Better feedback mechanism, better incentives, not better people.

This is a strong argument against effective government, in general.

Often, I hear from my 'left-leaning' friends that government would work quite well if only there were better people running it. This is obviously true to a degree, but it misses the point: you don't want to have a system that in anyway depends on having the right person in charge. You want a system that provides the best incentives and feedback mechanisms.

Memo to OWS: here are some things free-marketeers actually think

Memo to OWS: Ten things that free marketeers actually think

HT: Carpe Diem.

A sample.

1. Free-marketeers resent the bank bailouts
2. What has happened since 2008 is not capitalism.
AM: I would add, the forces leading up to 2008 were not particularly 'capitalist' either.
3. If you want the rich to pay more, create a flatter and simpler tax system.
4. Those of us who believe in small government are not motivated by the desire to make the rich richer.
5. We are not against equality. We generally recognise the benefits in Scandinavian-style homogeneity.
6. Nor, by the way, does state intervention seem to be an effective way to promote equality.
7. We're not on the side of vested interests or elites.
8. Capitalism, with all its imperfections, is the fairest scheme yet tried.


AM: Excellent points. OWS protesters do a good job of bashing strawmen, but rarely engage with what libertarians and pro=market people actually think.

Against Supply Management

My old prof, Michael Hart rightly eviscerates the practice of supply management.

Why should consumers benefit only from stable dairy prices when there are so many other sectors that could benefit from sup-ply management?

How about the Auto Assemblers of Ontario? Premier Dalton McGuinty might like the concept, as would the Canadian Autoworkers. Each assembler would get an annual quota, divided among one or two models. (The number of choices available today confuses consumers and is wholly unnecessary.) Imports would be strictly limited and quotas to import would be provided to the assemblers. Prices and quotas would be set by a Canadian Auto Com-mission. There are so many possibilities with this particular economic model that should provide broad appeal.

International trade as we know it would have to come to an end, and Canada would need to with-draw from the WTO, but the Dairy Lobby has long told us the WTO is a nuisance. We would rely on supply managed Canadian production for most of life's needs, as organized by a wise government and a series of commissions dedicated to determining the right size of the market and the appropriate price to ensure a fair return. Not only would prices be more stable, but so would supply and employment.

AM: Why does supply management continue in dairy? The same reason that protectionism continues: a powerful lobby group. The cows moo en francais. Consumers are not sufficiently aware, nor are the sufficiently mobilized to act as an effective counterweight to these special interests. Luckily, the Harper government is turning against supply management. Finally, a little bit of that free market ideology that they purport to espouse.

On Bias...

I’ve been thinking a little bit about social science, bias, and ideology. I’ve come to be of the opinion that there is no firm ground in the social and economic sciences. Ideology, cognitive bias, and social and intellectual investments pollute the thinking of all well-intentioned truth seekers. Worldviews are not easily changed.

This question is raised by Russ Roberts at econtalk/café hayek: here, here, and here. It’s particularly acute in macroeconomics; but also, as Taubes discusses in this podcast, in things like nutritional science and epidemiology.

Here are three of my ideologies: Atheism; Libertarianism; Vegetarianism

I’m pretty good at shooting down arguments against these beliefs, and I’m relatively adept at marshaling supporting evidence. But really, I probably fall prey to all sorts of cognitive biases. I’m certainly harder on opposing worldviews than I am on my own. I tend to follow thinkers of like mind. And while I try to follow opposing views as well, I do so to a lesser extent. I also know lots of like-minded people. They know me as a person who espouses these ideas. My worldview is part of my identity. I am, in a sense, invested. This is not to say that I’m wrong, but only to say I’m biased, and I’m invested in my worldviews. If I were wrong about any of them I might not realize it. I imagine that It’s harder for scientists and others who are professionally invested in a pet hypothesis or theory.

And, gentle reader, we are the same. I'm not some extreme ideologue. If you’re reading this, it’s likely that you have a worldview. You’re invested in your opinions on certain things. You suffer from cognitive biases. You probably dismiss evidence against your worldview and actively seek out evidence supporting it. Don’t lie. Be honest.

I’d like to know, for anyone who is invested in a worldview of some sort, what type of evidence would it take to convince you that you are wrong? If you are an atheist, a devout Christian, a vegan abolitionist, a socialist, a libertarian, an anarchist, or whatever your outlook: what evidence would persuade you to abandon your opinion?

Deficit Reduction, Canada edition: How did we do it?

Canada's basket case moment:

But to win its budget wars, Canada first had to realize how dire its situation was and then dramatically shrink the size of government rather than just limit the pace of spending growth

AM: How did we do it? 7:1 spending cut/tax hike. And: "the next minister to ask for funding gets his budget cut by 20 percent." I guess that's the benefit of having a benign dictatorship. Still, the lesson is that the U.S. needs austerity, not growth-killing tax hikes.

From the Globe and Mail,

Canada should remain committed to publicly funded health care, and not open the door to two-tier medicine, says a new report by a top economist.

Governments can improve efficiencies in the system, including changing the way doctors are compensated, without allowing patients to pay for some services, Don Drummond, former chief economist at Toronto-Dominion Bank said in the report released on Thursday.

I love this type of argument. We know that public health care is extremely inefficient. But rather than privatize, we can just fix the inefficiencies. Of course. So easy. I love that technocrats think they can just fix it from the top down. There is a huge gap between what they think they know, and what they actually know. The reason that private markets work is that efficiency comes from the bottom up: through trial and error, through adaptation and innovation. Central planning is, by definition, incapable of replicating this.

The lesson for healthcare reform is: we should trying to design the 'best system', rather, we should aim for a system with the best feedback mechanisms. That's bottom up, not 'top down.'

Optimism: Vol 1 Inequality

I’ve just finished reading Matt Ridley’s excellent book, “The Rational Optimist.” Ridley evaluates technological progress, human history, and many current socioeconomic problems in a hardnosed, analytical manner, but comes to rather cheery conclusions. Ridley is even optimistic about the hardest problems, like poverty in Africa and climate change. Now, he’s not saying "everything is fine". He does not deny the severity of our socio-economic problems. His point, rather, is that there is cause for optimism because there are improvements on the horizon.

I’m an optimist too, although not about everything. That got me thinking: what socioeconomic trends am I optimistic about, and why? One issue that people seem to be down about, lately, is economic inequality. I see why, but I'd like to explain why i'm an optimist on this issue.

The OWS people are very pessimistic about inequality. They cite some pretty harrowing statistics about middle class stagnation, the gains made by the “richest 1 percent” over the last 30 years, and the higher costs certain goods such as health and education.

I can’t share this pessimism. One reason is that I’m not so convinced about the middle class stagnation thesis. Don’t get me wrong, I’ve seen some of the numbers. But I also know a little bit about the way that they are calculated, and the difficulties there; and I’ve seen some alternative estimates. For example, once you include benefits from taxation, non-monetary benefits (like employer provided healthcare), the inequality picture changes quite a bit.

Second, some people argue (convincingly, IMO) that the CPI overstates inflation. There are some reasons for this, but basically, when you look at a basket of goods now and compare it to one gathered in 1970, price doesn’t capture quality. So, if inflation is lower and the quality of goods available is higher, the overall standard of living picture improves for the middle class.

Third, there are some statistical artefacts in inequality calculations based on “households.” For example, as households break up due to divorce rates, this affects the picture just because the size of the household shrinks. But if you take into consideration the size of households, the picture changes and looks a little better.

Fourth, some of the observed inequality in the American political system is due to demographics. A lot depends on whether you're married, in the prime of your working life, and educated. This type of inequality is far more innocuous than the systemic inequality that the OWS people are protesting.

Finally, inequality stats that you see are snapshots. They do not tell us anything about mobility. It doesn’t mean that the same people are in the same categories. Studies that track people over time (called panel data) show that there is significant movement between classes.

So, while there is clearly inequality, I do think that everyone, in general is better off than they were 30 years ago. I think proper readings of evidence show this to be true. (I’m not an expert, but the experts certainly don’t agree, so I’m going with what I understand) As a very last point, I also have no problem that Sidney Crosby, Bill Gates, or the founders of Google make a lot of money. There is a market for what they do. Some rich people deserve to be rich. Others don’t. Here I’m thinking of the guys in finance who shoudl be out of business but continue to get huge bonuses because of government bail outs, tax exemptions and subsidies etc…

One final thought about the language of the issue. People often complain about the “distribution of wealth” or that one group has too large a “share of the wealth.” But this language doesn't make much sense. Wealth isn’t shared to begin with. It is not distributed by anyone (except when the government taxes people). It is created. It does not make logical sense to complain that the founders of MS have too large a “share of the wealth” because there was no “shared wealth” to begin with. That wealth was created by the innovation and the subsequent commerce and trade.

Instead of inequality, societies should be more concerned with the condition of the poor, the bottom 10 percent. And once again, while there is much room for improvement, I find reason for optimism in the fact that over time, both globally and within the developed West, the poor are getting richer.