Month: June 2013

Five Great Economics Books

Originally posted here.

1. That Which Is Seen and That Which Is Not Seen, Frederic Bastiat

This essay is almost single-handedly responsible for sparking my interest in economics. If you don’t have any economic understanding, this is sure to give you several “lightbulb” moments. Though two centuries old, it is still the best introduction to the economic way of thinking I know of. The book addresses common economic myths—like the idea that government programs can boost the economy—with clarity and wit. Henry Hazlitt’s Economics in One Lesson is essentially a modern revision of Bastiat, and it is also excellent, but I still find Bastiat’s style and frequent sarcasm unbeatable. Start with this book, and if you’re not intrigued by what you learn, you can have your money back.

2. Beyond Politics, Randy T. Simmons

This is a fine introduction to the field of Public Choice Economics. Just when you thought you had come to the end of epiphanies after reading Bastiat, you discover Public Choice and the lightbulb goes on hyperdrive as you see economic thinking applied to the political process. This book is a must for anyone who thinks democracy is the cure for the world’s ills, or that electing better politicians is the key to securing liberty. In fact, I would be so bold to say that if you engage in any type of efforts to reform policy without a knowledge of Public Choice, you are acting irresponsibly and doing more harm than good. Beyond Politics will open your eyes and clear your head.

3. Economics for Real People, Gene Callahan

This is an incredible book. It’s not only fun to read and at times humorous, but it’s immense scope is dumbfounding given its reasonable length. If you want to understand economics from the very first principles and see how things like the law of demand are derived, this is your book. It is an introduction to the Austrian School of economics, so you will not have math and charts and graphs, but logic as your guide. If you have no mainstream economic knowledge, start with this book before you take a class and become polluted by make-believe models and regressions. If you already have mainstream economic knowledge, read Economics for Real People and be refreshed!

4. The Fatal Conceit, F.A. Hayek

Hayek is not always easy to read, but this is his best book in terms of readability, and I think his most profound in terms of possible applications. Hayek’s most interesting work focuses on the role of information in the economy, and how amazing markets are at giving us information to act on. The Fatal Conceit is the opposite side of that coin; how deluded central planners are to presume to have enough information to make good decisions absent the market process. This book is short, but after you read it you will want to apply these Hayekian insights elsewhere. I suggest reading some Thomas Sowell to follow the rabbit trail.

5. Human Action, Ludwig von Mises

I know, I know, this book is really big. Some people complain Mises is hard to read. I could not disagree more. His writing is very structured, his arguments very logical and clear, and his conclusions groundbreaking. Human Action is one of those very few books that every thinking person should read. This is the more sophisticated version of Economics For Real People (but don’t worry, real people can read this too!). Mises takes aim first at the methodology of economics as a discipline, then builds a comprehensive theory of economics from the ground up, and uses it to expose all manner of fallacies in socialist and mainstream economic thought. Before you either embrace or dismiss the Austrian School of economics, you have to read Human Action. After you read it, you will start to see everything else through a Misesian lens, and you will be the better for it. This book changed my life!

I decided to stop at five books, but I am going to add a little caveat to sneak in a few more.  The granddaddy of the discipline, and still probably the single most insightful book that launched political economy as we know it is Adam Smith’s The Wealth of Nations.  When paired with his Theory of Moral Sentiments, you get the moral backdrop.  Everyone talks about Smith, but really reading and rereading him firsthand is unbeatable, even if challenging at times.

For a more modern intro to basic economic thinking than Bastiat or Hazlitt, Stephen Landsburg’s Armchair Economist is a great book.  It’s got a lot of non-intuitive insight, but on a more solid foundation than some of the Freakonomics style stuff.  If you have an interest in economic history or you are grappling with questions about economic booms and busts and the growth of government, Crisis and Leviathan by Robert Higgs is your book.

Finally, some readers may have noticed that my economic reading list includes nothing of what people call economics today. Between the five books above I don’t believe there is a single chart or graph. There is no talk of determining someone’s utility function, no calculus, and none of the stuff that most people associate with the discipline. That is because I think most of that stuff is bogus and has nothing to do with understanding how the economy works. If you are unsatisfied with my dismissal of what most economics courses teach, and in particular if you are curious to learn about macro economics, I highly recommend Micro Foundations and Macro Economics by Steven Horwitz. Read it after you have read Economics for Real People and preferably also Human Action, and it will help you relate those principles to the things your professors talk about.

On Not Having a Goal

I’m a very goal oriented person.  Everything I do is towards this or that short or long term goal, and anything else seems like wasteful fluff.  I’m pretty efficient at only doing things that advance toward my goals.  I used to feel bad for people who didn’t seem to have many goals, and would kind of float by, just taking in the scenery, with no real purpose to many of their actions.  Now I see something valuable in it.

How many of my goals arose just because I had nothing to focus on, craved it, and picked the first thing that seemed right?  I’ve put tons of energy into things that were goals almost for their own sake, not because I took the time to find it really resonated with me.  Certainly some things were gained and learned, but often in a haphazard, accidental way.  Contrast that with people I know who are slow to adopt a goal.  Sure, they have some long periods of aimlessness, but they are often taking the time to discover what they want and what goals are truly worthwhile.  When they find one, they are not as burnt out, and they’re ready to dive in.

That will never be me on an instinctual level, but I have definitely learned from observing such people to resist the urge to pick goals just to have them, and even be comfortable for periods without really clear goals.  This has helped the truly important things come into clearer focus, and let me hone in on a smaller number of more valuable goals.

Evil Doesn’t Mean Irrational

I was singing the praises of rational choice theory to a friend – telling him it can help people understand cause-effect relationships in the world and navigate better towards their goals, rather than just getting bitter – when he posed an objection.  Sure, he granted, most people are acting to get what they want and not just to torment you for its own sake, but what about those few people who may be genuinely evil, and truly revel in your misery?  How can rational choice account for this?  Don’t they destroy this worldview?  Isn’t it impossible to understand what they’re aiming at and negotiate to avoid pain?

I asked for a specific example.  He mentioned a friend of his who gets angry at people and immediately assumes evil motives.  When someone says they’ll show up at 10 and comes at 10:30, she thinks it’s because they’re simply a terrible person, and there’s no rationality behind their selfish tardiness, therefore there’s nothing she can do to cope with or avoid being the victim of it.  It’s a very helpless, disempowering way to look at things.  It’s also patently false.

Even if we grant that the person is pure evil, hell bent on her discomfort, this theory has provided no explanatory power for the particular actions taken.  Why didn’t the person just key her car or slash her tires if inconveniencing her was the goal?  Why did they show up 30 minutes late, instead of 60, or not at all?  What accounts for the particular choices made?  Clearly, some kind of calculation was involved.  If being a jerk was the goal, the person must have reasoned that showing up 30 minutes late was the least costly way to exact the most jerkiness.  In other words, they looked at costs and benefits, and made a rational choice given their preferences.

Once you strip away the emotion and realize that, evil or not, people still make rational choices about what means to employ in seeking their ends, it tends to melt away the anger and helplessness a bit.  If the person was rational enough to choose whether to be late and by how much, does it seem probable they did it just to tick you off?  Not in most cases.  Far more likely, they had a phone call, or forgot to get gas ahead of time, failed to account for traffic, or any number of other things, and they determined sacrificing 30 minutes was the least bad solution.  But even if they wanted to cause trouble, knowing they have a cost/benefit calculation just like you do can help you see possible work-arounds.  How might you change their incentives to improve the chances of punctuality?  The onus is on you to accept their preferences, whether you like them or not, and learn to get what you want anyway.

It’s much easier emotionally to just call them evil and irrational and propagate the myth of your own helplessness.  It might feel good in the moment, but it’s a terrible way to reach your goals, and it fails to explain the real world.  In fact, the vindictiveness that can result is likely to make them truly angry with you, whether they were at first or not, and want to exact revenge, perpetuating the conflict.

Worry less about the morality of others or their motives, and put more focus on what caused them to choose what they did and how you might alter what they view as in their best interest.  You’ll enjoy life more, and you might find people around you aren’t as bad as you think.

Term Limits as Humanitarianism

I don’t think term limits reduce government corruption or largesse. I don’t think they stop bad legislation or promote good. I’ve seen them in action, and they do alter the interests, but things quickly adjust and the average Joe and his freedom are no safer. Ultimately, no rule changes or tweaks can stop government oppression. The only real solution is for markets, not states, to provide social solutions.

Yet I’m a big fan of term limits nonetheless.

As much as I hate to admit it, politicians are people too. As a fellow human, I do not wish ill upon them. Probably the worst thing that can happen to a person is the loss of their soul; their dignity; there very humanity. This is worse than death or injury, and it is precisely what the political system does to politicians.

No matter how well intentioned, they face rigged choices every day that force them to be a backstabbing jerk to all their peers, or fudge a little on their principles. No one can resist this forever. To cope, they create elaborate justificatory narratives, and separate their political actions from their sense of morality or self. Even when you’ve seen the evil of Mordor, it’s hard to throw the ring in the fire.

The first few years in office, newly minted politicians are mostly being used, or patted on the head like kids at their first ball game. After three or four, they start to learn how to get stuff. Five or six and they’re almost gone for good – barely recognizable as the people they once were. Always “on”, and not even knowing what real people behave like. At this stage, a few years out of the system and they may still regain most of their former humanity. The detox is tough, but possible. Six or more years and all hope is lost.

Term limits save souls.

We Already Have the Solution: It’s Called Freedom

Milton Friedman once said of the political system,

“I do not believe that the solution to our problem is simply to elect the right people. The important thing is to establish a political climate of opinion which will make it politically profitable for the wrong people to do the right thing.”

There already exists an institution that ensures people, be they right or wrong, do the right thing.  It’s called the market.

Any wish to constrain government, or keep political interests behaving in the interest of the general public, is a wish that government behave more like a market; and that the political class behave more like individuals must behave to succeed in a market.  All reform efforts aimed at making the state smaller, less oppressive, more accountable, more efficient in it’s various activities, and less arbitrary are efforts to make it completely unlike itself, and completely like the market.

What I mean by the market is the entire realm of voluntary exchange and coordination.  Politics, like all institutions, is a type of market, but not the type I mean.  It has two unique feature that no other institution has, it produces a host of things unthinkable under other institutions.

The first unique feature is coercion.  The transactions in the political system are not voluntary.  This dramatically alters the incentives and signals in all the exchanges.  “Customers” tolerate what they hate, because it’s not worth being jailed for.  The second unique feature is near universal moral approval.  Though the coercion is real and known by all, it is not only accepted, but praised and condoned.  No other institution enjoys this kind of unskeptical reception and sanction.  Without these two features, there is no state.

It is easy to see why governments produce so much of what we hate, and destroy so much value.  Any market entity that attempted to engage in a single activity the way government does would cease to become profitable and receive universal scorn.  On the market, people think it immoral and tasteless to say you’ll provide a free soft drink with a sandwich and not make good.  That kind of behavior from a corner deli wouldn’t last a week.  On the political market, people think little of a politician who promises to stop sending young people to kill others across the globe, but then sends more instead.  That kind of behavior might get you another four years.

If we wish for the wrong people to do the right things, we can engage in the monumental task of altering public belief and preferences enough that they are willing to pay the price for resisting the state.  We can work to continually alter the incentives faced by politicians on every single issue, fighting back against every incentive built into government.  Of course, the state itself resists this by its very nature, and always will.

The real solution is not the state at all, but the market.  It’s not changing the state, it’s letting it fade into irrelevancy as markets grow up around it, carrying out all the activities states try so jealously to monopolize.  Markets don’t require perfect consumers or producers.  They put bad people in the position where they must do good to succeed.

Friedman was right.  The easiest way to do it is to force political entrepreneurs out of government, and into the realm where they’ll have to be market entrepreneurs.

Ideas Must Be Earned

The worst ideas are those unearned.  If you believe something just because it’s common, comfortable, or inherited like a genetic trait, It’s a bad belief.  Not bad because it’s wrong – it very well may be right – but bad because there was no journey, no effort or will to discover it, and this is likely to cause you trouble.

Why are given beliefs bad for you?  Because they’re not examined, rooted, or truly respected by the believer.  When challenge comes, you’ll feel embarrassed and defensive.  You may build up a wall of falsehood or dismissiveness towards others to protect your unearned belief – a wall that will blind you from valuable truths.  Or you may see the weakness in your idea, become bitter at those who passed it on to you, and join a crusade against it, missing any elements of truth it had.

Many people who rail against this or that idea or belief system do so because it’s what they used to believe, and now they view themselves as having grown out of it.  It is possible for a person to change from one genuinely earned belief to another, but when you see them mocking their old beliefs constantly, or changing very quickly, it’s usually because they never really earned their former ideas.  When someone attacking an idea appeals to their own authority as a former believer, it’s almost always a sign that their former belief wasn’t earned.

This is more true the more radical the idea.  Radical ideas, especially, must be earned.  It’s tough to hold radical views.  All the cool and respectable people might mock you, or pressure you, or dismiss you.  If your radical beliefs came to you unearned or too fast, you’ll make them look crazy with weak defenses, or you’ll quickly abandon them and join in the chorus of mockers.  You do yourself and the world no favors this way.  The idea may or may not be true, but it deserves a genuine and serious examination before you become a firm believer or detractor.

If you haven’t really earned a belief, take a few steps back and don’t try to be a crusader for or against it.  To paraphrase Murray Rothbard, It’s no crime to have unearned ideas; but it’s totally irresponsible to be a loud advocate for those ideas.

Radically Practical

There’s an assumption that practical and radical are on opposite ends of the spectrum.  Sometimes, the reverse is true.  The most practical things can be the most radical.

Radical means outside the status quo; something not often done or considered; something beyond the social mores and institutions of the day.  Practical means something that’s efficient at achieving your tangible, real-world goals.

Think about how many social norms and activities are horribly inefficient: K-12 education, college, formal attire, working in a giant office building instead of from a remote office, buying instead of renting, working for someone else instead of contracting out or starting your own firm, waiting to retire before you live where you want to, and on and on ad nauseum.  None of these are bad in themselves, but considering the stated goals of those who engage in them, they’re almost always an unnecessarily costly and painful approach.

If you zoom out, get in touch with your real desires and goals, and consider the best way to achieve them, so many of the standard approaches turn out to be wholly impractical.  Don’t worry about what’s considered radical by society; ask yourself what works best at getting what you want, and do it.  It’s prudent and practical, even if others consider it radical.

If doing what works best for you is radical, wear it as a badge of honor.

Private Charity Isn’t Enough

Originally posted here.

“The idea that churches can tackle national poverty, take care of those who are ill, and rebuild communities after natural disasters requires a spoonful of bad moral theology and a cup of dishonesty.” – Robert Parham

In this blog post, EthicsDaily.com editor and Executive Director of Baptist Center for Ethics Robert Parham claimed that churches and charities could never do enough to alleviate poverty. I agree.

Poverty will never be “tackled” because it is a relative term; a moving target. If you could describe the plight of America’s poor today to a poor person in another country, or an American 100 years ago, they would conclude that poverty had been eliminated. The standard of living among the poorest Americans today is incredible by world and historical standards. Yet we still wage the war on poverty, even in America. This is not a bad thing – helping the down and out can be wonderful. But when we aim at targets like the “end” of poverty, there is no end to what we can justify in order to reach this impossible goal. “The poor will always be with you.” The question is how best to reach them, spiritually and materially.

The second reason I agree with Parham’s claim is that, to the extent that poverty can be reduced, private charity alone is simply too small to do it. The incredible gains in social and material welfare of the poor in America have not primarily resulted from charity, churches or governments. They have resulted from (mostly) free-market economies.

If we look at poverty in a vacuum as Parham does and ask how private charity compares to government efforts, we could conclude that private efforts are too small. But if we look at government and private efforts combined compared to the power of the market, they would be dwarfed so as to make them hardly important in the big scheme. Charity is a targeted and short-term salve for the wounded; its value is far more in its spiritual nourishment and encouragement than any material progress it brings. A vibrant free-market is the only institution powerful enough to bring about the kind of dramatic increases in standard of living that most of us wish to see.

Public Choice

Jumping from the premise that private charity is not enough to the conclusion that government must do something places a blind, sometimes idolatrous faith in government that counters logic and experience. The incentive structure in government departments is to perpetuate and grow regardless of their effectiveness or the need for their services. There is no check on whether or not they are effective. In fact, the less effective a bureau of poverty relief is, the more they are rewarded with bigger budgets. If poverty is on the rise, and they will always claim it is so as to increase their importance, the last thing to do is cut the department of poverty relief!

Government programs are also subject to “capture” by interest groups and politicians. Scratch the surface of any government program and you will find that it is not the “general welfare” being promoted, but the welfare of a very small and politically connected group at the expense of the general welfare.

To examine private efforts and claim they cannot tackle a problem is only half the analysis needed. We must also examine government efforts and ask if they can tackle the same problem before we charge them to do it. The field of Public Choice Economics does just this, and you would be hard-pressed to find a case where the market is not providing something and getting government involved makes it better. If Christians have a duty to help the poor, they also have a duty to use their brains to discover ways that actually work. Intentions and actions are not enough, we need to understand how to be effective. This requires some knowledge of economic and political systems.

Wrong about Rights

The most damning and least supported claim in Parham’s article was that it is wrong for a Christian to value other people’s property rights:

“[L]ibertarian morality values property rights over human rights. For a Christian, that’s bad moral theology.”

I beg to differ. What Parham leaves unexplained is how human rights are to exist absent property rights. Private property is not some sacred dogma for its own sake; it is important because there is no other method of peacefully settling competing demands for limited resources. Such resources include food, water, shelter and other necessities of life. Common definitions or human rights include the right to be free from hunger. How can you have this right if you have no right to the very food you need to survive?

If Parham means by human rights the right to food, shelter, health care and other positive rights, this poses an incurable conundrum. Positive rights are a logical and practical impossibility. They cannot coexist with negative rights, or even with other positive rights.

A positive right is a right to something. A negative right is a right from something. A positive right obligates another person to take action. A negative right prohibits another person from taking action. A right to life, liberty or property is a negative right. You are free to live and act and justly acquire property, and no one can prohibit that so long as you are not violating their rights. A right to health care is a positive right. If you have the right to receive health care, someone else has an obligation to give it to you. If I am a doctor and you say you need my services, I am obligated to assist you in a world of positive rights. But what if at the same time I am hungry and need to eat rather than assist you in order to maintain good health? Our positive rights to health care cannot both be fulfilled, and in order for one of us to fulfill them we’d have to violate the other’s negative right to liberty and property.

Indeed, it is not possible to have any moral theology whatsoever without an acceptance of private property. One cannot give generously what one does not own, and one cannot help another by stealing from him.

Means and Ends

To sum up the argument, the author couldn’t imagine church and charity doing a task to his satisfaction, so his response was to ask men with guns to take money from people who presumably wouldn’t part with it voluntarily, and give it to causes he valued. Everything government does is backed by threat of force. Indeed, that is the only thing that distinguishes government from all other institutions. Let’s remove the intermediary agents (IRS, law enforcement) and revisit the argument with the author as the principal actor:

Churches and charities can’t or won’t do as much to help the poor as Parham wants, so he threatens, “donate or else.”

That’s clearly a barbaric and inhumane way to a more civilized and humane world. Yet voting for people, who will appoint people, who will hire people, who will send threatening to extort money to give to some bureaucrats to spend on social causes is no different in moral terms.

Appealing to Christian ethics is an odd tactic to justify a redistributive state.  Jesus made it pretty clear that the methods of the kingdom of God are service, sacrifice, grace and love. The means of all earthy kingdoms are brute force and the threat of it.

When the rich man refused to sell all his possessions and give the proceeds to the poor, Jesus did not send the disciples after him to extract a percentage on threat of imprisonment. He let him walk away. Christians are supposed to do the same.