Sun, 31 Dec 2006

Faith in Free Markets

Some people view libertarians, conservatives, and economists as having "faith" in free markets. I agree with that assessment, but I should explain what I mean by faith, and what I think they mean by faith. There are two kinds of faith. One kind is the faith of the blind believer. The other kind is the faith of the scientist.

The blind believer has faith in something regardless of the evidence. For example, some people believe that the earth is only 6000 years old. When confronted with the very straightforward fact that light is arriving from stars farther than 6000 light-years away, they don't lose their faith. They explain the evidence away through circumlocations such as "Well, God created the light part-way through its travel." The trouble with that explanation is that it explains anything, with no possibility of a predictive theory. If your theory predicts something, and the evidence shows something else, then clearly God must have created the evidence since their faith is unshakable.

The faith of the scientist tells them that God exists. Nobody can prove whether God exists or not, thus, no evidence can exist which might shake their faith. Some people claim that this is the God of the gaps, saying that God can only exists in-between the gaps in our knowledge. I disagree. There are many things which we have proven we cannot know. For example, given a computer program of sufficient complexity, it is not possible to prove that it will ever halt. This is a matter for faith; science can never answer this question. Yet people can observe patterns which give them cause to have faith in something based on evidence.

I agree, then, that economists have faith in free markets. We can't prove that free markets will generate a better result. But we've observed them long enough to have faith in them. We believe, with faith and evidence, that free markets provide the most prosperity for the most people.

Posted [01:35] [Filed in: economics] [permalink] [Google for the title] [digg this]

Fri, 29 Dec 2006

Libertarian Purity Test

Surprise, surprise, I got a 160 on the Libertarian Purity Test. It says "Perfect! The world needs more like you."

Posted [00:35] [Filed in: economics] [permalink] [Google for the title] [digg this]

Thu, 28 Dec 2006

Health Care

Health care in the USA is completely broken. Health care is a difficult problem, to be sure, but I think it's clear that we're currently solving it very badly. Two problems with health care: One is that people expect everyone to have the same health care as a rich person, even if they're not rich themselves. Another is that health care, not being exposed to the discipline of the market, is very expensive. If everyone gets the same health care as a rich person, then there is no pressure to create more frugal health care.

Health care then being expensive, everyone expects somebody else to be paying for their health care. This creates bizarre solutions. For example, the Canada, health care is paid by the federal government. In order to hold down taxes, access to health care is limited; typically by waiting periods. Or in the USA, most working people have their health care paid by their employer, except for a very small deductible. This makes it difficult for employees with health problems to switch employers. The government has created a ham-handed solution which permits former employees to continue their health insurance by paying the premium out of pocket..

Health care is important, without doubt. So is food (insufficient calories reduces your resistance to ordinary infections), but we generally don't expect everyone to be able to dine on caviar and steak every day. Many different kinds of food are available in many different venues and preparation styles, at reasonable prices. Yes, the poor may need to dine on beans and rice, but except for the most indigent, everyone can get enough calories, protein, and vitamins to stay healthy. Health care could be the same way; with cheap, worthwhile health care being available to everyone at affordable prices. We have chosen a different path; much to our detriment.

Posted [01:37] [Filed in: economics] [permalink] [Google for the title] [digg this]

Tue, 12 Dec 2006

Shareholders? Or Customers?

Who has more control over a corporation's operations? The shareholders or the customers? Some people seem to think it's the shareholders. Silly people! Let's say that the shareholders think the corporation is doing the wrong thing. They have two avenues of control: sell their shares (but as long as the company is making earnings, other people will be willing to buy it). Or they could vote to change the board of directors. Ultimately the company is run by the board of directors representing the shareholders' interests. The board can fire the company's officers &etc. That's the theory. The practice is that shareholders will just sell their stock if they think the company is going the wrong way. Why? Because shareholder control is limited by the amount of shares they own. Only majority or significant minority shareholders are in a position to change the company. The only reason for them to do this (rather than selling) is because they think the company isn't pleasing its customers enough.

On the other hand, what if the customers don't like the corporation's products? The corporation's income drops in proportion to the dislike. We all know what happens to a company whose costs exceed its income, right? It has to sell more, cut costs, spend its savings, dilute its stock, borrow money, or go out of business.

Which of these induces the most drastic actions? Clearly the customers. Active investors are few and far between.

Posted [16:22] [Filed in: economics] [permalink] [Google for the title] [digg this]

Sat, 09 Dec 2006

Economic Stimulus

There's a letter to the editor of the Watertown Daily Times written by Susan Bouchard, which says, in part, this:

Increasing participation in the Food Stamp Program makes sense for our community by bringing federal dollars in the form of benefits, which are redeemed by food stamp participants at local stores. These benefits ripple throughout the economies of our community.

For example, every $5 in new food stamp benefits generates $9.20 in total community spending. By generating business at local grocery stores, new food stamp benefits trigger labor and production demand, ultimately increasing household income and triggering additional spending.

There are two economic errors being made here. One is specific and the other general. Specifically, Bouchard blithely presumes that the total benefit of the FSP is positive. She presumes that more federal dollars are being brought into the community than are being removed by federal income taxes. It's quite possible that the Food Stamp Program actually hurts the North Country when all is counted.

The general economic error she's making is to praise the benefits of federal taxation, but to fail to condemn the harms created by taxation. If it's a good thing that tax dollars are taken from some and given to others, then it's a bad thing for the some. For example, every $5 in taxation destroys $9.20 in total community spending. If federal spending is an economic stimulus, then federal taxation is economic destruction.

Posted [13:02] [Filed in: economics] [permalink] [Google for the title] [digg this]

Fri, 08 Dec 2006

I'm joining a union

I'm joining a union. This may surprise long-time readers of this blog. However, it's not the old kind of union, which seeks to form a monopoly over labor, usually through extra-legal violence in the form of beating up scab laborers or through the proxy violence of the government in the form of laws favoring unions.

This union, the Freelancers Union, serves union members by providing a health insurance plan; by advertising gigs for freelancers; and by advocating for fair treatment of freelancers. For example, a home business such as mine is technically illegal since my house isn't zoned for business use. Since I rarely have customers come to my office, nobody is harmed by this, but it's still technically illegal.

This union is more in the spirit of the mutual aid societies that used to be everywhere in England. That's my kind of union.

Posted [00:34] [Filed in: economics] [permalink] [Google for the title] [digg this]

Fri, 01 Dec 2006

Unschooling Numbers

New York Times has an article on unschooling, in which they repeat the hoary estimate of 1.1 million home-schoolers, stating the unschoolers form a fraction of such. That's just plain nonsense. Why? Because you, gentle reader, are unschooling yourself right now. Why shouldn't you be counted in those figures? Why should only children of government-school age be counted among home-schoolers? Why shouldn't every child between the ages of zero and school age be counted as an unschooling home-schooler?

The answer is simple: because people who come up with those numbers wish to diminish home-schooling and thus unschooling. It must be seen to be something only a minority of people do, or experience. It must be seen as something risky; something scary; something with "scant data"; something with "little knowledge"; something other than "regular school"; something where "experts worry".

I don't want to argue from anecdote, but I am proud of my unschooled daughter, Rebecca Nelson.

Posted [02:37] [Filed in: economics] [permalink] [Google for the title] [digg this]

Shooting the Messenger

Surely you've noticed the ill repute in which economists are held compared to, say, physicists, or rocket scientists. I think that part of the reason why is integral to the study of economics. Economists make one very reasonable assumption: that people want more than they can have. Because people really do want more than they can have, they find it galling that economists constantly remind them of that.

..... and a pony.

Posted [01:23] [Filed in: economics] [permalink] [Google for the title] [digg this]