I Should Stop Reading This Kind of Stuff...

...however, it does pop up in my Google Reader, and part of me feels that I should at least say how utterly pointless and stupid I find it - although I'm sure plenty do anyhow.

But here we go; for a change, Don Boudreaux writes a "letter" to someone; this time it's someone who happens to have crossed his path on one of his hobby horses - people who (how dare they?!) suggest that after a natural disaster, once things are rebuilt they might just be better than what came before.

It's not rocket science really, is it?

But no, Boudreaux has to take this innocent, encouraging statement to its most absurd length, suggesting we should all go out and destroy things. I just don't quite understand what he thinks he is contributing to anyone by such statements. Nobody is suggesting that, and nor is it helpful to point out that an absurd extension of the logic may just take you there.

In general arguments, we make conditioning statements. Conditional on there being a destructive force on the way called a hurricane, we try to make the best of the situation. We might, shock horror, make the suggestion that when rebuilt, the new capital stock could, due to progress, be a little better than what was destroyed. Why then do we need the kinds of contributions Boudreaux offers us in his latest letter? Other than pointing out an extreme we would never reach (because, duh, we're not stupid), I don't see much. And given that extreme would never be arrived at, I thus don't see the point. But maybe someone can help me out here?

Why I'm not right of centre, or any further right than that

I read quite a bit of what libertarians say, as you might be aware if you read this blog. I'll ignore their perpetual use of reductio ad absurdium to death, although I love this response by Matthew Yglesias to one specific (boring) form of that. They usually misunderstand the point, in my experience, despite the fact they believe they are better than everyone else as representing their opponents' views.

My main problem is that the set of events that libertarians yearn for, a completely private set of markets without any government intervention (other than to keep the rules of the game), would (a) not provide every man with the liberty they believe it would, and (b) would not be a stable situation (or equilibrium, as economists like to say).

On point (a) I've written quite a bit on here. There are just too many situations where imperfect information and/or externalities mean that the price mechanism just doesn't do the job it should if the market was perfectly competitive (or some close approximation to that). The fact that one libertarian I've debated with claimed ignorance of perfect competition neatly epitomises that they don't really care about the details of markets that may lead to them working horribly, and denying a lot of people the liberty to make their own choices and better themselves.

On point (b), I've been coming to this conclusion for a little while now I think. If you do the thought experiments about why a fully free market might be problematic, one aspect is scammers, or those that do a bad job, or even a dangerous job. If the market isn't health where that could lead to your death, the idea is that reputation will matter, and if someone wishes to be in the business long enough, they will avoid providing bad service because it's not in their interest.

But say all market participants are good and honest after a long process of the bad eggs being weeded out. Then all customers know that all firms provide a good, honest service. I don't believe this can be stable, because it's then in the interests of some unscrupulous person or group of people to exploit the believe that all providers are good and honest, and provide a shoddy performance. Particularly, say, in financial markets - someone like Bernie Madoff turns up. They provide a seemingly wonderful service for a while, and people are attracted to their service, not realising its a scam. Then just before they are found out, they flee the country (Panama, say), and run with the money.

Then the equilibrium is gone; people no longer believe that all providers are good and honest. The atmosphere may not be ripe for more scammers, but the point is that reputation alone will not ensure a good, stable equilibrium in fully free markets. Can regulation though, of course, is the response - and the right one too.

My sense is the libertarian accepts all of what I've said so far but says "so what?", because the market situation with regulation is likely just as bad as the one without - certainly Madoff made it abundantly clear that whatever the rules of the game, there will always be that incentive to get around them to play scams. Now this I don't doubt, but the point is this: Stripping us back down to fully free markets won't solve any of the kinds of problems we have now, despite what libertarians might assert.

An Example of Right Wing (or Libertarian, or Hayekian) Logic

There's going to be an excellent debate on the radio this evening, between a number of economics, aired on BBC Radio 4.

The theme is Keynes vs Hayek, or as Cafe Hayek puts it, Hayek vs Keynes. On that link is another link to a clip of the debate where one of the Hayek proponents, George Selgin, apparently delivers a beautiful put-down to Skidelsky's Keynesian remarks. Really? For sure, there's some applause, but is that really a put down? For me, its a cheap points scorer.

It kind of also backs up my point about the way Hayek fans argue - they construct straw men. Skidelsky points this out to Selgin, and he retorts with a remark about how clueless politicians are. But is that a put down, a debate winner, about why Hayek was right and Keynes was wrong? On another Hayekian website, mises.org, they've already declared Hayek the winner (surprise!), and there they make the same remark: That Keynesian economics supports the bank bail out.

As Skidelsky clearly, audibly points out, Keynesian economics does not say the government should spend on anything (all the farcical examples Selgin rattles out) - it says that in the absence of any other productive investment opportunities (a highly, highly unlikely situation in any economy and any state of the world), then we might pay people to dig holes and bury things in them. But that's just never going to happen, it's a complete extreme event, and it's classic Hayekian, or libertarian arguing - you contort the position of your opponent so grotesquely that you can easily take care of his or her arguments.

And then Selgin responds with a quip about how politicians had clearly run out of all ideas hence they bailed the banks out. Apparently that's proof that Keynes would have bailed the banks out, that all Keynesian economists are bank bail outers. But it's criticising Keynes and his economics for the botched implementation of his ideas by a government - since when is that the way to criticise someone's ideas?

Sure, Keynesian economics promotes the role of the government, and so libertarians would say this is a natural consequence, but of course its not. The government will always exist, and always has done, and its mere presence as an entity will distort all market activity - this was the case long, long before Keynes came about, as I've been reading recently regarding the Panics of 1873 and 1893 in the US. To blame Keynes for governments doing stupid things is a real cop out of an argument and doesn't even start to engage him on the real meat and bones of what Keynes said.  Straw manism if ever I saw it, and not even slightly helpful for debate...

A Classic Right Wing Stance

I've started subscribing to the feeds from Dale & Co, another right-of-centre website it seems. It's good fodder for why Jesus was not a right winger (and also home of a number who wouldn't bother with Jesus at all anyhow). Here's a great example of that: All taxpayer funding of charities must stop, apparently.

Because I have quite a bit to do, I'll just copy and paste in my rather snarky response in the comments rather than re-write it all out:

Erm, externalities?

I know right wingers tend to as much as possible deny these inconvenient things exist, but basic economic theory says that where there are externalities involved (costs or benefits incurred by agents without payment or compensation), then the privately optimal market outcome will differ from the socially optimal market outcome.

If the externality is positive (which is safe to assume if we're talking about charities), then the market will under provide.

Thus, charitable giving alone will not be sufficient, and there is an arguable role for the state in supporting them.

Of course, the nature of that role is up for debate. But the point is there is a simple and incontrovertible argument on basic economic grounds for some government support for charities, although I'm not going to deny that in practice that support was probably not optimally provided by the previous government. I'm yet to be persuaded though that this government understands basic economics, and so I doubt the new arrangement will be particularly good either.

To add what I think is necessary to that, given the name of this blog, there is of course the Christian angle. I don't think it can be Christian to blanket say taxpayers should not support charities given the reason outlined above - the market will under-provide many vitally important goods and services in society without some form of government assistance. Of course, that leaves the system open to abuse: Charities that governments like will get funding, ones they don't like won't. That, however, is not an argument against the provision of support in the first place, but an argument for better systems of support that are less open to political manipulation.

Equivalently of course, as I say in the final paragraph, I doubt the current system that is being dismantled was particularly effective either. There shouldn't be indiscriminate support for charities since its hard to say what the necessary support is by government to bring the social outcome nearer to the private one. But initiatives like Gift Aid (which allows charities to claim the income tax on whatever you donate) are the right kinds of policies since they augment the giving by private individuals. Equivalently here, Jesus was not a left winger either...