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18 сентября, 02:54

Does prosperity push us to the left?, by Scott Sumner

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Bryan Caplan recently posted the following: A while back, Scott Alexander defended what he called the "Thrive/Survive Theory" of left and right. Digest version: My hypothesis is that rightism is what happens when you're optimizing for surviving an unsafe environment, leftism is what happens when you're optimized for thriving in a safe environment. Scott defends the theory vigorously, but seems most impressed by its ability to explain why "society does seem to be drifting gradually leftward." The more the world thrives, the more the leftist approach genuinely makes sense. Many people in my circles now seem to take Thrive/Survive Theory as the default position; if it's not true, it's still the story to beat. But to be blunt, I find essentially no value in it. It's not always wrong, but it's about as right as you'd expect from chance. Bryan then lists 6 reasons why Alexander is wrong, which seem fairly persuasive. On the other hand I do find something appealing in Alexander's theory. So let me try a slightly different formulation: Liberalism is what happens when you are optimizing for a safe environment, and illiberalism is what happens when you optimize for thriving in an unsafe environment. Now of course this raises a whole new set of issues. What do I mean by 'liberalism' and 'illiberalism'? When I say liberalism, I am including classical liberalism, social democratic liberalism and neoliberalism. I'm basically referring to utilitarianism. When I say illiberal, I am referring to a wide variety of non-utilitarian views, including class warfare (Mao), fascism (Hitler), white nationalism (Bannon), racism (KKK), reverse racism (SJWs), tribalism (Afghanistan), religious fanaticism, militarism, etc. For utilitarianism to thrive, people need to be comfortable enough to think of the welfare of others. I believe that 1966 was the period when whites had the greatest sympathy for the (economic) well-being of American blacks. And America's middle class was doing very well in the mid-1960s. As America became more violent in the late 1960s, and more troubled by unemployment in the 1970s, some of this sympathy dissipated. So I think Bryan's right that the left/right distinction is not as meaningful as Scott Alexander assumes, but I also think Scott's intuition led him to something important. I don't know if society is moving to the left, but I do think it is gradually becoming more liberal. Is my suggested version an improvement, or not? PS. Immigration reform was enacted in 1965. And for a brief period in late 1965, (liberal) John Lindsey was the face of the Republican Party: (14 COMMENTS)

16 сентября, 20:16

Himmelfarb on the Fabians, by Alberto Mingardi

I'm an unabashed admirer of historian Gertrude Himmelfarb. One of the many. Her work is always illuminating, erudite, and typically a rather splendid read. I was most happy to see a new book by her, published in 2017 by Encounter Publishers. Past and Present. The Challenges of Modernity, from the Pre-Victorian to the Postmodernists brings together a few scattered essays, which all pursue the aim of setting the (British) past and (American) present in a dialogue. In chapter six, "Churchill's Welfare State - and Ours", Himmerlfarb deals with Obamacare and with the welfarist policies favoured by Winston Churchill as a young politician, namely the Labour Exchanges Act and the National Insurance Act. Himmelfarb focuses on Sydney and Beatrice Webb's criticism of these measures, which were deemed insufficient. Yet they established the true foundations of the British Welfare State. Writes Himmelfarb: Fabianism is generally described as a moderate, reformist type of socialism, achieving its ends not by class war and revolution but by persuasion and 'permeation'. Yet in a sense it was more radical than Marxism because it sought control not so much of the economy or polity as of society itself. It is fitting that the Fabian Society should have been founded, in 1884, as a society, not a party, for its primary focus was the 'social organism', and its ultimate purpose the 'regeneration of society', the 'reconstruction of the Social System'. Sydney and Beatrice Webb, she argues, had little faith in "the avarega sensuale man" and didn't "believe that he can do much more than describe his grievances". For this very reason they aimed to "introduce into politics the professional expert - to extend the sphere of government by adding to its enormous advantages of wholesale and compulsory management, the advantage of the most skilled entrepreneur". Contrasting the Webbs with a young Churchill, Himmelfarb maintains that The Webbs wanted to organise society in order to curb the anarchy of individualism and create a rational society in which the average sensual man would be prevented from indulging his whims and vices. Churchill wanted to organise society in order to create the condition in which individualism would thrive and the average sensual man - that is to say, everyman - could live his life freely, whims, vices, and all. I can't comment on young Churchill's flirtation with "Tory democracy", to use a term quite familiar to him. But, leaving Churchill aside, I think Himmelfarb is hinting here at an important truth. Quite often, advocates of interventionism are not so much interested in alleviating some _particular_ problems but are pursuing the grander goal of moving up from the "anarchy of production", which is: the seemingly acephalous system that the free market is. For the Webbs, explains Himmelfarb, the anarchy of production was paralleled by an anarchy of society, which needed to be reined in to check its lack of order and redundancy in order to realise the alleged "greater good" of society. Readers of Thomas Leonard's Illiberal Reformers won't be surprised. In this context, it is certainly true that there are at least two different kinds of social reformers: the control freaks which cover their desire for a top down plan of society with whatever social goals spark interest at the moment, and those interested in dealing with particular problems, who are often wise enough to understand that it might be easier to alleviate than altogether to "solve" them. A more open question is if the good work of the latter reduce the scope for the ambitions of the first, or inadvertently grow them instead. (3 COMMENTS)

16 сентября, 06:50

Criticism Doesn't Violate the First Amendment, by David Henderson

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Over at Hit and Run, Reason's blog, Robby Soave, whose work I normally like a lot, laid an egg. His post is titled "The Real Boobs Are People Who Think ESPN Must Fire Jemele Hill." You can read his post, which is not long, and figure out all the players. Here's the paragraph that was off-key: Travis, Sanders, and Trump all seem to be making the same mistake: the First Amendment does not require ESPN to be politically neutral, or polite, or even-handed. It protects Hill's right to call Trump a white supremacist, and also Travis's right to say "boobs" on television. Everything after the colon is true. But Robby never makes clear what mistake Clay Travis, a sports radio host, Sarah Huckabee Sanders, the White House Press Secretary, and President Donald Trump are making. What all three did was criticize ESPN. None of them said, or even hinted, that the First Amendment requires "ESPN to be politically neutral, or polite, or even-handed." Freedom of speech and freedom of the press are way too important to get wrong. And both freedoms include the freedom to criticize. By the way, some of the worst comments in the blogosphere are on the Hit and Run site. But, in this case, a number of the commenters nailed it. (9 COMMENTS)

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16 сентября, 02:11

Tough Talk for Venezuela?, by Alberto Mingardi

American threats often allow rather terrible regimes to flex their muscles and build up greater consensus. In Venezuela, the government held nationwide armed forces exercises on Saturday, calling on civilians to join reserve units to defend against a possible attack after U.S. President Donald Trump warned that a "military option" was on the table for the crisis-hit country. ... Maduro used Trump's threat to try to energize his political base, broadcasting images of rifle-carrying civilians negotiating obstacle courses and learning hand-to-hand combat. The government created the hashtag #EsHoraDeDefenderLaPatria, which translates as "It's Time To Defend The Homeland," to promote the exercises. Alvaro Vargas Llosa, in his latest column for the Independent Institute, points out that "Trump is right to want Maduro out, but whoever is advising him on matters of the Western Hemisphere should explain that the threat of military action only helps the Chavista dictatorship and risks debilitating the wide-ranging anti-Chavista political front that has lately emerged in Latin America". Vargas Llosa, who is as far as a fan of Maduro as you could go, explains that: Maduro, who has violated his country's constitution, destroyed its institutions, incarcerated hundreds of opponents, and killed hundreds of protesters, needs to go. Anything that can be done by other countries at the civil-society level to help accelerate this will be welcomed by Latin Americans. But the kind of talk recently coming out of Washington merely makes life more difficult for the opposition. It is sometimes disheartening to see that the same mistake is made over and over again. In a way, it is what happened for years with the US Cuban embargo (which, to quote co-blogger David Henderson, made "Cubans somewhat more anti-American than they would be otherwise, and it makes them somewhat more in favor of - or at least less against - Castro"). Why does a sensible antipathy to an awful regime fuel counter-productive policies, that in the very end consolidate that regime? My answers would be two, perhaps alternative, perhaps complementary ones. First, political leaders tend to be so biased in favour of the almighty power of government (which is, rather obviously, something they typically pursued for so long) that they are unlikely to see that it could produce results different than those they hope for. The second option is that actually they do not care much about the real consequences of what they say, or do, in foreign countries. They run the show to the benefit of their voters. So what counts is appearing tough with Castro (or Maduro), for the domestic consensus it grows to them, regardless of what happens in Cuba or Venezuela. (2 COMMENTS)

15 сентября, 22:48

How should we encourage exports? (And should we?), by Scott Sumner

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Lots of non-economists think that economics is just common sense. Not so. It's not common sense that imports help an economy, or that price gouging is good and rent controls are bad. And the field of taxation also produces lots of surprising results. The following list refers to equal size, across-the-board taxes: 1. Consumption taxes = wage taxes. 2. Import tariffs = export taxes 3. Import subsidies = export subsidies 4. An import tariff plus an equal export subsidy cancels out 5. A fair tax system taxes only wage income, not capital income. I'm going to use some of those ideas when considering a recent post by Noah Smith, which discussed research showing that firms that began exporting tended to have faster productivity growth. He suggested that we might want to use public policy to encourage exports. I agree, but am not in favor of his preferred method: The U.S. currently does some export promotion, via the Export-Import Bank. But this tends to focus on large companies that are already competitive in world markets. A better approach would be to provide assistance for companies to start exporting, by providing them with targeted loans, information about foreign markets and assistance developing overseas sales operations. When I think of the government doing something, I think of the department of motor vehicles. (I need to visit the California DMV Monday---wish me luck.) I don't trust government to run that sort of program efficiently. Fortunately there is another way to boost exports---reduce taxes on imports. The beauty of this proposal is that it's likely to make the US economy more efficient even if the research Smith cites is 100% wrong. That's because trade barriers create inefficiency, what economists call "deadweight loss". I also take issue with this claim: Also, the U.S. should consider being less tolerant of countries that intervene in markets to keep their currencies cheap versus the dollar -- as China did back in the 2000s. This acts as a subsidy for those countries' exporters, but it's also effectively a tax on imports from the U.S. Getting tougher on currency manipulation could help U.S. companies start selling overseas. I've recently done several posts arguing that "currency manipulation" is a myth. But even if I am wrong, currency manipulation is not at all like a subsidy to exports and a tax on imports. Indeed a subsidy on exports and a tax on imports would exactly offset, leaving no effect on trade. After all, exports are how China pays for imports. (That sort of tax/subsidy scheme would be like a 10 cent/gallon subsidy for gas stations combined with a 10 cent tax on gas consumers--no effect.) People who worry about currency manipulation clearly do believe it affects trade. They believe that currency manipulation caused more exports and fewer imports today. (They rarely mention that this reverses in the long run, and it would cause China to export less and import more in future years.) Taxes and subsidies are not the same as price changes, because taxes and subsidies drive a wedge between what sellers pay and what buyers receive, whereas price changes (including exchange rate changes) do not. They are completely different situations, and should not be confused with each other. (14 COMMENTS)

15 сентября, 17:20

A Poll of Economists on Price Gouging, by David Henderson

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In May 2012, the IGM Forum, based at the University of Chicago Booth School, did a poll of economists on a proposed anti-price-gouging law in Connecticut. The economists polled were on the IGM's panel of "experts." To clarify, the vast majority of economists on the panel are experts in their own field. Their knowledge of items outside their field, as much of the polling data on many other issues show, ranges from very good down to sketchy. Here's the exact wording of the statement with which the economists were asked to agree or disagree: Connecticut should pass its Senate Bill 60, which states that during a "severe weather event emergency, no person within the chain of distribution of consumer goods and services shall sell or offer to sell consumer goods or services for a price that is unconscionably excessive." Now here's the good news: Only 8% of the economists polled agreed or strongly agreed. 51% of those polled disagreed or strongly disagreed. Moreover, when they were asked to weight their answers by their confidence in their answers, the results shifted strongly toward opposition. 7% agreed or strongly agreed. But 77% disagreed or strongly disagreed. Some of the economists acted like lawyers. David Cutler, a health economist at Harvard, opined: Without defining "unconscionably," I don't know what to think about this. But no one knows what "unconscionably" means. That wouldn't stop the enforcers. Does Professor Cutler really have much doubt about how such a law would be enforced? As Richard Schmalensee of MIT pointed out, "unconscionably" is a bug, not a feature. He wrote: Seeks to prevent prices from clearing markets; never a good thing. Standard is hopelessly vague so increases risk for affected businesses. Richard Thaler of the University of Chicago expressed thoughts similar to ones I wrote recently in criticizing his more recent statement. I had written: As I pointed out in my interview, by allowing price gouging, we get, to some extent, the best of both worlds. We get the traditional merchants like Wal-Mart, who worry about reputation, stocking certain supplies in advance and not raising prices. We also get the fringe, one-time suppliers, bringing in more supplies in response to the higher prices they can charge. Thaler said it more succinctly, writing: Not needed. Big firms hold prices firm. "Entrepreneurs" with trucks help meet supply. Are the latter covered? If so, bad. I wish he had said that in his recent radio interview. Of course, it's possible he did but that the Marketplace producers cut that portion. (11 COMMENTS)

15 сентября, 00:54

Report from Naples, by David Henderson

Former star student Thomas Strenge wrote me an interesting email and gave me permission to quote. What follows below is my slightly edited version of what he wrote. My Mom lives about 10 miles inland from Naples and her experience of Hurricane Irma offers great economics lessons. And yes, she holds popular misconceptions on price gouging, even though I try to explain it to her. . Gas stations ran out as early as Wednesday (Hurricane didn't approach until late afternoon on Saturday). My guess is that the panic making by media and public officials combined with the lack of price increases depleted supplies. I'm sure truckers were unwilling to make deliveries down South without a risk premium, which couldn't be paid without price increases. . Supermarkets also experienced panic buying. . Collier County (which includes Naples) announced mandatory evacuation, but Mom decided to stay. She was on the inland side, at least 10 miles from shore, but even predicted storm flooding never reached more than 5 miles. Also, she built her house soundly and her roof line is lower than the surrounding trees of the adjacent nature preserve. Many of her neighbors opted likewise. (Local knowledge versus central planning) . Also, the government shelters either did not accept pets or required them to be caged. Apparently, Florida authorities are now pursuing legal charges against those who abandoned their pets. (Kafkaesque?) . The storm stayed offshore, but was plenty scary. Mom suffered damage to her yard, but the house was fine. She lost power and cell phone coverage. . On Monday, after driving for an hour, she was able to call us and let us know she's OK. . Today, cellphone coverage continues to improve and she was able to call repeatedly. . Anecdotally, the old style wooden power line poles appear to have survived better than the newer style concrete power line poles. Wood can bend in the wind. Concrete snaps at some point. Electricity is not expected until some time next week. . The local police department refused to let her charge her phone. Apparently, citizens able to report an issue is not important to the government. Luckily, the local fire department was much more helpful. . Ironically, Mom noticed that government utility vehicles were idle, apparently due to lack of gas. . Both McDonald's and Publix Supermarkets opened today with generator power. McDonald's offered a slimmed down menu of chicken mcnuggets and cheeseburgers. No special orders, but you could get as much as you wanted. Drive-thru only. Publix did experience panic buying and people bought everything, including detergent (if you have no power, then you can't do laundry!). (Bounded rationality?) . Mom learned of openings/availability through private conversations. Little useful government communication. . Things are hot, but all in all not bad, and improving rapidly. Main roads are passable. And neighbors are helping each other clear debris from roads/houses/driveways. Private sector is outperforming government. Cheers, Thomas (from comfy Kansas City) Note from DRH: Today or tomorrow I will post about some interesting survey results on laws against price gouging. (10 COMMENTS)

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14 сентября, 21:01

A Taste of Bastiat, by Bryan Caplan

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Whenever I praise Tyler, I vaguely fear that I'm speaking a self-defeating prophesy.  But this is so good I can't resist:Sometimes you hear Texas described as a "low-wage" economy, perhaps contrasted with the high wages of California.  But there are some subtle wage effects from the Texas approach that often go unnoticed.  By drawing people out of high-rent areas, Texas keeps the lid on land rents elsewhere, thereby boosting real wages in say San Francisco.  Furthermore, San Francisco employers must pay their workers more, the more attractive is the "move to Texas" option.  So the full positive effect of the Texas model on wages is considerably higher than you can see by looking at Texas wages alone.  Once again, the distinction between the seen and the unseen turns out to be relevant.Tyler's last line is, of course, a Bastiat reference.  Read his words, and dwell upon his profundity (and occasional error). (0 COMMENTS)

13 сентября, 22:54

Core Concepts, by David Henderson

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One of my former students, a student who performed very well in my class and has kept in touch on economic issues, sent me a link to John Cassidy, "A New Way to Learn Economics," New Yorker, September 11, 2017. In the piece, Cassidy is very gung-ho on a lengthy e-book called The Economy. It is published by the Core team and is being used in some economics courses. Its main virtue--and here I agree with Cassidy--is its price: zero. The book has lecture outlines, graphs, interviews, and questions for the reader to test his or her understanding. I don't have time to review it in full but I did check a few things. Do not regard this as a complete review. These are quick impressions. The Big Positive The biggest virtue I've seen so far is the hockey stick. It shows just how dramatically standards of living have improved since 1800. The graph, if you don't read it carefully, understates the growth of living standards because, as the authors point out, it's a ratio scale. That is, going from a per capita income of, say, $250 to $500 gets the same vertical increase as going from $500 to $1,000 even though the latter increase is twice the former. Oddly, though, even on this big positive there's a negative. The authors take only two of the three important things from the graph. They write: . For a very long time, living standards did not grow in any sustained way. . When sustained growth occurred, it began at different times in different countries, leading to vast differences in living standards around the world. What's the unmentioned conclusion and, in my view, by far the most important? Not that for a long time living standards didn't grow but that, almost everywhere living standards have exploded. Three Negatives 1. In discussing private property, the authors write: PRIVATE PROPERTY This means that you can: enjoy your possessions in a way that you choose exclude others from their use if you wish dispose of them by gift or sale to someone else ... ... who becomes their owner I didn't notice anything wrong with that. But to test myself, I took the quiz. And guess what? This economist, with a Ph.D. from a top institution at the time (UCLA) and who has taught for almost 40 years, got the answer wrong. Here was the question: Which of the following are examples of private property? computers belonging to your college a farmer's land in Soviet Russia shares in a company a worker's skills I suggest you figure out your own answer before reading what follows. I answered that all but farmer's land in Soviet Russia were private property. (I was assuming that "your college" means a private college, as, possibly, the authors assumed also. If it was a state university, it's hard to say that the computer is private property.) Wrong, according to the authors. A worker's skills are not his property. Why? It goes back to the definition. He can't sell his skills or give them away. But that makes me challenge their definition. I don't think an essential part of private property is that one be able to sell it or give it away. 2. The inflation section is horrible. First, the really horrible one: it does not even mention the Friedman insight that "inflation is always and everywhere a monetary phenomenon." That is, according to Friedman, there has never been a sustained inflation without a prior increase in the money supply. Even if the authors disagree with this, they should mention it. Maybe they can find counterexamples here and there, but they're pretty rare. What's the authors' explanation of inflation? Are you ready? Here it is: Inflation arises from conflicts among economic actors, when they are powerful enough that their claims on goods and services are inconsistent. Second, in analyzing the effects of inflation on debtors and creditors, fails to distinguish between anticipated and unanticipated inflation. The authors write: More generally, using the same logic as we used when discussing the government's debt in the previous unit, inflation means that: Borrowers with nominal debt will benefit: Those with mortgages on fixed nominal interest ratenominal interest rate The interest rate uncorrected for inflation. It is the interest rate quoted by high-street banks. See also: real interest rate, interest rate.close loans, for example, will benefit from inflation, because the debt stays the same in nominal terms, and so becomes smaller in real terms. Lenders with nominal assets will lose: Banks or others who have loaned money at fixed nominal interest rates will lose, because when the sum is repaid it will be worth less in terms of the goods or services it can buy. Very high inflation will wipe out the value of nominal assets, which happened in Zimbabwe in 2008-2009. But if, say, a 4% inflation rate is anticipated when lenders and borrowers enter contractual agreements, and then the 4% inflation rate actually comes about, there is not a wealth transfer from lenders to borrowers. Notice that they mention Zimbabwe. That should have keyed them to mentioning the monetary cause of Zimbabwe's inflation, and then to looking at monetary policy more generally. 3. The section on the Great Depression was the worst part I looked at. It could have used some wisdom and data from Milton Friedman and Anna J. Schwartz's classic book, A Monetary History of the United States, 1867-1960. They don't even mention it and, not surprisingly, therefore, don't mention the 30% drop in the money supply that Friedman and Schwartz documented. At least I couldn't find it. The authors appear to judge monetary policy during the Depression solely by interest rates. This flushing of Friedman and Schwartz down the memory hole is, in my view, the biggest weakness of the book I've seen so far. HT2 to Tom Pilkerton. (14 COMMENTS)

13 сентября, 20:47

Human Smuggling: What If Philanthropists Were in Charge?, by Bryan Caplan

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As a consumer, I'm never scared to shop in legal but unregulated markets.  Never mind the right to sue; reputation and guarantees provide all the peace of mind I need.  Illegal, unregulated markets, however, are a different story.  Sure, they still have an incentive to protect their reputation.  But if an illegal firm's reputation gets too big, it draws unwanted attention from law enforcement.  Legal enforcement is grossly overrated, but legality is still vital.The upshot: While I'm personally strongly in favor of human smuggling to evade unjust immigration laws, I'm ambivalent about human smugglers themselves.  What's the ratio of honest outlaws to ruthless predators?  This article gives lots of suggestive details, but few usable numbers:People smugglers who offer to illegally transport people into Europe are advertising their services openly on Facebook, researchers have found. Picture and video testimonials from successful migrants are posted on social media as smuggling operations compete to be seen as the safest way to enter Europe.Researchers are using this information to analyse the networks behind people smuggling operations in the Mediterranean.Syrian communities displaced by the civil war are especially close users of Facebook. The country had a functional education system before the war and Syrian migrants have on average a higher level of education and digital literacy.[...]The importance of networks and reputations in the free market of smugglers can been seen in the evidence that Dr Campana had collected.One recording of a wiretapped telephone call revealed how one people smuggler asked another how many of the 366 asylum seekers who had died... were his.The wiretap records one of the smugglers berating the other for his lapse safety.The other smuggler later began to personally notify the families of the dead and pay out $5,000 (£3,778) in compensation to salvage his reputation.But what's really going on? Well, the UN estimates a bit over a million crossers in 2015, with 3,771 recorded deaths.  Even if you think actual deaths are triple the recorded rate, that's roughly a 1% fatality rate.  Tragic, but given the level of smuggling and the risks required to avoid detection, it's surprisingly low.  I'd definitely take a 1% chance of death to escape Syria, and probably make the same deal to escape 90% of the countries in Africa.In fact, suppose smugglers were pure philanthropists who only wanted to help people reach Europe alive.  There's a clear trade-off between the two goals - the safest routes will also be the most patrolled.  So you have to wonder: If philanthropists ran the human smuggling industry, how much lower could fatality rates even fall? (3 COMMENTS)

13 сентября, 15:42

How do we evaluate Robert Shiller's forecast?, by Scott Sumner

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Nobel Laureate Robert Shiller recently made some comments about Bitcoin: When it comes to economic bubbles, there is perhaps no single greater authority than Yale economics professor Robert Shiller. Shiller wrote a seminal book on speculation and its devolution into mania, called Irrational Exuberance. The book analyzes bubbles throughout centuries. Shiller has won the Nobel prize for his work in the area. Among his other contributions, he has created tools and indexes for measuring price levels and valuations. So when Shiller suggests that the bitcoin space might be a bubble, investors would be wise to take note. "Irrational Exuberance" and Bitcoin In an interview with Quartz, Shiller said that the "best example right now" of irrational exuberance is bitcoin. Is it true that investors "would be wise to take note"? More importantly, how would we evaluate that claim? I don't think we as a society know how to evaluate these claims, and indeed I think we do so in the wrong way. One solution is to simply wait until we see what happens. If the price falls sharply, then that would confirm Shiller's prediction. If it rises further, or even levels off for many years and decades, then he's wrong. But I see a couple problems with that common sense approach: 1. The returns are likely to be skewed. To take the most obvious example; it's much more likely that bitcoin will rise from $5000 to $15000, than fall from $5000 to negative $5000. Indeed there is a zero lower bound on bitcoin prices. Now suppose that markets are efficient and bubbles do not exist. Also consider an asset with a very uncertain value, because its fundamentals are not well understood---like a new privately issued fiat electronic currency. Now go back to when the price of bitcoin was $30, and people were already calling it a bubble. Investors presumably knew there was some probability that bitcoin would catch on in a big way and soar much higher in value. They also knew that the price could never fall below zero. So it might go up to $1000 or more, but will definitely not fall more that $30. Sounds like a great investment, right? No, because if markets are efficient then the probability of it falling back toward zero must be many times higher than the probability of it rising up to $1000 or more. We just happen to live in a universe where a very improbable event occurred; its valued soared more than 100-fold (indeed more than 1000-fold if you go back even earlier in time.) My point is that when people predict that bitcoin type investments are bubbles, they are usually going to appear to be correct in retrospect, even if bubbles do not exist. That's simply an implication of the skewness in the returns. A low probability of high upside, and a high probability of modest downside. So being "correct" actually doesn't prove very much. 2. A second problem is related to "data mining". To his credit, Shiller makes very public predictions that can be discovered using Google. Thus I quickly discovered a January 2014 article where Shiller claimed that Bitcoin was a bubble: Shiller is convinced bitcoin is a bubble and he is bemused by the fascination surrounding digital currencies. He said he is amazed by how people are excited by bitcoin - and bear in mind that a man who won the Nobel Prize for his work in the field of behavioural probably isn't easy to surprise, let alone amaze. Shiller said: "It is a bubble, there is no question about it. ... It's just an amazing example of a bubble." It would be rather presumptuous to argue with a Nobel laureate, but luckily someone already did that. Back in December Forbes put Shiller's work to the test, comparing his findings with the bitcoin bubble. Forbes contributor Tim Worstall argued that preventing a bubble from forming in the bitcoin market is not easy, since the market is not developed and lacks many tools needed to detect a bubble. However, Worstall said it is "more than likely" that we are in a bitcoin bubble. I don't have a big problem with Worstall's "more than likely" remark, given the skewness discussed earlier. But I do have a problem with Shiller's claim. At the time, bitcoin was at over $800. A year later it had fallen to $200. Good call, right? Not quite, because today it's over $4000. How can there be "no question about it", when three years later bitcoin at $800 looks like an absolute steal? Were investors "wise to take note" of Shiller's 2014 call? Not if the alternative was buy and hold until today. To summarize, Shiller made a bubble call in January 2014. Most bubble calls for assets with highly asymmetric returns will look "correct" in retrospect, even if markets are 100% efficient and bubbles do not actually exist. And that's true of people who only make a single bubble call. But Shiller is making repeated bubble calls, just as he talked about irrational exuberance in the stock market in both 1996 and 2000. So which prediction do we hold him accountable for? If Bitcoin falls in half over the next 12 months, does that prove his 2017 prediction correct, or does it show his 2014 call to be incorrect? (prices would still be far above 2014 levels.) How do we evaluate the record of bubble forecasters who keep making one bubble call after another, until the highly volatile asset finally has a big price drop? Here's my claim. Bubble forecasts for highly volatile assets are not very useful, because of the reasons discussed above. These bubble calls do not represent good investment advice, and we have no reliable way to test them, even in retrospect. We do have some methods for testing for the existence of bubbles, but they need to be far more systematic. In fairness, Shiller has also done some of those more systematic tests, and found some intriguing results (such as what looks like excess volatility in US equity indices.) Even those tests can be challenged, but they are at least suggestive. But these recent bitcoin bubble calls are virtually untestable. I don't believe bubbles exist, however I also think the probability that Bitcoin prices will be lower in 2020 than today is much greater than the probability that prices will be higher. But that doesn't mean it's a bad investment, because prices might be vastly higher. And if lower, that provides very little support for bubble theories, because that outcome is likely to occur even if bubbles don't exist. (9 COMMENTS)

13 сентября, 00:24

Godwin's Law in the Public Square, or, Unowned Property Leads to Hitler, by Contributing Guest

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by Art Carden Various incarnations of what is known as "Godwin's Law" suggest that if a discussion goes on long enough, it will invariably devolve into one party comparing the other party's position to Hitler or the Nazis. Similar principles include the argumentum ad Hitlerum, which is a fallacious argument that attempts to discredit another's position by invoking Hitler. On a family vacation, I once saw a fascinating History Channel special on the American Nazi movement in the late twentieth century. The special piqued my interest for several reasons. First, I have done research on the relationship between racist violence, economic development, and social change. Second, the power of ideas--particularly divisive ideas that pit a wise and virtuous "us" versus a degraded and inferior "them"--manifests itself in historical atrocities like the Holocaust, Jim Crow, the Great Leap Forward, and the Gulag Archipelago. Third, people sometimes conflate the right to speak freely with the right to an audience and a subsidized soapbox. Conflicts about "free speech" for groups like the Nazis and the KKK are rooted not in the merits (or lack thereof) of hate speech but in questions about who gets to use public property. History provides ample evidence that ideas matter, and not just the ideas of those who stand to gain or lose materially from policies. Southern slavery was undergirded by a racist ideology that developed as part of the system and that helped ensure support for the system even among non-slaveholders, and the Nazi atrocities of the 1930s and 1940s were enabled in part by anti-Semitic public opinion. It has been said that eternal vigilance is the price of liberty, and the power of racism throughout history provides ample evidence of cases in which opinion leaders were asleep at the wheel. How much poorer are we for it? Fortunately, great thinkers like Ludwig von Mises and others escaped the Nazis. How many great minds perished in the concentration camps? What great books were never written and what great advances in science were never made because racist violence felled people in their prime? We will never know, but it is a question that deserves somber reflection. Public property creates many thorny issues about freedom of speech that can only be resolved with private property. The aforementioned History Channel special discussed a conflict in which the American Nazi party was trying to get the permits it wanted in order to stage a rally. With the attempted extermination of the Jews during the Holocaust only a few decades old, this was still an extremely divisive issue. The root of the conflict, however, concerned the use of taxpayer funded private lands. While local authorities tried to stop the Nazis at every turn, they were ultimately represented by the ACLU (and by a Jewish lawyer, incidentally) in a case in which they were ultimately granted the right to march. You have a clear right to express views that others find offensive, but airing offensive views raises the prospect of violent objection from those who are offended. Who is responsible for paying for security? It certainly isn't the taxpayer or the municipal authorities. Further, the police-perpetrated outrages that occurred during the Civil Rights Era suggested that it is probably a mistake to trust the government to keep the peace. Spewing hate would have been much more difficult in a world with secure private property rights. Right now, expressive racism is cheap. You need to be able to fill out the forms to get a permit, carry a few signs, shout loudly, and if you are really sharp, you might need someone who can write a good press release. My guess is that hate speech would be much more expensive if now-public spaces were privately owned. You would not need a permit, but you would need to rent a space from a private owner. This is not a praxeological certainty, but I would expect that businesses who earn a reputation for supporting Nazis or the KKK would lose business. There is no principled way to exclude people with hateful messages from use of the public square. There are, however, principled ways to exclude people with hateful messages from the use of private property. I agree with Steven Landsburg that tolerance and pluralism are the prices we pay for freedom, but we can draw the line at the use of real resources. There are a lot of things I can do with my time and money that I would greatly prefer to helping foot the bill for security and port-a-potties for KKK rallies. I do not object to racists' rights to spread their message, though I object to their message. I especially object to their use of others' money to spread that message. If you wish to spew hate, I'm not going to stop you. I'm also not going to volunteer to provide you with a forum or security, either. Art Carden is Associate Professor of Economics at Samford University's Brock School of Business, and he is by his own admission as Koched up as they come: he has an award named for Charles G. Koch in his office, he does a lot of work for and is affiliated with an array of Koch-related organizations, and he has applied for and received money from the Charles Koch Foundation to host on-campus events. (13 COMMENTS)