Sargent’s two-minute graduation speech

As the time of year for graduations approaches, a number of websites are posting what our friend Mark Perry calls possibly “the shortest graduation speech ever.” Delivered by Nobel prizewinning economist Thomas Sargent at UC Berkeley in 2007, the speech runs to only about 300 words and lasts about 2 minutes, about the same length as another famous speech. Sargent’s speech takes the form of 12 economic lessons.

I remember how happy I felt when I graduated from Berkeley many years ago. But I thought the graduation speeches were long. I will economize on words.

Economics is organized common sense. Here is a short list of valuable lessons that our beautiful subject teaches.

1. Many things that are desirable are not feasible.

2. Individuals and communities face trade-offs.

3. Other people have more information about their abilities, their efforts, and their preferences than you do.

4. Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always end up working as intended.

5. There are tradeoffs between equality and efficiency.

6. In an equilibrium of a game or an economy, people are satisfied with their choices. That is why it is difficult for well-meaning outsiders to change things for better or worse.

7. In the future, you too will respond to incentives. That is why there are some promises that you’d like to make but can’t. No one will believe those promises because they know that later it will not be in your interest to deliver. The lesson here is this: before you make a promise, think about whether you will want to keep it if and when your circumstances change. This is how you earn a reputation.

8. Governments and voters respond to incentives too. That is why governments sometimes default on loans and other promises that they have made.

9. It is feasible for one generation to shift costs to subsequent ones. That is what national government debts and the U.S. social security system do (but not the social security system of Singapore).

10. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation.

11. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).

12. Because market prices aggregate traders’ information, it is difficult to forecast stock prices and interest rates and exchange rates.

Liberal blogger Ezra Klein also recently posted Sargent’s lessons, calling them “everything you need to know about economics.” We wouldn’t go that far, but it is true that most of the popular economic fallacies involve failure to heed one of more of these 12 rules. For instance, one of the speakers at the recent RISE conference, as well as one of our colleagues, succumbed to error by forgetting number 12.

Klein’s posting of Sargent’s list is curious, because most of the lessons contradict Klein’s statist views. Perhaps Klein is simply not bright enough to understand the full import of the lessons and to trace out their implications. For instance, Klein and his twitter followers thought they found an omission from Sargent’s list.

Pajama_boy1Settle down, pajama boys. Market failure is covered by number 11.

By the way, this wasn’t the only time that Thomas Sargent demonstrated extreme pithiness.

Big government makes people mean and stupid

This recent story made us reflect on the fundamental unreasoning stupidity and meanness of government.

An on-site construction worker at a South Carolina hospital was slapped with a $525 federal fine and banned from ever working there again after he refilled his soda without paying.

Christopher Lewis was working at the VA Medical Center in downtown Charleston on Wednesday when he was stopped by a Federal Police Force officer for refilling a $0.89 soda, a local NBC affiliate reported.

“As I was filling my cup up, I turned to walk off and a fella grabbed me by the arm and asked me was I going to pay for that, and I told him I wasn’t aware that I had to pay for that,” Mr. Lewis told the station, admitting that he had taken free refills in the past.

The man said he was willing to pay the $0.89 right there, but the officer didn’t let him.

“I never had an option to make right what I had done wrong,” he said. “I’m done there, at the VA hospital. I’m not allowed to go on the premises anymore. I asked him can I still work on the job site and just bring my lunch and not go to the cafeteria and he said he wanted me off the premises.”

“Every time I look at the ticket, it’s unbelievable to me,” he said. “I can’t fathom the fact that I made a $0.89 mistake that cost me $525.”

A hospital spokeswoman called it a “theft of government property,” and said it was her understanding that Mr. Lewis was aggressive when confronted by the officer, the station reported.

“Today a Federal citation was issued for shoplifting in the VA cafeteria… to an individual who stated to VA police he had not paid for refills of beverages on multiple occasions, even though signs are posted in the cafeteria informing patrons refills are not free,” the hospital said in a statement. “Shoplifting is a crime. The dollar amount of the ticket is not determined by VA as it is a Federal citation. The citation may be paid or the recipient may choose to appear in Federal court to contest it.”

Every time the government gets bad publicity from committing some outrage, they always trot out the spokesperson to point out that it’s all good because the government followed all the rules–shoplifting is a crime…the perp admitted the crime…fine is not determined by the VA…Federal court…blah, blah. But it’s not all good because a $525 fine for refilling a soda is totally heavy-handed and unreasonable. Not to mention the fact that, since the man was banned from returning to the premises, he could not longer work at his job.

In a private-sector establishment, in contrast, the manager or other employee would have politely asked the gentleman to pay the $0.89 or refrain from refilling. That’s just decent and normal human behavior. But in a federal facility, it’s ‘theft of federal property,’ and out comes the citation book, a ban from the premises, and dismissal from his job.

The lack of proportion is also put into sharp relief when one considers that this same federal government cannot account for literally trillions of dollars of taxpayer funds. Over the years, the Pentagon alone admits to having lost track of more than $1 trillion. Goodness only knows how many billions of dollars have been bilked from taxpayers by shady defense contractors exploiting the Pentagon’s opaque and dysfunctional accounting practices. But this poor schmuck who filched an $0.89 soda refill? Nail him.

The stark contrast between how the private and public sectors would handle this situation perhaps reveals some deeper philosophical issues. Maybe it’s no accident that the private sector would undoubtedly have handled the matter with a greater sense of proportion and reason. The great 20th century economist Joseph Schumpeter believed that the use of reason that governs civilized behavior was a consequence of the development of the capitalist system. Similarly, the 18th century French philosopher Montesquieu wrote “partout ou il y a du commerce, il y a des moeurs douces”– wherever there is trade, or free markets, there are gentle customs; that is, civilized and reasonable behavior. The idea is that the very norms of civilized behavior, which we come to regard as common sense, evolved from, and are inextricably tied to, the practice of free-market capitalism.

But government is the antithesis of voluntary exchange in the marketplace; the essence of government being coercion and force. No need therefore for moeurs douces, or even for reason. Hence the government schools adopt unreasoning ‘zero tolerance’ policies under which a boy gets suspended from school for eating his pop-tart into the shape of a gun. And then, as usual, they send out the ‘spokesperson’ to defend the lack of reason and proportion by saying, in so many words…rules are rules…we are just doing our jobs by enforcing the rules…so…shut up and take your punishment.

As government grows, decency and common sense will retreat, and society will become increasingly stupid and cruel. Don’t say we didn’t warn you.

This Just In: Size Matters – At Least According to the IRS

Alan Cole of the Tax Foundation provides a succinct summary of the key issue:

In filing one’s taxes, it may be necessary to distinguish between breast implants that are merely “large,” and breast implants that are “extraordinarily large.”

The relevant ruling on this subject came in 1994 in a case known as Hess v. Commissioner. The plaintiff, a self-employed exotic dancer, had implants that expanded her bust size to the size 56FF. For tax purposes, she treated these as a deductible business expense on her schedule C. The IRS contested her deduction.

The purpose of deductions for business expenses is to avoid multiple levels of taxation on goods that are put together cooperatively by several businesses. This is good tax policy.

However, a substantial difficulty in this is determining the difference between consumption goods and legitimate business expenses. A carpenter should be able to deduct the cost of wood he uses to create furniture to sell – tax is paid on the income used to purchase it, and no further tax is necessary. But deductions are not a free excuse to make all of one’s income tax exempt by listing a bunch of personal purchases, and the IRS is right to be skeptical of abuse of this provision.

The relevant issue in Hess was whether breast implants – traditionally thought of as a luxury good bought for personal benefit – could be considered a legitimate business expense. Given that the plaintiff was an exotic dancer, she had a fair argument. But in general, taxpayers aren’t allowed to treat personal appearance expenditures as business expenses unless they aren’t suitable for personal use. Hess, arguing pro se, convincingly established that her implants were inconvenient in everyday life due to the sheer enormity of her breasts. The courts ruled in her favor:

Because petitioner’s implants were so extraordinarily large, we find that they were useful only in her business. Accordingly, we hold that the cost of petitioner’s implant surgery is depreciable.

That seems to make sense.  We could add that gravity will do a pretty good job of depreciating those assets too.

Krugman wrong, an ongoing series

Paul Krugman commented recently on a piece by Ezra Klein, who in turn was writing about the work of Yale’s Dan Kahan. Kahan’s Cultural Cognition Project studies how culture and ideology can cause people to process information in ways that support their biases and prejudices. Rather than reasoning dispassionately to reach the truth, people choose the conclusion they prefer, and then form a rationalization for that conclusion. Klein’s summary of Kahan’s work pointed out that such cognitive biases can affect people on the political left as well as the right.

Krugman objected to this symmetry, and argued that cognitive bias must affect primarily the political right, not the left. His argument was basically that left-liberals like him are obviously smart, while conservatives are stupid and obviously wrong. Hence it must be only conservatives, not liberals, who do not properly process information.

But here’s the thing: the lived experience is that this effect is not, in fact, symmetric between liberals and conservatives. Yes, liberals are sometimes subject to bouts of wishful thinking. But can anyone point to a liberal equivalent of conservative denial of climate change, or the “unskewing” mania late in the 2012 campaign, or the frantic efforts to deny that Obamacare is in fact covering a lot of previously uninsured Americans? I don’t mean liberals taking positions you personally disagree with — I mean examples of overwhelming rejection of something that shouldn’t even be in dispute.

Well, Krugman’s argument got back to Dan Kahan, and apparently it gave him a good laugh.

After “laughing [himself] into a state of hyperventilation,” Kahan penned a more serious response, pointing out how Krugman’s essay was itself evidence of how “ideologically motivated reasoning is in fact perfectly symmetric with respect to right-left ideology.” Explains Kahan:

The test for motivated cognition is not whether someone gets the “right” answer but how someone assesses evidence.

A person displays ideologically motivated cognition when, instead of weighing evidence based on criteria related to its connection to the truth, he or she credits or dismisses it based on its conformity to his or her ideological predispositions.

Thus, if we want to use public opinion on some issue — say, climate change — to assess the symmetry of ideologically motivated reasoning, we can’t just say, “hey, liberals are right, so they must be better reasoners.”

Rather we must determine whether “liberals” who “believe” in climate change differ from “conservatives” who “don’t believe” in how impartially they weigh evidence supportive of & contrary to their respective positions. . . .

That Krugman is too thick to see that one can’t infer anything about the quality of partisans’ reasoning from the truth or falsity of their beliefs is … another element of Krugman’s proof that ideological reasoning is symmetric across right and left!

For in fact, that “the other side” is closed-minded is one of the positions that partisans are unreasoningly committed to.

Thus Krugman, by demonstrating his own bias and lack of self-awareness, ended up validating the hypothesis he set out to disprove. Good to see that, after such a long dry spell, Krugman was finally able this week to make a small contribution to science.

Worth quoting in full is the comment at Volokh by WuzYoungOnceToo.

Is this the same Paul Krugman who, literally within hours of the breaking of the news of the massacre by Jared Loughner in Tuscon…before the blood in the parking lot had even dried…penned a hysterical op-ed piece for the NYT (which they foolishly published) blaming all of the usual boogeymen on the right (including Sarah Palin, somehow) for creating the shooter, even though he knew next to NOTHING about Loughner at the time? The same rational, unbiased, principled processor of facts who…after it was discovered that Loughner was a psychopath with no discernible left-right ideological bias, and who was influenced by stuff from all over the map (from Mein Kampf to The Communist Manifesto)…later, in a follow-up op-ed, not only did not acknowledge and retract his knee-jerk partisan stupidity, but actually doubled-down on it? That Paul Krugman?

If Krugman is not a laughingstock, he should be. “Boy, if life were only like this” more often.

9 Words for the Disinterested Reader

This excerpt from Charles Murray’s new book provides examples of the misuse of some $.02 words.  Some of these may seem pedantic but, to quote Mark Twain, “The difference between the right word and the almost right word is the difference between lightning and a lightning bug.” Anyway (anyhow?) this one is pretty funny:

Literally used to mean figuratively.
The percentage of times that literally is used correctly verges on zero. Ninety-nine percent of the time (I’m estimating), it is misused to mean figuratively. In almost all of the other one percent, literally is used as a sloppy intensifier. The only correct use of literally that comes to mind is the sign-off of George Burns and Gracie Allen, former vaudevillians who had a television sitcom in the 1950s. She played the role of a ditz. At the end of the show, George would say, “Say good night, Gracie,” and she would say, “Good night, Gracie.” She took George’s instruction literally. Such opportunities to use literally correctly don’t come up often.

There’s one and only one ‘free speech zone’

Getting considerable attention in the news recently was an armed standoff between federal agents and a Nevada rancher. Despite our usual skepticism regarding the use of government force, in this instance the feds have shown admirable restraint, at least for now. Furthermore, as detailed in this piece at breitbart.com, it’s the government, not the rancher, that has the law on its side.

At least one aspect of the government’s response to the conflict was, however, objectionable. The feds tried to cordon off protestors, who were siding with the rancher, into a ‘First Amendment Area.’

First_Amendment_AreaThis action was reminiscent of the tactic commonly employed by university administrators of relegating speech on campus to circumscribed ‘free speech zones.’ As we’ve pointed out previously, however, there is in fact one and only one First Amendment Area.

Free_speech_zone

Reminder: Social liberals aren’t liberal

In light of our recent discussion, in the post below, of the liberal festival of fascism, we found that Kevin Williamson had some insightful points in his latest article at Politico. Williamson argues persuasively that Americans aren’t ready, unfortunately, for a libertarian candidate like Rand Paul. Although there’s a huge swath of voters who describe themselves as fiscally conservative and socially liberal, Williamson argues that Paul is more likely to alienate than to unify conservatives and liberals. The problem as Williamson sees it is that so-called fiscal conservatives are not really conservatives and that social liberals are not really liberal. We want to focus in particular on Williamson’s argument about social liberals.

Here’s where the English language fails us: “Liberal” and “libertarian” come from the same linguistic root, meaning “liberty,” and many libertarians will describe themselves among friends as “classical liberals”—political heirs to the Whigs and the Manchester free-traders. But “socially liberal” and “socially libertarian” today mean almost precisely opposite things. If there is one thing our “social liberals” hate, it is liberty. In their view, you’re free to do as they please.

Take the case of the Christian bakers and photographers who do not wish to participate in same-sex weddings because of their religious and moral views. Paul takes the classical liberal view, which is that people should be allowed to make their own decisions based on their own values, and that if a baker’s belief offends you, then you can criticize him, boycott him, give him the full Duck Dynasty treatment—but you cannot use the strong arm of the state to compel him to put two tuxedoed gentlemen on top of a cake.

America’s so-called social liberals think that amounts to Jim Crow for gay people. Paul’s instinct is to get marriage entirely out of the federal tax code and to let the states define marriage for themselves. For social liberals, that is, at best, a punt. On the subject of gay marriage, they do not want a skeptical federalist—they want a president who is categorically in favor of gay marriage. They do not want somebody tolerant, but somebody committed, and willing to use the federal government to make their own preferences national policy…In fact, whether it is abortion, guns, public-school curricula or the all-important issue of dropping the federal civil-rights hammer on noncomformist bakers, Paul can count on bitter, unified opposition from liberal social-issue voters.

Indeed, in the area of social policy, modern liberals take anything but a ‘live and let live’ perspective; instead, they seek to use the power of the state to enforce their agenda in the social sphere, just as readily as they do in the economic sphere. Even in the area of sexual and reproductive freedom, modern liberals enjoy a pro-freedom reputation that seems unwarranted. Liberals back feminist attacks on the rights of heterosexual males, such as denying due process rights to college men accused of sexual assault. Liberals are also quick to throw reproductive rights overboard in the name of preventing ‘environmental degradation’ due to ‘overpopulation.’ Bowdoin’s Jean Yarbrough recently commented on the “frightening” research agenda of her liberal colleague, Sarah Conly.

On the Bowdoin College Philosophy Department website, Conly states that her next project is tentatively entitled “One: Do We Have A Right to More Children?” In it, she proposes to argue that “opposition to population regulation is based on a number of mistakes: that the right to have a family doesn’t entail the right to have as many children as you may want; that the right to control one’s body is conditional on how much harm you are doing others; and that nothing in population regulation entails that those who break the law can be forced to have abortions, or subject to any sort of punishment that is horrific. If population growth is sufficiently dangerous, it is fair for us to impose restrictions on how many children we can give birth to.”

So apparently, the liberal idea of reproductive freedom is that you’re free to not reproduce. When ‘liberals’ advocate policies that are closer to Mao Zedong than to John Stuart Mill, the term truly has come to mean its opposite.

Modern liberals believe in freedom only for themselves, to pursue their own interests. The people who don’t share the liberal worldview, or have different interests, liberals want to shackle. That is who they are.

This Week in Liberal Fascism

We wrote a few weeks ago about the fascist tendencies of the global warmists. Specifically, seminar participants at Harvard suggested that skeptics of the climate agenda could be charged under the RICO Act, a statute usually used to prosecute the mafia. Well, now the idea of bringing criminal charges against climate skeptics has been seconded by Lawrence Torcello, a philosophy professor at Rochester Institute of Technology.

We have good reason to consider the funding of climate denial to be criminally and morally negligent. The charge of criminal and moral negligence ought to extend to all activities of the climate deniers who receive funding as part of a sustained campaign to undermine the public’s understanding of scientific consensus….

What are we to make of those behind the well documented corporate funding of global warming denial? Those who purposefully strive to make sure “inexact, incomplete and contradictory information” is given to the public? I believe we understand them correctly when we know them to be not only corrupt and deceitful, but criminally negligent in their willful disregard for human life. It is time for modern societies to interpret and update their legal systems accordingly.

Yeah, well, when you call for your political opponents to be arrested, you might be a fascist.

But there’s more. Aspiring thuglet Adam Weinstein also added his voice to the liberal chorus calling for criminal prosecution of political opponents.

I’m talking about Rush and his multi-million-dollar ilk in the disinformation business. I’m talking about Americans for Prosperity and the businesses and billionaires who back its obfuscatory propaganda. I’m talking about public persons and organizations and corporations for whom denying a fundamental scientific fact is profitable, who encourage the acceleration of an anti-environment course of unregulated consumption and production that, frankly, will screw my son and your children and whatever progeny they manage to have.

Those malcontents must be punished and stopped.

Deniers will, of course, fuss and stomp and beat their breasts and claim this is persecution, this is a violation of free speech.

Yeah, Adam, the reason why we say that arresting people who disagree with you about public policy violates free speech is because it, you know, violates free speech. Oh, and it is also fascist.

Harvard, RIT, and Gawker–three public calls for criminal prosecution of free speech in less than a month. As Auric Goldfinger said, “Once is happenstance. Twice is coincidence. The third time it’s enemy action.” In this case, it’s enemy action by liberal fascists who hate human freedom.

Jonah Goldberg, call your office…

Liberal_Fascism_(cover)

Why Thieves Steal Soap

Here is an interesting discussion of the market for low level crime:

At the Walgreens on Market Street in San Francisco, customers often need to call a store employee to unlock a display case for them. The customers are not tech titans buying laptop batteries or wealthy San Franciscans purchasing jewelry or top-shelf liquor. Workers unlock cases of baby formula, shampoo, and soap for a mix of office workers and low-income customers.

It’s well known that pharmacies need to protect their stores of cold medicine, which methamphetamine cooks like Jesse Pinkman can use to make product. But why soap? Is a $6 bottle of Dove body wash really worth the squeeze?

Walgreens realizes that it is; retail assistants explain that the locks prevent thefts. Understanding why requires an appreciation of the illicit market for stolen goods.

Clearly, the best item to steal is money.  Since money is liquid, portable and divisible the best near-money products are items such as cigarettes, razor blades, and yes, soap:

In fact, the consistent demand for products like soap on the illicit market can make it as good as stealing cash. Last year, for example, New York Magazine ran a story describing how thieves steal Tide Detergent to buy drugs. The piece opens by describing one Safeway store that lost $10,000 to $15,000 a month to thefts of Tide detergent.

Products like cigarettes and soap perform some of the major functions of money very well. Since there is a consistent demand and market for them, even when they’re not on store shelves, they retain their value. (Unlike an iPod, they never become obsolete.) Since they have standard sizes, they can also be used as a unit of account. You can pay for something with one, five, or ten packs of cigarettes depending on its value. In areas where fences or other buyers are always willing to purchase stolen products like soap, it’s just as good as money.

For thieves, the ubiquity of a product and the presence of a large illicit market for it is more important than its actual retail value. Small time burglars can’t keep stolen goods in warehouses, waiting for a buyer and marketing products to people willing to pay a premium for a unique item. It may seem surprising that Walgreen keeps some of its cheapest items locked up, until you realize that thieves care more about an item’s ubiquity in illicit markets more than its retail price.

France: Just another failed socialist state

Modern liberals have always been fond of France’s social system, and why not? The French welfare state is a liberal dream, designed to protect the citizen from all of life’s contingencies: unemployment, disability, illness, age, you name it. The government pays for health care and for education all the way through the university level. University students even get free meals. Labor unions are coddled. And in France, everyone is progressive. The progressive agenda moves forward unimpeded by the sort of retrograde social forces found in America. In France, progressives don’t have to deal with gun-toting rednecks, Tea Partiers, chillbilly Sarah Palin types, Pentecostals, or libertarian economists. A French economist once told us that, in France, maybe no more than 20 people in the whole country has ever read F. A. Hayek.

Given the lack of political opposition, French progressives have long enjoyed a relatively free hand to implement their ideas of governance. All the top bureaucrats and politicians even attend a special school–l’École nationale d’administration– where they learn to administer the welfare state scientifically. What could go wrong?

Well, what could go wrong is what always goes wrong with socialist systems–a gross distortion of incentives. All those welfare entitlements have to be paid for with exceedingly high taxes, and the high taxes discourage work, innovation, and risk taking. Special interests get laws and regulations put in place that stifle competition. As a result, economic growth and economic opportunity dry up. As explained in the superb video report embedded below, France’s best and brightest are now fleeing the country. With little economic opportunity, half of France’s young people say they would leave the country if they could.

For those of us who understand that freedom works and statism doesn’t, none of this is surprising. France is just another in a long line of failed socialist states. But the statists never seem to learn. As an experiment, students should try asking their liberal professors what they think of France’s social and economic system. They will no doubt speak approvingly of France, especially in comparison with the United States. But those of us who are relatively more reality-based know that the truth is rather different.