30 Aug 2014

A Free Society Must Give Up Empire

Pacifism, Shameless Self-Promotion 1 Comment

I want to go out of my way to say this isn’t an “attack” on Dan McCarthy. (It would be ironic to launch an airstrike from an antiwar website.) I respect Dan’s views greatly, and frankly was somewhat shocked when I read his article making a qualified case for U.S. empire. In any event, here’s my response. An excerpt:

[T]he (classical) liberal order that survived briefly under the heyday of the British Empire was snuffed out by World War I; the existence of a British empire did not guarantee the survival of liberalism. Further, we know that US entry into World War II brought the US itself to the brink of outright central planning during the war, and that the emerging Security State in the postwar era was the antithesis of a democratic Republic.

Although I generally respect his writings, I must sadly conclude that McCarthy’s recent article in support of US empire was woefully deficient. Indeed, I would argue the exact opposite of what McCarthy tried to demonstrate. Specifically, if you allow your government to maintain an empire abroad, then you can’t possibly expect a free and open society at home. This fact is staring us in the face as police departments across the country accept the surplus military equipment used in foreign occupations.

30 Aug 2014

Responding to Bryan Caplan on Why Government Enterprises Are So Good

Big Brother, Bryan Caplan, Shameless Self-Promotion 5 Comments

My newest LibertyChat article takes on Bryan Caplan’s surprising argument that Rothbardians can’t explain why government enterprises work so well. Here’s my conclusion, so you can see where I took the argument, but you should read the whole thing; I even talk about ice-pick lobotomies. (Yes, I went there.)

We see that the spirit of Rothbard’s analysis stands up, after all. There is not a sharp divide between “purely private” and “totally government” enterprise, but instead there is a spectrum. Some enterprises, like your local grocery store, are purely private–they can’t hobble their competitors and they can’t force their customers to give them money. Others, such as the Post Office, still have to convince their customers to give them money voluntarily, but they enjoy legal monopoly privileges. Still others, like a government school, receive tax funding regardless of how satisfied their “customers” are, but they can’t force parents to send their kids to that particular school, because even attendance laws can be satisfied by private schools or homeschooling (depending on the state). Finally, some enterprises–such as the NSA–can take your money and force you to enjoy their “services” with no choice on your part whatsoever.

The Rothbardian analysis, adjusting for this more nuanced spectrum, would say the grocery store is great, the Post Office and government school are a lot worse but not monstrosities, while the worst people in society will end up messing with you in the NSA and related agencies. And yep, that sounds about right, looking out at the world with open eyes.

29 Aug 2014

The GAO’s Whitewash on “Social Cost of Carbon”

Climate Change, Shameless Self-Promotion 2 Comments

I know some of you may be vaguely interested in the climate change policy debate, but you realize there’s a lot of reading to get up to speed you would have to decide which person is fudging the facts etc. If that’s you, I’ve got just the blog post you’ve been waiting for.

In this post at IER, I use the just-released Government Accountability Office (GAO) report to show that the Obama Administration’s Working Group on the “social cost of carbon” clearly ignored two of the government’s own guidelines when doing cost/benefit analyses. This isn’t up for debate; I let the GAO itself establish the rules, and then quote from the GAO report itself to show the Administration ignored them. What’s hilarious is that the GAO report doesn’t take a stand on whether this is legitimate; it merely says that it describes what happened.

There’s no point in excerpting, you just need to follow the link if this interests you.

29 Aug 2014

I Call Krugman’s Bluff on European Austerity

Austerity, Krugman, Shameless Self-Promotion 173 Comments

I realize the novelty of this is wearing thin, but every once in a while I like to go look up the actual numbers when I know Krugman is full of it. This time, it concerns his offhand remarks concerning Germany, France, and the Netherlands.

27 Aug 2014


Potpourri 14 Comments

==> The Mises Institute is now offering a flat-fee option for access to all of the archived Mises Academy lectures.

==> Ron Paul talks to Mark Spitznagel about sundry topics, including foreign policy.

==> Alex Tabarrok has an interesting post about Ferguson and the modern-day “debtor’s prison.”

27 Aug 2014

The EMH versus the CAPE

Efficient Markets Hypothesis, Scott Sumner 76 Comments

Robert Shiller’s CAPE (cyclically adjusted price/earnings) ratio is well above its historical average:


Shiller himself has been pointing out that the only periods since 1881 where the CAPE has been this high were 1929, 1999, and 2007 (on the way up, we should say for precision).

Scott Sumner, proponent of the Efficient Markets Hypothesis (EMH), is unfazed. Here’s Sumner commenting on the CAPE chart:

Any fool can data mine and find spurious correlations. The real test is how they do out of sample. Robert Shiller became famous in 1996 with his “irrational exuberance” claim (or at least one degree of separation from famous, as it was when Greenspan repeated this claim that the public took notice.)

What do you see [in the chart of the CAPE]? I see a trend line that seems to have shifted upward from 16 in the mid-1990s, precisely when he made the irrational exuberance claim. The new average looks like about 25. And the current ratio is above 25. So the out of sample test was about as complete a failure as one can imagine. The model simply did not perform out of sample.

How in the world does Scott get that the CAPE “was about as complete a failure as one can imagine”? Now if the CAPE had leveled off since 1996, or if the stock market had risen at a steady growth rate with a bit of volatility, then sure, Shiller would have been totally wrong.

But that’s not what happened. A few years after his “irrational exuberance” call, the market crashed hard. Then when the CAPE zoomed back up [edited--RPM], the market again crashed hard, falling back to the historical average. What would the data have to look like, for Shiller to think he was on to something?

The irony is, no matter what happens, Sumner will still think he is right. If the stock market crashes 40% next week, Sumner will say, “That means nothing, EMH is still correct. If Shiller’s model actually had predictive power, people would’ve shorted the market this week.”

I’m not making a joke. That is literally what Sumner would say. And he wouldn’t even be crazy to do so; that’s the non-falsifiable world of the EMH. But what’s annoying is that Sumner seems to think he’s looking at the data with an open mind and then forming his conclusion, when in fact “believing is seeing” in finance as much as other fields.

UPDATE: I should clarify that having the market crash while the CAPE falls back down, is not itself a tautology. For example, if the government suddenly declared that all existing CEOs would be executed, that would probably make the S&P 500 fall substantially. But part of the mechanism would be that earnings themselves would fall sharply. The CAPE ratio is capturing the relationship of asset price to underlying earnings. (It goes back 10 years, adjusting for price inflation, rather than the more conventional current-year P/E ratio.)

27 Aug 2014

The Difference Between Physics and Economics

Economics, Education 14 Comments

Pay attention to the way he teaches the class about conservation of mechanical energy starting around 1:45. If an economist did something comparable in class, he would be killed in front of his students. But they would still clap.

26 Aug 2014

Fun Facts About the “Individual Mandate” of ObamaCare

Health Legislation 23 Comments

In my latest Mises CA post I walk through the CBO’s forecast. An excerpt:

Isn’t it interesting that the “universal coverage” provided by the “Affordable Care Act” will still yield–according to the government’s own projections–almost 4 million Americans who will prefer to pay an average tax of more than $1,000 to the government for 2016, rather than buying health insurance that year?