Saturday, February 26, 2011

Rand Paul on David Letterman

Rand Paul’s performance on David Letterman is a must watch.

Some highlights. Here Paul gets Hayekian:
It’s not that government is inherently stupid, although that is a debatable point, it’s that they don’t get the same signals. You and I get signals…we have to pay our employees, we have to make a profit…the public sector doesn’t have that.
And here he argues for the virtues of competition for solving problems in education:
I think competition makes us better, you have to compete with other late night comedians, I have to compete with other physicians...
Perplexed, David Letterman ends the interview this way:
I think he’s wrong about some of the stuff he’s saying, I just don’t know why.
Rand Paul is very skilled at explaining complicated economic and policy concepts in a way that is both non-threatening and easy to understand. He's a real asset to conservatives and the Republican party, and needs to get on as many of these kinds of shows as possible.

A "problem"? Hardly.

[Update]

Some more reactions, and here.

Thursday, February 24, 2011

From mortgage banker to brewer

A wonderful brew pub has just opened in our neighborhood, and below is an excerpt from an article describing how the venture came to be:
“’I started home brewing 17 years ago when I lived in Colorado, after leaving the mortgage business a few years back I met Jim and Lisa Hill from Corner Café and decided to start brewing craft beer for their customers. We removed some old equipment from their kitchen, installed a 35-gallon unit and started brewing. Mr. Webster’s experience and success at Corner Café fueled a desire to expand and Tequesta Brewing is the result.”
"After leaving the mortgage business?"

Economist Arnold Kling has been promoting a new paradigm for thinking about macro-economics. He calls it patterns of sustainable specialization and trade, or PSST for short.

From Econtalk:
Kling rejects the Keynesian approach that emphasizes shortfalls in aggregate demand ...instead, Kling invokes the mutual exploration between entrepreneurs and workers for profitable opportunities that pay well using the workers' skills. This exploration takes time, involves trial and error, and can have false starts because businesses sometimes fail or employees are difficult to find or match with employment opportunities.
I think the story of the brewer fits into this paradigm. The Keynesian story says, we have a decline in demand for mortgage related services, so we need to institute a policy that gets demand back up. It doesn't matter what kind of demand, just get it back up.

The PSST story sees it differently. Here we have an industry that attracted a tremendous amount of capital and labor, (a result of bad government policies perhaps), it was unsustainable, and now a re-calculation is taking place. Many people that made a living in the mortgage business just a few years ago are searching for a new, or perhaps their true, pattern of sustainable specialization and trade, and that process can be painful. I think that is was is happening with the mortgage banker turned brewer. And if the crowds that line up to taste his creations are any indication, I'd say his search is complete.

Russ Roberts tells the truth

On unions:
The effect of unions, to the extent they are effective at all, is to make it harder for people to find work in particular areas. Unions try to raise wages above what they would otherwise be. Employers respond by trying to substitute capital for labor or more skilled workers for less skilled workers.

You want negotiating power? Get educated. Get a skill. What keeps wages up in a world of 7% unionization in the private sector is that I have alternatives. So stay in school and study something serious that has value alongside whatever else you’re interested in. Or study something interesting that has little market value. But if you do that, don’t complain about your low salary and lack of a union.

The bottom line–you don’t need a union to protect you from your employer. You need alternatives–you need to have a skill that more than one employer values. If you have no skills, you are in trouble and the union won’t help you either except at the expense of other workers.

Tuesday, February 22, 2011

Wisconsin: Some must see videos

Check out this video from the Wisconsin Republican Party.

Watch Joe Scarborough ask, why haven't we seen these signs on the evening news.

And more from Joe Scarborough, who politely destroys Jeffrey Sachs's conspiracy theory by simply reading an excerpt fromthis column from left-wing blogger Richard Cohen.

Monday, February 21, 2011

Ryan makes the connection

"Uncontrolled debt means job creation goes away." -Paul Ryan

It's not just about an accounting formula. Public debt has real effects on expectations, confidence, and ability to plan for the future. In other words, reduce the spending to the reduce the debt and you will get growth.

And he's got it in the right order. It's not growth will take care of the debt, it's take care of the spending and the debt, and we will get growth.

Friday, February 18, 2011

Public servants

I have always found it curious that politicians who make a living commanding and coercing and taxing are called "public servants", while those in the private sector who can only earn a living by providing something of value to the public and literally "serving" others, are not.

"Worker rights"

The term "worker rights" is often used, particularly in the context of collective bargaining. For example, in this column, Governor Walker of Wisconsin is accused of "removing bargaining rights" and "undercutting worker rights".

I have no problem with the concept of unionizing or collective bargaining. What I do have a problem with is when an employee is required to join a union and is not allowed to negotiate outside of the collective bargaining agreement. In other words, collective bargaining is fine, but it crosses the line when it takes away the right of an individual to engage in "individual bargaining".

For example, in Wisconsin, imagine there is a job opening, and the collective bargaining agreement states that that particular position requires a salary of$50K per year and must include X and Y benefits. My question is, can some unemployed person compete for that job by saying, "I really need the work, I would be happy to do the job for $40K". Or can someone say, "You don't need to buy health insurance for me, I already have it through my spouse".

I would consider the right to make those offers and engage in individual bargaining part of "worker rights". But if that is not allowed, then "worker rights" are not actually rights at all, they are just ways that those who are already employed reduce competition for their jobs. In the name of “worker rights”, they actually take away the rights of the unemployed to compete for jobs.

But I am no expert in public employee unions and collective bargaining, so maybe I am wrong about this.

[Update]

Here is another way to think about it:

Imagine you have two people. Both equally qualified for an opening. The union's collective bargaining agreement says the state must pay $50K. The first person doesn't really need the job. Their spouse makes $150K plus per year, they just want the job to make some extra money. And then there is another person who really needs the work. Their family is in big trouble, and they really need a paycheck. Therefore, to get the job, that second person is willing to work for less; they are willing to accept $40K per year.

Generally, the market would handle this problem beautifully; the problem being, which worker needs the work the most? The market signal is the price, in this case the price that the worker is willing to accept as a wage. The offer of the lower wage provides the information regarding who needs the job the most. But with collective bargaining, this market mechanism breaks down.

The union would say to that person - too bad. You are not allowed to compete for that job based on compensation. That would violate our precious collective bargaining agreement.

In the name of "worker rights", the union took away the rights of that person to negotiate directly with the employer. The union says...I 'm sorry if you are about to be put out on the street, we need to keep the wages of our union members nice and high.

I find that morally reprehensible.

Thursday, February 17, 2011

What is Mark Levin's problem?

Last week, he was bashing Mitch Daniels, endorsing this silly post over at American Thinker where Daniels is blamed for the Bush/Republican Congress deficits of the early 2000s. This week, Levin is back to bashing Chris Christie, this time over Christie's decision to not join other states in opposing Obamacare.

If Chris Christie thinks he needs to save his political capital for his fight against the unions, then that is what he should do.

Friday, February 11, 2011

Don Boudreaux to Donald trump: "You're fired!"

Economist and serial letter-to-the-editor/open-letter writer Don Boudreaux published this brilliant letter to Donald Trump on his blog Cafe Hayek:
Dear Mr. Trump:

Congratulations on your successful talk at the recent CPAC gathering. Please, though, indulge me as I ask you a few questions.

You promise that, as U.S. President, you won’t raise taxes. But you also promised to obstruct trade between Americans and the Chinese, presumably by raising tariffs. Because tariffs are simply taxes on imports, you can’t avoid raising taxes if you raise tariffs. So will you or will you not raise taxes?

You advocate, not free trade, but “fair trade.” Can you define “fair trade”? If I voluntarily buy from Mr. Lee and Mr. Lee voluntarily sells to me, can such an exchange ever be unfair? Both parties to the exchange presumably gain, while the only people who lose are Mr. Lee’s competitors. Given your claim that the billions of dollars worth of profits that you’ve earned are evidence of your own remarkable “intelligence and abilities,” surely you don’t wish to tilt the playing field in favor of domestic producers, for to do so would be to give these producers unfair advantages in winning the patronage of American consumers. Any profits they make under such unfair circumstances wouldn’t be evidence of intelligence and ability but, rather, of political connections and monopoly power. Wouldn’t such protection from competition be unfair?

You assert that “We are rebuilding China because we buy their products.” What do the Chinese do with the dollars that we use to buy their products? Do they burn these dollars or otherwise not use them commercially? (If so, is that bad?) If the Chinese do not burn their dollars, then they (or other foreigners with whom the Chinese deal) must use these dollars either to buy American products or to invest in the U.S. economy (or both). To the extent that foreigners buy our products, by your reckoning they must be “rebuilding” America. To the extent that foreigners invest in America, they are – what? Do such investments harm America? Does foreign investment in America not help to “rebuild” America? If not, why not?

I’m interested to know your answers.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University

Monday, February 7, 2011

"Crusoe Ethics"

This was an interesting post over at Ricochet.com.

In this scenario, the desert island dwellers currently survive only by eating fish. Alas, these fish, being hard to catch, are in short supply. Then one day, an entrepreneur, who adores fish, saves up his meager rations, and still goes hungry for days, in order to fashion a technical innovation: a net. This net enables him to catch more fish more efficiently in future. As a result, he can now dine heartily.

In addition, he loves fish so much that he is unwilling share any of them with his fellow island dwellers, who are currently starving. These other islanders offer him what they can in exchange. But as I said, he loves his fish. So he refuses all their offers, and keeps all he catches for himself.

The other islanders are understandably aggrieved. They claim that it is intolerably unfair that he should have many more fish than they do. They also argue that the fish will benefit them more than they will benefit him. After all, whereas they need to fish simply to survive, he only wants them to pleasure his palate. Accordingly, he should share at last some of his fish with them.

In response, while munching on a mullet, he argues that they have no right to the fish. By dint of his own industry and intelligence, he has designed and created the net. He now uses that same net to catch all the fish. No one else was involved, or is involved. So the fish he catches are indisputably his: only his labour is here getting mixed with the natural world, no one else's. Hence, no one else but him is entitled to the fish. This means that, no matter how much other people want the fish, or need the fish, they cannot have the fish, unless he voluntarily decides to share them, which, sadly for them, he will not currently do. Nonetheless, no one has the right to take any fish from him by force: that would be a violation of his inalienable right to the specific fruit of his prsonal labour. Even God has decreed as much, some say.

You--on behalf of your starving self, family, or clan--now have the possibility of stealing fish from his bountiful private stash. Is it right or wrong to steal his fish? And if it is right to steal them, what is wrong in principle with a welfare state supported via taxation? Where and now do you draw the line for when it is right to steal what is indisputably the property of others for the greater benefit of the many?


I can't get past the idea that if the man really wanted more fish, if he really "adores" fish that much, then what he would probably say to the others on the island is the following: "You can't have my fish and you can't have my net, but I'll tell you what. I need some time to sleep and rest and eat my fish. When I am not using my net, you can use my net, and whatever you catch, we will split 50/50."

He would end with many more fish, as would the other islanders. Everyone would be better off.

Under the scenario described above, he is not so so much a self-interested profit maximizer; he is a sociopath. His utility gains come from seeing other people suffer, not from acquiring more fish.

Some might point to this example and argue that this is why we need government - to protect us from sociopaths. But I would argue that this is why we need competition. Competition is the ultimate mechanism for providing consumer protection.

Under this scenario, ultimately someone would adopt his idea and "put him out of business", or at least make him entirely irrelevant.