Topic: Political Philosophy

Calling All Harvard Alumni

As my colleague Dan Mitchell has noted, Harvard is about to hold a conference about how the “free market ideology has dominated  legal discourse and lawmaking the last few decades.”  That’s a dubious narrative (to say the least (pdf)).

In any event, Harvard alums who read this blog should know that Cato adjunct scholar Harvey Silverglate  is running for a position on Harvard’s Board of Overseers.  Pass the word to all the Harvard alumni you may know.  Additional background here.

Cato Scholars Address Obama’s First Speech to Congress

President Barack Obama’s first address to Congress laid out a laundry list of new spending contained within the stimulus legislation and provided hints as to what will be contained in the budget - a so-called “blueprint for America’s future” - he’ll submit to the legislature. Cato Institute scholars Chris Edwards, Jim Harper, Gene Healy, Neal McCluskey, David Rittgers, John Samples and Michael D. Tanner offer their analyses of the President’s non-State-of-the-Union Address.

Subscribe to Cato’s video podcast here and Cato’s YouTube channel here.

Is Libertarianism a Sign of Mental Illness?

I don’t know whether this belongs in the comic-relief category or the future-threats category, but the Harvard Law School is having a conference to analyze the “free market mindset.” The basic premise of the conference seems to be that people who believe in limited government are psychologically troubled.

The conference schedule features presentations such as “How Thinking Like an Economist Undermines Community” and “Addicted to Incentives: How the Ideology of Self Interest Can Be Self-Fulfilling.” The most absurd presentation, though, may be the one entitled, “Colossal Failure: The Output Bias of Market Economies.” According to the description, the author argues that the market “delivers excessive levels of consumption.” Damn those entrepreneurs for creating so much wealth!

In the good old days of Soviet dictatorship, the regime classified dissidents as being mentally ill (after all, only a nutcase would fail to see the glories of communism).

Now that leftists at Harvard want to portray laissez-faire philosophy as being somewhat akin to a mental disorder, maybe the next step will be re-education camps for Cato staff? Maybe the next “stimulus” bill could include a few earmarks for such facilities? I’m keeping my fingers crossed that I get sent some place warm.

Is Sports like Wall Street?

Washington Post sportswriter Sally Jenkins often has sensible things to say. And in today’s paper she makes some interesting points about hyper-competitiveness in sports and finance. But I think she was led astray by investor, college athlete, and Clinton Treasury appointee Roger Altman:

There is a strong natural connection between Wall Street and sports because “both are quite binary worlds, somebody wins and somebody loses,” according to Altman, who was a varsity lacrosse player at Georgetown.

That’s just wrong. In sports it’s true: somebody wins and somebody loses. If the Yankees beat the Red Sox, that’s a binary outcome with a winner and a loser. It’s what economists call a zero-sum game. If Michael Phelps wins the gold, then everybody else doesn’t.

But in the market both parties to a transaction expect to gain. I get a meal, the restaurant owner gets my money. I get a salary, Cato gets my production. As Murray Rothbard wrote in the Concise Encyclopedia of Economics:

The mercantilists argued that in any trade, one party can benefit only at the expense of the other—that in every transaction there is a winner and a loser, an “exploiter” and an “exploited.” We can immediately see the fallacy in this still-popular viewpoint: the willingness and even eagerness to trade means that both parties benefit. In modern game-theory jargon, trade is a win-win situation, a “positive-sum” rather than a “zero-sum” or “negative-sum” game.

No doubt businessmen do like to “win” – sometimes they say “money is a way of keeping score.” They like to make the deal and block their competitors. Sometimes their testosterone may even impel them to make deals that aren’t economically rational, and the market has a way of punishing such decisions. But the people who make the deals – both parties, all parties – all expect to benefit. And usually they’re right. We’ve all bought things that we wish we hadn’t, or made investments that didn’t pan out. Most of the time, though, both parties to a transaction are pleased to make it and remain pleased after the fact. And the process of repeated positive-sum transactions creates economic growth and development.

Sports is different. The game may be fun, for both competitors and spectators. But in the end, as Altman correctly says, in sports “somebody wins and somebody loses.”

Obama’s Shock Doctrine

At the Guardian, I argue that President Obama and Rahm Emanuel are carrying out just what Naomi Klein predicted in The Shock Doctrine. Except that, as usual, it’s not deregulation and budget cutting that governments turn to in times of crisis. It’s more money and more power:

Last year the US economy was hit with one shock after another: the Bear Stearns bail-out, the Indymac collapse, the implosion of Fannie Mae and Freddie Mac, the AIG nationalisation, the biggest stock market drop ever, the $700bn Wall Street bail-out and more — all accompanied by a steady drumbeat of apocalyptic language from political leaders.

And what happened? Did the Republican administration summon up the spirit of Milton Friedman and cut government spending? Did it deregulate and privatise?

No.

It did what governments actually do in a crisis — it seized new powers over the economy. It dramatically expanded the regulatory powers of the Federal Reserve and injected a trillion dollars of inflationary credit into the banking system. It partially nationalised the biggest banks. It appropriated $700bn with which to intervene in the economy. It made General Motors and Chrysler wards of the federal government. It wrote a bail-out bill giving the secretary of the treasury extraordinary powers that could not be reviewed by courts or other government agencies.

Now the Obama administration is continuing this drive toward centralisation and government domination of the economy. And its key players are explicitly referring to their own version of the shock doctrine. Rahm Emanuel, the White House chief of staff, said the economic crisis facing the country is “an opportunity for us”. After all, he said: “You never want a serious crisis to go to waste. And this crisis provides the opportunity for us to do things that you could not do before” such as taking control of the financial, energy, information and healthcare industries….

Occasionally, around the world, there have been instances where a crisis led to free-market reforms, such as the economic reforms in Britain and New Zealand in response to deteriorating economic conditions. Generally, though, governments seek to expand their power, and they take advantage of crises to do so. But they rarely spell their intentions out as clearly as Rahm Emanuel did.

Nadya Suleman’s Octuplets & the Perils of Public Charity

The AP reports that you and I will be paying the cost of rearing Nadya Suleman’s newborn octuplets –  as well as her other six children – through various state and federal welfare programs:

Even before the 33-year-old single, unemployed mother gave birth to octuplets last month, she had been caring for her six other children with the help of $490 a month in food stamps, plus Social Security disability payments for three of the youngsters. The public aid will almost certainly be increased with the new additions to her family.

Also, the hospital where the octuplets are expected to spend seven to 12 weeks has requested reimbursement from Medi-Cal, the state’s Medicaid program, for care of the premature babies, according to the Los Angeles Times…

In California, a low-income family can receive Social Security payments of up to $793 a month for each disabled child. Three children would amount to $2,379.

The Suleman octuplets’ medical costs have not been disclosed, but in 2006, the average cost for a premature baby’s hospital stay in California was $164,273, according to the U.S. Department of Health and Human Services. Eight times that is more than $1.3 million, and the average cost for just one cesarean birth in 2006 was $22,762 in California.

A reasonable person might ask, “So what?  Poor kids need help.  Would you rather let them die?”  That certainly does not seem to be the answer.  Yet there are perils inherent in having government come to the rescue. 

One challenge confronting both public and private charity is known as the Samaritan’s dilemma: any effort to help the needy inevitably discourages self-help.  People at the margins don’t work as hard, or even take deliberate advantage of others’ altruism, which increases the number of people “in need.”  That appears to have happened in Suleman’s case:

Word of the public assistance has stoked the furor over Suleman’s decision to have so many children by having embryos implanted in her womb…

Suleman received disability payments for an on-the-job back injury during a riot at a state mental hospital, collecting more than $165,000 over nearly a decade before the benefits were discontinued last year.

Some of the disability money was spent on in vitro fertilizations, which was used for all 14 of her children, Suleman said. She said she also worked double shifts at the mental hospital and saved up for the treatments. She estimated that all her treatments cost $100,000.

The First Peril of Public Charity is that government does a relatively poor job of discouraging such opportunistic behavior.  Food stamps, Social Security disability payments, and Medicaid benefits are entitlement programs.  So long as Suleman meets the statutory eligibility criteria, she is legally entitled to benefits no matter how much she may be milking the system.  It is extremely difficult to tailor government eligibility rules (whether statutory or regulatory) to prevent all the possible forms of abuse.   And even if some government bureaucrat tries to cut off welfare recipients who are abusing the system, those recipients can sue the government and there are legions of lawyers who will help.  Private charity is much better at discouraging opportunistic behavior by tailoring assistance to the truly needy.  Did Suleman and her children truly need all the public assistance they had been receiving?  Would she have been able to afford in-vitro fertilization had she not been on public assistance?  If the availability of additional charity were less certain, would she have tried to get pregnant again?  Maybe, but probably not.

The Second Peril of Public Charity is that taxpayers and politicians respond to the First Peril of Public Charity by insisting that government take away people’s rights.  Much of the crusade against smokers’ and restaurateurs’ rights is justified by the need to limit government spending on medical care for smoking-related illness.  Ditto the crusade to limit your right to eat fatty foods. 

Suleman’s case has led taxpayers to recommend some startling policy responses:

On the Internet, bloggers rained insults on Suleman, calling her an “idiot,” criticizing her decision to have more children when she couldn’t afford the ones she had, and suggesting she be sterilized.

“It’s my opinion that a woman’s right to reproduce should be limited to a number which the parents can pay for,” Charles Murray [not the American Enterprise Institute scholar] wrote in a letter to the Los Angeles Daily News. “Why should my wife and I, as taxpayers, pay child support for 14 Suleman kids?”…

“From the outside you can tell that this woman was playing the system,” host Bryan Suits said on the “Kennedy and Suits” show on KFI-AM. “You’re damn right the state should step in and seize the kids and adopt them out.”

Emphasis added.

Those responses are a predictable consequence of government charity.  They reflect the same selfish rationale that the Church of Universal Coverage uses to argue for eliminating your right to choose health insurance. 

If somebody is abusing generosity, the appropriate response is not to take away their rights but to take away the generosity. (Some curtailment of parental rights can be justified if the children are in danger. But we don’t yet know if Suleman is going to get a reality-TV deal out of this.) Private charity can do that. Government is ill-equipped to do so, and so our rights come under attack.

The irony is that the Left’s adamant support for government charity is eroding smokers’ rights, property rights, dietary rights, medical rights, and now even the Left’s cherished reproductive rights – making the Left less and less liberal by the day.

Nostalgianomics: If the Shoe Fits…

In a recent post commenting on my new Cato paper, Matt Yglesias just doesn’t get why I would accuse Paul Krugman of peddling nostalgia for the good old days of his boyhood. Indeed, Matt says my whole argument is “kind of silly.” Here’s the gist of Matt’s critique:

In his paper, Lindsey takes the unusual-for-a-libertarian tack of agreeing with Krugman (and others) that public policy changes have played an important role [in increasing inequality]. But he argues that the changes have mostly been changes that, on net, are positive. So it’s wrong of Krugman to espouse nostalgianomics and support a return to the policies of the 1950s. Which is fine, except I read almost every Krugman column and I’ve read Conscience of a Liberal (and, indeed, other works of Krugmanania such as Pop Internationalism and Peddling Prosperity) and it’s not as if the book ends with a call for the return of comprehensive regulation of airline fares or the re-establishment of the AT&T monopoly. To observe that the growth of inequality has policy roots isn’t to say that the right response to it is to methodically reverse every policy change of the past thirty years. It’s simply to deny the previous conventional wisdom – that it would be impossible to reverse the growing inequality of our society.

I think Matt misunderstands both my argument and what Krugman has been doing. I quite agree that Krugman doesn’t want a full-scale reinstatement of the corporatist, cartelistic policies of yesteryear. I say as much in the paper. What Krugman does want, however, is to portray the economic policies of the early postwar decades as an inspiration for progressives today – an example of how activist, interventionist government can simultaneously promote growth and reduce inequality. To quote Krugman’s Conscience of a Liberal: “During the thirties and forties, liberals managed to achieve a remarkable reduction in income inequality, with almost entirely positive effects on the economy as a whole. The men and women behind that achievement offer today’s liberals an object lesson in the difference leadership can make.”

To get to that ideologically convenient punch line, Krugman is forced to systematically misrepresent the policies and culture of the early postwar decades. He has to leave out all the things he doesn’t like, all the things that virtually all his fellow economists and fellow progressives don’t like, about the supposedly good old days – for example, the widespread cartelization efforts of the thirties, farm supports, price and entry controls on large sectors of the economy, restrictions on retail competition, high trade barriers, racist immigration laws, and the sexist confinement of working women to a pink collar ghetto. All of these contributed to the compression of incomes, yet they don’t serve Krugman’s ideological purposes. So he ignores them. That’s nostalgia-mongering, plain and simple: the selective recall of the past to make it seem better than it really was.

The relevance of all this to today’s situation is both real and important. Progressives have returned to power, and because of the current economic crisis the policymaking environment is incredibly fluid. Big changes are possible, indeed almost inevitable. In particular, proposals to substitute government control for market competition on a massive scale are now on the table: large-scale industrial policy in the name of creating “green” jobs, a full-court press to restore the power of private-sector unions, a qualitative increase in government’s role in health care, and “temporary” (such a dangerous word in Washington) government control of large parts of the financial system. We run the risk right now of making disastrous mistakes that will haunt us for many years to come. And that risk is exacerbated by the nostalgic fantasy, peddled by Krugman and others, that the record of the early postwar decades shows that Big Government and Big Labor are actually good for the economy.