Consulting by RPM || Free Advice Blog

Net Foreign Debt Bask

A Keynesian refrain that has arisen in the last few years is that a country that issues its own currency can only have a debt crisis if its institutions have a lot of net debt denominated in foreign currencies. For example, today Paul Krugman says Russia is in trouble for just this reason (even though the naive Krugmanite might have thought an attack by speculators would boost Russian GDP).

Does anyone know where I can find a ranking of countries (or at least major countries) by this criterion? It’s easy to find rankings of “External Debt” but I’m concerned that that’s counting (say) dollar-denominated debt that U.S. institutions owe to non-Americans.

Jeff Tucker and I Talk Bitcoin

The updated version of my guide co-authored with Silas Barta (which fixed a slight mistake in a footnote, as well as some typos) is here.

Jeff has a forthcoming book on peer-to-peer technology, of which Bitcoin is simply the most developed example.

Ecclesiastes Doesn’t Exactly Endorse Hedonistic Economics

The book of Ecclesiastes (reputedly written by Solomon though some dispute this) is pretty depressing at times. From Chapter 1:

12 I, the Teacher, was king over Israel in Jerusalem. 13 I applied my mind to study and to explore by wisdom all that is done under the heavens. What a heavy burden God has laid on mankind! 14 I have seen all the things that are done under the sun; all of them are meaningless, a chasing after the wind.

He rules out consumption (broadly conceived) as the path to happiness:

2 I said to myself, “Come now, I will test you with pleasure to find out what is good.” But that also proved to be meaningless. 2 “Laughter,” I said, “is madness. And what does pleasure accomplish?” 3 I tried cheering myself with wine, and embracing folly—my mind still guiding me with wisdom. I wanted to see what was good for people to do under the heavens during the few days of their lives.

4 I undertook great projects: I built houses for myself and planted vineyards. 5 I made gardens and parks and planted all kinds of fruit trees in them. 6 I made reservoirs to water groves of flourishing trees. 7 I bought male and female slaves and had other slaves who were born in my house. I also owned more herds and flocks than anyone in Jerusalem before me. 8 I amassed silver and gold for myself, and the treasure of kings and provinces. I acquired male and female singers, and a harem[a] as well—the delights of a man’s heart. 9 I became greater by far than anyone in Jerusalem before me. In all this my wisdom stayed with me.

10 I denied myself nothing my eyes desired;
I refused my heart no pleasure.
My heart took delight in all my labor,
and this was the reward for all my toil.
11 Yet when I surveyed all that my hands had done
and what I had toiled to achieve,
everything was meaningless, a chasing after the wind;
nothing was gained under the sun.

So what does he conclude? Later in chapter 2:

24 A person can do nothing better than to eat and drink and find satisfaction in their own toil. This too, I see, is from the hand of God, 25 for without him, who can eat or find enjoyment?

It’s commonplace in economics (I have done it too) to say things like, “Labor carries disutility and is only a means to an end, which is consumption. We only work because we have to.”

But in the Christian tradition, that’s not true. I was at a conference of the Institute for Faith, Work, and Economics when someone explained that Adam and Eve had work to do in the Garden of Eden, and argued that we will all have work to do in heaven. At the time this blew my mind, I think because I was still laboring (ha ha) under the influence of hedonist economic theory, which teaches that in paradise we all just sit around consuming. I currently view that as a horrifying thought.

I may have to re-watch Wall-E. I think I would be more sympathetic now.

Rothbard on Torture

Every once in a while, someone who wants to stick it to Rothbardians will pull up this passage:

“We may qualify this discussion in one important sense: police may use such coercive methods provided that the suspect turns out to be guilty, and provided that the police are treated as themselves criminal if the suspect is not proven guilty. For, in that case, the rule of no force against non-criminals would still apply. Suppose, for example, that police beat and torture a suspected murderer to find information (not to wring a confession, since obviously a coerced confession could never be considered valid). If the suspect turns out to be guilty, then the police should be exonerated, for then they have only ladled out to the murderer a parcel of what he deserves in return…”
—-Rothbard, M. N. 1998. The Ethics of Liberty, New York University Press, New York, N.Y. and London. pp. 82-83.

I was recently accused of hypocrisy for decrying the items in the Senate report on CIA torture, so this is actually a topical time for me to address the issue.

(1) In terms of my ethical/moral views, I am a pacifist. I am a disciple of Jesus Christ first, and a Rothbardian libertarian second.

(2) These are compatible. Rothbardianism says it is immoral to initiate aggression. Or, in other words, it is immoral to use force or the threat of force in order to prevent someone from doing that which he has the right to do. Pacifism is consistent with Rothbardianism, it just goes farther.

(3) It is true, many many Rothbardians (especially in Internet discussions) flip things and argue that so long as something does not violate the Nonaggression Principle (NAP), then it is moral. That is clearly a silly argument, and one that Rothbard himself never made. Rothbard even has a hilarious essay where he complains about how obnoxious and socially obtuse certain libertarians are (referring to them generically as a cultural subtype, not naming specific libertarians). (If someone can find it, I’ll link.)

(4) Regarding the torture quotation above: Rothbard is showing the application of the NAP to “standard” police practices. Elsewhere he says, for example, that the NAP would prevent courts from ever compelling witnesses to testify against their will–this happens in our current system with subpoenas. The NAP would also rule out “jury duty.” However, regarding police coercing suspects whom they think are guilty (but who haven’t yet been convicted)–something that happens all the time under the present system–Rothbard is saying there would be a very high bar placed on it. Specifically, the police aren’t given any special privileges to “do their job” that other people lack. Nobody else has the right to torture an innocent person, even if “I thought it would help me find the ticking time bomb!” But (Rothbard argues) an actual murderer has forfeited his own right to be free from physical harassment, and thus if it turns out that the cops were torturing an actual criminal then they didn’t do anything illegal under the NAP.

(5) Morally, I oppose this. I wouldn’t even patronize private police/defense agencies that used weapons on bank robbers. However, consider the analogy of drug legalization. As a Rothbardian I can say, “It is immoral for the State to lock people up for using heroin and cocaine, or for prostitution. As an economist, I predict that if these activities were legalized, more people would casually engage in them. Some Rothbardians think that’s perfectly fine, but I am teaching my kid it’s immoral.” This is a good analogy to Rothbard’s discussion of torture by police.

(6) Even on strict Rothbardian grounds, I’m not sure that Rothbard dotted all the i’s and crossed all the t’s above. (I would have to re-read the larger discussion; I just have the time right now to respond to the quotation that LK provided.) For one thing, suppose the suspect in custody killed the a Quaker. The cops don’t have the right to use torture on the suspect, since the Quakers themselves (who “own” the right to retaliate) wouldn’t do so. Also, remember that in Rothbard’s punishment theory, we have to respect proportionality; he specifically offers the upper bound of “two teeth for a tooth.” So really sadistic torture practices might be ruled out even in cases of murder, depending on how one ranks them.

(7) Just to end: Clearly Rothbard’s system puts a much tighter rein on abuse than the current system. For one thing, the cops don’t themselves get to tell the public whether or not the suspect was guilty; things are decentralized in Rothbard’s vision. For another, the CIA hasn’t even provided evidence (to my knowledge) about which of its detainees were guilty of what specific crimes; they just assure us, “We don’t torture good guys.” And yet, the report itself supposedly cites at least one case of an admittedly innocent person being tortured in order to put pressure on his terrorist acquaintances.

Potpourri

==> In case you didn’t have the stomach to investigate, at least check out these excerpts from the Senate torture report. If you just watched Fox News, you would think they poured some water on Bin Laden’s head. But no, their methods included prisoners losing an eye and literally freezing to death, and the interrogators told one guy they would hurt his kids and abuse his mother.

==> I will be answering this Objectivist critique of an-capism.

==> Rachel Mills has launched a new podcast. The first episode features Judge Napolitano and Maggie McNeill.

==> A profile of Mark Spitznagel (author of the Dao of Capital).

==> What we know for sure is that a cop plants his foot squarely on this guy’s head as he smacks him with a flashlight. (The guy claims he had asked the cop to move his car since it was blocking traffic, and then mouthed off when the cop ignored him initially.) The superior from the department tells the news crew afterward that regardless of what happened, if the “suspect had complied with the officer’s directives” from the get-go then he wouldn’t be sitting there talking with the news reporter.

==> Peter St. Onge on the regression theorem and Bitcoin.

==> After reading this Menzie Chin blog post on why we can’t trust Republicans to tell CBO to model tax effects decades into the future because of all the uncertainties and danger of the concept being applied inconsistently to achieve political ends, I made the following hilarious Tweet that perhaps 3 people understood:

How Did the West Abolish Slavery?

This is a neat interview Tom Woods had with Jim Powell:

Jon Stewart Admits His Error

I know you guys think I’m too soft on him, but I really like how Jon Stewart handled this. In particular, he could’ve, in a jokey way, blamed it on his staff without coming off like a total jerk. (E.g. “In retrospect, perhaps I shouldn’t have given my researchers shots of Jagermeister that day…” as he looks off into the distance.) But he didn’t go that route at all.

Every Citizen Must Know Basic Economics

Near the end of his treatise on economics, Ludwig von Mises wrote:

There is no means by which anyone can evade his personal responsibility. Whoever neglects to examine to the best of his abilities all the problems involved voluntarily surrenders his birthright to a self-appointed elite of supermen. In such vital matters blind reliance upon “experts” and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of self-determination and to yielding to other people’s domination. As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake.

Very few are capable of contributing any consequential idea to the body of economic thought. But all reasonable men are called upon to familiarize themselves with the teachings of economics. This is, in our age, the primary civic duty.

Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen. (Mises, Human Action, pp. 874-875)

The most obvious illustration of Mises’ wisdom was the recent fiasco over Jonathan Gruber’s remarks about the Affordable Care Act (aka ObamaCare). In particular, Gruber referred to the deliberate “exploitation of the lack of economic understanding of the American voter” regarding (what economists call) tax incidence.

Gruber’s point was that removing the tax deductibility of health insurance premiums was economically comparable to imposing a surtax of 40% on so-called Cadillac insurance plans. Because the surtax will be levied on the health insurance companies, it met with less resistance than a policy of eliminating the tax code’s favorable treatment of employer-provided health plans. Yet to repeat, these policies are similar in their impact once the dust settles.

In an intro economics class, the professor would probably illustrate this distinction between the legal and economic incidence of a tax using a sales tax. For example, if the government imposes a $1/pack tax on cigarettes, does it matter whether the consumer pays the tax at the register, or if the store owner pays the tax? The answer is, it’s a wash. If you gave me a blackboard and some colored chalk, I could draw some nice graphs to show you, but intuitively: If the government slaps the tax on consumers, their demand for (legal) cigarettes goes down. Thus the pre-tax market price of a pack of cigarettes goes down; let’s say it drops by 20 cents. Thus, even though the consumer pays $1 on top to the government, on net the consumer is only paying 80 cents more per pack, while the store owner actually nets 20 cents less per pack. Therefore, for every $1 that the government gets in revenue from the sale of a pack of cigarettes, the smoker effectively pays 80 cents while the store owner pays 20 cents. (I’m just stopping the analysis at the store owner level; we could trace it to the wholesaler etc.)

But if the government instead levies the tax directly on the store owner, then the supply of cigarettes goes down, such that the market price of a pack rises by 80 cents. So for every $1 that the store owner sends the government per pack of cigarettes sold, the consumer ultimately pays 80 cents while the store owner really is only out 20 cents compared to the original scenario.

Thus, levying the tax on the customer versus the store owner is irrelevant; it is the relative elasticities of supply and demand in cigarettes that determines who bears the true burden of the new tax.

This type of reasoning applies not just to explicit taxes, but also to other ways in which the government imposes harms on sellers. For example, economist Steve Landsburg argues that to the extent that NYPD harassment of black market sellers is anticipated, it will drive up the price of illegal goods (like untaxed cigarettes) and allow sellers in this market to earn a higher income as a form of hazard pay. Thus the actions of the NYPD don’t affect just the recipients of the physical harm, but their customers and (possibly) workers in other industries who see an influx of competitors. Even something that seems to be about a non-economic issue (police brutality) also has economic implications worth noting.

Citizens can only understand the implications of various State policies if they first learn basic economics. Fortunately, this is very easy to do with all of the free online books, videos, and articles put out by such places as the Mises Institute, the Foundation for Economic Education, the Independent Institute, and the Fraser Institute, to name just four (for whom I do work, full disclosure).