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The Capitalist Paradox

from Kevin Williamson in National Review, The Social Machine:

The people who have an explicit legal obligation to work not on our behalf but on behalf of their shareholders do a pretty good job of giving us what we want; the people who vow to work on our behalf do not. That is a paradox only if you do not think about it too much, and not thinking about it too much is the business that politicians are in.

If capitalism — which is to say, human ingenuity set free to follow its own natural course — is a kind of social machine, then politicians are something like children who take apart complex machines without understanding what they do or how to put them back together. (At their worst, they are simply saboteurs.) When they rail against capitalism, automation, trade, and the like, they resemble nothing so much as those hominids at the beginning of 2001: A Space Odyssey, shrieking hysterically at something that is simply beyond their comprehension.


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No Train to Utopia

from Kevin Williamson in National Review, Plans, Trains, and Automobiles

Trains are the preferred mode of transit if your ideal is central planning. Automobiles are the preferred mode of transit if your ideal is spontaneous order. It is in the nature of trains that they tell you where to go; it is in the nature of automobiles (for the time being, at least!) that you tell them where to go. If you have ever lived in New York and relied on the trains to get around, then you understand both the virtues and defects of the planning model: If everything goes according to plan, the system works pretty well. When the plan breaks down — which it always does — it is a mess, often a mess that leaves you with no choice but to go outside the system for an alternative. (That fellow from the 19th century would probably think Uber is pretty nifty.)

Likewise, if you’ve spent much time in Houston, Atlanta, Los Angeles, or any American city that got most of its growth in the post–World War II era, then you appreciate the virtues and defects of the spontaneous-order life: The price of gasoline is unpredictable, traffic is terrible in some places (although here there is a bit of central planning to blame, too, in the form of Dwight Eisenhower’s ill-considered federal highway system), the cost of owning and maintaining a car is very burdensome for some people and introduces an unwelcome degree of financial uncertainty into their lives, some people insist on driving their F-350 Super Duty trucks 87 mph while swerving from lane to lane, suburban sprawl, etc.

Transit, like most everything else in life, is about trade-offs. There are many roads that lead to home and subways that will take you to the office, but there is no train to Utopia.

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The Trump Spread

It seems that politically the bar for Trump is set very low.  Democrats feel he is inexperienced, incompetent, and of such poor character that success is unimaginable. They remain unable to imagine his victory without nefarious influences. This makes them ripe for the kind of conspiracy theories more commonly associated with the right.

Establishment Republicans fear his inexperience and pragmatic sacrifice of conservative principles whether on the economy or foreign affairs.  If he just avoids catastrophic failure, he would seem a political success based on the low expectation from the establishments of both parties.

Economically, on the other hand, the bar is set quite high. His victory surprised the market for the better, but the run up on top of the increase of the last several years may be a bit stretched.  The market seems to have assumed his success in achieving all his campaign promises. It also seems to assume that his potentially damaging trade policies either will not occur or will not have any serious repercussions.  Any disappointment may cause the market to swoon. It also assumes no dramatic events

Perhaps the market is simply delighted that the trend in friction costs has been arrested and that alone will have productive outcomes.

Politically we are expecting the worst; economically we are expecting the best. Both will likely be disappointed.

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Economic Bullshit Detectors

From The Grumpy Economist, a review/ commentary  by John Cochrane on an essay by Russ Roberts on Economic Humility

In sum, I think economics provides an excellent set of bullshit detectors. This is my stock answer about my own professional expertise. I may not know what makes the economy grow, or how monetary policy works. But I now with great detail exactly why the ten stories in front of us are all wrong, and typically logically incoherent. That is useful knowledge.

Economics and economic history also teach us humility: No economist in 1900 could have figured out what farmers, horse-shoers, ice deliverers, street-sweepers, and so forth would do when those jobs disappeared. The people involved did. Knowledge of our own ignorance is useful. Contemplating the railroad in 1830, no economist could have anticipated the whole new industries and patterns of economic activity that it would bring — that cows would be shipped from Kansas to Chicago, and give rise to its fabled meat-packing industry. So, in a dynamic economy, all the horse-drivers, stagecoach manufacturers, canal boat drivers, canal diggers, and so forth put out of work by the railroad, and their children, were not, in the end, immiserized.

Also, many of the “facts” aren’t quite facts, and really are always up for review. If we start teaching lessons of history, for example, the old chestnut that stimulus is proved by the rise in output from WWII spending — never mind the failure of output to collapse after WWII ended, the end of Roosevelt’s war on capital, the failure of hundreds of other stimulus programs or the minor fact of a war — or how the New Deal saved us in the Great Depression, will get passed on along with valuable nuggets such as dreary repetition of experience on the effects of rent controls. Many historical issues are no less settled than the current issues that Russ talks about!

Finally, PhD training really is vocational training to do research, not to advise public policy. The market test is pretty clear — to do research, you don’t need a broad based understanding of economic history. When a research project needs a particular history, it’s easy enough to learn that.

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Supply, Demand, and Finance

Kevin Williamson follows in the footsteps of Henry Hazlitt in his clarity of economic and political issues. Like Hazlitt he is not a professionally trained economist, but brings a writer’s clarity to the subject.  I have probably excerpted him more than any other single writer.

From Kevin Williamson at National Review, Back to Reality

But health-insurance companies do not provide great health care to the American people. They do not provide health care to the American people at all. Doctors, nurses, pharmacists, physical therapists, drug researchers, and nerds who design superior artificial joints provide great health care to the American people. Insurance companies provide financial services. That’s what insurance companies are: financial-services companies.

In the same way that Washington has tried to manage housing by regulating and subsidizing mortgages, politicians have long tried to manage health care by regulating and subsidizing health insurance. It does not work. It has not worked, and it is not going to work.

Government misunderstands insurance. Politicians believe that creating large pools of health-care consumers will make health care more affordable for individuals and families. It doesn’t. If Smith can’t afford his medical expenses and Jones can’t afford his medical expenses and Brown can’t afford his medical expenses, then Smith + Jones + Brown can’t afford their collective medical expenses, either. The large pools built by insurance companies help with this by exploiting the fact that not everybody is going to get sick at the same time; the payment of benefits out of insurance premiums can reduce the amount of financial disruption illness or accident causes to an individual or family at any given time, but insurance does not make the medical services they consume less expensive. In fact, medical benefits may make those services more expensive, for instance by creating new record-keeping costs for medical practices, or by simply driving up demand by pumping money into the market through poorly managed, low-accountability entitlement programs such as Medicaid.

Easy mortgage money helps keep housing prices high. Easy medical money probably helps keep medical prices high.

Critics on the left, especially those who support British-style government monopolies on health care, insist that because demand for medical services is relatively inelastic — because you aren’t comparison shopping after a traumatic car accident — ordinary market operations cannot handle health care. But demand for food is inelastic, too, at the hungry margin. It’s just that we rarely get to that margin because food is plentiful, thanks to massive investment in its production, distribution, and improvement. Ultimately, that is what has to happen with health care, too.

But first we’ll have to liberate ourselves from the superstition that we can trick or bully the financial-services sector into solving the problem for us.