Essential Economics for Politicians

The ACA expands access to care by particular groups of individuals and for particular medical services. But the act does little to expand the supply of healthcare resources or, despite lip service in that direction, to improve the efficiency of delivery. --R. Graboyes
 
The Hyperdrive to Serfdom

Totalitarian governments rarely form in a day. Rather, they’re merely the end result of a long process, what F.A. Hayek called “The Road to Serfdom.” According to Hayek, Leviathan grows as strongmen gradually accumulate power through manipulating the normal political process. They seize strength on the backs of crisis, sow discord and chaos, and slowly rise to the top, all the while eroding liberties.

One of the best modern illustrations of this process comes through the Star Wars saga. The ultimate villain of the series, Emperor Palpatine, spends years manipulating the Galactic Senate, with the ultimate quest of controlling it and the Galactic Republic, to be replaced by an Empire with himself at the head.

This seemingly odd plot for a blockbuster film was carefully chosen. George Lucas, largely inspired by the turbulent politics of the 1970s, said the situation “...got me to thinking historically about how do democracies get turned into dictatorships? Because the democracies aren't overthrown; they're given away."

https://fee.org/articles/the-hyperdrive-to-serfdom/?utm_medium=popular_widget
 
Lucas was, perhaps inadvertently, coloring his films in Hayekian paint. Hayek, in The Road to Serfdom, writes “...it is the general demand for quick and determined government action that is the dominating element in the situation, dissatisfaction with the slow and cumbersome course of democratic procedure which makes action for action’s sake the goal.”

In Attack of the Clones, Palpatine takes advantage of another crisis to expand his “emergency” powers. Urged on by a Senate eager for quick action, he proclaims, “It is with great reluctance that I have agreed to this calling. I love democracy. I love the Republic. Once this crisis has abated, I will lay down the powers you have given me!”

An urgent appeal for action, any action, tends to lead to less liberty and a greater exercise of oppressive state power. Of course, proponents claim the changes are temporary, but there’s always another crisis that warrants further and continued intervention.

Over the course of thirteen years of this process, Palpatine successfully anoints himself Emperor during the events of The Revenge of the Sith. In the packed Galactic Senate chamber, he declares the end of the Republic, saying, "In order to ensure our security and continuing stability, the Republic will be reorganized into the first Galactic Empire, for a safe and secure society which I assure you will last for ten thousand years."

As he finishes his proclamation, the Senate erupts in cheers. Padme Amidala, a disappointed Senator, bitterly remarks "This is how liberty dies. With thunderous applause." Serfdom came to the galaxy gradually, in the guise of safety and stability, and was accepted with open arms. The Republic, as George Lucas puts it, was given away.

https://fee.org/articles/the-hyperdrive-to-serfdom/?utm_medium=popular_widget
 
Budget Politics

"Back in my teaching days, many years ago, one of the things I liked to ask the class to consider was this, imagine a government agency with only two task. One, building statues of Benedict Arnold and two providing life saving medications to children. If this agency's budget were cut what would it do? The answer of course is that it would cut back on the medications for children. Why? Because that is what is most likely to get the budget restored. If they cut back on building statues of Benedict Arnold, people might ask why they were building statues of Benedict Arnold in the first place.-- Thomas Sowell. Who else?
 
… is from page 451 and page 828 of the 3rd edition (1972) of what is correctly regarded by many to be the greatest economics textbook ever written, University Economics by Armen Alchian and William Allen; the first part of the quotation is Question #30 at the end of Chapter 22; the second part of the quotation is from the answer given, at the back of the book, to the question (link added):

“If an enterprise cannot survive except by paying wages 75 cents or $1 an hour, I am perfectly willing for it to go out of business. I do not believe that such an enterprise is worth saving at that price. It does more harm than good, socially and economically. It is not an asset; it is a liability. So if this kind of business is killed by a minimum wage of $1.25, I for one will not be sorry.” (George Meany, Hearings before Subcommittee on Labor Standards, 86th Congress, 2nd Session, 1960, p. 36 of Part 1 of printed hearings.)


a. How does this statement differ from one that says, “Any person who cannot produce a product worth at least $1.25 an hour should not be allowed to work as an employee?”

…

a. Doesn’t differ except in degree to which it reveals implication of what is said.

 
There’s nothing awesomely ingenious about supply and demand analysis in economics. Not even close. This analysis is a very simple – indeed, rather plain – depiction of what our common sense tells us about human action. But it has megaton explanatory power when used wisely and skillfully. Supply and demand analysis is not kindergarten stuff, to be certain, but any decently attentive 14-year-old girl or boy can grasp its main features if these are explained by a competent and caring teacher. And if that girl or boy ponders, soberly, supply and demand analysis for a few years, by the time she or he is old enough to legally buy alcohol in the United States, she or he will know about (I estimate) 60 to 65 percent of all that is worthwhile knowing in economic theory – or, at least, 60 to 65 percent of all that is worthwhile to know of economic theory for the purpose of enabling her or him to critically and sensibly assess the merits of the vast majority of real-world economic policies, both actual and proposed.

That young woman or man will know to ask, unceasingly, critical questions: Why this? Why not that? Why is that relevant? Why is this irrelevant? Where did this go? Where will that go? Where did this come from? Where will that come from? Who pays? Who benefits? Who says? According to whose judgment? How many? How much? How plausible? Which person? Which group? What else is likely to happen? (and above all, always, without fail) “As compared to what?“---Alchain
 
My Favorite Description To Date of the Problems and Appeal of Trump

January 13, 2017, 8:59 am

Scott Alexander has a great article on the problems with Trump's approach to economics. I want to begin, though, with an analogy he uses at the end because it is the best single framework I have seen about understanding Trump's appeal:

Suppose you’re a hypercompetent billionaire in a decaying city, and you want to do something about the crime problem. What’s your best option? Maybe you could to donate money to law-enforcement, or after-school programs for at-risk teens, or urban renewal. Or you could urge your company full of engineering geniuses to invent new police tactics and better security systems. Or you could use your influence as a beloved celebrity to petition the government to pass laws which improve efficiency of the justice system.

Bruce Wayne decided to dress up in a bat costume and personally punch criminals. And we love him for it.

I worry that Trump’s plan for his administration is to dress up in a President costume and personally punch people we don’t like, while leaving policy to rot. And I worry it’s going to work.

Basically, Trump is acting like a small state governor, focusing his economic efforts on getting the Apple factory to come to town

So based on these two strategies, we are in for four years of sham Trump victories which look really convincing on a first glance. Every couple of weeks, until it gets boring, another company is going to say Trump convinced them to keep jobs in the United States. The total number of jobs saved this way will never be more than a tiny fraction of the jobs that could be saved by (eg) good economic policy, but nobody knows anything about economic policy and Trump will make sure everybody hears about Ford keeping jobs in the US. Every one of these victories will actively make the world worse, in the sense that these big companies will get taxpayer subsidies or favors they can call in later to distort government priorities, but nobody’s going to notice these either.

It seems appropriate to end this with a bit of Bastiat:

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.
 
Trump Silver Lining: Liberals Are Now Defending Trade Deficits

December 21, 2016, 9:00 am

Thanks to Trump, it appears that some of the Left have discovered economic reality and are defending trade and suddenly seem less unsettled by trade deficits. Here is Kevin Drum with one in a series trying to downplay panic over trade deficits, in this case with Mexico. Here are some of my recent thoughts on the trade deficit.

International trade is such an obvious benefit to the country that it is simply incredible that we are, hundreds of years after Adam Smith and Ricardo and Bastiat, still trying to explain and defend it against ignorance. It's like we have to constantly battle recurrences of the phlogiston theory of combustion.
 
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