Consulting by RPM || Free Advice Blog

JUSTUS Promo

[UPDATE below.]

We were all in Chile, they were serving some sort of alcoholic drink, and well, this happened…

Here’s the website.

UPDATE: In all seriousness, I should clarify that those of us promoting “JUSTUS” (or some of them spell it “JUST US”) are not telling people to mislead attorneys when they ask you questions, and we’re certainly not recommending that people vote a certain way in a case. (In my plug above, I was assuming the people who subscribe to my YouTube channel are against the drug war, so I was illustrating with that example.) Rather, we are just letting people know about the concept of jury nullification. Thus people who want to “do something” about what they view as an unjust legal system have the option of not running from jury duty.

Blog-Steal: Krugman’s Kollapsing Klaims about Healthcare.gov

[UPDATE below.]

I don’t normally like to just copy and paste somebody else’s blog post, but Chris Rossini at EPJ penned a work of brilliance. I had read all of these Krugman posts, but didn’t think to lay them out this way:

I’m proud to announce that Truth and Paul Krugman have crashed into one another. It’s in regards to Healthcare.gov, but hey, when worlds collide, it’s only right to recognize it.

So let’s look at the timeline (my emphasis):

Oct. 1 – “The glitches will get fixed.”

Oct. 14th – “Obviously they messed up the programming big time, which is kind of a shock. But this will get fixed…”

Nov. 6 – “If the bugs in healthcare.gov get fixed…”

AND NOW …. Drumroll please!

Nov. 20 – “But the future of the reform depends not on policy per se but on whether the IT issues can be fixed well enough soon enough, a subject on which I have zero expertise.”

There we go…Krugman has no clue. He had no business saying that anything would work. It took almost 2 months, but he got there.

Flawless victory.

UPDATE: According to a frequent commenter, the above doesn’t really mean much; it is hardly a good “gotcha.” I don’t know what else Krugman would need to say, to show he is completely full of it and shows no remorse in his twisting opinions. Does it matter if I point out, that the first sentence of his November 20 post was: “I haven’t been writing about the healthcare.gov thing, for the simple reason that I have nothing to say.” ?

I mean, that’s an outright lie, unless you append the phrase, “Starting at the point at which I stopped confidently telling my readers healthcare.gov would be fixed, I haven’t been writing about the healthcare.gov thing…”

A Perspective In Which Carbon Emissions Are Not a “Bad”

In his presentation at IER’s Carbon Tax conference earlier this year, Ken Green argued that it was a misnomer to refer to “taxing bads” in this context, because (given our current technology and infrastructure) carbon emissions are an unavoidable feature of our economy.

Here at Free Advice, we got into an argument over this rhetorical move. In a separate post, I asked if there were a qualitative difference between bank robberies and carbon emissions, in the sense of being an economic “good” or “bad.” For the purposes of the argument, I stipulated that we were relying a neoclassical cost/benefit framework (as opposed to, say, a Rothbardian framework of libertarian property rights), and that the “consensus” approach to understanding the physical impact of carbon emissions was correct.

Because I deal with climate policy so much in my “day job,” I am very interested in thinking this thing through. So here are some comments to bolster my original claim that there is a legitimate sense in which Ken Green can say carbon emissions are a “good” while something like a bank robbery is indeed a “bad.”

==> If you define the terms to render carbon emissions a “bad,” then you need to be careful that you haven’t just classified labor and investment as “bads” as well. After all, labor carries disutility, and investment requires abstinence from consumption. If that happens, then the standard pro-carbon tax claim that we should do a tax swap in order to “tax bads, not goods” falls apart. So to really pounce on Green, it’s not enough to define “bad” in a way that includes carbon emissions. You also have to define “bad” in a way that excludes labor. I’m not saying this is impossible, just pointing out that the task is trickier than it might first have seemed.

==> Given the IPCC-type values, a government with perfect and costless enforcement powers would set the amount of carbon emissions ABOVE zero. The total (private plus social) benefits of the early units of carbon emissions vastly exceed the total costs. The (alleged) problem is that the total costs exceed the private costs, and so in a decentralized market, carbon emissions will exceed their (positive) optimal level.

==> Given plausible preferences, a government with perfect and costless enforcement powers would set the amount of bank robberies at zero. The social benefits of the even the first unit of bank robberies is (I imagine) well below the social cost. To see this, consider: When a bank robber steals $1,000, he gains $1,000 and the bank loses $1,000. On that score, it’s a wash. Beyond that, the psychic thrill to the bank robber is (presumably) lower than the cumulative anxiety to the people in the bank experiencing the robbery. (Austrians, give me a pass on this; we’re measuring it in dollar terms according to “willingness to pay” and I’m just thinking through the mainstream logic here.) It’s true that we can also describe the problem as the social costs exceeding the private costs in the decentralized outcome, but it’s because the equilibrium level of bank robberies will exceed their optimal level of ZERO.

==> In a more realistic setting where the government’s powers of enforcement are imperfect and costly, it is true that the “optimal” level of bank robberies is now positive. However, this is a qualitatively different type of analysis from the typical Pigovian treatment of carbon emissions. In the latter, the “costs of further reducing carbon emissions” is due to the economic harm imposed by restricting output; it’s not the the carbon emitters are dodging EPA agents, and the government is spending vast sums trying to hunt them down. In contrast, with bank robberies, when we say “it would be too expensive to further reduce the level,” we aren’t talking about the forfeited production of goods that are now not possible, because that marginal bank robbery didn’t happen. No, we’re talking about the channeling of more resources into the punishment of bank robberies.

==> There are various ways of approaching the matter, and some of them would indeed spit out the answer that carbon emissions and bank robberies are both economic “bads” (or “goods” for that matter). My point in this post is that I think there is a legitimate approach in which carbon emissions end up being classified as “goods” and bank robberies remain “bads.”

==> A clarification: According to some models (such as Richard Tol’s, which was one of the three picked by the Obama Administration Working Group), manmade climate change will confer net benefits through the year 2060 or so. However, this beneficial warming is already baked into the cake. As Tol describes it, these are “sunk benefits.” Thus, you wouldn’t (in this framework) subsidize carbon emissions now. The marginal emissions of CO2 right now still carries a social cost. (But remember, even if the first unit of CO2 emitted today has a positive social cost, that doesn’t imply that it is a “bad.” Because the private marginal benefit could be much much higher than the private marginal cost on that first unit of emissions today, the private marginal benefit is stil much much higher than the [private MC + social MC].)

==> In conclusion: It’s bad to rob a bank, but don’t feel guilty using a getaway car.

Summers and Krugman: The Liquidity Trap Is Forever

It now looks like the War on Savings will be as eternal as the War on Terror. Previously, Paul Krugman et al. had confined their upside-down prescriptions to this apparently temporary abnormality, but once things returned to normal they would go back (we were assured) to worrying about budget deficits and the stability of the currency.

However, at a recent IMF conference Larry Summers revealed the awful truth that the U.S. economy is stuck in this Keynesian Twilight Zone for the foreseeable future–and it has been this way for decades already. Here’s Paul Krugman summarizing the dire prognosis:

[Summers] works from the understanding that we are an economy in which monetary policy is de facto constrained by the zero lower bound…and that this corresponds to a situation in which the “natural” rate of interest…is negative.
…
But now comes the radical part of Larry’s presentation:
…
[H]ow can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles the economy has a negative natural rate of interest. And this hasn’t just been true since the 2008 financial crisis; it has arguably been true, although perhaps with increasing severity, since the 1980s.

…In other words, you can argue that our economy has been trying to get into the liquidity trap for a number of years, and that it only avoided the trap for a while thanks to successive bubbles.

And if that’s how you see things, when looking forward you have to regard the liquidity trap not as an exceptional state of affairs but as the new normal.
…
If you take a secular stagnation view seriously, it has some radical implications – and Larry goes there.
…
One way to [deliver a negative real interest rate] would be to reconstruct our whole monetary system – say, eliminate paper money and pay negative interest rates on deposits. Another way would be to take advantage of the next boom – whether it’s a bubble or driven by expansionary fiscal policy – to push inflation substantially higher, and keep it there. Or maybe, possibly, we could go the Krugman 1998/Abe 2013 route of pushing up inflation through the sheer power of self-fulfilling expectations.

Any such suggestions are, of course, met with outrage. How dare anyone suggest that virtuous individuals, people who are prudent and save for the future, face expropriation? How can you suggest steadily eroding their savings either through inflation or through negative interest rates? It’s tyranny!

But in a liquidity trap saving may be a personal virtue, but it’s a social vice. And in an economy facing secular stagnation, this isn’t just a temporary state of affairs, it’s the norm. Assuring people that they can get a positive rate of return on safe assets means promising them something the market doesn’t want to deliver – it’s like farm price supports, except for rentiers.
…
I could go on, but by now I hope you’ve gotten the point. What Larry did at the IMF wasn’t just give an interesting speech. He laid down what amounts to a very radical manifesto. And I very much fear that he may be right. [Bold added.]

For once, Krugman and I agree: Larry Summers’ very radical manifesto is indeed cause for very much fear. Their assault on saving and the strength of the currency is now a never-ending war.

Fellow Rothbardians: The Jig Is Up

I told you guys not to push it, or else our whole plan would blow up in our faces. Now seriously, who went and typed in two sentences on the Wikipedia entry for “liquidity preference,” explaining that Murray Rothbard disagrees that it is the proper way to explain interest? Who was it? It’s better if you tell me now, yourself, than if I find out later when one of your pals gives you up.

(Seriously guys, two sentences?! I could see if you wrote one sentence, but two?! What the hell were you thinking?)

But wait, it gets worse. We can’t even play it off like the typing up of Rothbard’s views on an economics topic in Wikipedia was an accident. Nope, Daniel Kuehn tells me, “I am not confused at all about Austrian motivations on this.”

Last thing, and I can’t believe I even have to say this, but after you clowns wrote two (sic!!!) sentences on a Wikipedia entry about liquidity preference, I’m not taking any chances: If and when Jimmy Wales asks you about the Austrian Internet strategy session we held over the summer, you say, “What Austrian Internet strategy session?” Got it?

Is a Bank Robbery Merely a Negative Externality?

In another post, we are getting bogged down in the comments over whether there is a meaningful sense in which an alleged negative externality–such as emitting CO2–isn’t really a “bad,” even though it has negative implications. The standard claim in the climate policy debates is that taxing CO2 is penalizing a “bad,” while taxing work is penalizing a “good,” and so (it seems) a revenue-neutral carbon tax would involve “taxing bads not goods.”

Ken Green had challenged that vocabulary, and I agreed with him, since CO2 emissions are tied to (low cost) production in various lines. In the comments, Silas Barta challenged him (me), saying that we effectively eliminated the idea of a “bad” at all. Even bank robberies, Silas claimed, would then be “goods,” because the economically optimal amount of bank robberies is positive.

Even on standard, neoclassical grounds–the sort that Steve Landsburg would use, not a Rothbardian framework obviously–I don’t think this is right. Even if we stipulate for the sake of argument that the “consensus” IPCC climate models are correct, and that William Nordhaus is approaching this issue in the right way, I think there is a qualitative difference between carbon dioxide emissions versus bank robberies, such that the latter are definitely “bads” in a way that the former aren’t.

However, I do not want to type out my reasoning just yet, because I want to make sure I dot all the i’s and cross all the t’s. In the meantime, I’m hoping one of you hits it out of the park so I can just say, “Yup.”

Two Kitten Torturing Models of Wage Differentials

Suppose you read a blog post that started like this:

It is well known that if you run a regression analysis of wages, you will find that if a person tortured kittens as a teenager, then he or she will have significantly lower earnings in the marketplace.

Now there are two schools of thought when it comes to explaining this outcome. One is the kitten torturing human capital theory, which says that people who torture kittens as teenagers degrade their inner moral compass, and thus reduce their productivity. Thus, it shouldn’t surprise us that employers pay kitten torturers less than they pay other workers.

The other explanation is the kitten torturing signaling theory, which says that kitten torturing per se doesn’t directly impact productivity, but the type of person who tortures kittens is also not likely to be a team player in the office. Thus, it shouldn’t surprise us that employers pay kitten torturers less than they pay other workers….

Isn’t it obvious that there is something odd going on here? Employers don’t know if someone tortured kittens as a teenager; that’s not on a criminal record (usually?) and nobody puts it on his resume. So clearly the second school of thought–the signaling model–can’t be what’s going on, because you can’t use a “signal” that is invisible to everyone.

On the other hand, the first school of thought doesn’t necessarily seem right, either. Maybe people start out with a screwed up moral compass (or maybe they are damaged by abuse), and then the kitten torturing as a teenager is just a symptom of something deeper.

It seems then that there is room for a third school of thought, which says: There is a strong negative correlation between kitten torturing and low productivity in conventional jobs, meaning that if employers have a tendency to pay workers their marginal product, then we will observe a strong negative correlation between kitten torturing and wages.

It’s the part I put in bold that seems absent from Bryan Caplan’s series of musings on this issue. For example, in his most recent post (drawing on his forthcoming book) he writes:

To weigh the power of human capital versus signaling, however, we must zero in on occupations with little or no plausible connection to traditional academic curricula. Despite many debatable cases, there are common occupations that workers clearly don’t learn in school. Almost no one goes to high school to become a bartender, cashier, cook, janitor, security guard, or waiter. No one goes to a four-year college to prepare for such jobs. Yet as Table 4.6 shows, the labor market comfortably rewards bartenders, cashiers, cooks, janitors, security guards, and waiters for both high school diplomas and college degrees.

But it seems to me Bryan has missed out on a better explanation: It’s not that their degrees are “signals” of their productivity. Rather, the college grads who get paid more as cashiers, cooks, janitors, security guards, and waiters are getting paid more because they are directly observable to be more productive (in general) than the ones who don’t have college degrees.

There are certain occupations where it’s not easy to assess “marginal revenue product” the way we assume in introductory textbooks. The employer can’t just draw his nice curves and find the tangency point.

But it’s pretty obvious after a week or two whether someone hired as a cook, or a janitor, is worth the wage he is getting paid. Maybe security guard or cashier is a grayer area, because you’re not sure if the former is sleeping on the job or if the latter is figuring out ways to let his friends buy stuff for free.

But as far as cook and janitor, there’s no “signaling” needed. It might help someone get his foot in the door, but that’s not really the explanation for the person’s consistently higher pay, any more than a fancy-looking resume could explain it. If it happens to be the case (and I have no reason to doubt Bryan’s data) that cooks with college degrees get paid more than cooks without college degrees, I endorse neither the human capital nor the signaling model to explain this result. Rather, I would say there is a correlation between the type of person who gets a college degree and a good cook, versus the type of person who doesn’t get a college degree, and that employers in this industry can readily observe productivity and thus pay cooks accordingly.

NOTE: I’m not “blowing up” Bryan’s post. He has obviously read way more of this literature than I have. My modest point is that his contrast between the human capital versus signaling models of education often seems to me, to artificially force the world into two categories that are not exhaustive of the possibilities.

Gerald O’Driscoll: Fed Is the “Enabler” of Government Budget Deficits

From his recent CATO podcast.