Saturday, December 31, 2011

When Will the Education Bubble Burst?

Good article on the education bubble. More and more people are getting around to my position.

The question is, when will it burst? And what will be the consequences?

Thursday, December 29, 2011

My Thick Libertarianism

I did not start my life as a libertarian. I was not a libertarian in high school. I was not a libertarian until well into college. I did not become a libertarian by reading Ayn Rand. In fact, when college started, I was at best a centrist with Republican leanings, the latter in no small part due to my Baptist upbringing. I had no real notion of how the economy ran other than my folk economics I was born with, and which was reinforced by our political culture. My moral beliefs were almost entirely formed by my Baptist upbringing and my parents' tolerant natures. If there were any libertarian seeds planted during that time, it was the moral aversion to racism planted by my parents.

I went to college and majored in recombinant gene technology. Through that major, I came to understand the world as complex, self-organizing, and evolving. This was reinforced by books I read in college on chaos theory, self-organization, quantum physics, cosmology, etc. I saw the world as complex, self-organizing, and evolving, and so, when I took an Intro. to Philosophy class, in which I was first introduced to economics -- specifically, free market economics -- by Ronald Nash, I found that this fascinating area matched well the world as I understood it to be.

It is perhaps difficult, in one's path to libertarian thinking, to avoid going through Ayn Rand. Which of course I did. I read "Capitalism: The Unknown Ideal" (which it is), which led me to Atlas Shrugged and The Fountainhead, and on to the rest of her philosophy. At the same time, I read a number of other economists, from Walter Williams to Milton Friedman, but somehow did not come across too many Austrian economists. They remained to be discovered much later, after my world view had become even more complex, even more developed. Through Rand I discovered Nietzsche and Aristotle, with the former becoming a close companion.

All of this led me to abandon biology and pursue creative writing. I wanted to write stories that showed my world view. That led me to a Master's in English, and to the Ph.D. program in the humanities at UT-Dallas. I went through a postmodern-nihilist stage of sorts during my Master's time, but came out ready for a revaluation of values at UT-Dallas. It was there I met Alex Argyros and Frederick Turner, both of whom introduced me to the ideas of J.T. Fraser, the great philosopher of time. Through these three, I developed a far more complex world view -- one that was fully universalist, complex, self-organizing, emergentist, and evolutionary. I learned more and more about human evolution, evolutionary psychology, the way the brain worked and processed information about the world, the way we came to know about and understand the world, the ways in which we were social and individualistic -- and the ways in which we were not collectivist and individualistic.

In the beginning, nothing. But nothing, or perfect symmetry, is unstable. The symmetry thus broke, and the universe came into existence in the big bang. Waves of energy spread the universe, and spread through the universe, resulting in interference patterns that, as the universe cooled, crystallized into particle-waves that were capable of interacting to crystallize further into atoms. These atoms were pushed around by the waves of the universe, causing many to pool. As they pooled, gravity increased, attracting more and more atoms, until fusion occurred -- thus did the first stars self-organize and enlighten the sky. Fusion and, later, supernovae created more complex atoms, which were then able to engage in more complex chemistry, creating more complex molecules, and less volatile objects, like planets, on which life could emerge. Complex organic molecules are self-organizing, particularly in an aqueous environment. Life self-organized out of the early earth conditions -- life indeed is likely to be found throughout the universe, so likely is self-organization to occur. Complexity evolved as simple organisms competed for the available space. Competition is a discovery process, and thus life discovered many ways of doing things, including becoming more complex to create new environments. Self-organization to create more complexity is a natural process of the universe itself. One result was the emergence of intelligent species, including one intelligent enough that, with sufficient population density to make them socially intelligent as well, there emerged the ability to understand the universe itself. Yet, humans evolved in a particular environment, even as we are able to adapt to many environmental conditions. Yet, we are adapted to particular social conditions, which we cannot disregard if we want to live a moral, human life. Further, our brains are complex neural networks, which take in sensory data and convert that data into concepts. We are both born with instincts that allow us to learn certain things -- like language -- very rapidly, and subtract differences in common things to create concepts. We must forget to know, meaning we can never know everything possible in the universe. More, our practical knowledge is local. Humans interact with one another to create emergent, self-organizing social processes (spontaneous orders). These range from the moral order to the artistic orders to the economic order. These orders emerge as we become more moral, including more and more people in our "tribe", which really means, in our moral sphere of common humanity. We are thus social individuals whose interactions allow us to be smarter than we are as individuals, and which allow us to coordinate our actions and cooperate better. Organizations emerge which help us achieve our individual goals in that spontaneous order.

Thus, I am a libertarian because libertarianism comes closest to the way the world works. It is the political system one should hold if one believes in human equality, if one believes all people are in fact people and ought to be treated that way, meaning it is fundamentally the most moral system of them all, since all people, regardless of who they are, must be treated morally, meaning, as fellow human beings. The ethical person does not and does not support theft, rape, or murder, regardless of who the person is, whether they are rich or poor, black or white, of a different ethnicity, of a different culture, speak a different language, or are from a different country. These things are immoral for an individual, a group, or an organization to do -- even if that organization calls itself a government. Thus, I am a libertarian because libertarianism is the most moral world view -- not just political view -- one can hold. There is a recognition that good intentions are not good enough. The actions one takes to reach one's goals matter as much as the goals themselves. Which is in part why I'm an Austrian-school economist (the other reason being that this school of economics also is realistic in its understanding of epistemology, its tendency to reject equilibrium, and its understanding of the economy as a self-organizing process, or spontaneous order -- meaning it is the school of economics that takes more of the world into consideration in its understanding of the economy, and which actually matches the way the world actually works).

It is because I understand the universe to be a self-organizing, complexifiying, emergentist, evolutionary process, with humans and their social systems a part of that process, that I am a libertarian. It is because of my inclusive moral system, which is itself a spontaneous order, that I am a libertarian. It is because of my understanding of human psychology and human evolution, of how the brain works, of the presence of a variety of instincts we cannot do away with, and the way these all interact to create each individual, and how each individual in turn interacts with others to create organizations and spontaneous orders that, in turn, affect our emergent minds, which affect our neurochemistry, -physiology, and -actions that I am a libertarian. It is because of my understanding of human epistemology that I am a libertarian. My libertarian came out of these things; these things were not informed by my libertarianism. I followed the logic of discovering a consistent world. A free market and a free people interacting in spontaneous order societies reflects the self-organizing complexity at every level of reality in the universe. The world is inexorably and inevitably evolving toward libertarianism. It does not matter if there are conservative elements who oppose this movement. The universe will evolve as it will. All the enemies of reality as it truly is can do is delay it -- with all the negative consequences that delay necessarily brings.

Delay means we are trying to keep the world simple, or we are trying to simplify the world more. If you simplify a human, you make him an animal; if you simplify a living thing, you make it a pile of molecules undergoing entropy (you kill it). If you kill people, you simplify society. If you protect companies from competition, you stand in the way of new ways of doing things, and thus prevent more complexity from emerging. You thus stand in the way of the natural tendency of the universe. To do so is as immoral as actively simplifying the world. Thus, those who would destroy wealth by attempting to redistribute it (wealth can be created or destroyed, but cannot be redistributed -- only riches can be redistributed), those who would stand in the way of social complexity by opposing immigration in all forms, those who would stand in the way of economic complexity with their socialist or interventionist schemes (anti-natural religious schemes, if the truth be told), those who would prevent cultural and artistic evolution, are all from this point of view immoral people, standing in the way of the complexifying drive of the universe.

Tuesday, December 27, 2011

Praxis, Common Praxis, and Praxeology

Praxis is action; common praxis is the action common to a group who must act as they do to cooperate and coordinate their actions. Mathematics has a common praxis. So, too, does physics, chemistry, and biology. The arts and humanities almost do not have a common praxis -- though the overlaps are themselves interesting. Between the simple sciences and the arts & humanities is the complex sciences, the social -- or humane -- sciences. This of course includes psychology, economics, and sociology. There are some aspects in which the social sciences have common praxis, with considerable divergence. This is perhaps not surprising, given the complexity of what is being studied. Complexity implies more perspectives are possible. The arts and humanities, of course, are highly perspectivist in nature. The more values come into play, the less likely one is to share a common praxis, too. Math and physics do not bring many values into play other than the values of truth and accuracy. But what values come into play when making an economic analysis? Or in analyzing a poem?

Where does this leave praxeology? One can certainly study human action, and determine what would be the best action to accomplish a particular goal. One can even recommend a common praxis if one is to work with others to accomplish a common goal. To achieve coordination of plans, there has to be a common praxis. With a common praxis, you can get people to cooperate and coordinate -- this is true in a business or in collaborations, be they online or in the real world. Which implies that the internet will be good for engaging in business and in engaging in the simple sciences -- but will be less helpful in making advances in areas where there is less of a shared praxis.

One possibility is that the internet will actually help those who do share a common praxis in more complex endeavors to get together -- not just online, but in the real world. Want to be a Marxist and live in a Marxist country? By all means, get all of those who share that common world view, find a place to move to, and move everyone there. Want to live in a Keynesian economy? Get all your fellow Keynesians, move someplace, and get to work setting it up. This, I think, is the future. When we get over the idea that there must be a state, once we accept that there can be a variety of governments, and once we get it into our heads that the free movement of people is a good, not a bad, thing, then we will be in a situation where we can peacefully divide up like this, set up areas of common praxis, and have true societal competition. Then we will see which society is, truly, the best. Through competition, we will discover which common praxes are best.

Tuesday, December 20, 2011

RIP, Vaclav Havel

It is a shame that the death of a contemptible dictator, Kim Jong Il of North Korea, has overshadowed the death of one of the few great political figures of history, Vaclav Havel. A great poet and a great statesman, Havel oversaw the peaceful transition of Czechoslovakia from communism to capitalism, and the peaceful breakup (following the will of the people!) of Czechoslovakia into the Czech Republic and Slovakia. Following the lead of Havel, the Czech Republic remains one of the few bastions of economic freedom (and sanity!) in Europe. May Havel be remembered forever as one of the few true defenders of freedom -- and one of the few poets of the 20th century to be willing to sacrifice everything for true freedom, standing against most of his fellow European poets against the horrors (and ugliness) of communism.

Friday, December 16, 2011

Krugman Doesn't Understand Inflation

Krugman is off saying silly things again:

"Look, the Austrian/Ron Paul types made some very strong predictions about inflation — and rightly, given their model of how the world works. In their version of reality, it really isn’t possible to triple the monetary base without dire effects on the price level. In my version of reality, of course, that’s not only possible but what the model predicts in a liquidity trap."

Apparently Krugman does not take several things into consideration in his model.

The first thing one should consider is that, in a recession, there is real deflation. That means that monetary inflation is of course going to be partially offset by that deflation. Krugman should know that. And, of course, he does. This is the entire basis of his argument. It may account for the small trickle of money that has actually entered the economy, but certainly not all of it.

Krugman forgets two other facts. The second thing one should consider is that the banks are not releasing the created money into the economy, but are sitting on it. They are waiting for better lending conditions before the lend the money they have. Bernanke is hoping he can get all that money back before that happens. I wouldn't hold my breath. Finally, third, there is the fact that money doesn't go into the economy equally, but rather enters it in one or two places. Like housing -- which is what happened last time, and helped create the housing bubble. Where is the money entering now? Look for one or two sectors where there is inflation -- that's likely to be your entry point. Inflation spreads from there.

So, considering all three things are in play, we shouldn't be surprised we don't see inflation yet. Yet. Of course, Austrian economics helps us understand the second and third points are in play -- points Krugman is apparently ignorant of. Which is why his analysis is way off.

Once the economy does get going -- if it is allowed to get going through all the continued distortions going on, all of which Krugman approves -- we will see that inflation the Austrians and Ron Paul have been predicting. I am sure Krugman will have some other explanation for it when it comes, though.

Why Your Boss Cannot Coerce You in a Free Market

I have often heard opponents of free markets argue that, like government, which is necessarily coercive, that free markets are coercive as well. They point to things like bosses firing employees as being an example of this. But is a boss firing -- or threatening to fire -- an employee truly coercive?

In a free market, "if you do something good for me, I will do something good for you." In government, which, as noted, is necessarily coercive, "unless you do something good for me, I will do something bad to you." This is the very nature of policing and the military. It is the very nature of taxation.

And what of the boss threatening to fire an employee. Well, that is a case of "If you cease to do something good for me, I will cease to do something good for you." This is NOT the same as "unless you do something good for me, I'll do something bad to you." People think they are the same, and thus free markets are coercive, but they are not. Those are completely different kinds of relationships.

Threatening to end a relationship is not the same as using threats to keep you in one.

Thursday, December 15, 2011

Hayek In Mind: Hayek's Philosophical Psychology

The issue of Advances in Austrian Economics I am in, Hayek in Mind: Hayek's Philosophical Psychology, is now published! You can find it here, where you can download each individual chapter. My chapter, which is titled "Getting to the Hayekian Network", is the final chapter of the book. The book itself can be purchased here. Enjoy!

Wednesday, December 14, 2011

Basic Income Guarantee, Negative Income Tax, and Austrian Economics

I was invited to submit a paper for a book on the idea of the Basic Income Guarantee. The editor, Guinevere Liberty Nell, is still working on getting full permission to do the book, but she says things are looking good. In any case, here is the proposal, which has been accepted:

Civil society is made up of a variety of spontaneous orders, including the economic order and the democratic order. Each has its own values and its own ways of communicating information – and different orders can come into conflict with one another. What is good economics may not be good democratically, and vice versa. And this is certainly most clear when dealing with programs that touch on both orders, such as welfare programs. There is a very large amount of literature out there proving that welfare programs are bad, economically. However, welfare programs are still popular democratically. One could just chalk this up to economic ignorance on the part of the populace – or, one could consider the fact that there are values other than those found in and promoted by the market economy, including social values, that people find just as important. When looked at in this manner, a different set of arguments opens up.

Whatever the economic argument are against welfare programs, from the point of view of the democratic order, they are beside the point. If they are beside the point in one sense, because the populace want such programs, it then behooves us to try to figure out what kinds of programs are least economically problematic. It is from this perspective that I will be comparing welfare as currently constituted in the United States, and comparing it to both the idea of a Basic Income Guarantee (BIG) and to Milton Friedman’s proposal for a Negative Income Tax (NIT). There were some experiments with NIT during the 1970’s that resulted in it being abandoned as an idea, but I will be considering some problems that would necessarily have to be taken into consideration in analyzing those results. I will also be comparing how such programs could be set up, the costs of such programs, etc., to try to suggest which one would produce the best social results at the cheapest costs. Along these lines, I want to pay particular attention to the unseen elements as much as the seen, as replacing all of our welfare programs with one program is going to affect the nature and extent of the current system in place. What will happen if we can eliminate a significant portion of those working in the welfare bureaucracy at both the public and private levels? The natural assumption is that all of those people will now be laid off, but the fact of the matter is that they will be freed to pursue other economic avenues, which may in fact contribute to economic growth and the creation of even more wealth, now that they are no longer participating in non-wealth-creating activities. One has to look down the road quite a bit to truly understand why a program may be either desirable or undesirable. This is the approach I will be taking in analyzing all three – current welfare, BIG, and NIT.

I am sure my regular readers will be a bit surprised at the above proposal. My answer to them: there's always room for second-best ideas. In any case, I'll be writing this paper as a good scientist investigating the interface of two spontaneous orders rather than as the polemicist I can sometimes be here on my blog. There is and should be room for both in one's life.

Monday, December 12, 2011

Why Do People Defend Unjust, Inept, and Corrupt Systems?

Here is an interesting article on why people defend unjust, inept, and corrupt systems. It turns out that there are "four situations that foster system justification: system threat, system dependence, system inescapability, and low personal control." One wonders where ideology comes into play in all this.

Those of us who support spontaneous orders need to consider this: "The less control people feel over their own lives, the more they endorse systems and leaders that offer a sense of order." Often people feel like they do not have much control over their lives in a spontaneous order, like free markets, and thus look toward those who promise "a sense of order," such as welfare statists, interventionists, and even socialists. How do we help foster a sense that we have control over our lives in spontaneous orders? The fact is that we do in fact have more control over our lives in spontaneous order systems than in those ordered by others -- it just does not feel that way. And how it feels matters. What can we do to help people feel more at home, more in charge, in spontaneous order network systems?

Businessmen Do Not Necessarily Understand the Economy

Last night in the Republican debate, Mitt Romney argued that, contra Newt Gingrich, he had spent time in the private sector and, therefore, he understood how the economy works. While I will hardly defend the knowledge of economics held by a historian who spent most of his life in government, the fact that Mitt Romney ran a business does not mean that he understands economics. Indeed, the proclamations of people such as Warren Buffet and Bill Gates on economics proves business people do not necessarily understand how the economy works.

How does this make sense, that someone who can successfully run a business can, nevertheless, be generally ignorant of how an economy works?

The knowledge needed to run an organization such as a firm -- or a government -- is not the same as that needed to understand an ateleological scale-free self-organizing network process. For one, organizations are teleological and have hierarchical network structure. They are designed orders. This may allow a business person to run a government agency -- another teleological, hierarchical, designed organization -- but it hardly argues that they are uniquely positioned to understand the economy qua economy. It is likely they know what business people would like to happen, but what business people would like to happen is good for their businesses, but not necessarily for the economy per se. This argues that Mitt Romney would be good for crony capitalism or mercantilism, but not necessarily for the spontaneous order economy.

The problem is that the skills needed to know how to run a good organization are not the same skills needed to understand how an economy works, including what to do (or not to do) to ensure one has a long-term healthy economy. Contrariwise, one who understands the working of an economy is not necessarily in the position to run the government organization -- which includes, of course, knowing what it can and cannot do, what it should and should not do.

This can be solved if one were to get a politician who is able to run an organization and also has the wisdom to understand that he does not understand how the economy works, and hires good economists as advisors to make up for that shortcoming. But note that knowing one is ignorant requires wisdom (is wisdom, according to Socrates), and there are few who are both arrogant enough to run for office and humble enough to admit ignorance. Things are worse yet if you have someone who has been in business, because they are even more certain they understand how the economy works.

Sunday, December 11, 2011

Spontaneous Order Auto Design

The future of design is crowdsourcing -- another word for "spontaneous order" -- as we can see in this story on Local Motors. Of course, of equal note is the brilliant way they have managed to get around all of the laws that make new car companies impossible to start: if you want it, you have to come help build it, so it can be considered a "kit car."

Agglomeration economy theory could easily be used to explain why there are only a few, very large auto makers in the U.S. -- and the world -- but one should also wonder at the costs imposed by regulations, too, which ensure that only the auto makers already in existence can afford to make automobiles. If auto production were truly a self-organizing system, you would expect to see a power law distribution of auto makers -- many small ones, a medium number of medium-sized ones, and a small number of large ones. Of course, if we consider parts makers as part of this -- as one should -- one should expect them to add to the variety. Probably the auto industry, this broadly conceived, comes a bit closer -- but the industry is still unhealthy from a self-organizing process point of view.

One would expect to see auto parts producers supplying small, local auto makers and inventors. The broader distribution of auto makers would drive innovation, and there may even be a viable electric car by now -- or something even better. But because our laws have resulted in the centralization of the auto industry into a few well-protected crony companies, innovation is slow at best.

The good news is that Local Motors exists, and they are using spontaneous order theory to design their automobiles. Competition is a discovery procedure. Our auto companies need more competition so we can discover better ways of making automobiles.

Happy Birthday Melina!

Today is Melina's birthday. My little girl is 5 today!

Wednesday, December 07, 2011

More on Hayek as Macroeconomist

My posting below seems to be pretty popular. I even managed to get a posting over at Cafe Hayek.

Things That Never Happened In The History of Phlogiston

Mikhail Lomonosov is not an important figure in the history of phlogiston.

These days, you constantly see articles that make it seem as if there was a great debate in the 1700s between Robert Boyle and Lomonosov, and that this debate has continued through the generations. Nothing like this happened. Lomonosov essentially made a fool of himself early in the 1750's, and his ideas vanished from the professional discussion.

The above may sound familiar if you have read Krugman's critique of Hayek's place in the history of macroeconomics. As Mario Rizzo observes, this is almost entirely beside the point, since Hayek in many ways outright rejected macroeconomics. As well he should. It's equivalent to phlogiston theory -- and just as unneeded.

Actually, it is Brad DeLong who put it in such a way that his position can actually be critiqued:

Friedrich von Hayek is only a very minor and very unproductive figure in the work of macroeconomics. He--and Schumpeter, von Mises, and the rest of them--spent a lot of time figuring out why it might be that when you learned that you had overinvested and overborrowed, the natural and necessary thing to do was to shutter (rather than repurpose) factories and send your workers home to eat Cheetos and watch "The Real Housewives of Galt's Gulch".
I often find the economic reasoning skills of economists like DeLong astonishingly bad. Let's analyze this statement. First, Hayek et al did not say that the "necessary thing to do was to shutter" factories. But we should not be surprised if we find that we have less money than we thought we did that we also do not have enough money to repurpose our factory. If you find you have less money than you thought, first cut costs. That is likely going to mean cutting wages, or cutting wage earners. Once you get costs back below income, you can begin to repurpose. The fact that this is apparently completely off the radar screen for DeLong says volumes about him as an economist.

The first thing it suggests is that the macroeconomics mythology he believes in blinds him to the world's reality. There are underlying mechanisms to larger economic patterns. If you don't understand those, you can't understand the larger patterns. DeLong and Krugman (though I know Krugman should know better) are like doctors who think that one can completely understand a patient without understanding that there are organs, tissues, and cells one needs to understand first to understand how the person works at these levels. They take the temperature, find a fever, and recommend bleeding and leeches. Or, to switch analogies, they are the Lysenkos of economics, thinking the social is the important thing, and not the underlying individual's behaviors.

Little do they understand, their macroeconomics is doomed for extinction. It is headed for the ashcan of history, where all wrong theories go. The irony, at least for them, is that it will be replaced by improvements on ABCT and Hayek's spontaneous order theory.

Tuesday, December 06, 2011

Clearly Melissa Gorga Was a Stripper

There is nothing that says that Melissa Gorga of The Real Housewives of New Jersey was a stripper than the fact that she's mortally offended at being accused of being a stripper. Otherwise, it's just silly rumors. And who says a bar maid can't be a stripper?

Am I the only one posting this to see if her idiot lawyer will sue me for saying Melissa Gorga used to be a stripper? I mean, I've never met her, been to the strip club she worked at, or anything, so how could I know? I think the fact that one could get sued for saying such things about someone one doesn't know and who one could not know is ridiculous. And suing me for saying Melissa Gorga was a stripper is only going to make me get my 15 minutes of fame.

I mean, seriously, who actually cares if she was or wasn't? How is that going to affect her reputation? All of those Real Housewives shows merely show us that there are rich people who act just as bad as trailer trash. That is all. Many of those women were strippers too. And many of them weren't. Who cares?

Thursday, December 01, 2011

Student Loans Drive College Costs, Driving Student Loans

James Banks raises the question Can the Humanities Be Saved? He recommends some interesting ideas at the end -- one I had not thought of is price differentials among majors (put a little supply and demand at work). But I would like to look at how he starts off his piece, with “formal statement” issued by the Modern Language Association (MLA):

Public attention has been directed recently to the educational debt students accumulate in the course of undergraduate, as well as graduate, study. A major contributing factor has been the increasing portion of educational costs students must bear in the form of loans. To reduce debt burdens in the future, we call on Congress, state legislatures, and institutions of higher education to calibrate educational costs and student aid in ways that will keep student debt within strict limits. We also call on them to hold in check tuition increases, which often far outpace inflation, and to ensure that degree programs allow for timely completion.
I suppose one should not be surprised that the MLA is ignorant of economics and, thus, they don't understand the real problem is with the loans themselves. The loans make university education artificially cheap -- with artificially low interest rates and delay of payments for people who have short time horizons, due to their age. This drives up prices in the same way similar programs drove up housing prices during the housing bubble. Further, almost all of the increase in costs go to bureaucracy -- much of which is needed to deal with the government, including the loans, etc. Does the MLA really believe that the price reductions won't be sent their way first, rather than to the bureaucracies? In other words, those at the MLA need to learn a little cause-and-effect. Sure, I know that goes against their pomo proclivities, but it's time they grew up and rejoined the real world anyway.