Russell Roberts's Blog, page 1421

Quotation of the Day…

… is from Jim Buchanan's 1987 essay "Keynesian Follies," reprinted in Vol. 1 of Jim's Collected Works (pp. 164-178):

Folly is defined as (1) lack of good sense or of normal prudence, (2) inability or refusal to accept existing reality or to foresee inevitable consequences.  Both of these definitions convey something of the policy stance that I associate with the term Keynesian.

Bill Breit

Sad news came today from my friend down at UVA, Prof. Ken Elzinga: Bill Breit died this morning after a lengthy illness.

Bill and Ken together wrote wonderful economic mysteries under the noms de plume "Marshall Jevons."  Reading these three novels is a splendid way to learn some economics.

But Bill was more than just a writer of mystery novels: he was a superb economist, scholar, and teacher who served for many years on the economics faculty at UVA and then, for the past nearly 30 years, on the econ faculty at Trinity University in San Antonio.  Here's Bill's website.

Bill was also uproariously funny.  He was one of those people who made you laugh – deeply, healthily, and never for cheap or childish reasons – every time you were in his company.

I'm honored to have been in Bill's company on several occasions, usually for dinners at annual meetings of the Southern Economic Association (although, alas, not recently).  I regret that wasn't in his company even more frequently.

I'll miss him.

Wal-Mart, You ARE Doin' a Heckuva Job!

This report opens with a photo of the invisible hand rarin' to go to work.  (Perhaps it's too much to note the symbolism of the invisible hand being detained, if only for a while, by agents of the state.)  Note that Steve Horwitz (GMU '88 or '89 [Steve: remind me]) is quoted to good effect in this report.  (HT Craig Kohtz, who correctly notes that "this has The Price of Everything written all over it.")

All of which raises the question: when you and your neighbors are homeless, hungry, and thirsty following a natural disaster, would you prefer to rely upon the devotion to public service that allegedly motivates FEMA workers, or to rely upon the devotion to their own self-interests that undoubtedly motivates executives, workers, and suppliers of private companies such as Wal-Mart and Home Depot?

What works and what doesn't

Here is a provocative piece by William Deresiewicz in the New York Times (HT: Dan Pink) on the symbolic power of a military uniform in today's America. Toward the end of the piece, Deresiewicz writes:

As the national narrative shifts from the war on terror to the specter of decline, the uniform performs another psychic function. The military is can-do, the one institution — certainly the one public institution — that still appears to work. The schools, the highways, the post office; Amtrak, FEMA, NASA and the T.S.A. — not to mention the banks, the newspapers, the health care system, and above all, Congress: nothing seems to function anymore, except the armed forces. They're like our national football team — and undisputed champs, to boot — the one remaining sign of American greatness.

I would suggest that the institution that gave us FUBAR and SNAFU doesn't really perform anything like we might like to think it does. We do more than romanticize the uniform, we romanticize the armed forces generally. But what is more interesting to me is Deresiewicz's list of stuff that doesn't work very well:

The schools, the highways, the post office; Amtrak, FEMA, NASA and the T.S.A. — not to mention the banks, the newspapers, the health care system, and above all, Congress

Except for the newspapers, they have one thing in common, they aren't very competitive. They are either run by the government or they are ruined by government intervention–government intervention that removes the power of competition.

But newspapers are the exception that proves the rule. Yes, newspapers don't function very well any more. With the exception of a handful of papers (WSJ, NYT, WaPo) they are mediocre. But who cares about newspapers? I care about information and being informed. There has never been a better time to be alive than today if you're interested in information.

What is working well? The Apple Store, access to food and clothing, private high schools, Amazon.com and everywhere else that there is competition.

As the economy slinks along or dips down, we're going to here continued talk of the decline of America. But what has always made America great is its economic system–a system that let's competition work. If we want to be great again, all we have to do is remember what made us great before.

Our biggest challenge as a nation is our political system. We have overpromised and a democracy that ignores its Constitution isn't very adept at taking away goodies from the masses. I am very worried about how that is going to turn out. We need to share the pain very widely and that too is not the strong suit of democracy.

Snackonomics

This week's EconTalk is Brendan O'Donohoe of Frito-Lay talking about the snack business–how chips are made, shipped, and sold. The podcast was made after a tour of a local Safeway and Brendan let me see the store through his eyes. Amazing. I also discovered how they make sure that bad chips don't make it into the bag. Hard to believe. But evidently true. Listen in.

In Praise of Market Entrepreneurs

I'm honored to have a column in the new monthly magazine President & CEO.  Here's my inaugural effort.

Quotation of the Day…

… is from page 69 of The Impossible H. L. Mencken (Marion Elizabeth Rodgers, ed., 1991); it originally appeared in Mencken's 1935 Baltimore Evening Sun essay entitled "The Constitution":

Every right that anyone has today is based on the doctrine that government is a creature of limited powers, and that the men constituting it become criminals if they venture to exceed those powers.

Phenomenal Service

A thank you to Leslie Chew and Nicole Laredo at the Palo Alto Apple Store who guided me to a new MacBook Pro and got all the data transferred off the old one (that died) in six hours (after seeing how nervous I was). And a thank you to Apple that replaced the logic board on that out-of-warranty old MacBook Pro without charge. I am always surprised by how many employees are on-hand at the Apple Store and how many customers are playing with the toys.

Economic Ignorance

Nothing captures the state of economic education in America like the debate over Rick Perry's job creation abilities. He brags about how many jobs he has created. Critics point out that many of them are government jobs (that he allegedly disdains) or minimum wage jobs. People point out (I will assume that the facts are correct) that Texas has the highest proportion of minimum wage jobs (though maybe tied with Mississippi).

Those who like Rick Perry argue that he is a job-creating wizard.

Those who dislike Rick Perry argue that he is a bad-job-creating wizard (or a hypocrite).

He, of course, is no kind of wizard at all. The governor has something to do with whether people want to live in the state and what kind of people. But he creates very few jobs directly. Certainly he and his policies is only one of many factors determining how many jobs are created in Texas. And certainly, he has little control over how many minimum wage jobs are created or the proportion of jobs that earn the minimum wage. That is determined by the skill levels of the people who live in Texas or who move there in response to economic opportunity. It is possible that particular policies of Governor Perry have encouraged opportunity or discouraged it. I'd like to know what those are. Merely touting the numbers of jobs created or the kinds of jobs doesn't tell me a thing.

Baby You Can Drive My Car

Suppose you own a car that has enormous amounts of muscle but whose suspension system is primitive and, worse, whose steering and braking systems are extremely limited.  The driver of this car can turn it only very gradually – no sharp turns; no dodging unexpected objects in the road; no quick changes in direction.  Similar issues plague the car's braking: it brakes more like a long railroad train going downhill than like a passenger car.  Indeed, the brakes often outright fail.

You want to get from point A to point B by driving this car.  Alas, there is only one road connecting point A to point B.  This road is very winding and hilly – much like San Francisco's Lombard St.  Children often play by the side of this road and, as children will, frequently run unexpectedly into it.  This road also has lots of potholes and construction sites.

If you could harness all of the horsepower of your mighty muscle car and make it, somehow, navigate this road successfully, you'd get from point A to point B quite speedily.

So being a hopeless romantic, you tell yourself and others that "Yes I can!  Yes I can use my mighty muscle car to drive from A to B!  I'm an American and there's nothing we Americans can't do if we put our minds to it and our hearts in it!"

Your nephew pleads with you not to try to drive that car from A to B.  "It's dangerous, Uncle," advises your nephew.  "The car simply isn't designed for such a journey.  You'll get yourself in a mess and likely hurt others as well."

"Lemme ask you, m'boy – and I want a 'yes' or 'no' answer," you respond, "Isn't it possible to make this journey in this car?  If I anticipate perfectly all of the turns that are coming, all of the obstacles and children who might be in the road, as well as anticipate precisely when I must bring the car to a halt, isn't is possible that the car will work as the vehicle to take me from A to B?"

"Uncle, almost anything is possible.  But in practice it's foolish and dangerous.  Why don't you use other means of getting from A to B?"

"Thanks for the advice, kid.  I take that as a 'yes.'  And let's be honest, all other means are probably slower than using my muscle car.  And, further, none of those other means are guaranteed to work, are they now?  Are they now?!"

"Well, no, Uncle.  Just as almost anything is possible, almost nothing is guaranteed.  But other means are more likely, I believe, to transport you successfully from A to B than is that muscle car of yours."

And off you drive in your mighty muscle car on the road from A to B.

….

Given this car's construction and fundamental properties, is it scientific for a professional driver to advise you on how to navigate the car from A to B as if the car were more like a nimble Honda Accord than like a locomotive?  Of course not.  Everyone would see that any such advisor would be committing professional malfeasance.  To assume X when in fact all that is available is very non-X-like Y is to be unscientific.

And yet economists do a virtually identical thing all the time.  Economists advise governments on how to correct this problem and that problem – internalize that externality and stimulate that slumping economy – without bothering to ask if the vehicle is appropriate for the task.

Economists' (and others', including voters') abilities to imagine the vehicle succeeding at its assigned task – the possibility that the vehicle might work at the task to which it is applied – is too often taken to be sufficient justification for using the government to do what deeper and more clear-eyed inspection might well reveal is best not attempted by government.

The economist who offers advice to drivers of public policy without pausing to ponder the nature of the vehicle – the state – to be driven often appear to be non-ideological and scientific.  In fact they're too often irresponsible fools.