EconLog
Bryan Caplan and David Henderson

Keynesians often say that it's "obvious" that more government spending will boost GDP. I love this reply by Nick Rowe:

The average reader of the New York Times probably thinks he knows about fiscal policy. "We know that Y=C+I+G+NX, so we can see that higher G increases Y. And monetary policy works because lower interest rates increase I, if we can cut interest rates. And Nick Rowe is just obfuscating, no doubt for political reasons, by ignoring that simple obvious mechanism."

We also know that Y=C+S+T. And we can equally well "see" that higher taxes will increase Y. And higher interest rates, if it encourages more saving, will work too.

We also know that Y=gG, where G is goats sacrificed, and g is real output per goat sacrificed. That will work too.

Those are all just accounting identities; all three are equally true, and equally useless.


I see that I am getting increasingly far behind in my responses to Bryan Caplan, so let me make a few comments on immigration:

1. I'm not at all certain that open borders would make the average American worse off. I think the policy would have been desirable 100 years ago, and will probably be desirable 100 years from now. But right now I think it fairly likely that the average American would be made worse off by completely open borders, for three reasons; crowding, rapid cultural change, and (in some cases) labor market effects.

I'd rather explain this problem using Switzerland, as it will be easier to make my point. Switzerland has 8 million people living in a small mountainous country. The built up environment is very neat and tidy, and indeed often quite beautiful. It's safe. I once accidentally left a wallet with lots of cash clearly visible on a ledge in a Geneva train station. When I came back later it was still there, with the cash. That doesn't happen in lots of other countries. With open borders Switzerland might attract tens of millions of immigrants. It would no longer be a "land of the Swiss." It would be much more crowded, much poorer, less well-educated, more crime-ridden, etc. Culturally it might become more like Kyrgyzstan, another small mountainous country. The Swiss greatly value the neat and orderly characteristics of their country. I find it quite plausible that they would feel worse off.

There are some counterarguments. Perhaps the Swiss would require all immigrants to first have a place to live. In other words, not allow immigrants to be homeless, living on the streets. Zoning rules could prevent shantytowns. Maybe they could make it work. A counterargument for the US is that it's already quite diverse--we could handle the cultural change more easily. It's much bigger. Many of the immigrants would move into places like California's Inland Empire, where they would not be an obvious presence for affluent whites and Asians on the West Side of LA, or average Americans in cities in Iowa. In conclusion, the Swiss thought experiment makes me think that open immigration might be bad for domestic residents, but I am less certain that this applies to the US.

Of course there are also some difficult economic issues. Would it lead the US to cut back sharply on the welfare state? And if so, doesn't that hurt the poor in America? What about the impact on the low-skilled labor market?

2. Then Bryan asks this question:

What's noteworthy, rather, is that for once, Scott is vocally forgiving of non-utilitarians. Instead of ridiculing opponents of open borders for their cognitive illusions, Scott suggests that utilitarianism asks too much.

My question for Scott: Why is open borders the one issue where you seem to opt for moral leniency? (Perhaps this reflects a change of heart?)


First of all, I shouldn't be "ridiculing" people for cognitive illusions. I should be criticizing them. In every single case, I have the exact same cognitive illusion; it's just that I am also aware of alternative perspectives that I believe are more valid.

Bryan is asking why open borders is the one area where I don't insist on the utilitarian position. This may well be a case where I suffer from cognitive illusion, as I discussed on the post he links to. I am generally tough on policymakers because I feel their gains for adopting the wrong policy are trivial compared to the social cost. Now I suppose one could argue that's also true in the hypothetical Swiss case, the pain of a somewhat messier Switzerland is trivial compared to the gains to desperately poor migrants. But in the policy questions I look at the disproportion is an order of magnitude greater. A policymaker might hurt millions of people in exchange for a campaign contribution, or a slightly greater chance of winning an election. That's morally unacceptable. Perhaps the aversion of average people to open borders is also morally unacceptable, but the case seems less outrageous.

And I refuse to accept deterministic political models based on self-interest that cannot account for the difference between Iraq and Denmark. I expect all politicians to behave at least as well as Danish politicians, i.e. to be at least as utilitarian.

I'd vote for open borders. Perhaps Bryan is right and I should expect more from average citizens. I'll keep an open mind on the issue. The earlier post of mine that he links to is slightly more pro-immigration than this one, and also better.


   


Earlier today, I blogged about Adam Thierer's Permissionless Innovation. Over the last few months, I've been struck by how frequently I hear public policy questions expressed in terms of granting permission: should we allow people to earn such high incomes, should we permit people to use certain kinds of drugs, should [companies] be allowed to [thing I find objectionable]?

I find it particularly interesting given that framing effects are almost certainly important here. Consider the ongoing debate over the sharing economy that Roberts & Munger discussed on EconTalk. "Should we allow people to rent out rooms in their houses to travelers" and "should we allow anyone who wants to to drive a cab" sounds a lot nicer than "should we punish people with fines and jail time for renting out rooms in their houses to travelers" and "should we punish people with fines and jail time for accepting money in exchange for rides?"

What are some examples you've come across?


   


This morning, I read Adam Thierer's Permissionless Innovation, which you can get as a $0 PDF.

From a few discussions in which I've been involved regarding Uber's attempt to enter the Birmingham market, it's clear that the idea of a free market is pretty foreign to people: they assume the government is there and should be there to protect us from a world that is out to take advantage of us.

Alas, as computing power falls and new technologies continue to emerge, regulation won't be able to keep up. That's what I've meant in conversations when I've said that the regulatory framework firms like Uber, Lyft, Airbnb, and others in the "Sharing Economy" encounter is obsolete. Paraphrasing Thierer, technology changes exponentially while regulation changes incrementally. By the time new regulations are written to accommodate Uber, Lyft, and other firms, they will almost certainly be inappropriate for the next thing that's coming down the pipe. The most recent Michael Munger/Russ Roberts podcast on "The Sharing Economy" is worth a(nother) listen.

It's fashionable in higher ed to tell people to "question their assumptions." Thierer's book is a step toward helping people question their assumptions about the need for permission from governments when they wish to innovate.

Note: an early version of this post began as a Reddit comment.

CATEGORIES: Regulation

   


When backed into a corner, most hard-line utilitarians concede that the standard counter-examples seem extremely persuasive.  They know they're supposed to think that pushing one fat man in front of a trolley to save five skinny kids is morally obligatory.  But the opposite moral intuition in their heads refuses to shut up.

Why can't even utilitarians fully embrace their own theory?  The smart utilitarian answer blames evolution.  Scott Sumner:
Other "counterexamples" take advantage of illogical moral intuitions that have evolved for Darwinian reasons, like discomfort at pushing a fat man in front of a trolley car to prevent even more deaths.
I'm the first to concede that human beings haven't evolved to be perfect truth-seekers.  But what's the epistemically sound response to the specter of evolved bias?  "Be agnostic about every belief that, regardless of its truth, helps your genes," is tempting.  But it's also absurd. 

How so?  Virtually every moral philosophy - including utilitarianism - agrees that a happy life is better than (a) death, or (b) suffering.  But evolutionary heavily favors these value judgments!

If you aren't convinced that life is better than death, or that happiness is better than suffering, you swiftly drop out of the gene pool.  And since human beings are social animals, we're evolved to value the lives and happiness of the people around us as well as our own.  Should we therefore dismiss our anti-death, anti-suffering views as "illogical moral intuitions that have evolved for Darwinian reasons"?

The moral nihilist, who bites even more bullets than the utilitarian, can enthusiastically agree.  Everyone else, however, has to say, "Yes, it's logically possible that we're evolved to falsely believe that life and happiness are better than death and suffering.  But after calm reflection on this potential bias, I remain convinced of the merits of life and happiness."  And if you use this approach for life and happiness, why not try it for murdering innocent fat guys?

None of this means that moral intuition is infallible.  Serious intuitionists question their moral intuitions all the time.  The reasonable response to evolved biases, though, is to calmly review suspect beliefs - not dismiss the obvious. 


   


Amazon selling $9.99 monthly subscriptions for "all-you-can-read" on Kindle is exciting news.

Some have argued that this will change completely our relationship with the book as an object. Indeed, many people who invest lots of their time in reading tend to develop an obsession not just for reading books but for owning, touching, treasuring them. I belong to this club. Besides spending far too much money out of my pocket on Abebooks, I still frequently visit bouquinistes here and there. Sometimes I feel like a philanthropist at an orphanage in some old Disney cartoon movie: I would like to save them all from the odds of being acquired by a cold and not-so-really-appreciative new owner. This isn't rational, nor it is an attitude I would recommend to anybody. And yet sometimes it has served me well.

For example, in one of my last "rescue missions", I found a spotless copy of the 1958 Italian translation of "Atlas Shrugged." I am very fond of this edition, not least because I find the dust cover truly beautiful. I already had one copy of the same edition, plus of course "Atlas Shrugged" in English, and a more recent (and I hope more successful: that 1958 edition didn't sell much, in Italy) translation. However, I couldn't resist the impulse to buy it, as I found the price rather convenient. I was happy to have rescued a little baby, and even more so when the bookseller told me (no way to check whether this was true) that the copy originally belong to the library of the Italian singer Franco Corelli (listen to him here singing Nessun dorma from Puccini's Turandot - and read the comments as well).

This is just to say that I do understand why laudatores temporis actii may react with a sense of scandal to this new offer by Amazon, which seems to be a rather effective move towards the de-materalization of books.

Not that Amazon got there first, this time. Scribd and Oyster have been already offering a similar service, and they do so at a lower price.

However, I think once more Amazon's initiative is interesting because what all these providers are doing is basically updating to the digital age something that has been around for quite a while: i.e., the idea of a public library. It is not true that we aren't used to the idea of "renting" rather than "buying" a book. I would argue that public libraries have been an important part of almost any "heavy reader's" life, and something people are passionate about preserving. Amazon is renewing the concept and, yes, adding a charge. But is the fact that we pay for a library's membership enough to endanger the validity of the concept of a library?

"Kindle unlimited" will shock publishers and force them to revise their business model (something they'd rather not do). And will they be able to come out with a new one?
Virginia Postrel asks:

If Amazon manages to do away with (or perhaps limit) the agency model, it will then face the problem of how to compensate authors in an all-you-can-read rental model. Given the value of variety, a book can make a bundle more valuable even without selling a single copy. Should authors be compensated by how many copies they sell? Or should they get some kind of flat fee just for joining up? And will authors themselves, rather than publishers, have any say in the matter?

CATEGORIES: Economics and Culture

   


John Blundell, RIP

David Henderson

Last night, I saw on Facebook that John Blundell died yesterday. He was only 61 years old. Less than two months ago, I had posted on his personal reminiscences of the three Austrian economics conferences in the mid-1970s, two of which I had attended. As I did then, I recommend his article for those who are interested in Austrian economics and/or the various personalities involved.

I should have noted, when I posted, my high regard for John's integrity. In his article, John told of one instance that he remembered positively. When he sent me a draft, I wrote back my recollections of that same incident. My recollections were completely negative. And my memory is crystal clear because I thought my own bad behavior and subsequent recovery were an important part of my becoming a real adult. I had not expected John to quote me, but was delighted that he did. [See footnote 7.] I hate "official histories" that airbrush the negative.

Sadly, this is how he ends his article:

In case the reader is wondering, Phase II [of the Austrian economics revival] came to an end in 1982 when IHS ran out of money. I will write elsewhere of Phases III, IV and today's V.

My condolences to his family.

CATEGORIES: Obituaries

   


There has been an explosion of commentary on regulations in Birmingham regarding Uber and its services; I streamed part of yesterday's City Council meeting at which they voted to delay a decision until next week. I wrote an open letter to the Council for Forbes.com and shared it in the r/Birmingham subreddit. A few people asked about the taxi drivers' side of the argument, namely, that they be allowed to compete on a level playing field. People have invoked "safety" as a reason why UberX in particular should face the same regulations as area taxicabs. I think these are interesting issues, but I don't think they make the case for regulation.

If people are really willing to pay a premium for the quality regulation ensures, then unregulated UberX shouldn't threaten regulated and presumably-higher-quality, lower-risk taxis. Riders who want the assurance that they are getting a quality ride will forsake Uber and go with the regulated taxis.

If people aren't willing to pay extra for high quality--if they are willing to accept a bit of additional risk for lower prices--or if Uber's ratings system isn't an effective way to maintain quality, then regulation is at best superfluous and at worst an unnecessary barrier to entry.

At The Skeptical Libertarian, Marc Scribner cautions people to be skeptical of Uber's political strategy, and with good reason. That said, regulators seeking to avoid the error of permitting something that is too dangerous are almost certainly going to make the mistake of forbidding something that is safe.


   


Beyond left and right

Scott Sumner

Is British public policy more left wing or right wing, compared to Scandinavian countries like Sweden and Denmark? The Heritage rankings suggest they are about the same, with Denmark coming in at number 10 in the world (at 76.1), Britain number 14 (at 74.9), and Sweden number 20 (at 73.1).

And yet the two models differ in many respects. Most informed observers would probably argue that the Nordics have more "socialist" economies, perhaps much more socialist. On the other hand in many respects the Nordics are much more free market than even the US. Sweden has a 100% voucherized school system. Their Social Security is party privatized. Denmark has for-profit fire fighters. Several Nordic countries have privatized industries that are publicly owned in the US (airports, air traffic control, passenger rail, water companies, mail delivery, etc.)

Consider this recent comparison of Sweden and Britain:

The Swedes are far ahead in two areas. One is their use of hospital registries, showing how well each part of their system treats different ailments. The other is a small fee every hospital charges each time you visit it: A small fee helps stop the buffet welfare state that Lee Kuan Yew identified.

For some purists on the Left, that is a denial of the great promise of institutions like the National Health Service: that they would always be free at the point of delivery. The Swedes are far more practical. Those promises were made when health care was far more basic. It is not in society's interest that hospitals be overused. By changing the benefit slightly, they can keep it more open to all.


In some respects Sweden is more left wing than Britain; for instance it has higher top marginal income tax rates, and more income redistribution. In other respects Sweden is more right wing, it has a freer market in education, and a fee for use of health services. Is there any common theme here?

I believe the common theme is utilitarianism. Policy in the Nordic countries is motivated by utilitarian considerations to a greater extent than anywhere else on Earth. The right wing in Britain feels it isn't "fair" for people to have to pay more than 50% of their earnings to the government. The left wing in Britain believes it isn't "fair" that people have to pay for health care; it's a basic "right" that should be free. Utilitarians tend to avoid concepts like "fair" and "rights", and instead focus on maximizing aggregate happiness.

Does it work? Well there are a number of studies that suggest Denmark is the happiest country in the world.

Now for a curve ball. Although I am a utilitarian, I prefer a small government model like Hong Kong or Singapore to a big government model like Sweden or Denmark. Before explaining why, it's important to note that these 4 countries are not as different as they seem. The conservative Heritage Foundation ranks Hong Kong and Singapore number one and two in the world in "economic freedom." However if you restrict your analysis to the 8 categories out of 10 that exclude size of government (i.e. exclude the tax and spending categories) then Denmark is number one in the world in economic freedom.

The two Asian city-states are also quite utilitarian in their governance, reflecting the accident of history (an idealistic dictator in Singapore, and a non-socialist British administrator for Hong Kong.) But the Nordics are the most democratic of the utilitarian governments. So if I share their values, why don't I share their preference for big government?

I believe that economics is full of "cognitive illusions." Common sense suggests that government ought to be able to fix all sorts of problems like financial turmoil and inequality, through government programs like regulation and redistribution. I don't deny that there are some possibilities for progressive governance, in a few areas. But overall I think intellectuals tend to greatly exaggerate how much good can come from big government. Economics (and especially University of Chicago economics) teaches us about all the unintended consequences of seemingly well-intentioned government programs. Even the Danes seem to have realized that truth in 8 of the 10 categories studied by Heritage. And both Denmark and Sweden have been moving in the direction of more economic freedom in recent decades.

So I am what Krugman calls a "homeless" person. I'm a utilitarian who ended up on the right, due to the fact that I think most people vastly underestimate the importance of incentive effects, and the negative side effects of regulation and redistribution. Most people with similar views get there from a different direction, from a "natural rights" approach. For instance, Greg Mankiw thinks very high taxes on the rich are unjust because people deserve the fruits of their labor.

Although my utilitarian moral system tends to align with intellectuals on the left, people like Paul Krugman and Noah Smith want nothing to do with the likes of me. They shudder with horror at the mere thought of libertarianism. Thus I'm grateful to Econlog for giving me a home.

PS. The quote was taken from a new book by John Micklethwait and Adrian Wooldridge. It's not a heavy academic book like Thomas Piketty's recent magnum opus, rather a breezy journalistic style overview of current best practices in governance. But it's well worth reading. (Of course I'd say that, they also appear to be right-wing utilitarians.)

PPS. Britain is still more utilitarian than most other countries.

PPPS. I'm still planning reply to Caplan on immigration--hopefully soon.


   


I recently re-read J.D.Salinger's 1951 classic, The Catcher in the Rye, prompting Tyler to do the same.  My top reactions:

1. Other than losing his brother Allie, Holden has no external problems.  He is a rich kid living in the most amazing city in the world.  Rather than appreciating his good fortune or trying to make the most of his bountiful opportunities, Holden seeks out fruitless conflict.  If you still doubt that happiness fundamentally reflects personality, not circumstances, CITR can teach you something.

2. Nothing on Holden's Five Factor personality googles.  I say he's high in Opennness, low in Conscientiousness, high in Extroversion, low in Agreeableness, and high in Neuroticism.

3. Although I was a teen-age misanthrope, anti-hero Holden Caulfield is more dysfunctional than I ever was.  My dream was for everyone I disliked to leave me alone.  Holden, in contrast, habitually seeks out the company of people he dislikes, then quarrels with them when they act as expected.

4. Even if Holden's enduring antipathy for "phonies" were justified, it's hard to see why the epithet applies to most of its targets.  Consider this passage:
One of the biggest reasons I left Elkton Hills was because I was surrounded by phonies. That's all. They were coming in the goddam window. For instance, they had this headmaster, Mr. Haas, that was the phoniest bastard I ever met in my life. Ten times worse than old Thurmer. On Sundays, for instance, old Haas went around shaking hands with everybody's parents when they drove up to school. He'd be charming as hell and all. Except if some boy had little old funny-looking parents. You should've seen the way he did with my roommate's parents. I mean if a boy's mother was sort of fat or corny-looking or something, and if somebody's father was one of those guys that wear those suits with very big shoulders and corny black-and-white shoes, then old Haas would just shake hands with them and give them a phony smile and then he'd go talk, for maybe a half an hour, with somebody else's parents.
Translation: Haas is cordial to everyone, but likes some people more than others.  What precisely is "phony" about that?  For Holden, the main symptom of phoniness is that someone appears to like something Holden doesn't.  But he never wonders, "Is it possible that other people sincerely like stuff I don't?"

5. If phonies are your biggest problem, your problems are none too serious.

6. You might think that only a navel-gazing New York intellectual could write CITR, but Salinger experienced far worse things than phonies.  He fought in the D-Day invasion and the Battle of the Bulge.  He entered a liberated concentration camp in April, 1945.  Yet strangely, the moral of CITR isn't that Holden's self-pity is shameful.

7. I doubt Salinger was being Straussian.  Like most of CITR's fans, he thought Holden has important things to teach us.  Yet the book's deepest and most important lesson is that Holden's thoughts are profoundly shallow and unimportant.  The Holdens of the world should stop talking and start listening, for they have little to teach and much to learn.


   


This is HUGE!

David Henderson
We reach this conclusion, frankly, with reluctance. At least until states that wish to can set up Exchanges, our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly. But, high as those stakes are, the principle of legislative supremacy that guides us is higher still. Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process. This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.

Thus, although our decision has major consequences, our role is quite limited: deciding whether the IRS Rule is a permissible reading of the ACA. Having concluded it is not, we reverse the district court and remand with instructions to grant summary judgment to appellants and vacate the IRS Rule.


This is from Jacqueline Halbig, et al vs. Appellants, decided today by the United States Court of Appeals by a 2-1 vote.

More on it here.

Whatever you think of ObamaCare, it's a huge triumph when a Court tells the IRS that, no, you can't just ignore the legislation when you develop your regulations.

Congratulations to Jonathan Adler and Michael Cannon.


   



   


From the noble Jason Brennan:
This reminds me further of a talk I saw at a recent free market conference. The presenter was talking about how most philosophers are nihilists who believe that morality is bogus nonsense. I said, "You'll be delighted to hear that we don't have to speculate about what philosophers believe. Here are the results of the PhilPapers survey, and it shows that most philosophers, including most moral theorists, actually think the opposite!" He said, at the time, "Oh, that's great to hear. I guess I should give them more credit." However, shortly thereafter, in another session, he went back to strawmanning the field.


   


Scott's recent posts on utilitarianism sent me digging for his doubts about open borders.  But if you read him literally, Scott never falters.
My views on this are kind of hard to explain.  I am convinced by Bryan Caplan's arguments on utilitarian grounds.  And yet I view this issue as being different from all other policy issues in one key respect.  This is the only good policy reform that I can think of that might well make Americans significantly worse off.  In other cases what's good for the world is generally good for America, or perhaps roughly neutral.  So is it too much to ask for Americans to agree to open borders?  Not if everyone was like Jesus.  But although I'd personally vote in favor in a referendum, if I were a typical middle class American with the same level of selfishness that I currently have, I might vote against.  That's why I prefer to work for more modest gains, such as a rate of immigration of say 1% per year (i.e. 3 million people.)  I believe that would greatly reduce illegal immigration.  I'd prefer a balance of low and high skilled workers.  I realize that this would reduce the amount that we could plausibly do with low wage subsidies, but it's still the right thing to do.  (Bryan will say that in 1850 I would have favored "gradually" reducing slavery.)

If you are confused by my wishy-washy views on immigration, here's an analogy. On purely utilitarian grounds I'd have to say that transferring my entire pension to the poor of Dhaka is probably a good idea.  If you hooked me up to a lie detector I'd have to say it's the "right policy." But I don't do it because of the thought of still grading papers at age 83, and because I'm a selfish bastard.  Fortunately, that dilemma doesn't occur on any of the public policy issues I discuss in my blog.  I always say what I believe (rightly or wrongly) is the right policy.  I just don't talk about the sort of proposals that Peter Singer might contemplate.

What's noteworthy about this passage isn't that Scott disavows a clear-cut application of the utilitarian principle.  He disavows nothing.  What's noteworthy, rather, is that for once, Scott is vocally forgiving of non-utilitarians.  Instead of ridiculing opponents of open borders for their cognitive illusions, Scott suggests that utilitarianism asks too much. 

My question for Scott: Why is open borders the one issue where you seem to opt for moral leniency?  (Perhaps this reflects a change of heart?)

Followup question if he's got time: Why are you so quick to grant that open borders is a net negative for natives?  Sure, low-skilled natives who rent would probably lose.  But most natives aren't low-skilled and do own land.


   


As I expected, my post on utilitarianism generated a bit of controversy. In the comment section, konshtok wondered:

what am I missing?

from a utilitarian pov killing one person and using the organs to save the lives of others is the right thing to do, right?

isn't that enough to make utilitarianism NOT a good basis for morality?


I see several ways of addressing this hypothetical, although I'm not sure any will be convincing:

1. My favorite argument is pragmatic. If we look at actual public policy debates, utilitarianism always gives the right answers, whereas all the alternative moral systems give at least one wrong answer, from my perspective.

2. The hypotheticals where utilitarianism seems to give the wrong answer are based on the fact that our moral intuitions evolved under very different circumstances. For instance, organ transplant was not possible until recently. On the other hand, warfare was already well understood in ancient times. Thus we are willing to force 1000s of young men to die on the beaches of Normandy for the benefit of the folks back home, but we are not willing to require organ transplants that might pass a cost/benefit test. This moral repugnance is based on a sort of cognitive illusion. When we hear about this possibility we instinctively have more fear of being the victim than the beneficiary (would you trust a Neolithic witch doctor?), even though (by assumption) the opposite is more likely. (And here I overlook possible implementation problems, which might be another objection to the hypothetical forced donation policy.)

3. The actual policy debate over organ transplants revolves around two issues. First, should organ markets be allowed? And second, should a dead person be presumed to be a willing donor unless he/she registered with the government that he did not want to be a donor? Here I think utilitarianism gives the right answer. Those two policies are the best solution. One "opportunity cost" of doing forced transplants is not doing the optimal solution.

Being a pragmatist, I don't believe any theory or moral system is perfect. The real issue is which theories or systems are the most useful. If opponents of utilitarianism are forced to come up with implausible examples involving cognitive illusions to make their point, then that suggests to me that utilitarianism is a quite useful system.

Bryan Caplan points out (correctly) that most utilitarians don't live up to the ideal. He notes that very few affluent utilitarians give away most of their wealth to poor children. My first reaction is that this also applies to other moral systems, such as Christianity. I'm still waiting to see someone "turn the other cheek." BTW, that doctrine is far more radical than utilitarianism, far more difficult to implement.

Caplan anticipates this defense and switches to an alternative argument that I don't quite understand:

Take Bill Dickens. I've known Bill for almost a quarter-century. In all these years, I have repeatedly witnessed him spontaneously take unpleasant actions out of a sense of moral duty. I have never witnessed him treat another person badly. Ever.

While Bill Dickens is a man of conscience, he's also officially a utilitarian or near-utilitarian. How could his extreme scrupulousness possibly discredit his utilitarian philosophy? Simple. Like every other utilitarian, his behavior is wildly at odds with utilitarianism's demands.

Although Bill gives generously to charity, he consumes far more than he needs to keep working. He skis in Colorado. He goes to GenCon. Bill also clearly prioritizes his contractual obligations above the desperate need of total strangers - even when repeated play is unimportant. If Bill forgot to tip a waiter, he would strive to make amends to the aggrieved waiter - not mail the waiter's tip to Oxfam.

The upshot: If Bill Dickens told me, "Like most humans, I'm deeply morally flawed. I know utilitarianism is true, but I'm too weak to live by it," I wouldn't believe him. Bill is a paragon of decency. If he really believed he morally owed vast sums to the poor, he'd skip GenCon and fork over the money. Since he doesn't, I infer that despite his official position, utilitarianism seems almost as crazy to him as it does to me. The same goes for every earnest yet non-compliant utilitarian. Utilitarianism doesn't just go against their interests. It goes against their consciences.

To put the Argument from Conscience conversationally: "You live by your conscience. If you really thought utilitarianism was true, you would live up to it. Yet you don't. If even scrupulous utilitarians like you don't take the view seriously, why should anyone else?"

And that, my utilitarian friends, is the Argument from Conscience. The problem isn't that your doctrine is too good for you. The problem is that you're too good for your doctrine.


I don't agree. Bill Dickens sounds like a much better person than me, but I'd think even more highly of Bill Dickens if he gave 90% of his wealth to the poor. The doctrine is fine; it's people who come up short.

I have two other thoughts on this issue:

Giving money to the poor without distorting incentives is far harder than most people assume, and perhaps even a bit harder than Caplan assumes. Suppose I decide that each year I'll walk down the streets of Lagos or Karachi handing out $100 bills to children too young to work. It's quite possible that all of the expected benefits would be soaked up in queuing costs. There's a famous economic example of a modern company that sets up shop in a poor country, paying above market wages. Poor people move to the city and hang out hoping to get the jobs. The expected benefit of moving is just equal to the salary in the rural sector. The above market salaries at the new company create all sorts of waste in queuing time. Something similar occurs if a popular band sells tickets for below the equilibrium price, and fans spend hours lining up. You can dream up other scenarios for giving away money, but make sure they look at the issue from a rational expectations "timeless perspective." If you surprise the poor with a gift, what will their friends expect next? This isn't to say that it's impossible to set up effective programs for the redistribution of wealth (I favor some redistribution), just that it's harder than one might imagine.

In general, I believe utilitarianism makes more sense as a guide for public policy than a guide for individual behavior. I don't believe people are capable of consistently applying utilitarianism in their personal life. It's too hard. On the other hand I do believe that governments are capable of enacting utilitarian policies, with one notable exception. What is the one sensible policy that asks for an unrealistic amount of sacrifice from the public? It's an issue that Bryan knows a lot about---open borders.

In a few days I hope to do a post showing that Sweden is much more utilitarian than Britain.


   


Megan McArdle has a good post on why it can make sense to switch from a 30-year to a 15-year mortgage. I agree with most of her reasoning. Her point that I think is most important for most people, based on my observations of lots of people over many years, is that a 15-year mortgage, compared to a 30-year mortgage, is a way to make yourself save. For her and her husband, as for my wife and me, this doesn't apply because we have greater than usual discipline in saving.

I want to point out one misleading statement, though, not one that's wrong, but one that's misleading. I also want to point out one factor that goes in favor of a 30-year mortgage.

The misleading statement:

Over the life of your loan, you'll save 65 percent of your total interest costs. On a 30-year loan at current rates, you'll pay almost $300,000 in interest costs on a $350,000 loan, versus about $100,000 on a 15-year loan. The benefit comes from two things: shortening the payment term, and lowering your interest costs. I don't know about you, but I could find something to do with an extra $200,000.

If by "lowering your interest costs," she means simply that you get a lower interest rate by switching to 15 years, then I have no objection. Her reasoning is accurate. But the "shortening the payment term" part is misleading. It's accurate. But it's misleading. To separate out the effects, assume that the interest rates on a 15-year and a 30-year mortgage are equal. Then, the reason you're paying so much less interest is entirely due to a shorter term. Why do I say she's misleading? Because it ignores the whole point of borrowing and the whole point of interest. Interest is the price for current command of resources. You have fewer resources currently if you pay the loan off faster. I can't judge, nor can Megan, which is better for you. But we can say that it's misleading to add up interest costs, undiscounted, over a long period. It treats a $1,000 payment on interest in the 15th year as equal to a $1,000 payment of interest in the first year. In other words, ironically, it ignores why interest exists. And that's what she did to get her $300K vs. $100K comparison. The interest payments on the 30-year loan should be discounted back to today, as should the interest payments on a 15-year loan. Indeed, of course, if you use the same interest rate you're paying to discount interest plus principal on each mortgage, you'll get that the present value of each is exactly $350K. I'm not saying that that's the right interest rate to use to discount those payments. The right interest rate will depend on your investment alternatives. If you use a higher interest rate than the one on the mortgage you're paying, because your investment alternatives are really good, then the present value of payments on the 30-year mortgage will exceed the present value of payments on the 15-year mortgage. That suggests going with the 30-year, all other things equal. And, of course, vice-versa.

The factor that goes in favor of a 30-year mortgage over a 15-year is the threat of higher inflation. Megan writes:

Interest rates are going to have to go up sometime soonish. Mortgage rates are not at their all time lows (more's the pity). But they're still very low, and by refinancing now, you can lock in 3 percent or so. As inflation rises, this will ultimately mean that your mortgage loan is practically free. But this state of affairs cannot last forever; the Federal Reserve will eventually be pulling back on credit, and you will not be able to get such a good deal. Why not lock it in now?

But that argues for locking in a low rate. It doesn't argue for switching from a 30-year to a 15-year mortgage. True, you'll probably get a lower rate by switching. But that's separate from the issue of inflation. If you expect higher inflation in the future and you expect that inflation to stay at that higher level, that argues for the 30-year mortgage over the 15-year mortgage because the 30-year mortgage leaves more principal for inflation to whittle away. Other than a handful of gold coins, I have few good inflation hedges. My fixed-interest-rate loan is one of them. The more slowly I pay it off, the longer I keep my inflation hedge.

CATEGORIES: Finance

   


Should firms pay a premium for products that are "made in America"? The obvious answer is "yes" if consumers are willing to pay a premium for a "made in America" label, but the benefit to Americans isn't so clear.

Last Summer, my wife and I visited the new Westin Hotel here in Birmingham (my review, if you're interested). I opted to pay $5 to rent New Balance workout gear. The shirt and shorts were clean and comfortable, the sneakers looked brand new and even though they're one size below the 14s or 15s I normally wear, they were still pretty comfortable.

The tag on the socks struck me (and I was allowed to keep the socks; in fact, I still wear them regularly). New Balance advertises their commitment to American workers by noting that the socks are made in the US with American and imported yarn.

I interpreted this to mean that they were willing to pay a premium for socks made by Americans even though they could have gotten socks of the same quality from a foreign supplier for a lower price (otherwise, it's just cheap talk). I like New Balance, and my newest pair of sneakers was made by New Balance. They make very good products. Notice, though, that American workers are also American consumers. By over-paying to get socks made by Americans, they end up over-charging American sock buyers.

Suppose my rental would have been $4.75 instead of $5. In the first case, I have an extra quarter I can keep in the bank. Add that to all the other quarters Westin customers would save and you would have something: a loan for a firm that wants to expand (or start) operations, or a mortgage for a family looking to buy a new house.

Suppose Westin would've kept the price at $5 and just pocketed the extra quarter. What happens then? Westin's parent company could reinvest that extra quarter in more and better hotels. This would make labor more productive and increase earnings. Westin could also distribute their accumulated quarters to shareholders, who would enjoy higher standards of living. They could either invest their share of the profits (raising the capital-to-labor ratio and raising wages) or consume them (by spending more nights at nice hotels or by eating better food).

Alas, they have no such option because the socks I'm wearing right now were made using relatively expensive American labor. It's New Balance's right to do so, to be sure, but the world is a poorer place for it.

CATEGORIES: International Trade

   


The Argument from Hypocrisy (a close cousin of the "demandingness objection") is one of the strongest objections to utilitarianism.  (Strangely omitted from Scott's inventory).  The argument has two steps.

Step 1. Note that utilitarianism implies extreme moral demands.  For example, maximizing total happiness requires you to give away all your surplus wealth to the needy - at least needy people whose behavior is unlikely to respond much to incentives, such as children.

Step 2. Point out that even the staunchest utilitarians are light-years away from fulfilling these extreme moral demands.  Even Peter Singer "only" gives 20%.

To put the Argument from Hypocrisy conversationally: "Your view implies that you should give away all your surplus wealth to needy kids.  But you don't.  If even explicit utilitarians like you don't seem to take their views seriously, why should anyone else?"

To be fair, there is an obvious though embarrassing reply to Argument from Hypocrisy.  Namely: "Like most humans, I'm deeply morally flawed.  I know utilitarianism is true, but I'm too weak to live by it.  Saint Paul had it right: 'For the good that I would I do not: but the evil which I would not, that I do.'"

On reflection, however, a variation on the Argument from Hypocrisy is largely immune to the Pauline reply.  I call it the Argument from Conscience. 

Instead of harping on utilitarians' moral weakness, the Argument from Conscience begins by singling out the most morally exemplary utilitarians. 

Take Bill Dickens.  I've known Bill for almost a quarter-century.  In all these years, I have repeatedly witnessed him spontaneously take unpleasant actions out of a sense of moral duty.  I have never witnessed him treat another person badly.  Ever. 

While Bill Dickens is a man of conscience, he's also officially a utilitarian or near-utilitarian.  How could his extreme scrupulousness possibly discredit his utilitarian philosophy?  Simple.  Like every other utilitarian, his behavior is wildly at odds with utilitarianism's demands. 

Although Bill gives generously to charity, he consumes far more than he needs to keep working.  He skis in Colorado.  He goes to GenCon.  Bill also clearly prioritizes his contractual obligations above the desperate need of total strangers - even when repeated play is unimportant.  If Bill forgot to tip a waiter, he would strive to make amends to the aggrieved waiter - not mail the waiter's tip to Oxfam.

The upshot: If Bill Dickens told me, "Like most humans, I'm deeply morally flawed.  I know utilitarianism is true, but I'm too weak to live by it," I wouldn't believe him.  Bill is a paragon of decency.  If he really believed he morally owed vast sums to the poor, he'd skip GenCon and fork over the money.  Since he doesn't, I infer that despite his official position, utilitarianism seems almost as crazy to him as it does to me.  The same goes for every earnest yet non-compliant utilitarian.  Utilitarianism doesn't just go against their interests.  It goes against their consciences.

To put the Argument from Conscience conversationally: "You live by your conscience.  If you really thought utilitarianism was true, you would live up to it.  Yet you don't.  If even scrupulous utilitarians like you don't take the view seriously, why should anyone else?"

And that, my utilitarian friends, is the Argument from Conscience.  The problem isn't that your doctrine is too good for you.  The problem is that you're too good for your doctrine.

CATEGORIES: Economic Philosophy

   


Today is the 70th anniversary of the failed attempt to assassinate Hitler. That the death of Hitler on July 20, 1944 would have been a Good Thing [those who studied British history and read 1066 and All That will get the joke] is not an economic point, per se, although I guess you could stretch and say that it's based on a crude cost/benefit analysis.

I think this date is under-celebrated. I notice that some Germans are celebrating it. Good for them. So Happy Almost Assassinate Hitler day.

CATEGORIES: Public Choice Theory

   


Several people in the comments got the point of my endogenous sexism scenario.  Namely: Friends pass a stricter selection filter than spouses of friends.  If you think poorly of someone, you won't be their friend.  But if you think poorly of the spouse of your friend, you'll probably put up with your friend's spouse to preserve your relationship with your friend.  As long as people tend to make more same-sex friends, then, men's male associates will seem better than their female associates, and female's female associates will seem better than their male associates. 

Two lessons:

1. When a man doesn't like his wife's friends, or a women doesn't like her husband's friends, it's not surprising.

2. By itself, #1 does not imply sexism.  But #1 combined with statistical naivete readily leads to sexism.

How strong should we expect this effect to be in the real world?  Hard to say, but friendship is strongly segregated by gender.  The General Social Survey, for example, asks about the gender of your best friend.  Same-sex besties outnumber opposite-sex besties by 4:1 for men and 6:1 for women.

friend.jpg

P.S. Don't these results imply quite a bit of unrequited best friendship?  Hmm.


   


An Internet secession so far

Alberto Mingardi

The Scottish referendum is scheduled for September 18. Its implications are wide ranging. Most people are convinced that the Scots will ultimately vote 'no,' thus preserving their Union with England. But if the unlikely scenario of Scotland going for independence may come true, we could dream of something like a domino effect. Regions like Catalonia in Spain, but ultimately also Veneto in Italy, will be increasingly vocal in arguing for their own sovereignty, instead of staying stuck in "nation states" where their people increasingly feel they don't belong. The EU--which is after all a cartel of nation states--is going to play with the conservative team--but as the EU is not very popular nowadays, I don't think this is going to produce a very big impression on Scots.

I shall perhaps stop my secessionist day-dreaming: quite apart from the possibility of reshuffling of sovereignty in Europe, the battle in the Scottish referendum is a political one, and thus is fought on propaganda and little symbols. So the the City AM reports that:

Scotland is getting its own internet domain name, with both independence campaigning groups Yes Scotland and Better Together taking on the new .Scot suffix from today.

Other early adopters of the new domain include the Scottish government, NHS Scotland, and the Commonwealth Games legacy website legacy2014.scot - and more than 50 organisations are already signed up.

The domain will become available to anyone, living in Scotland or elsewhere, in September.

CATEGORIES: Eurozone crisis

   


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