For Law Geeks

by Don Boudreaux on November 15, 2014

in Law, Not from the Onion, Seen and Unseen

If Barack Obama ever returns to teaching constitutional law, he has just given evidence that he will likely instruct his class that the infamous 1942 case of Wickard v. Filburn was decided incorrectly.  Here’s a paragraph from a Wall Street Journal report on Mr. Obama’s response to a reporter who asked him about the Keystone XL pipeline:

In off-the-cuff remarks, Mr. Obama managed to insult our great northern neighbors while suggesting that the project would be no help to U.S. workers or consumers. “Understand what this project is: It is providing the ability of Canada to pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else. It doesn’t have an impact on U.S. gas prices.”

(Remind me again why so many people think that “Progressive” politicians, such as Obama, are smart.  As the WSJ report rightly notes, this remark by the supposed science-guided genius who currently lives in the White House is evidence of a profound lack of the most basic understanding of economics.)

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Quotation of the Day…

by Don Boudreaux on November 15, 2014

in Nanny State, Seen and Unseen

… is from page 152 of Randy Holcombe’s excellent 1995 book, Public Policy and the Quality of Life:

If drugs were legalized, there would not be the same incentives to produce drugs in concentrated doses.  Transportation is more costly for illegal drugs because they must be concealed from law enforcement officers.  Drugs that can contain more doses in a given volume will be more valuable, and one of the motivations of designer drugs is to allow easier transportation through more concentrated doses.  Using alcohol as an example, high-proof liquor was more often produced than beer with low alcohol content during prohibition.  Legalization would result in drugs that are not as strong.

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Quotation of the Day…

by Don Boudreaux on November 14, 2014

in Economics, Man of System, Myths and Fallacies, Scientism

… is from page 12 of Russ’s new and wonderful book, How Adam Smith Can Change Your Life:

Unfortunately, what the media and the public expect from economists is what we are probably worst at – giving precise answers to questions that presume the economy is like some giant clock or machine whose innards can be mastered and then manipulated with some degree of precision.

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GruberGate

by Don Boudreaux on November 13, 2014

in Health, Hubris and humility, Man of System, Nanny State

My take on GruberGate is straightforward – perhaps boringly so.

Obamacare’s chief academic architect, Jonathan Gruber, is caught on camera admitting frankly, and without remorse, that important parts of Obamacare were sold to the public under false pretenses.  Gruber does express regret that voters are afflicted with too much “stupidity” to enable them to see that such legislation is (or so believes Gruber) in their best interest.  But given this regrettable reality of the political process, deception is in order.  Deception and lies and duplicity are proper.

I’m prepared to accept David Friedman’s explanation that, had Gruber spoken with more care, Gruber would have described voters as being “rationally ignorant” rather than as being afflicted with “stupidity.”  (There’s a difference between stupidity and rational ignorance: Albert Einstein likely did not know all of the rules of American football, but this fact is no evidence of any stupidity on his part.  Rather, it is merely the consequence of the reality that it didn’t pay Einstein to spend sufficient time to learn the rules of that game.  Other uses of his scarce time were more valuable to him personally.  So the emphatically unstupid Einstein was rationally ignorant of the rules of American football.)  Precisely because the typical voter is not stupid, the typical voter understands that his or her vote will not determine the outcome of any election.  The typical voter, therefore, spends his or her scarce time gathering information about matters over which he or she does exercise meaningful control – for example, studying for the calculus exam to increase the chances of scoring a higher grade, or writing sonnets to a beloved other to increase the chances of scoring – rather than about matters (the outcomes of political elections) over which he or she exercises no meaningful control whatsoever.

Yet the reality of voters’ rational ignorance is one of the chief reasons why public-choice scholars argue that political choices are often less prudent and less sensible than are choices made by people in private markets – and why special-interest groups have a much greater chance of co-opting political processes than they have of co-opting market processes.

Put differently, the reality of public choice is among the main reasons given by public-choice scholars for why political outcomes will often be less desirable than they are imagined to be by those who are enthusiastic about democratic politics.  Even democratic political processes that are inclusive and non-corrupt feature inordinate amounts of free-riding and other ‘market-failure’ flaws that render such processes much less likely to work to promote the general welfare than the champions of politics suppose.  Politics neither performs miracles nor is itself blessed by miracles.

So Jonathan Gruber simply admits that the very process that people on the left romanticize and celebrate – democratic politics – isn’t what it’s cracked up to be.  Of course, libertarians and public-choice scholars say the same.  The difference between the Jonathan Grubers of the world and the Russ Robertses and Bryan Caplans of the world is that the former believe that politics is still commendable as long as good, smart people (such as Gruber) are performing deceptions necessary to trick voters into supporting policies that good, smart people somehow divine are best for the masses, while the latter believe that the very need to deceive rationally ignorant (indeed, rationally irrational) voters is itself a major flaw in politics – a flaw that makes politics far less reliable and admirable than competitive, private markets.

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Writing in yesterday’s Wall Street Jounal, Phil Gramm and Michael Solon summarize the findings of the important new paper, in the current issue of the Southern Economic Journal, by Philip Armour, Richard V. Burkhauser, and Jeffrey Larrimore - a paper that exposes several fundamental problems with the Piketty-Saez data on income inequality in the United States.  Some slices from Gramm and Solon:

And now, thanks to a new study in the Southern Economic Journal, we know what the picture looks like when the missing data are filled in. Economists Philip Armour and Richard V. Burkhauser of Cornell University and Jeff Larrimore of Congress’s Joint Committee on Taxation expanded the Piketty-Saez income measure using census data to account for all public and private in-kind benefits, taxes, Social Security payments and household size.

The result is dramatic. The bottom quintile of Americans experienced a 31% increase in income from 1979 to 2007 instead of a 33% decline that is found using a Piketty-Saez market-income measure alone. The income of the second quintile, often referred to as the working class, rose by 32%, not 0.7%. The income of the middle quintile, America’s middle class, increased by 37%, not 2.2%.

By omitting Social Security, Medicare and Medicaid, the Piketty-Saez study renders most older Americans poor when in reality most have above-average incomes. The exclusion of benefits like employer-provided health insurance, retirement benefits (except when actually paid out in retirement) and capital gains on homes misses much of the income and wealth of middle- and upper-middle income families.

Yes, income is 24% less equally distributed here than in the average of the other 34 member countries of the OECD. But OECD figures show that U.S. per capita GDP is 42% higher, household wealth is 210% higher and median disposable income is 42% higher. How many Americans would give up 42% of their income to see the rich get less?

Vast new fortunes were earned in the 25-year boom that began under Reagan and continued under Clinton. But the income of middle-class Americans rose significantly. These incomes have fallen during the Obama presidency, and not because the rich have gotten richer. They’ve fallen because bad federal policies have yielded the weakest recovery in the postwar history of America.

Yet even as the recovery continues to disappoint, the president increasingly turns to the politics of envy by demanding that the rich pay their “fair share.” The politics of envy may work here as it has worked so often in Latin America and Europe, but the economics of envy is failing in America as it has failed everywhere else.

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Quotation of the Day…

by Don Boudreaux on November 13, 2014

in Hayek, Man of System

… is from page 147 of the 1976 Vol. II (“The Mirage of Social Justice”) of F.A. Hayek’s Law, Legislation, and Liberty:

It should be realized, however, that the ideals of socialism (or of ‘social justice’) which … prove so attractive, do not really offer a new moral but merely appeal to instincts inherited from an earlier type of society.  They are an atavism, a vain attempt to impose upon the Open Society the morals of the tribal society which, if it prevails, must not only destroy the Great Society but would also greatly threaten the survival of the large numbers to which some three hundred years of a market order have enabled mankind to grow.

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…. is from page 50 of the first edition of Harold Winter’s 2005 book, Trade-Offs:

Actually, it is easy to identify several benefits of smoking, the most important of which is that smokers enjoy doing it.  The more daunting task is to argue that there are no benefits to an activity that hundreds of millions of people throughout the world undertake daily.

Economists – and especially those who are influenced by the Austrian tradition – take quite seriously the subjectivity of human preferences.  Jones ought not presume that he is a better judge of what is ‘best’ for Smith than is Smith.  This reality does not mean that Smith is an especially good judge of what is good for himself.  Rather, it means that, under nearly all circumstances, Jones is so unlikely to be better than Smith at knowing what is ‘best’ for Smith that Jones has no business butting into Smith’s business if the only point of doing so is to improve Smith’s well-being.  The relative weights that Smith attaches to the various costs and benefits of some activity (say, smoking) and the different variables that Smith regards as relevant costs and benefits of that activity likely differ from the relative weights that Jones attaches to those various costs and benefits and from the set of effects that Jones regards as relevant costs and benefits.

In short, people should mind their own business.

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Russ Roberts on Adam Smith

by Don Boudreaux on November 11, 2014

in Adam Smith, Civil Society, Video

In this quarter-hour-long video, Russ sits down with my former student – and Cato’s Director of Multimedia – Caleb Brown to discuss Russ’s latest book, How Adam Smith Can Change Your Life.

See also here.

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Quotation of the Day…

by Don Boudreaux on November 11, 2014

in Civil Society, Seen and Unseen

… is from page 46 of my colleague Tyler Cowen’s 2007 book, Discover Your Inner Economist:

One of the least-heralded virtues of capitalism is how it blends and melds different kinds and mixes of rewards and penalties.  Capitalism is not just dollars, dollars, and more dollars.  It is also the best system for mobilizing intrinsic motivations towards the greater good of mankind. And that includes allowing people a sense of control.

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Coase Theorem In Action

by Don Boudreaux on November 11, 2014

in Civil Society, Cooperation, Video

One way to deal with life’s annoyances is to poke a gun in the annoying person’s face and order him or her to do as you (rather than as he or she) pleases – or, what is the same thing, to outsource your gun-pointing and diktating to a specialist in that field.  Another, completely different way is peaceful commerce.  (HT Jon Murphy)

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