Mandates Don't work -- Here is one good example

the underlying lesson (from article below):  government should think through unintended consequences of well meaning mandates.  the opposite side of the mandate coin is the government making some action illegal.

if "we" (society) want a certain behavior reinforced, we assume it is the governments responsibility to issue mandates; if we want to discourage some behavior or action we pass a law to make it illegal.  history is littered with well intended mandates and laws that lead to the very oppositie of the intended result.  consider prohibition for example.  Prohibition was aimed at eliminating evil alcohol from society.  the result was a boom in organized crime -- thousands if not millions of individuals suddenly found themselves on the wrong side of the "law" not only for trafficking in booze but in consuming it in speakeasies and behind closed doors. consider the war on drugs, which has led to results very similar to prohibition yet we don't admit it:   gang shootings.  organized crime.  proliferation of guns on the street.  and endless carnage in inner city.  and millions of otherwise law abiding citizens being criminalized for behavior they choose to pursue (e.g. smoking pot or snorting some lines at a party.)  I am not advocating drug use.  i don't do drugs myself or even drink alcohol (anymore), but i believe in each individuals right to make their own decisions about drugs.  

     ALSO, consider mandated health insurance or mandated automobile insurance.  the mandates and the laws don't work (see Massachussets for result of mandated health insurance);  mandates more often than not lead to negative unintended consequences, mandates criminalize behavior that should not be any business of government, and yet we keep doing the same thing over and over because it seems like we have no choice.  the moral position should be for politicians to "do no harm" first and foremost.   mandates and laws should not be enforced based on good intensions.  the road to hell is paved with good intensions.  look at the example of the wonderful idea of mandating school attendance until 18 years old.  sounds great, but in practice it leads to unintended consequences (for individuals being forced to attend school and those who are willingly there) and thus the result is to impoverish society in the end. 

Actually, we shouldn’t keep all students in high school until they’re 18

By James Pethokoukis

January 26, 2012, 11:55 am

 

Should teenagers be forced to go to high school? Here’s President Obama from the State of the Union speech on Tuesday:

We also know that when students aren’t allowed to walk away from their education, more of them walk the stage to get their diploma. So tonight, I call on every State to require that all students stay in high school until they graduate or turn eighteen.

Another idea that sounds good as a bullet point in a speech, but not so much in reality.
1. As the Los Angeles Times points out, 17 states already mandate compulsory education until age 18, including California. But the most recent figures show that 18.2 percent of California students drop out.
2. A 2009 study, also noted by the LA Times, by the Rennie Center for Education Research and Policy (the source of the accompanying chart) found such mandates ineffective:

The primary rationale behind raising the compulsory school attendance age to 18 is the belief that it will decrease the number of students who drop out and increase the number of students who graduate. However, our review revealed that there is little research to support the effectiveness of compulsory attendance laws in achieving these goals. As we have described, the evidence that does exist is dated. The research suggests that these laws had an impact on high school students in the 1960s, 1970s, and 1980s when the circumstances behind the decision to drop out were likely quite different than they are today. In addition, the findings themselves suggest that the impact of laws requiring students to stay in school until they are 18 has decreased over time.

3. In his must-read book Real Education, AEI’s Charles Murray (whose new book, Coming Apart, I will soon write about) notes that whatever the educational advantage of charter schools over government schools, they certainly succeed in providing students a safe and orderly classroom for those who want to learn. “The worst inner-city schools … contain classes in which competent teachers cannot be heard over the din … daily student-on-student and student-on-teacher altercations, frequent assaults … and the occasional assault with a deadly weapon.” In response, Murray offers a few basic rules:

1. Disruptive students are not permitted to remain in class.

2. Students who are chronically disruptive are suspended.

3. Students who in any way threaten a teacher verbally or physically are expelled.

Now, Murray realizes that “alternative schools” may not be able to absorb all the disruptive students and many may end up on the streets. But that may be a price we have to pay to reestablish order in our schools. And just how high a price is it really?

Students who are suspended are often learning nothing when they are in school — literally nothing … Nor are their hours in the school building keeping them out of trouble. The kinds of activities that get teenagers into trouble in the inner city (or anywhere else for that matter) do not usually take place from 8:00 a.m to 3:00 p.m. … Most of them are already on the street for all but a few hours of the day when they are preventing teachers and other students from learning. … The overriding priority for inner-city schools must be the children who are trying to learn. It is morally unacceptable to sacrifice their futures … just because we do not know how to reach the children who are not trying to learn.

Keep every kid in school no matter how disruptive they are? A perfect example of government creating a mandate without thinking through the unintended consequences.

life isn't fair -- don't believe politicians who claim they can level the playing field

The Political Cowardice of Barack Obama

Soaring rhetoric won't fix the economy.

Do we really believe our enlightened politicians who promise free lunches as long as we follow their lead and everyone pitches in and we “work” together?  The source of America’s greatness is freedom NOT group think and compliance with a government vision.  America’s greatness can be traced to entrepreneurship, individual risk taking and creative and dynamic competition and cooperation.  The greatness of America is not in a deep and abiding faith in government to show us the way.  America has prospered despite government, not because of it.  Do we really believe "the" answer is to follow the wisdom of some Dear Leader (or anointed leadership) who points the way, and we all follow like sheep to the slaughter?   The appeals to collective sacrifice by our politicians is code for "do the right thing and trade individual liberty for (the promise of free lunches and) collective safety.”

Remember what ben franklin said about those willing to sacrifice liberty for security …  They don’t deserve either!

 

 Collective sacrifice is code for the government’s interest in securing and centralizing power inclugind regulatory power and power of the purse, both of which are MASSIVE powers.  Maybe our wise politicians believe that with such power they can fix society.  my cynical side believes that politicians have no real interest in saving society and instead are focused on designing new and clever ways to purse rent seeking activities.  most probably there are some do gooders out there.  But, it doesn't matter.  whether or not ones intensions are pure, the result of public policy is going to be a net negative for society.  

one reason we know this is that power tends to corrupt and absolute power corrupts absolutely.  We saw what happens when a great and moral man like Joe Paterno who has dedicated his life to the highest moral ideals accumulates too much power (even probably by no fault of his own) and is no longer subject to checks and balances.  If Joe Paterno is subject to the insidious and often invisible (even in hindsight) corrupting influence of power, who is safe?  Our politicians??  Is it only a matter of choosing the right politicians who will enforce “right” policies who will put our economy on a so called sustainable path? 

Handing over the hard work for fixing society to governments in the name of good morals is a total cop out.  We are brainwashed to believe that the only moral choice we have is to delegate the solving of social problems to our political leaders – because we assume only they have ability, and expertise and resources to do so. 

HOWEVER, I can guarantee that  the more confidence we put in our leaders in Washington DC, the more they will disappoint us. 

Local leaders who are sensitive to our needs and bound by checks and balances are a vital part of a functioning society.    government may play a critical role in ensuring sanctity and mutual respect of private property rights. 

The problem with centralizing power in the Federal government is that checks and balances are even harder to maintain than in local government.  and the power accumulated at the center is enormous.  We worry about monopoly in the private sector.  But what about monopoly power in the public sector??? 

Government power (as measured in size of assets and annual budgets) is orders of magnitude larger than even our largest companies like Microsoft or Google or Exxon.

How massive is the power delegated to our government via its monopoly over printing money for example??  What about the power of public unions in primary school system which block reform and turn the system into a piggy bank for teacher pensions and self interest.  Fiat money funding massive public debt accumulation paves the road to collective serfdom for our society.   Ultimately, government solutions entail a lose/lose result for society, resulting in accumulation of stifling debt loads as we see in Japan and Eurozone and in the US.    when public debt becomes overbearing for a country the result is pain one way or the other either via a debasing of currency (effectively a tax on private property – ending in the impoverishment of individual households and ultimately of wider society) or a debt deflation / depression spiral.

Money doesn’t grow on trees.  Life isn’t fair.  you’ll never hear a politician utter those words.  Politicians always promise win/win solutions.  If only you vote for me, I’ll make sure we have a cleaner environment AND a better economy.  Win/win solutions are fantasy.  The only free lunch in life is provided by the law of comparative advantage resulting from free exchange.  free exchange across society leads to the whole (social wealth) being greater than the sum of the parts.  Politicians can’t inject free lunches into society with enlightened policy.  we can’t reduce income inequality and at the same time improve the economy.  if there is a problem with income inequality it came from some previous government policy intervention. 

The market leads to a natural rate of income inequality.  If income inequality becomes stretched beyond some point where social tensions start to fracture society, the cause of that inequality is NOT the market.  a market based on private property rights and sanctity of free exchange and mutual respect for rule of law (not rule by man or arbitrary government fiat) leads to a society with a natural rate of income inequality. 

 How could it not?  Perfect equality suggests that everyone is equally poor, such as in North Korea.  There is no way to micro manage or reduce income inequality once government interventions cause a widening of income inequality via well intended policy.  Interventions to fix problems caused by well intended government policy in first place will just make things worse, either by slowing growth or by causing income inequality to stretch even further despite intention of policy measures aimed at fixing the problem.      

Do we really think that the government can invest in the future and create an “America built to last.”  The only thing government can create is an economy built to be more vulnerable to systemic collapse than it already was thanks to previous well intended government interventions such as our current fiat money central banking system.  Since the Fed was established in 1913, the dollar has lost 96% of its value, we’ve had the only Great Depression in the history of the modern world, we had an unprecedented era of stagflation in the 1970s, and we are currently in an unprecedented global recession.  Sure, we had 20 years of bull markets and economic stability, but we are paying the price for all of that now, with public debt up to our eyeballs in Japan, China, EZ and USA.  it is finally time to pay the piper.  The way forward is not going to be paved by government decisions about where to invest.  It will not be paved by government run public schools.  It won’t be paved by government subsidies for green energy or R&D. 

public subsidies distort the market, they distory the markets ability to allocate capital and they ultimately lead to booms, bubbles and eventually to busts as we have seen in every major sector of our economy, all of which are massively subsidized.  Consider housing (bubble- bust), banking (bubble – bust), financial sector (bubble-bust), public primary and secondary education (bubble as evident in per pupil cost of primary education and in annual tuition for college), health care (bubble – as evident in spriarling health care costs), green energy (bubble in ethanol, bubble in electric cars, etc etc).  such bubbles will eventually turn to bust.  govenrment solutions will just hasten the bust.  Obama offered some hair brained scheme to reduce college costs saying he will introduce a system where public subsidies will no longer go to colleges who don't lower their tuition.  how will this happen?  by magic??  output prices reflect input prices.  slapping a market incentive onto a subsidized system will not work.  

 We also have massive farm subsidies which has fueled the corn-based cheap beef fast food economy leading to obesity crisis.  If Michelle Obama wanted to help solve childhood obesity, she would lead the rollback of corn subsidies!!!  cheap corn is at heart of our fast food (cheap corn is fed to cows and we get cheap beef) and processed food society (corn syrup is in everything processed and is BAD for you).

The market has not failed us.  we have failed the market.  the market is imperfect. 

anyone who claims the market will fix all social problems given enough time is dreaming.  anyone claiming politicians can fix market failures are also dreaming.

there is no such thing as a market failure.  the market can't fail.  the market has unattractive features, but these are not failures per se that are capable of being fixed.  unattractive features are part of the natural landscape of life on earth, including natural disasters caused by weather, the earth system and the economy -- all of which are perfectly natural systems vulnerable to natural disaster.  earthquake, tsunami, business cycle.  they all are natural features of the world we live in.    do we want to try to eliminate hurricanes and earthquakes and business cycles.  what are possible unintended consequences of such intervensions? 

The market leads to income inequality, to business cycles, to inflation and deflation, to creative destruction dynamics which are often painful for individuals forced to change jobs.   the so called free market capitalism also leads to big companies that appear to have monopoly power (but never do), and it leads to pollution and occasionally to industrial accidents.  There are asset market bubbles and busts.  Free markets are no panacea for solving social ills.  Free markets are not fair.  there is no such thing as a level playing field in markets.  some people have innate advantages in their skills and in their starting spot in life. 

Free markets entail painful trade-offs.   Free markets will always entail a constellation of unattractive features.  However, these “features” are not BAD per se.  income inequality is an inherent feature of a free market.  income inequality is not a market failure per se.    can income inequality become so stretched that it causes social instability?  yes.  but the cause of such destabilizing income inequality is not the market.  the cause of increasing income inequality can always be traced to some constelation of well intended public policies aimed at fixing some other macro/social problem.  if we try to fix problems caused by some other previous policy intervention, we will just complicate things and trigger a new cascade of unintended consequences likely resulting in even worse income inequality or a lower growth rate for economy and equal impoverishment across society.  you can't make some wealthier without making society as a whole poorer.  no free lunches.  life isn't fair.

V http://reason.com/archives/2012/01/27/the-political-cowardice-of-barack-obama

Reason Magazine

The Political Cowardice of Barack Obama

Soaring rhetoric won't fix the economy.

Steven Greenhut | January 27, 2012

Now, a return to the American values of fair play and shared responsibility will help protect our people and our economy. But it should also guide us as we look to pay down our debt and invest in our future.—President Barack Obama, State of the Union, January 24, 2012
President Barack Obama’s State of the Union address Tuesday night was the latest reminder that the state of political discourse in America is shockingly low. I’m not singling out Obama for special condemnation, given that these addresses always are a potpourri of banalities, regardless of which president is offering them. Yet Tuesday’s address was a vivid reminder of the shoddy thinking so common at the highest level of the federal and state governments and why we are—in the more precise, but less lofty words of a former president—in deep doo doo.
Criminologists have remarked on “the banality of crime,” the idea that most criminals are not dark geniuses, but ordinary dolts driven by the basest motives. The State of the Union is the ultimate example for the banality of American politics, of the reality that the people who want to reform us haven’t the slightest clue about anything. They are predictable and bland, traders in base ideas and driven mainly by ego and the desire to help those groups that assure their re-election. California is the starkest example. A friend of mine called the other day and told me that it finally dawned on him that Gov. Jerry Brown, despite his clever word plays is really not so brilliant. Here’s a man who actually believes that raising taxes and “investing” in green jobs will save California.
Politicians from Obama to Brown to Mitt Romney to Newt Gingrich want so desperately to build a legacy, save our state or nation, and create some shining city on the hall, but they want it all on the cheap. Democratic pols want to sound like John F. Kennedy while Republicans sing hosannas to the legacy of Ronald Reagan, but such legacies don’t come from cheap banalities and the retreading of empty words. They come from tackling real issues and fixing real problems. The courage needed to do the latter is in short supply, given that most politicians crave adulation but don’t realize that those who put that first almost assures that they won’t receive it. Look at Arnold Schwarzenegger, who had a historic opportunity to bring the state back from the brink, yet changed course dramatically after his first defeat. He chose to be loved above all else and has ended up a scorned figure.
Many of us had hoped that Brown, who no longer seeks higher office, would embrace the tough work of real governance and take on his own allies—i.e., the public sector unions—who are the key obstacle to reviving California. Instead, he has embraced one foolish answer, a massive tax increase, and has governed in a way that’s not too different from the two failed governors before him. If Brown were a serious man, he would acknowledge that it’s the way the state spends money that’s the problem, not the lack of revenue. But he has taken the easy, banal course and will in time be forgotten. And so too will Obama who continues to believe that government is the font of all wisdom and energy in this nation and that populist attacks on evil-doing mortgage companies are more crucial than serious policy.
“Let's never forget: Millions of Americans who work hard and play by the rules every day deserve a government and a financial system that do the same,” he intoned. “It’s time to apply the same rules from top to bottom. No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody.”
Banality is one thing, but this veers into dishonestly. No president—not even the terrible one that preceded him—has embraced the culture of bailouts, handouts, and copouts more than Obama. His administration epitomizes the term “crony capitalism,” whereby friends of the leaders get large infusions of taxpayer cash (see Solyndra) and then are full of copouts about why the money disappeared. In his speech, Obama sung the praises of the automobile bailout and called for more bailouts and government investments.
Instead of dealing seriously with the financial crisis, he embraced a kindergartner’s view of what happened (greedy banks foisted bad mortgages on decent people!), called for a special investment crimes unit to crack down on financial wrongdoers, and then pledged a new bailout for homeowners who are underwater in their mortgages, many of whom acted irresponsibly as they bought houses they couldn’t afford and tapped the equity in those houses and spent it on consumer goods. Said Obama, “And while government can't fix the problem on its own, responsible homeowners shouldn't have to sit and wait for the housing market to hit bottom to get some relief. And that's why I'm sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low rates.”
Just what we need—yet another irresponsible subsidy courtesy of U.S. taxpayers. In reality, the real estate market needs to hit bottom before it can rebound, and Obama’s plan will only delay the day of reckoning. This is more pabulum and more false hope for people who think the government is going to save them.
Soaring rhetoric and promised bailouts won’t fix what’s wrong in California or in the United States. It’s time for a little reality and some tough choices. It’s time for leaders with less banal rhetoric, better ideas and more courage.
Steven Greenhut is editor of CalWatchDog.com.

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This is title of Wonderful article copied below.  where is the articulation of trade-offs and tough choices by leaders of either party? 

IS China the Future??

I had to pull my chin off of the floor after reading this WSJ op/ed by Andy Stern arguing that “China’s success is proving that the free-market fundamentalist economic model is being thrown onto the trash heap of history.”

Say what?!??   Stern has it exactly upside down.  The more the US follows China’s example, the worse off we will be in any dimension of our lives you want to measure:  standard of living, physical health, spiritual health, freedom.  You name it.  Moving to a top down macro economic planning model ala China is a recipe for disaster. 

Japan was also going to conquer the world with a new economic model organized around industrial planning in the 1980s.   Top down macro-planning is no recipe for economic success.  History has proven the opposite over and over and over again.  China will be another poster child for this fundamental law of human society and macro economics when the Chinese economy inevitably faces intractable challenges and contradictions caused by dysfunctional linkages between the public and private sector.   

An ironclad law of political economy (coined by Lord Acton) says that power tends to corrupt but absolute power corrupts absolutely.    We saw recently at Penn State a perfect example of what happens when a system run by ostensibly upstanding individuals loses its institutional checks and balances.   Good people end up doing bad things.  The System rots from the inside out.    

China’s communist party is institutional judge and jury, majority owner of productive assets in the economy, as well as regulator, policy maker and politician.

Such monolithic institutional power is a recipe for disaster and we can already see the dysfunctional effects.  China’s system is deeply flawed; any thoughts of China becoming a model for a new economic model are not only premature, they are fanciful given what we know right this second about China.  The country is a one party totalitarian state.  The government spends as much on internal security as it does on military.

Stern conveniently leaves out the part about China currently having a dysfunctional legal system, about endemic corruption in communist party;  he leaves out the part about China lacking basic freedoms we take for granted here in the US such as freedom to organize and freedom of speech.  Further, the result of China’s 30 year economic miracle that Andy Stern is so enamored with includes massive environmental and social degradation of a country becoming increasingly brittle to exogenous and endogenous shocks.  Public investment in green energy, construction of 6 million homes, high speed trains, etc, etc, are superficial window dressing for a society and economy that is alreaedy fundamentally bankrupt on multiple levels.

 It is quite ironic that Andy Stern points to 5 year plans as a sign of enlightened progress in China.  Wow, only if we had a one party state with smart policy makers like China.  We could spend billions on green energy and have shiny infrastructure and focus resources on super high tech R&D, more money for teachers and schools, we would all drive electric cars and sing by the campfire every night.    

On paper the top down planning model sounds like a winning recipe.  But in practice – and we can see this in China already – it has been a disaster .... for the physical and spiritual and moral and material wealth of the society.  Despite gaudy growth numbers over 30 yrs, this growth has come at an incredibly steep price including epic environmental and moral degradation and the crowding out of individual freedom in favor of state “macro” priorities.

1.    Ben Franklin wisely said people willing to trade their freedom for temporary security deserve neither.  Modern pragmatists on both the left and the right of the political spectrum would surely argue with Ben that he was being too ideological!!!    Don’t we have to trade some of our individual freedoms for the collective good???

No.  Acting for the collective good is a myth.   Planners can’t plan for the collective good.  How can they??   When politicians beseech us to give up our liberties for the common good this is really a secret code-word by politicians aiming to create rent seeking opportunities for themselves and politically connected special interest groups.  "Give up your guns for the collective good."  That is what the German politicians argued in the 1930s.  The German public complied and next thing you know, Hitler is leading his the Nazi holocaust.  

politicians will always appeal to the rich to pay more taxes for the collective good -- but where does the money go?  the EZ, especially Greece and Italy, is finding a painful answer to that question.

In the 1990’s no one talked about 5 year plans in China because all of the new wealth being created and the “action” in China in the 1990s was in the newly empowered private sector.  

Contrary to Andy Sterns erroneous assertion, the return of the importance of China’s 5 year plans is a symptom of what is going wrong in China, NOT what is going right.   In the past decade and especially since the 2009-10 easy money boom, the public sector (party and state) has reconsolidated its strangle hold over productive assets in the economy.  Everyone is paying attention to 5 year plans again because they matter.  Again, this is NOT a sign of sustainable economic dynamism and strength.  just the opposite!

Top down industrial planning -- as Japan did in the 1980s and as China is doing now --- is a fools game requiring FORCED mobilization of private sector savings and earning power into investment and production of goods for the larger good of the state.  The model can generate high rates of growth in the short term because it can funnel private savings that otherwise would have gone into consumption into investment and production.     but delivering sustainable growth with a model organized around financial repression (like China -- where households are systematically screwed by a state owned banking sector that keeps deposit rates artificially low and funnels most credit to fellow state owned companies).

Sustainable growth comes from the interaction of millions, billions, trillions of micro decisions made every day by risk-taking entrepreneurs and private savers and consumers using market signals to guide them.   Sure, government is there to protect private property rights and to enforce the rule of law.  Free markets doesn’t mean anything goes.    Free markets means people mutually trading with each other and respecting each other’s rights -- in a system that SELF COORDINATES!!!  amazing but true.     top down economies are the ones that either boom and bust or never take off in the first place.  the only "successful" economies are ones that are left enough freedom to spontaneously organize.

 Free markets based on classical liberal principles of mutual respect and reciprocity are inherently peaceful because no one is allowed to claim or act upon a value system where ends are justified by the means.  in a free market transaction, you have both sides getter richer (or thinking they do -- or else they wouldn't make the trade).    It is only when the no it all government gets involved with fixing market failures do we have to use “force” or coercion in society -- all in the public interest, of course.  Public sector coercion is always hidden behind the collective good -- it is described as what is in the interest of the indivual whether he knows it or not.  That is why politicians appeal to the morality of acting in the common good.  They can pretend that it isn’t government coercion that forces indivuals to comply with arbitrary government rules and regulations and taxes.  It is the common good, so everyone should be willingly on board for “the program.”   If Warren Buffet wants to pay higher taxes, no one is stopping him.   but he doesn't pay higher taxes ever out of the goodness of his heart.  he waits until he is forced to do it.  you might say, wel  that is ok.  maybe it is, but it is still violence and coersion and ends justify the means behavior by the state.  it is exactly the opposite of the behavior the state is pretending to perform on the behalf of the "common good."  there we go with that bogus notion again....

Infrastructure, technology, green energy and education ARE the natural results of a dynamic economy organized around private property rights and free exchange.  entrepreneurs will provide technology where it is needed in the most appropriate amount possible.  Creating an economy is NOT like baking a cake.  There is no fixed recipe.  you can't say ok, lets take 3 parts infrastructure (roads, rails, bike paths), 2 parts technology, 4 parts education,  1 part R&D. 6 parts green energy.  If you add more of a good thing, like investment in R&D will it make the cake healthier and better tasting???  Who knows?  The recipe for economic growth is always changing; no one knows or can predict what the recipe will be in the future.  If you think you can develop 5 year plans to ensure social stability, productivity and wealth gains and income equality, you are DREAMING. 

Productivity gains are the outcome of an organic spontaneous process requiring risk takers acting upon market signals.  If government hijacks the market signals or ignores them or tries to co-opt the signals or meddles in any way with the so called factors of production and market price signals – what happens is a failed cake or a lopsided economy that was supposed to work but fell over under the weight of planning error and systemic rent seeking and corruption.

 

There is absolutely no reason why education must be a public monopoly run by government bureaucrats.  Why not let our children have the best education the world can offer?  Don’t we know in our hearts that school could be so much better if the private sector competed for students?  Imagine how much incentive a principle would have if he needed to run an operation that failed if it didn’t attract students.  The way it works today:  poor children are held hostage in a dysfunctional system hi jacked by public teacher unions.  Defenders of public education claim the world will come to an end if we do away with public education.  As if public education isn’t already doing enough damage.  Why should critics of public education have to defend privatization???  Public education is an epic failure.  The burden should be on those who would continue to force children into attending a school with teachers who don’t give a damn. 

The questions and challenges for top-down planners are endless and unanswerable. 

This is not to say the “free market” will solve all social ills.  It  won't.  free markets are no panacea, but they are the best we can do.  i can also guarantee that top down planning will always result in an outcome worse than the maximum free market.   It is a law of economics (i am developing in a separate project called "A new natural science of Economics -- stay tuned).

My research highlights some remarkable conclusions:  life isn’t fair, the market is imperfect.  Some rich people are lazy.  Some hard working chaps fall on bad luck.  Natural disasters occur in markets that are unforeseeable and part of the landscape.  Income inequality is an inherent feature of markets.    if income creates social tensions, you can bet the reason for the income inequality isn't "the evil market."  the market doesn't do anything.  people do.  we fail the market, not the other way around.  if inequality is a problem, look around for what policy makers did in all good intention that led to the rich getting richer.  Is there a central bank printing easy money?  Well then you can bet there will be income inequality issues in the society.  

 Is any policy that aims to reduce income inequality a good policy:  e.g. progressive tax, subsidies for health care and education, etc etc etc.?  No.  every well intended policy operates under the law of unintended consequences.  macro outcomes cannot be engineered period.  if you try, you will make things worse.  guaranteed.  that is why i know china is in big trouble.

 

The fundamental research I've done developing a new econmoic paradigm also suggests that there is no such thing as market failure per se.  There are market features we don’t like, such as pollution, industrial accidents, creative destruction, bankruptcy, unemployment, income inequality, poverty, etc.  BUT these features are not Failures per se.  The market doesn’t do anything in a human premeditated sense, so how could it "fail." would we say nature failed when an earthquake occurs??  no.  income inequality is a feature of markets, just like earthquakes are a feature of the earth system.  So there is no such thing as market failure.  Furthermore, we humans didn’t not design the market or the economy or any major sector of the economy. 

We need to understand that markets are spontaneously organizing natural systems (just like the weather) that are beyond our control, design or planning.  We can make a positive impact in the world through our individual acts of kindness and charity.  BUT, just because a little private charity is good doesn’t not mean a lot more of public charity is even better.  Once governmetn gets in the game of doing the analogy of cloud seeding in the economy, this triggers a cascading series of unintended consequences that result in net welfare losses for society – and typically a net welfare loss for those being targeted for help.  Take the example of families handing welfare culture down from one generation to the next. 

what if we humans are responsible for designing the economy.  if something goes wrong, don't we have the moral obligation to fix it??  it is practically impossible for anyone to imagine humans designing the economy.  the complexity of the system boggles the mind.  There are islands of central planning in a large economy, such as we see with families and companies and small towns and cities.  but these islands of central planning interact with each other in an unplanned way.  No one plans the patters of activity in an economy nor does any plan results.  nor can anyone plan or design results into the macro economy -- not even central bankers or president of the USA.

Top down planning sounds good on paper, but it leads to perverse, counter-productive results in practice. 

Who

No government can make the right decisions let alone implement them without systemic dysfunction, misalignement, mis measurement, corruption and ultimately without system failure over time. 

China will be the poster child for failed central planning.  It is just a matter of time.   The US will too if we don't reverse consolidation in the Federal government ourselves centered around the Federal reserve.  anyway... back to China ....  In many ways, China is already a poster child for failed central planning – measured by social welfare, environment, freedom, income inequality, etc. etc.  Soon the high growth providing superficial evidence of success will come crashing down too, thus reducing to rubble the idea that “China-is-the-next-economic model.”

Only a delusional union boss could look at China and see a successful economic model currently despite all of the obvious warts.

 

What ails America is not too much freedom, but too little.  it isn't too little central planning but too much.  let individual liberty reign.  planning is a false God that assumes we humans are in fact capable of god like actions on earth.  We can do individual acts of god, such as charity to another family in need or such as inventing a new technology that the world has never seen.  those are god like actions.  Man is like god in micro ways.  but let us not mistake our micro god abilities with macro god abilities.  We humans are not like Gods when it comes to designing and organzing social outcomes.   We must have faith in something.  that something is the faith that maximum individual freedom (based in reciprocal private property system) results in maximum social welfare.  to think otherwise is to believe man is God.     ben franklin was right:  if we trade freedom for safety we trade our humanity.  we trade in hubris when we believe we humans can engineer social outcomes. 

DECEMBER 1, 2011

China's Superior Economic Model

The free-market fundamentalist economic model is being thrown onto the trash heap of history.

By ANDY STERN

Andy Grove, the founder and chairman of Intel, provocatively wrote in Businessweek last year that, "Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best of all economic systems—the freer the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better."

The past few weeks have proven Mr. Grove's point, as our relations with China, and that country's impact on America's future, came to the forefront of American politics. Our inert Senate, while preparing for the super committee to fail, crossed the normally insurmountable political divide to pass legislation to address China's currency manipulation. Secretary of State Hillary Clinton, former Gov. Mitt Romney and President Barack Obama all weighed in with their views—ranging from warnings that China must "end unfair discrimination" (Mrs. Clinton) to complaints that the U.S. has "been played like a fiddle" (Mr. Romney) and that China needs to stop "gaming" the international system (Mr. Obama).

As this was happening, I was part of a U.S.-China dialogue—a trip organized by the China-United States Exchange Foundation and the Center for American Progress—with high-ranking Chinese government officials, both past and present. For me, the tension resulting from the chorus of American criticism paled in significance compared to reading the emerging outline of China's 12th five-year plan. The aims: a 7% annual economic growth rate; a $640 billion investment in renewable energy; construction of six million homes; and expanding next-generation IT, clean-energy vehicles, biotechnology, high-end manufacturing and environmental protection—all while promoting social equity and rural development.

Some Americans are drawing lessons from this. Last month, the China Daily quoted Orville Schell, who directs the Center on U.S.-China Relations at the Asia Society, as saying: "I think we have come to realize the ability to plan is exactly what is missing in America." The article also noted that Robert Engle, who won a Nobel Prize in 2003 for economics, has said that while China is making five-year plans for the next generation, Americans are planning only for the next election.

The world has been made "flat" by the technological miracles of Andy Grove, Steve Jobs and Bill Gates. This has forced all institutions to confront what is clearly the third economic revolution in world history. The Agricultural Revolution was a roughly 3,000-year transition, the Industrial Revolution lasted 300 years, and this technology-led Global Revolution will take only 30-odd years. No single generation has witnessed so much change in a single lifetime.

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David G. Klein

The current debates about China's currency, the trade imbalance, our debt and China's excessive use of pirated American intellectual property are evidence that the Global Revolution—coupled with Deng Xiaoping's government-led, growth-oriented reforms—has created the planet's second-largest economy. It's on a clear trajectory to knock America off its perch by 2025.

As Andy Grove so presciently articulated in the July 1, 2010, issue of Businessweek, the economies of China, Singapore, Germany, Brazil and India have demonstrated "that a plan for job creation must be the number-one objective of state economic policy; and that the government must play a strategic role in setting the priorities and arraying the forces of organization necessary to achieve this goal."

The conservative-preferred, free-market fundamentalist, shareholder-only model—so successful in the 20th century—is being thrown onto the trash heap of history in the 21st century. In an era when countries need to become economic teams, Team USA's results—a jobless decade, 30 years of flat median wages, a trade deficit, a shrinking middle class and phenomenal gains in wealth but only for the top 1%—are pathetic.

This should motivate leaders to rethink, rather than double down on an empirically failing free-market extremism. As painful and humbling as it may be, America needs to do what a once-dominant business or sports team would do when the tide turns: study the ingredients of its competitors' success.

While we debate, Team China rolls on. Our delegation witnessed China's people-oriented development in Chongqing, a city of 32 million in Western China, which is led by an aggressive and popular Communist Party leader—Bo Xilai. A skyline of cranes are building roughly 1.5 million square feet of usable floor space daily—including, our delegation was told, 700,000 units of public housing annually.

Meanwhile, the Chinese government can boast that it has established in Western China an economic zone for cloud computing and automotive and aerospace production resulting in 12.5% annual growth and 49% growth in annual tax revenue, with wages rising more than 10% a year.

For those of us who love this country and believe America has every asset it needs to remain the No. 1 economic engine of the world, it is troubling that we have no plan—and substitute a demonization of government and worship of the free market at a historical moment that requires a rethinking of both those beliefs.

America needs to embrace a plan for growth and innovation, with a streamlined government as a partner with the private sector. Economic revolutions require institutions to change and maybe make history, because if they stick to the status quo they soon become history. Our great country, which sparked and wants to lead this global revolution, needs a forward looking, long-term economic plan.

The imperative for change is simple. As Andy Grove pointed out: "If we want to remain a leading economy, we change on our own, or change will continue to be forced upon us."

Mr. Stern was president of the Service Employees International Union (SEIU) and is now a senior fellow at Columbia University's Richman Center.

decides what roads to build and where.  Who decides what is the best way to organize primary education?  Who decides what green technology to develop for any given application?    Who decides how much money goes to this project or that project???

Global warming alarmism fizzles: what's the NEXT NEXT thing big government must solve before society implodes?

Global warming alarmists will have to find another excuse to justify begging big government to rescue human society.  I see in OWS another alternative:  the idea that rising wealth inequality risks the implosion of modern society. 

Shouldn’t the government do something to fix rising wealth inequality.  Isn’t wealth inequality bad??!!? 

Wealth inequality isn’t bad or good per se.  it is a natural feature of all market economies.  THat isn't to say wealth inequality can never be stretched to a point that becomes a serious social and economic problem.  we see social and economic stresses from excessive income inequality in Latin America and increasingly in China and of course in the US.  The cause of income inequality, however, is NOT the free market.  the market doesn't DO anything.  the market facilitates specialization and division of labor and free exchange which makes everyone wealthier.  As people specialize labor and accumulate wealth, income inequality naturally results in a health economy.   The cause of unhealthy income inequality IS NEVER THE FREE MARKET.  the free market can't favor some over others.  

The rich get richer and the poor get poorer when the government gets in the game of choosing winners and losers.  the market can't determine winners, but the government can!!!  we can blame the evil market for failing us when income inequality rises, but the cause of whatever is "excessive" income inequality (beyond what is the natural rate of inequality) must be some well intended government intervention.   regulations, redistribution schemes, central banking (easy money) are all ways that government funnels power and wealth to politically connected special interest groups. 

So hear it is one more time:  the cause of what i would call "exaggerated" wealth inequality (like we see in LATAM or China or the US) isn’t caused by the “free market.”  The free market will always result in wealth inequality.  That is a fundamental nature of markets.  people with different skills pursue comparative advantage are going to end up with different income levels and wealth accumulation.  but the market system increases EVERYONEs standard of living over time by driving sustained productivity gains!!!   you can't get sustained productivity gains without division of labor and private property.  if you start with division of labor and private property you will end up with a society that has some natural wealth income inequality distribution.  Wealth inequality is not a market failure.  

Wealth inequality is a market feature.  Wealth inequality only becomes a problem when the government starts to intervene in the economy ostensibly to fix other market failures, but really to accumulate power via currying favor with special interest groups.  the more power government accumulates, the more it is able to funnel wealth and power to special interests ... and so on in a never ending cycle of government gaining power and sharing it with special interests.  special interests have special access to rent seeking activities --- and wealth inequality goes up.  

the market doesn't fail us.  WE FAIL THE MARKET  when government interventions ostensibly aimed at fixing a market failure -- BUT REALLY aimed at currying favor with special interest groups -- create systemic distortions.  

there are no free lunches in life except through free trade.  the sort of free lunches promised by government (e.g. free education, universal health care, free cradle to grave safety nets, level playing fields, stable markets, etc, etc.) are Utopian fantasies;  there are only trade-offs and hard work.   

society doesn't get to enjoy the benefits of free trade (standard of living increases driven by productivity gains) without the natural features that come along with free trade.  free trade / capitalism naturally results in industrial pollution, creative destruction, income inequality, asset bubbles and other "negative" features.  but these features SHOULD NOT be mistaken for market failures.   NAtural disasters such as hurricanes are features of the earth biosphere;  we cannot get rid of hurricanes any more than we can get rid of wealth inequality.  

If we want more income inequality there is going to be a net negative trade off for society.  the government would have us believe the fantasy that since excessive income inequality is bad for the economy, then if we reduce income inequality via government intervention, we can kill two birds with one stone:  we can reduce a bad thing (income inequality) and improve the economy at the same time.

The real world doesn't work like this.  that is the same sort of logic that people use to support government subsidies for green energy.  we are supposed to believe that green energy is a win/win for society.  YEs, green energy is win/win WHEN THE outcome results from free MARKET processes.  As soon as the government gets involved with investment subsidies and new regulations promoting some new standard, the win/win result from market exchange turns into lose/lose. 

Government can't magically reduce income inequality or pollution or business cycles and it can't offer "free health insurance" and free education without also causing and triggering a massive wave of unintended consequences that overwhelm the well intended policy with negative results.

we've seen the result of public education:  it is a disaster for those from most disadvantaged households.  the poor are held hostage in a dysfunctional government monopoly.  why do liberals hate private monopolies but they love public monopolies.  the fact is monopolies can't survive in the private sector without some government mandate or support or barrier to entry.  public monopolies are insidious destroyers of public resources.   public education is designed to succeed by ostensibly well meaning public servants, but the result of any public monopoly is certain failure given the lack of feedback between success and failure in a system designed around a public monopoly.

Government can’t solve macro social problems.  As soon as government comes in to solve macro social or economic or financial problems, what happens next is that big labor, big business and/or big finance come in and hi-jack big government for their own selfish purposes. 

 Big government will always end up in bed with Big biz.  That is the nature of the two headed beast.  Trying to use big government to help protect the little guy is a contradiction in terms.     This is why OWS is so upside down.  OWS condemns the big government / big finance nexus on Wall Street, but then in the same breath OWS screams for big government to provide free education, free healthcare, more income equality …  Big government cannot deliver such Utopian wishes.  Big government ends up fueling the very income disparity and unfair playing field most condemned by the OWS crowd.

Should we throw our hands up at social problems?  Of course not.  We should pitch in and help on a local micro level.  We should contribute our time to a soup kitchen or help build a house or contribute time to a charity or become a big brother or a coach or help with a local fund raiser.  But, do not let government pass a law that commands society wide results or promises to eradicate poverty or that promises to reduce income inequality or that promises any other macro outcome. 

the best government can do is protect fair treatment under the law.  it cannot guarantee "fair" outcomes.  social justice is a myth.

As soon as we put government in charge of determining macro outcomes, we set in train a series of unintended consequences that – by definition – end up resulting in a net welfare decline for society as a whole.  Even worse, the  very so called "disadvantaged groups" that big government aims to help are the most vulnerable to unintended consequences of well intended policy.  the rich and politically connected will always be better off from well intended government policy while the poor suffer more, one way or the other. 

as they say, the road to hell is paved with good intentions.  that is where we are headed as long as we look to government for answers.

NOVEMBER 29, 2011

The Great Global Warming Fizzle

The climate religion fades in spasms of anger and twitches of boredom.

·         By BRET STEPHENS

How do religions die? Generally they don't, which probably explains why there's so little literature on the subject. Zoroastrianism, for instance, lost many of its sacred texts when Alexander sacked Persepolis in 330 B.C., and most Zoroastrians converted to Islam over 1,000 years ago. Yet today old Zoroaster still counts as many as 210,000 followers, including 11,000 in the U.S. Christopher Hitchens might say you can't kill what wasn't there to begin with.

Still, Zeus and Apollo are no longer with us, and neither are Odin and Thor. Among the secular gods, Marx is mostly dead and Freud is totally so. Something did away with them, and it's worth asking what.

Consider the case of global warming, another system of doomsaying prophecy and faith in things unseen.

As with religion, it is presided over by a caste of spectacularly unattractive people pretending to an obscure form of knowledge that promises to make the seas retreat and the winds abate. As with religion, it comes with an elaborate list of virtues, vices and indulgences. As with religion, its claims are often non-falsifiable, hence the convenience of the term "climate change" when thermometers don't oblige the expected trend lines. As with religion, it is harsh toward skeptics, heretics and other "deniers." And as with religion, it is susceptible to the earthly temptations of money, power, politics, arrogance and deceit.

This week, the conclave of global warming's cardinals are meeting in Durban, South Africa, for their 17th conference in as many years. The idea is to come up with a successor to the Kyoto Protocol, which is set to expire next year, and to require rich countries to pony up $100 billion a year to help poor countries cope with the alleged effects of climate change. This is said to be essential because in 2017 global warming becomes "catastrophic and irreversible," according to a recent report by the International Energy Agency.

Yet a funny thing happened on the way to the climate apocalypse. Namely, the financial apocalypse.

The U.S., Russia, Japan, Canada and the EU have all but confirmed they won't be signing on to a new Kyoto. The Chinese and Indians won't make a move unless the West does. The notion that rich (or formerly rich) countries are going to ship $100 billion every year to the Micronesias of the world is risible, especially after they've spent it all on Greece.

Cap and trade is a dead letter in the U.S. Even Europe is having second thoughts about carbon-reduction targets that are decimating the continent's heavy industries and cost an estimated $67 billion a year. "Green" technologies have all proved expensive, environmentally hazardous and wildly unpopular duds.

All this has been enough to put the Durban political agenda on hold for the time being. But religions don't die, and often thrive, when put to the political sidelines. A religion, when not physically extinguished, only dies when it loses faith in itself.

That's where the Climategate emails come in. First released on the eve of the Copenhagen climate summit two years ago and recently updated by a fresh batch, the "hide the decline" emails were an endless source of fun and lurid fascination for those of us who had never been convinced by the global-warming thesis in the first place.

But the real reason they mattered is that they introduced a note of caution into an enterprise whose motivating appeal resided in its increasingly frantic forecasts of catastrophe. Papers were withdrawn; source material re-examined. The Himalayan glaciers, it turned out, weren't going to melt in 30 years. Nobody can say for sure how high the seas are likely to rise—if much at all. Greenland isn't turning green. Florida isn't going anywhere.

The reply global warming alarmists have made to these disclosures is that they did nothing to change the underlying science, and only improved it in particulars. So what to make of the U.N.'s latest supposedly authoritative report on extreme weather events, which is tinged with admissions of doubt and uncertainty? Oddly, the report has left climate activists stuttering with rage at what they call its "watered down" predictions. If nothing else, they understand that any belief system, particularly ones as young as global warming, cannot easily survive more than a few ounces of self-doubt.

Meanwhile, the world marches on. On Sunday, 2,232 days will have elapsed since a category 3 hurricane made landfall in the U.S., the longest period in more than a century that the U.S. has been spared a devastating storm. Great religions are wise enough to avoid marking down the exact date when the world comes to an end. Not so for the foolish religions. Expect Mayan cosmology to take a hit to its reputation when the world doesn't end on Dec. 21, 2012. Expect likewise when global warming turns out to be neither catastrophic nor irreversible come 2017.

And there is this: Religions are sustained in the long run by the consolations of their teachings and the charisma of their leaders. With global warming, we have a religion whose leaders are prone to spasms of anger and whose followers are beginning to twitch with boredom. Perhaps that's another way religions die