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Insulated Decisions

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From John Cochrane, The Grumpy Economist, Behavioral Political Economy

excerpt:

People do dumb things, in somewhat predictable ways. It follows that super-rational aliens or divine guidance could make better choices for people than they often make for themselves. But how does it follow that the bureaucracy of the United States Federal Government can coerce better choices for people than they can make for themselves?

For if psychology teaches us anything, it is that people in groups do even dumber things than people do as individuals — groupthink, social pressure, politics, and so on — and that people do even dumber things when they are insulated from competition than when their decisions are subject to ruthless competition.

So on logical grounds, I would have thought that behavioral economists would be libertarians. Where are the behavioral Stigler, Buchanan, Tullock, etc.? The case for free markets never was that markets are perfect. It has always been that government meddling is worse. And behavioral economics — the application of psychology to economics — seems like a great tool for understanding why governments do so badly. It might also inform us how they might work better; why some branches of government and some governments work better than others.

HKO

Bureaucracies are also insulated from accountability. Political factors make it much harder to admit mistakes or failures.  Business organizations are also resistant to change but market forces are far less political and often blind and brutal.  Bureaucracies will make better decisions when they face the same accountability faced in a bankruptcy court.

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Predicting Nothing

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From American Thinker, Anthropogenic Global Warming and the Scientific Method by Betsy Gorisch

excerpts:

Science is about ruling things out. Any good scientific hypothesis will make predictions about the natural world — ideally, it will predict at least one natural effect whose existence cannot be caused by anything other than the hypothesis being tested. Observations are then made to acquire evidence, and the evidence is evaluated against the hypothesis’s predictions. Evidence can either rule the hypothesis out or not; if the evidence differs from the hypothesis’s predicted effects, then the hypothesis is wrong and is considered to be ruled out, or falsified. That which has not been ruled out by evidence remains possible. If enough confirmatory evidence is accumulated, the hypothesis is elevated to the status of a theory. Scientific Method is, conceptually, no more complicated than that.

Karl Popper, the great philosopher of science, used a simple observational experiment to illustrate the scientific method’s requirement of falsifiability — the requirement that a hypothesis be stated in such a way as to allow its testing against evidence with a view towards ruling it out. He noted that most people had once assumed that all swans are white. This assumption was based on the observation, over time, of uncounted numbers of white swans — and each such observation was taken as evidence supporting the assumption. However, there came a time when a black swan was found in Australia, and its discovery served to disprove the assumption that all swans are white. In generalizing from this discovery, Popper understood that you would not test the hypothesis that all swans are white by undertaking a search for white swans — because no matter how many white swans you found, you would neither have proven, nor even properly tested, the hypothesis. Instead, you must mount an intensive search for a single non-white swan.  If you found even one of those, you would have ruled the hypothesis out. Alternatively, and without finding a non-white swan, it remained viable — but because there remained the possibility of a single undetected non-white swan, it could not be regarded as proven.

The AGW hypothesis that so many people claim accounts for what is essentially pretend global warming has never been treated this way. Initially, its proponents engaged in a search for supporting evidence: Elevated average annual temperatures, local glacial retreats, elevated-temperature indicators in proxy systems such as tree-ring records, measurable coincident increases in atmospheric CO2 concentration, and so on — a search for white swans. But these efforts ignored, and failed even to seek, either any alternative explanations or evidence that would have ruled the hypothesis out. AGW has failed the predictions test again and again; any true scientific hypothesis with so poor an evidence-based evaluation record would have been scrapped by now. Instead, its proponents elevated it to the status of a theory and, ignoring the fact that climate changes continually, renamed it “climate change.”

Models are essentially used as predictive tools, so they are only as good as the information upon which they are constructed. If there are any unknown components in the modeled system, then the model’s predictions will, almost by definition, be unreliable.  In the case of a system both as complex and incompletely understood as Earth’s atmosphere, the model’s construction will essentially be required to include untested, incomplete, and/or unproven function assumptions and data. In such a case, the problems and pitfalls of using these models to construct governing policies quickly become self-evident: People trying to rely on the models essentially cannot know what they are doing.  When, for example, their model does not predict their real-world observations, they tweak it until it does — which introduces errors-by-expectation into both output and the policies based upon it. These errors increase in magnitude, and therefore in effect, in a non-linear fashion directly proportional both to the size of the system and to the modeled outputs.

AGW’s predictions are not being reliably confirmed by observations. When stasis and/or cooling occur rather than warming — as has been the case over the last decade-and-a-half — atmospheric scientists fudge interpretations by saying that if it is cool, well, that is just weather; if it is warm, though, that is climate.  Alternatively, they claim AGW predicts the cooling — as, for example, with the recent polar-vortex outbreaks.  However, a theory that predicts everything predicts nothing — because a theory that predicts everything cannot be falsified through testing; nothing will serve to rule it out.

Read more: http://www.americanthinker.com/articles/2014/11/anthropogenic_global_warming_and_the_scientific_method.html#ixzz3K5Y6CxXN
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Inequality and The Tax Reform of 1986

In The Wall Street Journal Phil Gramm and Michael Solon write How to Distort Income Inequality- The Piketty-Saez data ignore changes in tax law and fail to count noncash compensation and Social Security benefits.

excerpt:

Messrs. Piketty and Saez also did not take into consideration the effect that tax policies have on how people report their incomes. This leads to major distortions. The bipartisan tax reform of 1986 lowered the highest personal tax rate to 28% from 50%, but the top corporate-tax rate was reduced only to 34%. There was, therefore, an incentive to restructure businesses from C-Corps to subchapter S corporations, limited-liability corporations, partnerships and proprietorships, where the same income would now be taxed only once at a lower, personal rate. As businesses restructured, what had been corporate income poured into personal income-tax receipts.

So Messrs. Piketty and Saez report a 44% increase in the income earned by the top 1% in 1987 and 1988—though this change reflected how income was taxed, not how income had grown. This change in the structure of American businesses alone accounts for roughly one-third of what they portray as the growth in the income share earned by the top 1% of earners over the entire 1979-2012 period.

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The Fundamental Defect of the Compassionate State

From the October 2014 issue of Hillsdale’s Imprimis, William Voegeli writes The Case Against Liberal Compassion

Excerpt:

A first step in that direction is to note a political anomaly pointed out by Mitch Daniels, the former Republican governor of Indiana. Daniels contended that disciplining government according to “measured provable performance and effective spending” ought to be a “completely philosophically neutral objective.” Skinflint conservatives want government to be thrifty for obvious reasons, but Daniels maintained that liberals’ motivations should be even stronger. “I argue to my most liberal friends: ‘You ought to be the most offended of anybody if a dollar that could help a poor person is being squandered in some way.’ And,” the governor added slyly, “some of them actually agree.”

The clear implication—that many liberals are not especially troubled if government dollars that could help poor people are squandered—strikes me as true, interesting, and important. Given that liberals are people who: 1) have built a welfare state that is now the biggest thing government does in America; and 2) want to regard themselves and be regarded by others as compassionate empathizers determined to alleviate suffering, it should follow that nothing would preoccupy them more than making sure the welfare state machine is functioning at maximum efficiency. When it isn’t, after all, the sacred mission of alleviating preventable suffering is inevitably degraded.

In fact, however, liberals do not seem all that concerned about whether the machine they’ve built, and want to keep expanding, is running well. For inflation-adjusted, per capita federal welfare state spending to increase by 254 percent from 1977 to 2013, without a correspondingly dramatic reduction in poverty, and for liberals to react to this phenomenon by taking the position that our welfare state’s only real defect is that it is insufficiently generous, rather than insufficiently effective, suggests a basic problem. To take a recent, vivid example, the Obama Administration had three-and-a-half years from the signing of the Affordable Care Act to the launch of the healthcare.gov website. It’s hard to reconcile the latter debacle with the image of liberals lying awake at night tormented by the thought the government should be doing more to reduce suffering. A sympathetic columnist, E.J. Dionne, wrote of the website’s crash-and-burn debut, “There’s a lesson here that liberals apparently need to learn over and over: Good intentions without proper administration can undermine even the most noble of goals.” That such an elementary lesson is one liberals need to learn over and over suggests a fundamental defect in liberalism, however—something worse than careless or inept implementation of liberal policies.

That defect, I came to think, can be explained as follows: The problem with liberalism may be that no one knows how to get the government to do the benevolent things liberals want it to do. Or it may be, at least in some cases, that it just isn’t possible for the government to bring about what liberals want it to accomplish. As the leading writers in The Public Interest began demonstrating almost 50 years ago, the intended, beneficial consequences of social policies are routinely overwhelmed by the unintended, harmful consequences they trigger. It may also be, as conservatives have long argued, that achieving liberal goals, no matter how humane they sound, requires kinds and degrees of government coercion fundamentally incompatible with a government created to secure citizens’ inalienable rights, and deriving its just powers from the consent of the governed.

HKO

This the fundamental premise of the The Road to Serfdom.  Private virtues can be a vice in the public domain.

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Leftists Hate Speech II

From American Thinker, Ten Reasons Why I Am No Longer a Leftist by Danusha V. Goska:

Excerpt:

Leftists freely label poor whites as “redneck,” “white trash,” “trailer trash,” and “hillbilly.” At the same time that leftists toss around these racist and classist slurs, they are so sanctimonious they forbid anyone to pronounce the N word when reading Mark Twain aloud. President Bill Clinton’s advisor James Carville succinctly summed up leftist contempt for poor whites in his memorable quote, “Drag a hundred-dollar bill through a trailer park, you never know what you’ll find.”

The left’s visceral hatred of poor whites overflowed like a broken sewer when John McCain chose Sarah Palin as his vice presidential running mate in 2008. It would be impossible, and disturbing, to attempt to identify the single most offensive comment that leftists lobbed at Palin. One can report that attacks on Palin were so egregious that leftists themselves publicly begged that they cease; after all, they gave the left a bad name. The Reclusive Leftist blogged in 2009 that it was a “major shock” to discover “the extent to which so many self-described liberals actually despise working people.” The Reclusive Leftist focuses onVanity Fair journalist Henry Rollins. Rollins recommends that leftists “hate-fuck conservative women” and denounces Palin as a “small town hickoid” who can be bought off with a coupon to a meal at a chain restaurant.