Tracing consequences both seen and unseen.
Caitlin HartsellFalse comparisons
Posted at 11:19 pm on March 29, 2010, by Caitlin Hartsell

After reading the comments that appeared on Andrew Veen’s re-posting of  Jen Pierce’s excellent post on a newcomer’s perspective of libertarian arguments, I wanted to address one of the major problems I’ve encountered when having political debate with libertarians and non-libertarians alike: false comparisons.

This is especially a problem when talking about health care, which admittedly is a difficult topic. The argument people sometimes present is “perfect government” (in which the efficient government delivers services efficiently) versus “imperfect markets.”  Other times, it’s “perfect markets” versus “imperfect government.” Neither is very useful, as what really needs to be looked at is the actuality of how markets and government play out. Any debate that happens needs to involve what can be realistically expected from both the market and the government.

Market solutions, even in “perfect markets,” are relatively upfront about their negative points. A market solution, like one for health insurance, may not “include” everyone; a competitive market will bring the price down to a certain point so as to include more people (and sometimes, even most people) but there may be people who are still priced out and cannot afford the service, or insurance, or good. This is a flaw that is often used to attempt to discredit the solution.

The problem is that the government solution has flaws that are not initially apparent. For instance, in places like Massachusetts, Canada, and Great Britain, everyone has health insurance and coverage, but that equates to long wait times and rationing of care and quality. A lack of competition (and an excess of bureaucracy) stifles innovation possibilities and slows any moves toward efficiency. Also, governmental solutions have the backing of the law behind them; if one is unhappy with the service, there are limited legal methods to bypass them.

(Tangential note: Some may argue that rationing happens currently in the system we have, but rationing by price is a very different and more efficient mechanism than rationing by political clout. At any rate, the current system is too distorted by special interests and governmental infrastructure to be considered a market.)

The case of the sick little girl that Jen mentioned draws upon another part of the argument oft overlooked by pro-government solution proponents: the role of private charities. In the competitive market solution, people have more money to spend on other goods, including private charity.  Private charities must do good work in order to garner further donations; so in the long-term, the better charities will receive the most money and make the most impact. The market may leave some people out, but the private sector can pick up the loose ends.

So, while the market solution admittedly does not “include” everyone, it is disingenuous to compare it to a governmental solution that does “include” everyone. Each has their own faults, but the market solution has mechanisms to fix them, whereas one must resort to the black market to get around the flaws in the governmental solution.

(Also posted at Lady Libertarian)

Filed under: Economic Theory, Government Spending, Health Care, Uncategorized
Comments: 1 Comment

Audrey SpaldingA Whole Lot of Craps
Posted at 9:01 pm on March 29, 2010, by Audrey Spalding

According to a report from The Lottery Post, 18 states are considering expanding state gambling laws and institutions in order to make up revenue shortfalls. Right now, New Hampshire is considering a bill that would allow video slot machines and table games at six casinos.

To use an over-used phrase, it looks like state lawmakers and local media outlets are “all in.” The Concord Monitor colored the state’s budget problems as unavoidable and unfixable.  Even though some New Hampshire lawmakers have put forward propsed budget cuts, reporter Shira Shoenburg wrote, the cuts just aren’t enough to cover the state’s deficit. So really, the reasoning goes, the only hope is to increase state revenues somehow. Sen. Lou D’Allessandro, a major proponent of expanding casino operations in the state, offers up this rosy forecast: “If the gaming proposal is passed, there will be a significant influx of jobs and revenue. Some people have seen the light.”

Let me be clear. I don’t have a problem with gambling per se. However, there are several reasons that make state legislators’ turn to gambling as a budget shortfall fix especially awful:

1. Cuts can be made.

The choice presented, that New Hampshire can either make up its budget shortfall with new gaming tax revenues, or cut extremely important programs to the detriment of state residents, is a false one. I guarantee that New Hampshire still has some programs and dubious spending that the state could cut. New Hampshire could eliminate some state tax credits, thereby leveling the field for businesses. The state could also take a long, sober look at its budget, and reconsider how much it pays its highest-paid employees, the usefulness of certain regulatory boards, and whether some of its agencies really need to spend as much as they do on “professional development,” “awards,” and travel.

2. Legislators cannot have it both ways.

I thought that the reason states imposed restrictions and regulations on gambling was because it was an unsavory activity, judged by many to be immoral, or was considered costly to the state. As reported in The Concord Monitor, New Hampshire Senate President Sylvia Larsen never supported expanding gambling — until her state needed the extra money. If Larsen truly believed in her publicly stated convictions, that gambling is in some way harmful, the recession should have changed none of that, and she has no excuse for supporting such unsavory activity.

Along those lines, because states have welfare programs designed to bail out those who, say, gamble away their paychecks, I doubt that expanding gambling would, in fact, help states’ bottom lines. A 1999 report from the National Gambling Impact Study Commission estimated the nationwide cost of gambling, which includes things like welfare payments and unemployment benefits for gamblers who bet the farm, as about $5 billion per year.

Either state-sanctioned gambling is morally bad for the state, or it is morally good; either gambling has a net positive economic impact or a net negative one — the verdict shouldn’t change based on the government’s budget.

3. This is not found money, it is a terrible wealth transfer.

Just like everything else, gambling tax revenues are not found money. The money came from someone. In this instance, the person (cash cow) at least chose what to do with his or her money, and was taxed and charged accordingly. However, expanding casino operations is not akin to creating money or jobs. It is simply transferring them from a different, possibly less taxed, part of the state’s economy. Furthermore, when politicians do try to justify wealth transfers, they explain the process as necessary to help the needy. Under that rationale, we have programs such as welfare, and we have student-equalized state payments to public school districts instead of leaving each district to raise all of its revenues within district boundaries. I see expanding gaming, if it does in fact increase state revenues, as a transfer of wealth from the less well off to the middle class.

As John W. Welte noted, people with more money tend to try gambling;  “…but higher socioeconomic status gamblers had lower rates of pathological gambling, and lower extent of gambling involvement, particularly for lottery.”

4. Who really thinks this will work?

Interestingly, one major reason states are considering gaming expansions is that gaming revenues have fallen, likely due to the fact that people have less money to play around with. From 2008 to 2009, according to The Lottery Post’s report, gambling revenues fell an average of 5.6 percent. Some states, like Illinois, are facing declines greater than 14 percent.

So, people have less money, and are prioritizing accordingly. Turns out, gambling is not a top priority for many. Why do states think that expanding gambling might change that fact?

Again, from The Lottery Post: “People don’t have as much to spend,” said Freda Lofthus, 71, as she was playing slot machines at Prairie Meadows Racetrack and Casino near Des Moines. “I spend about half of what I used to.”

5. Why is the state involved in the first place?

Lest I get too much gaffe from the libertarians for reasoning within the constraints of the current system, let me point out that the state really shouldn’t be involved in gambling in the first place. State-sponsored lotteries that claim to fund schools seem, to me, to be even more deceptive than a private casino claiming that I can strike it rich. The state stamp of approval adds a certain authoritative nod that this sort of activity is somehow safe, and a good idea. I submit that if the state were not involved in gaming regulation, then perhaps casino competition would increase, maybe even along the lines of increased return rates and a better overall experience — instead of casino owners working to curry favor with politicians.

Filed under: Uncategorized
Comments: 1 Comment

Jen PierceThings that might seem obvious
Posted at 3:56 pm on March 26, 2010, by Jen Pierce

Eric suggested that, as a relative newcomer to libertarian philosophy, I have some recent insight into the process that the average person goes through when considering these ideas for the first time. I’m sure everyone’s introduction to libertarianism is different, but having now been on both sides of the debate, I wanted to share a couple of common themes I’ve noticed in people who are having their first conversations about free-market policy. The first is something I run into very consistently, which I’ve come to know as the “oh… you don’t eat babies after all” moment.

The number one concern I hear from people with left-leaning viewpoints is that, under a capitalist system, the poorest and weakest among society will be overlooked. The homeless, the sick, the mentally challenged, and the poor in general will have no resources, no assistance, and no hope. The core of the libertarian response to this, as I understand it, is that if private charity is allowed to take the place of government programs, they will be run more efficiently and, even if the overall financial contribution is smaller (as compared to current government spending on public aid programs), more aid will be delivered to more people. I’m speaking in extremely general terms here, because there are infinite rabbit holes into which one could plunge at this point. I will, however, share one specific example of this line of thinking, from a recent conversation about health reform. A friend of mine with a four-year-old daughter is ecstatic about the new health care bill, because she previously had problems with doctors refusing her daughter treatment because they were afraid it wouldn’t be covered by insurance. She stated, “Anyone who is opposing health reform would change their mind if they’d seen my little girl suffering from double pneumonia last winter.”

This is a great example of a fundamental misperception about economic conservatives. Lots of people assume that anyone who is arguing for less government intervention in business is just out to make as much money as possible. Which might be true, but they fail to understand the deeper premise – that we care just as much about that sick daughter, and because we understand that the market is the fastest way to get the most benefit to the most people, we campaign passionately to leave the market unhindered, to let it do its job. They don’t understand that profit represents a well-run business effectively providing goods and services. And, who can blame them? The average person hears stories about corporate corruption or abusive monopolies, chalks it up to greed, and decides that consumerism is evil, to be avoided at all costs. They don’t necessarily look deeper, to understand the role that lobbyists and government intervention play, or to realize that more freedom for business leads to more competition, which is always in their best interest.

This is old hat to everyone reading this, which is all the more reason to occasionally remember that this is not the way most people see the world. The majority of people aren’t used to thinking in terms of mathematical systems. Emotion, sympathy, and a personal sense of what seems fair are decision-making tools that can pretty much get a person through his day, for pretty much his whole life. And, someone who is concerned that libertarian policy ignores the human equation can easily find reasons to be concerned. Respectable economists make serious arguments that real-world data should be completely ignored when deriving policy. Asking someone to embrace, or even to consider, this idea is demanding that they make some fundamental changes in their understanding of how the world works.

Speaking from my own experience, I find that I’m a lot more inclined to trust a libertarian argument if a couple of things are true. First, I like to hear concessions up front. In the absence of government health care, will there be a section of people who are too high-risk to insure and will be dropped? I want to know about them. I’m still willing to consider that this might be superior to a government-run system. Too often, I find that libertarian crusaders try to gloss over uncomfortable points like this; the more energy I have to spend rooting out the worst-case-scenario, the less I trust or care about their argument.

Secondly, and this is my primary point here – when talking to someone who is really new to this stuff, it’s essential to establish common ground. Everyone basically has the same goal here; provide as much as possible for as many people as possible. Create circumstances that allow for the best quality of life you can have. For libertarians, there’s the additional criterion of interfering with others’ definitions of “quality” as little as possible. But the point is, without spending a fair amount of time seriously considering these ideas, people may legitimately not understand that libertarians don’t burn down orphanages and eat babies in the name of profit. It’s worth taking some time to emphasize the seemingly obvious common goal, and then stressing that we are simply arguing for a better way to get there.

Filed under: Uncategorized
Comments: 6 Comments

VromanGross Misesian Product
Posted at 11:20 pm on March 25, 2010, by Vroman

In Human Action and elsewhere, Ludwig von Mises asserts that GDP and other aggregate economic data are meaningless; furthermore that economics is categorically not an empirical science; no economic experiments are worthwhile, and no intertemporal comparisons between transactions can be validly made.

Mises insists that the whole of economic theory can be derived logically from correct standard axioms, without relying on real world proof.

Mises makes the analogy between Galileo rolling marbles down ramps with consistent results, and then converting this data into laws of motion; as compared to the very muddled, psychologically sensitive, reality of human behavior, whether concerning finances or any other matter.

However, if I were a 17th century Natural Philosopher, I could take Galileo’s marble data and then come up with an answer for the speed of light, and be derided for using ‘meaningless’ numbers since I would surely be orders of magnitude off, and would be missing entire categories of subtleties like the reference frame paradox, etc.

The point is that there is a definite speed of light, though the tools available at the time were grossly insufficient to precisely nail it down. Just so, I hold that it is possible to empirically prove economic theory, we simply are not able to cost-effectively achieve the necessary level of precision. Because economic theories can only be demonstrated by people practicing them, and if the theories are incorrect, those people will endure possibly extremely miserable conditions. And then you get a bloody coup de’tat and your whole experiment is ruined. Thus it is not feasible to run strictly controlled nation-wide econ experiments, though not necessarily impossible.

On the other hand, I certainly am sympathetic to the Misesian conclusion that economic data should not be trusted currently. The problem with economics as a science is that it directly impacts the standard of living of those espousing competing theories. Select groups of people have much to gain or lose from which theory is put into practice, so have huge incentive to twist data, if that is the deciding framework. If we’re trying to determine the speed of light via marbles and the naked eye, and group X somehow stands to win a free ride in life, depending on the answer, they will come to a different conclusion than scientists genuinely interested in c for its own sake. So group X shows up to conferences with skilled lobbyists and a propaganda barrage to confuse the debate among laypeople, and insert tremendous amounts of unnecessary emotional morality play theatrics every step of the way.

Thus in practice I am a firm supporter of Mises’s idea that economic theory should be provable by internal logic, and outside data isn’t necessary, but only because this is the best we can do at the moment. While I certainly appreciate the manipulability and questionable methodology of CPI and such, I disagree with Mises that such numbers are fundamentally unknowable. In the long run the transaction costs for data collection will diminish. For example, as online commerce becomes an increasingly large part of total economic activity, it will be cheaper and cheaper to number crunch the whole of human transactions, and eventually come up with “real” real GDP, et al.

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Henry Hazlitt"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. 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, Economics in One Lesson






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