Wednesday, March 30, 2016

Sanders’ democratic socialism is still socialism

Here is an article by Svetozar Pejovich, retired economics professor at Texas A&M University.


Democratic socialism is Senator Bernie Sanders’ presidential election platform. The problem is that no one seems to know what exactly that term means. Democratic socialism is certainly not defined by the policies Sanders has been proposing in his speeches. Instead, the institutional changes required to support Sanders’ policies and the philosophical premises that underpin them define democratic socialism.

Sanders’ policies rest on three philosophical premises: A just society based on the equality of outcome exists and is desirable. Human reason can discover the rules required to bring about such a society. And the political elite should enforce those formal rules from the top down. Those premises are traceable to the early French socialists. They are also incompatible with the American tradition of self-responsibility, self-determination and limited government under a rule of law.

Given the prevailing tradition in the United States, putting those premises into practice requires the acceptance of two institutions: the redistribution of income initiated and monitored by federal government, and the attenuation of private property rights. Although these institutions have some resemblance to social democracies in Europe, the process to form these two institutions is specific to the American culture of individual liberty and private property rights.

1. Democratic socialism requires income redistribution. The undeniable economic success of capitalism in raising the standard of living in the United States created a problem for the political and intellectual elite. They cannot use the efficiency argument to justify replacing market competition with governmental control of the economy. The political and intellectual elite needed a cause, and they found it in income inequalities. Yes, opinion-makers told us, free-market competition is efficient in maximizing the pie BUT its allocation among cooperating inputs is immoral. President Obama said that much in his recent speech in Argentina. The immorality of capitalism argument is then used to justify redistributive policies. Of course, redistributive policies call for ever larger role of government in the economy. Bernie Sanders took the concept of immorality a step further. For him and his supporters, income inequalities have the emotional impact of the national anthem.

Initially, the support for redistributive policies comes from a segment of the population that feels market competition has been unfair to them. However, the benefits of redistributive policies enjoyed by some are appreciated by others. The political elite in a democratic society responds to the growing support for redistributional policies. The process generates ever growing political support from one election to another, slowly replacing competitive markets with governmental controls.

Of course, the lunch is not free. The short-run consequence of redistributive policies is erosion of the link between performance and reward, which, in turn, reduces economic efficiency and the pie available for redistribution. The long-run cost is the transformation of the American culture of self-responsibility and self-determination into the culture of dependence on the state.

2. Democratic socialism requires attenuated private property rights. In the American tradition, the primary function of private property is to serve the subjective preferences of property owners. This function creates a strong link between the decision how to use assets and the consequences of that decision. That is, private ownership provides incentives for owners to seek the most valuable uses for their assets. Unlike socialism of the last century, which used brute force to replace private property rights with state ownership, Sanders’ democratic socialism bribes people to voluntarily accept the erosion of private property rights.

The acceptance of private property rights by Sanders’ democratic socialism creates a conflict between the attainment of a predetermined outcome desired by the ruling elite and the efficiency outcome of the incentive effects of private property rights. A way to resolve this conflict is to attenuate private property rights via laws and regulations. Those law and regulations (such as reducing the right of employers to fire workers at will, giving tenants rights at the expense of apartment owners, granting special privileges to some rent seeking groups, etc.) transfer some decision-making rights from owners to public decision makers, or non-owners. Transfering rights interferes with the subjective preferences of property owners and changes the voluntary contracts among people. In the end, the attenuation of private property rights impedes the flow of resources to higher-valued uses and reduces economic efficiency of the economy.

To paraphrase four Western intellectual leaders:
The triumph of socialism depends on free men doing nothing (Edmund Burke); The problem with socialism is that you eventually run out of other people’s money (Margaret Thatcher); I have never understood why it is ‘greed’ to want to keep the money you have earned but not greed to want to take somebody else’s money (Thomas Sowell); and Capitalism without failure is like religion without sin (Allan Meltzer).

Monday, March 28, 2016

More evidence that Paul Krugman cannot be trusted to tell the truth

A comment from Greg Mankiw.
Paul Krugman has an odd column today, suggesting that if you are a free trader, the Democrats are historically a better bet for you. He writes,

When I say that Republicans have been more protectionist than Democrats, I’m not talking about the distant past, about the high-tariff policies of the Gilded Age; I’m talking about modern Republican presidents, like Ronald Reagan and George W. Bush. Reagan, after all, imposed an import quota on automobiles that ended up costing consumers billions of dollars. And Mr. Bush imposed tariffs on steel that were in clear violation of international agreements, only to back down after the European Union threatened to impose retaliatory sanctions.

Actually, the latter episode should be an object lesson for anyone talking tough about trade. The Bush administration suffered from a bad case of superpower delusion, a belief that America could dictate events throughout the world. The falseness of that belief was most spectacularly demonstrated by the debacle in Iraq. But the reckoning came even sooner on trade, an area where other players, Europe in particular, have just as much power as we do.

This narrative ignores some inconvenient evidence to the contrary, such as the fact that a majority of Democrats in Congress voted against NAFTA, while a majority of Republicans voted in favor.

But what really caught my eye is how wrong Paul is about the Bush steel tariffs. I was there for part of this episode, so I am confident that his interpretation--that President Bush was a protectionist--is completely backwards.

President Bush wanted to get Trade Promotion Authority (aka Fast Track) to negotiate future trade deals. It was, however, a hard sell in Congress. The steel tariffs were imposed as a quid pro quo to get a few of the votes needed to pass TPA. The political calculation was that it was worth suffering a small, temporary trade restriction to get the tools needed for a broader, more permanent opening up of trade.

Yes, after about a year and a half, the tariffs were found to have violated international trade rules, but that was always anticipated. Indeed, one can say that it was part of the plan. When the WTO ruling was announced, President Bush happily removed the tariffs, just as he had always intended.

The trade promotion authority that this political calculation yielded pushed the free trade agenda forward. It led, for example, toCAFTA. When this trade agreement came up for a vote, once again a majority of Democrats in Congress voted against, while a majority of Republicans voted in favor.

Parachute Jump From 128,000 Feet

Here is a link to a video of Felix Baumgartner's jump from 128,100 feet.

Felix's speed reaches over 800 mph.

Friday, March 25, 2016

Why Socialism Doesn't Work

Here is a 1995 article, "Why Socialism Failed" by Mark Perry, concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan.

Mark is on target.

It is unfortunate that so many American Voters are ignorant about Socialism's fatal flaws.                                                  --------------------------
Socialism is the Big Lie of the twentieth century. While it promised prosperity, equality, and security, it delivered poverty, misery, and tyranny. Equality was achieved only in the sense that everyone was equal in his or her misery.

In the same way that a Ponzi scheme or chain letter initially succeeds but eventually collapses, socialism may show early signs of success. But any accomplishments quickly fade as the fundamental deficiencies of central planning emerge. It is the initial illusion of success that gives government intervention its pernicious, seductive appeal. In the long run, socialism has always proven to be a formula for tyranny and misery.

A pyramid scheme is ultimately unsustainable because it is based on faulty principles. Likewise, collectivism is unsustainable in the long run because it is a flawed theory. Socialism does not work because it is not consistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives.

In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting, and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. Capitalism is based on the theory that incentives matter!

Under socialism, incentives either play a minimal role or are ignored totally. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail. Socialism is based on the theory that incentives don’t matter!

Sunday, March 20, 2016

The Graph That Launched a Thousand News Stories

Here is a link to an article by Charles Cobb, a statistician.

See how easy it is to mislead you with graphs, charts, and other statistical presentations.

As someone once said: "Figures don't lie, but liars figure".

Bloomberg Twists Gun Research to Political Ends

Here is a link to an article by John Lott, an expert on the impact of gun laws on crime.

As John point out, Bloomberg and Obama can not be trusted when it comes to gun claims.

Largest U.S. refinery now belongs to Saudi Arabia

The USA Today headline reads "Largest U.S. refinery now belongs to Saudi Arabia".

This makes Saudi Arabia vulnerable to the US.  After all, the refinery is here, not there.  If it was there, they could take it.  Since it is here, we can take it.

More Losses Ahead for Obamacare’s Troubled CO-OPs

Here is a link to an article by Charles Hughes of the CATO Institute.  The article describes the continuing failure of Obamacare to accomplish what Obama and his ilk promised.

A snippet.

Twelve of the 23 Obamacare health cooperatives (CO-OPs) have shut down already. 627,000 people were enrolled in CO-OPs that ceased operations, and the federal government had disbursed more than $1.2 billion to these CO-OPs, and it might be difficult to ever recover any of these taxpayer funds. A GAO report released this week reveals that the CO-OP losses could be far from over.

Obamacare’s CO-OPs were a misguided idea from their inception, and they were criticized by everyone from Cato scholars to ardent supporters of Obamacare when they were initially being discussed. These CO-OPs had no infrastructure, no meaningful way to controls costs, and were in real danger of not being able to attain sufficient enrollment numbers to become financially viable. Their inclusion in Obamacare is another triumph of politics and intentions over rational analysis. Hundreds of thousands of people have already had to pay the price for this choice, and thousands more could join them in the increasingly likely scenario that more CO-OPs fail.

Tuesday, March 15, 2016

Do Background Checks on Private Gun Transfers Help Stop Mass Public Shootings?

Here is a link to an article by John Lott, perhaps the foremost gun laws vs. crime expert.

A snippet.

Persistent claims have been made that expanding background checks to include any private transfers of guns would reduce mass public shootings. Yet, this is the first study to systematically look to see if that is true. In fact there is no evidence that these laws reduce the risk of these attacks. Examining all 47 mass public shootings in the US from 2000 through 2015, we find that states adopting additional background checks on private transfers see a statistically significant increase in the rate of killings (80% higher) and injuries (101%) from mass public shootings. There is not one mass public shooting that occurred over that period that these checks would have been prevented.

Despite the frequent calls for expanded background checks after mass public shootings, there is no evidence that background checks on private transfers of guns would have prevented any of the attacks that have taken place since at least 2000. Nor is there any statistical evidence that indicates that these mass public shootings are rarer in states with background checks on private transfers. What we do find is that fatalities and injuries from mass public shootings increased in states after they imposed background checks on private transfers. States with background checks on private transfers tended to have relatively low rates of murders and injuries from mass public shootings before the passage of background checks on private transfers and that these rates became relatively high afterwards. There are real costs of expanding background checks to private transfers. In particular, the fees on private transfers. Law-abiding poor blacks who live in high crime urban areas and who benefit the most from protecting themselves will be the ones most likely priced out of owning guns for protection. Without some benefits in terms of either reduced crime or mass public shootings, it is hard to see how these rules pass any type of cost-benefit test.

Sunday, March 13, 2016

Fuel Economy Standards Are a Costly Mistake

Here is a link to an article by Furth and Kreutzer of the Heritage Foundation.

Government is, all too often, the problem, not the solution.

Here is a snippet.

CAFE standards are costly, inefficient, and ineffective regulations. They severely limit consumers’ ability to make their own choices concerning safety, comfort, affordability, and efficiency. Originally based on the belief that consumers undervalued fuel economy, the standards have morphed into climate control mandates. Under any justification, regulation gives the desires of government regulators precedence over those of the Americans who actually pay for the cars. Since the regulators undervalue the well-being of American consumers, the policy outcomes are predictably harmful.
  • Economists and engineers accurately predicted that the MY 2016 standards would hurt consumers by at least $3,800 per car;
  • Since the Obama-era standards took effect, average new car prices have risen to $6,200 above trend;
  • CAFE standards will continue to tighten, reaching 49.6 mpg in 2025;[38]
  • The higher prices will force millions of lower-income households out of the new-car market;
  • CAFE standards have a trivial impact on global warming—hundredths of a degree at most; and
  • Regulation limits consumers’ choices regarding safety, comfort, and affordability.
Congress should repeal the CAFE standards immediately, which would save 2025 car buyers at least $7,200 per vehicle. Failing that, this or any future Administration has the authority to rewrite the regulatory rule for future model years, taking consumer costs into account and easing the standards, potentially to 27.5 mpg, which would save 2025 car buyers at least $5,900 per vehicle.[39] Freezing the standards at the MY 2016 level would save future buyers at least $3,400 per vehicle.

The new CAFE standard is just one more example of the regulatory burden the government imposes on American households. From dishwashers with interminable cycle times[40] to requirements that gasoline be diluted with corn ethanol,[41] the mandates imposed by the federal government increase consumer costs and reduce consumer choices.

Friday, March 11, 2016

Saving Social Security

Here is a link to a paper I wrote to illustrate how silly is most of what you hear about Social Security.

Thursday, March 10, 2016

Some insight into the stupidity of Bernie Sanders and his ilk

Here is an article by Daniel Bier, the site editor of, that is on target.
At Sunday's Democratic presidential debate, Bernie Sanders attacked American trade with Mexicans, Chinese, Vietnamese, and presumably all other foreigners who might try to steal our jobs. Sanders harangued Hillary Clinton,

NAFTA, supported by the Secretary, cost us 800,000 jobs nationwide, tens of thousands of jobs in the Midwest. Permanent normal trade relations with China cost us millions of jobs.

Look, I was on a picket line in early 1990’s against NAFTA becauseyou didn’t need a PhD in economics to understand that American workers should not be forced to compete against people in Mexico making 25 cents an hour.

... And the reason that I was one of the first, not one of the last to be in opposition to the TPP is that American workers ... should not be forced to compete against people in Vietnam today making a minimum wage of $0.65 an hour.

Look, what we have got to do is tell corporate America that they cannot continue to shut down. We’ve lost 60,000 factories since 2001. They’re going to start having to, if I’m president, invest in this country — not in China, not in Mexico.

First, let's note his dodgy job numbers. As Dan Griswold noted in 2011, in response to a similar claim about jobs "lost" from the "trade deficit" with Mexico,

In the first five years after NAFTA’s passage, 1994-98, when we could have expected it to have the most impact, the U.S. economy ADDED a net 15 million new jobs, including 700,000 manufacturing jobs.
Behold, the horror unleashed on US manufacturing jobs by trade with Mexico:

Wednesday, March 09, 2016

President Obama Can't Have His Ice Cream and Eat It, Too

Here is a link to an article by Michael Farren (George Mason University) describing, in understandable terms, the problems with a minimum wage.

If you totally disagree with Farren's perspective, don't embarrass yourself by telling someone who might actually know something about microeconomics.

Tuesday, March 08, 2016

Global Warming and the Irrelevance of Science

Here is a reproduction of an article by Richard Lindzen, Alfred P. Sloan Professor of Atmospheric Sciences (Emeritus) Massachusetts Institute of Technology. This is the text of a lecture delivered on August 20, 2015 to the 48th Session: Erice International Seminars on Planetary Emergencies.
In many fields, governments have a monopoly on the support of scientific research. Ideally, they support the science because they believe objective research to be valuable.

Unfortunately, as anticipated by Eisenhower in his farewell speech from January 17, 1961 (the one that also warned of the military-industrial complex), “Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity.” Under these circumstances, when the government wants a particular scientific outcome the ideal arrangement is vulnerable. However, as I hope to show, the problem is not simply bias.

Rather, the powers that be invent the narrative independently of the views of even cooperating scientists. It is, in this sense, that the science becomes irrelevant. This was certainly the case in the first half of the twentieth century, where we just have to look at Lysenkoism [1] in the former Soviet Union, Social Darwinism, and Eugenics throughout the western world [2], as well as, in the 1960s, the unfounded demonization of DDT [3]. Each phenomenon led to millions of deaths. And, in each case, the scientific community was essentially paralyzed, if not actually complicit.

Kelly Johnson and Lockheed's Skunk Works

Kelly Johnson was an aircraft designer who worked at Lockheed developing advanced aircraft.  His aircraft were famous for exceptional performance.

Here is a link that provides background on Johnson and his planes.

Sunday, March 06, 2016

George Reisman: China et al. Are Not “Killing Us”

Here is an article by George Reisman, Pepperdine University Professor Emeritus of Economics, that puts trade imbalances in perspective.

George focuses on Trump, but all the other presidential candidates have made similar statements.

George is on target.


The current Republican front-runner, Donald Trump, has repeatedly claimed that China, and many other countries, such as Mexico and Vietnam, are “killing us” in foreign trade. The basis of his claim is the fact that U.S. imports from those countries substantially exceed U.S. exports to those countries. In 2015, for example, the overall, total difference between U.S. imports and exports, known as “the balance of trade,” was in excess of $500 billion, with trade with China accounting for about 70 percent of that sum.

An excess of imports over exports is typically described as an “unfavorable balance of trade.” The description of the balance as “unfavorable” derives from the belief that exports are a source both of money coming into a country, in exchange for the goods exported, and of jobs in that country in the production of the exports. Imports, on the other hand, are viewed as taking money out of the country, in the purchase of the imports, and transferring jobs from the domestic economy to the foreign producers of the imports.

It is on this basis that Trump and many others believe that China et al. are “killing us.” The implication of this belief and its intellectual foundations is that the United States needs to adopt a government policy of increasing exports and reducing imports by such means as protective tariffs, import quotas, and export subsidies. (Trump has not yet explicitly enunciated this policy, but it is logically implied in what he does say.)

Now the truth is that in the monetary conditions of the present-day world, an excess of imports over exports does not at all represent a threat to the money supply of a country or the ability of domestic spending to support employment. In the 17thCentury, when the doctrine of the balance of trade first came into vogue, the money of the world was gold and silver. In those conditions, the only way that a country without gold or silver mines could increase its money supply was by means of obtaining money from abroad, in exchange for the export of goods. The import of goods could for a time reduce the money supply of a country.

But today, money is irredeemable paper, and every country manufactures its own money supply. Indeed, in these conditions, an outflow of part of the money supply of a country in exchange for imports is positively favorable. This is certainly true in the case of the United States dollar, which to an important extent serves as a global currency. The fact that dollars are in demand globally, but are produced only in the United States, implies that the United States must export a more or less substantial part of its new and additional supply of dollars. Exporting part of the supply of dollars represents getting imports of real goods in exchange for pieces of paper that are virtually costless to produce and replace. At the same time, it limits the rise in prices in the United States by holding down the increase in the supply of money in circulation in the United States. Thus, seen in this light, an excess of imports over exports turns out actually to be highly favorable rather than “unfavorable.”

Far more important than the gain associated with obtaining imports by means of the export of costless paper dollars is the gain associated with obtaining imports by means of the investment of foreign capital. To make this point as clear as possible, think of Saudi Arabia before it had an oil industry but after geologists had confirmed the existence of vast oil deposits there. What was necessary to develop those deposits was flotillas of ships from Europe and America bringing vast imports of drilling equipment, sections of pipe, the materials and equipment required for building oil refineries, and the consumers’ goods required for armies of foreign workers constructing the Saudi oil industry. Indeed, so far from being a source of unemployment in Saudi Arabia, this allegedly unfavorable balance of trade was the foundation not only of Saudi Arabia’s oil industry but at the same time practically all of the worthwhile jobs that exist in Saudi Arabia, which are either in its oil industry or closely connected to its oil industry. Thus, in fact, nothing could be more favorable in reality than what most of today’s economists absurdly describe as an “unfavorable” balance of trade and a cause of unemployment, namely, such an excess of imports over exports.

Today, investment by China and other foreign countries in the U.S. is what enables the American economy to import more than it exports. As in the case of Saudi Arabia, this investment and accompanying excess of imports over exports makes it possible for the United States to have more and better equipped factories and all other types of means of production than would otherwise be the case, and thus to have a larger number of well-paying jobs. Indirectly, even the purchase of U.S. government securities by China et al. has this effect. Foreign purchases of U.S. government securities hold down the diversion of capital funds from U.S. firms into the purchase of government securities. The government securities that foreign investors buy are government securities that U.S. investors do not have to buy, which enables them to have more funds available for the purchase of capital goods and labor in the U.S. To this extent, its effect is the prevention of the drain of capital funds from the purchase of capital goods and labor by business into the financing of government spending.

In addition, foreign investment in U.S. government securities serves to prevent the Federal Reserve from creating still more new and additional money with which to purchase those securities, something which would represent a substantial increase in inflation in the U.S.

American job losses are not the result of freer trade and an excess of imports over exports, but of government policies that prevent capital accumulation in the United States, among them policies that limit imports. An essential part of any economic policy that would truly help to “make America great again” is to avoid preventing imports.

Saturday, March 05, 2016

Statistical temperature forecasts

Here is a link to a paper by Terence Mills, "Statistical Forecasting How Fast Will Future Warming Be?"  It puts the current climate forecasts in perspective, statistically.

Terence Mills is Professor of Applied Statistics and Econometrics at Loughborough University.

Terrence provides good reasons for doubting the global warming precision certainty you hear so often from politicians, the media, and many "climate scientists".

Here are the "Introduction" and "Discussion" sections of the paper.

Perspective on Climate Forecasts

Here is a link to a comment on climate science and Keynesian economics by Phillip Magness.  It puts both in perspective.  However, Magness still misses the key point.  He advocates much more sophisticated statistical methodology, which is desirable and which many of current climate doomsayers ignore, but fails to realize that sophisticated statistics cannot compensate for the lack of an accurate theoretical climate model.

Can sophisticated statistics handle Chaos?

Do current climate models accurately forecast ice ages, etc.?

No?  Then why think that current climate models are accurate?

Here is the comment.

The internet has been abuzz for the past few days with a new climate forecasting study by Terence Mills, a well-known statistician at Loughborough University in the UK. The report is highly technical and reads as something of a mathematics textbook on how to design Box-Jenkins type ARIMA forecasting models for climate data, so statistical novice readers be warned. But there’s also an important takeaway that climate scientists, policymakers, and laymen should heed.

Mills’ larger point is that the earth’s climate is an exceedingly complex system. Making climate forecasts about temperature data, atmospheric carbon, sea level rise, and the sort accordingly requires the use of statistical methods that are appropriate for handling complex time series data. The relevant forecasting techniques involve mathematical tools that have been refined over many decades of ever-advancing computer capabilities. The aforementioned Box-Jenkins approach is now something of the industry standard for complex system time series forecasting in multiple fields of applied mathematics, science, finance, and economics. It has many modifications and can be carefully tailored to account for things like seasonality in a data set, or used to tease out specific internal patterns that overlay a larger time series.

The product of these approaches is highly useful to forecasters though. ARIMAs and similar moving average models utilize a historical data set to fit and project a trend line forward from the present by a specified number of days/months/years. The resulting forecasts are probabilistic, that is to say they come with upper and lower confidence boundaries. They also carry the added benefit of endogenizing the historical data of the time series that they are derived from, which helps to work around the problem of having to make sometimes-questionable and/or discretionary assumptions about input variables that are causally complex, difficult to isolate, and interrelated to one another in addition to the overall trend. With all of that in mind, an ARIMA technique, undergoing a few appropriate modifications, would appear to be an extremely useful tool to adapt to climate forecasting.

It might therefore come with some surprise to learn that many long term global temperature “forecasts” by climatologists actually do not actually employ these standard forecasting tools. There are a few exceptions, including several papers by Mills that expand upon the techniques in his new report. But compared to most other applied mathematics, climatology as a whole is still very much in the statistical dark ages.

Bernie Sanders for President

Here is a link to a video that shows why Bernie Sanders should be your choice for President.

Funny and true.  If you don't buy the "true", you do not understand economics and lack knowledge of history.