Why Freakonomics was great

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

--Henry Hazlitt

I got the book "Freakonomics" shortly after it came out. It was my first dose of "pop science" reading and I enjoyed the book very much. What I didn't realize until a few years later, after recently reading some newer pop science economics, was why Freakonomics was, and still is, the best of the lot.

Hazlitt ("Economics In One Lesson") condemned Keynesian economists for failing to properly connect economic policies with future consequences. The Keynesians counter: 'in the long run, we're all dead'. Now it is just expected of the Grand Poobahs of economics that they have the intelligence and resolve to fix any problem that comes along, and we generally see any care of the past or the future thrown out the window. Bernanke tells us not to worry about inflation tomorrow, because tomorrow is tomorrow and we only need to worry about today. Go shopping! They'll take care of it when it becomes an issue.

I specifically recall two studies in the book that led me to write this blog (admittedly, I did not read it recently or even scan through it--I'm going on memory alone here). First, Dr. Levitt attempted to find out what happened to crime rates, which led him back in time to an unexpected causation: legalization of abortion. And later he sought to find an answer to the nature-nurture question and parenting methods.Both of these studies called for looks into the past and a search for long-term relationships between causation and consequence. Unfortunately, applying rational principles to 'freakonomics' is insightful, applying those same principles to real economics is obscure, arcane, anachronistic, out of the question.....

Celebs fall for the false dichotomy

In relation to my previous post about language and manipulating ideas, I'm going to address the recent video put out by Will Ferrell and some guest celebrities.

The video (from Funny Or Die) is a satirical public service ad, in which a bunch of celebrities remind us, sarcastically, to look out for the insurance companies who stand to lose huge profits and the execs who stand to lose their large bonuses and private jets. And of course, they talk about how private insurers will refuse coverage based on contractual terms.

The obvious thing that jumped out at me from this ad was that these celebs have fallen hook, line and sinker for a false choice dichotomy--a decision between only two options. The message in the video is to promote Obama's health care reform by bashing the existing system and playing up one or two points on the reform plan. But this is an oversimplification that goes beyond oversimplification. If I were thinking of oversimplifying the health care question I could come up with no less than four options: free market, lightly regulated, highly regulated (current US system) or fully socialized. In terms of this oversimplification, the celebs in the video are actually not even for reform at all; they want to take a highly regulated system and keep it highly regulated according to the Obama plan, with some minor policy changes within the system.

I could respect these people a lot more if they did a video about the problems with the current system and then actually asked people to think of many alternatives that might help and to debate the merits of each. Dumbing the debate down into Shitty Current System vs. Reform is a false choice and of course, if such a debate is allowed to be narrowed in such a way, reform is always the most seductive option. But reform should not be synonymous with more control, more government and less freedom, particularly without an honest debate.

P.S. Will Ferrell isn't funny and hasn't been for at least 1o years....

Corporate bashing

One of the things that frustrates me with a large group of people associated with libertarianism is the corporate personhood concept.

Corporate personhood is the concept that a corporation is a distinct legal person. Corporate personhood came into being a long time ago by fiat, and now corporations demand that the rights afforded human beings by the constitution be guaranteed to them as well.

Obviously, there is a problem with this notion--corporations are not people, and only people have true rights. So why am I on the side of the corporations on this argument? And why is it such a frustrating debate?

When I say I'm on the side of the corporations, I may be exaggerating. I do not believe that a corporation is a person, nor that the law should treat it as such. And I would like to see common law rediscovered and fiat law like this thrown out. However, a corporation is a collection of people, all with full and equal rights. Generally when people argue against personhood, they are not only advocating for the corporation to be treated as an asset of a group of free people, they are instead suggesting that a corporation is subservient to the "common good".

Recently, The Colbert Report had a feature on corporate personhood where Stephen Colbert predictably railed against the notion that a corporation should be able to spend money on political campaigns or that a corporation has the right to free speech at all. This is the common type of thought associated with the anti-personhood movement.

But when you make the case that those who own and operate a corporation cannot speak freely insofar as they are part of the corporation, it is an abridgment of individual liberty against those people. While a corporation has no true rights, all the rights of speech, privacy and everything else of the ownership is legitimately extended to the corprorate asset, just as my righs are properly extended to my property.

Instead of focusing on ways the state can deny people rights, we ought to be looking at how to eliminate any privileges extended to them by the state. Corporations follow different tax and investment regulations and ownership enjoys the security of limited liability. Limited liability is one of the greatest moral hazards imaginable, providing no accountability to ownership for the misdeeds of its business' operations. This is analogous to holding a dog responsible for attacking a child, instead of its owner.

We should scrap silly notions like corporate personhood along with all the silly regulations and benefits doled out by the state, and embolden our position on individual rights and their extension to property.

What is capitalism?

"Don't you see that the whole aim of Newspeak is to narrow the range of thought?... Has it ever occurred to your, Winston, that by the year 2050, at the very latest, not a single human being will be alive who could understand such a conversation as we are having now?... The whole climate of thought will be different. In fact, there will be no thought, as we understand it now. Orthodoxy means not thinking—not needing to think. Orthodoxy is unconsciousness."

--George Orwell, "Nineteen Eighty-Four"

As a libertarian, I need never fear a shortage of frustration. The government is assured to do something I will disapprove of tomorrow. The newspapers are sure to publish all sorts of asinine commentary that ignores the logic of Austrian [free market] economics and the ethics of libertarianism. But I generally don't mind being part of the minority. What is terribly frustrating however, is the great difficulty that I have even attempting to communicate ideas with non-libertarians.

Many years before even knowing what a libertarian was, I read George Orwell's Nineteen Eighty-Four and became fascinated with the ideas expressed in the story. Most compelling was his attention to the language 'newspeak', that ideas could be suppressed by manipulating the language with which they are expressed. Now I fully appreciate newspeak, not as a literary term but as a reality.

What is capitalism? The term has taken on a full load, used to define any economic order from a pure free market to one on the brink of socialism. And we all lose as a result. As the analysts attempt to unravel the current economic crisis, the need for articulate language is paramount. A free-marketer like myself can scarcely use the term 'capitalism' in any assessment of the economy without likening myself (in the eyes of others) to Conservatives, Republicans and other groups of people who are not only terrible advocates of the free market, but in fact the most dangerous enemies of my 'capitalism'.

Eight years of George Bush calling himself "a free market guy', a fiscal conservative and a capitalist is a problem for those like me--coincidentally, a free market guy, a fiscal conservative and a capitalist, though i practically never found myself agreeing with Bush's economic policies. Conservatives pay lip service to capitalism, while they adopt corporatist policies that enrage the socialist crowds. This is a perfect dichotomy: capitalism vs. socialism, where capitalism is a system that serves the special interests and enrages the socialists, and where socialism is a system that serves the special interests and enrages capitalists. Beautiful! This was one of the many prescient points made by FA Hayek in Road to Serfdom, that government can control the people by representing an opposition to one unfavourable option in order to garner support for some policy that serves its own interests. A left-right political dichotomy serves to bolster this tactic. Once one policy has bilked the people for long enough, support will turn against it and the opposition ideology can be adopted in the same manner.

The moral of the story is, I suppose, that next time you see someone complain about capitalism, pay a little attention to which capitalism they are railing against and don't let that sour you to other capitalisms, such as my free market brand which certainly cannot be blamed for the current crisis given the fact that it was not being practiced. And while you're at it, be on guard for other politically-charged words that maybe don't mean anything, or at least any one thing, anymore.