Quote-source of the Day

Eric Falkenstein.

In the last couple weeks:
On health care:

The real magic of the invisible hand is based on two pillars: self interested action to motivate people, and competition. Without competition, self interest leads to monopolies and sloth, but workers compete with other workers, and companies compete with other companies, we get better workers and widgets.

So one would think that opening up states for real competition would be an obviously good idea. Yet it is highly instructive what progressives think about competition and markets, that they approve of only highly constrained competition that basically neuters it.

On learning economics via sex:

Obviously, one could come up with enough examples and applications to replace Mankiw with something much more salacious and of interest to the mass of 18-21 year olds learning economics. It's not as if the application of economics to the study of GDP and employment has elevated the nature of political debates over the past 100 years.

 On Elizabeth Warren and corporate greed:

That someone with such a understanding of complex financial institutions highlights her naiveté, as if things are what they are, not because they are an equilibrium of borrower and saver preferences, but rather, the whims of The Captains of Industry in their top hats.

 In passing, otherwise on emotions:

[Eliezer Yudkowsky and Razib Kahn] ponder whether people are more problematically stupid or crazy. I'd go with crazy. Stupidity is a problem, but the really harmful ideas come from the smart people who believe in bad ideas, and the most imaginative people are the most credulous, because for them everything is possible if we just implement their master plan.

Explainin economics much more eloquently than I can.  Fabulous post:

A lot of people seem to find Goldman's profits rather disturbing--these guys are in it for themselves! That can't be good! Ah, but Economics was created as a separate discipline based on the insight that the unintended consequences of self interest are, often, quite good. As even today most people find this incredibly difficult to believe, I figure I would point to some seminal references on this. After all, profits are not bad, losses are, and it's good to remember that.

The magic of the free market is based fundamentally on the assumption that people are self interested, and so profits are sought after, and losses shunned. Given sufficient freedom of entry and property rights, firms will compete for those profits and in the process generate greater consumer surplus for your average schlub. Today's doofus lives a pretty good life relative to his counterpart in the middle ages, through neither his doofus antecedents or the conscious intentions of his actual benefactors

This is the invisible hand that magically transforms the greed of individuals into a social good totally orthogonal to their explicit intention. That it is a truly remarkable insight is reflected by how counterintuitive it is to this day. I think the underlying reason most intellectuals do not trust the free market is because they feel that left to itself, the market tends to monopoly, inefficient outcomes as highlighted in RollerBall, or It's a Wonderful Life. Global Warming and health care policy concerns are both, in a sense, driven by the intuition that without top-down guidance, we are like airplane passengers without a pilot, doomed to catastrophe.

But, markets do force profits to zero, as anyone in business can attest. Not immediately, but over only a few years. The best descriptions of the competitive process and how it is consistent with efficiency, for me starts with Risk, Uncertainty, and Profit, in which Frank Knight describes how people respond to profit opportunities, and how this both lowers profits and provides lower costs to consumers. Friederich Hayek's most important essay, The Use of Knowledge in Society, noted the way the price system aggregates information in a way a Politburo could not[...]

Read that whole thing.  Fabulous on the basics of economics.  If you haven't studied the topic at a graduate level, Falkenstein is laying out economics in 1 not-long post.  He closes with rudimentary public choice insights.

Brilliant snark about top-down planning:

At the end of his review on this week's latest book on the recent economic crisis, liberal economist Bob Solow brings in this observation:

I have read that a firm such as Goldman Sachs has made very large profits from having devised ways to spot and carry out favorable transactions minutes or even seconds before the next most clever competitor can make a move...

Now ask yourself: can it make any serious difference to the real economy whether one of those profitable anomalies is discovered now or a half-minute from now? It can be enormously profitable to the financial services industry, but that may represent just a transfer of wealth from one person or group to another. It remains hard to believe that it all adds anything much to the efficiency with which the real economy generates and improves our standard of living.

This kind of reasoning has been going on for a long time, and while introspection is useful, it's really not good for figuring out what other people should do. Some guy thinks to himself, 'what's the use of that?', and decides the world would be a better place not only without that activity, but the people who actually got rewarded encouraging such frivolous activities. Tthe fact that one guy in Boston can't fathom how something helps the world seems rather unsurprising.

I'll say for the record that I think Puff Daddy is a waste of resources--I have no need for him, and can't understand his celebrity. There are many activities I not only don't do, I judgmentally think people waste time when they do them, but I'm not so arrogant to think that really means they must do something else. It took us decades to figure out that altruism could be based on enlightened self-interest (iterated prisoner's dilemma, reciprocal altruism), so it's a good idea not to throw something out merely because we haven't figured out its benefit in 'the big picture'.

 And let's close with offensiveness, masking an (or maybe even THE) important question:

Republican Lt. Gov. Andre Bauer of South Carolina on charity:

My grandmother was not a highly educated woman, but she told me as a small child to quit feeding stray animals. You know why? Because they breed. You’re facilitating the problem if you give an animal or a person ample food supply. They will reproduce, especially ones that don’t think too much further than that. And so what you’ve got to do is you’ve got to curtail that type of behavior. They don’t know any better,

Of course, the press responded by noting how ridiculously stupid and offensive that remark is. I'm not running for office, so I'll say I think that's about right. One could nuance that, by saying 'The most melancholy of human reflections, perhaps, is that on the whole, it is a question whether the benevolence of mankind does more good or harm (Walter Bagehot). Or that 'The poor don't need money or pity, they need temperance, diligence, thrift and other bourgeois virtues'. Or that 'The ultimate result of shielding men from the effects of folly is to fill the world with fools' (Herbert Spenser). Same idea.

I think what's considered so offensive about the remarks is it implies these people are poor, in large part, because they aren't very bright. That means it's not someone else's fault, and thus responsibility, and thus the rich might just eat them like Soylent green! For a post-Christian society, we sure hate to judge, just like our bible-thumping predecessors. Better to point out the exceptions to 'disprove' the generalization, and say 'there but for the grace of God go I'.

Envy, rather than greed, explains LUE, and progressivism:

I argue that people are primarily driven by envy as opposed to greed (see here), so they are mindful of their relative, as opposed to absolute, position, [...]

[...]Given the conspicuous failure of socialism in 1989, wealth maximization is intellectually defensible on moral, societal, and libertarian grounds. There is no such bright side to envy, which does not generate any salubrious unintended consequences.

In sum, envy is a better description of what motivates people in general, and underlies currently popular politics and progressive intellectuals. We can rationalize the desire to take from those with more under various pretexts--reducing health care costs, rectifying racism, improving the financial system--but only because the mind is very good at confabulating (eg, taking money from the top 5% is often presented as an altruistic disposition). People aren't utilitarians, and academics are usually only utilitarian when they presume it is consistent with egalitarianism (eg, Peter Singer arguing that giving everyone positive rights is utilitarian). I don't believe 'ought implies is' anymore than 'is implies ought', so I'm comfortable knowing my pragmatic utilitarianism that emphasizes the the virtue of liberty is not what most other people think is good policy. My only comfort is that I believe most educated egalitarians would admit their beliefs are untenable if they weren't also consistent with utilitarianism, that there is a trade-off between equality and efficiency, and that their instincts are more base than the dismal scientists every imagined.

Falkenstein rocks.