Ceteris Paribus

Weird clouds ad the physics behind them.

There are two prevailing views of prices. One, the folk-wisdom version, holds that prices have no other purpose but to separate folks from their money. Prices are arbitrarily set, and can be raised at will to slake the greed of those who set them. In this world, an increase in price has no other effect but to enrich the person setting them, and impoverish the rest. The prevalence of this view can be seen in the anger everytime gas prices go up, or when a retailer is accused of price-gouging. This is a very static worldview.

The other is the economic-wisdom version. It holds that prices cannot be set arbitrarily, and serve a very important function. This function is not to take money from people, but to load-balance the economic network, like a routing protocol on a computer network. It communicates to consumers to consume less, and to producers that resources need to be shifted toward producing more. This is a dynamic worldview.

Gas prices the last few years have seen some record highs. Have actual events vindicated one or the other? Let's see:

It turns out that 2009 is going to be a bumper year for new oil discoveries; new oil discoveries always occur, but this year has been unusually fruitful. This from the New York Times illustrates the important dynamic intertemporal incentives that price signals provide:

These discoveries, spanning five continents, are the result of hefty investments that began earlier in the decade when oil prices rose, and of new technologies that allow explorers to drill at greater depths and break tougher rocks.

“That’s the wonderful thing about price signals in a free market — it puts people in a better position to take more exploration risk,” said James T. Hackett, chairman and chief executive of Anadarko Petroleum.

More than 200 discoveries have been reported so far this year in dozens of countries, including northern Iraq’s Kurdish region, Australia, Israel, Iran, Brazil, Norway, Ghana and Russia. They have been made by international giants, like Exxon Mobil, but also by industry minnows, like Tullow Oil.

Lynne Kiesling of Knowledge Problem has more on natural gas prices and exploration:

...high natural gas prices have induced further exploration and discovery in the U.S. in the form of shale gas. Extracting shale gas is more costly because it’s embedded in shale rock, but the high natural gas prices since 2003 have induced innovation and exploration. That, combined with other discoveries, has led to historically high natural gas inventories (shifting out the supply curve); this year’s recession has reduced the demand for natural gas (shifting in the demand curve). Not surprisingly, therefore, the price of natural gas is about one-fourth of what is was back in, say, 2005.

In short, the higher prices served a very important function: telling producers how and where to invest more resources, creating those intertemporal incentives necessary for bringing things back into balance. If politics had short-circuited that price mechanism through price controls or other coercive measures, that rebalancing would never have taken place.

It's not as foreign as you think

The president of Brazil, Lula da Silva, is on TV giving an interview. He is repeating the false assertsion that what happened in Honduras was a coup d'etat. He's treading into silliness, saying that if the new president wanted to be president, he should have run for the office.

This is the same guy who blamed the economic crisis on people with blue eyes.

On the Honduran situation, it turns out that the government acted perfectly in accord with the constitution. Carrying out the laws of the land does not a coup make. Here are the findings of the Congressional Research Service:

• The Honduran Congress appears to have acted properly in deposing President Manuel Zelaya. Unlike in the United States, the Honduran Congress has the last word when it comes to interpreting the Constitution. Although there is no provision in Honduras's Constitution for impeachment as such, the body does have powers to disapprove of the president's official acts, and to replace him in the event that he is incapable of performing his duties. Most importantly, the Congress also has the authority to interpret exactly what that means.
• The Supreme Court was legally entitled to ask the military to arrest Zelaya. The high court, which is the constitutional venue for trials of the president and other high-ranking officials, also recognized the Congress's ouster of Zelaya when it referred his case back down to a lower court afterward, on the grounds that he was "no longer a high-ranking government official."
  The military did not act properly in forcibly expatriating Zelaya. According to the CRS report and other news stories, Honduran authorities are investigating their decision, which the military justified at the time as a means of preventing bloodshed. In fact, Zelaya should have been given a trial, and if convicted of seeking reelection, he would have lost his citizenship. But he is still a citizen now, and the Constitution forbids the expatriation of Honduran citizens by their government.
• The proper line of succession was followed after Zelaya's ouster. Because there was no Vice President in office when Zelaya was removed (he had resigned to run for president), Micheletti was the proper successor, as he had been president of the Congress.

Here is what piques my curiousity. Given these facts - and they were known from the beginning, even before the CRS blessed off on them - why does the media insist on calling this a coup? Why do they insist on treating it as a military takeover, when the military was simply carrying out the lawful order of the Honduran Supreme Court? It smacks of ideological bias.

You can read the Congressional Research Service report here.

A popular theme running in the political blogs and websites is that Gramm-Leach-Bliley's repeal of Glass-Steagall is responsible for the financial crisis, or in its most charitable form, made it worse than it would have been otherwise.

How much truth is there to that claim?

Like most popular wisdom, it's false. It is what Megan McArdle calls folk economics, and like most folk tales, it is superficially appealing but ultimately fails.

Here is Alex Tabarrok:

...a significant academic literature has investigated these claims and rejected them. Eugene White, for example, found that national banks with security affiliates were much less likely to fail than banks without affiliates. Randall Kroszner (now at the Fed.) and Raghuram Rajan found that (jstor) securities issued by unified banks were (ex-post) of higher quality that those issued by investment banks. A powerful book by George Benston went through the entire Pecora hearings which supposedly revealed the problems with unified banking and found them to be a complete sham. My colleague, Carlos Ramirez later showed that the separation of commercial and investment banking increased the cost of external finance (jstor). Finally, my own work (pdf) unearthed the real reasons for the separation in a titanic battle between the Morgans and Rockefellers.

Thus, the history of banking before Glass-Steagall and now our recent experience after is consistent, generally speaking unified banking is safer and repeal was a good idea.

Gramm-Leach-Bliley had nothing to do with either lending standards at commercial banks, or leverage ratios at broker-dealers, the two most plausible candidates for regulatory failure here.

Most importantly, commercial banks are not the main problems. If Glass-Steagall's repeal contributed to the crisis, we would have seen more failures concentrated among megabanks where speculation put deposits at risk. Instead we have the exact opposite: the failures are among either commercial banks with no significant investment arm (Washington Mutual, Countrywide), or standalone investment banks. The diversified financial institutions are the ones propping the rest up right now.

I will find more on the Pecora hearings, and also go into more detain on Alex's paper in a later post.

Bryan Caplan asks a question I've often wondered myself: If we are getting smarter and more educated, why have political speeches gotten dumber?

He took a portion of Warren Harding's Return to Normalcy speech and plugged it into this cool little online grade level applet. The average estimated grade level needed to understand the speech? 16.06!

What about Obama's and McCain's speeches?

By way of comparison, Obama's 2008 acceptance speech had an average estimated grade level of 9.64 years - and McCain's was 7.72!

Professor Caplan points to the expanded franchise as the reason for the dumbing down of presidential addresses. I think it has more to the fact that politicians are now competing for the votes of a broader electorate, encompassing a wide range of socioeconomic classes, possessing a wider range of education.

The reason for the change? Communication. It is now far easier to communicate to a broader audience than it was then, and over a greater variety of media. In his day, Harding's speech would most likely have been read in a newspaper, if not heard first hand in the audience.

Could progressive taxation and redistribution be another reason? Once government got into the business of redistribution, the lower socioeconomic classes had more of an incentive to pay attention to politics.

Promise to accept federal funding if your opponent does, then go back on your word when your opponent takes the bait.

Set up phone banks in Gaza and the Palestinian territories.

Accept donations from unknown foreign sources.

Disable the credit card security on the campaign website to allow donations from false addresses to go through.

Use credit card fraud and identity theft to get funds, aided by disabling the security feature that confirms the identity of the donor's credit card.

Hide the sources of small under-$200 donations, many of which are odd dollar amounts that just happen to convert to round amounts of foreign currencies. Steadfastly refuse to disclose the identities of these donors even though your opponent is doing so.

Give Doodad Pro an honored place on your top fundraisers list.

Rake in half a billion dollars, and own the White House.

Reason TV takes on universal preschool.

From their website:

With support from major foundations and political heavy hitters like Barack Obama, universal preschool is the next big thing in education reform. Indeed, it's second only to universal health care on the liberal wish list. The goal is to offer publicly funded preschool—complete with credentialed teachers and and a standardized curriculum—to all four-year olds during the school year.

Advocates argue that public investments in early education will pay dividends over the long term. Critics point out that the evidence from states that have universal preschool programs shows that whatever benefits kids receive from those programs fade out by the fourth grade.

Since preschool attendance rates in states that have universal preschool are no higher than the national average, universal preschool wouldn’t even increase preschool attendance. It would, however, cost a lot of money, put lots of privately owned preschools out of business, and dramatically decrease early education options for parents.

So what do you think? Is expanding our failing K-12 system the best way to fix it?

This 10-minute documentary is hosted by reason's Nick Gillespie. It is produced by Paul Feine and Roger M. Richards.

Prices are dropping like a stone in water. All those speculators must have gone back to their evil lairs to count their loot and drink blood from skulls.

Or...

From the AP:

Oil prices fell below $70 a barrel Wednesday as investors shrugged off a looming OPEC production cut after company forecasts suggested the U.S. may be headed for a severe economic slowdown that would crimp demand for crude.

So a reduction of demand is part of the reason behind this.

Total motor gasoline inventories increased by 2.7 million barrels last week, and are at the lower boundary of the average range. Both finished gasoline inventories and gasoline blending components inventories increased last week. Distillate fuel inventories rose by 2.2 million barrels.

AND an increased supply.

A little off-topic, but I thought this was an interesting tidbit:

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global oil supply, has signaled it plans to announce an output quota reduction at an emergency meeting Friday in Vienna.

But investors are skeptical about how much of the cut will be implemented, given the history of OPEC members exceeding their production quotas.

That is how all price-collusion ends up failing. There is a stong incentive for a few to cheat just a little. And when others find out some are cheating, then the whole scheme collapses..

Small-government conservatism is dead, or so they say. People like Chuck Schumer gleefully declare that the age of conservatism is over. But who killed it?

When Bush gave us the No Child Left Behind, the so-called Ownership Society, the Medicare prescription drug benefit program, increases in National Endowment for the Arts funding, massive increases in discretionary spending, spending increases in infrastructure projects, these things, which had always been part of the left-liberal agenda, became tagged with the conservative label.

These are all things that, if advanced by John Kerry or Al Gore, we would have opposed with full-throated vehemence. Instead, we grumbled quietly, and grudgingly accepted ownership of them. Some of us, in the heat of election fervor, even defended these policies, knowing full well that if the opposite party had created these things, we would have criticized them.

But who were we defending them from? The very people who, if Kerry or Gore had proposed these policies, would have praised them for winning these victories for Progressivism. They were, after all, the ones who were calling for nationwide testing standards back in the 1980s as the solution to the nation's education problems. With the No Child Left Behind Act, they screamed about unfunded mandates, but how many of them want to repeal the Individuals with Disabilities Education Act, which imposed huge unfunded mandates on public schools? That is part of the reason the US spends much more per student than any other country in the world, without any of the results.

So we accepted ownership of these policies, and they became affixed with the conservative label, becoming probably the most egregious case of false advertising ever. And now, as the weaknesses of these policies begin to show, as the cracks begin to spread, their failures become the failures of conservativism. Chuck Schumer can point to conservative philosophy and make self-righteous proclamations about the death of small government conservatism, as the beast that sprung from the loins of big-government, left-liberal fundamentalism lies writhing in the throes of death. It is our beast now, because we chose to own it, because taking it in was the "compassionate conervative" thing to do.

As the roots of this financial crisis became more widely understood, as the complicity of politicians like Chris Dodd and Barney Frank became more commonly known, it was asked why the Republicans didn't do anything about it. After all, they were in power. Certainly, one could have made arguments about the cloture rule in the Senate, and how the Republicans never, even in the heady days of the Gingrich Revolution, had a filibuster-proof majority. But that sounds too suspiciously like an excuse, a cop-out. When the committee hearings were being held back in 2003, more noise could have been made about the issue. Why didn't the Republicans shout to the high heavens about the impending danger? Why didn't they force the issue on the public consciousness? Were there any clips of the hearings on YouTube a year ago?

No fuss was made because it would not have been "compassionate." Because the conservatives had sold their souls to the myth that there is something wrong with conservatism, that it had to be dressed up, sugar-coated, that it must always apologize for itself by compromising its most fundamental principles. Thus the half-hearted attempt to reign in Fannie Mae and Freddie Mac; attempts to force them to follow the same accounting standards as other corporations under Sarbanes-Oxley slowly lost steam. Because being too aggressive would look like conservatives hated poor people, wanted to keep them out of homes, because it would have reinforced the belief that Republicans are anti-minority. In the name of appeasement, of compassion, of trying to out-liberal the liberals, we lost.

So with that in mind, perhaps it isn't too bad if Obama wins the election. If we wins he will be, by most accounts, the most left-wing politician to ever occupy the White House (Roosevelt wasn't left-wing on principle, he just liked power). If Obama wins, the left will once again be forced to take ownership of the things they believe in. Let him give us redistribution. Let him give us price controls on gasoline. Let him raise our taxes. Let him silence opposition with the criminally mislabeled Fairness Doctrine. Let him be the voice of appeasement for the world's maniacs. And let him, his party, and his philosophy own those failures. Then finally conservatism can get that monkey off its back. If Obama wins, we can finally bury this hybrid monster and stop getting blamed for the havoc it has wreaked.

The last thorough-going leftist president we had was Jimmy Carter. We suffered through high interest rates, high unemployment, the Iranian crisis, gas shortages, a wobbly stock market, and a sense of national malaise. What came out of that was an emboldened, resurgent conservatism in the person of Ronald Reagan, and 25 years of economic growth, low interest rates, low unemployment, and a nearly total rejection of left-wing ideology. It might be worth it this time to remind people what they are asking for.

"I don't really care how time is reckoned so long as there is some agreement about it, but I object to being told that I am saving daylight when my reason tells me that I am doing nothing of the kind. I even object to the implication that I am wasting something valuable if I stay in bed after the sun has risen. As an admirer of moonlight I resent the bossy insistence of those who want to reduce my time for enjoying it. At the back of the Daylight Saving scheme I detect the bony, blue-fingered hand of Puritanism, eager to push people into bed earlier, and get them up earlier, to make them healthy, wealthy and wise in spite of themselves." (Robertson Davies, The Diary of Samuel Marchbanks, 1947, XIX, Sunday.)

So that dreaded date has struck, even earlier than last year. And I hear they wanted to make DTS two months longer but didn't because the airlines and farmers - two groups hurt most by this semiannual absurdity - protested loudly. I'm wondering if they'll just do away with the pretense of a "standard time" and just make it DTS all year round. Or better yet, have the hours of 10pm to 6am removed from the clocks altogether, so we don't have to be bothered with all that useless darkness.

But according to some, I need to quit my curmudgeonly grumbling and start liking it. Because, they say, it has so many positive and wonderful benefits. It even slices bread for you.

Among the many arguments I hear for it is that it saves energy in the evening, presumably because people aren't turning on their lights as early. I guess it hasn't dawned on the proponents that no one is actually creating a new extra hour of daylight. That hour of darkness has simply been moved to the morning when people are getting up. And now, instead of opening their curtains at 6am and letting the light in, they are using electricity to light their house. And surely the fact that people are home from work earlier means they will be running their air conditioners longer because of that curious relationship between daylight and temperature. But if those little details of logic don't deter the advocates, the fact that there have been no recent conclusive studies showing any significant energy savings probably won't affect them either.

It has also been argued that an extra hour of daylight will induce people to spend more money in the evening shopping, or cooking out, or golfing. Sure, that might be true, but I am not certain if there is a net benefit. After all, if people are spending their money grilling, then they aren't spending that money at the movies. And I know that I personally am more inclined to stop in for a bagel or coffee in the morning if it is light out, something I am less likely to do when I am heading to work in pitch darkness, bleary-eyed and trying to avoid looking directly into the excessively bright headlights shining at me from all directions.

So, since none of these arguments really hold up, I suspect some kind of social engineering scheme, the "bony blue-fingered hand of Puritanism" prodding me to get up earlier so I can be more productive. After all, the same sorts of people - the titans of industry who wanted a robotically obedient workforce - that were fervently in favor of Daylight Savings Time also supported Prohibition. In Michael Downing's book, Spring Forward: The Annual Madness of Daylight Saving Time, I was not surprised to read that Daylight Savings Time began as an "anti-sloth measure" dreamt up by proto-Hillary William Willett who disliked seeing Londoners sleeping during summer morning daylight hours.

Interestingly, it turns out also that, despite being promoted as farmer-friendly (untrue, farmers hated it), Daylight Savings Time was pushed heavily by Wall Street because it gave them one hour a day during which both the New York stock exchanges and the London markets were open simultaneously, affording a full hour of lucrative arbitrage opportunities.

The annoyances of this semi-annual ritual aren't the worst of it. According to Stanley Coren, a sleep expert at the University of British Columbia, the number of traffic accidents and fatal industrial mishaps increase on the Monday after we spring forward. You can read one of his studies here.

So perhaps Congress should try to contain its astronomy-bending aspirations, and stick to more worthwhile savings programs, like saving Social Security, or saving money for taxpayers by reducing earmarks and pork spending. But I wouldn't set my clock to that.

And...Jupiter? It seems something is warming these places up. Mars is warming, Neptune's moon Triton is warming. Even Pluto is experiencing an early spring thaw.

This can only mean one of two things. If Al Gore is correct, then the causes of interplanetary global warming are entirely anthropogenic, which means someone is out there, outsourcing their production facilities to planets with more lax environmental regulations. Either that, or there is something else causing this that all these planets share in common. Sun, anyone?

Economist Sam Peltzman made the entirely counterintuitive discovery that as automobile safety increased, so did the number of accidents, all other things such as higher traffic density, being equal. The effects were most pronounced when the safety improvements were mandated through legislation, such as seat belt laws. This is illustrative of how people will always adapt to a level of risk they are comfortable with, despite efforts to mitigate that risk. If you lower the risk, you encourage riskier behavior.

The reason I thought of this is because of this from CNN. Oregon wants climbers to wear electronic locator beacons above 10,000 feet on Mt. Hood and is considering passing a law mandating it. Not everyone thinks it is a good idea however:

The Mountain Rescue Association, which represents 100 search-and-rescue groups in the U.S. and Canada, said he worries that relying on electronic beacons could give climbers a false sense of security.

"They might think, `I've got this gizmo that tells everybody where I am, so I can take greater risks,'" Shimanski said in a phone interview from Evergreen, Colorado.

This concern is not unfounded. It seems that as rescue services became more sophisticated, climbers began taking greater risks. Division of Labour quotes from This article in the Eastern Economic Journal by JR Clark and Dwight Lee:

In many situations public policies, crafted to save lives and/or reduce losses, end up exacerbating rather than solving the problems. Government attempts to rescue climbers on Mt. McKinley illustrate our point. The highest peak in North America, Mt. McKinley has long been considered a demanding test of mountaineering skill and bravery. Since the first expedition attempted to reach Mt. McKinley's summit in 1903, the mountain has claimed the lives of sixty-one climbers (as of 1990). From our perspective, the most interesting fact about these fatalities is that thirty-four of them (56 percent of the total) occurred from 1980 to 1989, a decade that followed by several years the beginning of serious rescue efforts. The early climbers had an important safety advantage (incentive) over present-day mountaineers: they were completely on their own. There were no rescue groups to call on, no government agencies watching over the mountain, no helicopters or planes capable of flying injured climbers off the mountain. To survive a McKinley expedition, the earliest climbers knew they had to rely strictly on their own skills and good judgment. And they succeeded extremely well. From 1903 to 1913, forty-seven men attempted to reach the top of North America. None died and by all accounts none was seriously hurt.

The first helicopter rescue occurred in 1953 and was followed by one each in 1960 and 1967. During the mid-to-late 1970s and throughout the 1980s the government assumed ever-increasing responsibility for climber safety. If an individual or team found itself in trouble, the Park Service would not only organize and coordinate searchand-rescue efforts, but pay the bill.

By the 1980s, climbers had apparently begun to incorporate the rescue programs into their decision calculus, and both the number of climbers and the long-run death toll climbed significantly above their pre-rescue program levels. In all the years prior to 1970 a total of 35 rescues were performed. However, during the 1976 climbing season alone, there were 33 rescues. About one out of every eighteen people who attempted to climb the mountain had to be rescued. Jim Hale, a professional mountain guide operating on the mountain, observed, "You could really see a big attitude change in 1976. Back in the 1960s and even in the early 1970s, there was more of an understanding that people were on their own. They didn't rely on others for help. But in 1976, word got out that the National Park Service would pay for rescues. The prevailing attitude seemed to be "Don't worry. If we get in trouble, the Park Service will rescue us."

Those who seek easy solutions through regulation should take heed.

Yeah, I've been away for a few days. I spent the entire 4-day weekend driving from Georgia to Virginia, then to Texas, then finally back to Georgia, and the rest of the week I spent in recovery from road hypnosis. But as I usually do when I'm on the road and tiring of the same old fast food fare, I found a couple of good restaurants I will be returning to if I happen to pass through in the future. And I would not be mentioning them on here if I did not feel they were good enough to recommend to others.

The first place is a nice little barbeque restaurant outside of Columbia, South Carolina called Maurice's. They use a traditional Carolina style mustard-based sauce which has a nice balance of spicy and sweet, and even if you are used to the typical dark red barbeque sauce, you won't be disappointed with this. The meat was juicy and tender as well. The dish I ordered was called The Big Pig and includes sides as well. You can find this restaurant along Interstate 20, west of Columbia, though there are others in the area as well. Their website has a list of locations.

If you happen to be in Mississippi along Interstate 20, and you are near the city of Pearl, I highly recommend stopping at a restaurant called Frisco Deli. I believe it was exit 51, or maybe it was 49 or 52. In any case, it is pretty popular with the locals, so I'm sure anyone nearby will be able to point you in the right direction. I ordered the barbeque sandwich (notice a trend here?) and a Cajun roast beef sandwich with everything on it which I have to say was nothing short of awesome. Not that the barbeque sandwich was bad, it was delicious as well. I made the mistake of getting back on the road thinking I'd be able to eat these monster sandwiches while driving. Luckily I found a rest area not far to the east - a pretty nice one as far as rest areas go, complete with nicely wooded, drive-up picnic areas.

I think what impressed me most about this restaurant was how friendly the workers were. The person at the drive-through helpfully recommended the barbeque sandwich, saying that I could easily find my alternative choice, the Reuben sandwich, in Massachusetts (obviously noting my license plate), but I wouldn't be able to find a barbeque sandwich like theirs anywhere else. Pretty bold, so I took him up on that challenge. I think I was so used to the typical attitude I get at drive-through windows - curt, abrupt, with the transaction usually ending with a rude slam of the glass window - that I was pleasantly surprised when the guy at the window actually had a conversation with me while the food was being prepared. Definitely worth a return trip when I pass back through in May.

I guess getting used to new technology is difficult no matter where, or what century, you happen to live.

Thanks to Greg Mankiw for the laugh.

Here is a cool animated map of the history of empires in the Middle East.

Check out some of the other maps as well.

HT Coyote Blog

I don't think there is a better example in the world today of what Friedrick Hayek warned about than the situation we see unfolding in Venezuela: Political Strongman comes to power, promising to alleviate poverty and deliver equality to all. Political Strongman faces opposition, so he must galvanize his population against a common enemy:

The enemy may be internal, like the "Jew" in Germany or the "kulak" in Russia, or he may be external. In any case, this technique has the great advantage of leaving the leader greater freedom of action than would almost any positive program.

When Political Strongman's economic policies don't deliver what he promised, instead of admitting failure, Political Strongman argues that the problem is that he doesn't have enough power. So he seeks to amass greater authority to carry out his plans and punish the resistors. Again, Hayek:

There will be a stronger and stronger demand that some board or some single individual should be given power to act on their own responsibility. The cry for an economic dictator is a characteristic stage in the movement toward planning. Thus the legislative body will be reduced to choosing the persons who are to have practically absolute power. The whole system will tend toward that kind of dictatorship in which the head of the government is position by popular vote, but where he has all the powers at his command to make certain that the vote will go in the direction he desires. Planning leads to dictatorship because dictatorship is the most effective instrument of coercion and, as such, essential if central planning on a large scale is to be possible.

As the failures continue, calls are made for greater authority, more oppressive authoritarianism. The transgressors must be punished. So the Road to Serfdom ends in total, brutal dictatorship.

So what did I see today but this bit of unsurprising news from the AP:

Meat cuts vanished from Venezuelan supermarkets this week, leaving only unsavory bits like chicken feet, while costly artificial sweeteners have increasingly replaced sugar, and many staples sell far above government-fixed prices.

As if on cue, the government of Hugo Chavez denies the link between price controls and the shortages, and instead fixes blame on another group of scapegoats: "hoarders and speculators."

From the AP article:

Government officials dismiss any problems with price controls, while state TV has begun running tickers urging the public to "denounce the hoarders and speculators" through a toll-free phone number.

"The weight of the law will be felt, and we demand punishment," Information Minister Willian Lara said Wednesday.

I wonder how long it will take, as the failures of socialist central planning stack up, before the offenders are disappeared or executed, or how bad things will get before some members of Chavez's own government are denounced as "capitalist roaders."

UPDATE: Prof. Don Boudreaux of Cafe Hayek is not the least bit surprised at this development.

Often I will post articles or links to studies that demonstrate how the free market yields outcomes that are superior to those produced by government. I think it is necessary and important to investigate whether a proposed a government solution to some alleged problem is the best approach, because often the proposed remedies of alleged market failures rest upon the false assumption that there is no such thing as government failure, and that the political process is immune to self-interest, corruption, or rent-seeking behavior. So it is necessary to point out that most of the time, failures of the free market are simply replaced by even more egregious failures of government.

This should not imply, however, that the only justification for a free market system is its collective benefit, that capitalism is only useful or preferable as long as it is good for society. I believe liberty to be an absolute good that needs no further justification. It is far better to be free to make a choice, even if it is a wrong one, than be compelled to act by those who often have no personal stake in the outcome.

We must be cautious, because complete reliance on the fact that free markets tend to produce better results can be counterproductive. Using the collective good argument to defend the free market puts those who use it in the awkward position of perpetual apology: "Yeah, the free market doesn't ensure absolute equality of outcomes for all, but it sure is better than central planning!" Or the Laffer corollary, "Lower taxes are better because more economic growth means more government revenue!" It is a position that rests on the premise that there is something wrong or immoral about the free market, that the only good that comes of it is that everyone has shoes and enough food to eat, and if not for that, it should be dismantled and replaced with a new updated version of Roosevelt's NRA. It leaves its detractors convinced that there is something sinister and suspicious about the whole thing.

Liberty is its own inherent good, its own justification, and free-market capitalism is simply what people do when they are free to trade peacefully without compulsion, for their mutual benefit. It's always nice to be able to point out how the free market yields superior outcomes to central planning, but it is not central to the argument. That is why I will never agree that using eminent domain to seize someone's property, even with the promise of more development and higher tax revenues, is ever a good thing. But complete reliance on those sorts of arguments deafens people to the real argument, that economic freedom is its own good, and can lead people to conclude that it is good for government to enact laws that diminish economic liberty in favor of a set of preferred outcomes.

The Federal Reserve has finally apologized for the Great Depression.

On Milton Friedman’s ninetieth birthday, Nov. 8, 2002, Ben Bernake said:

“Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Rose: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”...

Nice to see government take responsibility for the messes it makes, even if it 75 years late.

Whenever I hear a politician decrying the supposed decline of American manufacturing and the loss of jobs I am reminded of the desperate pleas in Frederic Bastiat's fictional candlemaker's petition:

"We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us."

Notwithstanding that American manufacturing output relative to GDP has actually increased (which is the only important metric) laying false the alarmist claim of decline, and that it is only the number of people needed to do the same work that has changed, the very premise is flawed. There is nothing written anywhere that says an economy must be permantly shackled to one mode of production or one type of economic activity into perpetuity; the strength of the overall economy is not bound to the strength of any single economic activity.

This is the law of comparative advantage. If one country can produce something more efficiently than another, or if producing something in country A represents the best use of country A's resources, then country B should trade with that country for what it needs and produce what it can best. Sure, the US can continue using countless workers to manually assemble a vehicle on an assembly line, but what is being lost by devoting that human capital to something, when it can be better employed elsewhere? It is far better to free up that human capital to be used for constructing high-rise buildings, writing programming code, or countless other things our modern economy demands.

When jobs are lost due to technology or outsourcing, the people who once did them don't just become permanemtly unemployed. They find other more productive work that makes better use of their talents. They learn new skills. They expand their productivity. And in the process, everyone becomes wealthier. This Wired article about a programmer whose job was sent to India is a prime example of this:

Almost three years ago, Scott Kirwin was Wired's pissed off programmer ("The New Face of the Silicon Age," issue 12.02). Tossed from his job and raging against globalization, he had launched the Information Technology Professionals Association of America to lobby against offshored work and imported workers. These days, Kirwin still works with computers. He's just less pissed: In June, he shuttered the ITPAA. "I don't view outsourcing as the big threat it was," he says. What changed? Well, Kirwin found better work as an analyst and software architect. And he noticed that the talents that make him valuable – open-mindedness, a willingness to take risks, flashes of ingenuity – couldn't be reduced to a spec sheet and emailed to Hyderabad. If more Americans develop such abilities, Kirwin believes, the use of Indian programmers could even improve our economic outlook. Outsourcing isn't going away, he says. "But in the end, America may be stronger for it."

A hundred years ago, most Americans worked on farms. With the increased mechanization and improved crop yield, fewer people were needed to do those jobs. Most of those jobs are gone forever. But did we become poorer in the process? Certainly not. In fact, we are far wealthier in terms of real income and quality of life. We enjoy better nutrition, better education, better healthcare, longer lifespans, and much greater leisure time. We didn't get this by clinging nostalgically to romanticized visions of outdated, 19th century economic models. If the protectionists were correct in their apocolyptic vision of free trade, then we should all be poor, sick, and starving by now, if not dead.

Have you ever felt really bummed out by the fatal hopelessness of the second law of thermodynamics and its grim, inescapable prophesy for the end of the universe? Or that the universe will constantly expand at an accelerating rate until all matter - stars, planets, atoms - in the universe are torn into fragments of nothing in what cosmologists call the Big Rip?

CHeer up! There might be some good news - sort of - from physicists from the University of North Carolina.

During expansion, dark energy -- the unknown force causing the universe to expand at an accelerating rate -- pushes and pushes until all matter fragments into patches so far apart that nothing can bridge the gaps. Everything from black holes to atoms disintegrates. This point, just a fraction of a second before the end of time, is the turnaround.

At the turnaround, each fragmented patch collapses and contracts individually instead of pulling back together in a reversal of the Big Bang. The patches become an infinite number of independent universes that contract and then bounce outward again, reinflating in a manner similar to the Big Bang. One patch becomes our universe.

“This cycle happens an infinite number of times, thus eliminating any start or end of time,” [UNC physicist Paul] Frampton said. “There is no Big Bang.”

So essentially, a new universe is spawned from a fragment of the old one, in sort of the same way that a new potato plants are grown from the fragments of an old potato. Of course this means that the previous universe is still destroyed. No information from the old one will survive into the new.

You can read the whole paper at arXiv, if you're brave.

Ronald Baily wonders what the public policy implications are on this..

Here is one title I never want to receive: The World's Oldest Person. It seems as soon as someone earns that title, they die mysteriously. There is something dark and sinister at work here.

Remember the controvery over former Harvard president Larry Summers' comments about why there aren't more women in science?

One engineering department took it upon themselves to prove otherwise. Of course, the format chosen for demonstrating this probably would not please the dour professors of Harvard's Women's Studies department. (HT: Gene Expression)

Continue reading "Eat Your Words, Larry Summers" »

The minimum wage bill has passed the Senate yesterday, and is headed to conference committe, where House and Senate democrats are likely to conspire like thieves to strip the bill of any tax provisions that would soften the blow for small and mid-sized business.

On that subject, among the many justifications offered for raising the minimum wage - indeed for having one at all - is that it grants "economic dignity" to low wage workers. But what does that mean, really, when most minimum and low-wage workers are single, childless teenagers living at home or secondary earners, whose "dignity" is not solely dependent on their own income. Even if it were measurable, it seems you can buy dignity for pretty cheap these days. After all, wouldn't a minimum wage of $15 an hour offer even more dignity? Even better, a minimum wage of $150 an hour should afford the dignity of royalty.

Of course defenders of the minimum wage call that a reductio ad absurdum argument, that of course they don't think that a $150 minimum wage won't have negative repurcussions. But that leaves the question unanswered: why doesn't a $1.50 increase have negative employment effects? I think there are many credible reasons. Perhaps the amount it is raised to is close to the equilibrium wage for low and unskilled labor, so that those who are negatively impacted are so few and dispersed that they are not as politically visible. Raising the minimum wage to the level that most jobs offer as starting pay does nothing more than give politicians something to boast to their constituents about.

Also, unemployment is not the only possible effect. Studies have found that working hours are often reduced in response, and other benefits such as employee discounts are curtailed.

This leads to another point. Minimum wage apologists like to point out that the states with the highest minimum wages also enjoy robust growth and low unemployment. But this is confusing correlation with causation. It is far more likely that those are the states where it is least politically damaging to raise the minimum wage. If the prevailing wages in those states are already higher than average, of course it would follow that they can afford a higher minimum wage. And if a high minimum wage was so great for the economy, why doesn't Mississippi pass a state minimum wage law? It seems to me that a politican could greatly improve his reelection prospects if he brought jobs and wealth to his state. The fact that the wealthiest states have the highest minimum wages tells me that those states already have high wages to begin with, and that their wage laws simply relect that their politicians pass legislation in order to claim credit for that fact.

But in the inverted world of the true believers, the crazier something sounds, the more likely it is to be true.

Bruce Yandle discusses the economic theory of regulation versus the public interest theory with Cafe Hayek's Russ Roberts on a recent Econtalk podcast. In it he explains his theory, which he called Baptists and Bootleggers, that regulations result from a coalition of the selfish and the altruistic. The name of the theory comes from the scenario in which a Baptist group lobbies the city to have liquor stores closed on Sundays. With them also lobbying, more quietly of course, are the bootleggers, who stand to gain by having the legal outlets closed one day a week. The altruists are being used to give cover to the selfishly motivated. This is the way a surprisingly large amount of regulation gets passed.

Give it a listen. You may never view regulation the same way again. In fact, recent newspaper stories that once sounded odd will all make sense in light of this theory. For example, it may seem strange that Wal-mart is supporting the minimum wage increase. But it makes sense that they would, because a higher minimum wage imposes barriers to upcoming competitors in the form of higher labor costs that they can't afford. Notice it didn't get much press though. Surely they are content to let the folks at the Economic Policy Institute and the Gang of 664 to argue from the high moral ground of altrusim. If this legislation passes, some thanks is due to the large corporations who stand to benefit from having government sit on their competitors.

It has been almost or over a year since I last published my thoughts on a blog. Not that I harbor any delusions that anyone noticed. Most of the traffic on my last venture consisted entirely of spam-bots. But in case there's that one devoted fan out there that really needs to read an old post, I will be transferring the old archived posts from hersenspinsels.com over to this one.

So why did I decide to change the look, the address, and the name? Well, the appearance, because I wanted to change things up a bit. The address. Well, that's nothing more than a forgotten domain renewal. As soon as my lease expired, it was snatched up by one of those shady search sites, who quickly offered it back to me for $700. It was ironic, since that valuation was based on the amount of traffic to my site, and since that traffic consisted mostly of spam-bots!

The name reflects a new focus. The tribal premise, as Ayn Rand referred to it, dominates much of people's thinking on economic and political matters. But what is it? What does it mean? To quote:

It is obvious that the ideological root of statism (or collectivism) is the tribal premise of primordial savages who, unable to conceive of individual rights, believed that the tribe is a supreme, omnipotent ruler, that it owns the lives of its members and may sacrifice them whenever it pleases to whatever it deems to be its own "good."

Unable to conceive of any social principles, save the rule of brute force, they believed that the tribe's wishes are limited only by its physical power and that other tribes are its natural prey, to be conquered, looted, enslaved, or annihilated.

- from Capitalism: The Unknown Ideal

The tribal premise is at the root of the type of logic that says that a successful actor or athelete must "give back to the community" after they've reached the height of their success. The implication there is that they are property of the community, and that the community rightfully shares the success of the individual, though the "community" had nothing to do with that person's success whatsoever.

The tribal premise is present in the claim that there is an imbalance in the distribution of wealth. Even the term, "distribution" is derived from that same fallacy, as though wealth were a fixed quantity that belongs to a tribe which is then doled out to deserving recipients, rather than created by production, invention, innovation.