You’re an ideologue; no, you’re the ideologue!

I find that people who call out other people and opposing analysis as ideological are themselves ideologues. They cannot see political differences as other than ideological cat fights.

This is rather than an honest difference of opinion over the effectiveness of different options to achieve a common end as Milton Friedman explained:

I venture the judgment, however, that currently in the Western world, and especially in the United States, differences about economic policy among disinterested citizens derive predominantly from different predictions about the economic consequences of taking action – differences that in principle can be eliminated by the progress of positive economics – rather than from fundamental differences in basic values, differences about which men can ultimately only fight.

Hayek attributed to his opponents nothing more than intellectual error. Hayek (1948) believed that:

we must recognize that it may be genuine error which leads the well-meaning and intelligent people who occupy those key positions in our society to spread views which to us appear a threat to our civilization. Nothing could be more important than to try to understand the sources of this error in order that we should be able to counter it.

Hayek (1968) continues:

The worst mistake a fighter for our ideals can make is to ascribe to our opponents dishonest or immoral aims. I know it is sometimes difficult not to be irritated into a feeling that most of them are a bunch of irresponsible demagogues who ought to know better…

we ought to realize that their conceptions derive from serious thinkers whose ultimate ideals are not so very different from our own and with whom we differ not so much on ultimate values, but on the effective means of achieving them.

William Baumol and Alan Blinder described the role of economics in policy debates as follows:

While economic science can contribute the best theoretical and factual knowledge there is on a particular issue, the final decision on policy questions often rests either on information that is not currently available or on tastes and ethical opinions about which people differ (the things we call ‘value judgments’), or on both.

Lester Thurow said that differences in the valuation of outcomes is at the basis of most disagreements:

Liberal and conservative economists most frequently disagree on who ought to be hurt and who ought to be helped. Their technical disagreements on who will be hurt and who will be helped are much less frequent.

Karl Popper argued that who made an argument is of little value. He said that the growth of knowledge depended not on the ethics of the individual scientists but on the critical spirit to scientific community as a whole. The critical scrutiny of others polices the truth:

The genuine rationalist does not think that he or anyone else is in possession of the truth; nor does he think that mere criticism as such helps us achieve new ideas.

But he does think that, in the sphere of ideas, only critical discussion can help us sort the wheat from the chaff.

He is well aware that acceptance or rejection of an idea is never a purely rational matter; but he thinks that only critical discussion can give us the maturity to see an idea from more and more sides and to make a correct judgement of it.

Peter Drucker championed a business rule of never making a decision until there is disagreement; only then do you know what you are planning to do:

Unless one has considered alternatives, one has a closed mind.

This above all, explains why effective decision-makers deliberately disregard the second major command of the textbooks on decision-making and create dissension and disagreement, rather than consensus.

Decisions of the kind the executive has to make are not made well by acclamation.

They are made well only if based on the clash of conflicting views, the dialogue between different points of view, the choice between different judgments.

The first rule in decision-making is that one does not make a decision unless there is disagreement

Alfred P. Sloan said at a meeting of one of his top management committees:

“Gentlemen, I take it we are all in complete agreement on the decision here.”  Everyone around the table nodded assent.

“Then,”continued Sloan, “I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about”.

What Have We Learned from the Collapse of Communism? by Peter Boettke

the collapse of Communism has taught political economists several things:

first, that economic policy is always nested within a set of institutions—that there are economic/financial, political/legal, and social/cultural issues, which all must be taken into account;

second, that leadership matters throughout the transition process;

and third, that historical contingency can either work in your favour or cut against the successful transition.

And I would add a fourth one: that political power corrupts even the most informed and idealistic of individuals, such that you cannot count on ideological alignment to win the day. You have instead a small window of opportunity in which ideological alignment can be utilized to establish institutions that make it difficult for even bad men to do much harm.

In other words, the goal of our political/legal institutions should not be to ensure that the best and the brightest can govern, but instead that if the worst get in power, they can do little damage. This is the idea of a “robust political economy”.

Hayek’s spotty record as a prophet in the Road to Serfdom – part 2: what about the post-colonial Third World?

Gordon Tullock used Sweden to argue that  the problem with The Road to Serfdom was:

“that it offered predictions which turned out to be false. The steady advance of government in places such as Sweden did not lead to any loss of non-economic freedoms.”

But was socialism good for democratic consolidations in the post-colonial third world? Was that not a better hunting ground for Hayek’s fears?

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The people and parties, very often with a socialist hew, who won the election after the colonial government left town are not always all that keen to give up the reins of power.

Remember Huntington’s Two Turnover Test: when a nation moves from an emergent to a stable democracy, it must undergo two democratic and peaceful turnovers of ruling parties.

After an emerging democracy’s first turnover, the new administration often reverts to authoritarian rule. Russia under Yeltsin and Putin are examples.

Would Singapore be an example of central planning and state ownership leading to serfdom and a one-party state?

The state controls and owns firms that comprise at least 60% of the GDP through government entities. The vast majority (more than 80%) of Singaporeans live in public housing;

Although initially styling itself an anti-Communist and Social Democratic, the People Action Party (PAP) was expelled from the Socialist International in 1976 because it suppressed dissent and jailed opposition leaders. Hayek would be vindicated?!

The Index of Economic Freedom says that Singapore is a nominally democratic state ruled by the PAP since the country became independent in 1965, and that certain rights, such as freedom of assembly and freedom of speech, remain restricted

The Freedom House 2010 country report notes that Singapore is not an electoral democracy despite elections free of irregularities and mentions that all domestic newspapers, radio stations, and television channels are owned by government-linked companies, which limits free speech. The PAP has used the Government’s extensive powers to place formidable obstacles in the path of political opponents.

Daron Acemoglu has written on the role of institutions on post-colonial development in his why nations fail research agenda.

  • In Africa, Central America, the Caribbean and South Asia, European powers set up extractive states. These institutions did not introduce much protection for private property nor did they provide checks and balances against government expropriation. The explicit goal of the Europeans, in one form or another, was the extraction of resources from these colonies.
  • This colonization strategy contrasts with the institutions that the Europeans set up in colonies in which they settled in large numbers, e.g., the United States, Canada, Australia and New Zealand. In these colonies, life was modelled after that in the home country; the emphasis was on the enforcement of property rights for a broad cross-section of society, especially smallholders, merchants and entrepreneurs.

The same British colonists established different institutions in very different parts of the world:

  • If Europeans settled in a colony, institutions were developed for their own future benefits.
  • If Europeans did not settle in a colony, they set up a highly centralized state apparatus and other similar institutions to oppress the native population and to facilitate the extraction of resources in the short run

Acemoglu has written on Singapore as a stable non-democracy that can persist without significant repression.

Singapore was able through industrialization in the post-colonial period to ease social tensions and thus eliminate the need for democratic consolidation and also the need for repression. China’s ruling elite has the same current goal.

Why has Singapore not democratized? Acemoglu suggests is it is because Singapore is a very equal society. There is no traditional wealthy landed elite and the economy relies on external capital and businesses.

Most people appear to be relatively happy with the status-quo, at least not so unhappy that they want to engage in serious, and potentially costly, collective action to induce a major change in political institutions.

All and all, political economy has come on in leaps and bounds since 1944. Hayek should be judged against the other predictions of his times. Few socialist countries in the post-colonial Third World stayed democratic for long.

Hayek’s spotty record as a prophet in The Road to Serfdom – Part 1

Gordon Tullock used Sweden to support his argument that the basic problem with The Road to Serfdom was:

“that it offered predictions which turned out to be false. The steady advance of government in places such as Sweden did not lead to any loss of non-economic freedoms.”

Hayek discusses the Road to Serfdom

When looking back longingly at the mixed economies of 1950s and 1960s, people often forget who won elections much of the time back then.

The period that managed to combine a large degree of state ownership and control of the UK economy with a free and diverse media and political pluralism was often under Tory rule (1951 to 1964) with the Labor governments (1964-1970) often with a margin of a few seats.

Then there was the Menzies era in Australia with Liberal party rule from 1949 to 1972; and then 1975 to 1983. Much the same in New Zealand. The Left rarely held power in the mid-20th century.

The Christian democrats usually ran both Italy and Germany in coalitions, as I recall, up until the late 1960 or the early 1970s. Gaullist France? The LDP in Japan?

That is where Hayek got it wrong. The left-wing parties were not the face of the future.

Power rotated in Schumpeterian sense. Governments were voted out when they disappointed voters with the replacement not necessarily having very different policies.

The right-wing parties won many western European elections by that well-proven old trick of being slightly to the right of the left-wing parties. Hayek failed to predict this.

Hayek was himself a major critic of detailed predictions:

“We can build up beautiful theories which would explain everything, if we could fit into the blanks of the formulae the specific information; but we never have all the specific information.

Therefore, all we can explain is what I like to call “pattern prediction.”

You can predict what sort of pattern will form itself, but the specific manifestation of it depends on the number of specific data, which you can never completely ascertain. Therefore, in that intermediate field — intermediate between the fields where you can ascertain all the data and the fields where you can substitute probabilities for the data–you are very limited in your predictive capacities.”

“Our capacity of prediction in a scientific sense is very seriously limited. We must put up with this.

We can only understand the principle on which things operate, but these explanations of the principle, as I sometimes call them, do not enable us to make specific predictions on what will happen tomorrow.”

Hayek’s warnings in The Road to Serfdom was against a background where democracy was still young and insecure in Europe and peacetime democratic governments were, up until then, not much bigger than a post office and a military. The big governments of his day were not democratic.

As Popper and Kuhn understood it, bold, risky hypotheses are at the heart of great advances in the sciences and scholarship generally.

The public choice theory of LBJ

I am about 3000 pages into Robert Caro’s biography of Lyndon Johnson. Caro, now in his 70s, has spent thirty-eight years writing the biography of one man. Volume 4 published in 2012 finished in early 1964. The best biography about; Caro has you looking over the shoulder of LBJ and into his mind and into the minds of everyone around him.

LBJ was an astute man who could look deep into other men’s hearts to see exactly where he could find a weakness or a common ground to exploit to change their minds.

Johnson was famous for persuading the strongest of men to do something they absolutely did not want to do. It became known as the Johnson treatment.

The Southern Democrats thought JFK was a cream puff when it came to passing civil rights bills. They had no difficulty killing his bills in committee.

The Southern Democrats were full of despair the moment LBJ became president.

They knew that Johnson would find a way to pass a major civil rights bill through congress and despite any senate filibusters. Such was Johnson’s reputation as a legislator and a tactician when he was senate majority leader in the 1950s.

LBJ was behind the first civil rights bill of the 20th century. This was the 1957 civil rights bill.

LBJ’s astute understanding of public choice processes was central to how he crafted the 1957 bill.

Johnson could see that the Southern Democrats would not live with racial integration at the social level.

But he knew from his dealings with the Southern Democrats that in their hearts that they could not ultimately deny that people have a right to vote.

LBJ knew that if Black Americans in the Southern States could secure the right to vote, all the other rights they sought would soon follow and would be protected by law. He was right.

The 1957 and, particular, the 1964 civil rights laws overthrew racial segregation because more Black Americans could vote in the Southern States in state and local elections. Politicians soon courted those votes and there was a political realignment and a social revolution. The lawlessness that back-up most of segregation quickly came to an end  because its victims could now vote. Richard Epstein explains:

With Jim Crow in the South this set of insidious practices was not accomplished by explicit laws mandating racial segregation.

Rather, those  inflexible social and economic patterns were supported by four interlocking strategies.

First, illicit control of the electoral franchise, which in turn translated into control of the police and the courts.

Second, corrupt use over the infrastructure translated into an ability to deny water and electrical hook-ups to firms that did not toe the segregationist line.

Third, private violence to which southern police forces turned a blind eye when they did not actively support it.

Fourth, social ostracism to those who spoke up against the system. Sensible people either left, stayed away or remained silent.

… At its best, and in its original form, the Civil Rights Act of 1964 sought to break the control of the local segregationist forces over their political institutions. First on the list was Title I, which attacked exclusion from voting.

Is the Blogosphere an Infotopia or an Echo Chamber – the Daily Me?

Cass Sunstein made some astute observations in Republic.com 2.0 about how the blogosphere forms into information cocoons and echo chambers. People can avoid the news and opinions they don’t want to hear.

This is not all that surprising. Many do not read the newspaper, or read those newspapers that fuel their initial beliefs. London is famous for its partisan newspapers each pandering to their own slice of the political spectrum.

The standard J.S. Mill view of deliberation is that group discussion is likely to lead to better outcomes, if only because competing views are stated and exchanged.

Sunstein has argued that there are limitless news and information options and, more significantly, there are limitless options for avoiding what you do not want to hear:

  • Those in search of affirmation will find it in abundance on the Internet in those newspapers, blogs, podcasts and other media that reinforce their views.
  • People can filter out opposing or alternative viewpoints to create a "Daily Me."
  • The sense of personal empowerment that consumers gain from filtering out news to create their Daily Me creates an echo chamber effect and accelerates political polarisation.

A common risk of debate is group polarisation. Members of the deliberating group move toward a more extreme position relative to their initial tendencies!

How many blogs are populated by those that denounce those who disagree? This is the role of the mind guard in group-think.

Debate is over-rated as compared to brute experience. Milton Friedman said this in his Nobel price lecture:

Government policy about inflation and unemployment has been at the centre of political controversy. Ideological war has raged over these matters.

Yet the drastic  change that has occurred in economic theory has not been a result of ideological warfare.

It has not resulted from divergent political beliefs or aims.

It has responded almost  entirely to the force of events: brute experience proved far more potent than the  strongest of political or ideological preferences

The market process succeeds because it relies on a bare minimum of knowledge and hardly any deliberation but a lot of learning from experience.

A purpose of voting through secret ballots is both to bring the debate to a close and to clip the wings of those that shout the loudest and longest.

Sunstein in Infotopia wrote about how people use the Internet to spend too much time talking to those that agree with them and not enough time looking to be challenged:

In an age of information overload, it is easy to fall back on our own prejudices and insulate ourselves with comforting opinions that reaffirm our core beliefs. Crowds quickly become mobs.

The justification for the Iraq war, the collapse of Enron, the explosion of the space shuttle Columbia–all of these resulted from decisions made by leaders and groups trapped in "information cocoons," shielded from information at odds with their preconceptions. How can leaders and ordinary people challenge insular decision making and gain access to the sum of human knowledge?

Conspiracy theories had enough momentum of their own before the information cocoons and echo chambers of the blogosphere gained ground.

Must everything be the result of a grand plan? As Karl Popper explains:

…a theory which is widely held but which assumes what I consider the very opposite of the true aim of the social sciences; I call it the "conspiracy theory of society."

It is the view that an explanation of a social phenomenon consists in the discovery of the men or groups who are interested in the occurrence of this phenomenon (sometimes it is a hidden interest which has first to be revealed), and who have planned and conspired to bring it about.

This view of the aims of the social sciences arises, of course, from the mistaken theory that, whatever happens in society – especially happenings such as war, unemployment, poverty, shortages, which people as a rule dislike – is the result of direct design by some powerful individuals and groups.

Cass Sunstein in another book defines a conspiracy theory as:

An effort to explain some event or practice by reference to the machinations of powerful people, who have also managed to conceal their role.

He goes on to argue that millions hold conspiracy theories – that powerful people work together to withhold the truth about some important practice or terrible event.

Conspiracy theories attribute extraordinary powers to political leaders and bureaucracies to plan, to control others, and to maintain secrets. Conspiracy theories overestimate the competence and discretion of these political leaders and bureaucracies, who are assumed to be able to make and carry out sophisticated secret plans, despite ample evidence that most government actions do not remain secret for long.

Conspiracy theories also assume that these nefarious secret plans are easily detected by members of the public without the need for special access to the key information or any investigative resources.

Sunstein also argued that a distinctive feature of conspiracy theories is their self-sealing quality. Conspiracy theorists are not persuaded by an attempt to dispel their theories and look at these attempts as further proof of the conspiracy.

Karl Popper argued that conspiracy theories overlook the pervasive unintended consequences of political and social action; they assume that all consequences must have been intended by someone.

Most people lack direct or personal information about the explanations for terrible events, and they are often tempted to attribute such events to some nefarious actor as a way of coping with an uncertain world. More than a few blogs help them round-up the usual suspects.

The Economics of Foreign & Military Intervention with Chris Coyne

Vote buying in Thailand and the Philippines

Paying for votes is common in the Philippines and Thailand. The Thai Prime Minister, on the eve of the East Asian crisis, was the rural politician Banharn Silpa-archa. His nickname was Mr. Mobile ATM because of all the bribes he handed out.

Politicians are corrupt partly because developing country politics is ‘retail politics’: helping people with small loans, mediating disputes and getting children into better schools or universities.

A vicious circle develops. Politicians take bribes to build a war chest to bribe their voters to re-elect them. More honest politicians do not win office unless they stoop to paying cash for votes.

Japan is similar. LDP politicians have personal support networks that are 50,000 or more strong which are based on giving and receiving personal favours over their entire term of office.

Robert Tollison wrote a paper on the price of votes and the history of open vote trading in Great Britain and the United States prior to the 20th century.

Tollison found that the winners from the introduction of secret ballots were the middle class because the working class could no longer sell their votes to the rich.

Because the poor tend to face extremely high costs of organization, it may have been technically possible, although economically inefficient, to organize as a bloc of voters in order to secure net wealth transfers to themselves as a group.

From the standpoint of the individual poor voter, a more attractive alternative than tilting at the windmills of redistribution would have been to sell his vote to the highest bidder…

After the passage of the secret ballot in 1872 in Great Britain, the percentage of Commons seats held by landed interests dropped like a rock.

The Thai and Filipino middle classes hate the way the votes of the rural poor can be bought with bribes (and public services paid by taxing the middle class in the cities).

The Japanese, Thai and Philippine parliaments all have multi-member constituencies where the 3, 4 or 12 candidates with the most votes are elected.

This election system forces candidates from the same party to run against each other and build personal support networks to win elections off their own mantle.

This splitting of voter support works well for incumbents who have personal name recognition and a war chest based on bribes extorted during their previous term to fund cash for votes to win re-election.

Tax reforms lead to higher taxes

After the 1970s tax revolts and California’s Proposition 13, Buchanan and Brennan wrote The Power to Tax. Their message was that if you don’t always trust governments, beware of efficient taxes.

More efficient taxes make it easier for government to extract more tax revenue from the population with less resistance. Taxes can be made more efficient by broadening tax bases and removing loopholes while lowering marginal rates. A GST that replaces a web of sales taxes is a common example. The GST always goes up over time, never down over time. Most tax reforms are revenue neutral.

When Brennan said at a tax reform conference in Australia 20 years or so ago that efficient taxes and tax reforms are both bad because they lead to higher taxes and a larger government, no one understood him.

Idealists all, the audience including me assumed they were advising a benevolent government, not a revenue-maximising leviathan government – a beast that needed to be staved with constitutional constraints on the number and size of tax bases and tax instruments.

Fiscal arrangements were analysed by Buchanan and Brennan in The Power to Tax in terms of the preferences of citizen-taxpayers who are permitted at some constitutional level of choice to select the fiscal institutions they are to be subject to over an uncertain future.

Those in elected office are assumed to exploit the power assigned to them to the maximum possible extent: government is a revenue-maximising leviathan.

Buchanan and Brennan were all for inefficient tax systems because they do not raise as much revenue. A government that cannot raise much revenue cannot grow very large.

Gary Becker and Casey Mulligan attributed the growth in the size of governments in the 20th century to demographic shifts, more efficient taxes, more efficient spending, a shift in the political power from the taxed to the subsidised, shifts in political power among taxed groups, and shifts in political power among the subsidised groups:

An improvement in the efficiency of either taxes or spending would reduce political pressure for suppressing the growth of government and thereby increase total tax revenue and spending.

Tax reform saved the late 20th century welfare state by raising the same or more revenue with less taxpayer resistance. Taxes are very efficient in the Nordic countries – high tax rates on labour income and consumption but lower on capital income. And light regulation too.

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