Monday, May 27, 2013

Things that make libertarians sound like jerks

Last week I saw a photo with more profound political commentary (one of that endless supply you see on facebook) that went like this:
1,000 dollar monthly Social Security check for Grandma is bankrupting America.

Yet a billionaire not paying taxes is making America prosperous.

Up is Down in America!
Check and mate. At least as far as our instincts are concerned. Clearly the big greedy corporations are controlling everything, and this is evidence that we are the victims of a cruel right-wing ideology of laissez-faire economics.

There are many points where I can agree with my left-wing friends, including when it comes to corporate greed. No one can be naïve about the lengths to which powerful people will go to maintain their power, or wealthy people to maintain their status. Equally important is the realization that people are not perfect, and left to their own devices they often do pretty terrible things to themselves and others. And I also very much agree with the assertion that a society is only just insofar as it is capable of protecting the weak and vulnerable, and helping as much as possible those who are less fortunate.

It is thus with a deep sigh in my chest that I must point out something critically important about billionaires versus Grandma. Yes, it might make me sound like a jerk, because our instincts are not naturally wired this way, but here is a simple fact: billionaires not paying taxes really do help make us prosperous.

Now, before you jump too far ahead of me, please note that I am not saying billionaires have no duty to pay taxes. The duty to pay taxes comes from the cost of certain necessary public services.

However, a sound understanding of our economic system should leave you with no other conclusion than this: on the whole, every dollar of profit made by a business is, in fact, a sign of added prosperity to the society. (Note: the qualification "on the whole" will be very important later.)

I find that this statement runs counter to our instincts, and it is therefore not very widely accepted even though it is the fundamental principle on which our economic system runs. Most people are willing to say that, sure, if you make a lot of money, you must have worked very hard and therefore deserve quite a lot of it. Good for you is a common way to summarize this feeling. After all, we like personal achievement and appreciate an individual's right to benefit from his own work. What isn't at all clear is how this actually helps the rest of us.

By this reasoning, we arrive at the conclusion that there are limits on how much profit a company (or individual) should make. There is only so much that one person can really deserve. Here is where our instincts go totally off track. Because we so firmly believe that the amount of money one makes should be attached to the effort he puts in or merit he possesses, we react with disgust at the idea of one man making in one minute as another man makes in a whole year. Surely no man is that much better than another.

Very few people indeed are so bold in their egoism as to defend such an economic system on the basis of moral merit. What is unfortunately so poorly understood is that individual merit is not the justification for the economic system that brings some people such astounding profits. No, the real justification is--and here I reiterate--that every dollar of additional profit, no matter how great the profits already are, means more prosperity in the society as a whole--not just for him who gained that profit.

Why is this so? There is no point in trying to search for an original explanation, because the right explanation is very simple and by now very old. It is a simple logical deduction from the definition of profit. Profit is nothing other than the price at which something is sold minus the cost to produce it. If the profit is anything greater than zero, this necessarily means the product was more valuable than the cost--the cost being everything that went into producing it. If the product is more valuable than its cost, this necessarily means society is better off for that product existing rather than not existing. QED

The real question is why we have so much trouble accepting the argument. Perhaps the reason we have trouble is that it seems highly impersonal. Can a number with a dollar sign next to it really tell us that society has benefited? Given the number of things we buy for which we later have no use, or the number of times we actually regret having bought something, it is easy to be skeptical of the idea that profit always means a benefit to society.

Here's where that qualification becomes important: "on the whole" means that profit is never a perfect indicator of benefit added. But I submit that there is no perfect indicator of benefit added. Most of our measurements are very imprecise. Money--that horrible, impersonal device for measuring value--has at least the benefit that we are always critical of it. When you realize later that a purchase wasn't very smart, you are careful not to make a similarly bad purchase again, because it's painfully obvious that you only have so much money.

The market will never give us a perfect representation of value, but it is extremely adaptive, correcting its own failures more quickly than any other system comparably large. Contrast this, say, with our system of government, which continues to fail in the same way no matter how much people complain about the same problems over and over.

Thus, the truth is, billionaires, whether or not they pay taxes, do on the whole add value to society so long as they keep producing things people are willing to buy. Paying taxes is something completely independent of this market process. You don't benefit the United States primarily by earning a lot of money and then paying part of it to the government. That idea is simply economic nonsense from beginning to end. The primary way in which you benefit the society around you is by producing things we need or want. And the only way to know what people need and want, in a world so immensely complex and interconnected as ours, is to follow the prices. It may seem impersonal, but I defy anyone to try bartering one on one with 300 million other Americans, much less seven billion people around the world.

Helping Grandma seems much more personal, and therefore we like to think about helping Grandma and not about billionaires making money. The irony is, helping Grandma in this case really is every bit as impersonal as big corporations that make money. If you think that paying a check to the government means you've helped Grandma, I defy you to verify whether that's true. It is truly astounding to me that people are so spiteful of corporations that produce things which they themselves buy, only to be so blindly trusting of politicians who say that their money is really going to help their neighbor.

So now that you're convinced that I am a mean libertarian who has no heart, I want to encourage you by saying that yes; I do think the state has an important role to play in helping Grandma; no, I don't think billionaires should evade taxes; and no, like I said already, I don't think money can measure the value of everything. There are really many things on which I can wholeheartedly agree with progressives, including many of the excesses of modern banking, monstrous corporations, and the catastrophy that awaits our environment if we do nothing to curb pollution. But one thing always comes back to give me a headache when I talk with people on the left, and that is this unrelenting, gut-level suspicion of a very fundamental economic fact: profit is good.

I want to close on a personal note. I, myself, have very little desire for money, and I really have very little ambition for business. As I write this little blog post, I realize that my own instincts run very much counter to the conclusions I've reached about our economic system. Thus, I hope that those who share many of my ideals about a great many political issues will realize that it is not a set of different values that separates us, but only a matter of interpreting the facts. I think those of us with an interest in political questions have an obligation to think both morally and logically about the economic system, because it will not do to simply follow our gut-level feelings. If those who pride themselves on their ability to think rigorously on political questions cannot bring themselves to understand the fundamental importance of profit in a complex economy, the only direction I see left is for society to hand over more and more power to the state. And that can only end in disaster, as it already has in the past.

Thursday, May 23, 2013

Another crisis for scientific objectivity?

The Heritage Foundation's recent report that immigration reform could cost the U.S. trillions of dollars resulted in a scandal for one Jason Richwine, who was forced to resign his position at the foundation due to the ensuing furor over the discovery of his 2009 dissertation. In his own words:
So what is actually in the dissertation? The dissertation shows that recent immigrants score lower than U.S.-born whites on many different types of IQ tests. Using statistical analysis, it suggests that the test-score differential is due primarily to a real cognitive gap rather than to culture or language bias. It analyzes how this cognitive gap could affect socioeconomic assimilation, and it concludes by exploring how IQ selection might be incorporated, as one factor among many, into immigration policy.
Naturally, the word "racist" has been thrown around in response to this discovery, and the word "racist" tends to immediately discredit the views of one to whom it is applied with sufficient vigor. Richwine would therefore have you believe that this is a big cultural mistake. In particular, it portends a disastrous future in which scientific facts are ignored due to political correctness:
The furor will soon pass. Mercifully, the media are starting to forget about me. But a certain amount of long-term damage to political discourse has been done. Every researcher who writes on public policy over the next few years will have a fresh and vivid memory of how easy it is to get in trouble with the media’s thought police, and how easy it is to become an instant pariah. Researchers will feel even more compelled to suppress unpopular evidence and arguments that should be part of an open discussion. This is certainly not the way science should be conducted, and it’s not the way our politics should be either.
This raises once again the troubling question of whether "objectivity" in science is illusory, or whether it's all just competing agendas. Consider this response:
Now, I don't think the subject or conclusion of Mr Richwine's dissertation is out of the bounds of reasonable discourse. Yet I think a suspicion of racism is perfectly reasonable. Grad students can choose from an infinite array of subjects. Why choose this one? Who are especially keen to discover a rational basis for public policy that discriminates along racial lines? Racists, of course. Anyone who chooses this subject, and comes down on the side vindicating racist assumptions, volunteers to bring suspicion upon himself, to expose his work to an extraordinary level of scrutiny.
This almost seems as troubling as Richwine makes it out to be. Are we to shy away from controversial subjects because of the potential to offend?

(There is a part of that response, however, that makes me extraordinarily less sympathetic to Richwine, for a very, shall we say, "objective" reason. To wit:
Were Mr Richwine's dissertation a model of scientific rigour, he might easily enough survive this scrutiny. However, according to Daniel Drezner, a political scientist at Tufts, it's not exemplary work:
I've perused parts of Richwine's dissertation, and ... well ... hoo boy. Key terms are poorly defined, auxiliary assumptions abound, and the literature I'm familiar with that is cited as authoritative is, well, not good. It's therefore unsurprising that, until last week, Richwine's dissertation disappeared into the ether the moment after it was approved. According to Google Scholar, no one cited it in the four years since it appeared. Furthermore, Richwine apparently didn't convert any part of it into any kind of refereed or non-refereed publication.
No citations in four years? No published work resulting from it? It's frankly probably not worth defending.)

Controversies like these give us cause to reflect on what we mean, or might mean, or might hope to mean, by objective reason. Whatever objectivity is, I am sure it is not a state of being completely free of value judgments. If that were the case, there could be no such thing as objective value judgments. Indeed, consider the very concept of "IQ" at issue here. Presumably, IQ is the measure of some kind of value, namely the effectiveness of some cognitive functions. There's no way to abstract that out of the realm of values into the realm of "pure facts," as if intelligence could be measured the way one measures the length of a table.

My favorite response to this has been from none other than the Cato Institute, which could in many cases be expected to take the Heritage Foundation's side. In this case the, author Brink Lindsey shows "why Richwine’s position is intellectually as well as morally unsound." Consider this point about the link between IQ and value judgments:
Comparisons of IQ scores across ethnic groups, cultures, countries, or time periods founder on this basic problem: The cognitive skills that IQ tests assess are not used or valued to the same extent in all times and places. Indeed, the widespread usefulness of these skills is emphatically not the norm in human history. After all, IQ tests put great stress on reading ability and vocabulary, yet writing was invented only about 6,000 years ago – rather late in the day given that anatomically modern humans have been around for over 100,000 years. And as recently as two hundred years ago, only about 15 percent of people could read or write at all.
It is possible to quantify many things once you have developed categories as well as systems for measuring them. The fact that relationships between quantities (that is, mathematics) is a completely objective science, not requiring that any feelings be hurt, can easily be used as cover for things that are genuinely immoral.

Is there such a thing as an immoral idea? I think so. Indeed, that's really the whole point of morals. If we had no guide for ideas, we would in turn have no guide for actions.

So when people react to studies like Richwine's, are they reacting on a moral rather than on a scientific level? Yes, but the two can't really be all that separated. It is wholly appropriate for scientists to be kept in check by outside observers who understand the value content of their studies.

There are, of course, scientific truths that make us uncomfortable. There are facts we don't like facing. On a moral level, we should be willing to have our assumptions challenged. But it isn't so obvious how far we should let someone go with this. When is it appropriate to stop a scientist in his tracks and say, "Shut up you racist"?

I guess I'll just finish on a question, because I'm really not all that close to finding a satisfying answer. I will say that there are two possible answers that I find deeply unsatisfying. One is to say that every scientific inquiry is acceptable, that studies like Richwine's dissertation should be an acceptable part of the public discourse alongside everything else, and that we should always be forced to turn off our moral compasses so that we can listen to academics spit out statistics. The other is that we should choose not to study "dangerous" subjects which might or might not lead us into exactly Richwine's situation.

And a third possibility is also unsatisfying: that it doesn't matter what researchers say, because, after all, politics is a matter of the people's will, and we can decide whatever we wish regardless of the facts. That also seems a rather foolhardy notion.

If you ask me, our moral framework needs to be sufficiently robust that it can enter into the same arena as "objective science." We can't simply suspend all value judgments, and expect others to do the same, while seeking to abstract "purely factual information" from the world of research. But in what sense our moral framework should be "sufficiently robust," I'm not exactly sure.

These are things to keep pondering. In the meantime, I'm pretty sure IQ tests should not be part of American immigration policy.

Friday, May 17, 2013

Unchecked capitalism

I miss this blog. It really makes me sad how little I've written here lately.

Because most of the people I talk to about politics seem to come from a left-leaning perspective, I tend to think a lot about the morality of markets. On the other hand, I can always count on the Catholic Church to keep things interesting by showing a firm, classical opposition to free markets such as that enunciated recently by Pope Francis. Thus I'm reminded that attacks on market liberalism come from both modern, progressive perspectives as well as classical, conservative ones.

As a side note, the one breath of fresh air I get when talking politics while living in France is that the word "liberalism" hasn't changed meanings as it has in America. Thus, while American "liberals" are actually the left, in France "libéralisme" is more associated with the right, at least with regards to the economy. It makes discussions much more clear, since the word is associated with its content, rather than with a political movement.

One thing that's striking about how both the modern left and classical conservatives respond to markets is how amazingly similar it sounds in terms of ideas. That is, you would expect that these two very different ideological groups would have two very differential ideological reasons for critiquing markets. What I hear is impressively similar: markets turn our attention toward the idols of money and greed, and they create a society that abandons the poor and the ideal of greater equality.

But on a good day, both the left and the Catholic Church might even be drawn to admit no other institution than those of property rights and free trade has done a better job in the history of civilization of raising people out of poverty, creating the innovative solutions that lead to better health and higher living standards. Where did it all go wrong?

One of the things I noticed in the article on Pope Francis was this little phrase:
Unchecked capitalism had created “a new, invisible, and at times virtual, tyranny”, said the former Cardinal Jorge Bergoglio.
No, I'm not talking about the thing the Pope actually said. I'm talking about the phrase there at the beginning of the sentence. "Unchecked capitalism." There it is.

For all the historic connection of capitalism with "laissez faire" and the idea of individuals gone wild doing whatever they want with their own money, the truth is that in principle the market is a very restrictive system. It's really in our nature to do almost the opposite of what the market demands: to demand or forcibly take what we feel we deserve, to respect property rights only when it seems good for the rest of us.

What doesn't get said enough in these discussions is that the modern lords of finance have not driven us all to ruin simply by acting on their own behalf. No, they are publicly designated to act on everyone's behalf. Private individuals who gamble their own money and lose are not bailed out. But bankers who gamble everyone's money are bailed out, because it turns out everyone is depending on them.

A system should not be called a "free" market because we see people acting in a free and unrestrained way. This is simply a mistake in terminology. A truly free market is one in which we are all equally restrained by the same rules. Only within the restraints of mutual respect for property rights can we then be allowed to act freely.

The symptoms that Pope Francis points to are real signs that our culture does have a real problem, and the problem is largely that something has been left unchecked. Properly speaking, however, it isn't capitalism that has been left unchecked. It's a few croneys who vie for the backing of society. Wealth is not inherently bad. Getting or securing your wealth by forcing others to support you is bad.

In short, we need to go after the bankers.