Broken Window

On Monday I taught this in my "Econ for Non-Majors" class (syllabus here, if you are interested...)

And used this very fine video, from the Dub-MOE.

A student noticed this, as he was walking out.  It was parked just outside the classroom.  Click for an even more deadweight loss image...

Apparently Krugman and his boys are trying to go around creating prosperity again....  After all, he proposed this.

If A Clearly Causes B, and You don't like B, Don't pick A

If you say you want to solve the problem of B, you should, at a minimum, not do things that make B much worse.  And if it is known that A makes B worse, why choose A?  Here's the problem, as Freddy Bastiat put it:


"When under the pretext of fraternity, the legal code imposes mutual sacrifices on the citizens, human nature is not thereby abrogated. Everyone will then direct his efforts toward contributing little to, and taking much from, the common fund of sacrifices. Now, is it the most unfortunate who gains from this struggle? Certainly not, but rather the most influential and calculating." (I talk about it here, #13)

ACA is a huge festering pile of opportunities to rip off the poor, the old, and the confused.  It hurts the people it was supposed to help.  Why did we do it?

So smart, rich liberals could feel good about themselves.  It has nothing to do with the actual effects.  All that matters is the intent.  Then, when it doesn't work out (as it clearly won't), they will blame greed, capitalism, phases of the moon, everything except the real cause:  an overly complex, impossibly over-directed, attempt at social planning.

Liberty Matters! Bastiat!

I am fortunate to be included in the set of folks responding the interesting lead essay posted by Robert Leroux.

Here is the line-up:


The Debate Summary: Frédéric Bastiat’s intellectual legacy has been the subject of much debate since the mid-19th century. His thinking has given rise to the most divergent interpretations. We may say in general terms that his work has evoked two interpretations that are in constant conflict: The first treats Bastiat as a significant theorist, an instigator of new and original theories, with a well-earned place in the history of political economy; the other sees him primarily as simply a journalist or a polemicist. 

Robert Leroux argues that, in spite of resistance to his ideas and the neglect which he suffered in the late 19th and early 20th century, Bastiat was one of the most important liberal theorists of his time. He went far beyond what he was most famous for in his own day, namely campaigning for free trade in France, and made significant contributions to our understanding of the state, the law, freedom of the press and, more broadly yet, human nature. 

Lead Essay: Robert Leroux, "Bastiat and Political Economy"

Responses and Critiques
Response by Donald J. Boudreaux
Response by David M. Hart
Response by Michael C. Munger

Joe Bob says, "Check it out!"

It's Hard....It's a Hard...It's a Hard Rain, That's Gonna Fall

Like our benighted Prez, France's Hollande honestly believed that all you had to do to "solve" the unemployment crisis was to have everyone work for the government.

But if everyone works for the government, or otherwise gets more money from the government than they pay to the government in taxes....well, SOMEBODY has to pay.  There is no way to add up a bunch of expenditures and call it "revenue."

I don't blame Obama, or Hollande, for believing that nonsense.  I blame voters for believing Obama and Hollande.  They ain't never lied:  They SAID they were going to do what in fact they are doing.

Ooooh!  Wait!  Hollande DOES have a plan, after all.  You just have to put a 75% tax on the few people who DO have jobs.  Of course, they will all leave the country.  And then you blame THEM for being greedy.  And Germany bails you out.  France is occupying its impregnable "ImaginIknow" line.

Bastiat...the SOCIALIST?

So sayeth my good friend Sheldon Richman.


That … veil which is spread before the eyes of the ordinary man, which even the attentive observer does not always succeed in casting aside, prevents us from seeing the most marvelous of all social phenomena: real wealth constantly passing from the domain of private property into the communal domain. 

"Wealth marvelously passing from the private to the communal domain? It sounds like a socialist’s redistributionist fantasy! 

But wait — Frédéric Bastiat, the great laissez-faire radical, wrote those words in his book Economic Harmonies, chapter 8, provocatively titled “Private Property and Common Wealth.” 

 ATSRTWT

My Talk to the Bastiat Society of Charlotte

On Wednesday, Feb 20 I gave a talk to the Bastiat Society of Charlotte.

Here is the video.  Long, not easy to see, but you can see the slides and hear the audio quite well.

Thanks to Eric Rowell and the folks in Charlotte!

Sarbox, Dodd-Frank, and Now the Drug War

I am always amazed that my colleagues think that Sarbox or Dodd-Frank increase regulation, and are therefore good.  What they do, and what they are designed to do, is to advantage the big financial companies  (Goldman in particular, but generally the large outfits) at the advantage of small nimble companies that would otherwise make the industry competitive.

All Sarbox or Dodd-Frank really do is the raise the cost of doing business legally.  As an intercept shift, just a bunch of fixed costs.  If you already have a giant accounting and compliance office, like the big shops, then this is just a small extra cost, one that is easily passed on to customers as fees.  But if you are a small shop, or are considering entering the industry, the effect is devestating.  You have to make a much bigger nut to pay off your accountants and compliance people, before you can run even your first transaction.  If you want to lie, the SEC won't catch you, so the Bernie Madoffs of the world are perfectly safe.  This regulation doesn't affect actual criminal behavior, it just represents an entry barrier for new firms that want to do business legally.

It's true that compliance costs fall on big banks also, but you have to think about Bastiat's "seen and unseen."  What we don't see is the new firms that are not there, the start-ups that do not happen.  The big firms would prefer no regulation, perhaps, but this is the next best thing: regulation that reduces competition.

This is hardly surprising.  The Obama administration, and the Democratic party generally, is bought and paid for by the dinosaurs of the financial industry.  Goldman, et al. are desperately trying to defend what they see as their birthright of keeping what they win--if they win--and getting bailed out at taxpayer expense--if they lose.  Gotta keep the little guys out.  That's what regulation is designed to do, and that is what regulation does in fact do.  The idea that Dodd-Frank was "better" regulation is risible.  I'm laughing at it right now, in fact.  Ha.  Ha ha!

What I did not expect is that this logic would extend also to ILLEGAL business.  Consider:

The paradox of the war on drugs is that the harder governments push the fight, the higher drug prices become to compensate for the greater risks. That leads to larger profits for traffickers who avoid being punished. This is why larger drug gangs often benefit from a tougher war on drugs, especially if the war mainly targets small-fry dealers and not the major drug gangs. Moreover, to the extent that a more aggressive war on drugs leads dealers to respond with higher levels of violence and corruption, an increase in enforcement can exacerbate the costs imposed on society.

Grand Game: Broken Window / Hurricane Edition

I actually put off blogging this.  'Cause I could not believe the author--an "economist," and a "widely published" one at that, was serious.  Had to be hoax.  But then I thought about two words, and realized that it may be absurd, but it is not a hoax.  The words, of course, were "Paul. Krugman."
(And, speaking of cheap copies, check this out.  Amazing.)

So, Grand Game it up, folks.  This is a target rich environment.  If the author were correct, of course, then North Korea and Cuba would be the wealthiest nations on earth.

The article  An excerpt (it was hard to pick just one):

When government authorities facilitate rebuilding quickly and effectively, the process of economic renewal, in many tangible ways, can leave communities better off than before.

Factoring in the multiplier effect of $15-$20 billion spent rebuilding yields an economic benefit from reconstruction of about $27-$36 billion.

Update on Chinese Solar

If someone wants to subsidize an industry, why not let them?  They are giving you free stuff.

In the case of solar panels, not really USEFUL free stuff, but free stuff.  China having a little trouble.

Reminds me of one of the readings we had for the LF this past weekend in Utah (hey, Bishop!  We missed you! At the hot tub!):  Bastiat's "Petition of the Candlemakers." 

Enjoy.  One of Bastiat's best.

And major props to Bob Lawson and Amy Willis for putting on such a great conference.

Get thee to a university

On average, there has pretty much never been a better time to hold a college or advanced degree.  Here's some amazing graphs from the Georgetown Public Policy Institute.

The first deals with the recent recession and current "recovery" (clic the pics for more glorious images):

College and Advanced degree holders suffered no net job loss in the recession and have gained 2 million jobs in the recovery. Those with some college suffered moderate job loss in the recession and have just about returned to square one during the recovery. Those with High school diplomas or less lost almost 6 million jobs during the recession and have not regained any of those in the course of the recovery.

The next graph shows that the recession just exacerbated what is a longer run process:

Since 1989 we've seen negative job growth for those with HS or less, and since 1995 a de-coupling of job growth between the some college and college grad or more.

The report also claims that the wage premium for a college or advance degree has held steady in the face of these trends.

So a whether it's just signaling, or whether it's gaining human capital, higher education is more important than ever for economic success in modern America!

Oh and by the way, yes I know that I'm a university professor and stuff like this is very good for me and the future of my profession.

Rage against the machine

When moving pictures became "talkies", the practice of having a group of live musicians at theatres to play during the movie started to die out.

The movie-theatre musicians didn't like it.

So they started a fascinating but ultimately futile ad campaign against recorded music!

Talking pictures were described as a "monstrous offspring of modern industrialism

 Hat tip to Mrs. Angus

It's Different if SPACE ALIENS Break the Window

The broken window fallacy is pernicious. John Stossel explains, for those of you who have lived under a rock, or studied economics at Harvard, MIT, or Princeton.

(heh; heh heh; heh: he said, "Fallacious")

Most recently, of course, it was KPC's favorite deep space Keynesian, P-Kroog.

Mary Theroux has some thoughts.


...

Mr. Gov: Do you mind if I work, please?

Only one in 20 workers needed the government's permission to pursue their chosen occupation in the 1950s, notes University of Minnesota Prof. Morris Kleiner. Today that figure is nearly one in three...To work as a manicurist requires only about 12 hours worth of training in Alaska and 40 in Iowa, but 600 hours in Oregon and 700 in Alabama. Does anyone believe consumers in Oregon and Alabama are in need of that much more protection from unsafe manicurists? Or that there is much difference as far as consumer complaints are concerned? Mr. Kleiner compared consumer complaints between Minnesota and Wisconsin in certain health-care occupations and found no differences in the number of complaints between tightly regulated Wisconsin and less-regulated Minnesota. [Chip Mellor & Dick Carpenter, WSJ op-ed]

Damon Root elaborates...

(Nod to Kevin Lewis)

The Broken Window Fallacy

The Whitest Man on Earth talks about the Broken Window Fallacy.


The Bastiat text being referred to is here....

and I say it's alright

People, this is so freakin' bad, even for the low standards of economic analysis of the NY Times.

In a recent article bemoaning the move of a solar panel plant from Massachusetts to China resides the following paragraph:

"Beyond the issues of trade and jobs, solar power experts see broader implications. They say that after many years of relying on unstable governments in the Middle East for oil, the United States now looks likely to rely on China to tap energy from the sun."

Alex has already mocked this brilliantly ("China monopolizes the sun!!"), but I gotta say a bit more.

First, the analogy is whack. The sun is (at least not yet) in Chinese possession. The analogy would work if we'd been buying oil rigs from the middle east and are replacing that now with buying solar panels from China.

Second, autarky is BAD, people, not good. A world where we are self sufficient for everything is a world quite a bit worse than the one we currently inhabit. There is nothing inherently "wrong" with importing oil; the problem is the effect using oil has on the environment, which is unchanged by where the oil comes from.

Third, China obviously has a comparative advantage on the US in low level manufacturing. Assembling solar panels is not a natural fit for the US in the global economy.

As Mungowitz has been saying, there isn't going to be a "green jobs machine" in the US, unless we are going to *massively* subsidize each job.

Broken Window Fallacy

In the Stone Age, unemployment was 0%. For some reason, Paul Krugman wants to go back there. The objective is not full employment, P-Kroog. The objective is prosperity.



(Nod to Craig Depken on DoL)

The Culture that is France

Tyler says: "A Korean man over 75 is more likely to be working than a Frenchman in his early 60s."

France is Closed

Riots by French "workers."

Bastiat described the French state perfectly: "The State is the great fiction through which everybody endeavors to live at the expense of everybody else."

All those jumpin' Frogs want to have free retirement. Let someone else pay! I've worked hard for fifteen years...or something like that.

But I have to ask...how do you tell if a French worker is retired? I can't imagine anyone doing less work than they do when they are "working." I guess it means they can do nothing sitting on their ass at home smokin' cigs instead of sitting on their ass at some fake job smokin' cigs.

Pie in the Sky

Or, Robert Frank phones it in yet again. His current NY Times column, which tells us how to stimulate the economy and reduce the deficit at the same time, is interesting to say the least.

His first program is one where the Federal government borrows money at 3%, loans it to consumers at 8%, and the consumers use it to pay off their outstanding credit card debt which charges a higher rate.

Win-win, right?

Well, first of all outstanding credit card debt is around $900 billion so that is a lot of new borrowing. Pretty hard to imagine that would fly.

Second, what is the mechanism to implement this? Would each consumer have to submit a notarized statement of their credit card debt levels? How would the government force the consumer recipients to use the money to pay off their credit card debt?

Third, what does Frank expect these debt ridden consumers to do with their money once they've gotten a break from usurious credit card interest rates? Why, spend it of course!

Fourth, what will the government do when people start defaulting on their payments? Repo their flat screens?

Frank's second program is to implement a carbon tax that will come into force when the economy reaches full employment. He says this will immediately cause a huge surge of new investment.

Why?

Because the tax will destroy a lot of our existing capital stock!

People, I am not making this up:

"once a carbon tax was announced, the design of nearly every existing machine or structure that uses or produces energy would be rendered suddenly obsolete."

Holy crap! I am pretty sure this is the definition of the broken window fallacy, innit?

I guess you kind of have to admire the guy for trying to sell cap and trade as a economic stimulus program!