05 Jan 2010

Say What You Will About Monarchies, At Least They Understood Free Trade

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I am working on a book project with Bill Peterson on democracy. He sent me a copy of Hans Hoppe’s Democracy: The God That Failed, which somehow I never managed to read up until now. I have seen so many of Hoppe’s lectures at the Mises Institute that I figured I already knew what was in the book.

Well I was totally wrong. So far I have only read the first essay, but it blew me away. When I get caught up with my other work I will write a review for Mises.org. (And no, I haven’t hit the famously controversial parts yet, so I can’t yet say whether people are blowing that out of proportion.)

Among his other points, Hoppe argues that hereditary monarchies have a much greater incentive to enact productive long-term policies because they can pass the estates on to their children. In contrast, the people running a democratic government at any given time, only have a few years in which to suck out as many resources as possible.

For something completely different, I am writing up a quick description of mercantilism. I was explaining that it was the dominant philosophy guiding governments from the 16th – 18th centuries, until the ideas of Adam Smith and other British classical economists overturned it. Then I was going to add that in modern times, we have seen the rebirth of mercantilist ideas, because even though 99% of economists endorse free trade, the general public doesn’t.

Does anyone see a connection here? I don’t know enough history to be able to say one way or the other, but per Hoppe, is it just possible that the European monarchies implemented mercantilist policies when they genuinely believed they promoted national prosperity, but then when David Hume et al. proved them wrong, they switched to free trade? But with the rise of democracy, it doesn’t matter what the rulers actually know to be the correct long-term policies–they have to enrich a few special interests as quickly as possible, before they leave office?

04 Jan 2010

Samuelson Et Al. Goofed on Soviet Union Because of Their Models, Not Their Politics

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Alex Tabarrok has an interesting post today on how the mainstream textbook authors were far too generous in their predictions about Soviet GNP back in the day:

First, an even more off-course analysis [than in Samuelson's textbook] can also be found in another mega-selling textbook, McConnell’s Economics (still a huge seller today). Like Samuelson, McConnell estimated Soviet GNP as half that of the United States in 1963 but he showed that the Soviets were investing a much larger share of GNP and thus growing at rates “two to three times” higher than the U.S. Indeed, through at least ten (!) editions, the Soviets continued to grow faster than the U.S. and yet in McConnell’s 1990 edition Soviet GNP was still half that of the United States!

A second case of being blinded by “liberal” ideology? If so, Levy and Peart throw another curve-ball because the very liberal even “leftist” texts of the time, notably those by Lorie Tarshis and Robert Heilbroner did not make the Samuelson-McConnell mistake.

Tarshis and Heilbroner were more liberal than Samuelson and McConnell but offered a more nuanced, descriptive and tentative account of the Soviet economy. Why? Levy and Peart argue that they were saved from error not by skepticism about the Soviet Union per se but rather by skepticism about the power of simple economic theories to fully describe the world in the absence of rich institutional detail.

To make their predictions, Samuelson and McConnell relied heavily on the production possibilities frontier (PPF), the idea that the fundamental tradeoff for any society was between “guns and butter.” Thus, in the 1948 edition Samuelson wrote:

The Russians having no unemployment before the war, were already on their Production-possibilities curve. They had no choice but to substitute war goods for civilian production-with consequent privation.

Note that Samuelson assumes all countries and economic systems are efficient (the Russians are “on” the curve) only the choice of guns versus butter differs. When the war ended, the fundamental tradeoff became one between investment and consumption and since the Soviets invested a greater share of GNP they would naturally consume less but grow faster. Moreover, since the Soviet’s had solved the unemployment problem they were, if anything, more efficient than the U.S. (here we see the Keynesian influence).

04 Jan 2010

Mankiw’s Baseless Arguments

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My article at Mises today is a bit long, but only because it has everything: Sarcastic quips about Greg Mankiw’s logic, a discussion of M0 versus M1 and M2, and a fun story about a real estate developer (Shady Slick) who is ruined by a bureaucrat. I would have put in a love triangle but the editors cut me off.

Seriously, I had an epiphany about the deflationist camp’s arguments concerning bank balance sheets and the money supply. Here’s the kicker for that part of the article:

Now here’s where the deflationists go wrong: I think many of them assume that somehow the money supply must have shrunk in the economy because of Slick’s default on his loan. But that’s not true.

The checking accounts of the union contractors, shingle manufacturers, and so forth still have (collectively) the $900,000 that Slick originally spent on their products and services. Thus, even though the total value of outstanding loans dropped by $990,000 because of Acme’s write-down, the total value of checking or demand deposits didn’t drop at all. This is true, even though it took a loan to originally push up the total value of demand deposits. (In contrast, if Slick had paid off his debt rather than defaulting, and then Acme didn’t extend new loans, it is true that the money supply [M1] would have shrunk by $900,000.)

As I said before, I’m not trying to make an empirical case for what is currently happening in the US economy. I’m just pointing out that some of the glib deflationist arguments are incomplete. People who are expecting the money supply to collapse are overlooking some serious gaps in their argument.

03 Jan 2010

Was Jesus Rich?

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[UPDATE below.]

Here is a very interesting article (HT2 Tyler Cowen) discussing whether Jesus was wealthy in material terms. When I first heard the claim I thought it was absurd, but the proponents make a decent case in terms of familiar things from the Bible that I had never thought about in this context:

“Mary and Joseph took a Cadillac to get to Bethlehem because the finest transportation of their day was a donkey,” says Anderson. “Poor people ate their donkey. Only the wealthy used it as transportation.”

The proof [of Jesus' wealth], he says, is scattered throughout the New Testament. One example: The 12th chapter of the Gospel of John says that Jesus had a treasurer, or a “keeper of the money bag.”

“The last time I checked, poor people don’t have treasurers to take care their money,” says [Rev. Tom] Brown, author of “Devil, Demons and Spiritual Warfare.”

Brown says Jesus’ own words prove that he wasn’t poor.

“Jesus said you will always have the poor, but you will not always have me,” Brown says. “Jesus did not affirm himself as being part of the poor class…

“I believe he was the richest man on the face of the earth because he had God as his source,” Brown says.

Jesus’ wealth is evident even in the Gospel accounts of his execution, some pastors say.

The New Testament reports that Roman soldiers gambled for Jesus’ clothing while he hung on the cross. They wouldn’t gamble for Jesus’ clothing unless it was expensive, Anderson says.

“I don’t know anybody — even Pamela Anderson — that would have people gambling for his underwear,” Anderson says. “That was some fine stuff he wore.”

I asked my college friend who went on to get his PhD in church history (I think that was the exact field?) in Princeton what he thought of this. (FWIW this is one of the people responsible for my conversion back to theism, though his efforts didn’t bear fruit at the time.) Here’s what he said:

Interesting stuff, I had never heard that particular angle, but coming from the prosperity gospel theology it is not surprising.

I think that the whole question is misplaced and that is was allows both sides to score points.

Jesus was clearly not rich according to the standards of his day (Rich would be basically landed elites which Jesus clearly wasn’t), but the issue is muddled because (as one scholar points out) there was no middle class in our sense. Jesus did have some financial resources so it would not be right to say that he was destitute poor either. Hence he could mix with both poor and rich and not seem entirely out of water.

In terms of the ancient economy, it would be safe to say that while Jesus had some resources, he did not have stable or reliable wealth (which had to be relatively immovable and also massive–ie several thousand times more than necessary for annual subsistence– to be stable and reliable in the long run). If we compared him to other religious figures (Rabbis or Pagan Temple staff) he would have been less wealthy since it does not seem that he built up personal wealth in a stable way that they would have (ie family, land, tenants/servants etc.)

The same would seem to be true of the early church in Acts. Ie, it must have been fairly well off due to converts joining with wealth, but it is clear the wealth is being converted into moveable wealth and disbursed, so given the volatility of the ancient economy (and ancient life in general), it would not have been rich in the traditional sense. It also seems to have filled a unique social niche–there is definitely something to the argument that Christianity spread because it offered the urban poor social support not available elsewhere.

UPDATE: Gary North emails:

Jesus’ family was poor. We know this because of the law of the offerings governing the firstborn son (Ex. 13:13). A lamb had to be sacrificed — expensive. A poor family could substitute two turdledoves (Lev. 5:7, 11). Jesus’ family offered turtledoves (Luke 2:24).

The treasurer — Judas Iscariat — held the money for the disciples. He stole the money (John 12:6). It was not Jesus’ money.

Jesus had no home or resting place (Matthew 8:20).

The coat was nothing special. It was more useful than four pieces of cloth divided four ways (John 19:23-24).

03 Jan 2010

First Murphy’s Law, Now This

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Scott Sumner has rechristened the URL on his blog. (Apparently his inflationist views were being confused by too many people with Bentley automobiles.) He now has a “deep thoughts” post up where he asks, “And are there negative bubbles? If so, what are they called? And why don’t people talk about them?”

I answered:

My popularity in high school was a negative bubble. Everyone agreed that on paper everyone should want to hang out with me, and yet no one did. I propose defining a negative bubble as a Bobby.

02 Jan 2010

Chaos Theory Questions

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Reader Robert Fellner has foolishly been discussing my pamphlet Chaos Theory [.pdf] with people who have yet to see the light. (I do not recommend this.) He turned to me for help in answering their objections, but obviously I am not going to rescue him from the quicksand into which I pushed him. In the comments feel free to offer your own thoughts.

I have been showing Chaos Theory to some friends of mine, and meeting some resistance. If you have the time and any interest in answering them, I’ve pasted them below. I already answered them myself but I feel I may be missing something. Correct me if I am wrong here, but if someone steals from you, there will exist a private police force that can go on to his property and either retake the item that was stolen or bring him to trial or something of that nature, correct? All acts of aggression aren’t blindly outlawed in libertarian society, just the initiation of aggression? That’s a pretty important concept for me to have clear, because in my answer to these questions that is basically what I said. That generally speaking theft and murder are against the laws of a libertarian society and there would be private police that could bring these criminals to the private courts even if the criminal was on his own property. Is that not true?

1) I go to a movie theater, and sign a contract saying I waive all liability vs the owner if someone else hauls me away after being found guilty by an arbitration agency. Why would the movie theater owner have any liability in the first place? Does he have some duty to protect me from the acts of third parties while i’m on his property? Where does that duty come from?

1a) Even if I do release HIM from liability why does that in any way suggest that I give my consent to have my actions adjudicated to this arbitration company in the first place?

1b) I sign a contract in a movie theater. The non-cops come to haul me away after being found guilty. I say ‘aha, suckers I didn’t really sign the contract’. They all look and I’ve signed it ‘Ludwig Von Nutjob’. I say this is not real consent you can’t touch me. They say it is, or at least we have to go arbitrate this. I say I’m not consenting to any arbitration on the validity of my consent. How do you resolve?

2) This contact I sign at the movie theater apparently has quite a number of things in it. It says I can be hauled away if guilty of a tort, it says I wont murder anyone, it says i wont steal anything, etc etc. Apparently it has the entire codification of a legal system and tort system all in it with my consent to each clause. Am I really expected to read such a thing before entering a movie theater? Such a system apparently exists EVERYWHERE, because everywhere is private property right? I can’t go run errands without signing 5 or more of these contracts. In fact, even the road is private property right? How do I sign a contract to use it before I get on it? How does such a system sound remotely enactable?

3) I’m super rich. Like Bill Gates rich. I don’t like you. I kill you. I pay the damages. I don’t care. I promise never to do it again, and get an insurer to cover me for an inordinate sum at a hefty premium in the future. Do I get to go free? Why not?

4) I kill you. Having subscribed to Austrian Economics and anarcho-capitalism for many years, you are now homeless on the street with no friends or heirs. Who investigates and prosecutes the crime? Who pays for it?

5) I kill you. I live on a farm, and am entirely self sufficient. I ain’t coming out. No one can touch me right?

6) I’m broke and have no insurance. Can I even set foot anywhere or will no one let me in because I can’t afford to sign the extensive contract?

7) I’m a good friend of a very reputable arbitration agency owner. I get in massive trouble in a complicated case and conveniently his firm is the arbiter of the dispute. He fixes the case as the only disincentive is damage to his firm’s reputation for trustworthiness. Since its just a one time thing not a systemic pattern the damage is minimal. There is some flap about the ruling being suspicious in the press, but he notes his firm has a 50 year history and did a fair job. Since most of the public didn’t follow the case super closely they don’t know how valid the ruling really is, nor are they very motivated to look into it deeply. I give him a million dollars for his trouble, and we all live happily ever after.

02 Jan 2010

A Government Propaganda Move That Makes "Operation Infinite Justice" Sound Sensitive

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Taylor Conant passed this along. I don’t want to spoil it or steal Roderick Long’s thunder, since he had the best reaction. You will not believe what the Census Bureau came up with to encourage people to register.

02 Jan 2010

"It Couldn’t Happen Here"

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When Americans are shocked, shocked to wake up one day and realize they live in a police state, they really can’t say there were no signs. The below is apparently actually playing in a movie theater near you. (HT2LRC)