Coolidge, by Amity Shlaes. (Should she have titled it The Forgotten Man?) In the end, I found myself more interested in the times in which he lived than in the man himself. For example, immigration restriction really came to the fore during his Presidency. What were the forces that produced it? Was it part of the Progressive era (tied in with eugenics and Prohibition, perhaps), part of a general post-WWI xenophobia (Palmer raids, Ku Klux Klan), or the result of changes in political economy due to urbanization and industrialization? I found myself longing for more context on some of these issues. As it is, the book is long, but that is because she is trying to zero in on Coolidge–what he did and how he thought.
Category Archives: books and book reviews
Michael Huemer Responds, I Reply, Bryan Caplan Rejoins, etc.
Reacting to my essay, Huemer emails (my response follows his quote),
Dear Arnold,
Thanks for your blog post. There are several important points raised there. Here are a few comments; I cc Bryan [Caplan] in case he’s interested.
1. Did I identify the reason why most people believe in authority? You suggest that the real reasons are not well articulated by political philosophers.
I suspect that the real reasons are better covered by the chapter on psychology than by the philosophical chapters. I suspect that philosophical theories of authority are just rationalizations.
It sounded like maybe you thought there were other reasons, which might be real reasons and not just psychological causes, for most people’s belief in authority. So I’ll just express my skepticism that ordinary people have something more sophisticated or more rational in mind than anything that any of the experts have been able to come up with.2. What is my view of human nature? Well, there are lots of different people with lots of different traits. With regard to any trait, there will be a variation, with some people having surprisingly high or low amounts of it. Hence, I would say that most people are basically prudent most of the time, but that there are a small number of people who are frequently reckless and violent; and also, ordinary people can be gotten to act in irrational ways in special circumstances. I hope these sound like uninteresting, banal remarks.
I really don’t think that disagreements about “human nature” are at the core of most political disagreements. I think people like to say that because it sounds profound. But I really didn’t arrive at any major views by contemplating “human nature”, except in fairly trivial, banal ways. In particular, I don’t think I disagree with liberals or conservatives because I have a different view of human nature. I think I have a different analysis of how *social systems* work.3. Thus, you say progressives think the government needs to protect people from those with the ability to intimidate or manipulate others. And they think the government can nudge approximately-rational people in the right direction. Okay, I don’t think I disagree with the progressives about the frequency of manipulators, intimidators, or irrational people in the population. I think I just disagree with the claim that political institutions somehow screen out those people. I just think the manipulators, intimidators, and irrational people are at least as likely to be *in* the government as anywhere else, because I don’t see how our selection mechanisms prevent that. On the contrary, I think we have mechanisms that screen out honest and rational people.
4. But anyway, I think that’s all fairly irrelevant, because even if someone is rational and can protect you from bad people, that doesn’t give them authority. Take the vigilante example from the first chapter. The vigilante protected his neighbors from some vandals. That doesn’t give him authority over the neighbors. So again, what’s going on isn’t that the progressives have a special view about human nature that makes sense of their political position. What’s going on is that they are applying a moral double standard: they are exempting the state from the moral principles that they apply to everyone else.
5. If conservatives really think that the government is on the brink of collapse, such that one more person disobeying the law might cause it to collapse, then I think they’re just wildly irrational. I don’t know how many law-violations occur every year, but it’s definitely in the millions. Probably hundreds of millions. So the probability that we’re just now on the brink where one more violation causes a collapse … well, let’s just call it “negligible” and leave it at that.
6. You suggest that conservatives think the branches of government won’t cooperate in extending government power, because conservatives think people are just too prone to conflict. Well, I could see thinking that people will start conflicts *to gain something*. I can even see thinking that people will attack *the weak* purely to demonstrate their own power. But these conservatives would have to think that these government branches want to take up conflicts *with extremely powerful adversaries* (viz., each other), *where they have nothing to gain*, rather than preying on the ordinary people. I just can’t see that as a reasonable theory. (And then, incidentally, we have to hope that this conflict remains perpetually balanced at just the right point, rather than any side winning, or all sides preventing the others from carrying out their legitimate functions, etc.)
There’s a lot more that could be said in response to your comments, as you raised a lot of interesting issues, esp. about human nature. And I perhaps haven’t made my views about human nature entirely clear (mostly because I don’t have very detailed or specific views about it and don’t think we need such). But in the interests of time, I should leave it at that. Thanks again for your thoughts about my book.
My response (Bryan Caplan’s rejoinder in italics):
A. Go back to your point 3, where you say that you don’t think our political system is effective at screening out “manipulators, intimidators, and irrational people.” This is a very strong point. However, it is not a matter of simple moral intuition. It is a hypothesis concerning how political institutions work. [Of course. Mike never claimed that *everything* was based on moral intuition. In fact, the whole second part of the book is intended to answer the consequentialist critique of anarcho-capitalism.] I would argue that progressives have a different hypothesis, which is that it is possible within our political system for good to triumph. [Mike probably shares the hypothesis that this is “possible.” The question is whether it’s *likely*. Given progressives’ endless complaining, it’s not clear even they believe the latter.]
B. Similarly, on point 6, you may be right that the separation of powers fails to prevent government officials from acting in concert to the detriment of ordinary individuals. However, once again, this is not a moral intuition. It is a hypothesis about how political institutions work. [Mike isn’t claiming moral intuition is everything. He often combines moral intuition with factual claims.]
C. In point 4, you talk of the “double standard” that people apply to public officials and private vigilantes. However, ordinary people do not sense that they are guilty of a double standard. Barack Obama has authority that ordinary people do not have, but that is not because Barack Obama is judged differently from other men. It is because of the office that he holds. [An interesting point. But Mike’s critique still holds. Suppose your friends decide to create an “office” and select someone to run it. This person starts giving you orders and threatening to injure you if you don’t respect the “authority of his office.” Would this seem all right to normal people?] When he leaves that office, he will no longer have the authority to order drone strikes, change immigration enforcement procedures, threaten to veto budget legislation, etc.
In theory, any one of us could become a policeman, a legislator, a judge, or an official at a government agency. The authority resides in those offices, not in the individuals who hold those offices.
Most people find it intuitively appealing to have everyone around them ultimately subject to a single authority, rather than having competing authorities. To most people, having competing “protection agencies” and competing judiciaries is as inconceivable as two football teams playing a game without using the same rules and the same referees.
In fact, try making your double-standard argument in the context of the football metaphor. “We don’t let any ordinary fan run onto the field, blow the whistle to stop play, and call penalties. Why do we let referees do that?” Well, because that is what we want referees to do. [When pressed, wouldn’t the answer be, “Because the players and audience actually consented to follow the rules”? If a football team started playing in my backyard without my permission, the referee wouldn’t get to ignore my request to vacate in virtue of his office. And I think even football fans would admit this.] Unfortunately, the same holds for government, at least to some extent. A lot of people want government to do many things, and the scope of government reflects that. I wish it were not the case, but I do not think that there is any plain, philosophically intuitive argument that is going to make a difference. [“Make a difference” in the sense of actually persuading normal unreasonable sheeple? You’re right. “Make a difference” in the sense of persuading people of common sense and common decency? I say Mike’s case is overwhelming.]
[For those of you have read this far, I also recommend the comments on my earlier post.]
Huemer adds,
I was basically going to say what Bryan said. But there’s more to say.
I think what Arnold is responding to is my idea that the disagreement between libertarians and others turns on beliefs about authority. So you (Arnold) are trying to identify other beliefs that the disagreement (also?) depends on.
Okay, maybe progressives disagree with me about how the political system works. But I don’t think that’s the main disagreement. Because I also think that *even if politicians were wise, rational, and benevolent*, they still wouldn’t have authority. Compare: suppose I’m really wise, benevolent, and rational, and I’m issuing some commands that are similarly wise, etc. Does that mean that I get to demand money from you and use violence against you if you don’t pay?
A similar point goes for the conservatives: let’s say they’re right, and separation of powers prevents most abuses. (Aside: I’m pretty sure conservatives think that the government screws up a lot of things and oversteps its bounds, so they can’t think separation of powers is completely effective.) I still don’t think there would be authority. Compare: Suppose that Bryan and I start demanding money from you. But suppose that Bryan and I restrain each other from asking too much or abusing you too much. Does that mean that you’re now obligated to pay us? And that we can use violence against you if you don’t?
So again, I don’t think you can’t explain why leftists and rightists reject libertarianism except by appealing to their common belief in a special sort of authority for the state.
I certainly agree with the last sentence. That is, non-libertarians (and even minarchist libertarians) believe in the authority of the state.
I think that the intuitive theory of government legitimacy is that there are certain offices that can legitimately exercise authority. It is not because Obama is particularly wise, benevolent, and rational that he has authority. He has authority because he occupies the White House, and from a progressive point of view we hope that the occupant is as wise, benevolent, and rational as we can find.
How are these offices, in which authority is vested, created? To some philosophers, they are created formally, by a contract. However, I would argue that they emerge as a social convention. True, many countries have constitutions, which are attempts to formally define the expectations about authority. However, in my view, constitutions are merely one part of the collection of social conventions. Constitutions act like statutory law, but ultimately it is common law that rules.
What Huemer wants to argue against are the social conventions whereby we obey the laws and commands of people holding certain offices and whereby the people holding those offices are allowed to use force against those who do not obey. My claim is that most people like those social conventions, for the same reason that they like the social convention of having a referee for a football game. As I see it, the conservative argument for government is that having such a convention keeps people from descending into tribal barbarism (Lord of the Flies). The progressive argument is that it enables wise, benevolent leaders to emerge, overcoming what otherwise would be a world of oppression and individual folly.
I think that most people believe that without the social convention(s) of government they would be much worse off. Nearly everyone believes that without these social conventions, violent gangs would run around terrorizing the population. Influenced by progressives, many people believe that without these social conventions, their children would not be educated, their elderly parents would not have health care or adequate incomes, etc. Influenced by conservatives, many people believe that without these social conventions, barbaric foreigners would overrun our country.
Taking such beliefs as given, a libertarian gets nowhere by arguing that there is something morally wrong with allowing government officials to use coercion. Until you challenge those beliefs, you are making arguments that appeal only to those who already are inclined to agree with you.
My Sense of Huemer
I have a long review essay of Michael Huemer’s The Problem of Political Authority. I conclude:
I believe that Michael Huemer has put his finger on an important question, namely: What justifies having an institution with special privileges to coerce and to which we have special obligations to obey? The explicit justifications given in the literature of political philosophy are not very satisfying. One’s views on the issue ought to be tied to one’s views on human nature. Unfortunately, readers are likely to have difficulty buying in to Huemer’s own views on human nature, and I believe that this will limit the persuasiveness of his arguments.
Geithner, Wallison, and History
What is the legacy of Timothy Geithner? In an essay, I write,
In 2009, at the height of the financial crisis, there was widespread public and political support for making serious changes to how Wall Street and the financial sector operated. Presented with an opportunity to break these too-to-big-to-fail banks down to a size where an institution could be allowed to fail without threatening the entire national economy, Geithner instead attempted to restore the status quo. This was a win for the biggest banks, but the nation as a whole may eventually come to regret his policies.
The American Enterprise Institute sent me a copy of Peter J. Wallison’s Bad History, Worse Policy, which provides Wallison’s take on the financial crisis and the Dodd-Frank legislation. At $90, the book is priced for libraries and specialists. The book reprints his essays written over the period 2004-2012, with some added commentary in hindsight.
My guess is that a decade from now Wallison will look better than Geithner. In particular, I think that Wallison will be vindicated on the following points:
1. Freddie Mac and Fannie Mae lowered their lending standards considerably during the housing bubble, under political pressure. On p. 169, Wallison quotes from Fannie Mae’s 10K disclosure form for 2006:
We have made, and continue to make, significant adjustments to our mortgage sourcing and purchase strategies in an effort to meet HUD’s increased housing goals and new subgoals. These strategies include entering into some purchase and securitization transactions with lower expected economic returns than our typical transactions. We have also relaxed our underwriting criteria to obtain goals-qualifying mortgage loans and increased our investments in higher-risk mortgage loan products that are more likely to serve the borrowers targeted by HUD’s goals and subgoals, which could increase our credit losses. [emphasis added]
2. As a result, Freddie and Fannie purchased large amounts of high-risk mortgages, helping to fuel the housing bubble.
3. Dodd-Frank was enacted in order to enshrine a narrative of the financial crisis. That narrative attributes the crisis primarily to predatory lending and to financial deregulation.
4. The narrative enshrined in Dodd-Frank is false. Predatory lending was a minor factor, especially relative to government housing goals. There are few actual examples of financial deregulation, and the examples most often cited (such as the repeal of portions of Glass-Steagall) had little or no bearing on the crisis.
5. The most significant impact of Dodd-Frank is to entrench the largest banks, as they benefit from their status of “too big do fail.”
Incidentally, Wallison probably would disagree with me that we should go so far as to break up the big banks.
Wallison calmly presents evidence. His enemies would do well to try to do the same.
If You Need Something to Read
Here are some popular books from the latter half of the twentieth century that I would put in the queue ahead of many recent works. My guess is that you have not read all of them yet.
The New Industrial State, John Kenneth Galbraith, 1968. Galbraith actually got some things right–I agree with his take on the significance of bureaucracy within corporations, rather than viewing the CEO is an autonomous actor. But with the benefit of hindsight you can see how wrong he was about big things. He minimized the differences between the Soviet and American economies. He thought that new, small firms were insignificant. By blogging standards, his writing is gentle (if long-winded). He takes on conservatives with quips rather than base insults. But the main reason to re-read him is to see the contrast between a highly-reputed intellectual’s outlook and subsequent events. Incidentally, there is much in Milton Friedman’s Capitalism and Freedom, particularly on Civil Rights, that does not hold up very well, either.
The Money Game, ‘Adam Smith’ (George J W Goodman), 1969. Goodman, a journalist, had a great instinct for what made a good story and a wonderful ability to tell it. This was the first popular treatment of the efficient markets hypothesis. As Goodman put it, “Stocks have no memory, and yesterday has nothing to do with tomorrow.” I also recommend two other books of his, both hard to find. Supermoney (1973) among other things introduced the world to Warren Buffett, then a relatively young, successful money manager. Goodman’s description of the Fed’s response to the Penn Central bankruptcy is classic. Finally, Powers of Mind (1975), which I was lucky to come across in a used book store, is a very rich treatment of the New Age psychology that emerged in that period, and which still echoes through the halls of major corporations today (teambuilding, anyone?).
Liars Poker, Michael Lewis, 1989. This was Lewis’ smashing debut onto the financial journalism scene. The recent financial crisis made this book topical once again.
Microcosm, George Gilder, 1990. One thing I remember about this book is the way Gilder emphasized that the main material resource in computers–silicon–is sand. After reading this book, I felt that I really “got” the economics of the computer revolution. It influenced me to become an Internet entrepreneur a few years later. It influenced me as an economist to focus on intangible wealth, ultimately leading to my book with Nick Schulz.
The Work of Nations, Robert Reich, 1991. Today, everyone talks about skill-biased technological change and the plight of less-educated workers. With this book, Reich got there before the crowd. This is nothing like the predictable partisanship of Reich’s recent opinion pieces.
Vision of the Anointed, Thomas Sowell, 1996. Not at all charitable to those with whom he disagrees. Still, I think this book is insightful. I would be hard pressed to deny that my thinking on the oppressor-oppressed axis can be traced to Sowell.
The Physics of Wall Street
That is the title of a book by James Owen Weatherall. I received a review copy. I will say that I finished it, which is more than can be said for most books that I get sent to review. So I feel entitled to blog about it. The book offers short biographies of students of physics who applied their models in finance, along with layman-friendly explanations of the theories involved. A main theme of the book is that economists are too snotty toward physicists. For exaple, on p. 146-147 he describes attempts by the Santa Fe Institute to bring physicists and economists together in the late 1980s. This worked out poorly, but when the institute invited practitioners from Wall Street, “The traders proved much less defensive than the economists.”
I think that the complaint about snotty economists is pretty widespread. Experts in many disciplines, including psychology, sociology, and biology, believe that they bring techniques that would be useful to economists but are under-appreciated. I am not sure how to react. I think that what Weatherall calls the sociology of the economics profession is as bad as he says it is. But I am not part of the mainstream myself. If you ask folks in the leading departments about the state of economics, they will tell you that it is basically fine.
The book itself contains some well-written stories, a bit reminiscent of The Money Game, which most of you are too young to remember (Weatherall probably never heard of it). I learned little new from the early chapters, but I got a bit more insight into the Santa Fe Institute folks and the chapter on Didier Sornette and his models for sensing major changes was entirely new to me. After that, the book sort of petered out for me. At the end, he calls for a sort of “Manhattan Project” to apply physics to economics. Calling for a “Manhattan Project” on anything is a surefire way to put me off.
Organizational Mediocrity is No Accident
Tim Kane’s book, Bleeding Talent, earns a review from the New York Times.
That act binds the military into a system that honors seniority over individual merit. It judges officers, hundreds at a time, in an up-or-out promotion process that relies on evaluations that have been almost laughably eroded by grade inflation. A zero-defect mentality punishes errors severely. The system discourages specialization — you can’t expect to stay a fighter jock or a cybersecurity expert — and pushes the career-minded up a tried-and-true ladder that, not surprisingly, produces lookalikes.
Pointer from Tyler Cowen. Reihan Salam has more praise for the book.
This reminds me of the Federal Reserve Board, or of the public school system. To some extent it reminds me of the way large corporations treat middle managers. As I explained almost fifteen years ago,
For corporations, encouraging middle managers to take good risks is not as easy as it sounds. Middle managers understandably do not want the same degree of personal downside risk as entrepeneurs. However, in the absence of personal downside risk, the middle manager’s incentives would be skewed toward taking unjustifiable risks. Bureaucratic controls and limits on upside incentives may be an appropriate adaptation for correcting this potential bias.
I think that mediocrity is the natural state of organizations. Only the discipline of competition serves to bring about improvement.
Book Recommendations from Jason Collins
He recommends six that he read in 2012, including The Righteous Mind and Thinking Fast and Slow. One of his recommendations is a book from 2002, Paul Rubin’s Darwinian Politics, about which Collins posted a review.
Rubin’s basic position is that the political institutions of Western nations, and particularly the United States, are the best match with evolved human preferences. Humans seek freedom from dominance, with Western society maximizing that freedom. Political freedom allows citizens to form a reverse dominance hierarchy, with public pressure, wealth and constitutional frameworks limiting the ability of Western governments to exercise power. Western institutions also provide a framework that limits negative consequences of our evolved psyche, as the move away from kin based groups reduces xenophobic behaviour.
It would be interesting to stage a debate between Rubin and Michael Huemer.
My Election Post-Mortem
In this essay, I attempt to channel Winston Churchill.
Romney’s campaign was cautious and uninspired, with no chance of glory in either eventuality. Had he instead said in plain terms that our government is broke and offered specific, bold steps to eliminate activities and reform entitlements, perhaps the result would have been a resounding loss. But it would have been an inspiring defeat, one that would have positioned the Republican Party to gain favor as the United States heads toward fiscal crisis, just as Churchill’s long record of warnings about the Nazis positioned him to gain favor when Hitler launched his blitzkrieg.
John Cochrane on Health Care
A reader asked me to comment on Cochrane’s essay from October 18. The title of the essay was “After the ACA,” which might indicate that Cochrane mis-forecast the election. To make a long story short, I agree with his economic prescription but disagree with his political diagnosis for why we have what I call insulation instead of real health insurance. Cochrane’s explanation for the absence of the latter is:
Because law and regulation prevent it from emerging. Before ACA, the elephant in the room was the tax deduction and regulatory pressure for employer‐based group plans. This distortion killed the long‐term individual market and thus directly caused the pre‐existing conditions mess. Anyone who might get a job in the future will not buy long‐term insurance. Mandated coverage, tax deductibility of regular expenses if cloaked as “insurance,” prohibition of full rating, barriers to insurance across state lines – why buy long term insurance if you might move? – and a string of other regulations did the rest. Now, the ACA is the whale in the room: The kind of private health insurance I described is simply and explicitly illegal.
My thoughts:
1. Nowhere do we observe the Cochrane (or Kling) health insurance system, or anything close to it. This suggests that something other than anomalous U.S. regulations are at work.
2. Health care is something that people love to have others pay for. Insert obligatory Robin Hanson reference.
3. Very few people understand insurance in general. Most people seem to be more loss averse than risk averse. They will buy extended warranties on cheap goods but ignore risks of catastrophic events, such as floods.
4. All around the developed world, third-party payment dominates direct consumer payment for health care. Perhaps consumers feel that if they are spared the need to take out their credit cards then it is easier sustain the belief (illusion?) that their doctors really care about them.
5. All else equal, doctors prefer being paid by someone other than the patient. They prefer to be thought of as offering the “gift of healing.” Of course they do want to get paid.
It turns out, much to doctors’ dismay, that all else is not equal. Third party payers impose all sorts of unpleasant paperwork and regulation. But you won’t see many doctors lobby for consumer-paid health care as the solution. They seem to view paperwork and regulation as an evil plot foisted on them for no apparent reason, without recognizing that it as an intrinsic result of introducing a third party into the payment process.
Cochrane goes on to discuss health care supply. Again, I agree with his prescription, which is to allow for vigorous competition. But he seems to regard health care regulation as an evil plot foisted on society, without recognizing that it may emerge naturally.
Competition is a trial-and-error process. In health care, we equate consumer protection with prevention of error, creating a trade-off between consumer protection and competition. Our choice along this trade-off is affected by the problem of “the seen and the unseen.” Health care errors have concentrated, direct impact on identifiable patients. Competition has diffuse benefits that show up indirectly in an ill-defined broader population. I think it is very difficult to convince people to trade off consumer protection for competition. And, of course, incumbents in the health care industry will do their best to persuade people not to make that trade-off.
While I think Cochrane’s essay will appeal to those who are already inclined to agree with him, others are unlikely to be persuaded. Incidentally, I had the same reaction to John Goodman’s book, Priceless.
Neither Cochrane nor Goodman addresses the arguments for intervention that derive from Arrow and Stiglitz. Arrow focuses on asymmetric information between consumers and doctors, which appears to justify consumer protection. Stiglitz focuses on asymmetric information between consumers and insurance companies, which appears to justify mandated health insurance.
Both the Arrow argument and the Stiglitz argument have merit in theory. My own view is that other forms of “market failure” are more important in practice. The “seen and the unseen” problem that I alluded to earlier means that, contra Arrow, we have too much consumer protection in medicine, not too little.
As I suggested earlier, the health insurance market suffers from the fact that consumers choose on the basis of loss aversion rather than risk aversion. Moreover, contra Stiglitz, there is that evidence relatively healthy people, rather than opting out of health insurance, are more likely to pay for it. This reflects the fact that the personality characteristic of conscientiousness drives both health and the propensity to obtain insurance. As a result, health insurance companies are treated to favorable selection, not adverse selection.
Having said that, I do not think it is Arrow and Stiglitz that libertarians need to overcome. I think we need to understand the deep-seated cultural beliefs that pertain to health care and either adapt our recommendations to those beliefs or try to change them.