Month: January 2017

One of These Things is Not Like the Other Government vs Corporations

Facebook: “We are a nation of immigrants, and we all benefit when the best and brightest from around the world can live, work and contribute here. I hope we find the courage and compassion to bring people together and make this world a better place for everyone.”

Google: $4 million in donations to immigration causes

Airbnb:

Starbucks: Plans to hire 10,000 refugees

Lyft and Uber: After some controversy about eliminating surge pricing around JFK, Uber now plans to spend $3 million on affected drivers. Lyft will donate $1 million to the ACLU

Apple: “Apple is open. Open to everyone, no matter where they come from, which language they speak, who they love or how they worship. Our employees represent the finest talent in the world, and our team hails from every corner of the globe.”

Government:

Thank goodness we have a benevolent government to keep these evil corporations in check.

Why I’m a Libertarian

In a previous post I noted that libertarian ideas seem to be frequently misunderstood, that libertarians are sometimes labeled selfish, materialistic, and uncaring. In this post I hope to show that a libertarian worldview can come from a more virtuous principle: humility. Note that the title of this post is not “why you should be a libertarian.” I doubt it will convince anybody that is not already highly sympathetic to libertarian ideas, but I hope it can show that that (at least some) libertarians have good intentions. That I may be wrong, but I’m not evil.

A widely cited joke about Ayn Rand’s famous novel Atlas Shrugged goes something like this (I believe the original source was John Rogers here):

“There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.”

It’s a good joke, but I worry that many outside of libertarian circles take its message a bit too seriously. Libertarians live in a fantasy world where everyone shares our ideals and we never think about real issues, about real people. And it is perhaps unfortunate that Rand’s view, one which believes in an objectively correct morality, that aims to tell you that there is a right way to live and she knows it, has been associated so closely with libertarian thought more broadly.

I’m a libertarian because I don’t believe there’s a correct way to live.

Family is the most important part of my life. Others might place a higher weight on different relationships, with their friends, their students, their coworkers. Some may find their strongest bond comes from a higher being, so they let religion or spirituality take precedence over earthly concerns. Another priority could be helping those they don’t know, simply because they are less fortunate or in need of help. Devotion to their jobs, to their hobbies, to the pursuit of knowledge, to any other activity that they find fulfilling – each can also drive a person’s behavior. And of course, pure material pleasures occupy a place on everybody’s scale of value. All of these considerations play a part in deciding the actions that lead to a life worth living.

I’m a libertarian because I don’t want to tell you what’s most important.

A Harvard educated liberal from Massachusetts wants to convince you to support abortion because a woman has a right to her own body. An evangelical Christian from Texas says that killing a fetus is no different than killing a child. Neither can be proven right or wrong. Each wants to impose their values on the other. Drugs are immoral. Alcohol is immoral. Gay marriage is immoral. I disagree and I’ll try to convince anyone that believes otherwise to join my side. But I’ll respect your right to believe what you want as long as you recognize mine.

A person’s moral worth is determined by how much they produce for society. No, it’s determined by what percentage of their wealth they give to charity. Or maybe it’s how much they do for their family. How devout they are in their prayers. Everyone lives by a different code. How comfortable are you in saying that your code is the right one?

I’m a libertarian because you have as much right to your values as I have to mine.

In the 2012 Republican primary debates, the moderators asked Ron Paul if a libertarian society would let a person without insurance die (for the record, he said no). It seems like an easy question – of course we can’t let them die. Let’s ask a harder question. A cancer patient has six months to live. They can extend their life for an additional 5 years, but the procedure costs $5 million in addition to a significant amount of time from doctors who could be working on helping others. They don’t have insurance. Should they be allowed to die? What if they can only extend their life 6 months? 1 day? Where do we draw the line? And who draws it?

Global warming is real. It’s almost certainly caused by humans. It could very well cause catastrophic changes in the future. Our use of fossil fuels could be the source of substantial problems for future generations. But if we stopped using fossil fuels now, we definitely cause substantial problems for the current generation. How can we determine which is worse? How do we weigh the life of an individual against the lives of their descendants?

I’m a libertarian because everything is a tradeoff and I can’t value the costs and benefits.

We all want equality of opportunity. It’s a nice slogan. What does it mean? Some say it means education should be free for everyone – that it’s a basic human right. How much? What kind? Who pays? Some people excel in a standard classroom setup. They love to learn, they can sit down with a book and study. Others can’t. And that’s ok. To think that we can create equality of opportunity by placing everybody in the exact same environment may be pure in its intention, but it’s incredibly dangerous in its execution. We weren’t all created equal and that’s a great thing. Our differences are not something to be squashed out, but embraced.

I’m a libertarian because everybody has different strengths and weaknesses, because everybody has different needs.

Markets always fail. The conditions of perfect competition laid out in a standard economics textbook never hold in reality. Every firm has some monopoly power. Every good causes some externality. Collective action problems, public goods, asymmetric information – all pervasive issues that throw a wrench into the workings of a perfectly competitive economy. Couldn’t a government fix some of these problems? Doesn’t a planner have the ability to take a big picture approach and do what’s best for society instead of what’s best for each individual? It’s possible, but where does the knowledge come from? Where do we set the prices for the monopolist? How high is the optimal tax to prevent the externality? Can we design a mechanism to improve upon the free market outcome? Even in an economic model where everybody has identical preferences and production technologies are fixed the answers are not always clear. In the real world – good luck.

Someone made you king of the world. You want to make it better. So you call in teams of experts, the best from every field. You build supercomputers capable of running an unimaginable number of calculations every second. A coordinated, planned society led by the brightest minds available – how could the chaotic workings of the free market stand any chance? But soon you realize that even the simplest questions – like how much toilet paper to produce – turn out to be nearly impossible to answer. So you give up on your unified plan and try to just fix a few obvious problems. And yet each leak sealed opens up several more – the experts and their fancy computers do their best to predict people’s behavior, but there is simply too much left unknown. Without an overarching plan the ad hoc solutions continue to multiply and the end result is a convoluted, bureaucratic mess.

I’m a libertarian because knowledge is dispersed and I can’t think of a better way of collecting it than through the market process.

Liberty is not magic. It’s not a solution to any of the problems I’ve touched on above. But that’s exactly the point. When the questions facing society are this challenging it would be incredibly arrogant to assume that any one mind or group of minds could divine an appropriate solution. A society of liberty sidesteps these questions entirely. It allows individuals – with their unique perspectives and values, with their knowledge of their own specific time and place – to attempt to find solutions for their own much smaller problems. Most of these attempts fail, but a free market rewards those that work, letting the best rise to the top, creating a better world for all.

Maybe I’m wrong. Maybe individuals making decisions for themselves results in outcomes that are worse for everybody. Maybe governments are better at weighing the total costs and benefits to society than individuals acting on their own. Maybe a coordinated plan can figure out better answers to the questions facing our society than the spontaneous order of a free market. Maybe. And I’m happy to have those debates. But never say that I haven’t thought about these issues. Never say that I’m not worried about poverty, or the environment, or the thousands of other important problems that affect this world every day. Never question my intentions.

And never say that I’m a libertarian because I don’t care.

I’m a libertarian because I don’t know.

 

Study Finds That Nobody Changes Their Mind After Reading Fake News

You'll Never Believe What Trump Said About It

The title, in case you didn’t already guess, is fake news. There was no study. But think about your reaction when you read it. Raise your hand if you said “wait a minute, I always thought fake news was a huge deal but I guess this study proved me wrong. I’ll just change my mind without thinking about it at all.” Anyone? Yeah I didn’t think so. And if you aren’t convinced by a headline on a reputable publication such as this one (OK maybe not so much), are you really buying the fake headlines that the Pope backed Trump or that Hillary actually didn’t win the popular vote?

Recently there has been an uproar surrounding these fake headlines. Germany wants Facebook to pay $500,000 for every fake news story that shows up. California (of course) wants to pass a law that will make sure every high school teaches its students how to spot fake news stories. I wish those stories were themselves fake news, but they appear to be all too real.

Now there probably are some people who do read these fake headlines and don’t do their research. Maybe they’ll store it somewhere in the back of their mind and use it as evidence to support their positions in debates with their friends. But I suspect that the only people who believe a fake headline are ones who were already inclined to believe it before they read it. No study has been done, but I’ll make the claim anyway: Nobody changes their mind because of fake news.

(One qualification to the above point is that it may break down if real news were censored. Here I am thinking about a case where the government restricts the media so that propaganda becomes the only source of information. Obviously that would be a major problem)

Perhaps more concerning is that people also don’t seem to change their mind because of real news either. They don’t let the facts guide their positions, but instead seek out the facts that support the positions they already held. Is believing a fake news story any worse than only believing the stories that confirm your preconceived inclinations?

In other words, the problem is not fake news. The problem is confirmation bias. Everyone’s guilty of it. I certainly am. How could you not be? With the internet at your fingertips, evidence supporting nearly any argument is freely available. And I don’t just mean op-eds or random blog posts. Even finding academic research to support almost anything has become incredibly easy.

Let’s say you want to take a stand on whether the government should provide stimulus to get out of a recession. Is government spending an effective way to restore growth? You want to let the facts guide you so you turn to the empirical literature. Maybe you start by looking at the work of Robert Barro, a Harvard scholar who has dedicated a significant portion of his research to the size of the fiscal multiplier. Based on his findings, he has argued that using government spending to combat a recession is “voodoo economics.” But then you see that Christina Romer, an equally respected economist, is much more optimistic about the effects of government spending. And then you realize that you could pick just about any number for the spending multiplier and find some paper that supports it.

So you’re left with two options. You can either spend a lifetime digging into these dense academic papers, learning the methods they use, weighing the pros and cons of each of their empirical strategies, and coming to a well-reasoned conclusion about which seems the most likely to be accurate. Or you can fall back on ideology. If you’re conservative, you share Barro’s findings all over your Facebook feed. Your conservative friends see the headline and think “I knew it all along, those Obama deficits were no good,” while the liberals come along and say, “You believe Barro? His findings have been debunked. The stimulus saved the economy.” And your noble fact finding mission ends in people digging in their heels even further.

That’s just one small topic in one field. There’s simply no way to have a qualified, fact-driven opinion on every topic. To take a position, you need to have a frame to view the world through. You need to be biased. And this reality means that it takes very little to convince us of things that we already want to believe. Changing your mind, even in the face of what could be considered contradictory evidence, becomes incredibly hard.

I don’t have a solution, but I do have a suggestion. Stop pretending to be so smart. On every issue, no matter what you believe, you’re very likely to either be on the wrong side or have a bad argument for being on the right side. What do the facts say, you ask? It would only be a slight exaggeration to say that they can show pretty much anything you want. I’ve spent most of my time the last 5 or so years trying to learn economics. Above all else, I’ve learned two things in that time. The first is that I’m pretty confident I have no idea how the economy works. The second is something I am even more confident about: you don’t know how it works either.

Please Don’t Audit the Fed

Source: Wikimedia Commons

Rand Paul, following in his father’s footsteps, has re-introduced a plan to audit the Fed. Trump supports the plan and even Bernie Sanders voted for it the last time the bill was put up before congress. I have no idea why. There might be an argument for ending the Fed entirely. Larry White gives a good summary of the argument in this video. I’ve written about the American Free Banking System, which worked reasonably well in the absence of a central bank (although the evidence is mixed). And maybe ending the Fed is the ultimate goal of Fed audit supporters and this bill is just a symbolic victory. But it really does essentially nothing useful and could potentially have detrimental effects.

In the press release linked above, Thomas Massie says “Behind closed doors, the Fed crafts monetary policy that will continue to devalue our currency, slow economic growth, and make life harder for the poor and middle class. It is time to force the Federal Reserve to operate by the same standards of transparency and accountability to the taxpayers that we should demand of all government agencies.” Even besides the fact that there is no serious economic analysis I know of that says the Fed makes life harder for the poor and middle class, this statement is complete nonsense.

Does the Fed need to be more transparent? I have a hard time seeing how it possibly could be. The Fed already posts on its website more information than anyone other than an academic economist could possibly want to know. Transcripts from their meetings, their economic forecasts, justifications for interest rate changes – it’s all there in broad daylight for anybody to read. As David Wessel points out in an excellent Q&A on auditing the Fed, the Government Accountability Office (GAO) already knows everything important about most of the assets held by the Fed.

The only possible change that could come as a result of auditing the Fed is more influence by congress over Federal Reserve decisions. That’s terrifying. Whatever your opinion of the Fed, it’s impossible to deny that it’s run by incredibly smart people who have dedicated their lives to understanding monetary policy. That doesn’t make them infallible. I’m all for taking power away from experts, for decentralizing and allowing markets to control money. But if we’re going to allow a group of individuals to decide the policy, at least let them be people who have some idea what they’re talking about. You might not love Janet Yellen, or Ben Bernanke, or Alan Greenspan, but I can’t imagine anyone would prefer monetary policy to be run by congress. Think about the arguments over raising the debt ceiling. Do we want that every time the Fed tries to make a decision? I certainly don’t.

I can absolutely criticize monetary policy. The Fed has come in below its 2% inflation target consistently for about 10 years now even though unemployment had been far from the natural rate. Maybe an NGDP target would be an improvement over the current dual mandate. And maybe we don’t need a central bank at all. I’m not opposed to monetary reform. But I can’t get behind a bill that only appears to make conducting monetary policy more political.