Thursday, November 20, 2008

The strangest thing I've ever been paid to write on the Internet.

Christmas Gifts for Libertarians, Free-Marketeers, an article for Associated Content. It wasn't even a wildcat submission, either, but rather a response to a request for content, albeit one I didn't expect actually to be accepted: the call was for "Christmas Gifts for _______ Lovers" articles!

Is this, in part, the Obama Recession?

I cannot say that this is the Obama Recession, but is worry about what will be coming our way post-inauguration exacerbating the crisis? After all, Obama has said he will look to Franklin Roosevelt's do-somethingist empiricism for inspiration.

To many of us, that carries undertones of punitive treatment of business, class warfare, cartelization, and intervention for intervention's sake. Already during Obama's campaign we were treated to health care and health insurance reform proposals the effect of which would be (and the intent of which almost must be) not to fix the market but to destroy it, a plan that would fit right in with the NRA and AAA. We also know these days that uncertainty and fear of Roosevelt and the New Dealers caused businesses to sit on cash instead of re-invest. Is Obama scaring investors? Is he making things worse? Should he already be taking Jonah Goldberg's advice, to stop, back off, and shut up?

Monday, November 17, 2008

Kling explains credit-default swaps, succintly.

On EconLog today, Arnold Kling provided a clear explanation of the credit-default swap. I've suspected that regulation arbitrage was at work here, and he makes it quite clear what the forbidden alternative is.

The post is worthwhile reading for anyone trying to understand the current troubles in finance.

In the end, Mookie throws a garbage can through the pizzeria window.

The title of Mike Huckabee's new book: Do The Right Thing.

My question is: will it cause blacks to riot?

Friday, November 14, 2008

I'm OK, you're a shill. (An unsubsidized response to Matthew Yglesias.)

Matt Yglesias starts out well enough in his contribution to this month's Cato Unbound, but by the end retreats to where those with leftist tendencies tend to go when they have nothing to say: accusations that everyone else is shilling. To quote:
it’s striking to me that on what would seem to me to be the simple and straightforward libertarian case that we should make Social Security benefits less generous, Cato has nothing much to say. Instead, it has an elaborate Project on Social Security Choice aimed at restructuring the program into one of mandatory, privately managed savings accounts. It’s not immediately obvious to me what this proposal has to do with libertarianism, but it would seem to offer some prospect of profits for fund managers. Whether monetary contributions from individuals working in the financial services industry, or else a desire to align more closely with the partisan political agenda of the Republican Party (itself largely dominated by the interests of American business rather than free market principles), or some combination of the two motivate the preference is beyond my ability to say.
Maybe it hasn't occurred to Yglesias that there is libertarianism beyond the "straightforward" Mises Institute schoolboy stuff, but I doubt it, as, if his writings for the Atlantic are indicative, he seems reasonably intelligent and well-read. Perhaps this ridiculous "straightforward libertarian" solution is a consciously created straw man and perhaps it indicates that, however well-read Yglesias is, he still doesn't know much about contemporary, cutting-edge libertarianism.

I similarly doubt that he can only envision two "when did you stop beating your wife" reasons Cato promotes Social Security restructuring rather than making payouts less generous, and instead suspect that the disinginuity was a deliberate attempt to hoodwink sympathetic readers into thinking something unsavory is going on at 1000 Massachusetts Avenue. Two other possibile reasons for Cato's position immediately present themselves:
  1. Cato personnel responsible for the Project on Social Security Choice doubt the American people will accept Yglesias's "straightforward libertarian solution", a Social Security phaseout that reduces payouts to current takers without having given them the decades of notice needed to adequately prepare.
  2. Cato personnel think that it is wrong to phase out Social Security by reducing payouts to those who currently or soon will depend on it and seek a more ethical, intermediate solution.

I cannot speak to whether either of these is the case, nor can I rule out other possibilities, but they are much more plausible than "a group of intellectuals changed their mind because unspecified mutual-fund managers possibly made a contribution to their think-tank."

It goes on:
Similarly, the free-market case for a revenue-neutral carbon pricing scheme seems fairly impeccable to me. But instead of organizing its climate change efforts around seeking to ensure that any future carbon pricing plan be as close to revenue neutral as possible, Cato prefers to steadfastly defend the rights of industry to unload air pollution unimpeded.
Yglesias fails to mention one thing: a considerable portion of the Cato crowd still thinks that, concerning the question of the existence of anthropogenic global warming, there are two sides, on reasonably equal footing, at that! Most of them haven't the background (or the willingness) to read technical papers at the level needed to judge them on their merits and are thus incapable of distinguishing the latest from JGR-Atmospheres from Christopher Monckton's "amateur hour" excursions. I suspect that they are suffering from Ronald Bailey Syndrome, that is, that they have chosen their position not due to honest scientific concerns, but rather because it fits more conveniently with their other, perhaps sounder, beliefs on policy.

This is made worse by two factors. The first being the bizarre apoplexy that flares up in elderly libertarians (even those unaffiliated with Cato) when presented with anything that looks "environmentalist". The second being Patrick Michaels's status as some sort of "Policy Scholar" at the institute. I'd entertain the idea that some AGW denialists are shills. It's not unlikely that Robert Balling, for example, goes on talking to nonscientific audiences (he wouldn't dare make some of his claims before a room full of experts) about how wrong climatologists actually working on global climate change are, despite not working in that subfield in years, because it brings in money to support his more legitimate research. Michaels, however, is probably, like S. Fred Singer, deranged. Consider that he (like Singer) was still going on about how CFCs don't cause ozone depletion as late as 2000. It's more plausible that, hearing Michaels's loud contrarianism, Exxon-Mobil sends money his way, than that his position was caused by the receipt of such funds. Again, most people at Cato, and most people in general, cannot critically evaluate science and probably don't know that they are incapable of doing so, nor what doing so entails. They've had Michaels whispering cute nonsense in their ears, and flattering their political prejudices, too, for well over a decade, and are half-convinced that environmentalism has something to do with leftism, Al Gore, and butterfly scientists' concerns about human population. It is more likely by far that they oppose creation of a carbon market because they believe stupid things about the state of atmospheric science--poke them enough and you can get them to say stupid things!--than that they oppose creation of a carbon market because someone paid them to do so or because they expect to be rewarded later.

Consider the following:
  1. Any think-tank scholar exposed as a shill will be difficult to take seriously ever again, on any topic.
  2. If it were truly possible to pay commentators and scholars to change their minds, wouldn't the money be better spent reversing the positions of environmetalists?

One could say that Yglesias must be taking a payment from the labor unions. After all, why would he put in such a good word for them in his Cato Unbound essay even though they are At Least As Evil As Exxon-Mobil? But that would be stupid. It's more plausible that Yglesias genuinely believes that the unions are a source of good. In order to have any reasonable discussion at all, or even to benefit from reading others' writing, we need to acknowledge that intelligent people can disagree and even, like Patrick Michaels, believe ridiculous things for ridiculous reasons.

I propose a new rule for commentators, the Russell's Teapot rule: Do not attribute someone's opinion to having taken a payment or even insinuate that said opinion might be the result of shilling behavior unless you either have compelling evidence for it or have ruled out all other possibilities. To do otherwise makes you seem foolish, dishonest, or malicious. Mr Yglesias, take note!

Wednesday, November 12, 2008

Milton Friedman Insitute controversy continues.

For fellow spectators of the tempest in a teapot at the University of Chicago, a few updates from around the Web:

It appears that the name of the institute has been changed to the Milton Friedman Institute for Research in Economics. That doesn't look like much of a change to most of us, but perhaps it will mollify the paranoid sort who thought that the Milton Friedman Institute would be some "right-wing think tank". Nevermind that the Institute was being established for economics research even before the name was extended. Nevermind that Milton Friedman can hardly be considered "right-wing". The complainers' position didn't make sense from the start, so perhaps what is a non-change to sensible people will look like substantiative change to them.

If I could buy stock in silly remarks about the economics profession, it would be a great countercyclical asset. The recent economic downturn has brought out the bozos and resulted in all sorts of strange categorical pronouncements about free markets, the Chicago School, or some special "free market economics" separate from the rest, that nobody knows about. This piece from Al-Jazeera English is representative; search the blogosphere or even the newspapers and you will find many more just like it.

Therein, Robert Lucas says what needs to be said:
...Why don't you ask these guys [critics] what should be done specifically and what should be done now?

People like [Josef] Stiglitz [the US economist and critic of free markets] use name-calling instead of just diagnosing the problem and saying what should be done.

Should there have been regulation to prevent this? Well sure, but what sort of regulation? Let them spell out what regulation we should have in place.

These are the questions any reporter who wishes to be an asset to his profession (Ms. Brown at Al-Jazeera, take note!) must ask. If the Chicago School is to blame, what peculiar normative advice was given that was wrong and resulted in the financial situation we are now facing? Did Milton Friedman and his fellows at the University of Chicago (hardly a single-minded group!) advocate for the peculiar FNMA (Fannie Mae) policies that largely caused the housing bubble? Did they advocate against splitting up "too big to fail" Fannie Mae and Freddie Mac? Did they say that the systemic risk problem didn't exist in the credit-default swaps market or elsewhere? Why blame the house Frank Knight built?

Elsewhere, Gary Becker makes a strong case for naming such a research institution after Friedman the man. Richard Posner addresses the concerns of those who think that the Institue will reflect poorly on the University or produce only servile work in honor of Friedman, and takes a great jab at the "'Free market' econ is dead" set:
If the religion professor who is leading the movement against the naming is right that "Friedman's over"--that the current economic crisis has consigned Friedman, along with Greenspan, to the dustbin of economic history--he should have no fear that the new Institute will be biased in favor of Friedman's views. If a physics institute were named after Albert Einstein, would the institute's researchers reject quantum theory?

Wednesday, November 5, 2008

Sometimes you just misjudge people.

There's a reason we have face-to-face meetings even in the Internet age. Some people don't present themselves well in writing.

I helped Laissez Faire Books move in to its new Arizona headquarters last Sunday and joined the principals for dinner. A surprise drop-in, midway through, was gun-book publisher Alan Korwin.

Korwin, as readers of this 'blog may know, has in the past struck me as a hateful, right-wing boor. That's awfully far from the truth. In person the man is affable and polite, with a genuine intellectual curiosity. On top of that, he has a good liberal instinct; he's just coming to this from a different starting point than many of the rest of us.

It doesn't hurt matters, either, that he knows how to pick out a good Cabernet. And yes, this is an apology.

Saturday, November 1, 2008

Trite, and in bad taste.

It is neither witty nor accurate nor fair to refer to economics as "something that we thought was good until a couple of weeks ago", as though the banking crisis reveals some serious flaw in economic science, as though economic scientists were caught by surprise by the systemic risk problem, or as though we can simply start ignoring economists' advice and let ideology hold sway.