1. From Michael Norton and Dan Ariely, Building a Better America – One Wealth Quintile at a Time, Association
for Psychological Science, Abstract:
“Disagreements about the optimal level of wealth inequality
underlie policy debates ranging from taxation to welfare. We attempt to insert
the desires of ‘‘regular’’ Americans into these debates, by asking a nationally
representative online panel to estimate the current distribution of wealth in
the United States and to ‘‘build a better America’’ by constructing
distributions with their ideal level of inequality. First, respondents
dramatically underestimated the current level of wealth inequality. Second,
respondents constructed ideal wealth distributions that were far more equitable
than even their erroneously low estimates of the actual distribution. Most
important from a policy perspective, we observed a surprising level of
consensus: All demographic groups—even those not usually associated with wealth
redistribution such as Republicans and the wealthy—desired a more equal
distribution of wealth than the status quo.”
Response: These results are perhaps interesting as a factual
description of public opinion, but they should not, as I think many people
would be inclined to, be interpreted as any kind of argument in favour of
egalitarian wealth confiscation and redistribution. Most “regular” Americans
are utter illiterates when it comes to economic theory and the “regular” people
of almost every other country in the world as well. Most don’t even realize
that the government printing money is what causes the inflation that has been a constant feature of all modern economies since World War I. Given this, one would not
expect them to realize the negative effects that egalitarian wealth
redistributions would have, or realize that most of this wealth, while owned by
rich people, is actually invested in business ventures to best serve them, the
ordinary consumers. Not learning economics is fine, provided that your economic
views do not affect the formulation of economic policy. As such, “regular”
people’s economic views on wealth inequality, and whether most desire “a more
equal distribution of wealth or not”, is based on an incomplete picture of the
costs and benefits of such a policy due to most people’s ignorance of economic
theory, and as such does not constitute any argument in favour of such
policies.
2. From 'Lord Keynes', http://socialdemocracy21stcentury.blogspot.ca/2009/11/financial-deregulation-and-origin-of.html:
“The era of globalisation
between about 1980 and the early 2000s was characterized by extreme financial
liberalization in comparison with the 1945–1980 period of tight and effective
financial regulation.”
And:
“In the case of
the US, we can point to a number of important acts of financial deregulation
that were the direct causes of the [2008] crisis”
Response: These two statements
are true, as far as they go, but while avoiding the error of commission, they
commit the error of omission. Not mentioned is the fact that the financial
industry, and the banking industry in particular, throughout the modern world,
including in the US, does not at all run on free-market principles. Rather, in
the US, the members of a banking cartel, headed by the government-linked central bank called
The Federal Reserve, are protected from bankruptcy and are encouraged to inflate
the currency and reap the benefits. The big firms in the financial industry are
some of the main beneficiaries of these easy money inflationary policies, and
as we saw in 2008, apparently have the privilege of being ‘bailed-out’ should
their wild speculations based on easy money illusions turn sour in the face of
reality. The banking and financial industries in the US are not paragons of
free-market capitalism, but of crony capitalism, where the State heavily
favours certain market participants and corporations with special privileges
attained through coercion. Given this reality, perhaps ‘deregulation’ was a bad
thing, as it could well have led to even more reckless behavior on the part of
banks and financial institutions. But rather than trying to walk the policy tightrope
between imposing hampering, inflexible financial regulations and letting the
crony institutions run wild with their government privileges, why not just
restore the best system of regulation of all, the free-market system of
profit-and-loss, success and bankruptcy? (See: http://thinkingabouthumansociety.blogspot.ca/2013/03/a-superb-regulatory-system.html)
3. From Paul Krugman, “Myths of Austerity”, http://www.nytimes.com/2010/07/02/opinion/02krugman.html?ref=paulkrugman:
“For the last few months, I and
others have watched, with amazement and horror, the emergence of a consensus in
policy circles in favor of immediate fiscal austerity.”
And:
“And real-world policy —
[austerity] policy that will blight the lives of millions of working families —
is being built on that foundation.”
Response: In recent economic
policy debates, there has been a misleading use of language running rampant,
the use of the word ‘austerity’ to describe the economic policies of certain
countries like Britain, Ireland, and sometimes even the US! Also, the economic
policies that EU leaders allegedly seek to ‘impose’ on troubled countries like
Greece, involving tax increases and spending cuts to pay back their sovereign
debt, are also labelled as ‘austerity’. To a genuine supporter of the
free-market such as myself though, this represents a misleading abuse of language. Let us take Britain: the alleged poster child of
‘damaging austerity in the wake of an economic crisis’. According to the data
Sean Rosenthal in this article (https://mises.org/daily/5939/Krugman-and-British-Austerity) gathered, this government ‘austerity’ consisted of raising tax rates
significantly and barely cutting government spending at all. Spending as a
percent of GDP fell from the mammoth 51.1 percent in 2009 to the hardly-less
mammoth 49.8 percent in 2011, still significantly higher than the also-mammoth
43.9 percent of GDP the leftist Labor government was spending before the 2008
crisis. I don’t know what such a policy should be designated as, but ‘fiscal austerity’,
with its implications of a free-market policy intended to shrink government’s
role in the economy significantly, is an utterly misleading label. Part of it
stems from the Keynesian idea that one should never, ever cut
government spending in a ‘recession’, no matter how much of the economy it is
currently engulfing or how wasteful the spending appears to be. Thus, any
proposal to cut government spending at all, and even the failure to increase
government spending fast enough during a depression is labelled ‘fiscal
austerity’ by the Keynesians. For the ordinary reader, unencumbered by Keynesian theories though, the term is downright unhelpful and
fraudulently misleading.
4. From Paul Krugman, “Myths of
Austerity”, http://www.nytimes.com/2010/07/02/opinion/02krugman.html?ref=paulkrugman:
“What’s the evidence for the
belief that fiscal contraction is actually expansionary, because it improves
confidence? (By the way, this is precisely the doctrine expounded by Herbert
Hoover in 1932.)”
Response: Though from the same article as the previous
misleading statement, this misleading statement is not about ‘fiscal austerity’
per se, but about the historical economic policies of US President Herbert
Hoover. According to Keynesian mythology, Herbert Hoover was a doctrinaire
free-marketeer who, when the Great Depression hit in 1929, misled by his
outdated laissez-faire views, refused to intervene. The results were
disastrous, and it took the free-spending President Roosevelt and his New Deal,
and ultimately World War II, to lift the United States out of the Great
Depression. For a book-length refutation of this utterly false account of the
economic policies pursued by the Hoover administration in the face of the
Depression, I would recommend Murray Rothbard’s America’s Great Depression, available for free here: http://mises.org/document/694/Americas-Great-Depression. Basically, Rothbard points out how
Hoover actually originated many of the big-spending, interventionist policies
that are typically associated with Roosevelt’s New Deal, had always been a fan
of government regulation of business, and cajoled business’s into not reducing
the wages of their workers in the face of the Depression and the monetary
deflation, which in turn led to mass unemployment. For the busy reader though,
I would point to Franklin Roosevelt him self’s indictment of Hoover’s economic
policies when he challenged him in the 1932 election: "I accuse the present Administration of being the
greatest spending Administration in peacetime in all our history." That’s
right, Roosevelt’s criticism of Hoover wasn’t that he was a laissez-faire
‘liquidationist’ as Keynesians would have you believe, but that he was a big
spender, the biggest peacetime spender in fact! That Roosevelt would, after the
election, completely change his policy orientation from that put forward as his
campaign platform and proceed to surpass Hoover in economic interventionism and
government spending is only a testament to Roosevelt’s political duplicity, not
to Hoover’s credentials as a ‘laissez-faire liquidationist’ who favoured ‘fiscal
contraction’.
5. From Paul Krugman, “The lost generation”, http://krugman.blogs.nytimes.com/2009/11/05/the-lost-generation/:
“the best quarter-century of
growth America has ever experienced, the postwar generation — which happens to
be the era during which many of the founders of neoconservatism came of age! —
has gone down the memory hole. After all, it’s impossible that living standards
would double under a regime of high marginal tax rates, generous minimum wages,
and strong unions. So it just didn’t happen.”
Response: Krugman is here
implying that it was the high marginal tax rates, generous minimum wages, and
strong unions that caused the postwar quarter-century to be the fastest period
of per capita GDP growth in American history. He does not actually offer a
plausible, logical explanation for why high taxes, generous minimum wages, and
strong unions would lead to rapid economic growth, nor does he refute the explanations
of free-market economists of why these things would retard, not strengthen,
economic growth and lead to unemployment. Rather, he commits the grave
epistemological mistake of trying to refute logic with statistics, taking a
correlation and assuming it equals causation without any theoretical
explanation for why it should. In the spirit of Krugman’s logic-free empiricist
methodology, I will offer a few relevant correlations of my own:
1. In the post-war years,
marginal tax rates may have been high, but few people actually paid those tax
rates. Government revenue taken in as a percent of GDP was actually lower in
Krugman’s vaunted 1950s and 1960s than in the proceeding decades, as this chart
shows: http://www.usgovernmentrevenue.com/downchart_gr.php?year=1950_2008&view=1&expand=&units=p&fy=fy12&chart=F0-total&bar=0&stack=1&size=m&title=&state=US&color=c&local=s
2. Leftists like Krugman are
always going on about how government should regulate private businesses. But in
the 1950s and 1960s, government regulations were cranked out at a significantly
slower rate than in the proceeding decades, as this chart shows: Page 17 of: http://cei.org/sites/default/files/Wayne%20Crews%20-%2010,000%20Commandments%202012_0.pdf
3. While the US economy did
indeed grow very quickly in the 1950s and 1960s, it also grew very quickly and
probably in even more life-changing ways from 1865-1914. As Robert Higgs, in
his detailed empirical study of the period, The
Transformation of the American Economy notes: “The economy grew
spectacularly in the half century following the war. Real GNP per capita
advanced at an average rate of 2 percent per year, and on the eve of World War
I it stood at about three times the 1865 level”. The governments of this period
are ones that, by the standards of today, would be considered radically
libertarian, and there were barely any economic policies that one would today
recognize as ‘Keynesian’ to speak of.
4. While private sector unions
were indeed more prevalent in the 1950s and 1960s than they were in proceeding
decades, they were legally strongest in the mid 1930s in the midst of the Great
Depression with the passage of the pro-union Norris-Laguardia Act and Wagner
Act in 1932 and 1935 respectively. The Taft-Hartley Act of 1947, passed despite
the attempted veto of Democrat President Harry Truman, took away some of the
special privileges granted to labour unions in the 1930s by restricting the
kinds of coercive strike-actions they were allowed to engage in. Could we not
say then that the period characterized by the strongest labour unions was the
1930s, while the 1950s and 1960s were only characterized by moderately strong
labour unions?
5. We must not forget that
Medicare and other social welfare policies associated with Lyndon B Johnson’s
‘Great Society’ program, beloved of contemporary leftists, were only really
introduced in 1965, near the end of Krugman’s postwar rapid period of growth.
The programs were not repealed, but expanded under the Nixon and Ford
administrations in the stagnant 1970s, and most of them have survived until
this day.
6. The monetary system in
place in the postwar period until 1971 was the Bretton Woods System, a system
tied very loosely and precariously, but tied nonetheless, to some kind of gold
standard, for the US dollar at least. If the 1950s and 1960s were so great,
then, according to the crude empiricist methodology, couldn’t we assert that
the last vestiges of the gold standard helped make this period more conducive
to economic growth than the proceeding decades, where the monetary system lost
all ties to gold and became a purely fiat system?
6. The general leftist
narrative is that everything was great in the allegedly statist/leftist postwar
period, but all went to hell with the ‘Reagan Revolution’ in the 1980s and the
rise of ‘free-market neoliberalism’ as the dominant economic ideology. Besides
misleadingly implying that the period from the 1980s to the present has been one
characterized by free-market principles and the lack of government
intervention, which is completely false as point #1 and point #2, among other
pieces of evidence, suggest, this narrative also seems to forget that the
economically stagnant 1970s happened. If the policies of the 1950s and 1960s
were so great, why did they not continue to have great results in the 1970s,
before the evil Ronald Reagan and his allegedly ‘free-market’ revolution
struck?
If we were to use Krugman’s rhetorical strategy, given
these correlations, couldn’t we just as easily assert that 1950s and 1960s
prosperity was due to less revenue collected by the government, less economic
regulation, less powerful labour unions than there had been in the terrible
1930s, the relative lack of extensive social welfare programs, and the last
vestiges of the gold standard being in place? How do we reconcile Krugman’s
statist interpretation of the postwar period with the fact that a relatively
libertarian period in the late 19th century also resulted in rapid
economic growth? How do we account for the economically stagnant 1970s, which
witnessed no real changes in the policies Krugman lauds, being before the
dreaded ‘Reagan Revolution’?
The point is that historical periods, based on the
‘facts’, can often be interpreted in many different ways, some diametrically
opposed, and whether we accept an interpretation as true or not must be based
on some kind of logical theory, not just on correlations masquerading as
causations. Mount Vesuvius erupted in 79 AD, utterly destroying the Roman city
of Pompeii. An exceptionally prosperous period in Roman/Ancient History was to
follow. Here is a correlation, so according to logic-free empiricism, couldn’t
we seriously consider the proposition that the eruption of Vesuvius caused, and was not just correlated with, the subsequent century
of unusual prosperity? If we employ logic to evaluate this theory though, we
must find it preposterous: how can a destructive volcanic eruption cause a
century of empire-wide prosperity? We must conclude that the prosperity happened
despite the volcanic eruption, not because of it. Though not quite as absurd, a
similar argument could be used against Krugman’s attempt to use the historical
record of the 1950s and 1960s to ‘prove’ that high taxes, powerful labour
unions, and high minimum wages lead to prosperity. Someone armed with
free-market economic theory would, rather, conclude that the prosperity
happened despite these generally economically harmful policies, and look for
explanatory factors for this prosperity elsewhere, which are not too hard to
find if one is really looking.
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