Monthly Archives: March 2009

"Never Waste a Good Crisis"

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Reuters reports:

[U.S. Secretary of State Hillary] Clinton told young Europeans at the European Parliament that global economic turmoil provided a fresh opening. “Never waste a good crisis … Don’t waste it when it can have a very positive impact on climate change and energy security,” she said.

Damn you Milton Friedman!

So here’s the “shock doctrine” in action. “Climate change” itself is not actually a crisis that demands immediate action. And in the absence of widespread public demand for action, climate ideologues need a crisis to shove through otherwise unpopular reforms. Of course, imposing massive new taxes (whether implicit or explicit) on energy, and therefore on economic production generally, is a terrible idea during a recession from the depths of which it will take many years to recover. But who cares about restoring the average American’s standard of living? Never waste a good crisis!

John Galt and the Billion Tweaks

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My colleague Jason Kuznicki nails this:

Ayn Rand hated F. A. Hayek, but in a weird way, the Hayekian idea of the entrepreneur — a little guy who happens to stumble onto a tiny, useful bit of knowledge, and who finds himself free to employ it — is a better fit to the relatively more sophisticated view of Rand’s work, which holds that Atlas is just a metaphor, not a blueprint for world takeover. Schumpeter’s heroic entrepreneur is, I think, empirically wrong, but better suited to a literal reading ofAtlas.

Who is John Galt? An ephemeral process. And if you could follow that, well, you get the libertarian gold star for today.

I get the gold star! Saltative, game-changing, lone-genius invention does happen, but not very much. Sustained growth is driven primarily by an accumulation of tiny productivity-enhancing innovations. Part of the problem with Obama’s Ecomagination Industrial Policy is that it’s looking to finance a quantum leap. Like the dominoes-of-democracy best-case scenario for Iraq, the dreamy upside could be huge, sure. But the smart money is on lower than average returns to investment. The problem isn’t that we’re going to get some wasteful Project X instead of Galt’s motor, because all our Galts went MIA. The problem is that we’re going to get Projects A-Z, most of which will be a bust, instead of some significant number of the billions of tweaks that make innovation and growth happen. 

A couple sentences from Robin Hanson for your consideration:

Small differences in growth rates eventually overwhelm most other considerations, so the clustering and innovation externalities that create growth differences deserve far more public attention. Unfortunately most people yawn at growth theory; they prefer stories about conflict, status, moral fiber, heroes, and epic changes.

That is, people prefer romance. Here’s one way to understand the “going Galt” dramatics. Obama is causing a lot of Rand fans to completely flip their lids in part because Obama and his devotees are Bizarro World Randian romantics in the grip of an adolescent faith in the generative powers of the state.

Bill Easterly on Peter Singer's The Life You Can Save

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Is failing to give more to Oxfam or Unicef akin to failing to save a drowning child? Bill Easterly says no: 

Unfortunately, there are several differences between these two situations. The most important is that you know exactly what to do to save the child, whereas it is not at all clear that you (or anyone else) knows exactly what to do to save the lives of poor children or how to get them out of extreme poverty. Another difference is that you are the one acting directly to save the drowning child, whereas there are multiple intermediaries between you and the poor child — an international charity, an official aid agency, a government, a local aid worker.

Easterly says Singer never faces up the severity of this problem and argues, more or less, that the frequent failure of intermediaries weakens the obligation of ordinary citizens of wealthy societies and should refocus some of our sense of moral failing toward these institutions and those responsible for their ineffectuality. Easterly concludes with an illustrative anecdote: 

My co-worker Diane Bennett recently related her experience from 2001 to the present as a charity worker desperately trying to stop repeated measles epidemics in the eastern part of Upper Nile State in South Sudan. Each measles epidemic killed hundreds of children, whose graveyards surrounded local villages. Urgent pleas to the World Health Organization and Unicef (the latter one of Mr. Singer’s favored charities) for measles vaccines were met with bureaucratic excuses for inaction, or promises were made and not kept. A new measles epidemic broke out in 2008, WHO and Unicef still had yet to deliver, and hundreds more died. As of this writing, there are still no vaccines in the eastern part of Upper Nile State, more than seven years after the first pleas for help.

Mr. Singer is a compelling moral voice seeking far more compassion for those who have the least. But why has so little changed, despite decades of effort and billions spent? There is plenty of blame to go around — more than “The Life You Can Save” admits.

Of course, the fact that giving charities helping poor children isn’t a moral imperative on all fours with saving a drowning child doesn’t mean you shouldn’t give more. You should. But I also wish Peter Singer would use his heft to push for the biggest potential utility-maximizer: the liberalization of immigration restrictions.

[HT: Jonathan Dingel]

Government vs. State, Again

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Matt Ygelsias, commenting on Spencer Ackerman’s dispatch on the armed services’ plans to resist cuts in their budgets, nicely illustrates the antagonism between democratic government and the permanent state:

Note that “the services’ legislative outreach and public-affairs offices” are technically part of the United States government. Indeed, they’re technically not supposed to be doing any lobbying at all. In fact, they regularly lobby congress against positions taken by the civilian leadership of the United States and on behalf of the defense contractors they’re hoping will employ them post-retirement. 

Part of what you’re doing when you’re paying taxes is paying for functionaries of the permanent state apparatus to lobby the elected government to ensure that you never stop paying the taxes that finance their “vital functions.”

On Going Galt

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I can’t help but feel that threatening to withdraw from economic production, ala Atlas Shrugged‘s John Galt, is a certain kind of libertarian-conservative’s version of progressives threatening to move to Canada. For my part, I can’t imagine what would make me want to stop working, and each new president makes me want to move to Canada.

Despite my own inclinations, I’m among those who believe that labor supply is pretty sensitive to marginal tax rates, and I have no doubt that increasing the top marginal rate will make it so that some very productive people will quite rationally choose to produce less. But the effect comes from aggregating hundreds of millions of choices about the worth of an extra hour of work, not because the willing efforts of a small handful of productive geniuses are a necessary condition for ongoing economic production (and, therefore, civilization). Maybe vocally “going Galt” as a protest move is a useful way to put a dramatic face on optimal tax theory, but of course that’s not what folks who talk about it have in mind. They have morality in mind. And taxation is a moral issue, a matter of justice, and I’m glad Americans resist the idea that their government is entitlted to consume ever larger portions of their incomes. So I certainly don’t mind if a bunch of people declare they are “going Galt” if it reinforces healthy, deep-seated American norms about the injustice of excessive taxation.

But insofar as this is all about taxes on the wealthy (as the link to Malkin suggests) it’s a bit hard to see tax rates somewhat exceeding the Clinton era’s as a move over some inflection point from the tolerable to the completely outrageous. And of course none of these folks designed an engine that would have created basically free energy (and made global warming a non-issue). In the individual case, “going Galt” smacks of a kind self-aggrandizement in the same way that climate smuggery does. Because, really, your marginal contribution doesn’t matter that much.

By the way, Atlas buffs, the point of Atlas Shrugged is not that you are John Galt. The point is that you are not John Galt. The point is that you are, at your best, Eddie Willers. You’re smart, hardworking, productive, and true. But you’re no creative genius and you take innovation — John Galt — for granted. You don’t even know who he is! And this eventually leaves you weeping on abandoned train tracks. 

I think Obama’s policies will be bad for innovation, but not because higher marginal tax rates will lead our best and brightest to retire from the field of endeavor. I’m rather more worried that our best and brightest will follow the incentives and go Robert Stadler. I’m worried that our money, which might otherwise have gone to capitalize real innovation, will be confiscated in order to finance government directed “investment” instead. Our economy can readily absorb a passel of drop-out Willerses (though Eddie never quits!). It’s the misdirected capital embodied by the Stadlers and their Project Xes that really hurts.

Place. Limits. Liberty.

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I think I am going to really enjoy Front Porch Republic (motto: “Place. Limits. Liberty.”), which as far as I can tell is an enterprise devoted to the idea that a world filled with little islands of intense moral chavinism is a better world. Anyway, I was drawn in by this amusing passage in this Daniel Larison post:

[L]et us reflect on the fallen state of man. How did it happen, and what was the cause of the Fall? Our ancestors chose to try to be as gods and willed the one thing that God had forbidden them. Individual autonomy is at the heart of the Fall, and so it is part of our fallen nature, the part that St. Maximos described as the gnomic (deliberative) will. This is how we are now, but this is not how we were created. As fallen creatures we can embrace this autonomy, celebrate it and make it one of our highest goods, as most modern traditions would have us do, or we can turn back to God and change our mind.

I read this to Kerry who submits that “it sounds like he’s talking about Dungeons and Dragons or something,” which I think is about right. I know it’s rude for unbelievers to step into conversations between people who take wizards seriously, but I imagine Larison has a point we can all appreciate, and I’d like to know what it is. My secular reconstruction, which I’m sure leaves out the ineffeble essence of the thought, is that the ideal of individual autonomy is alien to human nature and we would be better off surrendering ourselves to our little platoons to be made as they see fit. Is that it?

Larison goes on to offer a caveat, which he then half withdraws:

In our case, it is also true that none of us would be where and who we are without many of the things we are critiquing and rejecting, and indeed ultimately none of us would be here at all had our first ancestors not disobeyed God, but while we should not be entirely ungrateful for our inheritance neither should we acquiesce in repeating the same errors and persisting in false beliefs about human nature and nature.

I’d like to know what these false beliefs are, plainly stated — if they can survive de-theologizing. I always find myself agreeing with communitarian types that individuals do not spring fully formed from the clay. Human development is indeed a richly social process of enculturation. But it’s a silly non-sequitur, which I find myself running into again and again, that since human development is social, it is a mistake to socialize humans into an ethos of individualistic autonomy. As far as I can see, humans flourish best where autonomy is most celebrated and encouraged, though I’m pefectly open to evidence to the contrary.

The $250,000 Focal Point

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Yes, people who think they’ll get walloped with extra taxes if they touch that 250 thousand and first dollar don’t understand the nature of marginal tax rates. But it’s hard to escape the class war overtones of Obama’s stategy of sticking it only to those who’ve passed the magic number. If you’re under the line, you’re one of us. If you’re over the line, you’re one of them. Reserving higher marginal rates, the cut in the charitable deduction, etc. for the top bracket sends a message: you don’t deserve it and you owe us. It’s easy enough to grasp the desire to approach but not join the resented class.

Stimulus and the Global Coordination Problem

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Matthew Yglesias’ posts emphasizing the interconnectedness of the global economy and the need for coordination, like this one, are quite correct in pointing out that economies are not contained in little national boxes with policy levers nation-states can pull to goose aggregate demand, brake the rate of job loss, and so on at will. Indeed, having a sound sense of the extent of global economic interconectedness is tantamount to admitting rather hard limits on the ability of national monetary and fiscal interventions to fix things.

Suppose Matt is right when he says:

The economy is very global, and it’s extremely difficult to see it pulling short of a depression if the European Union and Japan are twiddling their thumbs. Beyond that, if there isn’t meaningful global coordination of stimulus efforts then protectionist pressures are going to become harder-and-harder to resist in China and the United States to prevent free riding. That, in turn, would buy some short-term assistance at the cost of really hobbling the prospects for recovery down the road. 

That is to say, given globalization, effective stimulus is a lot like effective carbon-reduction policy: it requires overcoming incredibly difficult international coordination problems. One might argue that the global policy coordination problem is easier to solve if the U.S. is willing to be the first mover. But then one should also admit that the domestic efficacy of American stimulus is conditional on things beyond the control of American policymakers and that the odds of success are rather lower than most progressives have so far been willing to admit.

If I were a Democratic strategist, I would, like Matt, be broadcasting the importance of global coordination in order to prepare Americans for the possibility that domestic stimulus proves ultimately impotent in the face of a broader global decline. Democrats will then be able to say “At least we tried and it would have been worse if we hadn’t” in reply to Republicans keen to capitalize on the failure. If I were a Republican strategist, I would be pointing out how convenient it is for Democrats to have failed to mention the importance of perhaps unattainable global coordination when pushing through their plan. As it happens, I’m neither, so maybe I’m just concern trolling.

Why Obamanomics Will Hurt Innovation

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The Manhattan Institute’s Jim Manzi has written a great column lucidly explaining why the economic policies of the Democrats under Obama threaten entrepreneurship, the ultimate source of innovation, productivity enhancement, and economic growth. Here’s his conclusion:

Like the college students who stayed up late to hear Obama’s campaign speeches only to find his first significant action to be a stimulus program that will transfer about $1 trillion from them to the Baby Boomers, Silicon Valley Obama supporters may find themselves in an uncomfortable environment. A government-dominated economic era may not be an auspicious one in which to start companies that threaten big, incumbent corporations with lots of political clout.

The concept of “animal spirits” recognizes that not all economic decisions are made entirely with spreadsheets. Some people start companies because they’re driven by a dream that transcends rational economic calculation. But most successful entrepreneurs are pretty serious about comparing risks with opportunities. Higher tax burdens raise the price of entrepreneurship. When you raise the price of something, then, all else held equal, you usually get less of it. Given that something like 7 million people in the U.S. work in companies that are or were venture-backed, including a majority of the employees in high-growth sectors of the economy like computers and software, this is likely to matter a lot in the long run.