Good intentions do not = good results

 

Climate change is a non-issue

 

Today's musing minute: On Biden and the Afghanistan disaster.

 

Today's musing minute - on white privilege

 

The simple economics of diversity, equity and inclusion

Driving in the car listening to the BBC show The Real Story I found myself getting increasingly more angry and frustrated at what I was hearing. An interviewer and three talking heads we're discussing the significance of the recent embrace by corporate America of the new diversity, equity and inclusion, DEI, agenda. The arrogant , self-righteous, ignorance of any semblance of economic understanding was infuriating.

 But then, my more mature rational side asserted itself. Why was I getting so angry? What, after all, was the real significance of the fact that a number of prominent corporate executives had come out in favor of these progressive platitudes? I mean, so what? The talking heads had already pointed out the difference between rhetoric, attitude and action. They were indignantly assertive in demanding that rhetoric was not enough, and that what was needed was significant change in attitude leading to meaningful action. They were oh so proud of their project to forge a new capitalism.

So, there is always the possibility that it is just rhetoric, portending no actual change in business as usual. In which case my talking heads were expending wasted energy. What, however, if it did lead to some sort of concrete change in the way that these corporations do business? In that case, I told myself, I should investigate the possible consequences before allowing myself to get uncontrollably angry. So here goes, what is the basic economics of DEI?

As I see it there are a number of significant possibilities.

First, we must consider what the effects of adopting what for simplicity we will simply refer to as the DEI policy agenda are, whatever that may actually mean (quotas ensuring “adequate” representation of all designated protected racial or ethnic groups in the workforce, ensuring they are paid “equitably” and who the hell knows what “inclusion” is?). Some Progressive champions of DEI would have us believe that it is actually “good for business”, that it actually would boost, not reduce, profits. The believability of this assertion is indistinguishingly close to zero, But, were it true, there would be nothing to worry about. No trade-off involved. Those businesses who played DEI ball would come to dominate the marketplace at no cost in profits earned and everybody would be happy. So much for fantasyland.

In the real world, however, DEI policy will imply an increase in the costs of production, leading to higher prices, lower revenues and, most significantly, lower profits. For Progressives this is a good thing, because profits are a bad thing. Unfortunately, however, those nasty shareholders demand profits in return for investing in production. Lower profits, less investment, less jobs, etc. So the apparent benefits of DEI come at the expense of profits and investment – and also higher prices – which certainly hurts poor people as well as, and probably more than, rich ones, But, assuming, as we must, that DEI has real costs, that there is, indeed, a real tradeoff, what will be its long-term effects?

In particular, there are two polar possibilities.

At one extreme, Case 1, the shareholders and management of the relevant companies and all the current and potential consumers of their products all succumb to the DEI story and change their attitudes, all becoming true believers. In this scenario, no company is punished in the marketplace by consumers for the increase in costs and prices that occurs as a result of adopting DEI. The consumer is boss, and if consumers reward companies for being DEI compliant and punish those that are not, all companies will follow suit. To be sure, costs and prices will rise, production and employment will fall, but, hey, everyone will be happy because they consider it worth it in terms of the social justice benefits conferred by DEI. Who am I to argue with that?

At the other extreme, however, Case 2, suppose that consumers don’t give a fig about DEI, that when it comes to actually making purchasing decisions for valued products, they will choose the lowest price regardless of the company’s DEI credentials; then, regardless  of what the shareholders and management believe, those companies that adopt DEI policies will be at a competitive disadvantage against those that do not, and the latter will soon outcompete the former. The rhetoric may remain, but actual practice (regardless of attitude) will follow the money.

The reality is probably some mix between cases 1 and 2, with some consumers conscious of and prepared to pay more for DEI compliant products and some not. And the larger the latter group (it is likely to be the much larger group) the less likely any real damage from DEI stupidity.

This is very reassuring. It means, even if the corporate executives, managers and shareholders believe the DEI nonsense and try to implement it, unless enough consumers are prepared to bear the cost burden implied, their DEI efforts will be punished and probably abandoned in short order. In fact, since they are not stupid, company policy-makers will have figured this out making any real costly changes more unlikely.

This made me feel much better. But, perhaps only for a moment, because then the realization dawned. This being the case, the determined Progressive social engineers, seeing the hypocrisy of their corporate allies, will seek and obtain overbearing coercive social regulation to enforce and monitor the implementation of DEI policies imposing severe penalties for violations. At the end of the day our virtuous Progressives are brutal dictators after all. That is why this whole thing is so scary. Lets hope it does not come to that.

Because or despite

 Today’s musing minute 

Because or despite. 

The plea to “listen to science” seems both noble and sensible, as in, what to do about covid-19. But the “science” never, by itself, gives us a complete answer about what to do. And that is true even if we are agreed on the objective we want to achieve. This is because the “science”, the facts, never speak for themselves – and that is even if we agree on what the relevant facts are. The reason is facts need to be interpreted, and interpretation is a tricky business – subjective, dependent on prior knowledge and experience, including what one has been taught, what one believes is the correct framework of interpretation. The *framework of interpretation* is key. 

At the heart of the ambiguity is the role of counterfactuals, the “what might/would have been”. The same set of facts in the social world (district from the facts of natural science where controlled experiments are often possible) are often interpreted in diverse, often diametrically opposed, ways. This is the “because or despite” phenomenon. 

Example: What was the cause of the 2008-9 financial crisis? Two popular answers are 1 or 2.

1. Insufficient regulation of financial activities (the counterfactual claim: if speculation and greed and been properly regulated it would not have occurred – it occurred *because* of insufficient regulation). 
2. Too much regulation of financial activities (the counterfactual claim: if mortgages had not been subsidized and capital flows distorted by mortgage regulations to increase homeownership it would not have occurred – it occurred *despite* substantial regulation (and actually *because* of that regulation)). 

Another example: What explains the amazing increase in global wealth 1945 – 2015? Two possible answers are 1 and 2. 

1. The appropriate expanding role of wise government policy (Keynesian economics and “market-failure” regulation) – it occurred *because* of expanding regulation – the counterfactual claim being, absent which it would not have occurred. The regulation is a tailwind.
2. The expansion of world trade *despite* the inhibiting costs of expanding government regulation – absent which it would have been even greater. The regulation is a headwind. 

The vast majority of disagreements about economic policy and public administration are like this. They revolve around opposed interpretive frameworks, in particular, frameworks that see the effects of government policy in opposite ways, and, therefore point to diametrically opposed implications for the appropriate role and scope of government intervention in the economy. Constructive (even civil) conversation is impeded by the difficulty of deciding which of any competing counterfactual claims is the most likely. Sometimes the evidence weighs heavily in favor of one or another, but often not.

A significant example is the very idea of Socialism. The “science” tells us that wherever it has been attempted it has failed miserably (without exception), unless you believe that it actually has never been implemented properly (counterfactual claim: What started in Venezuela, N. Korea, China or Russia as socialism, deteriorated into dictatorship. This need not have happened, and if it had been “done properly” socialism would have been a success. Therefore we conclude the science does not tell us it is doomed to fail. Bravo Bernie! So much for the science.

Today's musing minute - some big picture observations

 

Some big picture thinking. Feeling very sad and frustrated and trying to figure out why.

There is a certain grieving process that comes with the realization that valuable wisdom has been lost. 

One does not have to believe naively in the good old days to realize that there was a time in America, not so long ago, when most people understood in basic terms how markets worked. Millions flocked to this country to pursue the opportunities available from largely free markets. There was a basic understanding, an adult understanding, that the way out of poverty was through the enhancement of individual abilities. Hence the commitment to education and hard work. 

Up until the twentieth century there was a widespread suspicion of government, of its ability to “fix” social problems, and of its susceptibility to corruption and of false beliefs in its prowess. And though the size of government was creeping up throughout the nineteenth century, it was the Great Depression and FDR that really punctured this basic understanding. The events that led to this sea change were the creation of the Federal Reserve System in 1913, which precipitated the boom of the 1920’s, aggravated the bust that followed and then facilitated the accelerating growth of government that has been the lingering response to it. The widespread myth that the New Deal was the cure for the Depression and the foundation of a more solid approach to economic policy, is almost universal among Americans living today, and is part of the conventional wisdom embedded in the history textbooks used to educate our children. 

This “new economics”, supported by the “Keynesian revolution” that invented macroeconomics, became the new orthodoxy that undergirded economic policy. JFK could unselfconsciously commit to “balancing the economy” rather than worrying about “balancing the budget” and Richard Nixon could famously declare “we are all Keynesians now”. Old style fiscal responsibility was thought to have been unnecessary and actually irresponsible. A new vision for what was possible and necessary for government to do had displaced it. And with a vengeance, with a euphotic commitment by LBJ to create a “Great Society”, to banish poverty forever. 

The heady days of the civil rights era of the 1960’s heralded a massive expansion in government spending and responsibility – with three wars, the war in Vietnam (to make the world safe for Democracy), the war against poverty and the war on drugs. All three of these “wars” have been lost, but this has been admitted for only the first (America lost the Vietnam war, but won the peace as Vietnam has been conquered by the American example of free-enterprise to become one of the fastest developing countries of the region). 

The war on poverty has apparently been lost. How else to explain that some fifty years after it was declared, we have more anti-poverty programs on the books than ever? The new $2trillion relief bill is adding still more. And the war on drugs has been lost as well. The number of users and producers has increased and the costs of this “war” - monetary, emotional, social and political - are out of control. Ironically, these two wars are themselves responsible for the perpetuation of poverty where it still exists. To be sure, poverty in America and in the world, has decreased dramatically, and continues, in a non-pandemic world, to do so. But this is a result of growing world trade, in spite of welfare-state anti-poverty dependency-creating programs, debilitating crime-producing drug wars, and abysmal failures of public education, not because of them. 

A glimmer of hope came in 1980 with the election of president Ronald Reagan (and Margaret Thatcher in the UK). With all the imperfections that attended the Reagan terms, it was a time of recurrent disillusionment about the promise of big government policies. Reagan’s proclamation that the “government is the problem not the solution” resonated loudly and got him elected at a time of high unemployment and inflation that was attribted to the failure of the “new economics” and promised a return to the wisdom of an earlier period. This coincided with my own story. I was (1972-6) a Ph.D. student at the University of Chicago, thoroughly disillusioned with the performance of Keynesian economic policy and encouraged later by Reagan’s election. I naively believed that the “experiment” of the post-war period had once again shown the wisdom of classical liberal economic policy. 

I think it is true to say that the post-Reagan period of the twentieth century, dubbed the “Great Moderation”, was one, not only of sustained and stable economic growth, but was also one of relative unity and consensus among Americans at large. Of course, the usual divides regarding the proper role of government and related matters continued to energize popular and intellectual discussions. But it was, certainly relative to today, a period of peaceful public discourse to accompany the enduring prosperity being experienced. This came to an end with the recession beginning in March of 2001. The end of the Great Moderation is popularly dated as the onset of the Great Recession in late 2007, but I believe this is wrong and the economic fluctuations during the period 2001-2008 are connected. To my consternation, George Bush, the younger, articulated a return to discredited Keynesian economic policy in order to deal with the dot.com bust and the recession starting in 2001. And from that time onward it has been downhill toward an accelerating embrace of big government policies accompanied by an accelerating and deafening deterioration in abusive public discourse. 

It needs to be noted that for all the reassurances of the Reagan-Bush-Clinton period, only minor progress was made at dismantling the overbearing welfare-state apparatus that the Great Society had created. Reagan succeeded in partially reforming the tax structure, and Clinton succeeded in significantly reforming much of the welfare system by making the states responsible for them. But, perhaps, this failure to affect most of the welfare-state apparatus, was somewhat obscured by the Great Moderation. It was clear, however, that the war on poverty was not working, and, in fact, had made things worse. Poverty in America is disproportionately significant among black families. The data unambiguously show that from the mid-1960’s onwards, the financial health and security of black families has, on average, declined – by any of the common metrics one chooses! 

It was the Obama administration, succeeding the ineffectual and disruptive Bush Jr. presidency, that constituted the real beginning of a ramping up of the earlier trend toward big government macroeconomic and welfare-state programs, and, significantly, with it, the concerted attempt to demonize everything that came before that smacked of any disagreement with the Progressive turn. Obama seemed incapable of making any presidential pronouncement without alluding to, what he saw as, the deep fundamental racial, economic, gender, fissures that characterized American society. Obama, coming to power on the promise of being the eloquent unifier, turned out to be the most divisive president of the post WWII period – up to that point. We should not forget just how superciliously, subversive his pontifications were in helping to sow the seeds of the resentment, envy and victimhood, that gets worse by the day. 

Notably, Obama started reversing and now Biden is in the further process of reversing, the Clinton era achievements which dramatically reduced the welfare rolls. And we should not forget the fiasco of Obamacare that continues to plague us.

Donald Trump was not so much a perpetrator of division, though he certainly was that, as the crudest and most primitive reaction to it. He was elected by a festering anger at the “excesses” and “heresies” of the Obama administration and the promise of more and worse to come from Hillary. In that perspective, Trump was a tumultuous reactionary and temporary hiatus in the march toward the society of woke recrimination and Q’anon insanity. 

And now, the goofy Biden is dancing to the tune of the vigorously ascendant Progressives. The $2T relief bill embodies some, but by no means all, of the looming agenda. Just the other day Paul Krugman (in the increasingly woke NYT) triumphantly declared that the days of “government is the problem not the solution” are over. And, most reasonable people tragically do not have a clue as to what it really represents. And I find myself at a loss to explain it to them. They won’t do the work necessary to understand it. They see it as a hodgepodge of partly reasonable compassionate legislative initiatives, albeit partisan in motivation (but what else is new?) that reasonable people can disagree about, but not as any subversion of fundamental American principles that could do much harm. The truth is that while world trade will hopefully continue to grow, and poverty generally will continue to decline, certain elements of our population, the most vulnerable and long suffering, will have their progress inhibited, sometimes prevented, by the Progressive destruction of adult economic and social policies. They will be rendered even more dependent on the state, more patronized, facing fewer opportunities for advancement, in an economy whose growth will be stifled by high taxes and financial instability. 

This is what makes me sad and frustrated.

 

 

On reading Buchanan's "Cost and Choice" for the third time.

I just finished reading Jim Buchanan's Cost and Choice for the third time. I continue to learn from each reading, with no diminishing returns.

Though it is widely recognized as a classic, one may be forgiven for thinking that its contribution consists of one central idea - the subjective, individualistic, ephemeral nature of opportunity cost - and the distinction between (cost-influencing and cost-influenced) opportunity cost and objective outlays ("real cost" - accounting cost). And if this were all there were to it, it would be substantial.

But, a close reading of the book reveals so many additional subtle implications of this insight that are easily passed over - particularly given Buchanan's economy of expression. His arguments are always precise, but rarely extensive. I feel as if someone with a lot of energy (attention

Robert Murphy

) could write a valuable "Guide to Cost and Choice" spelling out, line by line, some of Buchanan's less obvious points and expanding on their implications with revealing applications.

I am much less familiar with Buchanan's vast body of work, than I am with the Austrian literature, but I wonder if it could not be claimed that this little book contains a key set of principles that informed all of what he wrote, a kind of window into the structure of his thinking. In addition, it is to my mind, a solid bridge between Public Choice and (Austrian) Market Process economics. It is clearly Hayekian in nature, and, more surprisingly, Misesian. In fact, astoundingly, it adds a different angle to the Hayekian knowledge-problem. Hayek's knowledge papers are implicitly based on opportunity-cost notions. Buchanan's short analysis complements the Austrian contribution to the Socialist Calculation Debate perfectly - connecting the incentive and knowledge problems.

[Mises was the clearest of the Austrians on opportunity-cost, came the furthest prior to Buchanan and Thirlby along that road. Mises was less encumbered by the need to address the question of neoclassical "economic efficiency", rightfully so. A non-equilibrium economics sheds a lot of confusing baggage]

And, anyone familiar with Ludwig Lachmann's work cannot fail to see an independent, alternative approach to much of what Lachmann was about (Buchanan endorsed Shackle's subjectivism, which was also Lachmann's). I wonder if Lachmann had ever read Cost and Choice. His own arguments, approaching from the direction of individual expectations, would have benefitted greatly from the addition of an opportunity-cost perspective.

Today's musing minute - impeachment should be about constraining the role of government.

 

Mainly for my non-libertarian (classical liberal) friends. Make no mistake, the distressing political pathology that we are seeing in the end comes down to one basic thing - the size, power and scope of government. Deficits, and levels of debt are bad, but (as Milton Friedman reminded us) it is more fundamentally the extent of government that matters. A small limited government has less power and is less of a target for influence by big business and popularist social groups. Representative democracy only works when the government's powers are clearly and firmly constitutionally constrained. The story of at least the last one hundred years is the steady erosion of these constraints with the predictable effect of entrenching and expanding a powerful ambitious non-elected machinery of government. The progress is steady, but each major crisis has accelerated it.  A certain proportion (who knows how large?) of those who voted for Trump voted against his opponents in the hope that he could and would stem this trend. It seemed to be working for a while, to a limited extent. But it has ended very badly. And those who supported the incoming administration should be under no illusions about what is really going on here. They may have the moral high ground on impeachment, but for the wrong reasons, and within a concept of government that is the opposite of what they are supposed to be impeaching Trump to defend. Trump's most obvious transgression was to maintain and encourage his followers to believe that the vice president, together with Republican loyalists, could and must nullify the election in his favor. But, in his campaign promise to "drain the swamp" he has manifestly failed. Instead, the government leviathan monster rises ascendant with this public spectacle and exacerbates a deeply divided population, a population divided not over the appropriate role of government, but more mundanely simply over who should be in control over that government in order to push their particular bloated agenda. A ubiquitously intrusive government is inevitably corrosive of both freedom and prosperity. Unfortunately, most people who feel the loss of prosperity never realize that its cause lies in the loss of freedom, yet that widespread realization is the only hope of reversing this trend.

 

Today's musing minute - they're back !!

 Today's musing minute.

Ok, my Parler has gone. No outlet for those who annoy the woke folk. What do they think they have accomplished? Like parents telling the children to shut up and listen. The children get resentful and rebellious.

Oh so cynical and hypocritical. I am not a right-wing populist and it makes MY blood boil What will it do for the marginally unhinged?

The solution? I don't know. It would help if the consumers of big-tech products let the companies know they do not approve - loud and clear - and also the shareholders.

I am disgusted with Trump - though arguably he could not help it, given his uncontrollable passions. He has opened the door to Obama redux on steroids - with craven cronies to boot.

This is no contest. The statists on the left are just better at it. The right wing autocrats are crude, rude, sometimes violent, always obnoxious and simplistic. The left-wing autocrats can be shrill, but usually with elegant prose, navigating the rules, wearing fashionable clothes and hairstyles, so self-righteously indignant, while they squeeze away your freedoms and your money to fuel their virtuous social justice projects. They are the consummate con artists selling poisonous snake oil to the resentful. Their critics used Trump to give them the finger and it felt good, until it didn't. And now they are back, unrepentant, every bit as violent in their own way.

God give me the serenity to accept the things I cannot change ... . But can we change this? Probably only when enough people realize what is going on and come to a better understanding of what liberty, prosperity and justice really require.

Thoughts in the wake of this momentous day in America. Warning: long post.

 In the days and weeks to come, commentators will point out that what happened today was the culmination of a set of pathologies on both sides of the political spectrum. Yes, Trump and his followers high and low, sincere and expedient, share blame (as do those who encouraged and excused earlier left-wing, widespread and enduring rioting and destruction) - no excuse for the individuals who committed the violence themselves. But, if we want a thorough understanding we have to ask, who is responsible for Trump? How did we get to this point of such disillusionment with the political candidates, that the American public was able to elect the likes of a Donald Trump (whether or not one favored some of his policies)? I have pointed this out before; to point to the degenerate character of Trump and his numerous supporters is a cop out. Hopefully, both Republicans and Democrats will be asking this question. For the Democrats it will involve distancing from the radicals that are seen as a subversive threat to the very fabric of the country. For the Republicans it will entail finding decent articulate candidates who evince some credible semblance of adherence to the core Republican values - generally "centrist" in nature.

For the nation as a whole, the states will need to do what Florida did after 2000, namely, to examine and secure the integrity of their voting systems, and desist from ad hoc changes to that system. If justice must be seen to be done, the same is true of fairness.

And, yes, there is also the question of how the hell the security and the intelligence gathering in DC could have failed so badly?

Finally, ironically, this protest has derailed the perfunctory protests that had been planned and are now going to be abandoned in the interests of expediting the process, thus reaffirming the bipartisan commitment to the process itself.

On being a "liberal" from South Africa

 

The label “liberal” – as a category of political affiliation or orientation – is highly ambiguous, depending very much on the context. Outside of America (notably Europe)  it retains much of its original significance emphasizing the importance of property rights and free trade; while in America it is completely devoid of such connotations, resembling the social democrats of Europe. In other places, matters might be still further confused. 

As an expatriate South African (an America by choice) I have seen a particular confusion among my fellow emigrants of roughly the same, and contiguous generations. I see my South African American friends (almost all Jewish) affiliating naturally with American “liberals” because in South Africa, growing up under Apartheid, they were on the “liberal’ side of the political spectrum - simply because they were opposed to the Apartheid government. 

I think they are confused. I think they are mistaken. I think that if they could be persuaded to do some research and soul searching, they would find out that they have never been “liberal” in the American sense of that word, and would not have supported the policies which it connotes back in South Africa – where American liberals would have been identified more as a species of “socialists” – something almost never encountered in the light of day. 

The reason for the confusion is that, in the South African context of Apartheid, politics was never about the appropriate role and scope of government as such, but, rather, it was almost exclusively about race policy – about the appropriate rights that should be granted to non-whites, and what their place in South African society should be. The Nationalist Apartheid government maintained a lot of the inherited British parliamentary constitutional form of government, but, also, in large part, ran a police state in which non-whites had very few legal and human rights and were subject to frequent exploitation and abuse. The ruling party and its supporters were overwhelmingly Afrikaans and inherited a bitter resentment of the British, that they visited upon the English speaking portion of the white population (who dominated the business leadership of the robust private sector economy). So while there was an uneasy peace between the two white language groups, they constituted two distinct political factions. To be English-speaking was to be opposed to the Nationalists and, therefore, to be “liberal”. Anyone who was not pro-Nationalist was “liberal” – and this shaded into various degrees of “communist” as your sympathies for the rights of non-whites rose. 

The two main political parties were the Nationalist (Afrikaans) and the United (English) parties. My parents were in a third, extremely small, group of English speakers who voted Liberal (later called the Progressive party – not to be confused with American Progressives). It is important to realize that the United Party, for whom most of my friends and their parents, would have voted, was in no way similar to the “liberals” of today’s American Democratic Party. The only similarity is the misleading description “liberal” that English-Speaking South Africans would have unconsciously worn, and thus continue to wear. The only thing they have in common is a more liberal attitude about racial discrimination and human rights. 

The truth is there was no discussion about the proper role and scope of government in the economy and the connection between human rights and economic freedom. Economic freedom was just not considered. It was completely eclipsed by the race issue, put on the back burner for if and until when the Nationalists were ever unseated. No doubt it was part of the United and Progressive Party platforms, but I do not recall anyone paying any attention to that or talking about it. Yet, I feel sure that if these party platforms had contained the kind of massive state intrusions into the economy and private life that current Democratic Party policies have and are proposing to have, they would have been rejected by South Africa’s English speaking liberals – as they should be rejected now. 

The natural home of these anti-Apartheid folks, is not the current Democratic Party. Neither is it the Republican Party (for different reasons – different intrusions into the economy), though some third option, much closer to the original meaning of liberal as someone in favor of equal individual liberty for all regardless of race, color, creed, … , and all the freedom it implies, especially freedom of expression, movement, employment, trade and so on.

On Reading Mises’s Omnipotent Government

 

From his new home in New York, in 1944, having fled his old home in Austria, via Geneva, Ludwig von Mises published a remarkable book entitled Omnipotent Government. Reading this book today provides a rare window into Mises’s world at the time he wrote it, as well as into the significant historical trends that characterize the roughly two centuries that led up to that time, the cataclysm of two world wars, a worldwide economic depression, Nazism, the holocaust, and the rise to prominence of the Soviet Union.

This book remains a source of information, amazement and satisfaction for those interested in the history, politics, economics and sociology of the times. I, and my generation, grew up in the shadow of World War II. Recent generations, will not feel the significance of those turbulent times as keenly -  and less so as time goes by. It will become an esoteric experience for those who read books like this.

Bear in mind that the book was published in 1944, before the conclusion of World War II in 1945, and much of it was written in the few years before that, while the war was raging. The full extent of the destruction and brutality was not yet widely known (it is not clear from the book whether Mises knew, for example, of the magnitude of the holocaust – the death camps and extermination of around ten million people, including six million Jews, one third of the population of world Jewry).  So, having fled the Nazis himself, leaving behind a lifetime of work and accomplishment, for a strange new world, writing in a foreign language, he passionately records his understanding of the deep forces at work that explain the descent into barbarism of European civilization. Without taking note of Mises’s perspective at the time, one does not appreciate the full power of the book.

To be sure, Mises is difficult to read for some. His style is assertive and dogmatic, and impersonal. One frequently encounters phrases like “There can be no doubt that … ” and rarely any humility. He confidently discerns the cultural tectonics underlying historical developments. He presumes to know the mindsets of millions of individuals over vast swaths of time. But, that being said, the reader need not hazard a judgement on these assertions to appreciate the quality of the intellect at work, and the earnest attempt to come to grips with the horrors that have personally affected him and his entire generation. He shines a bright light to illuminate the complex and mysterious. Having read this book one cannot but come away much less perplexed by all that happened, and much better equipped for further investigation.

At one level, Mises’s story is a simple one. The decline of European civilization to the abysmal depths of Nazism was the result of the eclipse of Liberalism (classical liberalism, the kind that Adam Smith believed in). Ideas matter, big time. The rise of the total state and total war (the subtitle of the book) was the result of the steady abandonment of a general commitment to the Liberal principles of individual rights and free markets. Liberalism arose, first in England and the British Isles, and then in western and central Europe and America, in the middle of the 18^th century and lasted roughly a century, before being pushed out as the dominant worldview. It was the spark that ignited the Great Enrichment. And in this book we find perhaps Mises’s best statement of its content and significance, and one of the best statements on Liberalism to be found anywhere. Mises provides an account of what Liberalism is, and is not, and why it is so important in the grand scheme of things.

Two broad alternatives to Liberalism as the dominant view emerged toward the end of the 19^th century, namely, Socialism and Interventionism, in different places, notably, in England and the newly emerged German nation state. Mises explains how both, in different ways, lead to catastrophe, the omnipotence of the state. Both are variations of the phenomenon of statism (or etatism, as Mises calls it). There is a direct line from Prussia’s Bismarck to Germany’s Hitler, from the decline of the European dynastic family principalities (the ancien regime) to the rise of all-encompassing nation states, with Liberalism in between as an unwitting conduit.  

In earlier work, Mises had explained in great detail the contradictions involved in Socialism as a system for achieving sublime human equality. Socialism is doomed to collapse into economic ruin and brutality. The central planning required by Socialism implies the abandonment of private property and market processes that are necessary to coordinate economic activity. Without them people starve, become desperate and barbaric. This is explained again in 1944 before the full extent of Soviet failure had emerged, not to mention the numerous other failures of socialist experiments that followed.

Interventionism is commonly presented as a compromise between Capitalism and Socialism, but Mises disputes its sustainability and argues that, if not reversed, it leads ultimately to state domination of production no different in kind from Socialism. Nazism is Socialism in this sense, an extreme form of Interventionism that dominates all aspects of economic life (as he documents) and life in general. In the case of Germany, 1871 – 1944, it is the result of a push toward state-imposed autarky (discrimination against all foreign production) and the implied need for Lebensraum to feed the privileged German nation.

Mises is clear and adamant about the necessity to resist Nazism in the strongest possible terms and scathing in his condemnation of the western democracies in their failure to prepare for an effective opposition to Nazism (and Fascism in Italy and Spain). He attributes this lack of will to the abandonment of Liberalism, to a loss of understanding of its significance, and to the rise of Socialism in the world and in Britain in particular (Fabianism).

His final chapters on the future of Europe and the world are necessarily uninformed by later developments, notably the formation of the United Nations, and the closing of the iron curtain, but can be read nevertheless as remarkably prescient.

I studied history as an undergraduate, as a joint major with economics.  I have retained an abiding interest in it, including in European history. I remember studying the history of the unification of Germany and remembered enough of it to relate to Mises’s account in a way that deepened my rather superficial understanding. Most English speaking readers are much more familiar with the history of Britain and America than of Germany, France and other European countries. But, in order to understand, the modern era in which we live, it is necessary to understand it all. One could do no better than to begin with this book.

From my FB page - of note. 

On the pathology of anti-discrimination policy. 

Peter Lewin

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Does it constitute progress that we have moved from state mandated racial discrimination to state mandated affirmative racial discrimination? Yes, it probably does.

The different motivations probably do have some moral significance. It is good that we have put behind us the mindset that motivated slavery and Jim Crow apartheid and that there is an honest desire to own up to that history. But that does not make affirmative discrimination right morally speaking - just because it may be motivated by good intentions. [I leave aside the self-serving hypocrisy associated with it.] After all if racial discrimination is morally wrong how can affirmative racial discrimination be morally right? It operates the same way and hurts innocent people. It is not only wrong, it is very wrong.

This conclusion is substantially reinforced by the fact that such attempts to use group discrimination to remedy past sins ends up not eliminating prejudice and discrimination but perpetuating it. It is horribly counterproductive and is a significant part of our current identity politics pathology.

Well so much for a real discussion about policy.

 

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Well so much for a real discussion about policy.

I think the pattern is now pretty clear. There are 6 groups – broadly speaking.

1. The "liberals" who hate Trump so much that nothing else really matters. To the extent that they consider policy at all they either think Trump's policies are wrong or they think that anything good that happened during his term is something that just happened and would have happened regardless of who was in the WH, or that they were the result of Obama's actions. (See Alan Blinders ridiculous article in yesterday's WSJ). Many in this group spend their time perseverating on Trump's utterances and missteps and pouring their nervous energy into caricaturing and mocking him to their endless satisfying amusement - an easy target. 
2. The woke “liberals” (progressives, socialists and left-wing fascists) who want to remake (aka destroy) the free-enterprise,  capitalist system and the Western culture that made it. This group includes the antifa types who believe there are no limits to the means that can be used to achieve their revolutionary ends – they are fanatics every bit as dangerous as the right-wing variety and right now more numerous and they regard the liberal majority as useful idiots to be manipulated for the worthy cause. 
3. The Republicans who like Trump's policies but whose aversion to the man is so great that they cannot vote for him. This includes those who are afraid of what he might do that could be fundamentally damaging to the body politic - though my efforts to extract anything specific along these lines has so far failed. 
4. The independents who voted for Trump last time, but who have soured on him for one reason or another – perhaps because they did not realize just how toxic his personality actually is. Why not, one wonders? What did they expect? So because of their newly found aversion and fear of him they have switched their vote. It is this group – many of whom voted against Hillary Clinton – who will determine the outcome of the election. 
5. Two kinds of Trump supporters. One, those who will vote for him in spite of his toxic personality because they value the policies that have resulted during his first term and believe these are likely to continue and extend into his second term – though how these policies actually resulted is both unclear and not very relevant. The point is they benefitted tens of millions of people, many of them poor – and on foreign policy achieved unprecedented breakthroughs. This group, of which I am a part, lives in fear of how a Biden/Harris administration will squander all of these achievements and then plunge further into the Obama regulatory agenda – on steroids provided by the ever more influential woke elements in the remade Democratic party.
6. The second group of Republicans (“conservatives”), those who can see nothing bad in Trump and wax apoplectic at any criticism of him. They includes the “deplorables” the right wing racists and fascists as well as decent folk who just want to believe, appearances to the contrary notwithstanding, that Trump is a savvy, down-to-earth regular guy who instinctively knows what to do and deep-down cares about them and about America.

 Because of group number 4, I believe that Trump will lose the election – even though I hope for a miracle that he won’t.

 I am deeply disappointed that the Trump campaign has not been able to make the conversation about policy – domestic and foreign – that Trump has not been willing and able to lay out systematically the facts on the ground in a manner that would appeal to those who want to hear an analysis without rancor and rage. “This is what I am about, this is what has happened, this is what I promise, regardless of what he says or promises, think about what is better for the American people and vote for me”. But, clearly that is naïve.

 If Reagan was the swing back from Carter (a low point in America), and Trump was the swing back from Obama and Hillary, who will be the swing back from Biden/Harris? That will have to be my focus.

Trump is the end result, not the cause.

Today's musing minute:

Certainly high up on the list of Trump's flaws as a leader, is his inclination to divide rather than unite. He thrives off the negative energy of confrontation - turned always into a commentary about him and his achievements. Certainly he appears to be missing an opportunity to nudge people away from division toward unity in a crisis.

Having said this, I am compelled to point out that this pervasively hostile environment has its origins long before the advent of Trump. Trump is not the cause of it. He is the result, the latest reflection of it. It has been brewing for over a decade in the escalating stirrings of the racial justice movement in their many diverse projects aimed at creating racial, ethnic and social conflict - apparently for various reasons, some political (to get federal money) some ideological (Marxist). Certainly Obama was an instrument in this (you did not build that!), and it has slowly but surely infiltrated deep into the Democratic party.

The distortion of history, the provoking of resentment about statues and establishment names, the fostering of white guilt, the promotion of race consciousness everywhere and in everything. MLK.s dream of a race-blind society is now openly scorned and repudiated. Trump is the spear-tip of the right wing reaction to this. And unfortunately he is serving the purpose of the racial justice warriors perfectly.

Puzzling is the readiness of the Democratic party to go along. Like Trump its leaders appear to be missing the opportunity to call for unity, to reach back to our common American-ness in spite of all the tragic horrific divisions that punctuate our turbulent history and to point out that we have arrived at a time when in the richest and most powerful nation in history there is so much more that unites than divides us. But to do this they must repudiate the social justice movement and its racist agenda and affirm an America that has never been less racist or more inclusive than it is now.

Systemic Racism, Police Brutality and All That - Part 4

Finding discrimination in the data 

The observation of racial disparities is not, by itself, evidence of racial discrimination in any meaningful sense of that term. I have discussed a number of likely causes of the incidence poverty that disproportionately affects black communities in the US. 

More sophisticated investigations try to account for the various causes of any observed racial disparity. Consider, for example, a difference in pay. Clearly, a comparison of average earnings without adjusting for factors like educational qualifications, training, and experience are inappropriate. If one wants to isolate the effect of racial discrimination one needs to compare apples to apples. Some studies have attempted to make such adjustments, using available, though imperfect, measures of labor-relevant characteristics, like education, qualifications and experience. And some have found that the adjustments do not reduce the gap between black and white earnings for equally qualified and able workers to zero. This “residual” is then attributed to discrimination.

As another example, a similar study corrected for buyer  characteristics other than race, finds a persistent disparites is housing prices paid by blacks and whites, a premium that blacks had to pay for the same/similar houses under similar conditions – and concludes that this must be because of discrimination. 

Yet, another example, involves the observation that, despite having applicant pools of equally qualified people, men vastly outnumber women in certain lucrative, prestigious professions, like engineering and computer science. [Notably these observations do not control for the number of offers made and accepted.] 

The details of these studies are not important for this discussion. What is important are the following two questions. 

1. Is it legitimate or sensible to attribute the “unexplained” disparities to discrimination (prompting the corollary question: what does that mean)?

and

 2. What follows from that; what do these remaining gaps imply for policy? 

With regard to question 1 much depends who we imagine has the burden of proof. When we observe a disparity that cannot be explained by differences in the background data are we justified in concluding that discriminatory behavior must have occurred, or will we require that such a conclusion be proven by further evidence of actual discriminatory behavior? This will turn out to be very important when we consider the way the criminal justice system works in deciding accusations of discrimination. 

Question 2. Is the more important one. What should be done about racial disparities that can with greater or lesser confidence be attributed to discrimination? To be more specific the possible scenarios include disparities in pay, hiring, firing, promotion, training and working conditions. To explore this we need to examine the economics of discrimination. 

Discrimination is immoral, but should it be illegal? 

In a free society people will be free to do some immoral things. Clearly freedom has been an indispensable part of the growth of our society and the achievement of prosperity for many. But, many will argue, if left unchecked it will produce gross inequality and injustice. For example, the argument goes, people with power to hire and fire, to pay more or less, to promote or not to promote, who have racial biases should not be free to exercise those biases with impunity. We need laws and regulations to check that behavior. Such is the justification for the extensive regulatory apparatus designed to counter any suspected bias that might lead to labor market discrimination. 

The extent of the anti-discrimination, diversity promoting, bureaucracy and regulatory framework is formidable. In economic terms it constitutes a significant proportion of our GDP. Every company above a minimum size must devote considerable resource to diversity monitoring, ensuring that minorities are not being disadvantaged in any way. Besides the various and varied state agencies tasked with advising and monitoring such matters, there also exist powerful federal agencies for the purpose, notably the EEOC (Equal Employment Opportunity Commission) and the OFCCP (Office of Federal Contract Compliance Programs) – which is the watchdog for the implementation of affirmative action, that is preferential treatment for “equally qualified” minority workers and job applicants). This regulatory bureaucracy, besides its operating cost, imposes significant indirect costs on businesses as they try to ensure that no complaint is filed with the EEOC against them or that no deficiency is noted in their affirmative action plan (required by all federal government “contractors” – those who directly or indirectly do business with the federal government, which may be the majority of businesses in the economy. It is hard to overstate the reach of the anti-discrimination, diversity-promoting, micro-managing bureaucracy. 

But, what is it all about? Is it simply a matter of trying to counter the consequences of labor market bias? And if so, does this make any sense? Like all regulation, labor market regulation faces serious knowledge and incentive problems. There are always unintended consequences and costs. 

We may examine this by using the example of pay. Presumably the objective of the regulations is to ensure that racial bias does not result in lower pay for equally qualified workers. To construct a regulation to ensure this one has to provide a way of deciding who is “equally qualified”. More specifically, when a complaint of pay discrimination is lodged with the EEOC, the agency must decide whether the complainant is equally qualified in comparison to those who are receiving higher pay. Or, more simply, are doing the “same job”. The agency will have to insert in place of the judgment of the employer its own judgement to decide whether the pay gap is justified. But, clearly the agency cannot know as much about the business as the employer. How can the agency know how much of the gap is due to the legitimate judgment of the employer about differences in the productivity of the worker and how much is due to bias? 

To complicate matters, should the issue come to a court of law, the procedure followed will be, as described above, to use “experts” to control for productivity factors as much as possible, and to observe if any pay gap still remains. If, after this exercise, a gap remains, it is common in such proceedings that such finding will be regard as sufficient for the plaintiff to have established a prima facia case of discrimination, and then the burden of proof will shift to the employer to “prove” that he has not discriminated. The presumption of innocence is now removed. 

Needless to say, since it is very difficult to prove the negative of no discrimination, many of these cases are resolved with costly settlements. Even more likely, employers will work hard and spend significant resources to avoid such lawsuits by ensuring that minorities are paid sufficiently to deter such complaints even if it means paying them more than they are worth in terms of unbiased business judgments. In other words, this kind of regulation, in trying to prevent pay discrimination causes discrimination against non-minorities The same logic applies to hiring in an affirmative action environment where less qualified minority workers are likely to get hired in order to avoid any presumption of discriminatory bias. Affirmative action is actually affirmative discrimination. If discrimination is immoral, one wonders how it can be justified in this context.   

A particularly stark manifestation of this is the preferential treatment given to black student applicants to college. Black applicants are in many institutions admitted with test scores a few hundred points below those of their white and Asian counterparts. The result is that many underprepared black students are admitted to programs in which they are likely to fail and to attract attention for doing so. This program is thus doubly counterproductive in, first, failing to benefit the people it is designed to benefit, and, second, in increasing discrimination and race-consciousness by discriminating against whites and Asian students. In addition, it fails to address the fundamental reasons so few black students are unprepared for the colleges to which they apply. By targeting diversity of admissions (notably not of graduations) the focus is on the symptoms not the causes. 

All in all, in similar ways, anti-discrimination regulation is a problematic bag of tricks with unpleasant surprises. Which prompts the question, is it even necessary? A brief look at the economics of discrimination suggests it is not, in fact, suggests that such regulation may actually retard the erosion of discrimination. 

In any reasonably competitive labor market, competition works to erode discriminatory behavior (and also discriminatory attitudes as a result, because if people behave in a non-discriminatory way they interact with a greater diversity of individuals and often overcome their initial biases and prejudices). No system has ever been more successful in reducing the effects of bias in race, class and other such designations than competitive capitalism. 

To understand this, consider again the example of pay discrimination. Imagine an employer who will hire black workers only if they are paid less than whites (or hired into lower paying jobs for which they are overqualified) In a competitive labor market such an employer pays a price, and it could be a heavy price. If blacks have to discount their wages in order to get employed in equally qualified jobs, non-discriminators will have a cost advantage if they hire blacks and have an incentive to do so in large numbers. Over time such cost advantages will translate into higher market shares. In the long run discriminators will have to adapt or go out of business. 

The same applies to hiring, promotion, training, work conditions, etc. Those employers who are color-blind will make better use of the resources to economic advantage and outcompete discriminatory behavior.[1] This applies as much to black employers as anyone. 

This story is well known. Some find it unconvincing because they think, incorrectly, that it depends on the employer having “perfect information” about the qualifications and productivity potential of black and white workers. If this were the case, then the story would be just a nice theory, applicable to a world where knowledge was perfect and there was no uncertainty. In fact in such a world there would never by any discrimination at all, as long as there were sufficient non-discriminators, though there might be segregated work forces. 

In the real world discrimination is a fact of life. The question is what system minimizes discriminatory behavior or minimizes the existence of racial bias. And the answer is a competitive unregulated labor market. To think that regulation, like the current affirmative action regulation, can improve on it is to ignore the very heavy regulatory costs I have enumerated above[2], and to assume that somehow the regulation results in a better match between qualifications and employment regardless of race.[3] Establishing that a free market would not bring about a perfect outcome is emphatically not to establish the case for regulation, which far from being able to make things better, is very likely to make things worse. 

Conclusion. 

In this four part essay I have tried to show why the current race-loaded narratives are not helpful but are, rather, destructive of understanding, empathy and progress. My recommendation is to talk about how we individuals of all races and creeds can work to improve lives in general, and the lives of the poor in particular, a significant proportion of whom are black. 

Appendix: Biographical note. 

My decision to write this extended blog was provoked by the precipitous deterioration of the already abysmally low level of our public discourse, particularly around race, inequality and public policy. Such discourse shows less and less evidence of knowledge about the workings of markets, of American history and of the workings of government. In addition, myths and distortions abound in service of an unprecedented radical public policy agenda, one that, sometimes consciously, targets the very foundation of the American free market system and the freedom and prosperity with which it is associated. 

I am particularly sensitive to these matters because race and economics is an area of specialization for me as an economist. I was born and grew up in Johannesburg, South Africa. My father was an extraordinarily liberal and tolerant man and we experienced considerable dissonance living in the apartheid police state. But, though he was a very passive man in general, he was easily angered by any manifestation of racial bias or bigotry. I grew up with an appreciation of tolerance and of individual rights, in sprite of seeing manifestations of the very opposite everywhere around me. 

Upon leaving South Africa, I did my doctoral dissertation on the Economics of Apartheid, under the supervision of the famous economist, Nobel laureate, Gary Becker at the University of Chicago. Becker pioneered the field of the economics of discrimination. But he did not consider situations in which the government, supporting a white minority, imposed racially discriminatory laws. This was the case in South Africa under apartheid and in the Jim Crow south in the US. 

I realized that in such situations, governments serve to prevent, or retard, the process by which free markets erode discrimination. This leads to the prediction that, when such discriminatory laws are removed, allowing freedom of choice, including biased choice, discrimination and bias will gradually, if not immediately, disappear. This is exactly what has happened in South Africa and in the American south. The current discourse evidences no understanding of this or, indeed, of the negative role that government must play if it enters into the realm of what should be private decision making.

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[1] It should be obvious that, in a perverse way, labor market regulation gets in the way of this erosion process, by focusing on race and encouraging non-optimal use of resources.

[2] For the sake of brevity I have omitted consideration of the egregious violations of individual liberty that these regulations entail.

[3] Supporting such regulation, since it is coercive in nature, should carry the burden of proving that it does.