Video: Myth of the Rational Voter: Make Progress, Not Work

Econolog economist, professor and blogger Bryan Caplan explains why free markets (and not labor protectionism) leads to progress

From Learn Liberty: 

As technological developments increased farm yields over the last two centuries, the share of the US population employed in agriculture fell from around 90 percent to around 2 percent. The lay American public supposes that when workers lose their jobs, we become worse off — they suffer from what economist Bryan Caplan calls the 'make-work' bias. But would anyone prefer to live in a society in which many went hungry and no one enjoyed the wealth, financial security, job growth, and innovation created as all those workers lost their farm jobs? Follow Caplan, author of The Myth of the Rational Voter, as he explains the gap between the public's opinion and the economist's facts. In this video, Caplan talks about the merits and demerits of 'making work' - instead of letting individuals find work. 

► Learn More: 

-Frederic Bastiat contends that to aim to increase the proportion of effort to output is to imitate Sisyphus in his hopeless attempt to move a stone up a hill: http://mises.org/daily/6157/Industry-... 

-Daniel J. Mitchell explains the fallacy that government creates jobs: http://www.cato.org/publications/comm...

Quote of the Day: Colonial Nationalism and Anti Colonial Nationalism

If nationalism inspired two incompatible movements, how should we evaluate it?  You might just call it a wash: Nationalism giveth, and nationalism taketh away.  But this shoulder shrug overlooks two mountains of bodies.  The first mountain: All the people killed to establish colonial rule.  The second mountain: All the people killed to overthrow colonial rule.  It is perfectly fair to blame nationalism for both"transition costs." 

Surprising implication: Regardless of the relative merits of colonial versus indigenous rule, the history of colonialism makes nationalism look very bad indeed.  Why?  Because colonial rule didn't last!  So if you're pro-colonial, nationalism led to a high transition cost, followed by ephemeral wonders, followed by another high transition cost.  And if you're anti-colonial, nationalism led to a high transition cost, followed by ephemeral horrors, followed by another high transition cost.  Two dreadful deals, however you slice it.

But don't you either have to be pro-colonial or anti-colonial?  No.  You can take the cynical view that foreign and native rule are about equally bad.  You can take the pacifist view that the difference between foreign and native rule isn't worth a war.  Or, like me, you can merge these positions into cynical pacifism.  On this view, fighting wars to start colonial rule was one monstrous crime - and fighting wars to end colonial rule was another.  Nationalism is intellectually guilty on both counts, because it is nationalism that convinced people around the world that squares of multi-colored cloth are worth killing for.

(italics original)

This is from economics professor,  prolific blogger and author Bryan Caplan at the Library of Economics and Liberty

Quote of the Day: In democracies the main alternative to majority rule is the markets

In the minds of many, one of Winston Churchill’s most famous aphorisms cuts the conversation short: “Democracy is the worst form of government, except all those other forms that have been tried from time to time.” But this saying overlooks the fact that governments vary in scope as well as form. In democracies the main alternative to majority rule is not dictatorship, but markets

This is from prolific blogger, author and professor Bryan Caplan’s must read The Myth of the Rational Voter

Quote of the Day: Governments rely on indirect coercion

Governments rely on indirect coercion because direct coercion seems brutal, unfair, and wrong.  If the typical American saw the police bust down a stranger's door to arrest an undocumented nanny and the parents who hired her, the typical American would morally side with the strangers.  If the typical American saw regulators confiscate a stranger's expired milk, he'd side with the strangers.  If the typical American found out his neighbor narced on a stranger for failing to pay use tax on an out-of-state Internet purchase, he'd damn his neighbor, not the stranger.  Why?  Because each of these cases activates the common-sense moral intuition that people have a duty to leave nonviolent people alone.

Switching to indirect coercion is a shrewd way for government to sedate our moral intuition.  When government forces CostCo to collect Social Security taxes, the typical American doesn't see some people violating their duty to leave other people alone.  Why?  Because they picture CostCo as an inhuman "organization," not a very human "bunch of people working together."  Government's trick, in short, is to redirect its coercion toward crucial dehumanized actors like business (and foreigners, but don't get me started).  Then government can coerce business into denying individuals a vast array of peaceful options, without looking like a bully or a busy-body.

This is from George Mason University Professor and Author Bryan Caplan at the Library of Economics and Liberty Blog

Quote of the Day: The divergence between voting and emigration

To rationalize the divergence between voting and emigration, you need something like Brennan and Lomasky's expressive voting theory.  The essence of the theory: When people decide how to vote, their main goal is to express their support for what sounds good.  When people decide where to live, however, they focus on practicalities, not symbolism.

How can the two differ?  The probability of decisiveness.  When you vote, the chance that you tip the outcome is near 0%, so you might as well just scream about your identity.  When you move, in contrast, the chance that you tip the outcome is near 100%, so you'd better consider cost and convenience.

(italics original)

This is from author economic professor and blogger Bryan Caplan at the Econolog

Quote of the Day: “Crazy” Anarcho-Capitalism

The lesson: "Crazy" is relative to expectations.  A thousand years ago, everyone was used to despotism.   No one expected a defeated incumbent to voluntarily hand over power.  As a result, refusing to hand over power didn't seem crazy.  Since it didn't seem crazy, incumbents who refused to hand over power after losing an election probably would have managed to retain power.  In modern Sweden, in contrast, everyone is used to democracy.  Everyone expects a defeated incumbent to voluntarily hand over power.  Refusing to hand over power seems crazy.  As a result, refusing to hand over power would end not democracy, but the incumbent's career.

Why bring this up?  Because like the democrat of a thousand years ago, I advocate a radical political change: anarcho-capitalism.  After we've privatized everything else, I think we should privatize the police and courts, and abolish the government...

Since we've never had anarcho-capitalism, this peaceful equilibrium sounds like wishful thinking.  But it's no more wishful thinking than stable democracy.  Both systems sound crazy when first proposed.  Neither can be stable as long as people expect them to be unstable.  But both can be stable once people expect them to be stable.

You could object: The expectations necessary to sustain anarcho-capitalism are highly unlikely to ever arrive.  But the same was true for democracy a thousand years ago.  Yet somehow, expectations radically changed and stable democracy arrived.  How did expectations change so dramatically?  It's complicated.  But can expectations change dramatically?  Absolutely.

This is from author and professor Bryan Caplan at the Library of Economics and Liberty blog (Econolog)

Quote of the Day: Free Migration would be Great for the World

If First World governments simply respected everyone’s right to accept job offers from willing employers, most of the world’s poor wouldn’t need charity. They could take care of themselves. Any able-bodied person living in poverty would be free to sell his labor to the highest bidder in the world. Instead of paying years of income to coyotes, the global poor could migrate for the cost of a bus or boat ticket. Instead of crossing the border in fear to compete for illegal jobs, the global poor could cross the border openly to compete for any job they’re qualified to do.

Wouldn’t this simply drive First World wages down to Third World levels? No. Basic economics tells us that trade barriers don’t just redistribute wealth; they destroy wealth. Confining able-bodied workers to the Third World is like confining agriculture to Antarctica. Standard economic estimates say that open borders would roughly double world output. While trade liberalization never benefits absolutely everyone, free migration would be great for the world and great for the world’s poor.

(italics original)

This is from Professor Bryan Caplan in a debate over “negative and positive rights” at the Cato Unbound

Quote of the Day: Greatest Costs of Declining Fertility Are Missed Opportunities

Because the greatest costs of declining fertility aren't visible disasters, but missed opportunities.  The millions and billions of people who are never born won't share their ideas with the world.  They won't help spread the fixed costs of idea creation, product variety, and infrastructure.  And they won't enjoy the gift of life.  (If you're already objecting by listing the upsides of non-existence, think again).  Low fertility isn't bad because we'll lose what is.  Low fertility is bad because of we won't gain what could have been.

(italics original)

This is from Professor Bryan Caplan at the Library of Economics and Liberty (Econolog) (ht Professor Art Carden)

How Political Discrimination Kills

George Mason University professor and author of Myth of the Rational Voter Bryan Caplan has a concise but insightful narrative about how the diminutive Joseph Schmidt (1904-1942) overcame his physical shortcomings and became a famous opera singer but unfortunately political discrimination did him in.

Professor Caplan concludes:

As every opera fan knows, life is full of tragedy.  Sometimes people laugh at you for being short.  Sometimes people hate you for being a Jew.  Tragedy, however, is more than a matter of intentions.  Markets muffle the effects of bad intentions.  Governments amplify the effects of bad intentions to their logical conclusion.  Market discrimination gave Joseph Schmidt an ugly hurdle to overcome - but with some ingenuity, he overcome it.  Government discrimination, in contrast, deliberately walled off his every option.  He tried to escape, but there was no escape.  Governments driven by prejudice stripped Joseph Schmidt of his livelihood, then took his life.

Quote of the Day: Overrated Sincerity, Incorruptibly Evil

Another reason when corruption seems a better option…

As far as I know, Robespierre, Lenin, Stalin, Mao, and Pol Pot were indeed unusually incorruptible, and I do hate them for this trait. 

Why?  Because when your goal is mass murder, corruption saves lives.  Corruption leads you to take the easy way out, to compromise, to go along to get along.  Corruption isn't a poison that makes everything worse.  It's a diluting agent like water.  Corruption makes good policies less good, and evil policies less evil.

I've read thousands of pages about Hitler.  I can't recall the slightest hint of "corruption" on his record.  Like Robespierre, Lenin, Stalin, Mao, and Pol Pot, Hitler was a sincerely murderous fanatic.  The same goes for many of history's leading villains - see Eric Hoffer's classic The True Believer.  Sincerity is so overrated.  If only these self-righteous monsters had been corrupt hypocrites, millions of their victims could have bargained and bribed their way out of hell.

This stirring excerpt is from George Mason University economics professor, Econolog blogger and author Bryan Caplan. [Source: Library of Economics and Liberty]

Quote of the Day: The Moral Case of Free Markets: Achievement

The lesson is that defenders of free enterprise have to put less weight on happiness. Sure, happiness is one good thing. But so is achievement - doing something productive with your life. And on this score, free enterprise looks a lot better than welfare states that subsidize people who skate through life without even trying to make something of themselves.

Once you take achievement seriously, moreover, you start to see that redistribution is immoral in and of itself. When someone achieves something - whether writing an article or building a business - they deserve to keep the product. It matters little whether keeping the product makes the achiever happy. The point is that achiever earned what he has, and other people - including government - ought to respect his rights. From here, you're close to the truism that taxation is theft - and the moral case for free enterprise looks solid indeed.

That’s from Professor Bryan Caplan at the Econolog.

Uncertainty And Pessimism Bias

Popular blogger and lawyer Barry Ritholtz has a great piece on uncertainty at the Bloomberg.

Mr. Ritholtz writes, (bold highlights mine)

Wall Street has a sweet tooth for such investing maxims. They infect the trading community like influenza in December. Repeat mindless dictums ad nauseam, and they soon become the accepted wisdom.

The problem with these supposed truisms is they are no more accurate than the flip of a coin. A closer look at this uncertainty meme reveals it to be a false-ism -- one of those emotionally appealing phrases that ping around trading desks. The lack of evidence supporting their premise seems to matter very little.

To recognize how meaningless these statements are, consider the opposite: Could markets function without uncertainty? It takes only a little thought to realize that markets actually thrive on doubt, imperfect information and a lack of consensus.

Uncertainty drives the market’s price-discovery mechanism. Investing requires there to be differences of opinion. When there is broad agreement as to an asset’s fair value, trading volume falls. Without any uncertainty, who would take the opposite side of your trade?

History teaches that whenever the opposite occurs -- when certainty overwhelms uncertainty -- the herd tends to be wrong. In rare instances, when there is a near-total lack of uncertainty in the market, the outcome is usually a spectacular disaster.

Should the prospects of uncertainty prompt us to hide in our proverbial shells?

The answer is NO. What matters is the understanding of the risk-reward tradeoff.

Here is Mr. Ritholtz again,

When we discuss uncertainty, what we are really discussing is risk. All unknown outcomes contain risk, and therein lies the possibility of loss. Risk is inherent in the concept of uncertainty. However, anyone looking for performance must embrace risk, for without it, there can be no reward...

And what to do with people who always preach ‘uncertainty’?

Once more Mr. Ritholtz,

The future, by definition, is unknowable. Investing involves making our best guesses about the value of an asset at some point after this moment in time. There will always be an element of uncertainty involved. We can discount various outcomes, engage in probabilistic analysis, but no one knows for certain what tomorrow will bring.

Those who claim to know fail to understand the most basic workings of markets. We need only consider the track record of Wall Street’s prognosticators to know the truth in this statement. As much as the future is uncertain, the most likely outcomes are well understood.

Exactly. Many who preach doom and gloom hardly managed to predict the markets accurately, yet they stubbornly insist that the world is headed for the gutters.

Uncertainty is NOT a valid reason to be maintain a bias on pessimism. A bias that largely emanates from:

-resistance to accepting critical changes, e.g. industrial age to information age

-undue fixation on several variables as harbinger for gloom or to quote Professor Bryan Caplan,

a tendency to overestimate the severity of economic problems and underestimate the (recent) past, present, and future performance of the economy.

-and finally, a bias which is predisposed at the attainment of a desired political and or economic outcome.

Again the brilliant Professor Caplan,

a general-interest prop to political demagoguery of all kinds. It creates a presumption that matters, left uncontrolled, are spiraling to destruction, and that something has to be done, no matter how costly or ultimately counterproductive to wealth or freedom. This mind-set plays a role in almost every modern political controversy, from downsizing to immigration to global warming.

Like Mr. Ritholtz, the implications of misunderstanding uncertainty imbued as a bias often leads to misdiagnosis of the risk-reward tradeoffs that leads to wrong conclusions and subsequently a poor or dismal track record in investment decisions.

Parenting To Be Remembered

The conventional view of parenting is that parents shape their children's lives. But this perception is misguided.

Professor Bryan Caplan argues why, (Wall Street Journal) [bold emphasis mine]

``Parents may feel like their pressure, encouragement, money and time are all that stands between their kids and failure. But decades' worth of twin and adoption research says the opposite: Parents have a lot more room to safely maneuver than they realize, because the long-run effects of parenting on children's outcomes are much smaller than they look.

``Think about everything parents want for their children. The traits most parents hope for show family resemblance: If you're healthy, smart, happy, educated, rich, righteous or appreciative, the same tends to be true for your parents, siblings and children. Of course, it's difficult to tell nature from nurture. To disentangle the two, researchers known as behavioral geneticists have focused on two kinds of families: those with twins, and those that adopt. If identical twins show a stronger resemblance than fraternal twins, the reason is probably nature. If adoptees show any resemblance to the families that raised them, the reason is probably nurture.

``Parents try to instill healthy habits that last a lifetime. But the two best behavioral genetic studies of life expectancy—one of 6,000 Danish twins born between 1870 and 1900, the other of 9,000 Swedish twins born between 1886 and 1925—found zero effect of upbringing. Twin studies of height, weight and even teeth reach similar conclusions. This doesn't mean that diet, exercise and tooth-brushing don't matter—just that parental pressure to eat right, exercise and brush your teeth after meals fails to win children's hearts and minds.

``Parents also strive to turn their children into smart and happy adults, but behavioral geneticists find little or no evidence that their effort pays off. In research including hundreds of twins who were raised apart, identical twins turn out to be much more alike in intelligence and happiness than fraternal twins, but twins raised together are barely more alike than twins raised apart. In fact, pioneering research by University of Minnesota psychologist David Lykken found that twins raised apart were more alike in happiness than twins raised together. Maybe it's just a fluke, but it suggests that growing up together inspires people to differentiate themselves; if he's the happy one, I'll be the malcontent.

``Parents use many tactics to influence their kids' schooling and future income. Some we admire: reading to kids, helping them with homework, praising hard work. Others we resent: fancy tutors, legacy admissions, nepotism. According to the research, however, these tactics barely work. Dartmouth economist Bruce Sacerdote studied about 1,200 families that adopted disadvantaged Korean children. The families spanned a broad range; they only needed incomes 25% above the poverty level to be eligible to adopt. Nevertheless, family income and neighborhood income had zero effect on adoptees' ultimate success in school and work."

This doesn't suggest that parents should leave or abandon their children to their own fate. Instead parents should just relax and take life in stride.

Professor Caplan writes,

`` Watching television, playing sports, eating vegetables, living in the right neighborhood: Your choices have little effect on your kids' development, so it's OK to relax. In fact, relaxing is better for the whole family."

This also means that parents should relieve themselves of what one might call self-imposed pressures of forcing their children to live a life designed according to their ideals, because the ultimate goal, is according to Professor Caplan, to be remembered, " The most meaningful fruit of parenting, however, is simply appreciation—the way your children perceive and remember you."

Happy Father's Day!