Insta-Millard Pundit, economics edition: Adam Smith was a bleeding heart liberal

December 21, 2013

In a new book, author Jack Russell Weinstein argues that we should pay more attention to Adam Smith’s first book, The Theory of Moral Sentiments,  and not allow Smith’s humanitarian pleas for good community be hijacked by libertarians, conservatives or liberals.

Adam Smith’s Pluralism, Jack Russell Weinstein, Yale University Press, 360 pages

Adam Smith, updated. Illustration by Michal Hogue.

Adam Smith, updated. Illustration by Michal Hogue.

A review of the book explains further, at American Conservative, “Adam Smith, Communitarian:

Weinstein builds upon Smithian harmony, explaining that while life is not always commercial, it is always communal. Community, in turn, derives its lifeblood from “imagination,” because imagination creates the capacity for sympathy. Unlike Kant and other Enlightenment thinkers, Smith “presumes human difference” as a necessary and inherent aspect of civilization, rejecting the Kantian ideal of “noncontextual normativity.” Smith recognized that cultural, temporal, and social differences shaped norms and values, making it impossible to create a single, all-inclusive norm of human behavior. This is why sympathy is so important. It offers a means that is natural to the human condition—our desire to commiserate with our fellow man—to bridge the gap between our differences.

Smith believed that “political society is not derived from a social contract,” according to Weinstein. Instead, society is a natural expression of what it means to be human. The state of nature for Smith is one of community, and the ultimate questions related to human society are questions of morality and virtue, not economics and politics. Thus, a broad, morally robust education rooted in a particular community is essential to forming sympathetic individuals. While Smith did not idealize the role of education—it could not completely eliminate human selfishness and vanity—he believed it had the power to “direct vanity to proper objects” and to “convert competing passions into a harmonious character.”

[The blog post’s headline should be read with more than a hint of sarcasm; hate to have to explain that.]

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Milton Friedman really said higher wages make a nation prosperous?

December 18, 2013

Chicago University and Nobel-winning economist Milton Friedman, inspecting fruits of free markets.

Chicago University and Nobel-winning economist Milton Friedman, inspecting fruits of free markets. (Photo found at Crooks and Liars, with quote of Friedman’s explaining the benefits of things like that Earned Income Tax Credit)

In Free to Choose, Milton Friedman wrote:

But when workers get higher wages and better working conditions through the free market, when they get raises by firm competing with one another for the best workers, by workers competing with one another for the best jobs, those higher wages are at nobody’s expense. They can only come from higher productivity, greater capital investment, more widely diffused skills. The whole pie is bigger – there’s more for the worker, but there’s also more for the employer, the investor, the consumer, and even the tax collector.

That’s the way the free market system distributes the fruits of economic progress among all people. That’s the secret of the enormous improvements in the conditions of the working person over the past two centuries.

What would Friedman say about higher productivity and greater capital investment, an increasing pie, when the increases are denied to the worker, and the employer, and the consumer, and the tax collector?  Somehow, I think even Mr. No-government-regulation would cry, “Foul!”

Heck, that’s a good argument for raising the minimum wage, and for fixing income inequality.

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“I, Pencil,” updated and animated — and not so offensive as I expected (even if free market nuts think it is)

May 16, 2013

English: Title page of Adam Smith's Wealth of ...

Title page of Adam Smith’s Wealth of Nations, 1776. Wikipedia image

This is an encore post.  The topic is probably timely just about any time — the debates about which comes first, free markets or free people, or the balance of government regulation necessary to keep a truly fair and truly free market, or the utility of regulation at all, are debates that are good to have.  It’s a pity there isn’t more discussion of Adam Smith’s ideas, instead of the idol-worshipping of a bronzed copy of Smith’s famous treatise.  In any case, a spate of links to this post reminded me that it’s good to recirculate from time to time.

Have you read “I, Pencil?” You should.  There’s a link early in the article.  It’s a quick read.

Every economics teacher knows that old Leonard Read piece, “I, Pencil.”   It’s a good, practical demonstration of the concept of Adam Smith’sinvisible hand,” free markets, and the way economies put stuff together for sale without a government agency issuing instructions, written by Read in 1958, for the Foundation for Economic Education, a once-free-market economic think tank that recently made an unexpected (by me) lurch to the radical right.

Pencils

Pencils – Wikipedia image

The essay is dated, though, for high school kids today.  Most of the stuff Read properly assumed people knew something about, is left out of modern curricula in elementary and middle school, so a high school teacher must do remedial work in mining, international trade, lumbering, manufacturing, chemistry and metallurgy, just to make the thing make sense.  Where we used to learn about pencils in first or second grade, my students in recent years labor under the misconception that pencil leads are made out of lead, and I have to explain to them that graphite is a form of carbon.  They don’t know cedar from pine, or mahogany, they don’t know copper from tin from zinc from steel, and they think rubber has always been synthetic.

Imagine my surprise on this:  I got an e-mail touting an animated, YouTube update of Read’s essay. It’s not bad, even though it’s from the Competitive Enterprise Institute, which is neither competitive, nor an institute, but is instead a propaganda arm of crazy right-wing wackoes.

Whoever made this film appears not to have had much interference from the CEI poobahs.

Am I missing something? Is this film more right-wing than I see?

I worry that I missed something, or that the producers of this movie wove a spell over the usual radical near-fascist groups.  This movie has been touted in recent days by almost all of the usual crypto-black-shirt think puddles, American Enterprise Institute, the unreasoning Reason magazine from the so-called libertarian view, the cartoonish Glen Beck effluent pipe The Blaze, the Coors family’s Heritage Foundation, the offensively-named Lexicans, the biased Cafe Hayek (which is often a good read anyway, so long as you don’t take them seriously on any science issue),  the sanctuary for authoritarian-leaning victims of lobotomy Hot Air, and even that publication from the propaganda organization, The Daily Capitalist — in short, it’s been plugged by organizations covering the entire political spectrum from Y to Z, the far right end of the alphabet.

English: From US Patent 19783 Combination of L...

From US Patent 19783 Combination of Lead-Pencil and Eraser by L. Lipman, March 1858. (Patent later invalidated — so much for free market rewards to inventors) Wikipedia image

Maybe they didn’t watch it? 

For today’s teenagers, someone should do a couple of updates.  “I, SmartPhone” and “I, Tablet Computer” could include lessons in government regulation of radio spectrum and how such regulation allows public safety functions and air traffic control to exist alongside great profit-seeking groups, and how such developments would be impossible without government regulation. There would also be a section on the mining and milling of rare Earths, of ores like Coltan, which would introduce the concept of blood or conflict diamonds and ores, the collapse of order in unregulated areas like Congo and Somalia, slave labor as in Pakistan and China.  “I, Fast Food Breakfast” could include side lessons in importing of orange juice from Brazil and other nations, artificially-flavored syrups from China and the threat from climate change to U.S. maple tree farmers, and meat from Australia and Argentina, along with the ideas of food safety regulation on eggs and egg products by USDA and FDA.  “I, Burrito” could include lessons in cultural diffusion and migrant farm workers who pick the tomatoes . . .

Colored_pencil

Color pencils. Wikipedia image

By the way, the fact that pencil leads are graphite (and clay), and not lead, should not be taken to mean that pencil manufacturers came up with a kid-safe product on their own; lead in the paint on pencils was enough to worry the health officials, until regulation got different paints used.

We need a classroom guide on Read’s piece and this new movie that seriously discusses the need for regulation in pencil manufacture, from the safety of the saws used to cut the trees, and in the mills, to the anti-child labor provisions of the graphite and rubber import agreements, to the forest regulation and research necessary to keep the incense cedar wood in production, through the anti-deforestation requirements on rubber plantations and the regulation of lead in the paint.  The movie is good, much less right-wing than those groups who fawn over it, but still in need of some real-world economic reality.

Mechanical pencil leads spilling out of their ...

Mechanical pencil leads spilling out of their plastic case. Wikipedia image

More:

More, in 2013:  


“I, Pencil,” updated and animated — and not so offensive as I expected

November 23, 2012

Every economics teacher knows that old Leonard Read piece, “I, Pencil.”   It’s a good, practical demonstration of the concept of Adam Smith’sinvisible hand,” free markets, and the way economies put stuff together for sale without a government agency issuing instructions, written by Read in 1958, for the Foundation for Economic Education, a once-free-market economic think tank that recently made an unexpected (by me) lurch to the radical right.

The essay is dated, though, for high school kids today.  Most of the stuff Read properly assumed people knew something about, is left out of modern curricula in elementary and middle school, so a high school teacher must do remedial work in mining, international trade, lumbering, manufacturing, chemistry and metallurgy, just to make the thing make sense.  Where we used to learn about pencils in first or second grade, my students in recent years labor under the misconception that pencil leads are made out of lead, and I have to explain to them that graphite is a form of carbon.  They don’t know cedar from pine, or mahogany, they don’t know copper from tin from zinc from steel, and they think rubber has always been synthetic.

Imagine my surprise on this:  I got an e-mail touting an animated, YouTube update of Read’s essay. It’s not bad, even though it’s from the Competitive Enterprise Institute, which is neither competitive, nor an institute, but is instead a propaganda arm of crazy right-wing wackoes.

Whoever made this film appears not to have had much interference from the CEI poobahs.

Am I missing something? Is this film more right-wing than I see?

I worry that I missed something, or that the producers of this movie wove a spell over the usual radical near-fascist groups.  This movie has been touted in recent days by almost all of the usual crypto-black-shirt think puddles, American Enterprise Institute, the unreasoning Reason magazine from the so-called libertarian view, the cartoonish Glen Beck effluent pipe The Blaze, the Coors family’s Heritage Foundation, the offensively-named Lexicans, the biased Cafe Hayek (which is often a good read anyway, so long as you don’t take them seriously on any science issue),  the sanctuary for authoritarian-leaning victims of lobotomy Hot Air, and even that publication from the propaganda organization, The Daily Capitalist — in short, it’s been plugged by organizations covering the entire political spectrum from Y to Z, the far right end of the alphabet.

Maybe they didn’t watch it? 

For today’s teenagers, someone should do a couple of updates.  “I, SmartPhone” and “I, Tablet Computer” could include lessons in government regulation of radio spectrum and how such regulation allows public safety functions and air traffic control to exist alongside great profit-seeking groups, and how such developments would be impossible without government regulation. There would also be a section on the mining and milling of rare Earths, of ores like Coltan, which would introduce the concept of blood or conflict diamonds and ores, the collapse of order in unregulated areas like Congo and Somalia, slave labor as in Pakistan and China.  “I, Fast Food Breakfast” could include side lessons in importing of orange juice from Brazil and other nations, artificially-flavored syrups from China and the threat from climate change to U.S. maple tree farmers, and meat from Australia and Argentina, along with the ideas of food safety regulation on eggs and egg products by USDA and FDA.  “I, Burrito” could include lessons in cultural diffusion and migrant farm workers who pick the tomatoes . . .

By the way, the fact that pencil leads are graphite (and clay), and not lead, should not be taken to mean that pencil manufacturers came up with a kid-safe product on their own; lead in the paint on pencils was enough to worry the health officials, until regulation got different paints used.

We need a classroom guide on Read’s piece and this new movie that seriously discusses the need for regulation in pencil manufacture, from the safety of the saws used to cut the trees, and in the mills, to the anti-child labor provisions of the graphite and rubber import agreements, to the forest regulation and research necessary to keep the incense cedar wood in production, through the anti-deforestation requirements on rubber plantations and the regulation of lead in the paint.  The movie is good, much less right-wing than those groups who fawn over it, but still in need of some real-world economic reality.

More:


We need free marketeers in the White House

February 23, 2010

Who said this?

We are pro-growth. We are fierce advocates for a thriving, dynamic free market. But we do think that there have to be some rules of the road in place in the financial sector that will create an even playing field and allow businesses to raise capital and consumers to buy products with confidence.

Coming out of this past decade, there has been a sense on the part of a lot of middle-class families that they have been left behind, even when we were expanding. And I talked during the campaign about the need for us to restore a sense of balance to the compact between business, government, and employees all across the country.

If businesses are making record profits but employees are seeing their wages flatline—and in fact, incomes decline over the course of the decade—that puts enormous strains on families. It puts, I think, a dampening effect on consumers who help drive this economy. We are going to be better off if everybody feels like they have got a stake in growth and innovation moving forward. And I think that balance got lost.

Now, making sure that we restore that balance without tipping too far in the other direction in ways that squelch innovation and investment is going to be an important challenge, and one that we take very seriously. But the important message I would have for the business community—and this is something that I emphasize every time I have lunch with CEOs, and we have had a lot of them in here—is we have every interest in you succeeding.

Another big hint below the fold.

Read the rest of this entry »


Insurance experts: Get ready for climate change now

July 12, 2009

Climate change denialism is an astounding ball of contradictions and conundrums.

For example, while most denialists claim to be free-market devotees, they pointedly ignore market indications that climate change is real, aggravated by human actions (and inaction), and that humans can do anything about it.

Look at the insurance industry.  I’ve noted often that, here in Texas, we pay higher premiums on home insurance because climate change has produced worse weather, which costs insurance companies a lot.  Insurance company actuaries are paid to predict the future, reliably.  If they fail, insurance companies die quickly.

The “market” girds itself to fight climate change that governments are not going to move fast enough to prevent.  This will cost you a lot of money.

A good place to go for information about climate change and how it affects is the Lawrence Berkeley Laboratories, a group that studies the future and is no longer limited (if it ever was) to nuclear future issues.

Insurance in a Climate of Change, The Greening of Insurance in a Warming World, is loaded with information about insurance industry calculations of what the future is, and how insurance companies might and should react to the changes.

How relevant are weather-related natural disasters for insurers, and is there any evidence that the situation is worsening?

Globally, we are seeing about $80 billion/year in weather-related economic losses, of which $20 billion (about a quarter) are insured. This is like a “9/11″ every year. Weather-related losses represent about 90% of all natural disaster losses, and the data I just cited do not include an enormous amount of aggregate losses from small-scale or gradual, non-catastrophic events (e.g., lightning, soil subsidence, gradual sea-level rise).

Inflation-adjusted economic losses from catastrophic events rose by 8-fold between the 1960s and 1990s and insured losses by 17-fold. Losses are increasing faster than insurance premiums. The insured share of total losses has increased dramatically in recent decades, and variability is increasing (a key trouble sign for risk-wary insurers). Weather-related catastrophes have clearly visible adverse effects on insurance prices, and availability. Of particular concern are the so-called “emerging markets” (developing countries and economies in transition”, which already have $375 billion per year in insurance premiums (about 12% of the global market at present, but rising). They are significantly more vulnerable to climate change than are industrialized countries. Emerging markets are the center of growth for the industry, yet they are also the center of vulnerability.

Increased exposures are surely influenced—and no doubt heavily in some areas—by rising demographic and socioeconomic exposures. Yet, the rise in losses has outpaced population, economic growth, and insurance penetration. The science of “attribution analysis” is still in primitive stages, and thus we cannot yet quantify the relative roles of global climate change and terrestrial human activities. Some have prematurely jumped to the conclusion [PDF] that demographic trends explain the entire rise in observed losses. In the year 2005, three independent refereed <!– –>scientific articles drew linkages between hurricane trends and climate change.

Denialists claim weather stations are badly-placed, and so we need not worry about climate change since warming can’t accurately be measured — never mind the worldwide rise in temperatures of atmosphere and oceans.   Denialists claim that the greenhouse effect cannot be blamed on carbon dioxide emissions since carbon dioxide is such a small proportion of the gases in the atmosphere, apparently wholly unaware of the greenhouse effect in atmospheric gases, or unaware that only a thin pane of glass makes a greenhouse work.  Denialists claim that polar bears do not decline precipitously, yet, so all wildlife will be unaffected – nevermind the dramatic shifts in migration patterns of birds and migrating mammals, and the dramatic shift in the arrival of spring.  Denialists claim that Boston Harbor has survived 300 years of human development, so all harbors can survive any increase in ocean levels, nevermind the pending disasters of islands sinking out of site and destroying entire nations in the South Pacific, and never mind the drownings in Bengla Desh at every cyclone.

Most denialists rent apaartments or own homes.  Denying the insurance increases will be more difficult, though I fully expect Anthony Watts and Co. will deny that the insurance company actions and studies of global warming are warranted or accurate.

Is there any good news in all of this?

By all means. Insurers need to look no farther than their roots as founders of the original fire departments, early advocates for building codes and fire safety, etc. That is to say that insurers’ history is all about risk management and loss prevention. The same thinking can apply in the case of climate change. Just as insurers fought fire risks through encouraging fire safety, better modeling, and fire suppression, so too can they be part of the climate change solution. This can take many forms, ranging from providing new insurance products (e.g., for carbon trading or energy savings insurance [PDF]), to promoting energy-efficient and renewable technologies [PDF] that also help prevent everyday losses, to engaging in the broader policy discussion on climate change. Insurers can also be part of improving the underlying science of climate change, modeling, and impacts assessment. We maintain an extensive compilation of examples of how leading insurers are stepping into the arena in a constructive manner.

Alas, there is no insurance against the dithering of climate change denialists.

Go, with all thy internet getting, get thee wisdom.


Jeffrey Sachs: Pricing can’t cure all environmental ills

April 14, 2008

Natural resources people — foresters, river masters, biologists, botanists, agronomists, farmers, rock climbers and miners — understand almost instinctively that wise management of natural resources takes a blend of wisdom in commercial sectors and by government. Still, every once in a while some newly-minted Ph.D. in economics, or some economist who recently learned that governments own 86% of the land in Nevada, put forth a “bold proposal” to let the markets resolve environmental issues. Let pricing do it, they say.

Jeffrey Sachs, director of the Earth Institute at Columbia University, gives a short interview to the Wall Street Journal’s economics bloggers, in which he details why pricing cannot do the entire job, with examples:

Sachs: Pricing plays a role. Certainly with carbon emissions we need a price. But it’s almost never enough when we’re talking about really big technological changes. When you think of the computer industry and its roots in defense, when you think of the Internet with its root in defense and the National Science Foundation, when you think about drug development and the crucial role of the National Institutes of Health – one major industry after another has always relied, and needed to rely, on a mix of public and private actions.

When we’re talking about something as basic as a sustainable technology this is going to be inevitable. Think about how we’re going to climb out of the mess on nuclear power for example. We need a nuclear power industry in this country but it’s tied up in knots. Pricing by itself isn’t going to do it. There has to be public acceptability, there has to be sense of security that a regulatory framework, safe storage and nonproliferation protection is in place. These are just too complicated to be solved by a price.

For many other things, such as watershed management, there isn’t even a price that turns them into a market. The issues of watershed management involve different rights of upstream and downstream users, and different types of users. [like agriculture, households and industry.] The right price is going to be different. Pricing plays a role, but so does basic science, eminent domain, right of passage and liability.

Sachs is widely experienced in international economics, and in alternative economics. As an advocate of free markets generally, he’s pretty deep into development ideas. You won’t always agree with his opinions, but you’d do well to pay attention to what he says and the data upon which he bases his opinions.

Teachers, this is a short answer that covers a wealth of issues in your economics courses.


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