Tuesday, February 28, 2012
I am in relative agreement that growing inequality is harmful, in general, to society. But doesn't the excessive spending by the 'rich' on goods/services that provide only relative social value flow back into the economy through construction, employment, etc.? Who is to say (perhaps Frank is building up to this point), that taxing goods that provide only relative social value is the most efficient method of reallocating capital? Wouldn't it be more efficient to privatize the road systems with tolls imposed (absolute prices based on the relative position of the road) than a taxation system? This method would more efficiently identify those 18%/year investment opportunities based on actual revenue from individual road systems, instead of arguing that all road maintenance should occur because it's more expensive in the future... that just sounds wasteful.
I feel Frank either doesn't understand the argument against Keynes or isn't representing it accurately. There's a lot more to it than simply the idea that the threat of future higher taxes incentivizes people to save and not spend. Frank debunked this argument and I won't bother with trying to build it back up. Instead there are many good reasons not to want the government to engage in stimulus spending.
First is that the government cannot give to anyone anything that it does not first take from someone else. So any money that the government pumps into the economy it has to eventually take back out. A Keynesian might argue that this is necessary to give the economy a boost in the short run to return prices back to their previous levels or create some other boom in another sector. However, prices serve a vital function in the economy. They are key to allocating scarce resources. Prices are the signals to individuals, producers and consumers alike, that help them make decision about how much and what to consume or produce without perfect knowledge of the economy. When the government pumps money into the economy it is not dolled out to everyone evenly. Some sectors of the economy receive the stimulus while others do not. This distorts the price signals entrepreneurs use when deciding what to invest in. Previously unattractive investments begin to appear profitable. And so the economy begins once again to move in an unsustainable direction.
Distorted prices too far away from real market values are precisely what cause a bubble to pop. As efficient prices are at allocating scarce resources, they cannot perfectly reflect the resources available in the economy. People always speculate though. It is inherent in how entrepreneurship works. Business people invest their money thus taking a risk. When people speculate about future profitable areas of the economy, this creates a bubble. Eventually, however, those businesses that cannot compete are weeded out and only those that can make a sustainable profit at lower prices survive.
These are only some reasons why stimulus spending is the disease, not the cure. For more on this I would recommend reading more about the Austrian Business Cycle Theory.
There is one other topic I would like to speak on that Frank gives very little credibility. In one simple and short paragraph he dismisses the possibility of a society without government. He states that any territory not governed would quickly be conquered by other territories with governments. I would concede this point if there was no one occupying and owning this territory. However, why couldn't there be a society where people's property rights are respected? They could be protected by the expectation of the community. I am not well equipped nor is this is not the time to argue for Anarcho-Capitalism, but I do not dismiss it so readily. I recognize the necessity for rule of law. But sometimes the codification of rules gives them undue credibility and gives certain individuals absolute authority. Government is just a collection of individuals. Why are they any better equipped to make decisions for other people than each person is for themselves? If we are to have a government it should simply establish a rule of law and a standing army to protect the interests of the citizens. It should be decentralized and as local and as limited as possible. I have a serious ideological problem with trying to achieve the ends of a peaceful society through the inherently coercive force of government. When government gets too large, people begin to engage in favor seeking and look to it to solve the problems of the world. I would argue that we should look outside of government to solve our problems. Government should be instituted simply to protect individuals' natural rights, nothing more. Any further duties government takes on are likely to further infringe on property rights and liberty. For more on this I would recommend Frederic Bastiat's short essay "The Law." And I would love any recommendations for readings on anarcho capitalism or small government structures.
Monday, February 27, 2012
Honestly, I have rather mixed feelings about this chapter as Frank presents basic concepts which are commonly accepted yet fail to substantially prop-up his claims. Some of his points I agreed with, yet others were difficult for me to buy into because of the inevitable fact that his reasoning still seems a bit diluted.
As covered this chapter, Frank explains that the drastic effects of entropy are simply inevitable. According to the second law of thermo dynamics, the quality of matter/energy gradually deteriorates over time and to illustrate this concept, Frank uses the analogy of highway erosion. He explains how when asphalt roads are not suffciently maintained, they begin to erode into dangerous highways which cost homeowners a substantial amount of money because of the dangerous shards of gravel which often crack windshields. Yet, I couldn't help but glean other implications from Frank's entropy analogy.
Overall I still feel that Frank likes to point fingers at the opposing side a lot through out this book. Granted, he has a lot of good points in this chapter with our allocation of resources as well as government spending. What are we truly spending our money on (besides the war overseas)? I still agree that he is more concerned about competition and conspicuous consumption. He uses some pretty well put examples to back up his opinion about the beast and how we must starve it to a certain extent in order to regulate our economy. Although this is true. We still need to discover which factors pertain to this beast. We also need to identify which beast we are wanting to stop.
I don't believe anyone will disagree when we say that we need a government to help stabilize the country's economy, but how much help do we need? How far should they control the banks, the businesses, the franchises, and many other business opportunities? We are all seeking our comparative advantage in this country. So how come the poorer keep getting poorer and the richer keep on getting richer?
In chapter four, Frank mounted his counter-argument against those opposed to expansionary fiscal policy by quoting Lee Ohanian's comments on the issue. Ohanian summarized the Barro-Ricardian Equivalence Theorem, which essentially states that taxpayers will decrease current spending to accomodate an expected future tax increase, caused by the accumulation of government debt. In it's most extreme form, government cannot increase aggregate demand by deficit spending because consumers will decrease their current spending proportionally. The theory is controversial, even amoung economists on the right. Whatever it's accuracy, about which I cannot attest, it is not the main counterargument to those supporting expansionary fiscal policy.
The mainstream argument on the right would have been better (and harder) for Frank to rebut. It states that government borrowing raises the demand for credit, thus increasing real interest rates. The natural response of the business sector would be to reduce or postpone some investments. Consumers, reliant on credit and thus also sensitive to interest rate changes, would also curtail spending to accomodate the decreased availability of credit. Instead of simply increasing aggregate demand proportionally to the amount of borrowing the government does, some benefit is lost as public sector spending "crowds out" private sector spending. This is a mainstream argument against deficit spending that even some economists on the left accept as plausible to a degree. That's why I was surprised that Frank (apparently) has never heard it. He can't be blamed for his ignorance. Learning his opponent's actual arguments may have required him to come dangerously close to "right-wing extremists."
Thursday, February 23, 2012
His main example in chapter three is that of labor-managed firms (why we don't see more of these). He is correct in stating that the notion that worker-managed entities would be better is wrong because this "narrative implied that there were prodigious sums of cash on the table." In other words, if this is so good, we should see more of these types of entitites but we do not. I actually found myself agreeing with his responses to his colleagues (those in favor of labor-managed firms) like, for example, "...the very idea that a capitalist banking system migh persistently deny funds to creditworthy borrowers strains credulity..." and "But to suppose that a banker would pass up the opportunity to make a profitable loan for that reason is to completely misunderstand the essence of capitalism." My own response to his colleagues would have been that there are many who can follow but only few who have the skills to lead. The reason the CEO gets paid and should get paid much more than the basic worker is that the skills the CEO has are relatively more scarce than the skills the basic worker has. Sounds harsh, but the truth usually is.
However, I have to take issue with his comment on pages 33-34: "The problem is analogous to the tragedy of the commons that leads to overfishing...This is another form of market failure that results from the wedge between individual and group incentives described by Charles Darwin." The tragedy of the commons is not a failure of the market; rather, it is a failure due to lack of clearly defined property rights.
I also agree with Frank's observation on page 35 that ideology can cloud logical or critical thinking. It amazes me how many people on the left do not admit to the clear benefits of capitalism because their hearts feel something wrong. As I heard once on Stossel interview dealing with sweatshops, I wish people would think with their brains rather than with their hearts! Maybe I missed something, but his invisible hand explanation of workplace saftey seems correct (i.e., that if workers really wanted more safety, they would be willing to pay for it. If not, then they truly didn't value it even though they SAY they would).
Of course, Walmart had to be thrown in---the prime example of the evil "big guy" killing off "mom and pop" and "exploiting" the "little guy." My response to market skeptics regarding the locking in of employees is that IF workers knew the rules of the game before taking the job, then if they still voluntarily chose to work for Walmart, they were not being exploited. To be exploited in my view is to be forced to do something or if there is fraud or misrepresentation.
His main point (again, that the interests of individuals are often in conflict with those of the broader group and that life is graded on a curve...relative position v. absolute position) using school districts and bigger houses is I think a bit off. A better solution, of course, is to allow students/parents to choose the school (if you even assume that government should forcibly take money in the form of taxes from some people to give to others--those with children).
Finally, he argues, "The fact that individual and collective incentives diverge when relative income matters also calls into question the traditional economic doctrine of revealed preference." For some of you who might not be familiar with this term, it basically says that your actions speak louder than your words. For example, in my classes I use various examples of what people say and what people continue to do like "hating their boyfriend/girlfriend," "hating their job," or "hating school." I argue that IF you REALLY "hated" X than you would break up, quit, or drop out! My students sometimes respond with, Weeeelllll, you know," and I respond with, "No, I don't know that is why we are having this conversation!" In essence, your words say one thing but your continued action proves otherwise! And, as free-market libertarian, I don't believe that I have a right to cause indirect harm to others if "harm" is used in the true sense of the word--violating the property rights of others.
Tuesday, February 21, 2012
I would also like to point out the concept of no cash on the table. I was intrigued by the concept of there being no competition. I have to disagree and say that there is always competition of whose goods are worth consuming and who is producing. This applies to the law of Supply. If there is more of a copy-cat brand and its a cheaper price, wouldn't many consumers demand more of this type of product? Another point I would like to make out is the skills of a developing employee. If that employee were to in fact build their skills within the firm, competing firms would pay close attention to their work ethic and dedication and want to take that away to obtain their comparative advantage. In some ways, I do see Frank's Perspective on the thought of survival of the fittest, but I am still not sure how it applies to economics and the invisible hand theory. In fact if we were to look at our economy now it is a mixture of both socialism and economics. Unfortunately, not many people agree but it's the truth our government as well as congress base a lot of their decisions off of the public. Supposedly giving society a bigger role in their decisions, however no so much.
To anyone that has a basic understanding of systems, it is clear that aggregate effects are produced not necessarily intended or devised by the constituents. Frank argues the actions of these constituents often act to the detriment of the system. This is true, particularly in a case where incentives are not aligned to bring the greatest available value to the system and the participants.
When investment banks determine their leverage ratios in risky financial products, return relative to competitors comes into play. Higher leverage entails higher return (loss) and higher risk, yet individual firms are incentivized to take on these risks to remain competitive. Despite the recent financial crisis, if they did not increase their leverage, they very well may have been run out of business. The systemic nature of the problem is clear when one views the system first, components second.
Frank appears to be arguing that these system/participant problems can be solved. I don't disagree and look forward to understanding his proposed solutions. Though he did clarify at the end of Chapter 3 that prohibition is not required, his solutions have yet to be clarified. The problem with any government-based top-down solution, that I see, is that these decision-makers hold the same lack of perfect information as the individual participants (investment firms in this example) with the additional bonus of slow reaction time and the inability to recognize unintended consequences. It appears to me that a direction for the solution would be founded in the concept of increased transparency. Additional information produces relatively more efficient decisions (on the part of the constituents investing with the firm and on the part of the firms themselves, in this example). As information technology advances, information overload becomes less of a problem.
The second idea I'd like to address is Frank's argument for worker-managed firms and his assumptions of specialization. Briefly, worker-managed firms react to the external environment slower and less efficiently than firms with a central nervous system. By specializing the decision-making process, firms are more able to make efficient decisions. It is not always the case, in other words, that additional perspectives contribute to more efficient outcomes. It depends on the problems being solved.
Furthermore, some individuals prefer a more specialized/mundane/secure/repetitive/certain style work environment. Not everyone prefers a job that is plagued with uncertainty. As well, the increased productivity of individual workers, in my opinion and in all appearances, derived from an increase in control over the firm itself, would more than be offset by the decrease in productivity derived from specialization.
Monday, February 20, 2012
I was rather disconcerted after reading Robert Franks first two chapters because they seemed to lack direction and a sufficient amount of coherence. Chapter 3, on the other hand, began to make Frank’s points visible in an understandable and meaningful way beyond elk, hockey helmets, sports cars, or overly-priced suits …
Frank views “self-interest” in a relative perspective which is impacted through more than just human consumption but through personal measures of worth. Therefore, Frank argues that self-interest as defined by Adam Smith, is not as universal of a concept because it seems to ignore the additional factors which are likely to play a prominent role in influencing the unique decision-making process of an individual.
Ultimately, human nature is such that it is not easily captured nor defined in any academic sense. After all, between sociology and psychology, I can’t help but wonder how far the economic scope may realistically stretch in theorizing the root causes of human action. Frank is attempting to dig deeper in explaining market imperfections due to the common perspective of the human condition in a way that is insightful yet undoubtedly, difficult to define.
Granted, Frank’s arguments were much more to the point and his examples more effective in this chapter but I can't help but wonder if in assuming that humans act with varied and diverse intentions, his methods still to come may prove fatal, only forcing the majority towards a mandatory, overly generalized, one-dimensional response, hindering the significant complexities of individual self-interest.
Frank uses the example of workplace safety as an area where market failures occur because of the strong incentive to forgo safety in exchange for increased relative wealth. Because we all do it, no one ends up seeing a gain in their relative status, and we all are resultantly worse off. Frank's argument rests on assumptions that he never properly addresses. For example, he assumes that absolute income doesn't matter. It doesn't matter, he argues, because the most important goods are allocated in proportion to one's relative income. The example he features most prominently is that of school districts. The best school districts are generally in the wealthiest areas. Because of this, only the upper echelon of workers have the opportunity to give their children a decent education. Any worker who cares enough about his or her child would certainly, then, take a riskier job to secure a better salary and ensure a better education for their child. To the extent that this happens, and to the possibly greater extent that it would happen in the absence of worksplace safety regulations, this is somewhat unfortunate. However, such a situation is not the product of the market. Instead, it is a product of the public education monopoly. If we stopped determining school attendence by geography, much of the problem would be alleviated because the quality of a child's education wouldn't be determined by income of their zip code.
Barring such government failures, there are few area's in life where relative income means more than absolute income. Houses, contrary to what Frank implied, are not a fixed quantity. Instead, when absolute income rises we see many middle-income Americans buying second homes. In some other countries, middle income people would be lucky to have a house at all. Even though they share the same relative income as their American counterparts, their poor on every measure that matters. This is because life, it turns out, is not a zero-sum game. The absolute gains that we make by increasing efficiency and even accepting higher risk are real. Trade-offs are are reality of economics and everday life, we shouldn't step in and bar individuals from making them because those same actors chose to compete.
Thursday, February 16, 2012
Frank loses me, however, when it comes to his point that people spend their money in a wasteful fashion. What is "wasteful" in the eyes of Frank might not be from my perspective. I understand his individual v. group thinking and absolute v. relative point, but I definitely do not want the government fashioning policy to get me to "spend correctly."
Some links I encourage you to look at:
Some of the points about the analogy I thought particularly interesting:
1. Antlers as "market" signals (Daniel, Adam and Colleen)
2. Facts about elk populations and life cycles (Kristen)
--Shed their antlers during the winter so don't have to bear the burden all the time
--Larger, heavier antlers often shed cleaner (likely increasing the animal's survival capabilities and overall fitness"
--Populations thriving in natural habitats (are antlers really that much of a burden?)
3. Evolutionary stability of antler size
If larger antlers are so bad then those elk with them will be more likely to die and not pass on their genes, leading to a negative feedback mechanism that corrects the positive competitive force pushing towards increased antler size. Theoretically (and practically, from what I gather from Kristen's post) this should lead to an evolutionary "optimum" antler size.
I feel petty picking away at his example again, but it seems to be a large part of the development of his argument.
I plan to look over his points on relative scales and contextual models again and will hopefully have some deep, brilliant insights with which to amaze my fellow Scholars. Don't count on it though. ;-)
Finally, I'd like to thank Garrett for accurately representing libertarians (which is actually difficult to do considering what a vague, blanket term the word tends to be). Although, I admit to being puzzled by his use of the adjective "objective" immediately preceding.
"I think the majority of objective Libertarians hold the view that, on net, markets are preferable over government. This does not mean that markets will always lead to the preferable outcome but they find government more detrimental."
I enjoy not being straw-manned. It's quite wonderful.
Tuesday, February 14, 2012
Monday, February 13, 2012
I think this chapter rocked. It outright pisses on the invisible hand as being the model humans should prescribe too while also supporting its sound theoretical value. Most the posts I have read so far denounce him and funnel a lot of “ no this is totally wrong” backlash, but I think they are trying to apply his insights to a Adam Smith perfect society in which people will always end up at the best possible solutions through pure unbridled markets. Adam Smith’s ideas flat don’t work in the real world. I feel Frank touches on a lot of good points that individual utility functions are not always best for the community as a whole and I think many who read this missed that. They only seemed to read “ The invisible hand is wrong” and “ Individual wants and needs are below the needs of the group” which I think would piss off any pure economist. I mean , what economist would dare say that pure competition and the invisible hand are incorrect statements? It shatter the belief of economic heaven where all suppliers meet consumers demand at the most efficient level possible, in an ethical and timely manner, and that barriers to entry and exit are nonexistent. I don’t believe in economic heaven, call me an agnostic. I don’t think it will ever happen for the same reason I feel no market will ever be at true equilibrium. Why? Because humans are imperfect and so are the systems we create. Frank does a wonderful job showing that individuals want things that ultimately have no benefit, due to willful insanity. He doesn’t say peoples utility functions are nessicarily wrong, but he does say that they can logically unsound and have a habit of not always being for the greater good. Personally I am a greater good guy, I think if more individuals got together and promoted the general welfare ( Constitutional Reference) mabey it would create a society in which economic priciples are harnessed to generate superior utility on an aggregate level. That is why I believe our nation is the best in the world, and quite frankly it is. With the worlds largest economy, military, and sphere of political influence it is no wonder why even the countries that despise us still envy our success and regaurd our nation as the land of opportunity. I am amused , for the reaction to this chapter is as expected. I feel like Democritus when he affirmed Pythagoras’s theory that the earth was round, not flat, and that to be flat was simply illogical and dubiously blind.
Signalling theory is a big reason that we go to college: not just to get smart, but also to prove that we're smart.
Animals send signals, too. The main reason that bull elk grow antlers and fight each other with them is not, as Frank implies, because female elk randomly all decided (or randomly evolved to think) that exposed bone is sexy. Antlers exist to transmit information. Large antlers are a sign of a healthy immune system and high nutritional intake. THAT, is sexy. Antlers accurately send the signal to prospective females that the male is A) healthy and in fighting shape, B) able to take care of himself nutritionally, and C) disease resistant. How increased offspring from such elidgible males is bad for the species overall, I cannot say.
Although the free-market, like the ecosytem, isn't perfect, it allows participants, sometimes in clumbsy ways, to seek out the best available methods and options. Some things that, superficially, are detrimental or unnecessary for an individual make the group better off overall. Mother elk know this innately, Michael Spence know this theoretically, and Robert Frank sometimes doesn't seem to have a clue.
And through all of this, I see The Invisible Hand at work. In my understanding of this concept, I never thought of The Invisible Hand as striving for a perfect and equal outcome, it merely is the interactions of all parties coming together to use and share resources, and the consumers will choose what they deem the best value, thus the survival of the fittest. I hope I am not misunderstanding that concept, I apologize if I am.
Something that Sherri was always saying in class is that the Economy isn't static, it is constantly shifting and changing. Likewise with evolution, neither one has a specific goal in mind, they are simply changing to meet demands of the moment, and trying to adapt should an environment or resource change, some thrive, some die out.
His metaphors sparked one of my own that I would like to share: ( A little background: I'm a biology major and have volunteered on a wildlife refuge in South Africa)
There is a market for something called 'Canned Hunting', in which someone owns land, fences it in, and supplies it with Lions, Elephants, Zebras, Rhinos, what have you. Trophy hunters pay to come "hunt" this land, as it is a guarantee of a kill, the animals have no where to go. In addition, a guide is usually provided so the hunter has even more security and safety....Sounds like a subsidy if I ever heard one :) Having a guarantee of acquiring the outcome one wants with virtually none of the added risk that would normally be involved with killing such deadly and rare creatures. Just a thought.
It isn't just the invisible-hand theory that is based on overly-simplistic assumptions...
I agree that evidence-based, tangible, direct/indirect harm in society should be the centerpiece of taxation through representation. Furthermore I agree that concern with relative position may impose negative pressure on society's absolute position in some situations, but when Frank makes the final leap towards the governmentalization of morality, he loses my support. "...tax remedies for collective action problems are no more an endorsement of envy than speeding tickets are an endorsement of driving too fast." (pg 29)
However, his view of the rights' faithful relationship with the market is only a distraction from what is the truly important mistake in his argument. Ignoring the ad-hominem, the poor biology and the moral sentiments just look to his separation of people. Frank talks about the dichotomy between producer and consumer, erring on the side of the evil or greedy producer. He describes advertising as "...Madison Avenue hucksters [persuading] consumers to want..." So now supply can create demand? Frank even refutes his own claim with failed advertising examples, but then tries to dismiss them as the exception to some arcane rule. Advertising can create a preference but a demand for spending must already exist. Demand is not a measurement of want but a measurement of willingness and ability. I might want to buy a restored Series III Landrover but I can not afford one so I am not part of the demand curve. This is however a digression from the point that Frank does not understand what a producer is.
Let me elaborate:
Buyers = Sellers
Individuals = Traders
People = People
Groups =/= Individuals
Well, I am starting to grow a distaste to reading the thoughts presented in this book by Dr. Robert Frank. I almost feel as if indulging into his ideas are engendering ill thoughts about Libertarians and Human Nature into my thought process. It almost seems as if he has forgotten about his role of antagonizing Libertarians about the very broad claims that a few of them probably made. Nevertheless, he still seems to be peddling the same idea that when people compete they end up competing themselves into being super efficient and making no profits. (lol)
First off, I do like the idea that the Invisible Hand is only one but many of the possible cases. I can't imagine the alternatives too clearly, though. In a competitive Free Market, the Invisible Hand will guide the competitors into an efficiency seeking process that ultimately benefits the consumers. I understand that there are cases in which the Social Cost will outweigh Aggregate Individual Cost because of the Invisible Hand (as explored in Chapter 1), which should call for some sort of intervention to balance out the costs. This would lead me to believe that the invisible hand is not a "special case" of some broader theory, but rather just a component of a broader theory (namely Economics). After all, the Invisible Hand is a theoretical concept, not a concrete item or scenario. Maybe somebody can figure out what Bob Frank was going for. Right now I'm just left with the idea that the "special case" he was talking about was the case in which the invisible hand is all that is necessary for maximal profits. Of course, that could never be true, because there needs to be some sort of human force involved in human competition...
Anyways, there is a criticism of the Free Market that occurs time and time again in the first couple chapters. That is, consumers are the only beneficiaries of competition. As we saw with the Prisoners Dilemma last Thursday at the SWEET Scholars discussion session, it is very clear that when competitors compete then altogether they are not making optimal profits. The Prisoners Dilemma explicitly illustrates that competitors are best off when they cooperate, but individual choice gets in the way. However, when different producers cooperate then mergers, cartels, oligopolies, and monopolies form, right? These are not best for the consumer. So it looks like we have the fundamental rule of Economics on the stage: Tradeoffs.
There appears to be Tradeoff between consumer and producer benefit directly related to if the producers so decide to cooperate or if they so decide to compete. In our current situation in America we are zealous advocates of consumer benefits, and so naturally competition is highly encouraged on the Market. Conversely, we see attacks on cooperation of producers, because that would result in a the producers getting the benefit and the consumers paying for it. The indoctrinated side of me agrees that this is how it should be, but the open minded side of me wants to humour Robert Frank's thesis that this sort of Competition Bias produces negative effects. However, the open-minded side of me will still not humour that our Utility Functions are analogous to some arbitrarily deduced Utility Function of an Elk.
Finally, he attacks the fact that humans have improving standards that are a direct resultant of the individual choice of wanting to be better off than thy neighbor. He claims that people want better cars than they did before simply because they are better than what became the standard. He argues that this is bad because it raises the cost to gain such luxuries. First, personally, I don't think he is in any position to be judging the Utility Functions of a society. Secondly, the producers are competing so they'll surely find a way to lower their production costs and sell at an affordable price, or, y'know, not produce at all. In all of these situations both the producers and the consumer are doing things they want to do, so why is it bad? Because eventually they'll have to up the ante again? Idk, to me, that sounds like a pretty freaking awesome process that vitalizes human advancement.
He's the one that professes Economics at Cornell, though.
Thursday, February 9, 2012
I'll accept his conclusion that wearing helmets is beneficial to all the players and so when competition results in all the players going helmet-less I'll admit this to be an undesirable outcome. However, I am not confident that this scenario would be true for all players and for all leagues everywhere. One-size all solutions rarely work out well for humans and this is one of the problems of government regulations. Those Who Legislate almost never have all the information required to make the proper decisions for all concerned. This is related to the famous ideas of economic calculation as developed by Mises and Hayek and is the reason for the failure of central economic planning.
Now, that's not to say that "planning" in and of itself is bad. It is certainly acceptable, in my opinion, for leagues to mandate helmet requirements if they choose to do so. When left in the hands of private individuals and organizations it becomes a private property issue and is easily resolved.
This seems to be the most contrived example (other than the animal ones which I am simply going to ignore). I understand the point he is trying to make, and may even agree that it is a problem in some situations. But, consider suits. Are they really the largest factor in obtaining a job? What about:
- Experience and qualifications
- Political or personal connections
- Firm handshakes
- Good posture and good hygiene
Finally, were I to be facetious, I could point out that an "arms race" in expensive suits might be a bad thing for the individuals up for the interview but beneficial to the economy as a whole. It certainly would be a Keynsian style stimulant to the suit industry. And furthermore, it seems likely that purchasing expensive suits would be putting money into the American economy as more expensive suits tend to be made in America while otherwise the money would likely have been spent on cheap Chinese or Vietnamese goods.
My point here in nit-picking apart this example is that I reject his assumption that situations like these where there is the potential for competition to degenerate into an "arms race" that is detrimental to all, doesn't mean that it will necessarily happen. The assumption that the potential for a negative outcome is a justification for government intervention is a bad one from my perspective.
Finally, I want to take a quick look at something he said on page 2 when lamenting all the crucial government programs which were losing funds:
"Funding has been cut for programs to lock down poorly guarded nuclear material in the former Soviet Union."
How could anyone disagree with funding government programs that lock down nuclear material? Surely to do so would be un-American and possibly borderline suicidal. You never know what terrorist organization or country might get their hands on nuclear material.
The road to hell is paved with government intentions.
Wednesday, February 8, 2012
In chapter one (Paralysis), I noticed Frank sometimes criticizes Libertarian ideology but he would not give substantive arguments. For example, it is debatable that workers are worse off today than in the past (see link above). He mentions that infracture "has been steadily falling into disrepair" and that "Water supply and sewage systems fail regularly." John Stossel had wonderful examples of privatization in his special Stossel Goes to Washington. Perhaps infrastructure and water delivery is failing because of who is in charge--the government. What if private entities were in control (examples in the Stossel special dealt with water supply in Jersey City, air traffic control in Canada, and a private stretch of highway in California) instead of the government?
He goes on to write that "our political system is paralyzed." Many people measure Congressional productivity by the amount of legislation that is passed. I think maybe it's not so bad when Congress is in a gridlock! Moreover, Frank supports government "stimulus" when the economy is in a recessionary gap. But let us not forget that the money government uses to "heat things up" could be used in other ways or could be kept by the taxpayers and used in more productive ways.
Finally, on page 5, I come to agree with Frank. He believes that the government should provide defense and enforce property rights. Even though some Libertarians believe in the private provision of national defense, I believe it is a legitimate function of a limited government to provide a military and for the government to act as a referee in enforcing property rights. Where government goes wrong is when the "referee" gets involved in the game directly. For example, wouldn't it be a bit weird to hear, "Wow, did you see the referee knock Brady to the turf and then intercept his pass on the next play?" Referees are not supposed to hit the QB or intercept the ball!
On page 8, Frank refers to Thomas Schelling and his ice hockey example. He eventually asks, "What about the libertarian's complaint that helmet rules deprive individuals of the right to choose?" and on page 12, using the sprinter example, he writes, "Yet many self-described libertarians insist that it should be a sprinter's right to take performance enhancing drugs if he choose." This might be another minor point but I will make it anyway. I will not claim to speak for all Libertarians, but I have no problem with a private entity making up their own rules (i.e., the NHL or Olympic committee). If the rule is to wear a helmet and a player doesn't want to, they don't have to play. It's not a right to play in the NHL or run in the Olympics. However, when the government says people have to do something then that is coercion.
Toward the end, I again side with Frank's opposition to wasteful government spending and subsidies to oil and ethanol industries. However, it is clear from this chapter that Frank believes government has a larger role to play in the economy. Let's see what chapter two brings.