Monday, November 30, 2009

The Dog Ate My Climate Change Homework

The Times Online reports: preserving climate data doesn't appear to be that important in the science of climate change (HT Cafe Hayek's Roberts). Here's a passage:

SCIENTISTS at the University of East Anglia (UEA) have admitted throwing away much of the raw temperature data on which their predictions of global warming are based.

It means that other academics are not able to check basic calculations said to show a long-term rise in temperature over the past 150 years. ...

Roger Pielke, professor of environmental studies at Colorado University, discovered data had been lost when he asked for original records. “The CRU is basically saying, ‘Trust us’. So much for settling questions and resolving debates with science,” he said.

Sunday, November 29, 2009

The Matrix Runs on Windows

From (HT Alex). Enjoy!

Saturday, November 28, 2009

Impoverished Reasoning in Anti-Poverty Activism

This is an extract from an article on poverty in Switzerland that appeared in the Swiss Review of December 2008:
But what's the "official" poverty threshold? In Switzerland, the poverty values of the Swiss Conference on Social Welfare are the most commonly used. These values factor in decent living conditions and social integration. The poverty threshold for single people is CHF 2,200 a month [US$ 26,268 per year], ... and CHF 4,650 [US$ 55,524 per year] for a couple with two children.
Sincerely, how can anyone take these values seriously? A large proportion of people I know would be considered poor according to this definition (and they're obviously not poor). These values are higher for example than the nominal per capita income of most countries in the world. In reality, their choice of poverty level for a couple with two children is almost as high as Switzerland's per capita income itself, in other words, the per capita income of one of the richest countries in the world!

Naturally, public choice economics predicts (correctly) that anti-poverty activists, acting as rent seekers, will try to include in their poverty definition as many people as possible, so they make their jobs and salaries appear to be more justifiable than what they really are.

Friday, November 27, 2009

Krugman Should Read the Tobin Tax Literature

Krugman wrote an article that appeared yesterday in the NYT defending the Tobin tax, a tax on financial transactions, as a way to "deter financial speculation."

Financial speculation by itself isn't a problem, is a solution, and as an economist he should know that. Krugman's mistake is worse however: his article transparently shows that he doesn't know anything about the recent literature on the subject (or doesn't bother to show his knowledge on it), but speaks as if he knows it (or as if he's showing his knowledge).

The Tobin tax has been discredited on many different grounds by economists that have spent much more time than him trying to understand it. There's plenty of experimental, theoretical and empirical evidence against taxes that work like a Tobin tax. There's some less clear evidence in favor of it too, which however tends to show that the effects are only positive in special cases (probably not found in real markets) or that the benefits are not worth the costs.

Besides all the scientific evidence, Brazil just adopted a Tobin tax and stock market volatility didn't fall after its introduction on October 20, as seen in this Bovespa graph:

Krugman may have deserved a Nobel Prize in Economics for his contributions to international trade theory, but he doesn't help the economics profession when he writes on things he doesn't have a clue about.

Unethical Conduct in Climate Research

In my previous post I referred to the East Anglia's CRU scandal. The WSJ summarizes damning evidence of unethical behavior in these extracts taken from the documents (a harsh editorial regarding the scandal is found here).

Let's be clear about it: what's in those documents isn't normal practice in science. There's too much bad blood and intellectual arrogance in there, mixed with an absence of personal detachment and a lack of commitment to scientific virtue.

Real scientists are dutifully skeptical. Real scientists refute bad arguments with good arguments and nothing else. Valid scientific theories stand on their own merits, they don't need the connivance, obfuscation and sanctimony that permeate those files.

Thursday, November 26, 2009

The Hadley CRU Scandal

Here's a good article written by Declan McCullagh with CBS News explaining the Hadley CRU scandal (HT Megan McArdle). The entire article is well worth reading, I'll however focus on the following passages:

As the leaked messages, and especially the HARRY_READ_ME.txt file, found their way around technical circles, two things happened: first, programmers unaffiliated with East Anglia started taking a close look at the quality of the CRU's code, and second, they began to feel sympathetic for anyone who had to spend three years (including working weekends) trying to make sense of code that appeared to be undocumented and buggy, while representing the core of CRU's climate model.

One programmer highlighted the error of relying on computer code that, if it generates an error message, continues as if nothing untoward ever occurred. Another debugged the code by pointing out why the output of a calculation that should always generate a positive number was incorrectly generating a negative one. A third concluded: "I feel for this guy. He's obviously spent years trying to get data from undocumented and completely messy sources."

The leaked documents (see our previous coverage) come from the Climatic Research Unit of the University of East Anglia in eastern England. In global warming circles, the CRU wields outsize influence: it claims the world's largest temperature data set, and its work and mathematical models were incorporated into the United Nations Intergovernmental Panel on Climate Change's 2007 report. That report, in turn, is what the Environmental Protection Agency acknowledged it "relies on most heavily" when concluding that carbon dioxide emissions endanger public health and should be regulated.

Last week's leaked e-mails range from innocuous to embarrassing and, critics believe, scandalous. They show that some of the field's most prominent scientists were so wedded to theories of man-made global warming that they ridiculed dissenters who asked for copies of their data ("have to respond to more crap criticisms from the idiots"), cheered the deaths of skeptical journalists, and plotted how to keep researchers who reached different conclusions from publishing in peer-reviewed journals. ...

Programmer-written comments inserted into CRU's Fortran code have drawn fire as well. The file says: "Apply a VERY ARTIFICAL correction for decline!!" and "APPLY ARTIFICIAL CORRECTION." Another,, says: "Low pass filtering at century and longer time scales never gets rid of the trend - so eventually I start to scale down the 120-yr low pass time series to mimic the effect of removing/adding longer time scales!" ...

The irony of this situation is that most of us expect science to be conducted in the open, without unpublished secret data, hidden agendas, and computer programs of dubious reliability. East Anglia's Climatic Research Unit might have avoided this snafu by publicly disclosing as much as possible at every step of the way.

Indeed, the methods, practices, behaviors and attitudes of the "scientists" described in the hacked documents are not scientific by any standard. What is depicted in them characterizes, to say the least, grave unethical academic conduct and politicking of the worst possible kind. Fortunately to me, I've never witnessed among fellow economists an anti-scientific predisposition of this magnitude. Maybe economists should be proud of their profession after all.

Anyway, Happy Thanksgiving to you all!

Wednesday, November 25, 2009

Government Failure: The Fall of the Roman Empire

According to Adrian Goldsworth, the fall of the Roman Empire was government failure (HT Selva Brasilis):
At a basic level the emperors and government officials of the Late Roman Empire had forgotten what the empire was for. The wider interests of the state […] were secondary to their own personal success and survival. […] There had been plenty of selfish and corrupt individuals in earlier periods of Roman history, just as there have been in all other societies. The difference was that by the late empire it was difficult for them to behave in any other way.

Tuesday, November 24, 2009

Dynamic Political Economy: A Promising Field

I've talked about the LAEF (Laboratory for Aggregate Economics and Finance) before in this post. The LAEF is directed by Finn Kydland (picture on the right).

The newsletter of Fall 2008 presents research in a promising field in economics called dynamic political economy and optimal taxation. Here's how the newsletter defines the field's goal:
to examine the determinants of a wide range of government policies, both from a positive and a normative perspective, relying on the tools of dynamic contracting and mechanism design.
The newsletter summarizes the findings of some interesting articles in this field, written mostly by young economists. If you like the topic, make sure to take a look at their work.

Monday, November 23, 2009

When the Letters to the Editor Make for Better Reading than the Leading Articles

You know that there's something wrong with the press when the letters to the editors too many times are better written and researched than the leading articles that they refer to. Here's an example regarding a poorly written article about the US auto industry that appeared in the Fall edition of On Wisconsin. The reader's letter, which appeared in the Winter edition, deserves reading, while the leading article doesn't. The letter in reality is so well written that I'll reproduce it here in its entirety:

The U.S. auto industry article "Reinventing Wheels" [Fall 2009] was riddled with sweeping generalizations, environmental piety, and intellectual arrogance. The author liberally quoted former [UW-Madison] chancellor John Wiley, who opined that Detroit "made stupid decisions" by fooling us into buying big, heavy, high-powered cars we really did not want. Mr. Wiley also claims that the VW Beetle "ate their (Detroit's) lunch" in the 1950s. The rest of the article is just as slipshod.

None of the people quoted in the article provide any real market data. Let's start with the beetle. It was a niche vehicle in the U.S. in the 1950s, and with only forty horsepower, it met the needs of a limited group of people. The heavy, powerful cars that the author (and many of those quoted) decry as the downfall of Detroit are the very products that all major automakers who sell in the U.S. provide. Consider that Mercedes, BMW, Audi, Nissan, and Toyota all have gravitated to larger vehicles since the 1970s. Has the author heard of Toyota's Lexus brand, seen the huge new Toyota Tundra pick-up truck, or Nissan's Titan truck?

While the Japanese automakers continue to make excellent economy cars, their recent success is grounded in providing people with reliable and affordable vehicles that compete with Detroit in every niche. One of the most profitable auto manufacturers is Porsche, whose product line includes high-powered sports cars and SUVs with range-topping models having over four hundred horsepower.

There is nothing wrong with making and selling economy cars, and Detroit does have some decent ones. To suggest that Detroit has failed largely due to their absence, or to suggest that Detroit will succeed on the basis of hybrids and electrics, highlights the danger of businesspeople listening to academic dreamers who subsist on government grants and handouts.

Fred Birnbaum '83 Boise, Idaho

Sunday, November 22, 2009

7th Art: The Best Years of Our Lives (1946)

I'll not focus on the movie itself. "The Best Years of Our Lives" (1946) is a bold classic directed by William Wyler, which symbolizes life in America in the years that followed the end of WWII. What's amazing about this movie is how clearly it depicts changes in American mores that were happening much before the ascension of the flower power generation. True revolution really happens at the margin, step by step.

The first thing that I'd like to point out is how American movie aesthetics changed since this movie came out. Expectations regarding for example acting, cinematography, sound editing and intonation were totally different at that time. Hollywood has changed a lot, sometimes for better and sometimes for worse.

The second thing that I'd like to point out is how economics training improves your understanding of the world around you, even when it comes to watching movies. I'll give you two examples: in the scene where Al Stephenson, the character played by Fredric March, is offered a job as the vice-president of a small bank, he seems surprised by the generosity of the offer: an yearly salary of $50,000.

At that point I had to hit pause and do a brief mental calculation using material that I teach in my Principles of Macroeconomics classes. Using the rule of 70, and knowing that the average yearly inflation rate since 1946 was a little less than 4%, I could easily find out that prices doubled about every 18 years. It means that since 1946 prices doubled about 3.5 times, and therefore an yearly salary of $50,000 then would have the same purchasing power today of about $600,000! No wonder Mr. Stephenson was positively impressed. Notice that it took me about 30 seconds without a calculator to get to this result.

Fred Derry, the character played by Dana Andrews, on the other hand, was offered, as an assistant manager at a drugstore chain, a salary of $32.5 per week. This is the same as an yearly salary of less than $1,700 in 1946. The purchasing power of Mr. Derry's salary today would be equivalent to about $20,000. Walgreens assistant managers with no experience can make substantially more than that today, around $34,000 in average according to this site. Clearly, Americans are better off today than they were in 1946.

At a certain point the movie also goes into a discussion of the morality and economics of collateralized loans. It's interesting to notice that Mr. March was the vice-president for small loans, so part of his job was exactly to find lending opportunities that didn't have necessarily strong collaterals but yet hinted at a high probability of payback, in a fashion similar to what's now called microcredit. The movie presents Mr. March as a banquer with a good heart, trying to help common folks, particularly veterans. Mr. March may have had indeed a good heart, but he didn't need to have it: what he was doing could have been perfectly described as nothing more than a sound, profitable, professional business practice arising from the search for profits in a market economy. Ironically, the excesses caused by lending populism were exactly one of the main factors behind the recent collapse of the American economy.

Enjoy the trailer!

Saturday, November 21, 2009

The Problem with Elementary Math Teaching

During all my life I have been mostly a self-taught student, so I don't have many memories of earlier instructors. There were exceptions however, teachers that clearly had an impact on my learning.

I was lucky to have had an exceptional math teacher in elementary school, Professor Thales. He was not funny. He was not especially patient with slackness. His exams were tough, and we had to work hard on home assignments. But he taught exclusively math. He was passionate about it, and his classes were precise, clear and straightforward. His teaching was based on strict logical reasoning. From him you would expect no nonsense, no condescension, no wasted effort, no paternalism. More than anything, he would never lower the bar.

I was lucky to have had in the seventies in Brazil good math education provided yet in the traditional Catholic mold, before the entire Brazilian educational system was poisoned by Marxist pedagogy. It was therefore with interest that I've read an article in the "American Educator" by Hung-Hsi Wu that proposes a math teaching model for the US that resembles the one that I was lucky to enjoy while young in Brazil. According to Wu:
Given that there are over 2 million elementary teachers, the problem of raising the mathematical proficiency of all elementary teachers is so enormous as to be beyond comprehension. A viable alternative is to produce a much smaller corps of mathematics teachers with strong content knowledge who would be solely in charge of teaching mathematics at least beginning with grade 4. ... Indeed, this is an idea that each state should seriously consider because, for the time being, there seems to be no other way of providing our children with a proper foundation for mathematics learning.
We have neglected far too long the teaching of mathematics in elementary school. The notion that "all you have to do is add, subtract, multiply, and divide" is hopelessly outdated. We owe it to our children to adequately prepare them for the technological society they live in, and we have to start doing that in elementary school. We must teach them mathematics the right way, and the only way to achieve this goal is to create a corps of teachers who have the requisite knowledge to get it done.

Homer Simpson Meets Carla Bruni and Sarkozy

Funny accents... Enjoy!

Friday, November 20, 2009

Barbarians at the Gate: Are We Watching the Demise of Sound Central Banking?

Bob McTeer explains in this post and John Taylor in this post how central bank independence to conduct monetary policy is under attack here in the US. It's also under attack in many other countries right at this moment. Take the Central Bank of Brazil, (which has never been too independent anyway) as an example: it has been steadily losing its small share of decision power to the Brazilian Ministry of Finance, a process that started years ago but has picked up steam lately.

The reasons for this trend have much more to do with public choice than monetary economics. What most central bankers may have forgotten, even in the Fed, is that central bank independence is a daily battle, not granted by divine intervention, and that it'll never be really written in stone, no matter how strong is the legal framework supporting it. In policy making, public choice trumps monetary economics always. That's the reason why my article on monetary policy is titled "Canaries and Vultures": canaries always trump vultures in politics. That's the reason why we created independent central banks in the past.

Here are my two cents: central bankers accepted to make what they thought would be a short lived but necessary pact with the devil: we abandon some of the most sacred and sound monetary principles of central banking to temporarily avoid some of the harsh consequences of the financial crisis (more details in this post). The political calculation however was a Titanic error: they irreversibly opened the gate of the fortress to the barbarian invasion. Central banks lost the higher moral ground, and every time they do it, they pay dearly.

Talking clearly about the foundations of central banking, as McTeer does in his posts, helps to avoid the worst, but I'm really pessimistic regarding the prospects of a rational economic debate on central banking here and in other nations for the time being. Short-sighted political calculation will not go away before we rediscover the need to strengthen central bank monetary policy independence. This is probably not going to happen before inflation sets in again.

Call this imbroglio one of the unintended consequences of the policies adopted since the beginning of the crisis, as I suggested in this comment to another McTeer post.

We Used to Take Central Banking More Seriously

A long time ago in a galaxy far, far away Jedi Masters of money & banking would teach their disciples that, in order to achieve long-term financial stability, a monetary system needs to be based on sound principles such as:
The Fed does not want the credit risk that comes with uncollateralized lending.
Paying interest on [bank] reserves would reduce the income the Fed returns to the U.S. Treasury, shrinking the U.S. government's revenue.
The government's too-big-to-fail policy limits the extent of the market discipline depositors can impose on banks ... encouraging large banks to engage in extremely risky behavior (and putting small banks at a competitive disadvantage).
During periods when the growth rate of potential GDP is changing, central bankers face challenges that are even more daunting than usual. Failing to react to a decline in potential output growth, as policymakers at the Fed did in the 1970s, can result in an extended episode of undesirably high inflation, which can be costly to eliminate. But tightening policy in the face of an increase in potential growth can prevent growth from occurring.
These statements are in reality extracts from Cecchetti's textbook Money, Banking and Financial Markets, 2nd edition of 2008, a book written before the financial crisis. I've been teaching these lessons for many years now. Explaining to my students why it is that these sound principles, among many others, have been abandoned or are not being given enough attention since the beginning of the crisis, when in reality we should be paying heed to them now more than ever, has been a bizarre and unique experience in my career.

Have the guardians of our currency joined the dark side of the Force?

The abandonment of sensible central banking is probably more disturbing to me than to the average American economist due to my work experience with central banks in Brazil, Bolivia, and Angola during hyperinflation. In the Central Bank of Brazil I was part of the (usually minority) group that continuously fought for those textbook principles, that insisted on the notion that sticking to them was a necessary condition to fix a financial system that had become cursed by monetary mismanagement.

It's painful to watch the deterioration of the foundations of the American monetary system. It's only happening, in my opinion, because we've been allowing our representatives to ignore harsh fiscal, monetary and corporate bankruptcy realities that will have to be dealt with anyway, sooner or later. In other words, we've chosen to temporarily bailout our present at the permanent cost of our future. All that I'm left with is a new hope:

The Jedi Masters of money & banking have gone into Exile, but the tide will turn. When that happens, may the Force be with them.

Thursday, November 19, 2009

How do I Pronounce Waszcyszak?

Here's the answer.

The web site, Pronounce Names, is another smart idea based on stigmergy. The database is yet incomplete, but I'm sure that as it grows it will become a really helpful resource. You can add pronunciations of your own name if necessary.

Government Failure: Credit Card Regulation that Makes Our Lives Worse Off, Part II

A symbol of this administration's creeping regulatory ineptitude.

Last August I wrote a post on how a new credit card regulation would hurt responsible credit card users, people that pay their bills on time and that occasionally use credit cards to borrow for short periods in order to avoid the cost and trouble of opening new lines. I explained how one of my credit card administrators reacted to the new regulation by making my credit more expensive, in other words by making sure that responsible users would pay for other people's irresponsibility.

Anybody with minimum knowledge of economics should have been able to predict this negative regulatory outcome. The government however wasn't able to predict it, or even worse, chose to not disclose the negative consequences of the regulation.

Now it's my other credit card administrator that finally throws the towel. This card has offered me low and fixed interest rates for more than 14 years. Rates never changed, not even once. Aaaaaand it's gone! Here's the meaning of change we can believe in according to my credit card administrator (italics are mine):

For many years, our credit cards have featured a fixed interest rate. However, some provisions of the new credit card legislation (meant to protect consumers from card companies that advertised low fixed rates, only to immediately switch to high rates) apply to all credit cards with fixed rates. So that we can continue to provide reliable access to consumer credit under all interest rate conditions, we believe it is now prudent to change the way the Annual Percentage Rate (APR) is calculated for your card. ...

While this change is not likely to have any immediate impact on the card interest rate, should interest rates rise in the future, the rate could increase.

In the name of helping me, help that I didn't even ask for, the government made my life worse one more time. Regulations like this should never leave the trash heap of bad ideas where they come from.

Wednesday, November 18, 2009

Dilbert and the World Bank

I know the feeling...
Click on cartoon to magnify.

Lacker on Inflation

Here is an interesting statement by Richmond Fed President Jeffrey Lacker on the state of monetary policy in the US:

There is no doubt that we must be aware of the danger of aborting a weak uneven recovery if we tighten too soon. But if we hope to hold inflation in check, we cannot be paralyzed by patches of lingering weakness, which could persist well into the recovery. ...

The historical record suggests that the early years of a recovery is when the risk is greatest that confidence in the stability of inflation erodes and we see an upward drift in inflation and inflation expectations.

Lacker's statement has been considered hawkish by analysts, however it's textbook-precise. As an example, see this graph from Cecchetti's "Money, Banking, and Financial Markets" textbook showing the behavior of inflation in the US during the sixties and seventies:

Average GDP growth rates kept falling from 1966 to 1980 in the US. The Fed tried to stimulate the economy with a loose monetary policy stance, but the end result wasn't growth, was inflation. To make things worse, inflation rarely creeps up slowly. It rises in unstoppable bursts. The bursts reinforce the inflationary trend because they produce periods marked by sizable negative ex-post real interest rates, hurting savers and destroying their confidence on the monetary authority. Meanwhile, the bursts aggravate the tendency of central bankers to underestimate the ex-ante nominal interest rate levels that are necessary for price stability.

Monday, November 16, 2009

7th Art: Changeling (2008)

"Changeling" (2008) is another great movie directed by Clint Eastwood based on the true story of Christine Collins and her missing son Walter Collins, possibly a victim in the horrendous Wineville Chicken Coop murders.

The movie is tastefully produced and Angelina Jolie is very convincing as a tormented yet tireless mother. She carries the weight of the role with grace, creating great empathy for the character. John Malkovich has a small but important role as Presbyterian Rev. Gustav Briegleb and is able to transmit great moral authority, as the character commands.

The movie main lesson is wonderfully laid out by Eastwood: that power tends to corrupt and absolute power corrupts absolutely, and that the only way to stop it is not by nourishing utopian political systems but by ensuring that there are enough checks and balances built into the institutional framework to reduce concentration of political power on the hands of few.

The movie very effectively shows how free speech, a free press, freedom of cult, and an independent judiciary were the main factors leading to the rescue of Ms. Collins and preventing further abuse of government power. None of these freedoms and guarantees would have been possible in a centrally planned socialist or communist society. The true story of the Collins family serves therefore as another cautionary tale for those who fail to understand this simple political principle.

Sunday, November 15, 2009

Landsburg on Krugman's Excellence in Two Widely Disparate Activities

Landsburg perfectly summarizes how economists-turned-political celebrities give a bad name to the profession (HT Cafe Hayek's Boudreaux):

It’s always impressive to see one person excel in two widely disparate activities: a first-rate mathematician who’s also a world class mountaineer, or a titan of industry who conducts symphony orchestras on the side. But sometimes I think Paul Krugman is out to top them all, by excelling in two activities that are not just disparate but diametrically opposed: economics (for which he was awarded a well-deserved Nobel Prize) and obliviousness to the lessons of economics (for which he’s been awarded a column at the New York Times).

It’s a dazzling performance. Time after time, Krugman leaves me wide-eyed with wonder at how much economics he has to forget to write those columns.

Thursday, November 12, 2009

Einstein's Political Incoherence

In a comment to my post on why western intellectuals supported soviet tyranny, pete5594 reminds us that Einstein was among the many high-profile intellectuals that chose to not dennounce the Soviet Union. Einstein's unsophisticated political and economic beliefs also came to my mind right after I wrote that post, so I'll elaborate on the topic.

Einstein's pro-Soviet and sometimes anti-American political views are well documented and perfectly fit the pattern of moral ineptitude described by Daniels. Einstein's case however is even more interesting given that his political and economic beliefs conflicted intensely with some of his most important life choices.

After the rise of the Nazis, Einstein chose to live in and later to become a citizen of one of the most capitalistic and democratic nations in the world, the US. He also never renounced his citizenship of another equally capitalistic and democratic country: Switzerland. Einstein chose to remain in capitalistic US even after having been investigated by the FBI, when he could have easily moved to any country of his choice. Throughout his life, Einstein's actions were in clear disagreement with his words.

Riniolo and Nisbet offer an interesting account of Einstein's political incoherence in the article titled "The Myth of Consistent Skepticism: The Cautionary Tale of Albert Einstein." Here's a noteworthy passage:

Einstein does not demonstrate the hallmarks of a consistent skeptic when it comes to his evaluation of the Soviet Union. It is doubtful that anyone committed to rigorous skepticism would agree with Einstein’s view that a government has the right to murder millions of its own citizens and create slave labor camps as a preemptive strategy if it believes it will be attacked at some future date. Interestingly, Einstein judged the German people to be “the land of mass-murderers” (Einstein quoted in Born 1971, p. 199) and the individual citizen personally responsible for the crimes of the Nazi regime. However, by this standard, Einstein himself would have felt it justified if he was murdered for “correct” political reasons, or himself part of a land of mass-murderers if he lived in the Soviet Union under Stalin. The great irony is that Stalin’s government, like Hitler’s, murdered millions of its own citizens and did not tolerate political liberty. Only a “true believer” could not make that assessment. ...

The case of Einstein is cautionary in another respect. Too often, we find skeptics paying rapt attention to the views of scientific celebrities regarding assorted topics to which those celebrities’ occupational expertise and accomplishments are totally irrelevant. From a logical point of view, what a renowned physicist, astronomer, or evolutionary biologist has to say about psychology, politics, economics, religion, etc., has no special status whatsoever (just like the Hollywood celebrity who speaks out on these issues). Scientists’ claims regarding these issues must stand on their logical and substantive merits alone. Too often, the irrelevancy of scientific celebrity is lost on those who (like all of us) love to be told what they want to hear, especially by people famous for their intellectual accomplishments. Yet, the love of misplaced authority is but another step in the direction of obliviousness to our own selective skepticism.

Ironically, many consider Einstein to be one of the greatest American humanists. It escapes me however how is it that offering support to murderous totalitarian regimes could have ever been considered consistent with humanist ideals.

It should be noted nonetheless that there are different interpretations of Einstein's failure to denounce communism, some of them well represented in this interesting article by Jacob Foster, which appeared in the "The American." Foster's article however only reaffirmed my impression that Einstein had a poor and frequently incoherent understanding of political and economic issues.

Give Me That Old Time Recession

Merle Hazard and the Hazardaires ask for that "Old Time Recession" (HT Mankiw), those happier times when at least we were left with a few good reasons to rejoice... Enjoy!

Tuesday, November 10, 2009

Why Most Western Intellectuals Supported Soviet Tyranny?

Anthony Daniels explains the puzzling phenomenon in this article from a special edition of the "The New Criterion" on the fall of the Berlin wall (HT Selva Brasilis). The sin of intellectuals, according to him, is that they frequently favor utopia in detriment of reality, and political idealism at the cost of human existence. In his words:

One of the most extraordinary episodes in the intellectual history of the twentieth century—if, indeed, something that lasted half a century or more can properly be called an episode—is the moral and sometimes material support given by much of the western intelligentsia to the Soviet tyranny, a tyranny that made all previous tyrannies seem relaxed, liberal, and almost amateurish by comparison. Men who found the slightest circumscription of their own freedom intolerable raised hosannas to the most systematic and concerted abrogation of personal liberty yet attempted; many were hose who strained at gnats to swallow a camel.

No doubt the explanation for this phenomenon is psychologically and sociologically complex. A commonly cited factor that supposedly contributed to it was ignorance of the real situation obtaining in the Soviet Union: intellectuals were therefore able to project on to the Soviet Union their utopian fantasies unconstrained by any appreciation of the sordid realities. This explanation, however, is entirely false. ...

The Soviet Union was valued by contemporary intellectuals not for the omelette, but for the broken eggs. They thought that if nothing great could be built without sacrifice, then so great a sacrifice must be building something great. The Soviets had the courage of their abstractions, which are often so much more important to intellectuals than living, breathing human beings.

Monday, November 9, 2009

A Great Day for Freedom

Pink Floyd's David Gilmour interprets "A Great Day for Freedom" live in Gdansk:

On the day the wall came down
They threw the locks onto the ground
And with glasses high we raised a cry for freedom had arrived

On the day the wall came down
The Ship of Fools had finally run aground
Promises lit up the night like paper doves in flight


Sunday, November 8, 2009

Where the Wall Is Yet to Fall

The world celebrates tomorrow the 20th anniversary of the fall of the Berlin wall. Meanwhile, in the prison-island of Cuba, communist state oppression yet rules.

Blogger Yoani Sánchez uses the Internet to denounce the lack of freedom, inequities and economic chaos that are the trademarks of the political and economic systems of her country. As expected, she has to deal with the consequences of confronting the powerful Castro family's political machine on a daily basis. Yesterday, she was kidnapped by Cuban political police agents while participating in a march for peace. In her own words:

Near 23rd Street, just at the Avenida de los Presidentes roundabout, we saw a black car, made in China, pull up with three heavily built strangers. “Yoani, get in the car,” one told me while grabbing me forcefully by the wrist. The other two surrounded Claudia Cadelo, Orlando Luis Pardo Lazo, and a friend who was accompanying us to the march against violence. The ironies of life, it was an evening filled with punches, shouts and obscenities on what should have
passed as a day of peace and harmony. The same “aggressors” called for a patrol car which took my other two companions, Orlando and I were condemned to the car with yellow plates, the terrifying world of lawlessness and the impunity of Armageddon. ...

I was listening to Orlando panting and the blows continued to rain down on us, I planned to open the door and throw myself out but there was no handle on the inside. We were at their mercy and hearing Orlando’s voice encouraged me. Later he told me it was the same for him hearing my choking words… they let him know, “Yoani is still alive.” We were left aching, lying in a street in Timba, a woman approached, “What has happened?”… “A kidnapping,” I managed to say. We cried in each others arms in the middle of the sidewalk, thinking about Teo, for God’s sake how am I going to explain all these bruises. How am I going to tell him that we live in a country where this can happen, how will I look at him and tell him that his mother, for writing a blog and putting her opinions in kilobytes, has been beaten up on a public street. How to describe the despotic faces of those who forced us into that car, their enjoyment that I could see as they beat us, their lifting my skirt as they dragged me half naked to the car.

I managed to see, however, the degree of fright of our assailants, the fear of the new, of what they cannot destroy because they don’t understand, the blustering terror of he who knows that his days are numbered.

The Nobel Peace Prize committee should be very, very ashamed for not having given the prize this year to someone that actually did something to deserve it, someone that needed the protection and the money that come with it. Someone like Yoani.

Saturday, November 7, 2009

A Monument to Government Insanity

Is what the House's Health Care Bill has become, according to the WSJ (HT Miron):

The 1,990-page health-care bill in the House is one of the weightiest pieces of legislation on Capitol Hill.

A single-sided copy of it printed by The Wall Street Journal weighed 19.6 pounds, and stood 8.25 inches tall.

If it passes, it would be among the longest pieces of House legislation ever, congressional historians say.

Thursday, November 5, 2009

The 20th Anniversary of the Fall of the Berlin Wall

In four days the world will celebrate the 20th anniversary of one of the most important events in human history: the fall of the Berlin wall, the symbol of the separation between the free world and one of the most disastrous political, social and economic experiments that ever took place on the face of this planet: the communist or socialist state.

We should never forget the dark heritage of communism. The wall wasn't built because East Germany was a magnet for the "huddled masses yearning to breathe free," but much on the contrary, it was built to make sure that their tired and poor, the subjects of communism, couldn't escape from the nightmare of their government's ironfisted rule.

As explained by Paul Hollander, "the failure of the communist system was not merely economic and political; it was a moral failure as well." Or as put by Cato's Swaminathan S. Anklesaria Aiyar (HT Escolhas e Consequências' Hillbrecht):

Communists and socialists everywhere, including in India, were dismayed. They could not understand why East Germans blessed with income equality, free social welfare and full employment should flee to the highly unequal West, which bristled with unemployment and social perils. An answer came in a letter to a newspaper editor.

"My daughter's hamster (a pet white mouse) has food, water, shelter and even medical care, and a cage full of fun curly tubes. The hamster responds by constantly trying to chew his way to freedom. I think we all understand what freedom is, and it is not a gilded cage."

Surprisingly for many, our President decided to snub the celebrations of what was one of the most decisive political victories in the history of the United States. The Germans and other Europeans didn't take the affront lightly (HT Selva Brasilis). Their negative reaction should have been expected by anyone who knows on which side of the Atlantic Europe is located. On the other hand, I hope that this time Europeans will give the Presidential gaffe some thought and learn something new about American politics.

Wednesday, November 4, 2009

Taylor on Government Failure Versus Market Failure

In this blog I like to point out how frequent and prevalent is the phenomenon of government failure. Under a public choice perspective, the problem is that, in the public sector, there are strong incentives to use market failure as an excuse for the adoption of awkward or interested public policies, while government failure is rarely - if ever - recognized as a problem by politicians and government officers in power, since it would represent a recognition of their own deficiencies. Here's how Stanford economist John Taylor summarizes the problem:

Cliff Winston of the Brookings Institution carefully reviews three decades of empirical research on a wide range of microeconomic policy studies in his important book Government Failure versus Market Failure. He comes to the same basic conclusion; as he puts it "thirty years of empirical evidence... suggests that the welfare cost of government failure may be considerably greater than that of market failure."

It is interesting that he focuses on research done outside of government because, again as he puts it, "studies conducted by the government,...can be biased, inconsistent, and technically flawed." So perhaps it is not surprising that so few government agencies or officials are pointing to government failure as the main problem in the recent financial crisis.

Monday, November 2, 2009

Government Failure: Mankiw and Taylor on the Increases in Marginal Income Tax Rates

A labor income tax is not too different from having to pay the government for the right to work. It's also a punishment on working more hours or more productively. The more we work and the more we earn from working, the more the government collects from us as "access to work fees."

Right now, the government is not helping us, and particularly not helping the poor, when it increases "access to work fees" paid over the extra dollars that we earn from working harder or because of increased productivity, as explained by Stanford economist John Taylor in his blog and Harvard economist Mankiw in his blog and in this NYT article:

The bill that recently came out of the Senate Finance Committee illustrates the problem. Under the proposed legislation, Americans would have the opportunity to buy health insurance through government-run exchanges. Depending on a family’s income, premiums and cost-sharing expenses, like co-payments and deductibles, would be subsidized to make health care more affordable.

A family of four with an income, say, of $54,000 would pay $9,900 for health care. That covers only about half the actual cost. Uncle Sam would pick up the rest.

Now suppose that the same family earns an additional $12,000 by, for example, having the primary earner work overtime or sending a secondary worker into the labor force. In that case, the federal subsidy shrinks, so the family’s cost of health care rises to $12,700.

In other words, $2,800 of the $12,000 of extra income, or 23 percent, would be effectively taxed away by the government’s new health care system.

That implicit marginal tax rate of 23 percent is a significant disincentive. And it comes on top of the explicit marginal tax rate the family already faces from income and payroll taxes. Altogether, many families would face marginal rates at or above the 50 percent level that animated the Reagan supply-side revolution.

One might hope that such a large climb in marginal rates is a bug in the Senate Finance bill, one that could be fixed before the legislation became law. But there is no simple fix. Higher marginal tax rates are an integral part of the Obama health plan.

PS: the increase in marginal tax rates are even higher according to the CBO: 32%, as reported by Mankiw. And to this we must add the marginal effects of all other taxes on income and means-tested social programs!