Long-time readers know that Larry Kudlow is not on my A-team for free market economics. (It pains me that this is so; I seriously used to love him when he worked for Bear Stearns and I was just getting into this stuff, reading Walter Williams and such.) I went ballistic over his flip-flopping endorsement of TARP, and then I was flabbergasted by his support for “cash for clunkers.”
But now he has outdone himself. Bill R. emailed me this piece at NRO, and said that Kudlow mentioned Mises and Hayek. So I said to Bill, “thanks I’ll give Kudlow a chance to redeem himself. ”
Well, did Kudlow restore my faith? You tell me:
While so-called spending-and-deficit stimulus may be an economic depressant, Friedmanite monetary stimulus — which has been substantial — is gradually exerting a powerful impact on economic growth. At the same time, businesses have become lean and mean, with radical cost-cutting of inventories, employment, and hours worked. That’s setting up a big profits surge, which is the biggest economic stimulus of all.
Consumers also have retrenched, as is appropriate with falling home prices, a rough stock market correction, and a slowdown of incomes. But from the ashes of recession, these corrective forces lead to the next recovery.
In Hayekian and Misesean terms, bad investment and spending decisions are being remedied through the free-market corrective process. And, greased by easy money, today’s market correctives may produce a much stronger V-shaped recovery than the stock-market consensus expects.
Note that there are no ellipses in the above block quotation. I wanted you to see it in its full glory. That is in context, my friends.
Besides my disagreement with their conclusions, there is something similar in Tyler Cowen’s recent defense of the Paulson Plan, and Roger Koppl’s defense of Ted Kennedy. Both eschew arguments from natural rights or principles, and justify particular instances of the growth of the federal government by speculating on its possible net benefits. As I say, I disagree with them that their utilitarian calculus is correct, but my point here is to underscore that they don’t even acknowledge the big philosophical move they’re making.
For example, here’s Tyler on the efficacy of the bailouts, and why the TARP should have been more pleasing to libertarians than non-TARP:
For insolvent banks…the alternative to those bailouts is calling in deposit insurance and the bankruptcy courts, both of which are, for better or worse, forms of government intervention. In particular today’s bankruptcy procedures are ill-suited for disposing of a large financial institution in a timely manner and this can be considered a form of gross government failure.
So if you’re “opposed to financial bailouts,” as a libertarian, you’re not for the market. You’re saying that one scheme for governmental disposition is better than another. [Bold by RPM]
Other people have done a good job rebutting this claim; see Pete Boettke and Steve Horwitz. (Also David R. Henderson sets the record straight regarding Tyler’s questionable assertions about Milton Friedman’s position on bank bailouts.) But I want to focus on Tyler’s assertion that I’ve put in bold above.
Even if Tyler’s predictions about FDIC etc. were correct, it doesn’t automatically follow that he gets to tell bailout opponents that they are “not for the market.” That step involves a very dubious philosophical commitment that goes far beyond one’s economic theories.
Let’s change the context. Anyone who took an intro to philosophy class probably heard the thought experiment (apparently based on a true story) of the American tourists getting captured by South American guerrillas. The rebel leader lines up a bunch of villagers who are opposed to his group’s criminal activities, and then the leader puts a gun in the hands of one of the terrified Americans. “It’s your lucky day,” the rebel leader says. “You get to shoot these traitors to the cause. But if you don’t, I will order my men to shoot not only them, but also their wives and children. Your choice.”
Now this is a very complicated problem, and of course everybody tries to weasel out of it by saying, “I’d shoot the rebel leader!” etc. But when it comes down to it–what if you have to choose between shooting some innocent people, or allowing them plus even more people to die?–a lot of people say they wouldn’t pull the trigger. And you know what? I think many philosophers think that’s a dandy answer.
So notice in his discussion, not only does Tyler say you should pull the trigger (or at least, you should root for the American to pull the trigger), but he spends all his time focusing on what happens if you don’t. He doesn’t even feel the need to discuss the philosophical point that it’s correct to support a violation of rights if you think doing so will prevent an even greater violation of rights.
Roger Koppl does a very similar thing when praising Ted Kennedy for supporting the Civil Rights Act. When in the comments I pointed out that a lot of libertarians don’t endorse the Act because it involved an expansion of federal power, he answered:
Anyway, I’m not a libertarian, so I guess you and I won’t have the same opinion about which bits of civil rights legislation were and which were not infringements on liberty. Fair enough. Still, I would have thought the restrictions on liberty caused by Jim Crow were so huge, deeply unfair and inequitable, and of such great material importance to black Southerners that killing Jim Crow alone outweighed the negatives, before we even get to stuff like women’s rights or the conditions of blacks in the rest of the country. OTOH you seem to doubt…I confess, I don’t quite “get” that. I don’t quite see where the doubtful points are in assigning relative weights here even when I defer to you on what bits are pro-liberty and what bits are anti-liberty.
One issue you raise is centralizing power in Washington. That’s an issue for me too. But in my mind you’ve got to trade it off against the risk of arbitrary local authority. Local authority was arbitrary and discretionary for black folks and the civil rights movement improved that situation greatly. (Didn’t fix it by long stretch, but that’s a separate matter.) Hayek teaches (rightly IMHO) that the big enemy is arbitrary authority rather than, say, size of government. Liberalism is against power. Well, black folks under Jim Crow were subject to lots of arbitrary authority. Harper Lee’s “To Kill a Mockingbird” was a pretty fair representation of how it really worked under the old system. Actually, it was worse than her story represented as whites might literally get away with murder if the victim was black.
Thus, we’re talking about life and death stuff, basic raw arbitrary power, and similar core issues. I’m not getting the intuition for why stuff like obliging restauranteurs to serve all races or shifting some power from state to federal government overwhelms that. [Bold by RPM]
Again, I don’t here want to argue whether the Act “on balance” contributed to more or fewer rights violations. I’m just pointing out that Koppl doesn’t even “get” the notion that someone could be opposed to an admitted, systematic violation of rights, even if the object is to prevent other people from having their rights violated.
Is it a little weird that even among very philosophical, classical liberals, we are so casually assuming that the ends justify the means? Can we at least talk about this? I’m pretty sure the philosophers aren’t settled on the matter, and in fact, I think a lot of them say the answer is a resounding, “No!”
Over the weekend I was in San Fransisco for a Mises Circle. (Next stop: Seattle.) We had a surprisingly large crowd of around 175 (not an exact count), in an area that you would think would be slim pickings. A special surprise was that Edward Gonzalez showed up. I also met “Lilburne” (his secret identity will remain a secret, at least until you show me a power drill), Robert Blumen, and some Google guys who thought I was wrong in my debate with Mish. (Is it a debate if Mish ignores me?)
I won’t dwell too much on the official proceedings, since the audio is already posted at Mises.org, and I think even the video may be at some point. (?) Anyway, here are the talks, in order, and note these links are all mp3s: Walter Block, Tom DiLorenzo, Doug French, Bob Murphy, and all of us on a panel. If you’re not sure whether to click on them, let me say that I had some pretty good jokes in my talk, and we were very anal about repeating the questions during the Q&A of the panel.
I flew in the day before (Friday) and hung out for several hours with Robert Wenzel (the man, the myth, the legend). He refers to the proceedings here, and perhaps he will grace us with more thoughts as he is so moved.
But the humorous event occurred Friday night. I’m ordering another round of gin and tonics (gins and tonic?) when Wenzel goes up to these two girls sitting at the end of the bar. I can hear him referring to me as “famous” and tells me to come over. This is really bad, because you would think I should be super confident since I’m married and no longer trying to pick up girls in bars, but actually it’s even worse: Now I get the pleasure of being rejected when I’m not even trying to hit on girls, and to boot they think I’m a real scumbag for “hitting on them” while brazenly wearing a wedding ring. Suh-weet.
Anyway, Wenzel motions for me to swoop in as the wingman but here’s how it went down:
Girl #1 [who looks like she actually doesn't hate men]: So why are you famous?
Wenzel: He’s a famous economist. He’s been on Fox.
Girl #2 [who definitely hates anything that pees standing up]: You’re on FOX?!
Bob: I don’t work for Fox, I’ve just been on it.
Girl #2, informing Girl #1: He’s been on Fox. (!!)
Girl #1 [who apparently spends more time trying to socialize with others rather than hating men and Sean Hannity in particular]: ??
Girl #2: FOX News, they like, defend the Evil Empire. [Telling Wenzel and Bob, without really looking at us.] You know, people in San Fransisco are really liberal, so that’s not something to brag about around here.
At this point I went back to get the drinks that the bartender had mercifully poured by now. I was going to tell Girl #2 that I had probably done more to criticize the Iraq invasion than she had, but decided I didn’t need to prove anything to her. I am not sure if this decision was based on self-esteem or humiliation.
Psychoanalysts, let me let you in on a little secret: I was no ladies’ man when I was single. Are you surprised?
In a previous post, I praised Glenn Beck for getting the word out about what’s going on regarding the open praise for communism by members of the federal government. On the other hand, let me relate a particularly ridiculous statement by Mark Davis–today’s guest-host for Rush Limbaugh–that shows talk radio is only afraid of Democratic Big Brother.
Davis was talking about the recent allegations of interrogator abuse of detainees and said something like, “Give me a break, are these people serious? Now it’s torture just to use the sound of a drill? V-v-v-v-v-v-v-v-v, did I just torture the audience?”
Something I’ve never heard when Limbaugh et al. defend torture–or should I say “enhanced interrogation techniques”–is that the government concedes that some people died during this hardball treatment. Such an admission wouldn’t really play in with their “these ACLU types are a bunch of sissies” refrain.
Rep. Diane Watson (D-Ca) Praises Che Guevara, Fidel Castro, and Cuban Revolution That "Kicked Out the Wealthy"
Despite his flaws, Glenn Beck is doing a great job alerting Americans to the Marxist takeover of the federal government. You say, “Give me a break, Bob, just because someone wants everyone to have access to health care, doesn’t make him a communist.” That’s true, but look at how many people in the federal government are now openly praising actual communism.
Beck played the following clip starting from about the 1:45 mark. This isn’t mere, “Hey let’s reform some of the abuses of naked capitalism.”
Falk is a sports agent, whose most famous client was Michael Jordan. (Jordan’s ghostwriter did the foreword for the book.) This book is good because it shows exactly how Falk was able to negotiate such lucrative contracts for his clients; it doesn’t just say, “And so then I went in there, and really drove a hard bargain.” No no, Falk explains the back-and-forth, and how he got the teams to pony up what seemed at the time to be ludicrous sums of money.
Falk actually has a very good intuition about economics and game theory. When I hit the following passage, I knew that I had to stop reading and blog it, since I doubt there will be a better illustration of what I mean:
I was presented with extraordinary opportunities like these starting with James Worthy in 1982…then Patrick Ewing in 1985 and Danny Ferry in 1989. There were unique situations in the marketplace that demanded a unique response. I think the Ewing and Ferry deals, along with Michael’s Nike deal, cemented my reputation not so much for being a hard-driving negotiator, but for being someone with a creative vision, or perspective on the value of players and where those valuations were going. Nobody ever believed Danny would be Larry Bird, and nobody believed Patrick would be Kareem, but Danny and Patrick made more as rookies than either Bird or Kareem was making at the time. And that’s what was demanded in those situations.
A talented player on one team may not be worth as much as a less talented player on another team. James Worthy was a good example. He was a great player, one of the fifty greatest of all time, according to the league’s experts. He was the first player selected in the 1982 draft, a remarkable performer in the playoffs, an all-star, a great teammate, and an extremely hard worker. Yet he was the third-best player on his team behind Magic Johnson and Kareem Abdul-Jabbar. James was probably one of the ten best players in the league. Another player, let’s say the twenty-fifth best player in the league, might have been the best player on his team. Even though that player wasn’t as good as James Worthy, without him his team would be in the lottery. On the other hand, the Lakers were going to be a great team with or without Worthy. Worthy’s incremental impact wasn’t as great on the Lakers as that of a lesser player on another team. As a result, the twenty-fifth-best player might have had a greater value to his team than Worthy did to the Lakers. (pp. 120-121)
So it is merely in the spirit of loving correction that I bring to your attention a recent profundity from Scott. The context is (a very interesting) discussion of the difference between the quantity theory of money and the equation of exchange, which are often conflated.
The equation of exchange is the familiar MV = PQ, which is just the accounting tautology that the total money stock times the “velocity of circulation” must equal the “average price level” times the quantity of real output. Some people use different letters, and people like Rothbard get mad over the nonsense placeholders like “V” which only serve to complete the equation. But if we put aside such complaints, the equation is an identity and so has to be true.
In contrast, the quantity theory of money is just that, a theory, and so could be falsified in principle. Scott says that different people mean different things by the theory, and he lists four popular contenders:
1. The ratio of P and M is relatively stable.
2. The ratio of P*Y and M is relatively stable.
3. An exogenous, one time, permanent increase in M causes a proportional rise in P*Y
4. In the long run an exogenous, one time, permanent increase in M causes a proportional increase in P.
Does everyone see the difference? Just to give you an example, when Friedman famously said that price “inflation is always and everywhere a monetary phenomenon,” he wasn’t just relying on the equation of exchange. Yes, MV = PQ must always be true–it’s an identity–but it doesn’t mean that increases in M correspond to increases in P, or that a big jump in P must be due to a big increase in M. (For example, many economists right now believe that a big jump in M would cause a big jump in Q–this would also keep the equation in balance.)
So finally we can review Scott’s illustration of the problem:
But I also think the quantity equation can get in the way of clear thinking. For instance, people worried that current Fed policy will lead to much higher future inflation sometimes cite the quantity theory. But this is a misuse of the theory. It does not imply that any increase in the money supply is inflationary, but rather that permanent, exogenous increases are inflationary. For instance, suppose the Fed adopted a policy of targeting the expected inflation rate at 2%. Assuming their policy was efficient, i.e. the errors were unforecastable, then there should be zero correlation between the money supply and inflation. Of course the Fed doesn’t have a precise 2% inflation target, but they certainly have some inflation target in mind. If so, then changes in the money supply are partly endogenous, and the [quantity theory] does not predict much correlation between the money supply and inflation.
I think Scott has here performed the classic economist trick of assuming his conclusion, but doing it in a such a jargon-laden way that few can see where the rabbit gets put into the hat. The easiest way for me to demonstrate is a physics analogy. So suppose a physicist at Bentley College started a blog called The Gassy Illusion and wrote:
We’re all familiar with Boyle’s law of gases, which states that for a gas at a fixed temperature, Pressure and Volume are inversely proportional. Now many people assume that if we started shrinking the size of this airtight room, that the air pressure inside would increase. However, what if Ben Bernanke could perfectly anticipate the rate at which the room’s volume were decreasing, and cooled the room accordingly? Why, then there would be no observed correlation at all between Pressure and Volume. So people worried about the shrinking room need to be more careful when invoking Boyle’s law.
So yes, Scott is right that if the Fed could commit itself to 2% inflation, and could do so without systematic errors, then…we would get on average 2% inflation, regardless of what happened to the money supply. But does that really help us? Note that Scott is NOT merely saying, “If the Fed commits to 2% inflation, then we’ll get it.” Because the Fed could commit and then be horribly wrong, year after year. So the real rabbit is where Scott innocently says, “Assuming their policy was efficient…”
By the same token, assuming central planning could work, then Lange whupped Mises in the socialist calculation debate.
In the comments to this post, “Magnat” reminded me of an episode in the Bible where my initial reaction was ridiculous. In I Samuel 4:1-11 we see that the Israelites have a setback against the Philistines, and so try to raise morale by bringing the Ark of the Covenant to the front lines of the battle. (The Ark housed the stone tablets on which the Ten Commandments were written, as well as other extremely significant items. It was incredibly holy and powerful. You may remember that the Nazis all melted when they opened it up in the first Indiana Jones movie.)
But this petulant move by the Israelites–in effect trying to force victory not by seeking God’s counsel, but by bringing in the Ark–led to disaster:
1 And the word of Samuel came to all Israel.
Now Israel went out to battle against the Philistines, and encamped beside Ebenezer; and the Philistines encamped in Aphek. 2 Then the Philistines put themselves in battle array against Israel. And when they joined battle, Israel was defeated by the Philistines, who killed about four thousand men of the army in the field. 3 And when the people had come into the camp, the elders of Israel said, “Why has the LORD defeated us today before the Philistines? Let us bring the ark of the covenant of the LORD from Shiloh to us, that when it comes among us it may save us from the hand of our enemies.” 4 So the people sent to Shiloh, that they might bring from there the ark of the covenant of the LORD of hosts, who dwells between the cherubim. And the two sons of Eli, Hophni and Phinehas, were there with the ark of the covenant of God.
5 And when the ark of the covenant of the LORD came into the camp, all Israel shouted so loudly that the earth shook. 6 Now when the Philistines heard the noise of the shout, they said, “What does the sound of this great shout in the camp of the Hebrews mean?” Then they understood that the ark of the LORD had come into the camp. 7 So the Philistines were afraid, for they said, “God has come into the camp!” And they said, “Woe to us! For such a thing has never happened before. 8 Woe to us! Who will deliver us from the hand of these mighty gods? These are the gods who struck the Egyptians with all the plagues in the wilderness. 9 Be strong and conduct yourselves like men, you Philistines, that you do not become servants of the Hebrews, as they have been to you. Conduct yourselves like men, and fight!”
10 So the Philistines fought, and Israel was defeated, and every man fled to his tent. There was a very great slaughter, and there fell of Israel thirty thousand foot soldiers. 11 Also the ark of God was captured; and the two sons of Eli, Hophni and Phinehas, died. (1 Samuel 4:1-11, New King James Version)
Now the first time I read that, I had a ridiculous reaction. I was really worried, thinking “Oh no! How will the Israelites get it back? What if the Philistines desecrate it?”
But as it turns out, the Creator of the universe doesn’t need a bunch of human bodies to protect His sacred objects. Here’s what happened to the Philistines:
1 Then the Philistines took the ark of God and brought it from Ebenezer to Ashdod. 2 When the Philistines took the ark of God, they brought it into the house of Dagon and set it by Dagon. 3 And when the people of Ashdod arose early in the morning, there was Dagon, fallen on its face to the earth before the ark of the LORD. So they took Dagon and set it in its place again. 4 And when they arose early the next morning, there was Dagon, fallen on its face to the ground before the ark of the LORD. The head of Dagon and both the palms of its hands were broken off on the threshold; only Dagon’s torso was left of it. 5 Therefore neither the priests of Dagon nor any who come into Dagon’s house tread on the threshold of Dagon in Ashdod to this day.
6 But the hand of the LORD was heavy on the people of Ashdod, and He ravaged them and struck them with tumors,both Ashdod and its territory. 7 And when the men of Ashdod saw how it was, they said, “The ark of the God of Israel must not remain with us, for His hand is harsh toward us and Dagon our god.” 8 Therefore they sent and gathered to themselves all the lords of the Philistines, and said, “What shall we do with the ark of the God of Israel?”
And they answered, “Let the ark of the God of Israel be carried away to Gath.” So they carried the ark of the God of Israel away. 9 So it was, after they had carried it away, that the hand of the LORD was against the city with a very great destruction; and He struck the men of the city, both small and great, and tumors broke out on them.
10 Therefore they sent the ark of God to Ekron. So it was, as the ark of God came to Ekron, that the Ekronites cried out, saying, “They have brought the ark of the God of Israel to us, to kill us and our people!” 11 So they sent and gathered together all the lords of the Philistines, and said, “Send away the ark of the God of Israel, and let it go back to its own place, so that it does not kill us and our people.” For there was a deadly destruction throughout all the city; the hand of God was very heavy there. 12 And the men who did not die were stricken with the tumors, and the cry of the city went up to heaven. 1 Now the ark of the LORD was in the country of the Philistines seven months. 2 And the Philistines called for the priests and the diviners, saying, “What shall we do with the ark of the LORD? Tell us how we should send it to its place.”
3 So they said, “If you send away the ark of the God of Israel, do not send it empty; but by all means return it to Him with a trespass offering. Then you will be healed, and it will be known to you why His hand is not removed from you.”
4 Then they said, “What is the trespass offering which we shall return to Him?”
They answered, “Five golden tumors and five golden rats, according to the number of the lords of the Philistines. For the same plague was on all of you and on your lords. 5 Therefore you shall make images of your tumors and images of your rats that ravage the land, and you shall give glory to the God of Israel; perhaps He will lighten His hand from you, from your gods, and from your land. 6 Why then do you harden your hearts as the Egyptians and Pharaoh hardened their hearts? When He did mighty things among them, did they not let the people go, that they might depart? 7 Now therefore, make a new cart, take two milk cows which have never been yoked, and hitch the cows to the cart; and take their calves home, away from them. 8 Then take the ark of the LORD and set it on the cart; and put the articles of gold which you are returning to Him as a trespass offering in a chest by its side. Then send it away, and let it go. 9 And watch: if it goes up the road to its own territory, to Beth Shemesh, then He has done us this great evil. But if not, then we shall know that it is not His hand that struck us—it happened to us by chance.”
10 Then the men did so; they took two milk cows and hitched them to the cart, and shut up their calves at home. 11 And they set the ark of the LORD on the cart, and the chest with the gold rats and the images of their tumors. 12 Then the cows headed straight for the road to Beth Shemesh, and went along the highway, lowing as they went, and did not turn aside to the right hand or the left. And the lords of the Philistines went after them to the border of Beth Shemesh.
13 Now the people of Beth Shemesh were reaping their wheat harvest in the valley; and they lifted their eyes and saw the ark, and rejoiced to see it. 14 Then the cart came into the field of Joshua of Beth Shemesh, and stood there; a large stone was there. So they split the wood of the cart and offered the cows as a burnt offering to the LORD. 15 The Levites took down the ark of the LORD and the chest that was with it, in which were the articles of gold, and put them on the large stone. Then the men of Beth Shemesh offered burnt offerings and made sacrifices the same day to the LORD. 16 So when the five lords of the Philistines had seen it, they returned to Ekron the same day.
17 These are the golden tumors which the Philistines returned as a trespass offering to the LORD: one for Ashdod, one for Gaza, one for Ashkelon, one for Gath, one for Ekron; 18 and the golden rats, according to the number of all the cities of the Philistines belonging to the five lords, both fortified cities and country villages, even as far as the large stone of Abel on which they set the ark of the LORD, which stone remains to this day in the field of Joshua of Beth Shemesh.
(1 Samuel 5-6, New King James Version)
Now for my own take on these things, I actually don’t think the Ark was covered in germs, which is how one might explain these events (if he believed the stories). I think that if a modern doctor had taken the proper measurements and so forth back then, the various forces (such as a growing rat population etc.) would have been in motion in the Philistine population centers to yield such devastation, even before their warriors brought the Ark back from battle. (It’s also possible that the slaughter of thousands of Israelites introduced some new germs on the Philistine fighters who then brought them back to camp.) So to an atheist epidemiologist who had access to all the facts, he would say, “No no, there wasn’t some being in the sky zapping people. I can explain everything with our normal methods. It was just a coincidence that when the Philistines captured this box that had superstitious meaning attached to it, that that was also when the outbreak occurred. It’s not as if all these people just suddenly dropped dead for no reason.”
So for those readers who have grasped my view of God’s design of the universe, the above is just a particular illustration. In the broadest sense, everything that occurs at any time in the universe, is “caused by” events that were set into motion beforehand, and ultimately can be traced back to the very beginning of time. (Even if you think quantum effects make the future indeterminate, it’s still the case that the state of the universe at time t has a huge influence on what the universe can look like at t+1.)
So for me, it’s a meaningless distinction to say, “Oh, did God actually punish the Philistines with His intervention, or was it just a natural outbreak?” (Notice that the Philistines wondered that too, and how much of a non sequitur their “test” was–after all, why couldn’t the cows’ decision of which way to take the cart also just be a coincidence?) Everything in the natural world is in direct accordance with God’s will. Before our sun even existed, God knew precisely when the Philistines would capture the Ark and bring it to their camp. So He had that episode (as well as everything else that would occur in all of human history) in mind, when He designed the physical universe and its laws, and when He designed how cells work, how disease is transmitted, and so forth.
And His design was so incredibly complex and perfect, that it “just so happened” that the Philistine population was decimated when the Ark was in their possession.