Wednesday, August 30, 2017

Teaching Econ 101

In Adam Smith's day, it was moral philosophy.  But for many years, that has been replaced with what Deirdre McClosky calls Max U (or Samuelsonian or standard textbook) economics.  It has not been a good trade.

When natural disasters occur, supply and demand is a lifesaver. It is the way to reallocate resources to stricken areas (people). Price signals do their work when they are allowed to reflect new realities: when they ration on the demand side and elicit on the supply side.  But banning price hikes (anti-gouging laws) stymies both adjustments, making bad situations worse.

This is simple and clear.  But we teachers of Econ 101 have seemingly not done the job of imparting simple ideas like this. Look at the protectionist utterances of Wharton grad Donald Trump -- and many, many others. (I notice that ABC_TV news loves to report on products that are Made in America.)

In light of the Houston floods, the usual suspects are arguing for price controls ("anti-gouging laws) and thereby claiming the moral high ground.

Teachers of Max U note the fine points of efficiency when they should first deal with Question #1: in which settings are people most likely to have better lives?  The most noted thought experiment of our time may be John Rawls' "veil of ignorance": when considering political choices, do not think of where in the wealth distribution you are but where fate might deposit you.

Do you want to be inside or outside an exchange economy? If it's a hard choice, look at the real world and place yourself behind a veil of ignorance.

Perhaps if we taught this first and Max U second, there would be fewer grating rants about the immorality of markets.


And while we're at it. Here is how young people view socialism vs capitalism.

Sunday, August 20, 2017

Statists rule

The Economist includes a nice summary of Pigouvian taxes (or subsidies) as a straightforward remedy to the problem of uncompensated externalities. When market coordination is missing for any  reason, here is the (seemingly) simple policy fix.

But missing from the discussion (almost all such discussions) is the politics. Who administers the tax? How do they choose who and how much to tax, when and where.

Public choice economics points to a non-trivial answer:  crony capitalism and the threat of regulatory capture are always in play.

Today's NY Times Book Review includes a review of Nancy MacLean's Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America.  The print edition uses the lede, "Minority Rule: How the economist James McGill Buchanan laid out the game plan for the radical rights." This is turn-off laced with smear job. The electronic version switches to "How the Radical Right Played the Long Game and Won."

This is all bizarre and I have no plans to read the book. Don Boudreaux has been tirelessly exposing MacLean's errors and misconceptions at Cafe Hayek.

Are the problems of democracies and majorities really new and arcane for anyone?  We learn about the Bill of Rights at a very early age.  Limiting majoritarianism addresses a very old and well known problem and is not a part of some vast right wing conspiracy.

The Economist and a string of others are strangely resistant to public choice analysis, as the many discussions of the elixir of Pigouvian taxes indicates.

I do not get it. Are we to maintain a blind faith in the ability of elected officials to somehow divine the "public will"? And do so while maintaining a near-virginal innocence? And these are the people we see in the news all day?

How obsessed and blinkered a statist does one have to be to go on living and believing that way?

Tuesday, August 01, 2017

Anti-Econ 101

"Many of the recommendations for growth and prosperity found in just about any standard 'Econ 101' textbooks are the right place to start ..." (Brynjolfsson and McAfee, 2014, p, 206).

Econ 101 instructs that are always opportunity costs. David Henderson and John Cochrane make the point in "Climate Change Isn't the End of the World ... Even if world temperatures rise, the appropriate policy response is still an open question." Scarcity suggests opportunity costs which call for thinking, deliberation and hard choices. This perplexes the religious left. Here are Henderson and Cochrane:
" Global warming is not even the obvious top environmental threat. Dirty water, dirty air and insect-borne diseases are a far greater problem today for most people world-wide. Habitat loss and human predation are a far greater problem for most animals. Elephants won’t make it to see a warmer climate. Ask them how they would prefer to spend $1 trillion—subsidizing high-speed trains or a human-free park the size of Montana. ...

" ..we need to know what effect proposed policies have and at what cost. Scientific, quantifiable or even vaguely plausible cause-and-effect thinking are missing from much advocacy for policies to reduce carbon emissions. The Intergovernmental Panel on Climate Change’s 'scientific' recommendations, for example, include 'reduced gender inequality and marginalization in other forms,' 'provisioning of adequate housing,' 'cash transfers' and 'awareness raising & integrating into education.' Even if some of these are worthy goals, they are not scientifically valid, cost-benefit-tested policies to cool the planet."  
Elephants, high-speed trains and reduced gender inequality? Opportunity costs.

The LA Times reports that actual construction of the California high-speed train is well underway.  Look for the antithesis of opportunity costs, the misused sunk cost argument: having started the project, we cannot stop because of all that money already spent.

Why does any business ever close its doors? Why is any product line ever shut down? 

How many people use public transit in California? Very few. Here are some 2012 comparisons. New York city is #1 with 229.8 per year per capita. San Francisco is #2 with 131.5. Los Angeles is #15 with 54.9 and most of California is below that. The story has been told a thousand times. (Here is the up-to-date U.S. summary.)  There are too few transit users in California to merit more transit capacity of any kind. Climate change is being used to make bad ideas look not so bad.

Yes. Econ 101 is the anti-politics. Politics is the anti-Econ 101.