Consulting by RPM || Free Advice Blog

If the Mises Institute Did Not Exist, We Would Have to Invent It

Arnold Kling is frustrated with the prospects for libertarians. He writes:

One idea, promoted at Cato by Brink Lindsey and Will Wilkinson, is liberaltarianism [sic]. The idea is to approach liberals and say, “we’re with you on social issues and we’re also dovish on foreign policy. Let us persuade you that markets are good for the economy.”

The problem is that liberals tend to affiliate themselves with Harvard types, and Harvard types believe that they are smarter than markets.

But Kling has a solution, libertarians should court the rank of file Tea Party protesters: “I think it might be good to have some TeaPartarians, meaning intellectual supporters of free markets who are comfortable working with the Tea Party folks.”

In the comments I left the following enigmatic declaration:

Arnold Kling wrote:

I think it might be good to have some TeaPartarians, meaning intellectual supporters of free markets who are comfortable working with the Tea Party folks.

Recalculation Argument : Austrian business cycle theory :: TeaPartarians : Ludwig von Mises Institute

Glenn Greenwald Points Out (Some) Progressives’ Hypocrisy on Obama vs. Bush

Another great post by GG, this time on Obama’s apologists explaining that there will be a trial for the underwear bomber because “we live under the rule of law.” Here’s GG:

So in order to justify giving a civilian trial to AbdulMutallab, [Obama terrorism advisor] John Brennan cites the fact that we are “a nation of laws.” Progressives defending the decision to treat AbdulMutallab as a civilian criminal are similarly invoking “the rule of law.” The Washington Monthly’s Steve Benen, for instance, cites The American Prospect’s Adam Serwer to argue that “‘it’s really remarkable that we’ve gotten to a point in American history where the Republican Party has managed to make fair trials for people who commit crimes ‘controversial'” and adds: “that Brennan has to mount a ‘defense’ for following the rule of law, the same exact way the Bush administration did, suggests just how far the discourse has strayed from reality.”

Benen is right that the Obama administration is essentially doing what the Bush administration did with regard to terrorism suspects, but what does that have to do with “the rule of law”? How can anyone possibly argue simultaneously that (a) the “rule of law” requires civilian trials and (b) the Obama administration is following the “rule of law,” when: (c) the Obama administration is explicitly denying civilian trials to numerous terrorism suspects whenever it feels like doing so? If someone actually believes that “the rule of law” requires civilian trials for terrorism suspects, then it cannot be rationally argued that the Obama administration is upholding the “rule of law,” since providing civilian trials — which the “rule of law” supposedly requires — is a policy they are explicitly rejecting.
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If the “rule of law” only requires a trial when the State is absolutely certain it can convict someone because it has “plenty of evidence against them” — and then allows the use of military commissions or indefinite detention when the evidence is weak — then “the rule of law” is a ludicrous joke. Criminally charging people only when you know in advance you can win — and imprisoning the rest without the benefit of criminal charges — is a sham system of show trials that is the opposite of “the rule of law.”
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It is perfectly fair and accurate to point out that Cheneyite Republicans are being partisan hypocrites for attacking the Obama DOJ for doing exactly that which the Bush administration did: namely, trying some terrorism suspects in civilian courts and holding the rest without trials. But what about progressives who spent eight years accusing the Bush administration of “shredding the Constitution” and gravely assaulting our political system as a result of its detention policy, yet who are now venerating the Obama administration as “upholding the rule of law” even as they deny trials to scores of detainees?

Rummel’s Thesis

I was reading the opening of R.J. Rummel’s Death By Government. I needed to get some stats on the crimes of communist countries, and Rummel’s book came highly recommended.

I have no problems with his figures; he seemed extremely conscientious and acknowledged the limitations of the estimates. But I had trouble with his underlying thesis, which is that Power kills and absolute Power kills absolutely (I agree), and that is why we need more democracies (I don’t necessarily agree).

Specifically, Rummel repeats the standard claim that no democracies have ever gone to war with each other, whereas non-democratic states start all kinds of wars. At this stage I have three questions:

(1) How would Rummel classify the U.S. War Between the States (aka the Civil War)? My historical knowledge is awful, but wouldn’t you classify the Confederacy as a democracy? Jefferson Davis won an election, right? (Though it seems maybe after the war began?)

(2) Wasn’t Hitler elected? (There is some controversy on this point, but even this Google-top critic site starts with, “Hitler never had more than 37 percent of the popular vote…” which is hardly reassuring about democracy’s ability to keep the bad guys at bay.)

(3) Have any communist (fascist) countries started wars with other communist (fascist) countries?

Note that I’m not asking the above questions sarcastically, as if I already know the answers. I am genuinely asking.

Potpourri

OK my Potpourri-links holder was starting to resemble the Fed’s balance sheet, so time to dump:

* Bryan Caplan shows you how to get on TV [.pdf] without even shaving.

* Robert Wenzel explains how the government will crash the housing market–again.

* Apparently Iran’s nuclear development is similar to the planet’s “running out of oil.” (HT2 Matt Yglesias)

* Jeff Tucker combines two of my passions–anti-statism and toilets.

* A CFA blows up (I think) Shiller’s “trills” proposal.

* Human Action comics.

* Some of the global warming skeptics have been excited by a recent finding that (in their words) “proves that the fraction of CO2 in the atmosphere hasn’t increased during the 20th century.” Well that’s not really it. Chip Knappenberger explains–and to paraphrase Paul Krugman, “I trust Chip Knappenberger on climate.” Like the infamous “hide the decline” comment in the CRU emails, there is something here to warm skeptics’ hearts–and it should warm everyone’s hearts to learn that maybe we’re not all going to drown, right?–but the people blogging about the actual findings have often misstated the result.

* Casey Mulligan throws down with Paul Krugman here and here.

* Alex Risman emails to say he has discovered that Ben Bernanke is a Nazi agent, codename “Helicopter.” Details here.

NYU’s Divergent Offspring: An Experiment in Austrian vs. Mainstream Economics

Von Pepe sent me this WSJ survey of economists about the economy in 2010. Michael Feroli of J.P. Morgan Chase predicted: ““We’ll have above-trend growth, low inflation, and the fed on hold through 2010.”

This is interesting because Mike was the only other American in my cohort in NYU’s PhD program. It was Mike who came up with the great line–as we were studying for a math exam in which the Turks and Japanese were sure to beat us–that after the qualifiers at the end of the year, there would be some ethnic cleansing. (I.e. we were goners.)

Well somehow our American can-do attitude got us both through the program. In all seriousness, Mike was/is a really sharp guy, and a big free market economist to boot. It’s just that he was more of a Chicago School free market guy, as opposed to the quaint Austrians with their verbal analysis.

So it will be interesting to see which of our predictions pans out for 2010. In contrast to Mike, I am expecting below-trend growth (in fact I expect what will be called a “double dip” and possibly an outright crash) and surging (price) inflation. I think by “on hold” Mike means that the Fed won’t raise rates. On this point I’m not sure what will happen. I agree that the Fed will continue its interventions, especially through buying assets and throwing them onto its balance sheet. But if, say, 10-year Treasurys are yielding 5+ percent by March, the Fed is going to be hard pressed to keep its interest rate targets the same.

Free Advice for My Fellow Bloggers

Bryan Caplan is getting a lot of links and commentary for his suggestions of books his colleagues should write. After the burning jealousy of all this attention subsided, I realized that I too should offer such a list. So here are books or long essays that I think various people should write in the new year:

* Stephan Kinsella: Name-Calling Never Works: Tales From the Courtroom and the Blogosphere.

* Steve Landsburg: “More War Is Safer War: An Optimal Pigovian Tax on Diplomacy.”

* Robert Wenzel: To All the Financial Analysts I’ve Loved Before. (We also would have accepted Living With Paranoid Schizophrenia.)

* Gene Callahan: “In Defense of Benedict Arnold.”

* Jeff Tucker: “How I Started With Nothing But Racists and Cranks and Managed to Create the Best-Read Economics Blog in the World.”

* Silas Barta: How to Make Friends and Influence Bloggers.

* Tyler Cowen: “Necessary and Sufficient Conditions for Me to Revise My Prior Probability of Central Bankers Being Evil.”

* Arnold Kling: “Why Obama’s Economic Team Should Stop Being So Niggardly With Tax Cuts.” (Yikes! Calm down people, does this make it okay?)

Senator Dodd Likely to Drop Out; Free Advice for Peter Schiff Campaign

CNBC reports:

Leading Democratic Senator Christopher J. Dodd, chairman of the Banking Committee, will announce Wednesday that he is retiring, NBC News has learned.

It is likely that once Dodd announces his decision, Connecticut Attorney General Richard Blumenthal told CNBC he will run for Dodd’s former Senate seat, but Blumenthal stopped short of formally announcing his candidacy.

Blumenthal said he would have supported Dodd had he opted to run again, but he declined to say whether he had spoken to officials at the White House.

Dodd plans to continue heading efforts to pass financial regulatory reform legislation this year despite his announced retirement from the Senate a source close to Dodd said Wednesday. “He will see it through,” said the source, who asked not to be identified.
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Over the years, the Connecticut senator has raised millions of dollars from employees of Wall Street firms.

I just skimmed this story, but I didn’t see it mention any of the “appearances of impropriety” surrounding Dodd. (NPR wasn’t afraid to “go there” in their story, gee whiz.)

I don’t know what the odds are of Peter Schiff getting the Republican nomination, but I do think Dodd’s campaign staff didn’t like that particular scenario. Regardless of the Democratic nominee, if Schiff is in the final race I think he should spend 75% of his funds just running clips from his TV appearances* calling the bubble. He doesn’t even need to campaign on a platform, just look at the camera and say, “Never again. Not on my watch.”

* BTW I watched a few seconds of that YouTube link to make sure it was a decent one, and you will fall out of your chair in the first few moments when some analyst bites Schiff’s head off for doubting that the US in 2006 was experiencing phenomenal productivity growth. You won’t believe the example she uses, when she is actually offended at his pessimism. Check it out.

When Murphy Debates McKitrick, the Temperature Rises

OK the post title was awful, I admit it. On my MasterResource post criticizing Ross McKitrick’s proposal to tie a carbon tax to observed temperature changes, McKitrick posted the following comment:

Hello Bob and others,

I’d like to respond to some of the points made here. The main concern I have in reading your posting is that you seem to have some ideal alternative in mind, in which perfect information for all time now and in the future is available to decision-makers, and there is no difficulty overcoming the obstacles to forming a coalition to implement it. So if you are going to criticize my proposal in comparison to an ideal alternative, I hope that in a follow-up post you will tell us what the ideal is. So far all the alternatives I have seen being seriously discussed are much worse, except for the strategy of doing nothing. However, my tax idea strikes me as a near approximation to doing nothing since the tax rate would start low and gradually taper off from there. That’s my expectation: others would expect the tax to start low and rise.

Your first objection is that we can’t say for sure what the present value of the marginal damages of a tonne of CO2 is. So? All we can ever do is work with estimates. Without some working estimate of the marginal damages you have no rationale for any emissions policy, whether price or cap-based. At least with my proposal, the direction of change over time has a higher chance of being correct than other instruments that do not build in learning mechanisms (i.e. everything else). Bear in mind that if you require perfect information then there is no possibility of setting any policy correctly.

In other words you are criticising my policy because in order to implement it requires picking an initial dollar value, and the choice is inherently uncertain. But that applies to any policy option. Given the uncertainty, my proposal lowers the expected costs of making a mistaken commitment, compared to any alternatives I know of.

To implement any policy, either an emissions tax, tradable permits (worse) or command regulations (worst), involves picking an explicit or implicit dollar value of the marginal damages. One of the worst aspects of regulations like the ethanol mandate and appliance efficiency rules is that they appear not to place a price on emissions control, when in fact they do. It just happens to be buried in the costs of regulation, and often comes out to thousands of times higher per tonne of actual abatement achieved than we would think is a reasonable emissions tax level.
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You are also concerned about price volatility since the “Earth’s temperature” bounces around a lot. I have always suggested that the tax be smoothed out using a simple moving average, between 12 and 36 months, so that the change in the tax is primarily driven by a sustained trend not by weather variability. By applying a simple smoother it is not hard to ensure that the tax variations remain reasonable, especially in comparison to the cap and trade case where a vertical supply curve and a nearly-vertical demand curve interact. (That’s why Europe’s ETS system has such explosive price variability and always will, as will a cap and trade system implemented in any industrialized economy.) Having some variability is not a problem–we cope with energy price fluctuations all the time. In this case a certain amount of variabiltiy has a theoretical justification (marginal warming, if it is damaging at all, is more damaging at times when there has already been a spike in natural warming).

Your third objection is to suppose, what if the IPCC is correct, but natural forces mask warming for a while, then we delay the correct policy response. Once again you are imagining an alternative world in which we have perfect information. If the IPCC is correct, and we know them to be correct, then people will anticipate the future tax increase and plan accordingly. If the IPCC is correct but we do not know them to be correct (or believe them to be incorrect), then no one is in a position to make the right choice. At least under my proposal, policy will eventually update as new information becomes available. Every other policy proposal is impervious to new information. We have a choice between policies that assimilate new information as it becomes available, versus policies that never assimilated new information. We do not have the option of policies that assimilate information before it becomes available.

Note that in the above, I edited out a lot of his comment, since he was addressing other people and not just me. I replied:

Ross (if I may),

Obviously it’s hard to be precise in a blog post, but I think you are misunderstanding my problems. When you ask me for a rival policy that responds to new information and is superior to yours, I can glibly reply: Sure, let’s have a carbon tax calibrated to the best-estimate of the social cost of carbon. And then as we get new information (including new temperature readings), we update the SCC using Bayes Law and adjust the tax accordingly. That is literally the theoretically best policy, given our uncertainty.

Now why don’t we do that? It’s because we all can’t *agree* on what the SCC actually is. There are people who think it’s really high, like Joe Romm, and that we should be taxing the heck out of emissions right now. Then there are people like Richard Lindzen, who thinks the IPCC estimate of climate sensitivity is too high, and (I presume) the “optimal carbon tax” should be a lot lower than what most other experts would say.

So what I was doing in my post wasn’t so much saying, “Whoa, McKitrick’s plan backfires because the IPCC might be right!” Rather, what I was saying is that I don’t believe there is actually a wide overlap where both sides in the debate could agree to a McKitrick tax.

For example, to get Rob Bradley to sign off on the tax, the initial rate has to be low. So in principle, if tropospheric temperatures stayed flat for the next two years (or even fell), then we would have a very low carbon tax for 2 years in a row.

Knowing that possibility, someone like Joe Romm would insist that this low initial tax rate would have to go up by a factor of 20 or something at the first blip in global temperature. If we didn’t concede that to him, then Romm would never sign on to the policy, because there would be (in his mind) an unacceptably high probability of catastrophe.

Do you see where I’m going with this? Because of the natural variability in temperatures, I don’t see how you actually could get honest people who have wildly different estimates of the SCC to agree to a McKitrick-style tax. Thus, I don’t think you are necessarily “smoking the other side out” if they balk at your proposal, since you’re asking *them* to sacrifice their view on the front end.

Maybe that’s a good way to frame my point: We could just as well propose a Murphy temperature tax, in which we start out with a $100 / ton tax on carbon. But then for every 1% the tropospheric temperature falls behind the IPCC suite of models’ forecasts (given the observed emissions and updating the forecasts all along), we knock down the Murphy tax accordingly. So we can “smoke out” the skeptics and see if they actually think the IPCC models are overpredicting temperature rises, or if (on the contrary) the people criticizing Waxman-Markey etc. are really just philosophically opposed to government intervention.

Does that help clarify my point?

If I were famous, blogs across the geeconosphere would go nuts: “Murphy proposes $100 / ton carbon tax!!”