The Liberal Order

Maybe Steve Pearlstein Needs to Quit His Job

Watch the video below and listen to Steven Pearlstein argue that Charles and David Koch are too ideologically driven to own a newspaper. His concern is that their ideology will cause them to influence the reporting of news at the eight affiliated newspapers of the Tribune Company if they succeed at buying the media conglomerate.

You can read Pearlstein's article that is the topic of the video discussion here, where he encourages the writers and editors and other staff of the LA Times (and also the other seven affiliated Tribune newspapers) to threaten to quit en masse if the hedge funds and asset management companies that currently own the Tribune Company agree to sell it to the Kochs. In doing so, his theory goes, the Kochs will be deterred from even making an offer and the world will be spared these two undeserving potential newspaper owners having a venue to espouse their ideological drivel. 

Now, I don't know if the Koch brothers are too ideologically driven to own a newspaper or not. I do know that many, many writers have complained that the Kochs have too much influence in higher education, with all that money they donate to universities, including George Mason University. Oh, and by the way, GMU just happens to be the university where Steven Pearlstein teaches.

If Pearlstein is truly concerned about the ideological influence of the Kochs on news reporting should they succeed in buying the Tribune Company, then certainly he must be equally concerned—even moreso from my perspective—about their undue influence on the faculty and administration at universities that accept their money and what is taught at these universities. If so, if any university accepts Koch money, including GMU, doesn't Pearlstein's principle dictate that the faculty and adminstrators at these universities should quit (preferrably en-masse) in order to preserve ideological independence and purity. I truly believe Pearlstein to be a man of noble character who holds fast to his principles, so shouldn't he abide by that same advice he offered to reporters, photographers, editors and other staff at newspapers? 

  

Comparing Technology from 1993 to 2013

A very clever comparison of the technology available in 1993 to the technology available today, though I don't think I'd include the laptop as a direct comparision. But everything else surely fits, if only the cost comparisons were included.

HT: Newmark's Door

The stupid and evil parties demonstrate the harm arising from bipartisanship.

Remember, in politics there's the stupid party and there's the evil party. Sometimes they join together and do something that is both stupid and evil—we call it bipartisanship.

It's the inverse of the federal budget world these days, in which automatic spending cuts are leaving sought-after pet programs struggling or unpaid altogether. Republicans and Democrats for years have fought so bitterly that lawmaking in Washington ground to a near-halt.

Yet in the case of the Abrams tank, there's a bipartisan push to spend an extra $436 million on a weapon the experts explicitly say is not needed.

"If we had our choice, we would use that money in a different way," Gen. Ray Odierno, the Army's chief of staff, told The Associated Press this past week.

Of course, the jobs argument has to come into play here:

Pete Keating, a General Dynamics spokesman, said the money from Congress is allowing for a stable base of production for the Army, which receives about four tanks a month. With the line open, Lima also can fill international orders, bringing more work to Lima and preserving American jobs, he said.

Hmmm?!? Let's ignore opportunity cost, which is the true cost of government. That $436 million could indeed be spent elsewhere, possibly improving social welfare far more than it is by spending it on tanks. Yes, politics gets in the way, which is all the more reason to limit what we do through the political process. If this type of waste prevails in what most people would truly characterize as legitimate functions of government, there's no telling how much waste is encountered in those areas in which government is hardly likely to create any true social value.

 

What about the jobs?

Stephen Colbert interviews libertarian and Reason.com's editor-in-chief Nick Gillespie on efforts to legalize marijuana use. At about the 3:50 mark Colbert comments (yes, in jest):

If we stop making it illegal, what happens to our private prison industry? Because those prisons are filled with pot users and those are good incarceration jobs.

Enough to make a good Keynesian proud.

The Colbert Report
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An Old Stupid Game That Never Dies

Apparently the drivel espoused in the picture below is once again making the rounds. For some reason it never dies. 

This is why such nonsense should never get the play it's receiving.

Suppose that you have a job where you are paid on commission on a daily basis. For every item you sell you earn, say, 10% of the sale price. Your customers buy from you on a consistent basis and you sell $2,000 worth of the good each day. Your total annual sales are $500,000 and your income is $200 per day, or $50,000 per year. (Assume no inflation for now and that you work 250 days each year.) 

Your customers, who again, buy your good on a consistent basis every day and can't seem to get enough of it, think that you earn too much money, notwithstanding the fact that the benefits they receive from the good you sell far exceed your salary. Even still, they desire to punish you for your income and have all agreed to not purchase anything from you on April 15th. None of them have ceased consuming your good at all, only that they will not purchase anything from you on April 15th.

Let's say that in order to fulfill their demand for what they would normally have purchased on April 15th, half increase their daily purchase on April 14th, for total sales of $3,000 that day, and half on April 16th, for total sales of $3,000 that day. Your daily income looks like the following:

Without the boycott: April 14th = $200; April 15th = $200; and April 16th = $200. Total income over those three days is $600.

With the boycott: April 14th = $300; April 15th = $0; and April 16th = $300. Total income over those three days is $600.

Are you made worse off by your customers' decision to boycott you for one day? What if they did it for a week?

As long as they continue to consume the exact same amount, on which day or days they purchase your goods is largely irrelevant. Yes, it may be inconvenient that you don't have the income consistently, or that you might have to borrow on some days to tide you over until they come back to buy more of your good on the next day, but your average daily income has not changed.

In fact, I would argue that such ideas actually make the gas companies better off. If they knew for certain that nobody would be coming in to purchase gasoline that day, they could simply shut down, saving themselves labor costs and other costs or operation. Competition is what makes gasoline companies and retailers produce and sell every day. If they could collude in order to shut down one day with no cheating on the collusive agreement, gas companies and retailers are made better off at the expense of customers who want to purchase gasoline on that day. What a sham that the customers who appear angriest at the gas companies are the ones promoting the financial interests of the gas companies.

If you want to punish the gas companies, walk, ride a bike, don't go anywhere on that day and vow to not do what you would have done that day on a different day. In other words, as long as you continue to consume the same amount it doesn't matter on what day you buy it.

Actually, I agree with this. Everyone, buy all the gas you need for the next week today. DO NOT BUY ANY GASOLINE FOR THE NEXT WEEK. If you are successful and the price of gasoline plummets, thank you very much. I'll be filling up my cars one day during your boycott.

Further Evidence of A Sectoral Changing Economy

The most recent jobs report was released to much fanfare, but there is a lot to be concerned about. 

Tyler Cowen's post explains much of the problem.

The graph below adds more evidence that our economy is currently struggling through sectoral changes and not necessarily a shortage of aggregate demand. Worse still, the employment problems will persist for a while.

The left scale measures the labor force participation rate for those with a college degree, while the right scale measures the labor force participation rate for those with a high school diploma and no college. Both have ten percentage point ranges, from 70% to 80% for college graduates and from 55% to 65% for those with a high school diploma but no college.

Both declined since 2008, but it's the change since October 2012 that is troubling. The labor force participation rate for those with a college degree increased half a percentage point, while for those with a high school diploma and no college it decreased 1.5 percentage points, with almost half of that decrease coming in February alone.

Manufacturing jobs of the past are gone. The opportunities for someone with a high school diploma and no college degree are drying up, causing more to leave the labor force. There are plenty of employment opportunities for people with an adequate skill set—largely literate, some aptitude for mathematics, and able to solve problems—but we are not educating the next generation of workers sufficiently to take on these jobs. Watch the video below the graph for a more thorough explanation of this. It is a very insightful discussion of the current situation from economists Russ Roberts and Ed Leamer.

 

NEWS FLASH!!! Americans want smaller government; they just don't want any spending cut.

More Americans are for cutting spending, at least as far as Social Security, scientific research, health care and environmental protection go, as illustrated in the graph below. 

That all sounds good and well, but, as I explained in this post from more than two years ago, Americans are fine with cutting spending in the abstract, but they're not willing to see their favorite programs cut. Congress has no incentive to ever reduce the deficit and debt.

The chart below expresses Americans' favorite programs to cut.

Foreign aid is far and away the most popular suggestion for the chopping block, but even here, it’s a close call — 48 percent of respondents said cut it, 49 percent said keep it the same or increase it. (Foreign aid makes up less than 1 percent of the federal budget.) In no other spending area is there majority support for cuts.

Did you get that? Foreign aid and the State Department have the least support among Americans, but account for less than 1% of the budget. Things are going to get ugly, sooner rather than later.

The Eroding State of K-12 Education In the U.S.

Take an AP U.S. History class in most any school across the U.S. and you will do little, if any, real analysis of history. Instead, you will memorize dates, places and people. My daughter had to memorize all the U.S. presidents in order of their term, and also their party affiliation. It was totally useless and a waste of time. 

It is exercises like this that drive students to abhor learning. By the time I get them, and I force them to think critically and analytically, most struggle with it, but are at least grateful that the class is somewhat interesting and not more of the same.

Here is a good explanation of what's taking place and why this struggle is only getting worse.

Let me use as an example my own AP course, U.S. Government and Politics. I served several times as a reader for the examination that follows the course. In that capacity, I read the constructed responses that make up half of the score of a student’s examination. I saw several problems.

First (and I acknowledge that I bear some culpability here), in the AP U.S. Government exam the constructed responses are called “free response questions” and are graded by a rubric that is concerned primarily with content and, to a lesser degree, argument. If a student hits the points on the rubric, he or she gets the points for that rubric. There is no consideration of grammar or rhetoric, nor is credit given or a score reduced based on the format of the answer. A student who takes time to construct a clear topic sentence and a proper conclusion gets no credit for those words. Thus, a teacher might prepare the student to answer those questions in a format that is not good writing by any standard. If, as a teacher, you want your students to do their best, you have to have them practice what is effectively bad writing— no introduction, no conclusion, just hit the points of the rubric and provide the necessary factual support. Some critical thinking may be involved, at least, but the approach works against development of the kinds of writing that would be expected in a true college-level course in government and politics.

My students did well on those questions because we practiced bad writing. My teaching was not evaluated on the basis of how well my students did, but I felt I had a responsibility to prepare them for the examination in a way that could result in their obtaining college credit.

I would like to believe that I prepared them to think more critically and to present cogent arguments, but I could not simultaneously prepare them to do well on that portion of the test and teach them to write in a fashion that would properly serve them at higher levels of education.

This is why I'm a ardent proponent of true school choice—schools create their own curricula and parents sort by their own choice based on content and the reputation of the various schools. Make the funding based on the number of students who are attracted to a school and subsequently served by that school. We need more experimentation through spontaneous order and rid ourselves of the command and control mandates that have been the history of U.S. education since the late nineteenth century.

Charles Lane On Collective Action

I've admired the Post's Chuck Lane since he proved himself a tough manager who was instrumental in weeding out Stephen Glass at The New Republic. Since then, he's generally approached his editorials in a balanced manner. In this editorial he demonstrates a fairly good understanding of Mancur Olson.

Responding to President Obama's inaugural address, Lane argues:

Obama was surely right to maintain that there is such a thing as a public good: infrastructure, social equality, national and global security. He was also right that government is better suited than markets to provide some of these — contrary to the most simplistic Republican rhetoric.

But the president’s paean to collective action lacked Olson’s realism. The question is not just how much more government we need or want, if any. It’s also how much more government we can afford, in light of its purposes and given the risks Olson identified — which have already materialized in the form of unsustainable but politically untouchable entitlement programs.

I've always hated the title The Logic of Collective Action to define Olson's argument. We as a society successfully collectively organize every day in the form of markets and market exchange. With that said, Lane understands fairly well Olson's primary argument that it's a fallacy to believe that collective action through government serves the general welfare. This is especially so given the hollow argument that we live in a democracy and therefore government carries out the will of the people. We do not, and it does not.

How many other journalists have actually read Olson, much less understand his arguments?    

How Banking Regulations Are Hurting Smaller Community Banks

Throughout the history of humankind we have struggled to find ways of channeling individual self-interest to serve the better interests of our larger society. What we find has worked best is market competition: specializing in production and then entering into voluntary exchanges with others who provide for the vast majority of our wants. As long as someone has the ability to exit and exchange with others, I better serve their needs better than anyone else is offering to serve them lest I find myself with few people offering to serve my wants.

Market capitalism isn't perfect however, and in some cases it's necessary to either a) use the legal system to rectify fraud, abuse, information asymmetries, etc., or b) have government regulate certain behaviors and activities in order to bring about a more socially desirable outcome.

Throughout the majority of the Twentieth century, many, including many economists, presumed benevolence and noble intent on the part of politicians and regulators; Platonic philosophers who possessed the knowledge of what is best for all and the thoughtfulness to carry it out.

Austrian economists always maintained that the knowledge problem prohibited the political class from making decisions that serve the larger social interests; a "fatal conceit" leads to unintended adverse consequences. Public choice emerged to take it one step further, emphasizing that, because the same self-interest that prevails in private decision making and therefore leads to "failure" in private markets is also prevalent when we make public choices, that collective decisions are likely to serve the narrow specific interests of the few at the expense of the many. In other words, it is a double whammy in that our society is far too complex for any one person or group(s) of persons to ever know what outcome is best or most desired socially, and even if politicians and bureaucrats had such information, the incentives are not there to get it right.

This is not to say that we should always defer to courts when markets fail. The same information problems that exist in both private and public markets often inflict the legal system as well, and besides, it is generally more costly to use the legal system. But we should limit what we try to achieve collectively through the political process, relying as much as possible on markets and deferring to government only on rare occasions.

The Dallas Fed offers a great example of why this is so using regulatory failure in the banking sector and the adverse consequences regulation is wreaking on smaller community banks in order to promote the interests of largest banks.

What stands in the way of gains for this high-performing class of banks? Historically, a variety of economic factors have contributed to community banks’ stagnating market share. For some financial products and services, larger scale might be needed to achieve fully efficient operations. Also at work recently is a more-troubling force: public policies that keep community banks from reaping the rewards of a business model that works for the financial system and the economy. 

The two examples provided in the article include bailing out banks regarded as too-big-to-fail, which simply prevented smaller banks that proved to have a better model for making loans from acquiring the failed assets of the larger banks without a good model, and "one-size-fits-all regulation that puts smaller banks at a competitive disadvantage. 

Banks greatly benefit from economies of scale in understanding and complying with banking regulations. The more regulations on the book and the more complex are such regulations, the more disadvantaged are the smaller banks. The graph below illustrates the changing nature of banking regulation using the relative scale of Glass-Steagall and the Dodd-Frank bill, as well as the change in Basel I, II, and III accords. All of this hinders the banking sector as a whole, but is far more detrimental to smaller community banks than it is to the largest banks, who are often instrumental in writing the specifics of the regulations.