. . . or give you applause.

I recently argued that pragmatic libertarians (like me) can talk to hardcore libertarians, and to progressives, but just not at the same time.  Most of my non-monetary posts upset one side or the other.  But what happens when you do a post and it’s not clear who’s ox is being gored?  To see the consternation, read the comment section from this Will Wilkinson post.

It’s almost like some people can’t make up their mind whether Will said something brilliant and incisive, or insensitive and insulting, until Will tells them whether his cryptic message was buttressing their preconceived opinions, or ridiculing them.

He said what he said, it’s up to us to figure out what it means for our cherished beliefs.

PS.  No offense to his commenters, they are some of the best.

One of my favorite Adam Smith sayings is that “There’s a great deal of ruin in a nation.”  When reading others, I often think that people get too pessimistic about this or that country, based on a few highly visible problems.

But another way of thinking about this idea is that maybe even very well run countries fall far short of their “potential.”  I use quotation marks, as potential seems like a very slippery and unscientific concept.  After all, there may be deep-seated reasons why countries struggle to come up with good governance.  Still, you never get anywhere without setting goals.

Bryan Caplan and Will Wilkinson have been discussing the possibility of a regime of open immigration, and whether it could co-exist with a modern welfare state.  I can’t answer that question, but I will argue that we are very far from the “policy possibilities frontier” for liberaltarianism.  Imagine a country:

1.  Which accepts more immigrants per capita than almost any other nation on earth, despite being the most densely populated country with more than 5 million inhabitants.  So densely populated that they need to reclaim land from the sea in order to find places to put people.

2.  Has very high taxes on activities that produce environmental externalities, yet remains the most free market country according to several indices of economic freedom.

3.  Has a very comprehensive welfare state including national health care and pensions for all, yet still maintains a highly efficient tax system at rates far below that of other developed countries.  And if that’s not enough, runs gigantic budget surpluses year after year, despite the ultra-low tax rates and very generous welfare state.

You think that’s utopia?  No place like that could exist?  Think again.

This example tells me that while there may be some political limits to how many immigrants we can absorb, and we may not be able to provide the same welfare benefits to immigrants as to native-born Americans, we aren’t even close to the policy frontier.  We can have much lower taxes, a much more complete welfare state, and much higher rates of immigration.  And while we’re at it, let’s also run a gigantic budget surplus.  We just need to try harder.

And here’s a nice side effect.  Success get emulated.  As others see how well you are doing with the liberaltarian model, they’ll want to copy the policies.  That speeds up the day when the entire world can become a giant Schengen area.

PS.  I cheated a bit in point #2 above.  As my wife keeps reminding me, Hong Kong is not a “country.”

I’ve always liked Forbes magazine, and I’m a big fan of Malcolm Forbes’ proposal to “blow-up” the income tax.  So I don’t have any big problem with the magazine on ideological grounds.  But I do have a problem with several recent Forbes articles by John Tamny, who seems proud of his lack of expertise in the subject he writes about.

In a new column, Tamny has accused me of calling anyone who favors the gold standard a “knuckle-dragger.” I don’t recall making that accusation (in this post), nor do I believe it to be true.  Indeed many highly intelligent economists favored the gold standard, as Tamny accurately points out.  Here’s the statement that led me to accuse Forbes magazine of anti-intellectualism:

Assuming the Fed could do what it cannot; as in fine tune economic activity on the way to stable prices, we would be much worse off if Bernanke et al were to actually succeed.

To see why, it has to be remembered that the cure for high prices is in fact high prices. Or better yet, high prices foretell low prices.

If producers create a consumer product that fulfills unmet needs on the way to high prices, the latter is the signal to other producers to enter the market for the same good on the way to lowering its cost. Gyrating prices are the necessary market signal telling businesses what we need.

Taking this further, if price stability were policy, it would still be the case that a phone call from Houston to Dallas would cost $15 for a half hour of conversation. It would similarly mean that we’d be paying thousands of dollars for flat-screen televisions, not to mention even more for computers that perform very few functions.

When I tell other economists about this passage, even Tamny’s fellow libertarians, they break out laughing.  That’s not good.  I want libertarians to succeed.  We both favor small government.  But we won’t get anywhere if Forbes keeps publishing articles than make conservative/libertarians the laughing stock of the blogosphere.  Just imagine what a Krugman or DeLong would do if they stumbled across this defense of the gold standard.  We need arguments that can stand up to the best the other side has to offer.

In his rebuttal Tamny points out that I am not famous (like he is?)  That’s true.  But the quality of an argument isn’t related to the fame of the person making the argument; it is based on reason, evidence, and even a familiarity with basic terminology.  In the new article Tamny seems to not understand the meaning of the term ‘deflation:’

For that we need stable money values, nothing else. Gold has historically served as the measure meant to make the tickets in our pockets most stable in value. As the great financier J.P. Morgan put it, “Gold is money. Nothing else.”

After that, the money prices of goods change with great regularity for reasons ranging from consumer preference to productivity enhancements. Confused about what deflation is, Sumner presumes that it’s a function of falling prices, but were he to ever emerge from the campus one of these days, he’d understand by virtue of walking the aisles of most any retailer that prices fall all the time.

If this were true, then the Great Deflation of 1929-32 would never have happened, as the price of gold was stable throughout that period.  Then he compounds his mistake, by citing Mill:

Or, as Mill put it, “If one-half of the commodities in the market rise in exchange value, the very terms imply a fall of the other half.” Put more simply, what Sumner presumes to be deflation is not that. The price level can only be altered through a change in the value of money itself, and with the dollar at near all-time lows against gold and nearly every foreign currency, the presumption of deflation promoted by Sumner is laughable, and also sad.

Obviously Mill cannot be referring to the nominal price of goods, as the statement would be absurd.  While I don’t have the Mill volume in front of me, I assume he must be referring to the real or relative price of goods.  But of course in that case the statement has no relevance to the case Tamny is trying to make, as it’s equally true of Zimbabwe and Switzerland.  Indeed it’s merely a property of averages.

Tamny then engages in false modesty:

To answer Sumner’s initial presumption, I should first say I’m decidedly not an intellectual, and will leave what is now a debased adjective to people of his ilk at obscure colleges. But a curious sort, I’ve long sought to read intellectuals of the past and present who actually impacted the policy debate.

It’s clear from reading Tamny’s column that he is an intellectual, quite engaged in policy ideas.  And a very well read intellectual as well.  What makes these two Forbes column’s anti-intellectual is that Tamny is writing on a topic that he knows little about, monetary economics.  He cites famous economists of the past, like Keynes, who supported a fixed price of gold.  But Keynes would be horrified by the arguments that Tamny is making in support of a gold standard.  The problem isn’t so much Tamny, it is Forbes, for choosing columnists who pander to crude populist prejudices, rather than those with expertise in the issues being discussed.

Sometimes I feel like I am trying to save conservatives from themselves.  The free market is a great idea.  Taking monetary policy decisions away from the Fed and letting the market determine the money supply is a great idea.  But when conservatives/libertarians show a contempt for everything that’s been learned in the past 80 years, including the scholarship of distinguished fellow libertarians such as Milton Friedman, they are not going to win out in the battle of ideas.  I don’t have any problem with Forbes publishing a piece with which I totally disagree.  I do have a problem with conservative outlets that publish authors who are ignorant of the key tenets of monetary theory, that do not know the meaning of basic economic terminology, indeed that seem to have created a private language that has nothing to do with the real world.  We won’t get anywhere unless we offer solid reasoned arguments written by people who have the expertise to handle the issues they are writing about.

My criticism of Tamny was not personal; most highly intelligent people know nothing about monetary theory.  He’s obviously very intelligent.  But he’s writing on the wrong topic.  I’d sound like an idiot if I wrote on nuclear physics (a simple field compared to monetary economics.)  Forbes should be publishing pieces on monetary policy that are written by distinguished monetary economists.  (And I don’t give a damn about credentials.  A distinguished monetary economist is someone who understands the field, not someone who happens to teach at a big name university or work at the Fed.)

PS.  It’s Bentley University, not College.  I couldn’t care less, by my bosses do care.

PPS.  I’m not generally viewed as a “quantity theorist” as I don’t favor targeting money, nor do I think the money supply is a good monetary policy indicator.  But it’s a forgivable mistake, as I occasionally make quasi-monetarist arguments.

PPPS.  But I’m definitely not a fan of “collectivist economics.”  That’s unforgivable.

PPPPS.  I am greatly indebted to Bruce Bartlett, without whom I would be a complete nobody.  His encouragement pushed me up to the exalted position of “little-known Bentley College economics professor.”  I’d also like to thank John Tamny, who has pushed me up from the position of being an obscure professor at Bentley, to someone so famous that Forbes devotes an entire article to trashing my “droolings” on monetary economics.  Ma! Top of the world!

I’m a pragmatist, and hence don’t ascribe to the sort of libertarianism advocated by the true believers—those who base their arguments on natural rights.  I’d like a government that intervenes much less than any real world government, but much more than members so the Libertarian Party would want.

But when I read criticism of libertarianism by outsiders, it almost makes me want to embrace the most dogmatic forms of libertarianism.  Consider a recent critique of libertarianism by Christopher Beam of New York magazine, which struck me as a series of knee jerk reactions to libertarian ideas that seem wacky at first glance, until one actually starts to think seriously about the issues:

There are all sorts of situations the private market isn’t good at managing, such as asymmetrical information (I know my doctor is qualified to treat me because he has a government license)

That’s good to know!  I had almost been brainwashed by some big government advocates into supporting medical malpractice suits.  They kept telling me there are “thousands” of incompetent doctors out there.

I currently have an excellent doctor, but in the past that wasn’t always the case.  How do I know?  Let’s just say that I didn’t evaluate their effectiveness on the basis of whether they are government certified.  Indeed, how many of us have even checked out our doctor’s certification?  (And yes, there are doctors who practice illegally, w/o certification.)

Of course not everyone will agree with me.  But that’s the beauty of libertarianism–if you really are stupid enough to believe that one can judge a doctor’s quality on the basis of certification, you are free to rely solely on doctors who have degrees from respected medical schools.

Beam also ignores the costs of certification—all the residents of poor neighborhoods who are deprived of medical services because the medical cartel has priced health care services at exorbitant levels.  Many ordinary procedures could be performed by people with nurse-level training, for instance.

Here is another critique of libertarianism:

[Penn] Jillette might choose his words differently today. Everyone knows going through airport security sucks, even without “porno- scanners.” But few dispute the need for some line of defense. More-efficient, less-intrusive security would be great. But none at all? Jillette’s tract is a good example of how libertarianism ventures down some fascinating paths but usually ends up deep in the wilderness.

Put aside the empirical question of whether airport security does more good than harm, which Beam doesn’t even consider.  The more serious problem is that Beam confuses libertarianism as a political philosophy with the personal preferences of individual libertarians.

I don’t know the optimal amount of airport security.  My hunch is that it is much less than we have now, but more that Jillette would prefer.  But all that’s irrelevant; the question is whether the market would provide the optimal amount of air security.  I’d guess the answer is no.  People are irrationally afraid of flying.  The data on the safety of flying are literally beyond human comprehension, like the time it would take to ride a bicycle to Pluto—even with terrorism.  But that means the market failure is probably too much security.  Adding the TSA just makes a small market failure into an even bigger government failure.

I’ll stop there, although the rest of the article is almost as bad.  It consists of the sort of counterarguments you’d get from someone who had heard about libertarianism in a bar, but had never actually bother to evaluate arguments showing the myriad ways in which seemingly well-intentioned regulations can actually do more harm than good.

More disappointing was the praise Beam received from normally level-headed Matt Yglesias:

I liked Chris Beam’s NY Mag article on libertarians, but I want to quibble with this:

“Yet libertarianism is more internally consistent than the Democratic or Republican platforms. There’s no inherent reason that free-marketers and social conservatives should be allied under the Republican umbrella, except that it makes for a powerful coalition.”

People, especially people who are libertarians, say this all the time. But we should consider the possibility that the market in political ideas works is that there’s a reason you typically find conservative and progressive political coalitions aligned in this particular way. And if you look at American history, you see that in 1964 when we had a libertarian presidential candidate the main constituency for his views turned out to be white supremacists in the deep south.

So Yglesias thinks the main problem was that Beam didn’t also tar libertarians with the brush of racism?  Why pick Barry Goldwater?  Wasn’t Calvin Coolidge even more libertarian?  He presided over a government that spent 4% of GDP.  Yet the deep south states were just about the only states that Coolidge lost in 1924.  And does Yglesias really believe that libertarianism would appeal to the sorts of people who favor Jim Crow laws?  Wouldn’t it make more sense to see where the votes came from for presidential candidates who actually were libertarian, rather than someone who was a hodgepodge of libertarian, conservative, and militarist views?  The best performance by a libertarian candidate occurred in 1980, when Ed Clark received nearly a million votes.  His strongest support came from socially liberal states like Alaska and California; he did relatively poorly in the south.

Of course any movement collects it share of undesirables.  One can find self-professed “socialists” spanning the spectrum of Nordic-style social democrats all the way to hard core totalitarian communists.  So in that sense Yglesias is correct, it is easy to find examples of unsavory libertarian individuals and unsavory libertarian arguments.  But surely he goes too far when he claims:

And this is generally how politics goes in most countries. You have a dominant socio-cultural group allied with the bulk of the business community, and you have a more diffuse “left” coalition of reformers associated with labor unions and minority groups. There’s nothing “inconsistent” about organizing politics this way.

There are two problems here.  First, there are many places, such as Eastern Europe and Russia, where politics split along libertarian/statist lines.  “Liberals” are socially liberal and free-market-oriented.  Conservatives are strongly religious, xenophobic, and anti-market   And even where the right is “pro-business” it often doesn’t favor free markets.  Italy is the classic case of a country that lacks a pro-market right, but to a lesser extent this is also true in Japan, France and Germany (excepting the Free Democrats in Germany.)  In Latin American the right has traditionally been very hostile to the free market, with the notable exception of Chile after 1975.  China also splits along statist/classical liberal lines.  In much of the world Yglesias would be voting for the more free market party.

Yglesias is partly right about the US, but less than he might think.  There have been only a few truly free market reforms in the US since 1975 (price and market entry deregulation, NAFTA, deep cuts in MTRs during the 1980s, welfare reform, immigration reform, banking deregulation, etc.)  All received extensive support from Democrats, often from liberal Democrats such as Ted Kennedy.  So there is actually very little evidence that the statism/free market divide is what separate American liberals and conservatives.   And on both social issues and foreign policy the libertarians are much closer to the Dems.

Yglesias frequently points out (correctly) that American conservatives don’t really act like they believe in small government.  So he’s previously bashed conservatives for not really being libertarian, and now he’s bashing libertarians for being too close to Southern conservatives.  Yes, Obama has pushed the libertarian movement further to the right, but they certainly didn’t feel they had a home in the big-government conservatism of George Bush.

Here’s how one might defend Yglesias’s argument.  A healthy libertarian movement is a sign of good governance in a country with lots of social conservatives.  Where you have bad governance (say lots of really stupid economic policies, and also laws that discriminate against various groups), the honorable opposition is called “liberal.”  When you have already achieved a free market economy and also eliminated most laws that discriminate against minorities, women, and gays, the remaining fight will be in a few areas;  income redistribution, environmental protection, and affirmative government intervention to help minorities.  In that policy environment the dogmatic conservatives will often line up with cultural conservatives who resent the “undeserving poor” getting handouts, and who have somewhat traditional or tribal views on cultural issues.  With enough infiltration from the right, you’ll even get some so-called “libertarians” rejecting libertarian policies like open borders.

The dogmatic and pragmatic libertarians should really be treated separately, as any generalizations directed at one group will be wholly inappropriate for the other.   It’s easy to make fun of the views of Ron and Rand Paul.  But I don’t recall Milton Friedman losing many debates over libertarianism.  Indeed I don’t recall him losing any.  If Christopher Beam tried to address the arguments of people like Friedman, Hayek, Brink Lindsey, or Will Wilkinson, he might have produced an article worth reading.

HT:  Tyler Cowen

I haven’t been particularly impressed with either side of the recent Tennessee firehouse kerfuffle.  The left seems to simply assume that any problem is the fault of the evil free market.  If a documentary shows awful sweatshop conditions in Chinese factories or coal mines, well then it obviously shows the folly of laissez-faire capitalism, even if the factories and mines are government-owned.  And apparently if a government-owned fire department behaves in a cruel and callous fashion, it shows the folly of privatization.

In fairness to the left, the argument was a bit more subtle.  I think they argued that this government-owned fire department was behaving as they’d expect a private fire company to behave.  But as Coase showed with his lighthouse example, we can’t assume that real world firms will behave as our models predict they will behave.  We need empirical evidence that libertarianism won’t work, and this example sure doesn’t provide it.  There are privately-owned fire companies—I’d be much more interested in how they behave.  David Henderson points out that one in Arizona behaves very differently from the Tennessee firehouse.

I was also not impressed by the conservative defense of the fire department’s action.  They argued that the way to prevent deadbeats from not paying their fire dues is to set an example by having the house burn down.  I doubt that is the best option, and Henderson’s example of the private Arizona fire company makes me even more skeptical.

Some would argue against forcing people to pay for fire services on dogmatic libertarian grounds.  My problem with making it a matter of principle is that it would seem to also apply to pensions and catastrophic health insurance.  But would we really want to let an old lady starve because she didn’t voluntarily contribute to a pension?  I wouldn’t, which is why I favor forcing her to contribute to a pension, and also buy catastrophic health insurance (with a government subsidy if she is poor.)

I don’t know enough about fire services to have a firm opinion, but off the top of my head I can’t really see a good reason for letting houses burn down.  But I also don’t favor the big government approach that Salon.com seems to favor.  If private fire companies are good enough for Denmark, they are good enough for me.  I recall reading that we have twice the number of firehouses that we need in this country, so if the service was contracted out we’d presumably save billions of dollars as the industry was rationalized.  And I always wanted to turn one of those neat old firehouses into a private residence.

I’m not a dogmatic libertarian and I’m not a statist.  I’m a pragmatic libertarian who wants to drastically shrink the size of government, but I have an open mind on whether we might want to compel insurance coverage in a few cases.  I don’t know what sort of government role (if any) is optimal for the firehouse industry.  All I know is that it is absurd to make sweeping ideological generalizations on the basis of such murky examples, especially when there are plenty of private firehouses to examine.  The fact that Salon.com thinks this is what constitutes a good argument against libertarianism makes me think that libertarian critics don’t have much of a case at all.