. (1994). Ideology and the Theory of Political Choice. Ann Arbor, MI: University of Michigan Press.
Ippolito, Dennis. 2003. Why Budgets Matter: Budget Policy and American Politics. Pennsylvania State University Press.
Keech, William. (1995). Economic Politics: The Costs of Democracy. New York: Cambridge University Press.
Keynes, John Maynard. (1936 / 1997). General Theory of Employment, Interest, and Money. New York: Routledge.
Lerner, A.P. (1943). Functional finance and the federal debt. Social Research 10 (February): 38–51.
Lerner, A.P. (1944). The Economics of Control: Principles of welfare economics. New York: MacMillan.
Mises, Ludwig von. (Buchanan, Rowley, and Tollison), pp. 114-142.
Rowley, C. K. (1987b). “The Legacy of Keynes: From the General Theory to Generalized Budget Deficits,” in Deficits (ed by Buchanan, Rowley, and Tollison), pp. 143-172.
Rowley, C. K., William Shughart, and Robert Tollison. (1987). “Interest Groups and Deficits,” Deficits (ed by Buchanan, Rowley, and Tollison), pp. 263-280.
US Office of Management and Budget (2003). Budget of the United States, fiscal year 2004: Historical tables. Washington, DC: US Government Printing Office.
http://www.whitehouse.gov/omb/budget/fy2004/pdf/hist.pdfU.S. Treasury Department. 2003. “REVISED SERIES: MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES.” http://www.treas.gov/tic/mfh.txt1933 / 1976). Epistemological Problems of Economics. 1976 edition, New York: New York University Press.
Muris, Timothy, (1999) “Ronald Reagan and the Rise of Large Deficits: What Really Happened in 1981.” Fairfax, VA: George Mason University Law School Working Paper,
http://www.gmu.edu/departments/law/faculty/papers/docs/00-05.pdf
North, Douglass. (1990). Institutions, Institutional Change, and Economic Performance. New York: Cambridge University Press.
Rowley, C.K., Shughart, W.F. II and Tollison, R.D. (Eds.) (2002). The economics of budget deficits, 2 vols. International library of critical writings in economics 153, ed. by M. Blaug. Cheltenham, UK, and Northampton, MA, USA: Edward Elgar.
Rowley, C. K. (1987a). “John Maynard Keynes and the Attack on Classical Political Economy’ in Deficits (ed by

Friday, December 03, 2004

Budget Deficits: K. Grease Plays Chicken Little

(NOTE: IF THERE IS ANY COHERENCE IN THIS ESSAY, IT COMES FROM TALKING TO KEVIN GRIER. BUT DON'T BLAME HIM...)

The old post-Keynesians, such as Hyman Minsky, made much of the increased financial interdependence, and consequent fragility, of our banking and credit system (see, for details, Minsky, 1971, 1982, 1995. For more than anyone could want to know, see Bellofiore and Ferri, 2001). Here was how Minsky put the problem, which he called “the economics of euphoria,” and which sounds familiar to anyone who lived through the 1990s:

The confident expectation of a steady stream of prosperity [creates a] …willingness...to take what would have been considered in earlier times undesirable chances in order to finance the acquisition of additional capital goods...Those that supply financial resources live in the same expectational climate as those that demand them...An essential aspect of a euphoric economy is the construction of liability structures which imply payments that are closely articulated...to cash flows due to income production...Withdrawals on the supply side of financial markets may force demanding units that were under no special strain and were not directly affected by financial stringencies to look for new financing connections. An initial disturbance can cumulate through such third- party or innocent-party bystanders...Financial instability occurs whenever a large number of units resort to extraordinary sources for cash [at the same time]. (Minsky, 1971; cited in Mayer, 1998).

I was lucky enough to take classes from Hy Minsky in the early 1980s, and I have to admit that at the time I thought he was paranoid. But looking at the quote above (and remember, this was from the early 1970s!), I am much more persuaded that the idea of fragility, and increased speed and power of transmission of economic crises, is plausible, though it may be hard to express rigorously.

Nonetheless, several scholars have recently taken the idea of financial fragility, or the increased susceptibility of an economic system to shocks, very seriously. One mechanism through which contagion can spread is the cross-market “rebalancing" of portfolios, much as Minsky was describing in the long quotation above. The key insight is that investors transmit idiosyncratic shocks from one market to others (either sectoral markets, within a nation, or in financial markets, across nations) by adjusting their exposures to macroeconomic risks.

But the attempted portfolio adjustments are by no means independent; again, as Minsky pointed out, “Those that supply financial resources live in the same expectational climate as those that demand them.” For present purposes, one of the most interesting contributions is the paper by Leung (2003). Leung claims that the external debt owed by less developed nations has increased the amplitude, as well as the duration, of cyclic fluctuations in aggregate economic activity. Using simulations, Leung shows how increased external debt may directly increase risk of ruinous and unpredictable business cycles.

But is “external” debt really a problem for the U.S.? Certainly the amount of debt (in the U.S. case, Treasury securities) in foreign hands has been increasing, but is it a problem? The answer is “probably not,” or “at least not yet.” The value of Treasury securities in foreign hands recently exceeded $1.3 trillion, with the plurality of that amount ($450 billion) held by the Japanese. While some of the foreign holdings can be explained by attempts to prevent other currencies (particularly, in this case, the yen) from appreciating too much against the dollar, there is the dangerous possibility that some tipping point can be reached.

The more general problem is that a financial crisis, even if it were to start with, or simply involve, the U.S., might propagate in ways that international monetary and financial institutions could not control. As two recent papers, by Lagunoff and Schreft (2001) and Kodres and Pritsker (2002) point out, the very fact that rational agents hold diversified portfolios means that financial positions are linked. If a shock, in financial, energy, or some other key global markets, causes some losses, there will be consequent separate-but-not-independent attempts at portfolio rebalancing. But the aggregate consequence of individual attempts to realize small changes in financial position, if the information that caused the readjustment is common knowledge, could well be a disastrous decline in entire sectors and their asset values. These cascades in values can cause other losses which cause additional reallocations by other investors, so that even isolated shocks might quickly metastasize throughout the financial system.

There is an element of Chicken Little here, I should admit. There is no specific prediction that U.S. deficits, at some particular point or for any particular reason, will cause disaster. Still, the increase in deficits “as far as the eye can see,” combined with the unrelated but potentially menacing private debt in the U.S., leads to an important question: Why is it that we have deficits? Why did the surplus disappear so quickly, and sink so rapidly?

References
Bellofiore, Riccardo, and Piero Ferri (eds). 2001. Financial Keynesianism and Market Instability: The Economic Legacy of Hyman Minsky (two volumes). Cheltenham, UK: Northampton, MA : Edward Elgar
Kodres, Laura and Matthew Pritsker. 2002. "A rational expectations model of financial contagion." Journal of Finance 57: 769-99.
Lagunoff, Roger, and S. Schreft. 2001. "A Model of Financial Fragility." Journal of Economic Theory, 99: 220-224.
Leung, Hing-man. 2003. “External Debt and Worsening Business Cycles in Less Developed Countries.” Journal of Economic Studies 30: 155-68
Mayer, Martin. 1998. “The Asian Disease: Plausible Diagnoses, Possible Remedies.” Economics Working Paper Archive—WUSTL (http://econwpa.wustl.edu), Macroeconomics Series, # 9805015.
Minsky, Hyman P. (1971), “Financial Instability Revisited,” in Reappraisal of the Federal Reserve Discount Mechanism. Washington, DC: Federal Reserve System, pp. 100-105.
Minsky, Hyman P. (1982). Can "It" Happen Again? Essays on instability and finance. Armonk, NY: M.E. Sharpe.
Minsky, Hyman P. (1995), Longer Waves in Financial Relations: Financial Factors in the More Severe Depressions II, in Journal of Economic Issues, vol. 29, no. 1, March, pp. 83-96.

Thursday, December 02, 2004

The Thing Itself III

Can government do anything to better people's lives? Should government do anything? These questions don’t get asked very much. We all just assume that government should do SOMETHING, and then argue about what that is….

Still…Let me ask. Actually, let me answer.

1. Can government do anything to make things better? Let’s suppose that government is neutral instrument, with a real power for accomplishing good in people's lives. The provision of public goods, particularly local public goods, is a "government" function.

(One might quarrel with this claim, as Burke did when he said, “The thing! The thing itself is the abuse!” But let’s not go there)

EVEN THEN, there are limits to what government can do. One of the first people to recognize this was the man who put the dismal in the dismal science, Parson Thomas Malthus. (Yeah, I know, it was Thomas Carlyle). Malthus discovered a general principle that will sound familiar to everyone: the more you have of something, the more you need!

In third world countries, we have found that if all you do is give people enough resources to make them a little bit healthier, you increase births. Births continue until the society comes up against the new resource constraint. People are still starving, but now there are lots more of them.

In cities and counties, the same logic applies to roads: if you make commuting cheaper by building or widening roads, it isn't long before people are once again, stopped and staring at the stationary taillights ahead of them. There are six lanes of gridlock now, instead of two, but people respond to the costs of the activity until the cost rises.

Sometimes we try to get around this problem by subsidizing an activity we think we value. Suppose, for example, we all think family farms are good. But we look around, and see that family farmers are all poor or going out of business. So, Congress or the state legislature passes a law that subsidizes farm crops. Everyone who owns farmland gets a one time wealth transfer from consumers and taxpayers. So far, so good: farmers (briefly) are wealthier.

Over time, though, people sell the land, or deed it to their children. But these people now implicitly pay a higher price for the land, a price that capitalizes the subsidy on the crop. If you ever cut the subsidy, the farmers will go bankrupt. But if you leave the subsidy, the farmer (at best) only breaks even, barely scraping by. We all still hear stories about the poor farmers, and wonder how this can be, when we are spending all this money on farm support.

This is how it can be: after the one time wealth increase for people who own land, new people enter (or farmers or their children stay on their farms). Profits fall back to subsistence levels, and farmers are once again poor, just indifferent between staying and leaving. Only now, we are all paying high prices for crop support programs, and taxes for subsidies! Lots of pain for us, no gain for the poor farmers!

In short, much of the time, government CANNOT do anything to help. Rent-seeking dissipates give-aways, and in equilibrium people crowd up to the same point whether there is a two lane road or a six lane road, as long as you charge a zero price.

2. The second question I raised above was: Should government try to help people? Appallingly fallacious analogy to "customers." Taxpayers aren't our customers; they are our bosses. May be that the use of "customers" is a way getting employees to accept a role, a style of treatment, in dealing with the public. Easier to train employees this way, better results.

But consider the implications of the "customer" metaphor run amok. I have participated in "studies" (and you can hear the quote marks drip down the side of that word as I use it) where we were paid money by the state, by a county, or a city to do "market research." What we did was ask poor people if they would like a better house, assuming somebody else would pay for it.

Mirabile dictu, they said "Yes!" We then wrote a study saying that there was, indeed, a "need" for this program. To put it another way (and this is how we put it): There was customer interest in this new program. But remember what that program was: we were taking money from taxpayers, without their consent and under threat of arrest or seizure of property, and giving it to people who didn't have decent housing. Then, to check to see if the program should be expanded, we asked the "customers" (the people whose housing would be improved) if they liked it. When they said yes (actually, they said the amount of the rental subsidy should be doubled), we concluded in our scientific way that this was something government should do.

Now, I participated for two reasons: First, I needed the grant money. Second, I believed (and still believe) in the goals of the program, which were to give poor people a life of dignity and a chance to achieve self sufficiency.

But the "customers" metaphor was a lie! Liberals pretend not to understand why taxpayers are so angry, but I understand it, and you should, too. Here is the reason.

The liberal philosophy, based on this conception of customers, has become a pathetic self parody: "Look, there's one! If we just had some funding, we could help him! Her, too! Her life would be better if we improved government services to her." Again, this is just rent seeking, and it is a nonproductive activity that is absorbing a high proportion of our best minds and resources.

When you apply for a grant, or money from a government program, you are doing it so your constituents (maybe taxpayers in your county, or clients in your social service delivery program) can be better off. But that money doesn't come from creating a new product or service, it comes from taxpayers. Instead of devoting creativity and talent to new ways to make things people need, or make those things more cheaply, we are overseeing an enormous bureaucratic paper shuffle: you spend months writing a grant proposal, a team of people read it, and send a few applicants some money. Everyone is paid for their role in this exercise, and all pay taxes on their income to help subsidize the next go round.

The worst part is, it can only get harder and more time consuming as the years go by. Have you noticed that the applications for grants are getting longer? That the competition for this free money is getting tougher? Ultimately, rent seeking forces agencies and non profits to spend a substantial part of the value of the grant up front, just so they can win the competition to get the grant. The only time you can really do much good is if there is a new grant program (just like a new farm subsidy). After a few years, many more agencies are applying for the same fixed (or shrinking) grant pool. You spend so much time pursuing this "free money" that you wonder if it is worth it.

What the left has forgotten, or actually never wanted to believe, is that you have to persuade taxpayers that this is a good thing to do. Discovering heretofore unknown "rights," which are really privileges involuntarily extracted from taxpayers, is the stock in trade of the political liberal.

The failure of liberalism in the United States is to articulate a compelling set of reasons why. The great expansions in the social "safety net" occurred under a clear (debatable, but clear) set of arguments. FDR, JFK, and LBJ all seemed to believe that you had to get the people's consent, or at least their understanding, before you started taking their money. The argument that we can do good has become the only argument that we should.

So now we are at an impasse, a Gordian knot with nothing but fingers sticking out, all pointed in different directions. Liberals pretend not to understand that you have to persuade people that tax money should be used to "help customers." The fact that you can "help" people if you give them other peoples' money is not enough of an argument, not today.

What is a munger?

Apparently, it is a routine that parses, and modifies, text in some editor, or otherwise changes data. Often written in PERL, or JAVAscript, or something else. But if you wrote a routine in SAS to change part of a field in every observation in a data set, that would be a primitive munger.

For example, a munger might turn this: *bold* into this: bold.

For example (again), see this....

The verb is actually "mung" (pronounced munj), and if you need some munging you need a munger.

From the book on data munging with PERL:

the point of data munging is to take data in one format, carry out various transformations on it, and write it out in another format. Let's take a closer look at where the data might come from and where it might go.

First a bit of terminology. The place that you receive data from is known as your data source. The place where you send data to is known as your data sink.


Now you know....though you may have known, and not cared.

Ink by the barrel

Mark Twain is supposed to have said, "Never pick a fight with someone who buys ink by the barrel."

K Grease's new, modern corollary: "Never pick a fight with someone whose Technoratis are two orders of magnitude bigger than yours."

WTF? K. Grease is Called Chopped Liver!

Okay, NOW I'm pissed.

Excerpt-- Hmmm.... "I’ve noticed this lack of blogging from big names in my own field of political science." Indeed, perusing Crooked Timber's list of poli sci bloggers, I certainly do not see anyone approaching the stature that Becker or Posner have in their fields. To go further, there is no tenured political scientist at a top twenty institution who also blogs.

[Insert sound of lonely wind blowing here--ed.] (this was in the original)

To which I say.... shame on my tenured brethren!! To be sure, a lot of blogging (and some of my blogging) is entirely unrelated to matters of scholarship -- but that doesn't mean it has to be this way. Tyler Cowen has an excellent post in response to Eszter Hargittai on how blogging and scholarship are complements rather than substitutes. Surely these reason must be persuasive to some of my letter-writers for tenured senior people in political science!

[Oh, yeah? Insert sound of lonely Dan Drezner blowing ME!--KGrease]

I'm tenured, Duke is ranked in the top ten, fercrissakes, and now all of a sudden K. Grease is chopped liver?

"...stature of Posner and Becker..." Yes, they are impressive. But I am a chair of a major department, and a past President of the Public Choice Society. Sometimes REAL scholars even let me hold their laptops. It makes me feel like a REAL boy.

I'm going up to fucking UChicago with a bat. Meet me at the Midway, Danny D, cause you are goin' DOWN.

(Nod to a gleeful grad student, who after pointing out the public dissing of KGM had to go off and touch himself)
(UPDATE: The Young Drezner is quite unrepentant. We need more untenured people like that. Dead ones, I mean)

Wednesday, December 01, 2004

"The Long-Awaited Second Issue is Still Available"

The Ukelele Occasional, on news stands sometimes.

It actually says, "The long-awaited second issue is still available." I guess it was more fun to wait for than to read.

Then, it has "frequently asked questions." Shouldn't that be "occasionally asked questions"?

Carolyn Parrish sighting

Apparently, Carolyn Parrish still lives, and sometimes speaks. During the visit of George Bush to serene and pleasant Canada, I mean.

I like the part where one of the guys says, "It's not the numbers, its the message." Um...when it comes to "mass protests", I'm pretty sure it IS the numbers, dude. The numbers ARE the message. They had 5,000 people, in Toronto, a city of nearly 4 million very polite souls. And two-thirds of the 5,000 were bussed in from Dildo, Newfoundland (yes, it's a real city).

Look, they always say that size doesn't matter. But it does. And it does.