Theme: Incentives

http://krugman.blogs.nytimes.com/2012/07/25/the-radicalizing-effect-of-euro-disaster/THE ECONOMICS OF A POLITY:

AN ANALYTICAL DECONSTRUCTION OF PAUL KRUGMAN’S IDEOLOGICAL STRAW MEN.

In response to: “The Radicalizing Effect Of The Euro Disaster” http://krugman.blogs.nytimes.com/2012/07/25/the-radicalizing-effect-of-euro-disaster/

This is a straw man on the following counts:

a) Any period of change must produce leadership along multiple axis, in order to ensure all available solutions have been discovered, and that the population rallies behind leadership it is willing to support.

b) Nationalism is not equated to radicalism, since certain norms are necessary for trust and redistribution.

c) There is little evidence that a United Europe (or a United States) is necessarily a good thing. In fact, the evidence would suggest the opposite. Large states can more effectively use finance to create debt and wage war to protect their interests. (or stated differently, the larger the state, the more possibly offensive is the government to other states.) Further, smaller states are more homogenous and therefore more redistributive, with less political conflict. Smaller is better.

But I’ve decided to spend a little time constructing an argument to undermine Paul Krugman’s straw men. Below is the first draft, written in response to the above mentioned post. Over the next year I’ll keep using it as a mantra, distill it a bit, and try to popularize it among libertarians and conservatives. I really do not feel Krugman is challenged adequately on his reasoning. It’s almost always on his motives, or his style. But both his economic arguments and his political arguments are open to empirical and rational refutation respectively.

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Paul,

I’ve tried to reduce my criticism of your posts this year to spend time on my own work, but this post troubles me too much to pass up.

1) You have mastered the strategy of creating then attacking straw men, and in doing so crafting the typical progressive implication that emotions, stupidity and irrationality drive political behaviors. (See Paul Jonson’s Intellectuals, Thomas Sowell’s Intellectuals and Society, and Richard Posner’s Public Intellectuals. All of which discuss this tactic – although among economists you have singular contemporary mastery of this rhetorical device.)

2) In your straw men, you fail to acknowledge that the superior economic productivity of certain countries requires that their citizens pay non-monetary costs – which we refer to as TRUST (bearing risk in order to contribute to the commons), CONFORMITY (abstinence from privatization of payments on the common property of manners, ethics and moral norms) and PERSONAL DISCIPLINE (abstinence from involuntary transfers, and exchange of temporal satisfactions for inter-temporal capital accumulation), all of which are a paid in opportunity costs. These are far higher costs than capital costs. That is why they are so scarce on this planet. Few civilizations have managed to break the familial and tribal preference, and only Christendom has both forbidden cousin marriage, and given women property rights – both of which are needed to accomplish the unintuitive.

So, as an economist, either you fail to grasp the basic concept of opportunity cost to the individual, or you falsely (as did Rothbard, thus discounting his theory as much as we discount the labor theory of value) apply an infinite discount to the very high cost in opportunities, of those norms, all of which prevent privatization of the commons of norms, that create the high trust society, that in turn makes the west more productive than ANY other culture.

3) While all human societies stack their preferences for differently – the north of europe for the commons, and the south of europe (as demonstrated by Edward Banfied) for the family, and all human societies allocate individual and communal property differently, and the left and right in each society place very different values on moral and ethical norms that require restraint from privatization of the commons (which Jonathan Haidt among others calls Moral Capital), all human beings dramatically reject ‘cheaters’ (people who privatize the commons, or who engage in theft, fraud and violence) much more vehemently than they pursue their own welfare. Humans will pay very high costs to prevent ‘cheating’ (involuntary transfers), whether that cheating is from the individual, a group of numerically allocated shareholders, or from the unallocated commons, or from the un-allocatable commons of moral capital: manners, ethics, morals and norms.

4) The straw man you create, is either an error or a deception or both. I cannot judge, despite following you for years. But that straw man ignores the cost and consequences of behavioral capital. It ignores the basic nature of man. It ignores the NECESSITY of that basic nature of man, in order for an economy to function using prices and incentives, and for an efficient economy to function through the existence of property, and the existence of trust, and the absence of corruption (privatization of the commons and non-value added toll-collecting).

Behavior matters, as Sowell illustrates by the example of the conquest of France by Germany in six weeks, despite the vast superiority of French forces and equipment. Behavior matters, as the difference the north and south of europe demonstrates. An economy consists of institutions both formal and informal. And to base one’s arguments entirely upon formal institutions, and a so called efficiency while ignoring the vast costs in opportunity costs, discipline and risk absorption of creating the informal institutions.

5) Human beings are redistributive when the very high costs of norms are paid equally. Then the results of adherence to those norms (money) can be distributed. But that is because money is of little value and cost compared to the deprivations paid to establish those norms. This is the problem of ‘getting to Denmark’. The world cannot ‘get to Denmark’ without breaking up into Denmarks, and creating the norms of Denmark. Human willingness for redistribution is inversely proportional to ‘cheating’. And cheating depends upon a homogeneity of norms, since diversity of norms is by definition theft of forgone opportunity costs from one group by another. It is privatization of someone else’s common. Small homogenous societies are egalitarian. Large diverse societies are not. This is very simple economics of human behavioral opportunity costs.

6) It is far easier to construct such straw men as you do, than to take on the heady labor of analytically deconstructing and refuting such straw men. If it were not, you would be more readily refuted. And, economically speaking, since it is cheaper to produce and distribute your intellectual product constructed of straw, than it is to produce and distribute the refutation of that product made of logical bricks. Just as the children’s story of the Three Little Pigs demonstrates with utter clarity. One can build many straw men cheaply. So, it is obvious why those of us capable of refuting them with logical bricks devote our time elsewhere and hope the market eventually accomplishes through awareness what we cannot afford to accomplish through costly daily deliberate action.

So, That is economics. Macro economics as you advocate it, is simply monetary manipulation for short term gain. Nothing more. It is an abstraction useful for aggregates that represent statistical categories that assume the underlying distribution of humans is relatively equal without acknowledging the ongoing costs of maintaining that statistical distribution of categories. You are discounting what you consider externalities, in order to make your model fit your conclusion. That is what you are doing. And that is all that you are doing.

7) I understand that your sentiments are those of a mystical collectivist in the marxian and freudian “Era Of Superstition” as Hayek termed your philosophy. I understand why you ignore larger environmental causes of economic circumstances like the uniqueness of the american position post war. And I understand why you limit your empirical analysis to postwar data sets in order to avoid refutation of your ideology – the refutation of which in turn poses a problem for your sentiments. But you must at some point if you are honest, confront both your avoidance of empirical evidence, and the historical record. The historical record which demonstrates that no body of people have held land, and therefore been able to create a monopoly of the institutions we call government and norms over that body of land, while holding the sentiments that you naturally ‘feel’ — and fell prior to cognition, and contrary to evidence.

The depth of this criticism is damning to your ideology. You must prove that such a thing is possible without resorting to dictatorship.

(as Sowell has argued in Knowledge and Decisions, and Hayek has argued in The Constitution Of LIberty. Unfortunately these men lacked the data that Jonathan Haidt now possesses, and Jonathan Haidt lacks the knowledge of microeconomics, and Propertarian reasoning that would tie micro economics and politics to our genetic behaviors and moral preferences. Thankfully we now have that knowledge. Which is what I do)

Your selective empirical positivism is supportive of your straw men. That is all. And you sell your straw to willing customers, who simply want to use it to gain political power, in order to extract privileges, and nothing more.

8) Given the expanding polarity of the United States due to our First Past The Post electoral system, and the introduction of women into the labor and voting pools, and the consequential dissolution of the nuclear family, and its emerging consequences, it is quite evident that not only do we, and the world, not need a united Europe, but that we we have likely proven the argument of the economic historians, and political philosophers, that small states with their own currencies are not only more pacifist, but more possibly democratic and redistributive, and that by consequence, the United States should desire to dissolve into Joel Garreau’s Nine Nations Of North America.

After all, while NY money may end up in Alabama, it is not the people in Alabama who vote for higher taxes and greater regulation. And the people of the south, southwest and center despise the declining rust belt, and the NY/DC one-size-fits-all monetary, cultural, and war machine.