David R. Henderson  

Morning Roundup

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There are too many interesting things to write about at length this morning and so I'll just say a little about three.

EU Dispersion: Check out this graphic of hypothetical monetary unions to see how incredibly diverse are the members of the actual Euro union compared to other hypothetical unions. Of course, the devil is in the details and I don't know the specific "over 100 characteristics" the studiers used. In 2001, I bet an Austrian central banker that least one country would have left by 2006. Of course, I lost. What I learned from this and other failed bets is something that Milton Friedman learned relatively late in life also: he was almost always right about an outcome but almost always wrong, in one direction, about how quickly that outcome would happen.
HT to David Levey.

Austerity Policy: Bob Barro has a good piece in the Wall Street Journal this morning. Great excerpt:

Two interesting European cases are Germany and Sweden, each of which moved toward rough budget balance between 2009 and 2011 while sustaining comparatively strong growth--the average growth rate per year of real GDP for 2010 and 2011 was 3.6% for Germany and 4.9% for Sweden. If austerity is so terrible, how come these two countries have done so well?

I would have liked him to drop the word "austerity," though, and instead dig into the details: there's a lot of difference between austerity due to tax increases and austerity due to cuts in government spending. Tyler Cowen has made this case cogently.

And, of course, as I've said many times, the post-war drop in federal spending as a percent of GNP by about 35 percentage points, with the unemployment rate never going above 4 percent, is Exhibit A against the Keynesian model.

MIT economist Esther Duflo, in her first Tanner lecture at Harvard, said the following:

The emphasis on self-reliance can go too far. When you create the conditions where the basic constraints are more or less automatic, you give freedom, not take it away.

I don't know what Professor Duflo meant by "freedom." I'll wait until I can see the transcript to see if she ever defined it. She illustrated with the case of water. Here's an excerpt from the news report:
What her research in India and other developing countries has shown is that too much choice about everyday needs, such as whether to boil water or trust the government to immunize children continually, imperils the poor. If your basic health relies on your remembering to boil the water, you are not more free, she said.

"In Boston, I would have to go on a camping trip to drink unchlorinated water," she said. "In both senses, the rich are subject to a more paternalistic policy than the poor. Does that make them less free?" she asked.


Um, yes, it does. If the government mandates chlorination, you are not free to drink unchlorinated water out of your tap. That one seems simple. The only way I can understand why she asks that question as if it's rhetorical is if she equates freedom and wellbeing. But, again, I'll have to wait and read the whole lecture.


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COMMENTS (31 to date)
Ken B writes:

As I read her comment (I have not follwed any links, I'm just parsing) about some constraints being 'automatic', she is arguing it would be irrational to prefer unchlorinated water, so there is no real choice, just an extra burden -- the time and trouble to chlorinate. I think she might be likening this to breathing: it's a good thing we breathe without thinking, automaticvally one might say, without 'choosing' to take each breath.

david writes:

I think Prof. Duflo is using "freedom" in the positive sense there.

Alex Godofsky writes:

"And, of course, as I've said many times, the post-war drop in federal spending as a percent of GNP by about 35 percentage points, with the unemployment rate never going above 4 percent, is Exhibit A against the Keynesian model."

It's even more of an "Exhibit A" against structural models of unemployment. Surprise, even facing real shocks like the end of World War II the market is perfectly capable of reallocating labor between sectors.

Jack writes:

I agree with Ken B: it seems Prof. Duflo equates freedom with "being worry-free" and is arguing that government paternalism, by removing certain obstacles or burdens, allows individuals to have more time and energy to spend on their remaining choices. Sounds like bounded rationality: our mental energy being limited, a smaller choice set *might* make us happier if we make better choices over the remaining choice set and if we are fairly indifferent over the choices that are made for us by the paternalistic government.

I don't buy it, but I think I understand it.

Tony N writes:

Ken B,

I didn’t interpret it that way at all; but I think you’re right. If so, she misses the mark with the notion that freedom is the ability to choose from a set of acceptable options, when most of us would argue that it is the ability to choose, period.

Martin writes:

Dr. Henderson/David,

"I don't know what Professor Duflo meant by "freedom." I'll wait until I can see the transcript to see if she ever defined it. She illustrated with the case of water. Here's an excerpt from the news report:"

How would you define freedom? Is freedom an outward shift of the budget constraint so that more bundles of goods become available? Is more freedom a higher utility curve?

In that case she's right, the argument for regulation then becomes one of economizing on those decision costs, by having those basic choices made for us. I don't see how you become less free by having a choice made that you would want to have been made?

Finally, would you then also argue that a Hayekian spontaneous order in the form of traditions and institutions are inimical to freedom?

I am genuinely curious what your conception of freedom is then.

Trespassers W writes:
Is freedom an outward shift of the budget constraint so that more bundles of goods become available? Is more freedom a higher utility curve?

Obviously, freedom is the freedom not to have to make pesky decisions all the time.

Tony N writes:

Martin:

I don't see how you become less free by having a choice made that you would want to have been made?

Imagine that tomorrow the government decides that smoking it is an equivocally irrational act in light of all its deleterious effects on the individual and society. Assuming I like to smoke and you don’t, the above-mentioned version of freedom means that although the exact same injunction has been imposed on us both, I have become less free and you have become freer. For the government made a choice that you wanted and that I didn’t. How does that work?

I think what you are talking about is closer to convenience than it is to freedom.

Tracy W writes:

I find her definition of freedom puzzling too. People in rich countries aren't prevented from drinking contaminated water if they want to (for example, there's an open stream that runs near my home in the city, I could go down there with buckets and fill it up and drink that if I really wanted contaminated water). An advantage of being rich is that we can afford heavy capital investments in piped water systems.

What's stopping poor people in Africa from purchasing their water from a water supply company that chlorinates all the time? Presumably they can't afford to.
Of course, the poor might well be better off if they have chlorine available at a tap. But, frankly, if a country is poor today, it's because its government is incompetent. If a government can't provide a tolerable administration of justice and what not, how good is it going to be at providing chlorine at every tap in every poor area?

Her argument just doesn't map onto freedom at all.

Mrs. Davis writes:

I filter the chlorine out of my government chlorinated water. I appreciate that they chlorinate it for public health reasons, but my dog won't drink it.

rpl writes:

David,

In that first article, the author says that the United States works as a monetary union (i.e., among the states and territories) because it is also a fiscal union, and he cites federal transfers to the states as the mechanism. That seems incorrect to me. Isn't it the case that the US was a monetary union long before there were significant transfers from the federal government to state governments? How did the monetary union avoid collapse in those days, particularly since the economic differences between the states were a lot more stark in those days (frontier states didn't have much of an economy to speak of).

For that matter, what about small Western-Hemisphere countries that use the US dollar as a currency? They are effectively in a monetary union with the US, aren't they? Yet, despite the lack of a fiscal union, it seems like many of them have managed to avoid blowing themselves up like Greece has done.

It seems like there is something else going on in the Euro crisis besides a mere lack of a fiscal union. At the very least it looks like a fiscal union isn't necessary to make a monetary union work, and I wonder how certain we are that it's sufficient. Isn't the worry about certain states that they will dig themselves a hole so deep that they can't get out of it, and the rest of the country will balk at bailing them out. Is there anything about being in a fiscal union that prevents that happening?

Ken B writes:

The law, in all its majesty, forbids the rich and poor alike from sleeping under bridges. This is why the rich are freer: they aren't allowed to waste time looking for the best spot under the bridge. If we let the poor sleep under bridges then they have to expend a lot of time and effort not doing so.

Martin writes:

Tony N,

"Imagine that tomorrow the government decides that smoking it is an equivocally irrational act in light of all its deleterious effects on the individual and society. Assuming I like to smoke and you don’t, the above-mentioned version of freedom means that although the exact same injunction has been imposed on us both, I have become less free and you have become freer. For the government made a choice that you wanted and that I didn’t. How does that work?

I think what you are talking about is closer to convenience than it is to freedom."

I think it's best to do a full comparison.

Let's agree that living in any sorts of society, defined here as a group of people, will entail decision costs and external costs. Decision costs are costs necessary to make a decision and external costs are the costs imposed on you by that decision. Both cost-curves are a function of N, that is the number or fraction of people required for an agreement. Decision costs slope up, external costs slope down. This is a trade-off, the best point is somewhere around N*. (This is one of the points made by Buchanan and Tullock in the Calculus of Consent).

What this shows is that there will be necessarily decisions taken which will impose a cost on you. Not only that, this analysis applies to shareholders in a company all the way 'down' to a group of friends where to go out or a family where to go on holiday or what to have for dinner.

Freedom, therefore, necessarily exists within some sort set of rules and mechanisms by which those rules might be changed. Freedom is not a particular outcome, but it is a characteristic of a process within a set of rules and regulations that can be both moral and legal.

To be concrete, your objection is not against the cigarette ban, your objection is against the fact that the government can intervene in your life-style. That's a law and you'd probably like to see that gone.

Then again, here too the analysis applies as above, there is a trade-off, there might be some things you want that law that do and some things you don't want that law to do, but you can't pick and choose, it's either or.

Let's however not conflate that problem, with the problem that people in poor countries face. I think it is safe to say that if government can intervene to lower child mortality, lower disease, increase literacy, by 'imposing' certain automatic constraints, that there will be few people that will object in those countries, or consider it "trampling" upon their freedoms.

Their choice is perhaps between a little less "autonomy" and a lot of positive benefits, or none of those benefits and to keep their "autonomy". I say "autonomy", between brackets, because a lot of people would vote and do vote with their feet to move to areas where they do not have the autonomy to make those choices. Do you really have to give up autonomy, when you would want those things anyway?


Tony N writes:

Martin,

I still don’t see the case for this counterintuitive definition freedom. As the professor pointed out, it appears what we are talking about is some version of wellbeing; or as mentioned earlier, convenience.

Decision costs slope up, external costs slope down. This is a trade-off, the best point is somewhere around N*. (This is one of the points made by Buchanan and Tullock in the Calculus of Consent).

What this shows is that there will be necessarily decisions taken which will impose a cost on you. Not only that, this analysis applies to shareholders in a company all the way 'down' to a group of friends where to go out or a family where to go on holiday or what to have for dinner.

I don’t think we are talking about freedom as in without costs. I, at least, see freedom to mean without constraint.


Freedom is not a particular outcome, but it is a characteristic of a process within a set of rules and regulations that can be both moral and legal.

I agree with the first clause, not sure what you mean by the second. Nevertheless, I’d say freedom is a state of being. And yes, one can enjoy too much freedom, but that’s beside the point.


Then again, here too the analysis applies as above, there is a trade-off, there might be some things you want that law that do and some things you don't want that law to do, but you can't pick and choose, it's either or.
Let's however not conflate that problem, with the problem that people in poor countries face. I think it is safe to say that if government can intervene to lower child mortality, lower disease, increase literacy, by 'imposing' certain automatic constraints, that there will be few people that will object in those countries, or consider it "trampling" upon their freedoms.

Their choice is perhaps between a little less "autonomy" and a lot of positive benefits, or none of those benefits and to keep their "autonomy". I say "autonomy", between brackets, because a lot of people would vote and do vote with their feet to move to areas where they do not have the autonomy to make those choices. Do you really have to give up autonomy, when you would want those things anyway?

That ordered society presents any number of tradeoffs is undisputed. Once again, what I’m disputing is the claim that tradeoffs that commandeer the ability to choose somehow increase freedom as well.

We can imagine any number of ways in which a society or a person is made less free, forced to surrender autonomy, but made better off nevertheless. The suicidal, self-mutilating manic depressive is certainly better off when placed in a straitjacket and confined to a padded room, but you'll have a hard time arguing that they are freer because of it. Constraint and freedom are mutually exclusive, regardless of the payoffs involved.

RobertB writes:

Prof. Duflo's meaning of "freedom" seems quite intuitive. Freedom, imo, is the ability to order your life as you see fit. If you believe that decisions impose costs and that there is some relevant budget constraint, it can be true that fewer constraints make you less free, because the additional required decisions impose costs that burden your other endeavors.

If you define freedom as absence of external constraint, then obviously external constraints can never enhance freedom.

Now, if some people would choose to drink contaminated water, then imposing such a constraint would impair freedom. However, if no one would make that choice, allowing the choice imposes costs without adding options that anyone prefers. Eliminating the choice increase freedom by allowing people to make more meaningful decisions.

Tony N writes:

RobertB:

Now, if some people would choose to drink contaminated water, then imposing such a constraint would impair freedom. However, if no one would make that choice, allowing the choice imposes costs without adding options that anyone prefers. Eliminating the choice increase freedom by allowing people to make more meaningful decisions.

I’m not sure that I understand this. The last sentence throws me off. Are you saying that the act of contemplating impractical options imposes a cost on the individual? Genuine question, not snark, btw.

Costard writes:

rpl - more likely that fiscal solidarity arises as a result of monetary. Insurrections were not uncommon in the decades following ratification of the Constitution, as regional differences were very great and federal policies were often (and rightly) seen as discriminatory. Consider, too, that popular history has made the civil war into a referendum on slavery, when it is more properly seen as a fight over votes and the economic direction of the nation. The parties were roughly on parity and the extension or non-extension of slavery westwards into the new states was to decide the political future of the country. The brutal pre-war fights over tariffs and the national banks demonstrate the very different visions of US fiscal policy at work. On the other hand, we should probably keep in mind that monetary union was a different thing prior to the creation of the Federal reserve.

Martin - "What this shows is that there will be necessarily decisions taken which will impose a cost on you."

Every decision imposes a cost. Freedom is as much about choosing the cost as it is about selecting the benefit.

"Freedom, therefore, necessarily exists within some sort set of rules and mechanisms by which those rules might be changed."

By which you mean that freedom exists where there is freedom, and doesn't exist where there is not-freedom. You seem to be contorting yourself to avoid an actual definition of the word, which would have established its boundaries - what freedom is and what it isn't - much better than this apparent tautology.

"To be concrete, your objection is not against the cigarette ban, your objection is against the fact that the government can intervene in your life-style."

Maybe he has an emotional attachment to it. Perhaps it helps him deal with stress. It could be that he has an incurable disease and wishes to spend his last years pleasurably, or that he believes despite all evidence that cigarettes are good for his health. Or maybe he simply likes to smoke. You simply do not know the value of smoking to him, or the costs involved with him giving it up. Not only have you missed the point here -- you've assumed it away.

"I think it is safe to say that if government can intervene to lower child mortality, lower disease, increase literacy"

Government had 10,000 years to do this. What separates the last two centuries from all those preceding them is not simply lower rates of child mortality, less disease and greater literacy, but an unprecedented respect for the rights and freedoms of the individual. So ask yourself, what is in the nature of government, and what is in the nature of freedom? And which should be preserved at the expense of the other?

"Do you really have to give up autonomy, when you would want those things anyway?"

The fact that I want dinner does not mean I want you to provide it for me. First of all because I am not an animal and pride is a consideration as much as hunger. Secondly because you do not know what I like to eat, what I dislike, and what I simply cannot eat. Thirdly because we almost certainly (as people do) hold different ideas about health and a good diet, and I don't want you imposing yours upon me. Finally, and most importantly, I simply don't trust you. I know my wellbeing better than you; I am less likely to be gullible about it, or cavalier in my experimentations; and I don't know whether you have my interests at heart, unless of course you are a politician, in which case I know for a certainty that I am only eating cabbage for the benefit of the cabbage-farmers.

Now consider how uncontroversial and universal dinner is when compared to the great projects you're discussing.

RobertB writes:

Tony,

I wouldn't say "impractical" precisely, rather undesirable. For example, if you're poor and uneducated, it's not necessarily instantly obvious that drinking unboiled water is a serious danger. It takes time to learn about the risks of doing so, costs of purification, etc. And if you're deluged with a lot of such decisions (do I want airbags in my car, is the level of fluoride in my toothpaste safe, is my house acceptably sturdy), it could add up.

To take another example, in the US, airbags are mandatory on new cars. That's an external constraint. However, if everyone in the US would choose to have airbags in their car, if they studied the issue, just mandating them frees car buyers to consider other issues where their deliberation will produce a bigger marginal increase in satisfaction.

I don't think the neuroscience is really there yet to tell us how our decision processes work, but I think it's pretty plausible to believe that, in some circumstances, having more options will cause people to satisfy their preferences less effectively. Of course, there's the major caveat that an external constraint, if not universal, will definitely prevent some people from satisfying their preferences.

Tony N writes:

RobertB,

I understand what you are saying now, and I appreciate the follow-up. That said, I wholeheartedly disagree because I don't see the nexus linking choice to inconvenience to constraint. We may all agree that we want airbags in our cars, but by virtue of that desire we hardly would be inconvenienced by the option to purchase a car without it. I'm not appreciably burdened in any way when I contemplate the choice between consuming cow tongue or ice-cream. I am able to consume both, despite the fact that I would never want cow-tongue. My life would not be any better nor would I be any freer if cow tongue were to banned. And even if there were an appreciable burden associated with making obvious choices, you'd have to be sure the choice is sufficiently obvious as to be universally undesirable, and I don't think you can be. There is always the parent with the special-needs child who may be killed by an airbag, or the off-gird type who would prefer to boil natural water rather than consume chlorinated water. You can see how there are certainly practical issues as well.

I actually thought you might be asserting that there is a significant and constraining social cost when a society is forced to provide goods and services that nobody wants, e.g. untreated water. A cost that subtracts from our freedom as we could otherwise apply the resources for that undesirable option elsewhere. If this were your assertion, I could agree. But I would still take issue with the claim that is the choice, per se, that is reducing freedom. The choice isn't the problem, as we could imagine a fantasy world where the untreated water is provided at a cost to no one. You would still have the option, but without the freedom-reducing expense. The reason the untreated water would affect freedom in real life is that we would all be forced to contribute to its provision. It is our having no choice but to pay for something nobody wants that impairs freedom.

Ritwik writes:

I don't know if you realised this while reading Cowen, but he also makes the case that G/Y can fall without there being any austerity, so long as Y is expanding quickly enough.

That is Argument 0 against your Exhibit A and Bob Barro's Germany/Sweden examples. Barro and you are assuming unidirectional causation from G/Y to Y, while in the Keynesian model it runs the other way round.

Macro really is hard.

Tracy W writes:

On thinking about it some more, Duflo just makes the case for a very weak form of paternalism (making it very easy to choose something nearly everyone would choose to do anyway, ie drinking clean water). But her argument here doesn't apply to any stricter form of paternalism (eg banning people from taking dope).

Also, she hasn't made her case that choice generally harms freedom. There are plenty of cases where rich people have more choices than poor people, eg someone poor's food choices are driven by maximising nutrition per dollar, which rather limits what you buy and eat, a rich person meanwhile must face choices like "which 3-star Michelin restaurant should I go for, or should I stay in and have my chef cook me a meal, and if so, which cuisine?"

Similarly vacations - if you're poor and take a vacation you typically go to visit relatives at their home because it's cheap, or you stay home. If you're rich, well, you might decide to meet your relatives at some exotic location. You face numerous choices - skiing in Switzerland, scuba-diving the Great Barrier Reef, kayaking in Ha Long Bay?

Or the rich person picking clothes - "Okay, it's miserable weather, should I wear my warm wool red coat, or my Gore-Tex rain coat, or the padded black jacket, or ...."

In these cases, it doesn't strike me that the rich person is obviously worse off than the poor person, just because they have choices.

Martin writes:

"On thinking about it some more, Duflo just makes the case for a very weak form of paternalism (making it very easy to choose something nearly everyone would choose to do anyway, ie drinking clean water). But her argument here doesn't apply to any stricter form of paternalism (eg banning people from taking dope)."

Exactly. It's not either or, and a little bit of paternalism can make you free. Or,

"“Each of us in this room has warmed ourself at fires we did not build, and each of us has drunk from wells we did not dig.”

— Mark Shields, as heard, October 1997"

The whole is worth a read as is Jim Manzi's take on it.

http://epicureandealmaker.blogspot.com/2012/05/occupy-galt-gulch.html

David R. Henderson writes:

@Ritwik,
Yes, I did realize that while reading Cowen. That wasn’t the point I was making.
Re post-WWII, Y was not expanding, at least according to government data. You might want to read my study that I linked to.

David R. Henderson writes:

@Ritwik,
More important than my comment above is this: with government spending falling by 35% of GDP in 3 years, for this to have been due to GDP increasing, GDP would have had to approximately triple over those three years for the fall in the ratio to have been due solely to rising GDP.

Tracy W writes:

Martin: I think that depends on your definition of paternalism and your definition of freedom.

As for the article you recommend, in this Manzi is quoted as saying:

the fundamental tension of democratic capitalism [is that] winners... require shared resources produced by the losers. That is, the market economy requires broad social consent. Why should those who lose out in market competition give it?

I don't see how this is a fundamental tension in any market society, democratic or not. The inherent basis of capitalism, or any market society, is that both parties to a trade win. The consumers get consumer surplus and the producers get producer surplus. The split between these may vary, the consumer surplus I get from food or clean drinking water for example is far larger than the consumer surplus I get from nail polish. Occasionally I make the mistake of buying something that has negative consumer surplus for me, but in that case I can not buy it again. And that's a risk that everyone runs, rich and poor alike.

Who therefore, does Manzi think are the losers? There are people who hoped to make a fortune from an investment, but then lost out, eg people who opened their brand-new ultra-efficient buggy whip factory at the same time as Ford opened his production line. But, well, the reason these people lost is that people don't require, or want, their resources at the prices the would-be suppliers have to charge.

If Manzi thinks that the losers are the ones who relatively didn't make as much money as the ultra-rich, the obvious reason why us "losers" should consent to a market is that we get the consumer surplus.

The complex, modern, secure, comfortable, and predictable society which we all enjoy at this time in history comes at a cost. It is expensive. And yet that cost, at least in this country, is subsidized for the rich by millions of fellow citizens who charge them less than market rates solely in the hope that they, too, might win the lottery of hard work and success.

And this is even more confused. What are market rates? If it's paid for by taxes, we don't know what the market rates are. As for the rest, are lawyers, farmers, interior designers, pen manufacturers, plumbers, etc really charging less than market rates for their services to the rich? Does Manzi have some reason to believe that millions of Americans think that they can get rich by ignoring the old advice of buy low, sell high? He'd have to find some pretty good evidence to convince me of this assertion.

Of course, a market driven society is affected by the rules, and it may be that one set of rules allows people to get rich while harming society overall, eg with badly defined property rights. And this may have been happening in the financial markets, it's puzzled me for years why so much money was available there. But Manzi doesn't touch on details at all, instead he makes statements that indicate a general ignorance of how the society he lives in operates.

R Richard Schweitzer writes:

All concentrate on "Freedom" in these exerpts.

Having followed her work for some time now (esp the experiments in India and elsewhere with Banarjee) I suggest more attention be paid to "constraints," as in the studies of North, et al.

Social orders "spontaneously" develop constraints (and shed them). One may quibble with the term "paternalistic" or even more apt "maternalistic," but the wealthy social orders have developed the most extensive sets of constraints of which - the "Rule of Law" and acceptance of the modes of enforcement are probably a major bulwark of the "freedom" + or - that all natter about.

Martin writes:

Tracy W,

not everything can be reduced to an exchange. Not all of our activities in our daily life are market activities and should be thought of as such. Yes, human behavior to a good extent can be described through a loose form of rational choice theory, doesn't mean that at all times this is the best way to think about those activities.

If you want to think about all activities as market activities you'll have to think about the consequences of missing markets.

Tony N writes:

Martin,

Although Tracy W appears perfectly capable of defending her own argument, I’m curious to know where and how it fails. If analyzing Manzi's critique of democratic capitalism within the context of an exchanges is misguided, then what is the proper approach? What did Tracy overlook or get wrong in her last comment?

Martin writes:

Tony N,

It's the assumption of that everything is an exchange. Exchange is a sphere of life, there are other spheres that rational choice theory helps explaining, but where not everything is an exchange.

The other day I read an example made by Graeber in his book "Debt", the example basically goes somewhat like this:

If you have a "debt" to your parents, should you pay it off? From the perspective of an exchange, yes, yes you should. Yet what does it mean to pay off your debt to your parents? In an exchange it means you cut ties with that person for that purpose, i.e. your parents would cease to be your parents.

Then there is of course the presumption that the debt can be quantified to be paid off. Fact is that nobody considers to have ever paid off their "debt" to their parents and as a result their relation continues.

This is just one example of why it is impracticable to think in terms of exchange all the time: it simply does not agree with how the world works for most people.

Tony N writes:

Martin,

I see what you mean, but I think that door swings both ways. If the problem is that there are things that can’t be quantified and thus are unsuitable as objects of an exchange, that’s a fair point. But then claims like this necessarily fail:

“The complex, modern, secure, comfortable, and predictable society which we all enjoy at this time in history comes at a cost. It is expensive. And yet that cost, at least in this country, is subsidized for the rich by millions of fellow citizens who charge them less than market rates solely in the hope that they, too, might win the lottery of hard work and success”


The is the crux of Manzi’s argument, which is, as I read it, easily summed up as follows: The rich are on the far better side of an exchange; the rest of society is contributing to their success without receiving commensurate returns.

If the problem is that a proper cost/benefit analysis doesn’t apply here because certain pertinent “costs” are unquantifiable, then how does Manzi’s argument succeed—invoking terms like “market rates”—while Tracy’s fails? Outside the context of an exchange, the debt Manzi believes the rich have to society becomes a lot like the debt we have to our parents.

Tracy W writes:

Martin:

I agree that not everything can be reduced to an exchange, indeed as I noted, things paid for by taxes don't even have market rates. However, unless I've misread him badly, Manzi is talking about market economies, which are by definition economics where goods and services are transferred via exchange, and I was responding to that. Do you really want to encourage me to write even longer comments?

If you want to think about all activities as market activities you'll have to think about the consequences of missing markets.

Out of curiousity, why do you suggest that I should think about all activities as market activities? Wouldn't it, for example, make it very difficult to analyse government behaviour? For example, I commented that when things are paid for by taxes, we don't know what the market rates are for them. How could I say that if I followed your suggestion? Indeed, how do you analyse an activity like breathing as a market activity?

And isn't it a good idea to think about the consequences of missing markets, where appropriate, anyway, even if I, or anyone else, does think about some activities as government activities and some activities as entirely personal matters, and so forth?

If you have a "debt" to your parents, should you pay it off? From the perspective of an exchange, yes, yes you should. Yet what does it mean to pay off your debt to your parents? In an exchange it means you cut ties with that person for that purpose, i.e. your parents would cease to be your parents.

This "argument" is at its heart a non-sequitor, and also contains at least one equivocation fallacy.
On the equivocation fallacy, he starts off by talking about a "debt", with scare quotes, then switches to talking about a debt. But what scare quotes do is indicate that the word marketed out is not being used literally, so it doesn't follow that what applies to a debt (no scare quotes) also applies to a "debt" (scare quotes). It's a bit like saying "All banks are by rivers. Therefore the financial institution where I deposit my money is beside a river." (source: http://www.fallacyfiles.org/equivoqu.html)

On the non-sequitor, just because someone "cuts ties with that person for that purpose" doesn't mean that they cut ties with that person for all purposes. I've borrowed $5 from a co-worker because I've lost my wallet, repaid the debt the next day, and kept that person as a co-worker. The parent-child relationship isn't defined based on debt, any more than the co-worker relationship, so there's no reason why paying a debt should cut that relationship.

I suspect that Graeber borrowed a lot of money from his parents, and is trying to come up with some justification for not repaying it.

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