Responding to Rob

Rob Monkey posted a long comment on the “Sam Harris Redux” post, and I think it’s worth responding to in a post, both because the response has to be lengthy and because Rob covers many of the prominent liberal arguments against markets and libertarianism. Before beginning I want to emphasize that I wouldn’t go to such lengths if Rob came off as a dolt, but he clearly isn’t, and by covering so many points he has generously given me an opportunity to respond to a wide range of liberal concerns. Take a deep breath, this is a pretty lengthy post.

I guess the reason I think [Harris’s] comment was an off-hand remark is that the real focus of his argument was that they don’t seem to be using their money in a fashion that actually creates jobs, while at the same time pushing for lower taxes and government austerity, i.e., cutting funding for governmental jobs.

1. How do we know that we’re talking about the same “they” in these two distinct instances? Have you, Harris, or anyone else analyzed the overlap between those who are holding their money in savings accounts right now and those who are pushing for lower taxes? It’s assumed, and the argument depends heavily on the assumption, but what’s the evidence for it? (An allied question: Is it wealthy individuals who are holding their money in savings accounts or is it firms?)

2. Sure they could use their money to create jobs, but would those jobs be productive or would they just be make-work that ultimately loses the company money? And if they are just make-work that loses the company money, how good is that for the economy? There’s an understandable tendency to focus on jobs because we can see the suffering of individuals who don’t have them–they’re both very concrete and very sympathetic. And of course for them it doesn’t necessarily matter if that job really helps the economy, because it would help them. But just putting people to work does not by itself help the economy because it does not necessarily create any value. If Ford rehired all the workers that have been laid off over the past 5 years and put them to work making Edsels, or sweeping the floors, or digging ditches then refilling them, Ford loses out. Sure, those people are better off (at least temporarily), and the money they earn they spend, creating other jobs, but in the end no value has been created for Ford, so at some point they run out of money to burn and have to lay those people off and perhaps others besides. We hope that at that point the economy has revived through those ditch-diggers’ spending so that they can find other jobs, but it’s just a hope, not any kind of certainty. And meanwhile Ford has thrown away money that it could have invested in a more valuable opportunity–although that opportunity may not have come for some months or even a couple of years—which would ultimately have created more jobs.

Harris, in using the term “hoarding,” chose an emotionally-laden term that obscures rather than advances reasoned analysis. A better, more accurate, term would have been “waiting and looking.”

I guess what maybe he (or at least I) don’t understand is what I perceive to be a denial that government can create jobs, since it lacks the apparent magical powers necessary.

I don’t think any economist would deny that the government can create jobs. The question is whether it’s job creation is really a boost to the overall economy or nothing more than—as in the hypothetical case of the Ford ditch-diggers—a temporary boost to certain individuals. In other words, yes government can create specific jobs, but it’s not certain that they can create a net gain in jobs, at least for more than the short term. Again I’ll note the CBO stimulus analysis which showed a short-term improvement for the economy but with negative effects down the road. For the economy as a whole (although not for the individuals who get the job), it’s like a medicine that makes you feel better today but delays your overall recovery to good health.

Somewhat recently the U.S. infrastructure was rated by the American Society of Civil Engineers, and they gave it an overall grade of D. We’ve put some money into this, but what exactly would be wrong with trying to do something beyond patching holes and rebuilding a few crumbling bridges?

Nothing at all wrong with it, generally speaking, but that’s not actually a jobs issue. We should be investing in our infrastructure regardless of the economic conditions, not just to create jobs. The only good economic reason to do it during a recession is because you can get the materials and labor cheaper than you can in boom times. That it puts some out-of-work people to work is just a nice side-benefit.

So I have no objection to spending on infrastructure right now, but… (there’s always a caveat), because of politics there’s no guarantee the infrastructure spending will be on what’s needed rather than on what politically adept politicians can finagle for their states and districts. That is, I fully support infrastructure spending as a good thing in itself, but I recognize that much of our infrastructure spending will not be targeted toward what an objective assessment would recommend.

Our internet infrastructure is pathetic, we invented the goddamn technology and we’re lagging like crazy at getting rural areas covered and putting up wireless in cities.

A) I’m far less concerned about whether I can get wireless on any street corner in Chicago than whether the bridge over the Chicago River is going to collapse under me. Sure, some places are doing really neat things with internet connectivity, but given our failing infrastructure, is that really where we should be putting our infrastructure spending? (The most important concepts in economics: tradeoffs and opportunity costs.) And what is the net return on investment for putting wireless up everywhere? Especially since anyone who really wants it can get it via their cell provider?

B) Why does that have to be a government project? Wireless is really a private good, because it’s easy to exclude non-payers, so if the net return on investment is there, I think we should see private providers moving in. In some cases, though (iirc), I’ve seen municipalities moving to exclude private providers from getting into the market.

And hell, would it be that bad to borrow money to put people to work doing some of the things that just need doing in our country?

Not at all. Capital projects are precisely the kind of thing we should borrow for—our current budget mess is because we are in the habit of borrowing to finance on-going spending (operating costs).

So what if all we get in the end is some improved national parks and a few more people online?

It depends on the value of those things. Believe me I can point to some national park spending that ought to get done. My brother frequently notes that Yellowstone National Park needs some real investment in its sewer system. But what politician wants his name on a sewer system? So what we are likely to get is spending on already sufficient visitor’s centers, providing no net gain in value.

Isn’t it worth it to just give people some work and some income until the private economy gets going again?

Not if the spending delays the advent of the private economy getting going again. There seems to be an underlying assumption that the government spending will do some good, and no harm. But, again, we have to think about the tradeoffs and opportunity costs. What doesn’t happen because the money is being used by the government?

Perhaps it helps to think of it this way–if you hadn’t spent that time writing your comment on my blog, what would you have been doing? If you hadn’t, we wouldn’t have your comment and we wouldn’t have this blog post. But we would have had something else, and while that initial activity would have been less valuable to you (or else you would have done it instead of commenting), what else might have resulted from it in the way that this post resulted from your decision to comment? We don’t know, but it would have been something, and possibly it would have been ultimately of greater collective value.

This is where I seem to be really confused. I get that the government can’t just create jobs out of thin air, but we have things that need doing, and a shitload of people without work. Isn’t there some bad economic impact to wasting available workers?

Yes, there is, because there is bad economic impact to wasting any kind of resources. But that doesn’t mean it’s always beneficial to employ all available resources at once. For those individuals work would be valuable, but that value doesn’t necessarily scale up from the individual to the economy as a whole.

As far as your assessment of the banking crash, I don’t understand the idea that they weren’t packaging garbage. They were selling loans to people with no job and no income

Initially pushed to do so by the government, which was threatening them with accusations of redlining. And then as it paid off, because the housing market got hot, other companies jumped in because it did look like a safe bet. The housing market got hot because the Fed kept interests rates low, probably too low, and because Clinton signed a law eliminating capital gains taxes on houses that were held for, iirc, two years; so let’s not forget the role the government played in the mortgage crisis.

then packaging that up with a bunch of other mortgages and selling it to people who assumed it was a safe bet.

Buyer beware, man. They were not selling residential mortgage backed securities to mom and pop but to professional financiers. Anyone could have looked at those things (and some did) and realized there wasn’t enough transparency to assess their real value. But as long as the overall default rate in the economy is low, there was plenty of reason to think that the overall risk of holding them was low. Arguably they should have looked ahead and seen that it was not a sustainable prospect because it all depended on continuously increasing home prices (and some did), but financiers are human and make mistakes, too. Hindsight is a hell of a lot easier than foresight, unfortunately.

They assumed that because the idea that a fund based on mortgages would all of a sudden crash because the multiple decades long foreclosure rate would jump an order of magnitude or greater was an extremely low risk.

In the long term it was a pretty high risk, but for any given moment during the short and medium terms the risk wasn’t that high. It’s like any asset bubble—sure it’s going to bust some time, but it probably won’t bust today. Again, hindsight’s easier than foresight, and financiers are as fallible as any other humans.

Meanwhile the bankers were selling the most reliable chunks of those securities to their friends and giving pensions, city governments, etc. the shitpiles.

As respectfully as possible, I’m going to call bullshit on this one until I see real evidence. First, it contradicts the idea that the real value of these things couldn’t be assessed. Second, they weren’t “giving” anyone anything. I know you used that term casually, and not really meaning “just giving them away,” but it still obscures the analysis, because investors were paying for these things, and if there was actually the ability to recognize their real value and risk, then the “most reliable ones” would cost more and the “shitpiles” would cost less, and your argument amounts to a claim that pension funds and city governments were making riskier investments than the bankers’ friends. Maybe they were, but it’s not an unusual investment strategy to pay less to take on more risk, and it’s the investor’s choice to do so, unless you can demonstrate evidence of actual fraud.

Sorry, but as much as government “pushed” (encouraged) banks to give loans to people with lower incomes, I don’t think you can draw a direct line to selling loans that were pretty much guaranteed to ruin someone’s financial future without going into fraud territory.

I’m afraid I have to call bullshit again. No loans were “pretty much guaranteed to ruin someone’s financial future.” The default rate skyrocketed primarily on adjustable rate mortgages, and ARMs were not guaranteed to ruin anyone’s financial future. I had one, and it actually helped my financial future considerably because it enabled us to get into a house, remortgage to a fixed rate after a couple years, and ultimately sell the house at a decent profit (even though we actually sold it at a below market price). ARMS only became problematic when housing prices stopped climbing. Yes, that was inevitable. But nobody could tell when it would happen. And if you look at the number of people who benefited from ARMs, it’s a hell of a lot larger number than the people who ultimately got bit. Are they a good idea? In the big picture maybe not, and we may not want to go back to using them widely, but it’s dead wrong to say they were guaranteed to ruin a person’s financial future.

And most mortgage lenders were no more aware of the likelihood of a housing crash than were most mortgage borrowers, so fraud is a tough claim to make.

And mortgage borrowers were beating down the doors of the mortgage lenders demanding these loans.
I do find it interesting in this type of discourse that the money people are assumed to be shrewd and discerning (except when it’s convenient for them not to be, like pension fund managers), while consumers are always wide-eyed innocents incapable of fending for themselves in any way. Sure, consumers make mistakes (they’re human and fallible, too), but many knew the risks they were taking, and many really have only themselves to blame for making the mistake of thinking they needed a mortgage for a 2500 square foot house instead of a 1200 square foot house.

This may be a good point to emphasize that I think the government’s role was merely a consequence of well-intentioned mistakes, too, not some nefarious scheme.

Not to mention these same bankers were investing heavily in credit default swaps on these loans, knowing that the chance of a crash was getting higher and higher the more garbage they sold. You can call it insurance on their debt, but they were buying insurance on loans they didn’t own anymore while trying to crash the same loans. They took out insurance on other people’s houses then burned them down (metaphorically).

I’ve yet to talk to any non-finance expert who has a clear understanding of credit default swaps. I don’t have a clear understanding of them myself. So I don’t talk much about them. If you really understand them, I’d be happy to listen to a good explanation.

I will say this, though. To say they metaphorically burned down people’s houses implies that they took concrete steps to make it happen. Is there evidence of that?

I also don’t understand the “energy independence is overblown” idea. You seem to be saying that getting more of our energy from a local source is a bad thing as it will limit our access to foreign sources? How so?

Getting more of our energy from local sources is not at all a bad thing, as long as the costs are less than getting it from foreign sources. (Given the non-marketed costs of fossil fuels, in many cases the costs might be less, if they’re all calculated correctly.) But if we emphasize local sources too much we might eliminate the supply chains that bring in foreign sources. That’s all well and good as long as our local sources are dependable, but if they go down we might not be able to reconstitute them quickly. “Independent” really means “dependent on self,” but that can be a dangerous dependency. The best is not to be dependent on any source, but to have enough alternatives available that you don’t have to worry much about losing any one of them. Then it doesn’t matter if it’s locally produced, if it’s coming from Canada, or Saudi Arabia, or wherever, because if one goes down others are readily available to replace it.

I’m not against producing more power locally. I’m just against the generally wrong-headed notion of economic independence. Self-sufficiency does not make a country wealthy. So said Adam Smith, and I’ve not yet seen evidence he was wrong about that.

If we invest in more solar and wind energy or fund more programs for energy efficiency, we are creating a local market for energy that is renewable, or saving our consumption (reducing the amount we need to buy).

No, that doesn’t reduce the amount we need to buy. We still have to buy it. That we’re buying it from ourselves doesn’t signify at all. If we excluded foreign cars from our market would we say it reduces the amount of cars we need to buy? And again, the real issue is costs. I love the idea of solar and think we can probably tap into it a lot more (although I’m ignorant on the technical aspects and am mostly speaking out of my ass when I talk about solar). When I was in Toronto recently I saw workers installing solar panels on the roof of a building on the U. Toronto campus. There’s been a lot of talk lately about painting roofs white, which my initial exploration of seems to show as a good idea, but what about actually capturing and using those solar rays instead of just deflecting them? Wind I’m still up in the air about (eh, that wasn’t intentional, but I’ll leave it). I haven’t looked at it closely myself, but a couple of my students have written papers on it and have come away dubious that the environmental costs are worthwhile. I hope they’re wrong, but I don’t know.

Saving, reducing consumption, is of course a good idea, and businesses—including power production companies—have been working on that for years now. When I replace the century old windows in my house, I’ll get triple-paned argon (or some such) filled windows. I don’t think you’ll get many economists arguing against reduced consumption of energy as long as it is cost effective.

So my overall argument isn’t “we should buy more foreign oil,” but “we should use the cheapest energy sources (externalized costs not ignored)” and a diversity of them. If that results in something that is de facto independent, that’s all well and good. But we shouldn’t shoot for dependence while ignoring those other two factors or assume that achieving independence will by itself achieve those two factors. I know you weren’t advocating that, but without awareness of it the drive for independence could inadvertently ignore their importance.

I don’t get how that is limiting what we can buy so much as making a large investment that pays off very well over time, which is the exact kind of thing I want government to do.

The question is how much time it takes to pay off, and whether doing something else with that money will pay off better during that same amount of time. Since we can’t do everything that we would like to do all at once, we have to pick and choose which will have the best payoff, not just say “this one has a good payoff, let’s do it.”
I agree that I want government to spend in ways that pay off over time. And I’m sure you and I would agree on the value, or lack of, of many spending items. But which ones have the best net payoff? Be sure to show your work!

Just as an example, the Great Lakes have the highest rating you can get for sustained strong winds. Currently a lot of my energy comes from coal, which has environmental and social costs that are largely externalized by mining companies. If the government invests in wind energy in Lake Michigan, yeah I guess the mining companies profits drop off a little, but we get a lot of good jobs that are safer than mining, and energy that at this very moment is being wasted could be used, without a drop of mercury in the soil, without a mountaintop blowing up, and without practically any chance of a dangerous incident. How can this be bad for our economy or for our access to energy?

I share your concerns about coal energy. But how much wind does it take to produce coal? Are we willing to accept that many turbines and their associated effects on wildlife? Perhaps. I can’t say because I don’t know the data, but my guess is you don’t, either. I would love to find out that we could replace all our coal usage with windpower at an acceptable cost, but I doubt it’s true. And again, why does government have to invest in it? Energy is a private good—if it’s actually cost effective, we don’t need the government to invest in it. If it’s not, it’s dubious that we really want government to do so. If it’s only not cost-effective because the market doesn’t internalize the costs of coal, let’s change the rules so those costs are internalized (which we should damn well be doing anyway). But you haven’t presented any justification for why it should be government that does the investing in wind.

far as the taxes thing, I think this is where I completely fall off the libertarian wagon. Society benefits from the use of force, so society is immoral?

Eh, society’s an amorphous concept. Society’s just composed of people, and to say “society does” something is not really meaningful. Group-talk is a useful fiction at times, a sort of shorthand for communication (“the crowd went wild”), but as political scientists Ken Shepsle and Mark Boncheck write in Analyzing Politics,

Groups, classes, firms, and nation-states do not have minds, and thus cannot be said to have preferences or hold beliefs. (p.19)

Look, I’m not opposed to taxes per se, but you’ve asked a good question for a philosophy class. Assuming the concept of society is meaningful in the sense that it can be said to “benefit” as an individual might, then if it benefits from force, why isn’t it as immoral as an individual that benefits from force? You object to financiers who you think benefit from fraud, and fraud is commonly understood as a type of coercion, so I assume you think they’re immoral. Why does force suddenly become moral just because it’s a useful fiction called “society” that benefits from it?

Now for myself, I’m not a normal libertarian (“natural rights”? bah!), so I take a utilitarian approach. Assuming force in a society is inevitable, what structure of force minimizes human suffering from the effects of force? Government minimizes force-induced suffering in comparison with anarchy is a plausible, albeit not definite, answer. But that doesn’t necessarily make it moral, and it certainly doesn’t mean any particular use of force that goes beyond merely preventing anarchy is justified.

This seems to be the kind of argument that exists in some magical world where if society stop using force, someone else wouldn’t step up to the task.

Well, as I said on the “What’s My Ideology” post, I also think someone else would step up and use force in the absence of government, and then they would become the de facto government. So I’m not that far off from you in some ways.

But the research of James Scott suggests that a society without a state might be possible in certain very favorable (but not widely available) circumstances, so that magical world might not be so magical, just rare.

Also, accepting the necessity of someone’s use of force, because it prevents someone else’s (worse) use of force does not by itself provide a justification for more than a bare minimum of force. When you start talking about taxing people to provide benefits to others, an entirely new type of justification is required.

Honestly, I just don’t get the idea that requiring people to pay a cost for roads and other things is some sort of evil. I’m able to have a job because I can drive on safe roads to get there.

I don’t think it’s necessarily evil, either. But if we can have the roads without the force, isn’t that even better? For example, I’m a fan of public festivals, and I truly don’t give a rat’s ass if I’m being taxed to support them. But I’m cognizant of the fact that some people don’t enjoy them and don’t indulge in them. What is the justice in making them pay for my enjoyment? When I lived in Eugene, Oregon, the local festival almost died for lack of funding, then a bank stepped in and offered to foot the bill. To me that was the ideal situation—I still get to enjoy the festival on someone else’s dime, but they were voluntarily giving me that benefit (not out of altruism, to be sure—although that’s how they pitched it—but for the good publicity that the appearance of altruism brings). But some of my friends were appalled—it bothered them more to have a corporation voluntarily fund the festival than to make the old lady next door to me involuntarily fund it.

Roads, obviously, are more difficult. The coordination and collective action problems involved can potentially defeat private efforts (although technology is changing that—you can now use the same payment method to drive toll roads in multiple states operated by different private firms). But my point is more general–just because it’s a good thing to have doesn’t necessarily mean it requires taxation to achieve, and if we can achieve it without taxation that is a superior outcome. Alas, we can’t always, and I—albeit not all libertarians—accept that (grudgingly).

My work is able to exist because we have clean water, a reliable power supply, and the ability to send and receive goods on a safe and reliable transportation infrastructure.

Are you sure the clean water and power supply are both provided by government? In my case, water is publicly provided, but power isn’t. In general, there’s a mix of private and public producers of those things in this country. Public provision is probably only necessary in places with small populations (too few customers to cover the infrastructure costs). Of course what that means is that people in areas with large populations end up covering the cost, subsidizing those folks decision to live in the boonies.

The low individual cost of this is provided by taxation,

O, Rob, now I have to really come down hard! This is a common belief, but in fact it’s an analytical error. Taxation does not reduce individual costs. What you mean is the low immediate is provided by taxation, but the rest of the cost is provided by taxes, and the total cannot possibly be lower than it would be in the absence of taxation, when averaged across all individuals. Of course for particular individuals taxation may make their costs lower, but only by forcing their costs onto someone else. And in reality, because taxes hide the real cost, it makes it more likely that the real cost will be higher. (In that respect, taxes are just like hidden fees in phone bills—and all true liberals object to those!)

and it allows for innovation, new jobs, and the creation of new technologies.

Ummm, taxes allow for innovation, etc.? Well, they don’t necessarily disallow it, I admit, and if we look at things like the military, NASA, and the NSF we can in fact see taxes resulting in innovation and new technologies. But there seems to be an assumption here that without taxes there wouldn’t be such innovation, or at least less of it. But that contradicts everything we know about the competitive pressures markets place on corporations. How do I attract customers away from you? By building a better mousetrap. How many tax dollars did it take to innovate I-Pods? How many tax dollars did it take to innovate anti-lock brakes and airbags? How many tax dollars did it take to innovate the cotton gin?

Don’t worry, our new technologies are pretty non-evil, mostly involving a way to make plastics without using oil fractions.

Oh, I don’t worry about innovation. I’m by nature conservative in my ways, a luddite, and a bit of a pessimist, so I’m a natural candidate for being certain that future innovations will doom humanity to some dystopian technological future. But I’m also an empiricist to some degree, and if I look back through history all I can really see is technological innovation making our lives better and better. That’s why I’m reluctant to leave it up to government—most of the technologies we have benefited from have been created by entrepreneurs and marketed by greedy corporate bastards.

I’m sorry, but if any liberal said we should tax the rich 100%, I would tell them they are an idiot and have bad ideas.

Well, that depends on what margin of their income is so taxed…Laffer Curve and all that! *grin*

If a libertarian says all taxation is theft, I would probably do the same,

OK, but you haven’t yet really explained why it’s not actually theft, but just justifiable theft. Invoking “society” isn’t an explanation, it’s hand-waving.

or at least tell him to go find an abandoned oil rig to live on if he doesn’t like what society has to offer for a pretty minimal cost.

But most libertarians don‘t want to live isolated lives. They want to live in a social environment, but one that is more voluntary. It’s ok to think they’re wrong, but let’s not base our conclusions on a caricature.

In summary, I see three basic sources of error. One is a tendency to treat groups as though they can be analyzed in the same way as individuals. This is a methodological issue: sociologists and many political scientists attribute agency to groups, but most economists and many political scientists object that only individuals can be agents (of course the sociological folks think we’re too reductionist). I’m frequently surprised at the number of physical scientists (making an assumption here, based on Rob’s mention of “science machines”) who assume group agency despite usually being methodological reductionists themselves. I would think an individual agency approach would be the most natural instinct for them, but it doesn’t seem to be; there seems to be a natural tendency for humans to view groups as agents, which is an intriguing thing all in itself.

The second error is a tendency to see only the immediate and visible effect and not to follow the analysis through to the less immediate and less visible effects. The most famous critique of this is Bastiat’s “broken window” analogy.

The third source of error is the tendency to assume the incapacity of markets and the necessity of government in areas where the empirical evidence suggests differently. I initially took an economics course with great skepticism, being rather left-wing (a registered member of the Green party, even), and over time as I’ve studied it I’ve become ever more amazed at the power of markets to do good, and ever more depressed at how often “pseudo-market activity,” which is really corporations co-opting the coercive force of government, are the real cause of bad. That’s not to claim markets are perfect–as I said to my political economy students this week, one thing markets do not seem to give us is the kind of secure stability (unchangingness from a comfortable status quo) that many, perhaps most, humans seem to desire. Markets don’t solve externalities and often don’t solve collective action problems. But government often doesn’t solve those either, not least because corporations don’t benefit from their solution, and government agents tends to be more pro-business than pro-market. Governments do, at times, do some good, but they do it by hiding the true costs and by robbing Peter to pay Paul, which diminishes the moral goodness of the good things they do.

Oddly, one of the things we criticize markets for is externalities–the socialization of costs and privatization of benefits, and yet that is precisely one of the things we praise</em? government for!

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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One Response to Responding to Rob

  1. D.A. Ridgely says:

    All elected officials should be required to have a sewer named after them.

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