The Pessimistic Bias

by Don Boudreaux on April 6, 2008

in Current Affairs, Economics, Myths and Fallacies, Standard of Living

Reading the comments on this post (which in many ways are very much like the comments on many other posts, both here at the Cafe and on other blogs) prompts me to make a couple of points that I’ve put off making for too long now.

In his indispensable book, The Myth of the Rational Voter, my GMU colleague (and EconLog‘s) Bryan Caplan finds powerful evidence that non-economists suffer from the “pessimistic bias,” which Bryan defines (on page 45 of his book) as

a tendency to overestimate the severity of economic problems and underestimate the (recent) past, present, and future performance of the economy.

Russ and myself (because we’re economists?) and many of the commentors here at the Cafe are not pessimistic about the long-run.  Problems come; problems are solved.  Inability to see the details of the future scare many people; this inability doesn’t scare me.  As long as individuals have a sufficient quantum of freedom, their self-interest and creativity and inevitable competition will “solve” almost any problem over the long-haul.  It’s a pattern repeated countless times over the past two-hundred years in capitalist countries.  (Please, please don’t trot out the Great Depression as a counter-example.  First, it was clearly worsened by the Federal Reserve’s catastrophically bad monetary policy, and by the worldwide spread of protectionism — helped along by the Smoot-Hawley tariff.  More importantly, there’s compelling evidence that the risks of full-throttle socialization of the economy were then real enough to scare investors away until the mid-1940s.  And even this greatest of all of America’s depressions lasted only ten or fifteen years, depending on how you define the end of the Depression.)

Being optimistic doesn’t mean being blindly insistent that the future will always be better than today.  Take away enough freedom and, kaboom!, the economy implodes.  (Or should I instead say “moobak!”?)  Fortunately, though, the capitalist economy is so remarkably robust that it can take lots of beatings — lots of interventions — lots of unnecessary taxation — lots of foolish dissing — and keep on keeping on at raising living standards.

I’m more optimistic today than I was ten or twenty years ago about just how much counterproductive regulation and taxation the capitalist economy can take before it really starts to fail.  But my sense is that the American economy still retains enough freedom — that property rights remain sufficiently secure — to ensure continued economic growth over the long run.

I remain bullish over the long run.  Very bullish indeed.
….
My second point is that it is a curious phenomenon that those who want more government control over the economy tend to be those who insist that the American economy has performed poorly over the past thirty-five years.  Again, as regular patrons of the Cafe know, Russ and I are quite sure that the economy has done very well during these years, even for poor and middle-class workers.

But if I were a pro-regulation and high-tax kinda guy, why would I dispute the claim that America’s economy has performed remarkably well for everyone even since 1973?  Why would I not say “See, the government programs enacted from the New Deal forward are working!”  At no time during the past 35 years has Uncle Sam’s budget been severely reduced.  During those years, some welfare programs have been scaled back, while others have been expanded and even newly created.  Trade is freer today, but the post-WWII trend toward freer trade began in the 1940s, long before those allegedly blissful years of the early 1970s.  Since the early 1970s, some regulations have been repealed, while others have been created at both the state and national levels.

In short, despite what some pundits mysteriously assert, America during the past twenty-five to thirty-five years has emphatically not been a laissez-faire society.  Not even close.  So why do so many persons on the political left see in the economic data of the past three decades a compelling case for even greater government control over our lives and pocketbooks?  And why don’t more of these same persons on the left respond to those of us who advocate less government by pointing to the evidence of continued and widespread growth in prosperity by saying proudly “See!  We’re right and you’re wrong: government intervention does work well!”

I believe that I know the answer to my (non-rhetorical) question, but this post is long enough, so I’ll end it here.

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{ 48 comments }

Marcus April 6, 2008 at 3:05 pm

Politicians need dragons to slay. Otherwise, they've nothing to do.

Grant April 6, 2008 at 3:08 pm

Fortunately, though, the capitalist economy is so remarkably robust that it can take lots of beatings…

How much of this do you think is due to the rise of additional industries which the government hasn't yet had a chance to wreck, like it has the health care, education and banking industries?

For example, the content of the Internet (everything at the IP level of abstraction and higher) is effectively anarchy. So the Internet, and IT in general, is free to grow regardless of what the government does to other industries. Couldn't this growth, and the other productivity increases it brings, be a larger factor in the constantly-improving economy than growth in old industries?

Fortunately, the structure of IP and the nature of encryption make regulation practically impossible. Unfortunately, software patents still manage to do some damage.

Justin Bowen April 6, 2008 at 4:27 pm

How do you explain away the unfunded liabilities (I'm actually curious about your answer to this)? They have to be paid for somehow, don't they?

muirgeo April 6, 2008 at 5:25 pm

" Inability to see the details of the future scare many people; this inability doesn't scare me. As long as individuals have a sufficient quantum of freedom…"

Yep freedom is important!

Home of the free…

mnm April 6, 2008 at 5:56 pm

muirgeo, you're definition of "freedom" is appalling.

Justin Ross April 6, 2008 at 5:58 pm

I'll be the first post to actually try and answer your question. My guess is that it is easier to convince others to change status quo when they think something is wrong. If things are proceeding nicely then why change it?

A derailing point for my argument, however, is that those favoring less government intervention are not claiming that the world is getting worse and that status quo needs changed in the other direction. I suspect that this is the case because they are a relative minority who need to be better about accuracy to remain in the discussion.

muirgeo April 6, 2008 at 6:28 pm

The post makes a fair point that our economy is not a result of laissez-faire policies. It does not follow nor have I seen any significant evidence that a laissez-faire economy would be better then what we have. As far as I can tell a laissez-fair economy has never truly existed on which to base its efficacy.

If nothing else what we might be comparing is the difference between supply side and demand side economics with, in my opinion, the demand sider's seeming to have evidence of greater economic efficiency.

mnm April 6, 2008 at 6:30 pm

"So why do so many persons on the political left see in the economic data of the past three decades a compelling case for even greater government control over our lives and pocketbooks?"

I suspect they aren't looking at economic data at all. They are instead looking at media sensationalism.

Gil April 6, 2008 at 6:52 pm

Does someone know the answer to this is there actually greater taxes and regulations (with the possible exception of protectionism) now than there was in the 1930s? In other words, would a businessman in the 1930s who complained about all the New Deal rules and regulations be gobsmacked at all the rules and regulation that exists nowadays?

Randy April 6, 2008 at 7:09 pm

Gil,

I'd say that running a business of any size today is as much about being a specialist in government regulation as it is about providing a service to customers.

muirgeo April 6, 2008 at 7:17 pm

"So why do so many persons on the political left see in the economic data of the past three decades a compelling case for even greater government control over our lives and pocketbooks?"

At this point, seeing Republican presidents add 7.5 trillion dollars of debt to our government it is no longer fair to assume that the left is advocating for greater taxes or more government. The right has shown by it's actions that it is the party of greater government spending but to cowardly to force the American people to pay for their habits.

The left, I would argue, is arguing not for more government regulation but better governmental regulation and a more fair economy in general. The left knows that a demand side economy will be more equitable and likely more prosperous.

I have to wonder how many people would still vote republican if they were held responsible for paying of any debt their president accumulates.

I vote we pass a constitutional amendment that voters of the victorious party pay off all the debt at the end of their presidents term.

Let' see .. you Bush voters… what's 5 trillion divided by 60 million? That's what you each owe. Of course I voted for Reagan twice and H Bush once so I'd be paying big for those mistakes.

muirgeo April 6, 2008 at 7:23 pm

Gil,

This old post by Professor Boudreaux addressed the issue.
In fact the average person is paying more.

http://cafehayek.com/2007/08/tax-burden.html

jp April 6, 2008 at 7:35 pm

I would be happy with the amount of government interference we have now if I could be assured that it would never increase. Unfortunately, it's in the nature of government to grow.

mnm April 6, 2008 at 7:55 pm

"Let' see .. you Bush voters… what's 5 trillion divided by 60 million? That's what you each owe. Of course I voted for Reagan twice and H Bush once so I'd be paying big for those mistakes."

muirgeo

That debt has been accruing since the 1940s. The Bush adminstration didn't spend us that far into debt. Seriously, do you do any fact checking before you post?

Syphax April 6, 2008 at 8:01 pm

The second point hits the nail on the head.

In the US, real government spending per person is about 20 times what it was in 1929. Almost all that increase is in social spending. The fact is that Americans are better off, but not BECAUSE of government intervention, IN SPITE of government intervention. If government intervention is required for higher living standards for all, why did all Americans do so much better 1800-1929?

Why does the left argue the last 30 years have been a case for government intervention? Heh, Easy! Republicans have been "in control" the last 30 years and they have used free market rhetoric(although they haven't followed it). The left has no choice but to argue for the exact opposite and therefore they argue for more government intervention. Bill Clinton was probably the most "free market"/small government presidents in the last 50 years in policy, but his presidency was a great case for government intervention/democrats because he was a democrat.

In short, it doesn't matter what you DO in politics. What matters is WHAT YOU SAY.

Ken April 6, 2008 at 8:07 pm

http://dcj.state.co.us/ors/images/stats/Violent_vs_Offense/2004_violent_vs_incarceration.gif

This is a wonderful graphic to which you surely have interpreted incorrectly. I bet you don't even understand that the higher incarceration rate causes lower crime rate. I'm willing to be that you would look at this graphic and say "Look the incarceration rate has been going up IN SPITE OF the lower crime rate." When the sentence is more plausible with the clause BECAUSE OF.

I'm not even sure what this graphic has to do with anything in Don's post. Care to explain?

-Ken

Ken April 6, 2008 at 8:11 pm

The link in my above comment if from muirgeo's post. It got cut off in mine.

ben April 6, 2008 at 8:41 pm

It has apparently escaped muirgeo's attention that it is him that this post is scorning.

Deryl G April 6, 2008 at 8:47 pm

Ken,

Isn't your argument for causation just as fallacious as muirgeo's. Also, Don made a claim to freedom in his post. The links muirgeo provided were meant to illustrate that we are not as free as it may seem.

Personally I think we are quite free in the US, but I do find it appalling how many not violent 'offenders' are locked in prison.

Deryl G April 6, 2008 at 8:55 pm

muirgeo, you're definition of "freedom" is appalling.

Posted by: mnm | Apr 6, 2008 5:56:32 PM

I'm not following you. Those in prison certainly aren't free right?

Is it that you think they ought not be free and muirgeo seems to be implying that they ought to be that you find appalling?

M. Hodak April 6, 2008 at 8:56 pm

Most people have what can only be called a primitive or childlike sense of how the world works. They think that things happen, like bumper harvests or crop failures because of SOME KEY POLICY. It's cargo cult economics. "The depression happened because of X." Or we finally got out of the depression because of Y." People want to believe the problem is that simple because it gives them a feeling that they understand their world, that it's amenable to that kind of control, and that the "problem" can be cured by A BETTER POLICY, much like our pre-industrial ancestors felt everything could be cured by prayer and "perfection."

The phrase I hate the worst is "all we have to do…" This presupposes (a) the speaker has figured it out–they know the BETTER POLICY, and (b) it involves you and I surrendering our personal interests to the "we," which is invariably code for the interests of the speaker.

Alas, there will always be people who are afraid of everyone else (gasp) doing whatever they want. There will always be people who think they know better what everyone should want. The former will surrender state power to the latter, who will exercise it according to their personal interests. The rest of us who complain about it will be called "selfish."

M. Hodak April 6, 2008 at 9:02 pm

BTW – That's a long way of saying that I'm fairly optimistic that things would be better, or at least no worse, if the pessimists (or anyone, really) had less access to state power to make themselves feel better.

mnm April 6, 2008 at 9:24 pm

I'm not following you. Those in prison certainly aren't free right?

Is it that you think they ought not be free and muirgeo seems to be implying that they ought to be that you find appalling?

Posted by: Deryl G

Good question Deryl. I'm not implying that they ought not be free, although the violents certainly ought not be free. What I find appalling is his simplistic definition of freedom, i.e. that only those not in prison are free. I don't know what the per capita incarceration rates are in North Korea or Cuba, but if they're lower than the US would you argue that Cuba and North Korea are more free than the US? I hope not. The point I'm trying to make is that incarceration rates are not an accurate measure of freedom. In fact, it could be argued that they aren't a measure of freedom at all and using them as such is something of a perversion.

Don was talking about economic freedom, not incarceration rates. http://www.cato.org/pubs/efw/
This is link to an economic freedom index done by divisionoflabour.com's Robert Lawson. He updates the index annually.

Deryl G April 6, 2008 at 9:49 pm

I agree that those in North Korea and Cuba are not fee. I also think we are very free here in the US. I also also think that we have too many people in prison.

Gil April 6, 2008 at 9:55 pm

Isn't it therefore a big productivity issue first and foremost? Some people live with what others refer to as unfair rules and regulations yet still produce anyway? Similarly is there something to be said for certain groups and, even, nations that are poor or not as rich as they could be, not because of government necessarily, but have some sort of issues where they won't produce? Or to put it another way, some groups of minorities seem to play the blame game and become victims whereas other minorities keep to themselves, work hard, produce and become quite well off in same society that supposed to be keeping the other minorities 'down'?

Unit April 6, 2008 at 10:38 pm

"So why do so many persons on the political left see in the economic data of the past three decades a compelling case for even greater government control over our lives and pocketbooks?"

It is indeed strange when politicians go on and on about how poor and miserable we are supposed to be these days. It takes guts for someone like Hillary who is making hundreds of millions to stoop down to "our level" and describe our decent middle-class lives as hard, disappearing, helpless, and what-not.

She is appealing to the "pessimistic bias" that Don mentioned and to the the innate aversion to losses that people harbor deeply in their psyche. And I'm not talking about personal losses (which would be understandable), but to the general losses that happen in a society as a whole.
Wishing to get rid of all losses is a dangerous ideology. Better to stick with Milton Friedman's pragmatism: "profits are important, but failures are too" (I'm paraphrasing).

Ironically the ideology of a perfect "no-loss" society is more common among the wealthy. How often do we hear: "it's a shame that in a rich country like the USA we still have people foreclosing on their houses".

Somehow, everyone has a right to happiness and government's duty is that no one should be denied any desire. The details on how to achieve this are not important, it's a matter of will on the part of the political class. "Just do it". "We just need to stop talking and change the society as we know it". When I hear such talk I feel insulted.

brotio April 6, 2008 at 10:54 pm

"I vote we pass a constitutional amendment that voters of the victorious party pay off all the debt at the end of their presidents term." – Murthaduck ("the children they've killed in cold blood")

I take it that secret ballots have no place in your democracy? Who do you propose look over my shoulder to see who I'm voting for? You? Hitlery? The Swimmer? Do you also propose to amend the Constitution to require that all spending bills originate in the Executive Branch instead of in the House? The Muirdiocy compounds daily.

Murthaduck swung and only missed the nail by a few feet this time, which is about as close as the Duck ever gets. I believe it was in Heinlein's 'The Moon Is A Harsh Mistress' where the idea was floated that any time a politician wanted to inflict a program on The People 'for their own good', that the politician had to fund it out of his own pocket. I wonder how willing Congress would be to subsidize GE and ADM for Murthaduck if the Congresscritters had to dig into their own wallets?

muirgeo April 6, 2008 at 11:41 pm

If there is any rationality to voting this data suggest a clear choice.

Aaron Krowne April 7, 2008 at 12:07 am

As far as I can tell, most economists tend to make a career of asserting that "everything is fine, and if it's not fine, it will be soon."

Of course, everything eventually passes, but this perspective seems to be reductionist to the point of meaninglessness. I have to wonder if this is a consequence less of actual data than it is of a profession bred for service in the highest echelons of bureaucracy.

On the other hand, I don't think there is any hard support for a "pessimistic bias" by non-economists. People seem to be borderline elated as long as they can spend with impunity, whether it is on real income, or just credit.

Generally speaking I agree with the points of the rest of the post.

(Except the the citation of "Myths of Rich And Poor", which is yet another specious attempt to "proof up" our supposed economic bounty by mis-counting credit/spending as wealth and making use of doctored government economic statistics. Oh, and it's by a Fed apparatchik, too, so none of this is of any surprise.)

mnm April 7, 2008 at 8:18 am

(Except the the citation of "Myths of Rich And Poor", which is yet another specious attempt to "proof up" our supposed economic bounty by mis-counting credit/spending as wealth and making use of doctored government economic statistics. Oh, and it's by a Fed apparatchik, too, so none of this is of any surprise.)

Posted by: Aaron Krowne

Aaron you're long on speculation and short on facts. Can you prove that those government stats are doctored or do you just choose to believe so for the sake of your arguement? What does his being an employee of the Fed have to do with it? Rather than discussing what he rights you dismiss it because of where he works.

Who's the one being specious?

mnm April 7, 2008 at 8:19 am

I'm sorry that should be "writes." Damn, I'm tired.

Don Boudreaux April 7, 2008 at 8:42 am

Aaron Krowne accuses Michael Cox and Richard Alm (in the book of theirs that I cite in the post) of "mis-counting credit/spending as wealth and making use of doctored government economic statistics."

First, I join mnm in asking for Mr. Krowne's evidence that the statistics in question are "doctored." While anyone who understands statistics understands that there are many pitfalls along the way in gathering, processing, and interpreting them, there's no evidence that I'm aware of that the stats in question are false.

Second, Mr. Krowne simply is wrong about what Cox and Alm do. The bulk of their book looks at actual consumption — goods and services purchased (as well as at the work-time necessary to get various "baskets" of goods and services). Cox and Alm in fact spend little time measuring Americans' prosperity by looking measuring the dollars spent.

Deryl G April 7, 2008 at 8:57 am

Back then, real wages grew and a man could support his wife and kids on one income. Now it takes two incomes just to tread water. Why now and not then?

Posted by: estimator | Apr 6, 2008 11:39:36 PM

I can't supply anything but anecdotal evidence, but I suspect that more families could survive with only one income if they made different financial choices. My wife doesn't work and half the guys I work with don't work. None of us drive brand new cars or have tons of 'toys' to play with.

My wife's brother and his wife both work. The could live off of one income if they chose to, but they have two newer vehicles, a big screen TV, several different video game systems, and several newer computers.

Lots of women don't want to stay home. It's a preference.

I'm sure there are some families that can't afford to live with just one income, but I wonder how many of those families could have lived with just one income 30 years ago (or whatever cut-off you want to chose).

LowcountryJoe April 7, 2008 at 9:05 am

Directed to muirgeo: I'm not even sure what this graphic has to do with anything in Don's post. Care to explain?

-Ken

Posted by: Ken | Apr 6, 2008 8:07:52 PM

I'll explain for him. He's a troll and he posts nonsensical or unrelated items all of the time. We respond and defeat his asertions (and off-topic rantings) and he gets the attention he is so desparately seeking.

At this point, seeing Republican presidents add 7.5 trillion dollars of debt to our government it is no longer fair to assume that the left is advocating for greater taxes or more government. The right has shown by it's actions that it is the party of greater government spending but too cowardly to force the American people to pay for their habits.

The left, I would argue, is arguing not for more government regulation but better governmental regulation and a more fair economy in general. The left knows that a demand side economy will be more equitable and likely more prosperous.

I have to wonder how many people would still vote republican if they were held responsible for paying of any debt their president accumulates.

I vote we pass a constitutional amendment that voters of the victorious party pay off all the debt at the end of their presidents term.

Let' see .. you Bush voters… what's 5 trillion divided by 60 million? That's what you each owe. Of course I voted for Reagan twice and H Bush once so I'd be paying big for those mistakes.

Posted by: muirgeo | Apr 6, 2008 7:17:41 PM

- Who here is defending the Right's growth of government under a Republican led congress from 1994-2006?

- So, using your 'prison' logic: is it safe to assume that the Left is no longer advocating for greater taxes or more government? Please explain this because I usually hear the opposite in their rhetoric.

- Can you (or will you) argue what the difference is between better governmental regulation and simply more regulation? You wrote it so some elaboration would be nice.

- Define "fairness" as it relates to an economy?

- Explain how, in a society that makes its legislation to favor consumers over producers, that we should need more so-called demand side and more equity to make us prosperous? And you, muirgeo, take issue with the concept of outsourcing as it is now?…just wait until things break your preferred way.

- For the last time, muirgeo, the congress makes legislation regarding spending. So why would you make such a suggestion that voters of the victorious presidential party should pay off all the public debts before leaving office? Scratch that and forget I asked; you're all about forcing others to pay for someone else's debt…it's in your DNA.

- At least half of that 5 trillion that you mention (if that's even an accurate number) was used to try and make things "fair" and "equitible". And now you're complaining about it? Make up your mind, Doctor!

muirgeo April 7, 2008 at 9:28 am

Here is the counter argument to Cox and Alm.

For myself, do Cox and Alm's data need a revisit now that we are coming to understand the true nature of our consumption. The fact is we spent money and consumed and bought things we truly can't pay for. If I give you a credit card with a million dollar limit you might feel real rich with all the things you've bought but what about when the interest and principal come do.

Cox and Alm state:

"It’s true that the share of national income going to the richest 20 percent of households rose from 43.6 percent in 1975 to 49.6 percent in 2006, the most recent year for which the Bureau of Labor Statistics has complete data. Meanwhile, families in the lowest fifth saw their piece of the pie fall from 4.3 percent to 3.3 percent."

And that is the whole problem. First is to question why the new distribution occurred. Does the new division of wealth have anything to do with true value OR is it more a result of policy. Second, is to realize this is likely the source of pessimism amongst many voters and likely a major contributing factor to the degree of severity of the current economic downswing.

Voters have pessimism based on their actual life conditions which are not seen or experience by the average professor of economics. If voters fully understood THIS data their pessimism would be greater and their vote for change stronger.

Policy matters and there is nothing wrong with well founded pessimism and voting for a brighter future.

muirgeo April 7, 2008 at 9:40 am

Cox and Alm state:

"It’s true that the share of national income going to the richest 20 percent of households rose from 43.6 percent in 1975 to 49.6 percent in 2006, the most recent year for which the Bureau of Labor Statistics has complete data. Meanwhile, families in the lowest fifth saw their piece of the pie fall from 4.3 percent to 3.3 percent."

This is critical because the demand side argument would be to suggest that if more of the income had stayed in the lower quintiles it would have been spent as true consumption and the economy might not be where it is today…. bailing out the supply siders… the guys who made greater percentages of all incomes.

The above fact and the current economic state of our country reveal the contrast between supply side and demand side economics. If voters have a reason to be pessimistic it's when those in charge push for supply side economics. When those in charge push for demand side economics they will have reason to be more optimistic.

The debate is indeed never about laissez-faire versus socialism as many here like to set it up. It's about everything we do in between and how actual policy does effect the economy.

Policy matters and for my 2 cents….. demand side to the rescue…. again.

muirgeo April 7, 2008 at 9:57 am

LCJ,

What do you want nothing but gospel preached here? You may not agree with my positions and being a lay person I may not present them well but you can be assured there is a large body of economic literature from which they came and many well reputed professors of economics from which I was helped to form them.

LowcountryJoe April 7, 2008 at 10:06 am

If the wealthy have their wealth confiscated from them, then how do you suppose that the poor will make out better?

There are a handful of things that you should be aware of, muirgeo:

1) Incentives matter to people. No policies can ever repeal this truism. Look up "Homo-economicus" or listen to last week's podcast on EconTalk regarding "Max U.".

2) The wealthy do no spend all of their money on consumption. They generally park their wealth in vehicles/institutions/endeavors which indirectly create value-added jobs for the nonwealthy to perform and make an income at.

3) 'Dead-weight losses' do, in fact, exist with any taxation scheme. Look up this term if you're not familiar.

4) Bureaucracy does not aid in the generation of wealth for an economy. Bureaucracy squanders wealth away from an economy.

5) With very little exception (none that I can remember), everything that you have ever advocated for was more bureaucracy and less individual liberty. And, on top of it [as if that's not enough by itself], you do not seem understand or grasp anything about points 1, 2, & 3.

LowcountryJoe April 7, 2008 at 10:25 am

What do you want nothing but gospel preached here? You may not agree with my positions and being a lay person I may not present them well but you can be assured there is a large body of economic literature from which they came and many well reputed professors of economics from which I was helped to form them.

It's not my blog but I'm generally very happy with what gets preached around here — even if I have to wade through the muirpidity. But, is staying on-topic and answering point-blank questions too much to ask from a troll?

The thing about your selections of 'literature' from the economics community is that it's like you're a young and picky-eating child going to a large buffet and only eating a small fraction of the foods availible to you. And then you're coming to the table and expecting to converse with the adults about the foods in the whole buffet.

We're you not the guy who said that I was ignorant this past weekend? Physician heal thyself!

Methinks April 7, 2008 at 11:50 am

Well done (as usual), LCJ. Muirdiot is stricken with impenetrable stupidity and insists on polluting this blog. At first I didn't think he tried to understand what others on the blog wrote (not agree, mind, just understand) but I've come to the conclusion that it's not a matter of trying. It's a matter of ability. He just can't understand. It's all beyond him. He's a moron. I do notice that he doesn't similarly pollute Rodrik's blog.

muirgeo April 7, 2008 at 12:45 pm

If the wealthy have their wealth confiscated from them, then how do you suppose that the poor will make out better?

Posted by: LowcountryJoe

Well this is one of our basic fundamental disagreements. You presume that wealth is proportional to value. I suggest it is not in many cases.

1. Agreed, incentive matters.

2. You make my point. Wealthy don't consume as much as poor. So when they accumulate greater wealth in proportion to the poor consumption and demand overall goes down and the economy faulters… and even rich people get hurt.

3. Sure.

4. False. Every wealthy nation has varying degrees of Bureaucracy not always proportionate to its wealth. NO WEALTHY NATIONS exist that have no Bureaucracy.

5. I don't think I advocate more Bureaucracy but more efficient Bureaucracy.

You guys with your Darwinistic visions for society are stuck explaining the extinction or non-existence or lack of evolution of a society based on classic economics. If it's so damm good and so obviously more effecient then where the heck is it? They don't exist for a reason. Believing they could work might be as unreasonable as believing communism works… and as much as I might not like it… communism seems more viable then classic liberalism because it at least exist in the real world and not just in theory.

Sam Grove April 7, 2008 at 1:24 pm

More efficient bureaucracy?
Are you trying To be funny?

Muirgeo no doubt thinks businesses pay the cost associated with regulation.

BTW, I am composing this on my Nokia 810 at a campsite in Big Sur.

Randy April 7, 2008 at 1:37 pm

Muirgeo,

"If it's so damm good and so obviously more effecient then where the heck is it?"

At the core of every transaction in which wealth is created. On the day that free markets cease to function government will lose its raison d'etre.

Deryl G April 7, 2008 at 1:57 pm

2. You make my point. Wealthy don't consume as much as poor. So when they accumulate greater wealth in proportion to the poor consumption and demand overall goes down and the economy faulters… and even rich people get hurt.

Spending does not increase productivity. Investment does. If you disagree with this, please expalin why.

Deryl G April 7, 2008 at 1:58 pm

5. I don't think I advocate more Bureaucracy but more efficient Bureaucracy.

When you get that taken care of can you work on getting dryer water? I'm tired of ruining my keyboard everytime I spill.

fundamentalist April 7, 2008 at 1:59 pm

I don’t agree with Caplan’s definition of an irrational voter; it’s not the definition used by most people, but a technical, economist’s definition in which rational action is defined as that which an economist would do. It assumes that voters have the same information that economists have. Voters use the information and assumptions they possess to logically deduce the choices they should make, so they are rational by the common definition.

So why do voters have “a tendency to overestimate the severity of economic problems”? Could it be because the media regularly interviews only the hysterical economists, and that’s the only information that the public has? If voters are overly pessimistic, it’s because the media, politicians and many economists spend all of their effort trying to scare the life out of voters in order to get them to vote for more socialism.

Caplan would be irrational by Mises standards because Mises found any state intervention in the economy to be harmful, and therefore irrational, and Caplan, being a neo-classical economists, has no problem with state intervention in many cases.

Don Boudreaux April 7, 2008 at 2:24 pm

Fundamentalist,

You should read Bryan Caplan's book, for he does not define rationality in the way that you presume that he does.

Don

muirgeo April 7, 2008 at 2:56 pm

Spending does not increase productivity. Investment does. If you disagree with this, please expalin why.

Posted by: Deryl G

No one invest unless demand exist. If people have no money because it's all tied up in the wealth of a small minority there is no demand. The wealthy have all the widgets they need.

Give the workers a little more money and their new wealth and demand for widgets will cause productivity to soar.

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