Wednesday, October 31, 2012

Texas is Trying Hard to Look Like an Authoritarian State

First, threatening election monitors. Second, there are attempts to intimidate voters trying to vote without a photo ID. Third, it arrested a Presidential candidate (Jill Stein of the Green Party, but still this is making Texas look like some central asian autocracy reminiscent of Borat's take on Kazakhstan).

My first impulse is to laugh this off, but I can't help thinking that if this happened in Mexico, Turkey, Brazil, or any other nation not fully in the developed nation inner circle that headlines would be screaming about a former democratic country falling into autocracy. My gut feeling is that this reaction is absurd, but still, I can't really think of a clear reason to worry about similar actions abroad and not at home.

Saturday, October 27, 2012

Why Is Capitalism So Efficient?

This is something that has been bouncing around in my head since reading David Graber's Debt: The First 5000 Years and Acemoglu and Robinson's Why Nations Fail. While the central themes of the books are rather different they have polar opposite takes on capitalism's impact on individuals. Graber sees debt (the parallel is imperfect here since Graber is more narrowly focused) as being rooted in exploitative practices and creating, to some degree, a form of bondage between lender and borrower that has become disconnected from other human relations. Acemoglu and Robinson, on the other hand, see the modern capitalist system as one that approaches being an open access system, instead of oppressing its participants it presents a contrast to the exploitative relationships of the past, particularly when combined with democratic political institutions.

This represents a long running divide between the far left and far right. There are two polar opposite ways of thinking about the market, on the far left it is described as having become disembedded from other social relationships, leading to alienated, exploited, and incomplete individuals. On the far right, there is the efficient markets hypothesis which holds that unfettered market interactions can maximize use of all available information to optimize outcomes.

I think both of these perspectives contains important insights. I agree with the left wing view pushed by anthropologists and sociologists, capitalism disembedded many interactions from the human context that they were previously embedded within. However, once disembedded these interactions became sufficiently simplified to allow for efficient maximization behavior. This is a key element that led to the spectacular increase in growth and human welfare.

A Simple Metaphor to Explain Austerity

I periodically see posts from left leaning economists decrying the ill effects of austerity followed by right leaning posts trying to deny that austerity is really happening because the government is spending more money.

I think a simple metaphor will serve to illustrate what I think is going on here. Imagine you are a church in the midst of the downturn. You have an extensive anti-poverty program that gives meals, retraining, and other services to the poor. Your receipts have fallen due to a great economic downturn. Your obligations have risen because you have an open door policy towards the poor.

To try to keep a balanced budget you engage in austerity measures. You don't replace some of your paid staffers when they leave. You cut down on perks like social outings for congregation members. You choose to forgo a scheduled update of the computer system as well as maintenance on the property. Small staff and volunteer perks are cut, like free lunches for volunteers. To try to meet obligations you pressure parish members for larger donations.

However, because of the growing poverty in your area and your well known open door policy the numbers of those seeking your services leads to ever higher expenses. The cost of providing so many with meals raises the food budget to unheard of levels. More parish members are asking for help with medical expenses, matching donations becomes a strain on the budget. Costs of job seeking help rise, providing transportation and other services to job seekers becomes a major drain.

On net, despite sharp cut backs in normal operating expenses and investments, the church is left with growing debt. But to any observer the church is obviously engaging in austerity, its parishioners are receiving less in the way of social activities, volunteers get less perks, and the physical infrastructure is visibly decaying. However, continuing to meet other obligations is proving very expensive and is leading to the church spending more on net.

This is essentially what is happening with most governments engaged in austerity. They have not only obligations to taxpayers and creditors but existing obligations promised by their programs. Engaging in austerity means cutting back on discretionary programs (which tend to have some of the largest positive marginal impacts, unfortunately), funds allocated to current employees, and to needed investment activities. A state engaging in this is obviously engaging in austerity. That expenses keep rising due to other obligations does not change this, though if someone believes that a smaller government sector is essential to growth than obviously austerity will seem insufficient. But that a state chooses to keep its obligations to the poor as well as its obligations to the relatively wealthy bondholders does not indicate that real austerity is occurring.* If an organization other than the state engaged in this form of austerity it would be obvious to us that it was, in fact, cutting back. It should be obvious when the state does this as well.**

Friday, October 26, 2012

Are We Belarus or Venezuala Now?

The linked article isn't quite as exciting as the top page headline of "Bring It" on FoxNews's front page, but I find it sad that a major news organization seems to celebrating Texas's intransigence towards international election monitors.

I find this section particularly disturbing:

Abbott had expressed concern that OSCE met with groups that have filed suit against voter laws in Texas -- including the ACORN-tied Project Vote. A number of left-leaning groups have challenged efforts to enact strict photo ID laws in Texas and other Republican-controlled states, claiming they're an effort to disenfranchise minority voters. Republican lawmakers say they're merely aimed at cracking down on voter fraud. 
This is positively medieval. Obviously only the authorities should be consulted regarding the authority's actions, those that have complaints to voice are obviously misguided souls unworthy of serious consideration and anyone who would give them a hearing obviously has a criminal and untrustworthy disposition as well.  Probably low born and a bastard to boot.

Is my country really sinking to these levels? Disgusting.

I Find Worker Voting Intimidation by Employers Very Disturbing

Just wanted to share this post at Lawyers, Guns, and Money. It is a listing of stories of employers threatening consequences against their employees if Obama is elected. This is a small example of how widening inequality makes the US less democratic and a clear example of how market results lead to political power and influence. I also find it more evidence that CEOs don't know a damn thing about how systemic level action effects growth, I find it highly implausible that Romney would be better for business in the long run than Obama, though it obviously seems so if you have crude, intuitive models of how the economy works in your head. No reason to expect most business owners would have anything else since they are used to acting within a given environment rather than thinking about how to construct the environment within which action takes places.

As a side note, I'd also like to note that this is a clear violation of classical liberal principles. Despite a long running propaganda campaign to reframe classical liberalism as a doctrine of unfettered markets, it is more accurately described as trying to create separate spheres within which action happens. So economic action should be distinct from political action. Since these spheres necessarily interact to some degree this is obviously a utopian vision but crude violations of it such as this show that power is increasingly weighing towards the side of strong economic actors being able to violate the separate spheres of everyone else.

Thursday, October 25, 2012

Whose on the Flat-Earth

I just read what is probably the daftest refutation of an article I have ever read. Robert Samuelson claims that a New York Times gets it wrong when the New York Times claims that government creates jobs.  This is a perfect example of what I was writing about yesterday, the upside down Marxism where there are scientific economic laws that must never be tampered with.

The Times claims:
Government does create jobs, including “teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats. ...” There are 22 million federal, state and local workers, notes the Times.

Samuelson goes on to claim that:
Case closed, it asserts. And it’s true that, legally, government does expand employment. But economically, it doesn’t — and that’s what people usually mean when they say “government doesn’t create jobs.”
What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment.Job creation in the private sector is mostly a spontaneous and circular process. People buy things they need and want. Or businesses and private investors take risks by investing in new products, technologies and factories. All this spending, driven by self-interest and the profit motive, supports more jobs. In a smoothly functioning market economy, the process feeds on itself. By contrast, public-sector employment grows only when government claims some private-sector income to pay its workers. Government is not creating jobs. It’s substituting public-sector workers for private-sector workers.
This is the stupidest* thin I have read in a long time. In what possible way does the government taking money and spending it differ from an insurance company, bank, or other private business and then spending it? At worst, government job creation is no better than private job creation. Taken to its logical extension however, it is impossible to see how Samuelson's objection applies, after all, if government can't create jobs by participating in this completed loop, how can any other actor that takes money out of the system and puts it back in? Either the government is at least as good as other actors, or growth is impossible and it is all a closed loop that should exist in a static state.

However, this isn't the end of the problems with Samuelson's logic. Many jobs created by government spending are on behalf of people who are income constrained. Without government there would still be teachers, after all even as far back as Rome the wealthy were hiring tutors for their children. However, many people that are being taught today would not be being taught if it were up to market mechanisms (sure religious schools would partially fill the gap, but these never succeeded in creating universal private education before state intervention). These jobs would simply not exist if the market were not interfered with.

Perhaps the wealthy would be spending even more money if it wasn't taxed to pay for teachers for the poor, but it is impossible for me to see that we would have the same level of expenditure in the economy if the market were left to itself. I would also doubt that we would see the same level of growth or the same level of employment, not to even mention inequality. In short, looking at the education system alone, the government is simply not swapping teachers for goldsmiths; in addition to recycling the money in the same fashion the market does it provides goods for income constrained people leading to greater efficiencies and employment than could be provided through the market alone. Without this intervention income and market power would flow towards the top leaving a narrower sector to have its demands filled and thus lower overall transfers in society, leading to lower employment and growth as more money sits idle and less is spent on those that are income constrained and have more unmet demand.

This isn't even to get into other sectors that the market underinvests in like police, basic research, or fire fighters or sectors that are just more efficient if run by the state, like soldiers (absent government private armies continue to exist which can repel foreign invaders but it creates rather inefficient social dynamics). Without government spending to create jobs we would look like what most primitive economies look like, a market sector which only a narrow elite act within and a much larger subsistence sector (with some crossover into the market) which dominates most people's daily lives, think the poorer parts of Africa.

Now, it is of course true that at the margins during periods of high employment government spending can crowd out private investment, which seems to be what Samuelson is trying to get at in a very confused way,** but in reality this is the narrowly specific case, not the argument the NYT is advancing. This is the kind of stupidity that market fundamentalism gets you into, and it is just as bad as Marxism. Ideology leads people into saying things that are really stupid on the face of it, and not realizing this is so because they are so steeped in the logic of their cramped and narrow worldview.

* I generally don't like ad-hominems, but really this column is unbelievably absurd. If he hadn't packaged it as a refutation of a NYT op-ed (admittedly not a great one), and if I hadn't been writing about market fundamentalism yesterday, I probably wouldn't have bothered but this clear example of the kind of blind stupidity this kind of philosophy leads to forced me to comment. This is as daft a view as anything written by ardent communists, it makes the obviously absurd appear as obviously true to its adherents. I can't believe this guy got paid to write this drivel.

** In addition to having to assume 100% crowding out we would also have to assume strict Ricardian equivalence. To understate the case, these are not plausible assumptions.

[Update: I see someone else finds Robert Samuelson's hopeless confusion to be worth commenting on.]

Wednesday, October 24, 2012

Even Conservatives Accuse the Republican Party of Mirror-Image Marxism

Well, he calls it inverted Marxism but Mike Lofgren shares, somewhat more eloquently, a lot of the criticisms I've been making about the modern Republican party in his article "Revolt of the Rich" at the American Conservative.* Especially when he writes regarding Grover Norquist and a number of other so-called Conservatives:

They were quick to denounce as socialism any attempt to mitigate its impact on society. Yet their ideology is nothing more than an upside-down utopianism, an absolutist twin of Marxism. If millions of people’s interests get damaged in the process of implementing their ideology, it is a necessary outcome of scientific laws of economics that must never be tampered with, just as Lenin believed that his version of materialist laws were final and inexorable.

If a morally acceptable American conservatism is ever to extricate itself from a pseudo-scientific inverted Marxist economic theory, it must grasp that order, tradition, and stability are not coterminous with an uncritical worship of the Almighty Dollar, nor with obeisance to the demands of the wealthy. Conservatives need to think about the world they want: do they really desire a social Darwinist dystopia?
This pattern in their thinking, expressed by other writers as market fundamentalism (among other terms) is becoming increasingly obvious, even to those who should be fellow travelers. It is scary to see this philosophy as having a chance of winning another election, rather than being consigned to the dustbin of history which it deserves to share with its close cousin, orthodox Marxism.

*I've been liking this magazine more and more lately. I think some of what they say about debt and deficits are rather daft, and their isolationism can go a little far for my taste (I think Libya was worth it, but largely agree with Larison on Syria) but on the whole it's a perspective worth reading. Unlike National Review, which more often than not leads me to ranting about how baseless so many of its claims are. With American Conservative, I often disagree with their positions, but I feel their positions are baseless far less often.

Thursday, October 4, 2012

Why Romney Contributes to My Doubts About the Ability of Reputation Effects to Police Markets

My intent here really isn't specifically to bash Romney, but rather to observe how little potential reputation effects are altering the strategy of a man that spent most of his life at the top of the business world.

This seems to be a decent frame to me for several reasons. The Presidential race involves a great deal more information and transparency than is normally the case for most consumer product decisions in the market. Potential competitors have high incentives to distribute information about competitor's past actions and ability to adhere to promises. The impacts on a consumer of making a poor decision is potentially very large, consumers have a strong incentive to verify the accuracy of the information presented and base their judgments on past history. In addition, there is no clear price signal to induce consumers to take a gamble on one competitor over another, the decision must be made based on competing claims and the competitor's reputation.

Yet, we see no significant effort to build up a positive reputation (in the economic sense, not personal). Romney has not made any significant efforts to make credible claims (in the sense of claims he can be held to). He tries to promise everything to everyone. This is especially obvious with regards to his tax plan. It is certainly possible to lower rates for everyone, lower taxes on the middle class, keep the tax burden on the wealthy constant, and to keep this deficit neutral by eliminating deductions and credits; however, it is not possible to do this while keeping faith on earlier claims, such as a 20% rate reduction on all groups, lowering taxation on investments, and not increasing the corporate tax rate. Yet there is every sign that these inconsistencies are not hurting him.

Now, there isn't a perfect parallel between markets and an election, but it seems curious that a prominent businessman doesn't seem to be acting as if reputation effects were something that was normative for him. If markets were self-policing due to reputation effects, it is not a big jump to believe that someone that spent most of their lives in business would have internalized these norms. Instead, it seems that he feels that he can promise to act on principles with regards to tax policy, even if these principles as a whole are mutually contradictory.

Tuesday, October 2, 2012

Who is Rude Online?

An overall silly article on yahoo! regarding online rudeness led me to wondering who it is that is rude online? Most of the blogs and forums I frequent are relatively well behaved (with exceptions, of course), but then I click on the comments somewhere like the New York Times or Washington Post and see rather different behavior.

That anonymity brings out the worst in some people is so well established that I don't see it as worth commenting on anymore. However, I find it very interesting that this seems to afflict some people but not others. Are there any shared traits among those that morph into trolls once in front of a keyboard, or who just become plain rude vs. those that maintain their basic civility? Does this correlate with other anti-social behaviors that individuals usually choose to hide? I think there are a number of interesting questions regarding who it is that is showing this effect and what it might mean for other social traits. I haven't seen anything on this, but it is far more interesting to me to question why there is a variable response, and who it is that displays it, rather than that there seems to be a response.

Any thoughts?