Get some perspective

One of the things that annoys me often when reading the news is the constant hyperbole about how bad the economy is or how terrible the financial ‘crisis’ was, or how “we brought the global economy back from the brink“. The brink of what, exactly? The phrases “since the 1930s” or “since the Great Depression” have become two of the most overused phrases of the year, almost as annoying as “perfect storm” was in 2007 or “Barack Obama” was in 2008 (kidding on that last part).

A recent article by Mark Perry of the American Enterprise Institute suggests that while things may not seem rosy right now, several key economic indicators were even worse as recently as the 80s:

The prime rate was more than six times higher in 1980 compared to today, core inflation in 1980 was six times higher than today, the unemployment rate in November and December of 1982 was more than a percentage point higher than the August 2009 rate, the 30-year mortgage rate in 1981 was almost four times higher than today’s 5 percent, the car loan rate in 1981 was 2.5 times higher than today, and real gas prices were 32 percent more expensive in 1981 than today. So before we start talking about the “worst economy since the 1930s” couldn’t we first look at the early 1980s as a benchmark of how bad economic conditions can get, using a more recent period?

My memory of the early 1980s isn’t perfect because I had just turned 4 when Ronald Reagan was first elected, but this does seem to gel with anecdotes from my parents, whose mortgage rate was in the mid-teens when they built our house in Harristown, Illinois in 1984.

To take another example of the media and the public’s lack of perspective, last year during the peak of the financial ‘crisis’ (late September 2008), I was traveling in Europe through Germany, Switzerland and Poland. I went to visit an old friend from college who lives in Warsaw and while there I visited the museum of the Warsaw Uprising. This is not the same as the Warsaw Ghetto Uprising, which involved the suppression of the Jews living in the Warsaw inner city. The Warsaw Uprising was an attempt by the Polish Home Army, starting in August 1944, to rise up against the occupying German forces to take back the city in advance of the approaching Soviet army. The long story made short is that the Polish Home Army failed to oust the Nazis and the Soviets of course later expelled the Nazis on their push through to Berlin. I had never really learned about the Warsaw Uprising before and visiting the museum was quite an informative and moving experience. What struck me the most was that this occurred less than 65 years earlier, well within the lifetime of my grandfather and near the time my stepfather was born. The result of the Warsaw Uprising was that approximately 16,000 Polish patriots were killed, 150,000-200,000 civilians were killed and, by the end of the war, 85% of Warsaw had been destroyed. (According to the website of the Warsaw Uprising Museum: “85% of Warsaw’s left bank buildings were destroyed: 25% in the course of the Warsaw Uprising, 35% as the result of systematic German actions after the Uprising, the rest as a combination of the war in September 1939 and the Warsaw Ghetto Uprising.”)

I live in Colorado Springs and Denver is about an hour to the north. I tried imagining a city like Denver (which today is somewhat close in population and area to Warsaw) being virtually wiped off of the map. What is great today is seeing that Warsaw is a thriving modern city. But not so long ago at the end of the Second World War, Warsaw almost disappeared thanks to the ravages of war and brutal tactics of the Nazis.

OK, so we’re not exactly comparing apples to apples when talking about a major world war and a financial ‘crisis’ (I don’t like that word but don’t know what else to call it) brought about by complex financial instruments and imprudent government-subsidized lending. But I think it’s worth bearing in mind that we (humans that is, not just Americans) have come back from worse crises before and the previous crises really were quite a bit worse, as long as you accept that having your country almost burned completely to the ground is a bad thing.

Why are we so divided?

It has become part of the accepted narrative of contemporary politics that we are a “divided nation”, our political discourse has become coarsened, and the gulf between people on different sides of the political spectrum is widening. I used to think this was mostly nonsense, but recently I find myself agreeing with this notion more and more. I hadn’t really thought much about why this should be the case until a co-worker of mine and I were out to lunch one day. We were talking about the health care debate and he expressed frustration that people seemed to be so divided (repeat of narrative above, etc.), most people weren’t really interested in hearing what the other side had to say, and also confessed to not understanding why things were this way. I offered an opinion and said I believed people were more divided because there were a larger number of issues that had become intertwined with politics. So if the government did not play such a large part in funding scientific research for example, the issue of federal funding for stem cell research would have never become a divisive issue. (Note that George W. Bush never intended to ban stem cell research, not even embryonic stem cell research, only federal funding for embryonic stem cell research). Even the issue of where to buy a car has become interwoven with politics because many people now see buying a car from General Motors as a political statement in favor of the administration since the U.S. Government owns approximately 60% of GM.

Anyway, as usual someone else has had the same insight and following up from today’s earlier post, it’s from the same chapter in Capitalism and Freedom:

The use of political channels, while inevitable, tends to strain the social cohesion essential for a stable society. The strain is least if agreement for joint action need be reached only on a limited range of issues on which people in any event have common views. Every extension of the range of issues for which explicit agreement is sought strains further the delicate threads that hold society together.

Unanimity without conformity (or: Democracy is not our goal)

One of the worthiest insights I picked up on while reading the works of Milton Friedman recently deals with the nature of democracy, or majority rule, as it relates to the decisions made by individuals as they go about their daily lives. Living in the United States, we are taught that democracy is the most effective political arrangement, but how far should the rule of the majority apply? I’ll quote one of the excellent passages from Capitalism and Freedom:

The ideal is unanimity among responsible individuals achieved on the basis of free and full discussion… From this standpoint, the role of the market, as already noted, is that it permits unanimity without conformity; that it is a system of effectively proportional representation. On the other hand, the characteristic feature of action through explicitly political channels is that it tends to require or to enforce substantial conformity. The typical issue must be decided “yes” or “no”; at most, provision can be made for a fairly limited number of alternatives.

And this quote from Free to Choose:

The ballot box produces conformity without unanimity; the marketplace, unanimity without conformity. That is why it is desirable to use the ballot box, so far as possible, only for those decisions where conformity is essential.

Our terminology is insufficient

I’ve been thinking a lot lately about the insufficiency of our current language or terminology to describe what is happening in the economy and in the government lately. As I described in my previous post, I have been reading a lot about economics lately and have started to formulate my own thoughts better, so I thought I would write down some of the things I was thinking about confusing terminology.

Consider the term market. What does that term mean? I’ll cheat and ask Wikipedia, which describes a market as:

any one of a variety of different systems, institutions, procedures, social relations and infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy.

That’s quite a mouthful, so does it help us understand what is meant by “market-based solutions” or “market failures” in current discussion about the economy? (For that matter, what is meant by “the economy”?) As I’ve been reading and listening to more of authors/economists like Friedrich Hayek, Milton Friedman, Russ Roberts and Arnold Kling, I’ve come to believe we need some better terms to cover what is meant by the “market” or “free markets”. There is the popular fable that Eskimos have multiple words for snow (though that turns out to be a significant simplification of the real story), so why do we only have one word for a complex concept like markets? And do markets have goals or are they simply a mechanism (or system, institution, procedure, etc. as described above) for buyers and sellers to exchange goods or services without any higher purpose? More thoughts on this later and I will try to provide some links to other blogs or quotations from books that have covered this topic far better than I can.

Now on the other end of the economic or political spectrum, consider the term socialism. This term has come up a lot recently in regard to the health care reform debate in particular, with accusations or insinuations that Barack Obama is a socialist. Socialism traditionally defined means the public or state ownership and operation of the means of production. It seems clear that no matter how harmful the current proposals for health care reform may be, they are not equivalent to socialism as traditionally defined. Obama’s overall policies also can not really be called socialist, but they are clearly much closer to socialism than they are to a laissez faire approach that has been traditionally favored since the founding of the United States (or at least was largely favored until the New Deal). Still, if it is not fair to call Obama’s policies socialist, what are they? Perhaps statist is a better description. Again, let’s ask Wikipedia about statism:

A major state, including government policy, role in the direction of the economy, both directly through state-owned enterprises or other machinery of government and indirectly through the state-directed economic planning of the overall economy.

That certainly seems closer to what we are experiencing right now, with government takeover of automobile companies, government ownership of financial institutions, government regulation of compensation at firms “receiving large sums of government aid”, government ownership and operation of industries such as passenger rail transport, etc. But statism as a term is often closely associated with fascism. But how can that be when fascism is a right wing phenomenon? Actually, fascism has been used as an insult or epithet on both sides of the political spectrum, including against various left wing groups. And what do left wing and right wing really mean anyway? They are used as shorthand for a wide variety of pre-conceived notions about one’s political views but more often used to describe one’s political opponents. I think this sloppy use of terminology is not very helpful in promoting reasonable and thoughtful intellectual discourse. The question is what can we do about it, in particular can we come up with some better terminology that will become widely accepted?

What I’ve been reading lately

I love reading, but perhaps due to a short attention span or perhaps just as a sign of the times, I am bad at finishing books and am usually in the middle of about ten to twenty different books at any given time.  There are books on my nightstand, on the coffee table next to the couch, on my kitchen table, on my desk and of course several hundred in waiting on my bookshelves.  (Note to self: update your Delicious Library catalog and post updated version to MobileMe).

I have been getting better lately at finishing books, and here are a few I’ve read recently that I enjoyed:

  • The Price of Everything by Russ Roberts. I’ve enjoyed reading Russ and his colleague Don Bordreaux’s posts on Cafe Hayek recently and also have found Russ’s podcast EconTalk very intellectually stimulating. Highly recommend this book for anyone interested in basic economic principles as told through fiction.
  • Free to Choose by Rose and Milton Friedman. Milton Friedman is one of the intellectual giants of the 20th century and I have been reading a lot more of his work recently along with other works concerning economics. This work is less about economics in a strict sense and more about personal freedom and how the preservation of personal freedom affects economics and public policy. Every once in a while I read a book and think “everyone needs to read this” and this is one of them.
  • Capitalism and Freedom by Milton Friedman. In some ways a predecessor to Free to Choose, but slightly more theoretical. Still a great work about personal freedom and how capitalism is the best way to ensure continued freedom and prosperity.
  • Real Education by Charles Murray. This is a very interesting book, and I am about halfway through now. The basic premise is that we shouldn’t pretend that all children have the same ability to succeed in academics, just as we don’t pretend that all children can be gifted athletes or musicians. He thinks the push for everyone to go to college is harmful because most students do not have the ability or intelligence to learn true college-level material. Very interesting and will see how the rest of the book goes and what he recommends be done with our education system.

Is it time to get a Kindle?

I’ve been wondering whether or not to get a Kindle lately. I know no one else besides me who is reading this right now really cares about whether I get a Kindle or not, but as I told you in my introductory post, this blog isn’t really for you anyway so why are you here? Just kidding, at any rate I have just seen that the price has been reduced to $259. Seems like a good deal, but I am still a bit worried that when the Apple Tablet comes out, I will be forced to abandon the Kindle and more importantly any books I have purchased for the Kindle if they’re not compatible with my beautiful new Steve Jobs-designed book-reader-and-more. Then again, I have already tried out the Kindle for iPhone app and bought a few books to try out on it, so maybe there will be a way to bridge the content from one device to the other.

Full Disclosure: I am not receiving any free stuff from advertisers… yet

Could not resist posting this link to a New York Times article on new regulations on blogging.

The F.T.C. said that beginning on Dec. 1, bloggers who review products must disclose any connection with advertisers, including, in most cases, the receipt of free products and whether or not they were paid in any way by advertisers, as occurs frequently.

I had no idea that my random thoughts posted on a (still mostly obscure) website would be monitored by the Federal Trade Commission. Well, Messrs. Commissars, let me assure you that in the two hours since I started this blog I have not received any free products or been paid by any advertisers yet. I would also like to note to any advertisers out there that I am gladly willing to receive any free products you would like to send me, and I will immediately disclose the receipt of such products (in compliance with the latest regulations) while I write glowing reviews of said products. I am also willing to accept any payments you might want to send me at any time. Please contact me for wire transfer or PayPal information at your convenience.