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August 2012 posts


Jonathan B. Wight

It's embarrassing when a candidate makes grandiose claims. Last night, Mitt Romney stated: "I have a plan to create 12 million new jobs." If a Democrat had said this Republicans would rightly pounce: presidents don't create jobs, only the private sector can. Of course, this statement is false if some public investments enhance productivity in a way private investments cannot (the classic "public good" argument).

Right now the private sector is creating jobs but the public sector is shrinking and pushing up unemployment (see chart).











What constrains private job creation at this point is not the crowding out of big government. Interest rates are miniscule and there is plenty of capital sitting idle. Nor is it labor shortages. Nor is regulation listed by businesspeople as the key factor limiting investments. The key problem is unemployment, continued foreclosures, and generally anemic demand (see, for example, Bernanke's speech today). Uncertainty about policies (e.g., stonewalling on the budget) is likely also a factor.

Romney would like to spur small business development; but a bizarre statistic is that small business formation is much higher in Europe—where there is portable universal health insurance). The best argument for universal health care is that it would allow people to leave their corporate jobs and undertake risky small-business start-ups.

Minor aside: Romney also said: "Everywhere I go in America, there are monuments that list those who have given their lives for America…. They lived and died under a single flag, fighting for a single purpose. They pledged allegiance to the UNITED States of America."

Apparently, Romney did not pay attention the last time he visited Richmond. Monument Avenue is famous for its statues of Robert E. Lee, J.E.B. Stuart, "Stonewall" Jackson, and Jefferson Davis, men who led the Confederate states in seeking to abandon the United States.

Down with Gold

Jonathan B. Wight

A few acquaintances espouse the idea that a gold standard is simple, would reduce inflation, and would force the government to live within its means.

A lot of attention in particular is being paid to Paul Ryan's manifesto against the Federal Reserve and in favor of some type of commodity standard (for example, here and here). The 2012 Republican platform explicitly proposes a commission to investigate ways to "set a fixed value for the dollar" – which is code-speak for a gold standard.

Paul Ryan said in a speech that he gets his anti-Fed views and pro-gold views from reading Ayn Rand's novel, Atlas Shrugged: "I always go back to, you know, Francisco d'Anconia's speech, at Bill Taggart's wedding, on money when I think about monetary policy."

So what's wrong with the gold standard? Well, what's wrong in general with technology from the 1800s? Do you want to live without electricity, cars, and antibiotics? All of these innovations improve on the natural state of things. Electricity allows us to live full lives even when the sun goes down and greatly increases our productivity.

What would you think of a presidential candidate who said, "Sunlight is our natural way of seeing. We should return to the sun standard." You would say this person is nuts!

I would say the same thing about Ryan's view on the gold standard. It's a relic of a bygone era. The gold standard cannot provide either price or employment stability for reasons well covered by many notable economists, and as reflected by price and output data from the times we were on the gold standard. As Krugman wryly notes:

"Under the gold standard America had no major financial panics other than in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933."

That would be funny, except that proponents of the gold standard seem to systematically ignore the downsides of a metallic monetary system. This isn't a mistake Milton Friedman would make.

Today we buy cars whose most expensive materials are no longer metal. A modern car is made up of expensive composites, and plastics, and electronics. Today, a modern monetary system is made up of electronic and other assets that constitute the means of exchange, stores of value, and units of account. It's a more complicated and flexible monetary system, to be sure, than the money of old, just as cars today are vastly more complicated and supple than the Model-T.

Would you want it any other way? Is simple always better?

[Updated September 28, 2012 to fix links.]

Romney, Freedom, and Abortion

Jonathan B. Wight

Mitt Romney seems like a nice guy. He clearly is a natural-born leader in the sense that he rises to top of his cohorts, whether in the Mormon Church, the Olympics, and the political scene. But he reeks of falsehood about his core beliefs; he seems a chameleon willing to say whatever he thinks will sell. A huge example is his successful health care reform in Massachusetts requiring mandates that now he disavows. A second is his former commitment to libertarian ideals of freedom and small government when it affects women's health, which again he now disavows.

Slate has a fascinating account of Romney's flip-flops on abortion policy and the personal and political calculations that likely lay behind it. The Mormon Church is mainly pro-life, with exceptions for rape and health of mother. As a bishop in the church Romney counseled a woman in her hospital bed not to have an abortion even though her life was endangered.

Later, when running for the Senate in liberal Massachusetts, Romney hired a consultant who told him he would never win unless he switched to pro-choice. In 1994 Romney and his wife attended Planned Parenthood fundraiser and donated to it. Here is Romney in 1994 supporting his pro-choice stance and justifying it based on his own moral sentiments:

"Many, many years ago, I had a dear, close family relative that was very close to me who passed away from an illegal abortion. It is since that time that my mother and my family have been committed to the belief that we can believe as we want, but we will not force our beliefs on others on that matter. And you will not see me wavering on that."

Later, running for governor of Massachusetts in 2002, Romney pledged a commitment to liberal ideals:

"Believing in people is protecting their freedom to make their own life choices, even if their choice is different than yours. That choice is a deeply personal one, and the women of our state should make it based on their beliefs, not mine, not the government's."

Romney now says that in 2006 he had a conversion back to pro-life because of his consideration of stem-cell research with embryos. That is probably about the same time he began to plot his national ambition to reach the presidency.

Abortion and stem-cell controversies are painful and difficult. Liberal intellectual reasoning leads people to their own mountains of conceit and prejudice against those who hold a more primitive moral sentiments (and Catholic view) that human life begins at conception. In the future we will learn much more—and it would not surprise me if science comes to find that some consciousness exists in an embryo or even in a sperm and egg. The Catholic intuition may turn out to be closer to the truth.

That does not mean its abortion stance is the correct one; Romney's 1994 and 2002 position on abortion may be the best we have at the moment, given all hard and bad choices.


Jonathan B. Wight

Two more summer reading books explore aspects of oppression that are too easily overlooked – and pushed under the rug.

The first is a new book by Ben Campbell, Richmond's Unhealed History (2012, Brandylane Publishers). This is one of the best economic history books I've ever read—and is addressed to a wider audience of Americans, not simply residents of this city. After all, America's colonial experience set the narrative for the founding of our country and its most painful episode, the Civil War. Understanding this history is important for creating meaning from our past and exploring our paths for the future.

Campbell weaves a fascinating narrative of colonial conquest of native Americans followed by the African slave trade, topped with a nuanced analysis of economic policies of segregation that sadly can be felt to this day. The book uses striking original sources.

One account that caught my eye was this report from Charles Dickens, who visited Richmond in 1842. He lamented the morally debilitating effects of slavery on the slave owner:

"But the darkness – not of skin, but mind -- which meets the stranger's eye at every turn; the brutalizing and blotting out of all fairer characters traced by Nature's hand; immeasurably outdo his worst belief. I left the last of them behind me... and went on my way with a grateful heart that I was not doomed to live where slavery was, and had never had my senses blunted to its wrongs and horrors in a slave-rocked cradle" (page 107).

Living in an oppressive society can degrade your morals -- certainly a topic that Adam Smith was interested in. There is a notion that oppression ended with the Civil Rights Act of 1965. Campbell's book is a reminding light that more has happened—and continues to happen—in terms of elites manipulating leavers of economic opportunity.

The second book is by Nancy Folbre, The Invisible Heart: Economics and Family Values (The New Press, 2001) which came out more than a decade ago. I've read snippets of it before but never had the pleasure of reading from start to finish.

Folbre makes the case that economies have always relied upon an invisible workforce, whose incentives varied but were many times characterized by "love, obligation, and reciprocity" (p. vii). Women have disproportionately been a part of this invisible workforce, not always out of choice. In many cases cultural, political and economic barriers prevented women from engaging in paid commerce.

The rise of economic opportunities for women is a mixed blessing: many of the care-giving roles previously occupied by women are not being taken up by men, so as a society we are more and more commercializing care relationships.

The result could, in theory, be better or worse: but Folbre asks us to consider: would you rather be cared for by someone whose sole motive is money or someone who is guided also by love or affection? Not all forces for economic action arise from pecuniary considerations and other motives can at times be more powerful. Folbre thus criticizes economists for being excessively focused on money as a measure of human welfare.

[Minor quibble: Folbre sets up Adam Smith as a straw man whose invisible "hand" she can then tear down. In particular she is wrong on a main point: Smith does not say the moral sentiments are "given" or "constant." Far from it! They are developed or cultivated over one's lifetime. A virtuous person is on a path, and the moral imagination can be stimulated by the arts and by experience or dulled by a stifling work. So, while it is tempting to attack Smith (so as to push this book's title), Smith's analysis runs far deeper than many realize.]

Folk Wisdom about Pregnancy

Jonathan B. Wight

I'm not against folk wisdom. In fact, I have a bias that small is beautiful, and folk wisdom represents ancient knowledge accumulated by thousands over the ages.

Yet science is also good, and many times, much better than folk wisdom.

I had a friend in graduate school who touted the folk wisdom that eating the right fruits and vegetables would provide a natural contraception. After his wife had four unwanted pregnancies (!) he was still clinging to this view despite all the evidence to the contrary.

Another bit of folk wisdom, passed down by Rep. Todd Akin (R-Missouri), is that women who are "legitimately raped" have some sort of natural defense system that will prevent them from getting pregnant. (Let's ignore Akin's strange terminology of "legitimate" rape.) Perhaps the stress of rape would shut down key biological functions that would prevent conception or would prevent a fertilized egg from nesting in the uterus. If so, women won't get pregnant from "legitimate rapes" and thus don't need an option to abort.

But Politico's quick look at the scientific data shows the reverse to be the case. Women who are raped are more likely to become pregnant than the general population of people having consensual sex. The reason is selection bias. A rapist is more likely to pick young women who, on average, are more fertile than the general population. According to the FBI, there were about 88,000 rapes in 2009. If 5% resulted in pregnancies that would amount to 4,500 pregnancies per year from rape.

Science: 10. Folk wisdom: 0.

It would be nice if legislators had some reverence for science, even if it upsets their core beliefs.

Paul Ryan

Jonathan B. Wight

Unlike many politicians who pronounce on public policy, Paul Ryan was actually an economics and political science major at Miami University of Ohio. But unlike conventional economics majors, Ryan followed a heterodox approach by also reading Hayek, Rand, and other libertarians. He was "intellectually curious" according to his economics mentor.

Ryan has in at least one place invoked the name of Adam Smith as justification for his policies. It is not clear what Ryan has read of Smith or about Smith, but it is apparent that many market advocates praise the name of Smith while trampling on his ideals.

Smith stood for policies that would benefit the poor and vehemently denounced policies that benefited elites. Smith was in favor of progressive taxes that would fall more heavily on the rich. Ryan's budget attempts to shrink government, which Smith would be in favor of, but Ryan does it primarily on the backs of poor and giving tax cuts to the richest. Smith favored regulations in financial markets to prevent excessive risk taking. Thus, there appear to be some major points of disagreement.

Smith also wrote at length to denounce the "greed is good" ideas of Bernard Mandeville, ideas which Ryan apparently adopted in his early attraction to the philosophy of Ayn Rand. Ryan now distances himself from Rand—after all, one cannot run for vice-president and support an atheistic philosophy!

In 2005, however, Ryan gave a speech saying:

I grew up reading Ayn Rand and it taught me quite a bit about who I am and what my value systems are, and what my beliefs are. It's inspired me so much that it's required reading in my office for all my interns and my staff.

It is hard to believe that Ryan has given up his belief in Rand, rather he has more likely put it under wraps for the campaign, just as Mitt Romney has given up his health mandate and other hard right issues.

Some of Ryan's non-budget positions are quite sensible: he supports a line-item veto and eliminating ethanol fuel mandates. But other views are parochial, it seems to me: e.g., trying to force the Fed to ignore unemployment and international considerations when setting monetary policy. Protecting the wealth of financial assets via low inflation is certainly not the only desirable mandate for the Fed. National security and political stability both rank higher in my book.

In coming months I presume we will all delve more deeply in the Ryan budget. But that's secondary to the key issue: is Ryan ready to be commander in chief, should Romney at age 65 suffer from a stroke or worse? My complaint against Sarah Palin last time—and Ryan this time—is that neither is ready for prime time on the international stage. Ryan is smart, well-educated, and likable; he would be a quick study. But at age 42 I would still not put the country in his hands. Teddy Roosevelt and John Kennedy were 43 when they assumed the presidency, but both had served overseas in combat and held higher offices than Ryan.

Ryan's short term problem is convincing aging citizens of Florida that he is not going to throw grandma under the bus by eliminating Medicare as we know it.

Medical Ethics Nightmare

Jonathan B. Wight

If you read one book on medical ethics this year, you might try Rebecca Skloot's, The Immortal Life of Henrietta Lacks (2010).

Henrietta Lacks was the unwitting donor of cervical cancer tissue which in 1951 became immortalized as HeLa, reproduced trillions of times around the planet. Her tissue has been used to fight polio, TB, cancer, and is instrumental in much medical testing still today. Billions of dollars in profits have been made by drug and other medical companies using her reproduced cells. Yet Lacks, who died shortly after her tissue was taken, never earned a dime and her family languished without medical insurance.

You may think one's own body is the most sacred of all possessions, which you own by right. But you'd be wrong. American courts have held that patients have no right to tissue (living cells) taken from you in a medical procedure. All such tissue is considered "waste" material, despite the fact that some patients' tissues are extremely valuable to researchers and for-profit companies.

Disclosure rules have improved, but it's still the law of the jungle when it comes to owning your own body parts. The book catalogs not just Lacks' personal story but several other cases of egregious ethical misconduct in the name of science.

There are plenty of examples in this book of kind-hearted doctors and philanthropists—such as at Johns Hopkins University, established to help the indigent of all races get medical care. Yet there were unintended consequences of that benevolence in that it led researchers to treat patients not as individuals with rights, but special cases.

Lacks grew up on a tobacco farm in far south Virginia and moved to Baltimore when her husband got a job at a steel mill. Her story of back-breaking work and uplifting spirit despite her medical trials and tribulations makes this a compelling summer read. Most of the book deals with the slow and painful uncovering by Lacks' children of the unknown story of their mother's cell lines and their role in medical breakthroughs.

[Bottom photo: HeLa cancer cell dividing. Source: http://rense.com/general89/immot.htm]

Nutritional labeling, nudges, and a "cynical view of human nature"

Mark D. White

Food labelsNew today from associate editor Brian Fung at The Atlantic is a piece on an experimental nutritional labeling system modeled on traffic lights. In use in the United Kingdom (where it was instituted by the British government's "nudge unit"), the revised nutrition labels would have color-coded icons for fat, calories, and other aspects of food products according to whether the levels are considered healthy or unhealthy. Mr. Fung reports the results of a study from Masschusetts General Hospital that--unsurprisingly--such labels increase the amount of healthy food consumered and lower the amount of unhealthy food consumed.

I discuss labeling systems such as these in my upcoming book, The Manipulation of Choice: Ethics and Libertarian Paternalism, in which I differentiate between the information provided by such label--which allows people to make better decisions according to their own interests--and schemes like the traffic light one which nudge people toward some food and away from others based on bureaucrats' judgment of what is healthy and what is not. (I also discussed nutrition labeling in an earlier blog post.) As Mr. Fung acknowledges, "Bickering over what red, yellow, and green actually mean is likely to be as difficult -- if not more so -- than actually putting the system in place." Some of this bickering may be political, of course, but some will be due to disagreements among health experts over what a proper diet consists of--a debate unlikely to be settled any time soon among the experts, much less by government fiat!

But what I found most interesting about Mr. Fung's article was the irony in the subheading:

If soda bans take an implicitly cynical view of human nature, food labels that give consumers the impression of freedom might be their opposite.

I don't know what could reflect a more cynical view of human nature then trumpeting proudly the prospect of "giving consumers the impression of freedom." These two approaches to paternalistic regulation are not opposites--the only difference is that one is clumsy and the other is "clever." This attitude continues as the article begins (emphasis mine):

From New York City's point of view, humans are notoriously bad at making good decisions. That's what makes a ban on large sodas necessary: the idea that Americans can't be trusted with their own health. But maybe there's a middle ground between letting people gorge themselves on junk food and making it illegal. The key to making it all work is creating an environment where consumers still believe they're in control.

No, there's no cynical view of human nature on display there.

Finally, as the article ends, Mr. Fung writes:

New York's faith in humanity must be low indeed if it thinks only the most blatant coercion can get people behaving differently. Whether collectively or alone, people are hopelessly incompetent, is the message Bloomberg's soda ban sends. A more accurate way to put it might be that people are incredibly malleable, open to having their decisions swayed in terrible ways by factors that are out of their hands. The difference is slight, but in the small gap between those two statements lies an opportunity to move people in the right direction without taking away their freedom.

As above, I disagree with Mr. Fung: the difference is not slight, it is nonexistent. In my view, all paternalists have little faith in humanity, as shown by their willingness to substitute their own judgment for those of the people they claim to help, based on an overly simplistic view of decision-making and interests. And if you "move people in the right direction" by manipulation rather than by reasoned persuasion--subverting their deliberative processes rather than engaging them--you are taking away their freedom, little by little.

But as long as they're left with the "impression" of their freedom, as long as they "still believe they're in control," I guess that's OK.

Romney’s Taxes

Jonathan B. Wight

So how could Romney amass up to $100 million in his IRA account when official rules limit contributions to about $6,000/year?

Easy—you contribute an undervalued asset to your account, which then mysteriously explodes in value! Not something the average investor can do, but if you're the CEO of Bain Capital you might accomplish with deft accounting and legal maneuvering.

Here's a fascinating discussion of how Romney could indeed have earned millions and paid very little income tax, through structured sale of his Bain shares. This is all speculation.

Like it or not, Americans would like to know if a President is dealing from a straight deck. So far, Romney's denials have only inflamed speculation he has played loosely with the tax code, even if acting legally but thwarting its intent (e.g., the IRA rules).

Contrary to Romney's assertions, vast sums of money spent inventing legal and accounting gimmicks do not create useful jobs. It is called "rent seeking." It is reallocating resources from useful activity to wasteful activity, trying to get around the rules others are playing by. Are people who adhere to rules simply "saps"?

Is rent-seeking immoral? It all depends on the circumstances. Are we at war-time and are you selling secrets to the enemy? Romney's alleged sins don't come close to this. But they might reflect a rejection of the view that "we're in this together" and "everyone should do their part." Bottom line: Can you lead the nation and ask for sacrifice if you appear to have run from it yourself?

Charles E. Wilson is misquoted saying "What's good for General Motors is good for the country." Likewise, many today seem to think that what's best for the hedge fund industry is best for America. That's not a mistake Adam Smith would have made. When appointed Commissioner of Customs in Scotland Smith burned all his old clothes, admitting they had been smuggled in from the continent without paying duty. While Smith could have maintained his wardrobe by not becoming a government agent, he clearly saw the contradiction and hypocrisy of trying to do both. Is there a lesson here for Romney?

John Muir and the Environmental Ethic

Jonathan B. Wight

The environmental ethic is a complex philosophy that can be arrived at from utilitarian, deontological, and virtue ethics approaches. Environmentalism is a pluralistic ethical concept.

Donald Worster's wonderful biography, A Passion for Nature: The Life of John Muir (2008) gets at the multi-faceted concepts involved. The book is an exciting romp through the 19th century and early 20th century. It starts in Scotland where Muir was born in 1838 and takes the reader across the seas to the New World and Wisconsin where his parents migrated when he was a young boy.

The family attempted to scrapple out a farm and Muir worked hard labor. He was an inventor, however, and escaped the farm for jobs in factories creating innovations for lumber mills run by steam engines.

His wandering spirit eventually set him on the road, and he walked and walked and walked…and walked some more. He nearly died numerous times of diseases, accidents, and adventures. His bright blue eyes and open heart endeared him to many who nursed him back to health. He carried the strong Scottish egalitarian streak, and carried on conversations with just about anyone, from field hands to presidents.

Muir believed that nature is essential for the wholeness and unfolding of the human spirit. We are drawn to nature like a moth to flame. Instead of fighting it, we need to embrace it. Muir devoted much of his life to writing about the intersection and harmony of humans and nature. Yet on many levels humans have raped nature for short run gains and the tragedy of the commons is a constant theme of the book.

Muir was not opposed to cost/benefit calculations and he saw nature as a necessary source of materials for human prosperity. Yet he decried an ethic of wanton destruction as he witnessed numerous times in the Alaskan gold rush. Thousands of animals were slaughtered for their tusks and the food left to rot. Running throughout the book is Muir's insistence that nature and animals deserve respect for their intrinsic existence qualities. A virtuous person refines his or her character in nature.

Muir was instrumental in preserving and creating Yosemite National Park and others. The book is highly recommended for anyone seeking to understand the roots of environmental ethics in American culture. One of Muir's great failures was not being able to fight off the Hetch Hetchy reservoir, which flooded a canyon nearly as beautiful as Yosemite to feed San Francisco's water demands. San Franciscans will vote this fall on whether to restore the valley to its pristine state.

[Thanks to Jack Fiedler for providing this book.]