Russell Roberts's Blog, page 1419

Gary Becker Asks a Penetrating Question

From Gary Becker's latest blog post:

Warren Buffett has persuaded 68 other billionaires to follow his example and promise to give at least half their wealth to charities. But why hasn't Buffett proposed also that the very rich make large gifts to the federal government to offset what he considers ridiculously low taxes on their incomes and wealth? My guess is that he and the others who pledged to give away their wealth to charity would have little confidence in how the government would spend such gifts. Buffett, for example, is giving most of his wealth to the Gates Foundation, not to the federal government, and is relying on how this foundation will spend his vast gift. Given this reluctance to make large gifts to the federal government, why should anyone have confidence that the federal government will spend additional tax revenue in a sensible way?

[HT Joe Swanson]

Quotation of the Day…

… is from page 29 of Jim Buchanan's 1958 book Public Principles of Public Debt:

[I]t is rather strange that it [an "essentially organic conception of the economy or the state"] could have found its way so readily into the fiscal theory of those countries presumably embodying democratic governmental institutions and whose social philosophy lies in the individualistic and utilitarian tradition.  The explanation arises, of course, out of the almost complete absence of political sophistication on the part of those scholars who have been concerned with fiscal problems.  With rare exceptions, no attention at all has been given to the political structure and to the possibility of inconsistency between the policy implications of fiscal analysis and the political forms existent.  Thus we find that, in explicit works of political theory, English-language scholars have consistently eschewed the image of the monolithic and organic state.  At the same time, however, scholars working in fiscal analysis have developed constructions which become meaningful only upon some acceptance of an organic conception of the social group.

Landsburg, Krugman, and the Equimariginal Principle: The Recap

Steve at his best.

Public Principles of Public Debt

Here's a letter to the editor of The University of Virginia Magazine:

I genuinely enjoy your publication, and am delighted to find in the Fall 2011 issue Ed Crews's and Lee Graves's admirable account of the debt troubles caused by Uncle Sam's fiscal recklessness ("Our National 'Time Bomb'").

Were the Crews and Graves essay published by any institution other than U.VA, I'd not be moved to remark on it.  But given that it appears in the U.VA Magazine, I'm obliged to pick a nit.

Crews and Graves report that "Last fall [Peter G.] Peterson was awarded a Thomas Jefferson Foundation medal, the University's highest external honor, for his role in addressing the nation's fiscal situation. Harry Harding, dean of U.Va.'s Frank Batten School of Leadership and Public Policy, describes him as a personal hero 'because he was so far ahead of his time in focusing on this issue of import today.'"

Mr. Peterson has indeed long highlighted the problem of America's growing public debt, but well before he entered the scene, a U.VA economist (unmentioned by Crews and Graves) almost single-handedly revolutionized our thinking about deficit financing.

Prof. James M. Buchanan – who served on U.VA's faculty from 1956 to 1968 – wrote in 1958 a book entitled Public Principles of Public Debt.  Before its publication, the near-unanimous opinion of scholars, pundits, and policymakers was that even very large government debt imposes only very small burdens – and burdens only of a secondary order.  Deficit financing of government spending, therefore, wasn't much of a problem.

In less than 200 pages Buchanan vividly exposed the flawed assumptions and sloppy reasoning that produced this consensus, thus blowing it to smithereens.

While some people still cling to the "pre-Buchanan" notion of government debt being harmless, it was Jim Buchanan's little book of 53 years ago, written in Charlottesville, that built the intellectual ground upon which today stand Mr. Peterson and other deficit hawks.

Sincerely,
Donald J. Boudreaux (Law '92)

Quotation of the Day…

… is from page 118 of Deirdre McCloskey's 1996 book The Vices of Economists – The Virtues of the Bourgeoisie (original emphasis):

But in any event some economist claims he can be prudent on your behalf is not something you should believe if such knowledge could make him rich, and as an adult it's not something you should stand for.  You are not being made "free" by being manipulated by the government.

Trouble-Maker on the Charles?

Here's a letter sent a few days ago to the New York Times:

MIT President Susan Hockfield lists America's "trade deficit in manufactured goods" as one of our "problems" ("Manufacturing a Recovery," August 30).

I disagree that specializing in producing services such as neurosurgery, web design, and education – and then exchanging some of these for manufactured goods produced by people who specialize in producing such things as MP3 players, kitchen flatware, and snow domes and other trinkets – is a problem.  But if I'm mistaken and Dr. Hockfield is correct, I wonder if she's aware of her role in worsening this problem.

Every non-American student who enrolls at MIT spends dollars purchasing, not American manufactured goods, but American-produced educational services.  In consequence, the U.S. trade deficit in manufactured goods rises with every non-American student enrolled at MIT.

If Dr. Hockfield truly worries about America's trade deficit in manufactured goods, she should impose a moratorium on the admission of foreign students to MIT.

In addition, she can move to close MIT's Sloan School of Management (whose graduates regularly export their services as business and professional advisors – thereby increasing America's trade deficit in manufactured goods) and to close MIT's School of Architecture and Planning (whose graduates produce no manufactured goods and who also sell their services to foreigners and, hence, also intensify the "problem" of America's trade deficit in manufactured goods).

If Dr. Hockfield is right, then a significant portion of America's problems are being created right there on the Charles.

Sincerely,
Donald J. Boudreaux

Quotation of the Day…

… is from page xiv of Geoffrey Brennan's elegant 1998 Foreword to Vol. 2 of The Collected Works of James M. Buchanan – which is Jim's 1958 classic (and truly indispensable) Public Principles of Public Debt:

To the standard new orthodox claim that we owe internal debt to ourselves, Buchanan's response is effectively: What's this "we" business?….

[T]here is a kind of intellectual divide between those who conceive social phenomena in a disaggregated way and those of a more holistic, organic cast of mind.  Arguably, it is this intellectual divide that most distinguishes microeconomists from macroeconomist and a fortiori as a group from sociologists and many traditional political theorists.

……

Geoff immediately adds: "Within this divide, in Public Principles of Public Debt, Buchanan establishes himself firmly as an arch exponent of the individualist method."

Indeed Jim does so distinguish himself (as he continues to do so 53 years later) – always brilliantly and vitally and productively.

I'm from the federal family and I'm here to help you

The Palm Beach Post reports on a rhetorical move by the Obama administration:

Don't think of it as the federal government but as your "federal family."

In a Category 4 torrent of official communications during the approach and aftermath of Hurricane Irene, the Federal Emergency Management Agency has repeatedly used the phrase "federal family" when describing the Obama administration's response to the storm.

The Obama administration didn't invent the phrase but has taken it to new heights.

"Under the direction of President Obama and Secretary Janet Napolitano, the entire federal family is leaning forward to support our state, tribal and territorial partners along the East Coast," a FEMA news release declared Friday as Irene churned toward landfall.

The G-word — "government" — has been nearly banished, with FEMA instead referring to federal, state and local "partners" as well as "offices" and "personnel."

Later on in the article, there is some empirical support for the claim that the Obama administration is using the phrase more frequently:

A Google search shows the phrase appearing 10 times on FEMA's website during the Bush years. Since Obama took office, "federal family" has turned up 118 times on fema.gov, including 50 Irene-related references.

Among them: statements that the Obama administration "is committed to bringing all of the resources of the federal family to bear" for storm assistance and that "the entire federal family continues to lean forward to support the states in their ongoing response efforts."

Lean forward? I guess that's the opposite of sitting back. I guess it's supposed to show initiative and focus. Not working for me.

As I tried to describe in The Price of Everything, families generally don't use prices to allocate resources because they don't need to. Families have good information about the desires and constraints facing the members of the family and the families have the incentive to use that information wisely. So when there aren't enough cookies to go around, I don't auction them off to the highest bidder. I might give each of the kids an equal fraction of the cookies. Or I might know that one of the kids went to a party and had some sweets. I try to get the cookies into the hands of the kids that will enjoy them the most. I have the information and the incentive to make that happen because I care about my kids. And I face the consequences if I do a bad job as a parent.

The federal "family" is not a family. It's a faux family. A sham family. The government has neither the information nor the incentives to allocate goods wisely in the face of a shortage or a catastrophe. It should do less leaning forward and more sitting back.

Bias

I've run a bunch of programs for small groups of journalists where we talk about economics or data and empirical work so I've spent a reasonable amount of time among journalists in casual situations. One thing journalists hate is being told that they're biased. It infuriates them. It is a semi-reasonable reaction. Journalists respond by explaining that they are professionals. Of course, they admit, they have personal views about politics and ideology. But they would never let their views contaminate their reporting. That's what being a professional is all about.

It's a semi-reasonable reaction because most journalists that I've known ARE professionals. They do their job very well and objectivity is their credo. It is a huge part of the culture of journalism.

It's a semi-unreasonable reaction because we're all human, and bias–as I've learned in recent years the more I've thought about it–is often a subtle phenomenon. I've become extremely interested in confirmation bias, I've sensitized myself to my own biases, and that makes it easier to see how it works in others.

Megan Mcardle (HT: Arnold Kling) really gets at the root of the problem and the subtlety of bias in this post. Most of the time, the media isn't sitting around conspiring among themselves. But many journalists do have biases and bias works in subtle ways affecting what journalists question and won't they don't question. The only point she misses is the role that bias plays in placing articles. You want to make the editor happy. You don't sit around thinking what can I do to make the editor happy. That would be unprofessional and it would bother most journalists to think they've slanted a piece in ways that confirm the editor's biases. But those incentives are at work even when most people aren't thinking about them. Read all of Megan's piece. I'm looking forward to checking out Tim Groseclose's book that she mentions.

Read Megan's post. It's superb. It reminds me that we think we know is always as problematic as what we think we don't know.

Destruction Is Creation – Not

Here's a letter to the Programming Director of Washington, DC's, WTOP Radio:

Enough with reports (heard in today's 1pm hour) that natural disasters can be good for the economy.  The Keynesian economics upon which such reports are based is hopelessly confused on the issue.

According to Keynesians, recessions result from people feeling pessimistic about the future – a pessimism conjured by what Keynesians regard as wary "animal spirits."  This pessimism prompts people to save too much and spend too little.

But even if we accept these Keynesian notions, is it likely that the optimism necessary to improve the economy will be sparked by destroying people's homes and businesses?  How plausible is it that people – who before being hammered by the likes of a hurricane felt that their savings were too low – will go on sustained spending binges because natural disasters oblige them to dip into the very savings that they were previously trying to increase?  By what logic are "animal spirits" buoyed with confidence by tragedies that make people poorer?  On what theory do consumers become more hopeful about the future while standing in the rubble left by natural disasters?

Please, no more such absurd reports.

Sincerely,
Donald J. Boudreaux