I’ve been trying to think of a simple way to explain to people why government largess in the form of stimulus packages, i.e. “infrastructure investments,” redistribution, government growth and pork spending will do little. (Indeed, it is more likely to deepen the hardship and lengthen the economic recovery.) But the fact is, it’s difficult and counterintuitive. I’ve tried to narrow it down to a 5-point list:
1. Lost Capital is a Lost Opportunity Somewhere - For every dollar you spend on some government project X – and every brain you divert from the productivity sector (i.e. the private sector) - that’s one dollar that cannot be used for either a) capital to help a company to grow (read: hire), or b) used for investment in efficiency measures to free up capital to help a company grow… Government spending takes resources away from productive uses and puts them to less-productive uses (i.e. the government is not itself productive in the economic sense of efficiently providing value to dispersed individuals, nor is the bureaucratic sausage grinder that re-distributes said resources particularly efficient, particularly as the incentives are more aligned with the priorities of bureaucrats, politicians and lobbyists). A kind of helpful mental model often given by economists is to imagining paying people to dig a ditch from New York to Miami using only teaspoons. Unemployment goes down. But opportunity costs abound.
2. Make-pork Projects - One might credibly argue that “infrastructure” and other make-work projects will result in marginal productivity/efficiency gains over the very long term, but it is clear these projects will have little or no immediate stimulative effect, as they are but a subsidy for the construction industry. (We’ve seen what that’s done for agriculture, except the subsidies, sadly, are permanent.) Who knows if individual states, suddenly flush with stimulus dollars for roads, will spend these dollars responsibly, or on the usual political patronage projects and wasteful boondoggles like light rail. (And since such projects so often require matching state dollars, it may be rather like someone giving you a Hummer when you can barely afford the gas in your Honda. The state will have to divert resources from other priorities to fund these make-work projects.) A redistributive clusterfuck, to be sure. Again, while we may “need” infrastructure, aren’t times of prosperity better times to invest in that? And how do we calculate points of diminishing returns for infrastructure “investment” when there are really no prices, profits or customers to speak of?
3. The Multiplier Defect - The so-called “multiplier effect” has been shown not to work time and again. The idea is that government spending, suddenly coursing around the economy. “stimulates” it to such a degree that a positive domino-effect occurs; guys with new hardhats suddenly go out and buy new Chevy trucks from union thugs who in turn buy the services of aromatherapists and so on. Milton Friedman showed, however, that most people pay down debt rather than spend these knew-found resources. Others have demonstrated that Keynesian-style spending can offer a short-term boost in certain sectors, but then result in a crash later—adding to the economic moodswings known as “business cycles.” And while economic ebbs and flows might be a natural part of any complex system (like ebbs and flows in weather systems or ecosystems), crests and troughs can be exacerbated by attempts to infuse capital from the top down. Think of giving a kid $5 next to a candy store. He will be jumping around for ten minutes or so, then he’ll go into a sugar coma. It’s similar with markets. Ultimately, it’s about getting the rule-sets right (predictability) and the incentives right (for chasing customer dollars, not largesse); It’s about allowing local market actors with local knowledge to recalibrate and bring new innovations, efficiencies and value creation to the market system. Productivity increase is the only way to grow out of a recession.
4. Galloping Greedy Gimmies – Of course, no large public expenditure can fail to end up in a special interest trough somewhere. The expenditure of resources - human and financial – on being the one who gets the public wad, is tremendously wasteful. If you’re spending your time and money as a lobbyist (one who acquires transfer payments for some chosen winner among many other losers wasting similar resources) rather than creating value (entrepreneurship) and you’ve got corporate sponsors expending their precious resources on similar competition for non-productive transfers, you’ve got a Rube Goldberg apparatus of special interests creating a great big vortex down which money will surely be flushed. Oh yeah, it’s called Washington, D.C.
5. Government as “Investor” – You thought Wall Street was bad. Just wait till you have government bureaucrats - with no incentive to be prudent, nor any consequences for failure (never mind a way to even measure success/failure) - spending your money for you. The idea that 500 bureaucrats in a distant bureaucracy know how to spend your money better than you and millions of other smart people in this country is, well, nothing short of kooky talk. If you don’t understand why, I’ll sign off and let someone else describe the knowledge problem.
Anyway, this comment from a post on the proposed stimulus sums my feelings up nicely:
Leaping off a cliff without a parachute is a bold and swift act, too, but I wouldn’t recommend it. Maybe that’s why he wants to “bind us together,” for if the sane among us could opt out of this economic nonsense, the silly and destructive “stimulus” plan would be a dead letter.
Here's the worst part. Most of this doesn't even go to infrastructure, but permanent expansion of the Federal Bureaucracy.
Success is the end of an iterative process. That is to say success can no more come into the world through the brute force of government largess than through the singular act of a brilliant individual.
This video from Honda, reeking as it does of capitalism, really strikes to the heart of the evolutionary nature of market processes. The trial and error. The blood, sweat and tears that comes with taking a chance and doing it over and over again -- slightly better the next time. Kai zen.
Success is always wrapped in the styrofoam peanuts of failure.
As promised, I want to return to the “10 Things Leftists Should Know about Libertarians,” and offer 6-10. (1-5 is here.)
6. Libertarians want to “go local.”
Most libertarians believe in a principle of subsidiarity—government decisions and activities should be carried out at the most local feasible level. We’ve all heard of federalism. But it’s not just about states rights. Subsidiarity is a more robust idea: if a lower stratum of government can handle it, it should have to--as a matter of law (constitutional law, preferably). So while the left often focuses on economic decisions “going local” - which libertarians see as a) limiting one’s range of available choices, b) bad economics, and c) harmful to the world’s poor as they try to integrate into the global economy) – libertarians want to break power up and, at minimum, disperse it (otherwise get rid of it altogether). That way people can at least vote with their feet if they don’t like the policies of some geographic monopoly on power. We also see decentralized power as being stronger for the emergence of community. Government power and community are not to be conflated in our view, and the closer the power is, the more communities can both keep an eye on it and participate in it. (Read: there’s nothing “communitarian” about Washington.)
7. Libertarians can be environmentalists.
Fundamental to the libertarian worldview is the idea that people should not harm each other. Of course, environmental harms can be a form of harm. We very often disagree about the methods of addressing such harms (e.g. we see the Common Law as a much better tool than the regulatory state), but we don’t think that big corporations should dump gunk in rivers either, property, or air, either, as long as you can identify and prove harm (where the standards of proof are determined by the Common Law, not by the whims of activists or special interests injecting their preferences into statute). In any case, libertarians look for market mechanisms to mitigate environmental harm. Regulatory means are subject to capture by special interests, limited by a lack of bureaucrat knowledge, and result in unintended consequences—economic and otherwise (witness the genocidal effect of global DDT bans on the population of Africa, a continent that struggles with malaria. But I digress.)
8. Libertarians are radical crowdsourcers.
Ever heard of the “wisdom of crowds”? Libertarians believe that the decisions and choices of millions of people are almost always superior to the decisions and choices of a single person or bureaucratic elite. I’ve spent a lot of pixel-space relating the idea of dispersed knowledge and complex systems, so I won’t expand on this too much here. Suffice it to say that humility requires us to accept that there are limits to human organization and we overcome those limits through self-organization and crowdsourcing, not top-down directives from a bureaucracy whose greatest incentive is to perpetuate its own existence.
9. Libertarians are anti-elitist.
Due to 8, you can see why libertarians are anti-elitists to some degree. We don’t have a strong guilt/envy instinct when it comes to wealth, of course. And as I mentioned in Part I, we think voluntarism trumps force when it comes to solving social problems. We see “elites” as either being people who have political power, or power due to political connections (rent-seekers). Wealthy business people have very little power by comparison, because they have to maintain their wealth by creating value and serving customers. Government power is not the same, as it requires force rather than value creation. That’s why elite to us is more about government power than prosperity, which we believe, ceteris paribus, illustrates that people are offering a good or service that people want.
10. Libertarians are pro-human.
Libertarians’ belief in the sacredness of persons makes us a human-centered group. One might not understand this given the way we’re often caricatured. “Just leave me alone!” is part of our sensibilities to be sure. But we think that voluntary cooperation can move mountains, whether that be in the marketplace or in the philanthropic sector. The instrument of government power, which requires so much compulsion, is an instrument to be feared and checked. Voluntary association and the emergence of winning ideas that flow from a creative people is the best way to solve social problems, not to mention the best way to achieve eudaimonia. Voluntary action is the means. Toleration is the prime virtue. Individual happiness is the goal (and that happiness may very well concern the problems and conditions of fellow human beings—and usually does. But neither social equality nor compulsive means of achieve it factor into our worldview.)
This is the Age of Complexity. Like other intellectual movements, the Age of Complexity is characterized by its own aesthetic. Where the Enlightenment thinkers and the Moderns - enamored of law, reason, symmetry and order - made fundamental structure the end of inquiry, the Postmoderns thought fundamental structure was just another form of dogma. Faith in the fixedness of things – truth, progress, order, and universal laws of nature – came at the expense of that which is random, ironic, and mysterious about the world. Postmodernism offered something playful, something that celebrated irony. And the Postmoderns seemed to delight in the paradoxes of language. They became the players of language games. But somewhere in the play, science got lost. Down became up and relativism reigned without rules.
Though postmodernism as a movement seemed destined to remain, there was a sense in which it could move very little earth. Once academic research had been reduced to the discovery of irony in all things, criticism became one of the only tools left to the thinker. Idle, it seemed, was the thinker acting as a creative force—a builder. Thus, on the larger questions, pragmatism at best and radicalism at worst became the only respectable positions in the humanities. Reason, ultimate truth, conceptual schemes and other false gods were vestiges of a bygone era. So what could replace them? The postmodern aesthetic, while strange and wonderful, seemed to be operating in a vacuum. And in vacuums, human beings will begin to look for points of reference, even if they have to contrive them.
Perhaps the Postmodern can appreciate one final irony: Structure as an aesthetic has returned from the ashes of Nietzsche’s pyre. But this aesthetic isn’t rooted in the foundational absolutes of the Enlightenment. Rather, it borrows a bit from both the structure and structurelessness of its predecessors.
Since we have never been able to build anything with weapons or toys (i.e. criticism or play), postmodernism has left us in a kind of smoldering academic wilderness—a scorched earth. The tools of construction and creativity have to be taken up again. We could never completely do without structure in our intellectual lives. For structure, while an aesthetic commitment, is indispensable to theory-building, to reference, and to reality. The universe doesn’t care whether we think so or not. Therefore, the synthesis between modernism and postmodernism lies between what Catherine Z. Elgin calls “the absolute and the arbitrary.” But since we are now forced to operate in areas devoid of the Enlightenment assumptions that postmodernism effectively destroyed, we must look to structure itself for answers; that is, to form and to function. But form and function offered not by what has always been human design, but by rules.
That is why I believe we are in a new age—one that is after postmodernism.
To operate in the vacuum of uncertainty, destruction, construction and reconstruction will be the both the ends and processes of inquiry. As always, we will work within our own intellectual traditions—constrained by our language, culture, limited knowledge and human nature. And if we are indeed within another aesthetic, cultural and intellectual paradigm, we must be able to recognize its indicators. That is: what do we know about the world that informs this paradigm? How can we more fully articulate its properties, its character, and even its aesthetic? How might the paradigm begin to infuse current thinking—especially in the area of politics, economics, and social science? And once our thinking is so infused, what lessons can we take with us into the world?
The Age of Complexity?
Why would anyone argue that we are in a new age and why should we care? I see three primary reasons:
First, I believe that even an intuitive understanding of complex systems will fundamentally change the way people understand society. I hope such understanding will serve as a lens or filter for people when they consider the most important questions of policy, human organization and society. But complexity theory is not just a device. There is something to it that touches on the very nature of the universe itself. For example, complexity theory deals not only with “recursion,” but is itself recursive. Indeed, a person equipped with even the basics of complexity theory will not only start to see politics differently, but will see it in everything—art, music, literature, economics, business, nature, and the human mind.
Second, complexity is a shaking free of the disciplinary strictures. The idea draws from philosophy, science, political theory, economics, aesthetics, and even psychology. It also has application in these disciplines. The sooner we realize we are in the Age of Complexity, the sooner we will be able to work creatively within some of the limits the world has always confronted us with, while simultaneously harnessing the powerful potential that lies within its fractal rules.
Finally, as we begin to see through the lens of complex systems, we will suddenly be able to pull together what we thought were disparate aspects of knowledge and the world. My hope is that this pulling together helps us make sense of so much of the world. But most of all, I hope some of the insights open new doors and generate new ideas for its practitioners. Like most people, I really want the world to be a better place. Therefore, I hope my small ripple becomes your tsunami.
I love my daily Don. Don Boudreaux has recently sent out two of the most salient quotes for modern times, both by H.L.Mencken...
People in the mass soon grow used to anything, including even being swindled. There comes a time when the patter of the quack becomes as natural and as indubitable to their ears as the texts of Holy Writ, and when that time comes it is a dreadful job debamboozling them.
Civilization, in fact, grows more maudlin and hysterical; especially under democracy it tends to degenerate into a mere combat of crazes; the whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.
If he would not have cautioned against the notion vociferously, I'd say Mencken was a soothsayer. At the very least we should chew on these quotes for a few minutes and think about the sheeple gathering to wash the feet of he who can absolve them of white guilt and fix the economy/global warming/insert hobgoblin all at once.
What Mencken saw, and today's commentariat so often do not, is that the United States has become a nation of symbol, spectacle and self-delusion. There is perhaps no bigger threat to individual liberty than this trinity.
Symbol is the best we can say about the coron - eh hem - inauguration of President Obama. Last night we were treated to an HBO rock concert (spectacle) that I'm sure was as symbolic as it was puerile (I didn't see it, thankfully). The symbolism of past prejudices finally overcome is good thing, I grant. A part-black president. Yay. Finally, kids in the hood have something to aspire to besides platinum records and the NBA (Never mind that Thomas Sowell has been around for years. Knowledge and Decisions suits me fine as a secular bible. I'll also pass over the fact that there is nothing admirable about being a politican, much less being a certain color or other. But I digress). In any case, if we must accept that the symbol has the property of muting some of the intergenerational bellyaching that's been going on since I was a kid, then I'm willing to celebrate it. Still, such symbolism does nothing for an ailing economy, a war, and an uncertain future--which the President has promised to clean up with the dirty mop of government. And that, friends, is unfortunate.
So please: get the stars out of your eyes and come back down to earth. We - you and me - have work to do. I promise to think about the symbolism of an Obama presidency if you promise to think about the self-delusion that empowers men to work miracles with other people's money.
If the market is but a collection of minds, and swarm intelligence (wisdom of crowds?) is a new branch of computer science and problem solving derived from biology, why is it so difficult to understand that markets are self-regulating? Or to put it another way, why can't one individual ant be the boss?
In contrast to the top-down organization that characterizes many human endeavors, many social species achieve their communal goals using a purely bottom-up approach with no central command-and-control structure. A swarm of termites, for example, exhibits a collective intelligence that far exceeds the intelligence of any individual insect, which by itself has limited capabilities for processing and communicating information.
The collective intelligence of the swarm emerges in a decentralized way from the actions of individual insects responding to local stimuli from the environment and, most importantly, from other members of the swarm. There is no “boss” in charge. No individual insect grasps the big picture. Yet in the aggregate, the local actions of each insect based on the local stimuli available to it can accomplish a collective goal that serves the interests of the whole community.
“It turns out that what makes sense in the biological world often make sense in the computational world as well,” explains Jacob. “For some types of applications, a collection of small, simple agents with limited intelligence, local decision-making capability, and a communication path to nearby peers can outperform a large centralized processor. Moreover, a decentralized system has several important advantages over a centralized one, most notably robustness and flexibility.”
Down with bosses. Up with bottom up.
Bryan Caplan has an interesting post in which he sites both Posner and Rothbard on the rigidity of wages. But his conclusion goes:
I have a dream that one day workers will see employers who cut wages during downturns as people with "hard heads and soft hearts." What will it take to bring my dream to life?
Check it out.
I've always wondered why so many companies are eager to go straight for the axe and not the pruner. In other words, why not tie wages (and salaries) more closely to performance and only slice the jobs of the poorest performers? Why not cut salaries in the intermediate strata and give only high performers the same salary as when times were good (or even give 'em a raise if they're adding value)? Isn't this better than putting a fairly solid employee out of work? In any case, a lot of companies are doing this. But I'd say the companies that use a seniority-based corporate socialism model are the ones that are also cutting whole jobs instead of pay, which is often kind of a dumb approach. (Here is a good book on performance-based pay.) I'll just say cutting jobs isn't the only tool in the toolkit when it comes to recessions.
I'll pass over the sclerosis caused by unions and government, both of whom are IMHO bloodsucking parasites.