Isegoria

Everyone should read Thomas Sowell’s A Conflict of Visions, Arnold Kling believes, but few will, so he summarizes its key points:

One is that the right thinks that social problems primarily reflect basic constraints, while the left thinks that they reflect the failure of good to triumph over evil.

For example, on health care, I will say that as individuals we want unlimited access to medical services without having to pay for them, but that this desire faces the constraint that it is economically unsustainable. On the left, it is an article of faith that the main problem is, as someone once said to me in a Q&A session, a lack of political will.

The other difference is the left’s belief in what Sowell calls the “surrogate decision-maker”:

For the left, “society” should make decisions, and proper experts should make decisions for society. That is why Thaler is happy that the Obama Administration is going to dictate more strictly the types of mortgages people can have.
Those of us on the right think that knowledge is embedded in systems that evolve over time. The experts are not really smarter than markets.

The left believes that wise and moral experts could solve problems if not for their evil opponents. The right believes that the so-called experts do not have nearly enough knowledge to be dictating to everyone else. Think of the late William F. Buckley’s remark that he would rather be ruled by a set of people randomly chosen from the Boston phone directory than by the Harvard faculty.

Kling is not optimistic:

From their point of view, it would be immoral for me to secede from their utopia. If Patri Friedman ever creates a seastead, its inhabitants will be imprisoned for tax evasion, treason against the planet, or somesuch.

Arnold Kling does not believe that fixing the health care system is a trivial task:

I love it when people who have never managed anything more than a government grant are convinced they can manage one sixth of the economy.

He’s pointing out the hubris of Melinda Beeuwkes Buntin and David Cutler in writing The Two Trillion Dollar Solution for the Center for American Progress.

The purpose of the public health insurance plan, Arnold Kling says, is political:

Getting people to reduce their use of medical services is the spinach of health care reform. Expanding insurance coverage is the dessert. The Democrats want to enact dessert now, and worry about spinach later. For the dessert part, they want no Republicans involved. Down the road, when they are ready to tackle the spinach part, they will press for bipartisan cooperation and statesmanship from Republicans.

Arnold Kling has some more to say about North, Wallis, and Weingast and their book, Violence and Social Orders:

• The libertarian view of the ideal of limited government is a fantasy. Instead, for NWW the best state is an open-access order. The law is administered impersonally. There is very broad access to the tools for creating and participating in both economic and political organizations. Political and economic organizations are expected to be able to outlive their individual leaders. In an open-access order, government is not small. However, the competitive environment does lead government to provide public goods, rather than serve as a mechanism for the dominant coalition to extract rents from the population at large. Some organizations can be economically important without wielding great political power, and conversely some organizations can be important in politics without have great economic power.
• The alternative to an open-access order is a limited-access order–also called a natural state. In a limited-access order, there is a dominant ruling coalition. All of the groups with a potential for organized violence are part of the coalition. They partition economic and political power among themselves. They exclude others. For an organization to have economic power, it must have political power. The law is far from impartial, particularly with respect to conflicts between those within the dominant coalition and those outside the dominant coalition.
• Most people start with the assumption that the state has a monopoly on the legitimate use of force. NWW point out that this monopoly should not be taken for granted. In natural states, there are multiple organizations with a capacity for violence. Equilibrium is maintained by agreements over privileges and rents. Outside reformers complain about corruption. However, there is no way to end the corruption without destroying the equilibrium and risking civil war. Think of Iraq. Or Pakistan. Or Mexico.

I enjoyed listening to Russ Roberts interview Weingast on Violence, Power and a Theory of Nearly Everything a while back. I recommend the podcast to anyone who isn’t already listening to EconTalk.

North, Wallis, and Weingast have formalized something I thought to myself back in high school — or maybe early college. If free-markets are so efficient, why do we see so many guilds (and other monopolies) in pre-modern economies?

It didn’t take me very long to come to a realization. The king has plenty of soldiers, but not necessarily a lot of cash. Granting monopolies is virtually free to him and probably easier than collecting taxes.

What intrigues me is the thought that kings and dictators could probably do better for themselves by sticking to a few efficient taxes (e.g. a land-value tax), rather than trying to fiddle with anything and everything, and they could hand out favors by handing out straightforward shares of tax revenue (or “profits” after government expenses), not monopolies on random segments of the economy.

Ronald Brownstein examines demography and destiny:

To grasp how powerfully demographic change is reshaping the political landscape try this thought experiment about the 2008 election.

Start by considering the electorate’s six broadest demographic groups — white voters with at least a four-year college degree; white voters without a college degree; African-Americans; Hispanics; Asians; and other minorities.

Now posit that each of those groups voted for Barack Obama or John McCain in exactly the same proportions as it actually did. Then imagine that each group represented the share of the electorate that it did in 1992. If each of these groups voted as it did in 2008 but constituted the same share of the electorate as in 1992, McCain would have won. Comfortably.
[...]
These trends point toward trouble for the GOP if it cannot attract more minorities, especially Hispanics, and reverse the recent Democratic inroads among well-educated whites.

The best way to illustrate that prospect is to pitch the thought experiment forward 12 years. Imagine that the major demographic groups voted as they did in 2008, but cast a share of the vote equal to their expected share of the population in 2020. (For argument’s sake, let’s divide whites among college and noncollege voters in the same proportions as today.) In that scenario, Obama beats McCain by nearly 14 points — almost twice as much as in 2008. Demography will indeed be destiny if Republicans can’t broaden their reach.

Arnold Kling believes that the US is taking a giant step backwards toward what Nobel Laureate Douglass North, John J. Wallis, and Barry R. Weingast — in Violence and Social Orders — call a natural state, in which only the members of the governing coalition are fully free to do business and to participate in the political process, rather than an open-access order, in which both politics and economics are highly competitive:

Given this view, libertarians may have the basic economics right when it comes to open borders. Other things equal, more immigration is much better for the immigrants and somewhat better for the native population.

But other things are not equal. Taking into account the effect of immigration on the political equilibrium, Steve Sailer may have it right. We may have seen the last of America as a dynamic economy with a competitive political system. Instead, we may be headed toward a stagnant economy and a one-party political system.

Have a nice day.

Don’t bet on the regulators, Arnold Kling says, in the OODA loop contest with financial traders — who are always a step ahead, Corine Hegland explains:

The transactions that turned some stupendously bad loans into a global calamity were designed to thread loopholes in the very regulatory, accounting, and legal regimes set up to prevent such things. Indeed, this is what bankers and financial traders always do, because they make a great deal of money from it. They call it arbitrage. In currency markets, arbitrageurs are constantly buying and selling currencies across borders to make money on small price fluctuations between dollars and yen, or euros and renminbi, for example. In “regulatory arbitrage,” the bankers and traders restructure transactions to take advantage of differing rules, and hence prices for risk, for various kinds of regulated financial products. It’s very hard — maybe impossible — for regulatory bodies to keep up with the arbitrageurs.

“The institutions are always ahead of the regulators,” said Kevin Jacques, who spent 14 years at Treasury before joining the faculty of Baldwin-Wallace College in Ohio. “Whenever you fix a problem, you create an unintended consequence whereby you’ve just said to financial institutions, ‘OK, go out and figure out how you’re going to alter your portfolios.’ You’re fighting against yourself.”

The only novel aspect to this particular cat-and-mouse round is that the ruthlessly efficient financial markets stayed ahead of regulators long enough to swell Americans’ household debt to nearly 100 percent of U.S. gross domestic product, a feat accomplished only once before, in 1929. If regulators don’t come up with a game-changer of their own as they address the current crisis, the markets will win the next round as well. Careful regulatory alterations take years, but financial institutions adapt within months.

I’m not sure I would have titled Alex Tabarrok’s TED talk How ideas trump crises, but I think he makes some simple-but-deep points:

Just before the six-minute mark he succinctly makes a particularly simple-but-deep point about the spread of prosperity and its benefits to us:

If China and India were as rich as the United States is now the market for cancer drugs would be eight times larger.

A drug market that’s eight times larger justifies R&D budgets that are eight times larger.

Some of the comments paint Tabarrok’s talk as Panglossian in its optimism, since we all know the world is going to collapse as we run out of natural resources.

(Hat tip to Arnold Kling.)

Medicare does very little to restrict patients’ access to medical services, which seems like a good thing, but Arnold Kling worries about longer-term consequences — and draws this unusual analogy:

Saying, “We don’t need to have any restraint on the use of medical services. Look at Medicare” is like saying, “We don’t have to worry about the fish population. Look at all the fish we just caught.”

Five hundred years ago, unrestrained fishing probably was ok. But over time, as the human population grew and our fishing technology improved, it became possible to wipe out entire species of fish. At some point, you need restraints — if not regulations, then property rights that create incentives for conservation.

Similarly, when Medicare was started in 1965, you could give people unrestricted access to the treatments then available. But over time, with the Medicare population growing and technology changing, the stress on the system is increasing. At some point, it will be unbearable. We are already approaching that point.

Arnold Kling explains that our health-care system is unsustainable and it will stop:

What we want is unlimited access to medical procedures without having to pay for them. What we get is extravagant use of medical procedures with high costs and low benefits. This is unsustainable and it will stop.

The debate should be about how the cost-benefit trade-offs and rationing will take place.