Image credit. A question of which system is better adapted to which task.
Law of Markets argues:
With QE we are not talking about troubled assets or dealing with an emergency. It is just straight out inflation.
Second, inflation has now come to mean rises in prices when once it meant printing money. The Keynesians switched the terminology to movements in prices in the 1930s so that their policies would no longer be immediately described as inflation (discussed in the 2nd ed of my Free Market Economics [FME2] pages 406-408). But let’s not quibble about this. What ought to be understood instead is that the effect of inflating the money supply to fund public spending has a number of possible effects of which higher prices is only one. Without militant unions and continuous labour market pressures to push wages up, inflation in the form of price increases is subdued. And whatever else may be the case at the moment pretty well everywhere, only those in very protected environments are in the mood to be pushing for significantly higher wages that would put their jobs at risk.
The real issue is that the way in which the re-direction of expenditure to the public sector is and will continue to manifest itself in a crumbling capital stock (see FME2: p410). The economy of the United States is falling to bits. It will take a longish time since it has a massive asset base but it is being eroded fast enough, which is evident in the median income data and elsewhere.
Is this view in conflict with what Arnold Kling - in The Segmented Wealth of Nations (see especially the paragraph at the bottom of the post) - identifies as the sources of crisis and contemporary economic change? I don't think so.
For a reminder why shifting toward public sector provision of goods and services is a decision for high cost production, take a look at Government - High-Cost Producer.
Image credit. Have a little rest and take pleasure in the little appreciated fact that politics helps us live peaceful and productive lives, even though our ignorance is so vast that instead of holding the same views, we differ widely and passionately in our convictions.
Those impatient with politicians tend to have good grounds for their discontent; however, there are also bad reasons to complain about politics, and we are prone to falling victim to these preconceptions once we lose sight of the full range of difficult functions that politics has evolved to serve.
Ignorance and the symbolic function of politics
When ignorance is a path the rational person should or simply must choose (as trade-offs in a persons's life demand, such as between earning a living and becoming knowledgeable about a political issue), and when ignorance is even insurmountable and constitutive as is the case regarding the unmanageable amount of information on all political issues considered important, we must find, or hope to chance upon special ways to interact that shield us from intolerably divisive or otherwise severely detrimental effects of the vast ignorance that affects all of us.
I begin to believe that politics has a crucial role to play in organising peaceful forms of negotiations, competition, and ritual reassurance that flow together to build
trust among strangers, and people of significantly differing views,
a sense of orientation in an extensive society comprised of hundreds of millions of people, and
the security of a common narrative frame, i.e. a common view of how to make sense of and cope with the world we live in.
This may range from rituals of peaceful condemnation (as between partisan groups) to rituals of peaceful subordination ("okay, this time you guys won the election") or power splitting ("next time we'll prevail" and "the law you intend to issue must pass committees on which we too sit").
Data Mining, Number Crunching, and Our Old Friend Chaos
I find the below article interesting, as it demonstrates just how difficult it is to authenticate offerings of conjectural knowledge so as to shift information from the status of "uncertain credibility" to "credible conjecture" or even "fact" and "truth".
So, in any complex system, such as a football game involving complex aspects such as humans and weather, a significant component is simply not predictable and never will be, no matter how much data we collect. [...]
The unarguable truth is the answer is not always in the data. There is a general tendency at present to believe the data will magically yield the answer if you try hard enough – that is wrong. It is vital that we understand the limitations of analytics as well as their seductive, beautiful, irresistible, elegant and undoubted power.
4. So I have a PSST model for unemployment [see my post here, G.T.], and my “weak” model[s] for inflation. I think it is fair to criticize them as “just-so stories.” But I would say the same thing about the sorts of models preferred by Blanchard or Krugman. Just-so stories, dressed up in pretty math.
To which I replied:
Your concession as to the role of just-so theories in economics strikes me as significant, and even surprising. As I regard you as a serious thinker, I must rule out the conclusion that economics is idle prattle to you. But what is it?
To the extent that economics is based on story telling, what is it in the nature of that narrative habit that sustains economics as a worthwhile form of thinking about human interaction?
I hope, in writing this, I don't sound cynical or facetious. Increasingly, I get interested in the role of (rational) ignorance, which all conceivable societies are inevitably affected by in very considerable measure; and I wonder, how do we manage the vastness of our (rational) ignorance so well - in countries such as the US or Germany, where life is quite bearable?
The consideration that (rational) ignorance is a virtually invariant phenomenon in all modern societies including all conceivable improved versions (such as, say, a significantly more libertarian society), has led me to become a lot more respectful of politics and the state (as a functional necessity that, of course, may fail) than I used to be, their tremendous dangers and deficiencies notwithstanding.
Politics and the state seem to be (a) the result and (b) the instrumental basis of more or less successful story telling. For politics seems to be involved in seeking out procedures indispensable in dealing with large amounts of irreducible (rational) ignorance.
We need to tell us reassuring stories to sustain sufficient levels of trust while living in a largely anonymous society.
Politics is a spontaneous order - a hugely important aspect of spontaneous order totally disregarded by Hayek - that serves as a discovery procedure whose (functionally desirable) end product is at least a minimal level of trust etc. needed to support social order. A highly narrative enterprise, full of just-so stories.
If there is something to this view, what role does economics play in it with its just-so stories?
Arnold Kling replied:
I limit the scope of “just-so stories” to macroeconomics. Microeconomics often generates predictions that are falsifiable.
To which I replied:
Politics is what happens when we have to tell people:
“Sorry, serious economics cannot handle conclusively issues like unemployment or the nature of an advisable monetary regime.”
And macroeconomics is what happens when economists participate in politics.
Seriously, if there are vital topics of an economic nature that cannot be covered in a scientifically sound way, then there must inevitably develop a part of economics that deals in and is based on rhetoric and techniques of persuasion – not necessarily as something to be maligned, but possibly as a cultural pattern of mutual reassurance, just like free speech may work very well in maintaining peace (social order) even though what is being exchanged is partly of an acrimonious and a generally nonsensical nature, as the case may be.
I believe, this has very serious implications for liberty. If vital social issues of an economic kind cannot be resolved conclusively in support of a certain vision of society, say a classical liberal society, then the case for classical liberalism is incomplete, inconclusive in vital regards, and thus open to severe contestation not only among classical liberals but all citizens, parties, and factions of a free society.
The value of freedom lies in her ability to embrace and cope with the uncertainties and disunity underlying a community inevitably entertaining rhetorically constituted views of society.
No less than free markets, politics ought to be conceived of in terms of a spontaneous order.
Political structures evolve to seek out ways of attenuating the risks inherent in vast and widespread ignorance of the conditions giving rise to successful human coexistence.
Freedom produces these risks, while at the same time providing an excellent laboratory in which to test insurance and abortive products to defend against the dangers of inevitable ignorance.
One of the biggest problems worldwide is the absence of state structures capable of protecting economic liberty. Hernando de Soto claims that about 2/3 of the world population are affected by this bad state of affairs. It is incumbent upon those who are conscious of the value of liberty to promote the liberal state in the Third World - and, of course, as the below article shows, at home as well. Free markets do not just happen, they must be politically fought for and defended. Once again: the state is important for liberty, and so is politics.
Writes Mark J. Perry:
In today’s WSJ, Hernando de Soto argues that the cure for terrorism in the Middle East is capitalism, economic empowerment, and private property rights to help rescue “extralegal entrepreneurs” who have become trapped in their own countries as “economic refugees” by cronyism and burdensome over-regulation of market activity. Here’s an excerpt of “The Capitalist Cure for Terrorism” (emphasis mine):
It is widely known that the Arab Spring was sparked by the self-immolation in 2011 of Mohamed Bouazizi, a 26-year-old Tunisian street merchant. But few have asked why Bouazizi felt driven to kill himself—or why, within 60 days, at least 63 more men and women in Tunisia, Algeria, Morocco, Yemen, Saudi Arabia and Egypt also set themselves on fire, sending millions into the streets, toppling four regimes and leading us to today’s turmoil in the Arab world.
These suicides, we found, weren’t pleas for political or religious rights or for higher wage subsidies. Bouazizi and the others who burned themselves were extralegal entrepreneurs: builders, contractors, caterers, small vendors and the like. In their dying statements, none referred to religion or politics. Most of those who survived their burns spoke to us of “economic exclusion.”
In an interesting complement to de Soto, George Will makes a similar argument in today’s Washington Post that America’s “teeth-whitening entrepreneurs” are being denied the right to earn a living, and have become “economic refugees” in North Carolina because of cronyism capitalism, protectionist rent-seeking, and the burdensome over-regulation of market activity. Here’s an excerpt of “Supreme Court Has a Chance to Bring Liberty to Teeth Whitening” (emphasis mine):
On Tuesday, the national pastime will be the subject of oral arguments in a portentous Supreme Court case. This pastime is not baseball but rent-seeking — the unseemly yet uninhibited scramble of private interests to bend government power for their benefit. If the court directs a judicial scowl at North Carolina’s State Board of Dental Examiners, the court will thereby advance a basic liberty — the right of Americans to earn a living without unreasonable government interference.
Today is Germany Unity Day, a public holiday. An occasion to ponder political developments in the country.
German Christian Democrats, the CDU, and their sister party in Bavaria, CSU, have followed a policy since the 1960s which left no room for a sizeable political movement to their right. This worked well with only negligible groups of no consequence emerging. But German Chancellor Angela Merkel seems to have changed this strategy, writes Prince Michael of Liechtenstein.
A new party, the AfD (Alternative for Germany), emerged in 2013, first with just an economic programme, promoted in principle by some well-recognised economists. The party’s main issue was criticism of the euro. Although it was not a populist or extreme party, the political establishment, including Chancellor Merkel, labelled it right wing and towards the extremist corner.
Propaganda against the AfD by government, the established parties and large parts of the media, was enormous. However their programme was defendable and certainly not radical. Realising the deficiencies of the euro and questioning transfer payments is part of normal political debate.
The new party took almost five per cent of the vote in Germany’s last national elections, despite the hostile propaganda. This was a real success, but just missed the five per cent threshold for a seat in the German Federal Parliament.
The party reached some seven per cent in the European Elections in May 2014 and is now represented in the European Parliament in Strasbourg.
The big leap came when the party topped some 10 per cent in elections for three German lander or states. AfD is a political factor now. Its members are fierce free market supporters who promote entrepreneurship. But analysis shows gains from the centre – their base – and from the left.
Now the CDU has a real competitor in the centre right. Chancellor Merkel’s election tactics have been to destroy opposition campaigns by taking over their issues. Her decision to phase out nuclear energy left the Green Party without a popular cause. The introduction of minimum wages damaged the Social Democrats.
This short-term tactic was successful for Mrs Merkel’s CDU, but may have alienated supporters on the centre right. The classic economic party, the liberal FDP, was Mrs Merkel’s coalition partner until the last elections and was almost annihilated by following her policies.
So will Mrs Merkel continue to pursue her old tactics and adopt the AfD’s cause? Will she become less supportive of the euro and reduce or stop transfer payments to fiscally shaky eurozone countries?
The AfD’s success in local elections could have European implications.
Scotland votes on independence on September 18 after centuries of being united with England. The referendum on devolution is being carried out in a constitutional and peaceful way, writes Prince Michael of Liechtenstein.
London agreed to the referendum realising that secession is better than forcing Scotland to remain in the union against the wishes of a majority of the Scottish population. A union is only strong if membership is voluntary. London’s response is more reasonable than Madrid’s reaction to the demands of Catalonia. Madrid claims that a referendum on independence among Catalans would be unconstitutional and illegal. It appears the Scottish referendum will be a close call with both sides neck-and-neck, but actual voting is often different to opinions given for a poll. Independence is also a road into the unknown.
Contrasts of black and white can be wonderful, but they are not a useful pattern to grasp freedom. Image credit.
As with a number of other ideological staples of certain brands of demagogic libertarianism, I have come to oppose also their contempt of democracy. Like anarcho-capitalism and crypto-anarchism, both of which many libertarians subscribe to, we are dealing here with bundles of attitudes that purport to favour freedom while, in fact, they are incompatible with her.
A free society is unthinkable unless all citizens have access to the processes of (a) government and (b) the control of government. Political participation is as vital to freedom as it is complex, multi-layered, ambiguous and often messy and woefully imperfect. However, these deficiencies are only additional reasons for the need to defend freedom through the political processes of an open, democratic society.
Underlying libertarian contempt for democracy is an unwillingness to acknowledge the presence of political scarcity, i.e. the presence of political ambitions that are fiercely rivalrous, that is: the presence of diverging political values and aims that are intensively desired, yet incapable of being met simultaneously.
There are vast fields of political scarcity in a modern society, in fact, in any type of society. The libertarian conceit is that markets or market-type bilateral and mutually consenting transactions can successfully overcome political scarcity. The fact of the matter is, however, they cannot.
Libertarians of the anti-democratic bent manage to misunderstand both
the nature of markets, which are NOT conflict-mitigating institutions, but expressions of the absence of conflict with regard to the specific contents of a certain transaction between trading parties, and
political processes outside of and unreplicable by the world of markets, including the political processes of a "composite republic", or to put it differently, a "republican democracy", which are intended to act as conflict-mitigating institutions.
The often triumphantly evoked fact that the constitutional texts do not contain the word "democracy" is spurious. The American Constitution is a product of democracy, and it is purposefully enmeshed in a network of democratic processes, or as Akhil Reed Amar writes in his magisterial America's Constitution. A Biography:
It started with a bang. Ordinary citizens would govern themselves across a continent and over the centuries, under rules that the populace would ratify and could revise. By uniting previously independent states into a vast and indivisible nation, New World republicans would keep Old World monarchs at a distance and thus make democracy work on a scale never before dreamed possible.
See below Philip Pettit's lecture recently held at University College Dublin, in which he outlines the contours and challenges of republican democracy - the lecture itself commencing at time mark 04:00:
Until just over a century ago, the idea that a company could be a criminal was alien to American law. The prevailing assumption was, as Edward Thurlow, an 18th-century Lord Chancellor of England, had put it, that corporations had neither bodies to be punished nor souls to be condemned, and thus were incapable of being “guilty”. But a case against a railway in 1909, for disobeying price controls, established the principle that companies were responsible for their employees’ actions, and America now has several hundred thousand rules that carry some form of criminal penalty. Meanwhile, ever since the 1960s, civil “class-action suits” have taught managers the wisdom of seeking rapid, discreet settlements to avoid long, expensive and embarrassing trials.
The drawbacks of America’s civil tort system are well known. What is new is the way that regulators and prosecutors are in effect conducting closed-door trials. For all the talk of public-spiritedness, the agencies that pocket the fines have become profit centres: Rhode Island’s bureaucrats have been on a spending spree courtesy of a $500m payout by Google, while New York’s governor and attorney-general have squabbled over a $613m settlement from JPMorgan. And their power far exceeds that of trial lawyers. Not only are regulators in effect judge and jury as well as plaintiff in the cases they bring; they can also use the threat of the criminal law.