Category Archives: Smackdown

“Fundamental Logical Mistake”

I thought Kevin Wildes critique of Walter Block was funny, because none of it seems to be true. Now, I don’t think Block’s piece is very good, either — but, that’s an old story.

Particularly entertaining is Wildes’ second paragraph,

His second claim is an example of a fundamental logical mistake. In peaking of discriminatory lunch counters, Dr. Block makes the mistake of assuming that because of the Civil Rights legislation people would be compelled to associate with others against their will. The Civil Rights legislation did no such thing. What the Civil Rights legislation did was prevent places like Woolworth’s from excluding people because of their race. No one was forced to sit at the lunch counter. The law simply made clear that people could not be excluded from the lunch counter because of their race.

The mistake made has already received wide coverage; see David Henderson here, or Steve Landsburg here.

I think he does realize he’s wrong, but he doesn’t want to admit the real reason he disagrees with Block. Or, maybe the focus on the right to disassociation distracts Wildes. Those who support the Civil Rights legislation believe that people, especially those who provide products and services, shouldn’t be allowed to disassociate with others based on race. I don’t know why he doesn’t make this point instead, since it’s a reasonable — not certainly right, but not certainly wrong, either — position to hold.

Robert Wenzel is Not an Economist…

…so it’s best not to take him seriously on these matters.

Responding to a part of a Steven Horwitz post that talks about aggregate demand shortages, Wenzel writes,

This is as far from Austrian theory as you can get.  Austrian school economists see central bank monetary expansion as distorting the economy.

This shows the extent of Wenzel’s understanding. He can’t separate the concept of an aggregate demand shortage from that of an oversupply of money by the Federal Reserve. This means he can’t realize that aggregate demand shortages are relevant even in a world where there is no central bank. And aggregate demand shortages need to be resolved through an equilibration of the supply and demand for money, whether through a falling price level or an increase in the supply of money. Any disequilibrium means there’s room for entrepreneurship, and that’s just what private banks (or clearing houses) with foresight do: increase the supply of money.

This type of behavior is just what I try to explain in an older post, “Epistemology of Rejection.” I use the exact same topic to illustrate what I mean. (Of course, some “Austrians” took it personally — I was much more polite there than I am here. I’m taking a cue from Krugman: snark is necessary in an environment where credentials don’t matter.)

Undisciplined Obamacare

I haven’t been following the issue closely, but the Obamacare website has been experiencing significant technical problems. Some people want to argue that this proves Obamacare is a huge failure. I’d argue that the real test of success (or failure) is whether healthcare costs are eventually kept down and, more generally, whether it actually achieves its objectives (net of costs). But, because I don’t know much about Obamacare to begin with, it’s better for me to not pass judgment on on the debate at all.

But, I feel compelled to comment on Steve Landsburg’s “Six Observations.” Specifically,

It seems pretty likely that a big part of the reason why Amazon’s website works so well and Obamacare’s website works so poorly is that Obamacare, unlike Amazon, is not subject to the discipline of the market (and therefore, for example, employs coders with no equity in the enterprise).

This is a strange framing of the problem. Socialist countries are typically known for being very technically proficient. But, technical efficiency is not economic efficiency. The case against socialism is that without a pricing process, we don’t have a proxy that informs us on the relative scarcity of the factors of production. So, for all the technical efficiency of central planning, it all nonetheless represents an incalculable welfare loss, because the inputs were not pitted towards the highest valued ends.

There is a competitive aspect to the technical problems suffered in the early stages of Obamacare. If this were a competitive, private market, the second I suffered difficulties in signing up for one program or another, I would have an added incentive to simply opt for a competitor. Obamacare doesn’t give me that option. This is a cost to the system, but it’s a cost that must be weighed against the benefits, and to know the benefits we have to wait until they appear. (Just to clear: there are theoretical arguments for/against Obamacare, but I’m strictly talking about empirical falsification — pointing out the technical difficulties is an attempt at empirical falsification.)

My general point is that if you want to make an empirical case against Obamacare, these early glitches are probably not the best evidence. They, in my opinion, don’t get to the root of the problem with central planning. Rather, they’re errors that are just as likely to show up in private provision — technical ignorance has never been a strong argument against central planning. In fact, those who advocate socialism often point to historical evidence of great technical efficiency; e.g. the mass production of war material during the Second World War. The task of the economist is to show, as aforementioned, why technical efficiency is not economic efficiency.

By the way, I’m pretty sure that people hired by the government to code a website earn a wage, with some relation to market prices, and face some risk of being fired if they don’t preform their job well. So, I don’t think there is any basis for Landsburg’s suggestion that there may be an incentive problem behind Obamacare’s website’s technical issues.

Folly of One-ism

Lance Roberts has a guest post published on Zero Hedge today, showing the United States’ decline in several rankings: education, income inequality, human development, et cetera. Roberts blames “dependency” and debt, or, in other words, the welfare state. He calls for “better leadership” — ambiguous much?

Some discussion points,

  1. We’re in desperate need of a good, convincing, comprehensive “free market” explanation of the United States’ growth path in these areas. I think explanations today are either weak or too specific, therefore not directly applied to the broad picture;
  2. Many countries that boast better figures in the area Roberts highlights have larger welfare states than the United States. How does fit within the naïve conservative take?
  3. Why should we care about being #1? Take education and suppose that the United States is ranked below country ‘X.’ Assume country ‘X’ achieved its rank by spending vast sums of money on education and, although not true to the real world, the United States has a completely private market. How should we interpret the statistic? Does it consider misallocation of human capital, and of resources more generally? It could be that being #1 is actually making society worse off. There are other ways this could be true — imagine an economy with a comparative advantage in industry that doesn’t require education in the sense of higher education in the humanities and sciences. This country, when ranked by education, might be at a “disadvantage” as compared to another with a comparative advantage in intelligentsia-related products. Why should we care?

I don’t think it helps to tackle these issues by means of non-nuanced methods. Unfortunately, the internet — through both the media and the blogosphere — make it seem as if these are the only explanations non-liberals can come up with. It’s these arguments that lend credence to pundits, such as Paul Krugman, who go on to claim that “conservatives” have lost touch with reason.

Stretching the Truth

As usual, I’m late in watching the presidential debates. On the topic, I followed a link on a recent Paul Krugman post to a piece by Sarah Kliff for the Washington Post. Kliff argues that Mitt Romney is essentially lying when he claims that his (or Paul Ryan’s) healthcare plan is not necessarily opposed to pushing health insurance firms to cover pre-existing conditions.

Kliff explains,

It started with the Republican presidential candidate saying during an appearance on “Meet the Press” that he liked the Affordable Care Act’s provision that requires insurers to cover preexisting conditions, and would support something similar. Hours later, his campaign clarified he did not, however, support a federal ban against denying coverage for preexisting conditions. Around 10 p.m., the Romney camp had circled back to the same position it held back in March: that the governor supports coverage for preexisting conditions for people who have had continuous coverage.

I wrote a bit yesterday about why this is different than ending preexisting conditions altogether. In short, it means that those who go a month or two without coverage could later be denied insurance for a medical condition. If, however, you have had a gap in coverage — perhaps because you lost your job and couldn’t afford it — an insurer could not deny your application due to a preexisting condition.

To support her claim, she cites a study which argues that,

Last month, the nonprofit organization released its annual look at gaps in health insurance. It found that, between 2004 and 2007, 89 million Americans had at least a single one-month gap in insurance coverage. They were not, in other words, continually insured.

Am I alone in thinking that that statistic isn’t directly relevant?

89 million Americans doesn’t reflect on: (a) the number of Americans with pre-existing conditions; (b) the number who fall in category (a), but remain uninsured; or (c) the number of Americans who experienced discontinued coverage due to unemployment (since these, as Kliff explicitly states, would still be covered in the event of a pre-existing condition). Neither does it reflect on (d), the number of Americans who can afford health insurance and prefer not to procure it.

I’m sure that liberals can still make a strong case against Romney’s healthcare plan — whether or not someone likes me holds the same specific moral positions (edit: I’m not implying I’m voting for Romney) —, but loose numbers don’t help their case.

Edit:

David Henderson discusses healthcare and last night’s debate. He suggest’s Avik Roy’s piece on the same subject.

A Poor Critique of Fiscal Stimulus

While I am no defender of fiscal stimulus — “Government Spending is Bad Economics” —, I call it like I see it: Anthony Davies’ recent empirical case against fiscal stimulus is not particularly persuasive. Here is the short video, taken from a lecture,

The data Davies uses is available in .pdf format. Rather than reproduce the graphs here, I’ll refer to pages within the .pdf.

In a nutshell, Davies argues (p. 2) that a +∆ in fiscal stimulus should have a positive impact on ∆ in GDP. This is, under the condition of ceteris paribus, fair and non-controversial. But, in the real world there is no such thing as “ceteris paribus.” Nobody disagrees with me, no doubt, but I feel Davies doesn’t fairly consider the implications of this truth.

Take a look at the graphs on pp. 4, 6, 8, 10, 12. I’m not a good statistician, or maybe even a good interpreter of scatter plots, but the lack of clear correlation on the first three graphs (of those listed in the previous sentence) is not particular damning. A fiscal stimulus advocate could just as easily argue that a lack of fiscal stimulus would have achieved a lower growth rate in %∆ in GDP. In fact, as displayed, there might be some empirical support for this kind of defense: countries with –%∆ in fiscal outlays have comparatively lower %%∆ in GDP than others. We don’t even know what countries each point plotted represents (although, I suppose we can look at the relevant BEA databases). The graphs on pp. 10 and 12 show a negative trend, but this could be caused by changes in economic fundamentals — the kind of fundamentals that take 1–2 years to impact the economy —, unrelated to fiscal stimulus. Finally, again, without knowing the countries it’s impossible to interpret the data.

To put the ambiguity of “faceless” data into perspective, suppose that that the point on the graph on p. 10 corresponding with, roughly, (1.25, –0.9) represents the fictional country of “Spreece.” On average, Spreece’s government practices relatively high levels of fiscal stimulus. But, inter alia, it also has restrictive labor laws, a dysfunctional financial sector (private credit freeze), and domestic violence issues (e.g. rioting) and thus a relatively high degree of regime uncertainty. It’s conceivable that the effects of fiscal stimulus can be outweighed by relevant factors outside the State’s direct control (Ilzetzki, et. al., [2010]).

[Edit: Thanks to commenter "M.H." I now realize that the points don't represent countries, but different historical episodes in the United States. My general argument in the above two paragraphs still applies, however. Change "countries" for "episodes." The impact of fiscal stimulus may be contingent on other factors.]

The bar graph on p. 18 is no less misleading. Which recession matters. Most were “solved” (smoothed over) by changes in monetary policy — viz. loose credit policies —, and most recessions between 1945 and 2007–08 have been “mild” (what some like to call “garden variety”). To put it straight, one could argue that the need for fiscal stimulus is contingent on the magnitude of the fluctuation, the effects of countercyclical monetary policy, and the status of the banking sector (whether it’s in a position to respond to Fed stimulus). But, I think this graph is better than the others.

Like I wrote above, I’m no fiscal stimulus (or monetary, for that matter) advocate. But, we should avoid weak arguments, because these are the ones that many well-known advocates focus on when they try to discredit their opponents. I think the best case against stimulus is theoretical, but few people tend to be persuaded by pure theory. If we must go to the evidence, then I think the best argument against fiscal stimulus is to look at past recessions with similar traits and make an exhaustive empirical case for what did push the recovery. A good example is the work, over the past two decades or so, on the impact of World War II on the U.S. economy. Hasn’t persuaded everyone, but I think the skeptic’s case against World War II as fiscal stimulus has gained a lot of ground.

A Lesson in Going too Far

In a short comment on George Selgin’s recent contribution to the Cato Unbound debate on the use of theory and data in Austrian economics, Danny Sanchez writes,

But Selgin, who actually understands Mises’ writings enough (and is honest with himself enough) to not call himself an “Austrian…”

Maybe there’s unstated context behind that statement, although it directly follows a paragraph where Danny subtly criticizes Steven Horwitz’ ascribing of strict a priorism to a caste of ‘internet Austrians’ — so please, fill me in. But, apparently, in order to be a ‘true’ Austrian you must strictly adhere to the Misesian doctrine of strict theoretical a priorism, as if L.v. Mises were the ‘end all, be all’ of the Austrian school. Danny even goes as far as accusing those who still call themselves Austrian, yet stray away from praxeology, of intellectual dishonesty.

Give me a break.