American liberalism: reality and ideology

David Henderson has some fun the other day with a New York Times article on Anthony Weiner:

Neither Ms. Abedin [Anthony Weiner’s wife] nor Mr. Weiner earn lucrative salaries, and Ms. Abedin is worried about her husband, who has been in politics much of his adult life, finding work. Mr. Weiner would still be eligible to collect his pension after his resignation.

David commented:

But that’s obviously not what Raymond Hernandez meant. He meant that the annual salary of $174,000 that Weiner made until recently is not lucrative. Nor, in Hernandez’s opinion, is Huma Abedin’s salary lucrative. But he doesn’t tell us what her salary is. Does he know? He’s a reporter for the New York Timesand so you would expect him to check. Did he? I’m guessing her salary is well in excess of $100,000. To me, that’s lucrative. Notice also that if I’m right, the couple’s salaries together totaled over $250K. Isn’t that supposed to be the magic number in this country that makes you rich? It was when Abedin’s big boss, Barack Obama, ran for president in 2008.

Let’s consider the average well educated affluent East Coast liberal who reads the NYT.  Does any one think that they would ever utter the following statement at a cocktail party:

George, I heard the Sanderson’s have become quite wealthy, they are each earning about $150,000/year!

No, to them a family income of $300,000 is certainly not wealthy.  On the other hand their official ideology insists it is, and they have no trouble mocking a University of Chicago professor who insists that a $300,000 family income is not wealthy.  There are two realms in which they talk, real life and ideology.  In their ideology they would claim some students do poorly because of underfunded schools.  Granted, their own kids don’t go to underfunded schools, but even if they did I doubt they’d accept that as an excuse for a D plus GPA from their teenage son.  They’d tell him to study harder.  (Just to anticipate commenter complaints, I am not arguing conservatives don’t do the same–they want a muscular foreign policy, but want their sons to go to law school, not the military.)

The question of whether a family making $300,000 is rich or not is not very interesting.  They are very rich compared to most people alive today, and indeed compared to most people who have ever lived.  But the same is true of an American family making $60,000.  Instead, I find these sorts of inconsistencies more interesting when they expose some of the internal contradictions of liberalism.

Here’s Obama Education Secretary Arne Duncan:

Teachers “shouldn’t have to take a vow of poverty,” Duncan said. “Great teachers should have the chance to make “” pick a number “” $130,000, $140,000, $150,000.”

Often when I read liberal pundits I get the feeling they see America as being split up between the poor and the rich, with no middle class.  This despite the fact that 90% of Americans consider themselves middle class, and despite the fact that the vast majority of American families earn middle class incomes.  Obviously Arne Duncan thinks in terms of the two Americas, you are either rich, a couple making $130,000 each, or you have taken a “vow of poverty.”  There is no in between.

But here’s the problem.  If you think the rich need to pay a lot more taxes, then won’t that couple each making $130,000 be knocked down into the sub-rich category.  And of course that means they’d be poor, as recall that there is no middle class.

I also recall that liberals find it extremely distasteful when conservatives bash wealthy government workers.  It’s almost like talking about welfare queens driving Cadillacs.  OK, but which is it?  Would a married couple of two teachers each making $130,000 be rich, or not?

I don’t much care about exactly how much teachers make.  But I find logical inconsistencies to be very annoying.  I want the Obama administration to clearly make one of the two following statements:

A.  We think some public school teachers should be wealthy.

B.  We don’t think a couple making $130,000 each is rich.

Disclaimer, my wife and I are both in the low 6 figures.  Call me rich or not–I don’t care.  Just make up your mind and stop demagoguing the issue.

Paul Krugman: Ignorant, and proud of it

Or so he claims:

Some have asked if there aren’t conservative sites I read regularly. Well, no. I will read anything I’ve been informed about that’s either interesting or revealing; but I don’t know of any economics or politics sites on that side that regularly provide analysis or information I need to take seriously. I know we’re supposed to pretend that both sides always have a point; but the truth is that most of the time they don’t. The parties are not equally irresponsible; Rachel Maddow isn’t Glenn Beck; and a conservative blog, almost by definition, is a blog written by someone who chooses not to notice that asymmetry. And life is short …

That’s right, and George Will isn’t Michael Moore; and a liberal blog, almost by definition, is a blog written by someone who chooses not to notice that asymmetry.  No need to read Marginal Revolution, Becker/Posner, Econlog, John Taylor, Greg Mankiw, Robin Hanson, Steven Landsburg, etc, etc.  Nothing of interest, just move right along folks.  I’m always amazed when someone so brilliant can be so clueless about life.  How someone can reach middle age and still live in a kindergartener’s world of good guys and bad guys.

Perhaps if Krugman would get out a bit more he might make fewer embarrassing errors,  like this one, where he forgot the fallacy of composition, something taught in EC101.  I guess none of his liberal friends have the nerve to point out these sorts of silly errors.  So it’s still there, uncorrected after two weeks.  A monument to his pride at being ignorant of the views of those with whom he disagrees.

You might ask whether I’m being a bit harsh calling him “ignorant.”  Actually, he’s the one who proudly flaunts his ignorance of conservative thought.

I find that reading good liberal blogs like Krugman, DeLong, Thoma, Yglesias, etc, sharpens my arguments.  It forces me to reconsider things I took for granted.  I’d guess that when Krugman tells people at cocktail parties that the post-1980 trend of lower tax rates, deregulation, and privatization was a plot devised by racist Republicans, they all nod their heads in agreement.  If he occasionally read a conservative blog he might learn that all those trends occurred in almost every country throughout the world after 1980, usually much more so than in the US.

I wonder if his blanket condemnation of reading conservative outlets would include books that attack silly liberal arguments for protectionism.  Or articles that show the folly of liberal opposition to sweatshops.  Are those conservative ideas also no longer worth reading?

Some conservatives have given up on reading Krugman because of his insulting tone.  That’s a big mistake—indeed it’s playing right into his hands.  Krugman is right in many of his criticisms of conservative ideas (such as tighter money.)  Conservatives need to hear his views.  Better to read things that annoy you, and respond when you are outraged, than to be oblivious to the best arguments against your worldview.  The best liberal bloggers are those who don’t stay in their echo chamber, but rather are willing to also read blogs that annoy them.

PS.  I will be away for a few days, and hence won’t do much blogging.

Update:  Many commenters failed to click on the link in Krugman’s post, so they didn’t realize that he cited Tyler Cowen as the sort of conservative who is so partisan that he “doesn’t notice that asymmetry” and therefore is not worth reading.  I don’t even consider Cowen to be a conservative (much less partisan), but Krugman obviously does.

Bad arguments against libertarianism

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

Misleading moralistic macro

Continuing in the theme of cognitive illusions, I’d like to discuss how moralistic reasoning distorts our view of macroeconomics.  Consider the following from

During the recent fight over extending unemployment benefits, conservatives trotted out the shibboleth that says the program fosters sloth. Sen. Judd Gregg, for instance, said added unemployment benefits mean people are “encouraged not to go look for work.” Columnist Pat Buchanan said expanding these benefits means “more people will hold off going back looking for a job.” And Fox News’ Charles Payne applauded the effort to deny future unemployment checks because he said it would compel layabouts “to get off the sofa.”

The thesis undergirding all the rhetoric was summed up by conservative commentator Ben Stein, who insisted that “the people who have been laid off and cannot find work are generally people with poor work habits and poor personalities.”

Both liberals and conservatives are engaging in moralistic thinking, and both are wrong.  They’re fighting the age-old battle over whether the unemployed are the “deserving poor” vs. the “undeserving layabouts.”  To utilitarians like me, there are no “just deserts,” just more or less utility as a result of various public policy options.

I don’t see any evidence that the unemployment problem is caused by laziness.  Or perhaps I should say that I doubt the work ethic of the recently unemployed is much different from the employed.  There are definitely people who would rather not work if they didn’t have to (like me), especially those with dangerous, dirty, or unpleasant jobs.  Or lots of exams to grade.  But people also like money, and I’d guess the vast majority of unemployed people would rather be back at work.

But the liberals are also wrong; 99 week unemployment insurance probably does modestly raise the unemployment rate.  It’s only natural that a person who loses a fairly good job would like to return to a fairly good job.  A laid off accountant would be foolish to accept a job as a maid, janitor or coal miner.

But the main point of my post is that it’s a big mistake to form opinions about the impact of macro policies on the basis of personal observation, or intuition about human nature.  And that’s because of the fallacy of composition.  If an accountant losses his UI and becomes desperate for work, that doesn’t increase his chances of getting his old accounting job back.  But if every unemployed worker loses his or her UI and becomes desperate for work, it does increase the chances of the accountant getting his job back.  The reasons are complex.

Let’s start by assuming that UI doesn’t affect NGDP, rather the path of NGDP is determined by the Fed.  Of course Krugman and Eggertsson would not agree, they’d argue that less UI would reduce NGDP.  But recent actions by the Fed indicate that they won’t let inflation fall below about 1%, and that also puts a floor on NGDP.  Every time the economy weakens, the Fed does more QE, or at least more talk about future expansionary actions.

If we hold NGDP constant, then how does eliminating UI raise RGDP?  It does so by sharply boosting the supply of labor, which depresses the equilibrium nominal (and real) wage rate.  Workers who are desperate for work now throw themselves onto the job market.  Suppose each worker becomes willing to accept a job paying 40% less than his former job.  This lowers wages at all levels, and for any given NGDP that increases employment.  It is equivalent to a rise in AD.  The accountant who suddenly becomes willing to be a bank teller, paradoxically is more likely to get his old job back, because the general expansion of the economy that results from lower wages leads to a greater need for accountants.  Of course this process wouldn’t work perfectly, but there would be some tendency for employment to increase.

So the liberals are right that the unemployed aren’t lazy, but the conservatives are right that less UI would reduce the unemployment rate.

By now you might have assumed that I am advocating cutting UI.  If so, you are again engaged in moralistic thinking, assuming that someone making a technical argument is actually making a normative argument.  I don’t have strong views on exactly where the UI cut-off should be.  In the long run I’d like to see the system reformed to include more self-insurance, but for right now you can make a respectable argument for keeping UI in place, despite the modest increase in unemployment.  It does reduce suffering in the short term, suffering caused by needlessly contractionary policies instituted by policymakers who may not even know a single unemployed person.  (Oops, now I’m being moralistic.)

One other quick example of the problems with moralistic thinking.  Liberals say cutting the estate tax favors people like Paris Hilton.  Conservatives counter with stories of family businesses that must be sold off to pay the estate tax.  If these were actually the two arguments, I’d go with the liberal view.  I’m a utilitarian who thinks a dollar is worth much more to a poor person that a rich person.  But I want to abolish the inheritance tax precisely because it’s not a tax on the rich; it’s a tax on capital, whereas we should be taxing consumption.  We need a progressive consumption tax.

Part 2:  Always avoid annoying alliteration

I just noticed that my last three posts have been entitled Disinflation denial, Avoid asymmetries, and “Misleading moralistic macro.  I apologize.

There’s no going back

When I was young I thought I was experiencing a series of events.   Now I understand that I was experiencing the feeling of being young.  Sure you can go back and revisited a bunch of European countries, but it won’t seen the same as when you first tramped around Europe with a backpack, and the world seemed charged with mystery and meaning.

I think of public policy in similar terms.  Obviously there are cases where we can literally go back—the 21st Amendment restored the status quo ante of before the 18th Amendment.  But it’s never quite the same.  Indeed in just the last 10 years we’ve lost the ability to drink alcohol at our Bentley holiday party (I suppose due to fear of lawsuits.)

How I think about the past often depends on whether my mood is that of an ornery reactionary or a hopeful progressive.  Whether listening to talk radio or NPR.  Sometimes I think both the left and right miss something important when they visualize the past.  The right tends to romanticize a golden age that was ruined by statism, whereas the left sees a period of misery, which progressive legislation has lifted us above.  I believe the right has lots of blind spots, and the left often attributes change to legislation that actually reflects the fact that we are vastly richer than 100 years ago.

As a macroeconomist I often think of the spring of 1929 as a sort of golden age of policy, when there didn’t seem to be any significant macro problems and we had a pretty efficient policy regime.  But how should a pragmatic libertarian like me think about 1929 vs. today?  It’s not quite as obvious as you might think.  In some ways things have certainly got worse; Federal spending has grown from 3% to over 20% of GDP.  We have an alphabet soup of regulatory agencies that do more harm than good.  But there are also many changes for the better.  The rights of blacks, women, and gays are much better protected than in 1929.  And even many of the changes that would be vigorously opposed by more dogmatic libertarians, are somewhat ambiguous to a pragmatist like me:

1.  Social Security and Medicare really do help older people, but the systems were set up in a way that discourages saving.

2.  Some environmental regulations really do improve our lives, but they are often implemented in an inefficient way.

3.  We have lower tariffs, but many more non-tariff barriers.

4.  We’ve gained the right to drink alcohol, but also suffer from a new reign of paternalism

5.  We are more willing to tolerate immigration from non-European countries, but must suffer under the abominable TSA and INS.

6.  There is less regulation of transport pricing and entry, but more rent controls and minimum wages

7.  We have unlimited bank branching, but much more moral hazard in the system.

8.  There is more annoying paperwork today, but also less governmental corruption

I suppose for a dogmatic libertarian things are clearly worse, but for a pragmatist like me that’s not so clear.  Which finally brings me to monetary policy.  Are we better off today than in 1929?  How about compared to 1912?  I pick those dates because our monetary system has undergone two revolutionary changes in the past century; we’ve added a central bank and dropped the gold standard.  There’s only one thing I am really sure of; it’s a really, really bad idea to have both a central bank and a gold standard.  If you don’t believe me, check out the macro performance of the US between 1913 and 1941.  Both inflation and output were extraordinarily unstable.

In my view we are better off without the gold standard.  We can’t afford to leave the price level and NGDP to chance, where an increase in the demand for gold could cause severe deflation and depression.  Admittedly the worst example of this occurred under a gold standard that was far from pure (1929-33) but there are two strong arguments that cut the other way:

1.  The gold standard was also far from pure during the so-called classical period (up to 1914.)

2.  The whole point of the gold standard is that it’s supposed to work automatically, to protect you against foolish governmental decisions—indeed to prevent governments from printing too much or too little money.  If we need sensible government to make the gold standard work, then why not just attach the sensible government to a fiat regime, that will work even better (and did between 1983-2007.)

So far I’ve been emphasizing my progressive side, but now I’m going to do a 180 degree pivot.  I think a very strong case can be made that we’d be better off if the Fed had never been created.  Indeed a recent paper by George Selgin, William D. Lastrapes, and Lawrence H. White makes exactly that case.  It’s a very long paper and it marshals an impressive array of evidence against the Fed.  The focus in on two areas; whether the Fed has actually made the economy more stable (unlikely), and the effects of its regulatory actions,particularly in the recent crisis.  As far as I am concerned, their new paper becomes the definitive critique of the Federal Reserve System, which any academic researching the issue will have to address.

If you are a pragmatist like me, don’t write off the paper as a hopelessly utopian attempt to re-create a mythical gold age.  Their arguments are much more subtle and nuanced:

“Coming up with alternatives to the Fed today takes more imagination. Assuming that there is no political prospect of replacing the fiat dollar with a return to the gold standard or other commodity money system, for the dollar to retain its value some public institution must keep fiat base money sufficiently scarce. [..] [T]he Fed’s poor record calls for seriously contemplating a genuine change of regime. In particular it strengthens the case for pre-commitment to a policy rule that would constrain the discretionary powers that the Fed has used so ineffectively. Whether implementing such a new regime should be called “ending the Fed” is an unimportant question about labels.”

That’s exactly where I am on the issue.  It’s not a question of going back or staying where we are, it’s about moving forward.  Here’s an analogy.  The left and right have been debating whether we need a government-run postal service for decades.  Long before that debate is resolved technology will have eliminated the need for snail mail (except packages, which can be easily delivered by Fedex or UPS.)  It’s likely that long before we solve the problem of whether to use interest rate or money supply control, we will go to a cashless society with all electronic money.  That will make possible Robert Hall’s (1983) visionary scheme to index interest on reserves in such a way as to automatically stabilize the expected future price level (or NGDP.)  No Fed discretion is required.  Even Woodford once had nice things to say about the idea.

The debate over “ending the Fed” is pointless.  There will always be something called “the Fed.”  What we need to do is not to end it, but emasculate it.  Take away its discretion and simply give it a nominal mandate, and let the market implement the mandate.

I see the human race as like that runaway train in the new Hollywood film.   Technology is hurtling us rapidly toward a future that we can’t envision, and which would both horrify and dazzle us if we could.  (Just as the ancient Greeks would be both horrified and dazzled by our current culture.)  We don’t study the past to try to recreate the past, but rather to learn lessons that we hope will make the ride on this runaway train a bit smoother.

PS.  Thanks to William for sending me the quotation.  I’ll try to have more to say about other issues raised in the Selgin/Lastrapes/White paper when I have more time.  David BeckworthTyler Cowen, Alex Tabarrok, Bryan Caplan, and Arnold Kling also make comments.  I agree with some of the points made by Cowen, although I’d point out that while it’s true that if we’d had no Fed in 2008 there might have been a Great Depression, it’s also true that if we had no Fed in 2002 there would have been no sub-prime fiasco.  Banks don’t do that sort of thing without a safety net.  I will be at another conference this weekend, so blogging will again slow to a crawl.