‘Free Market’ Double Standards 6.0

It’s been a while since I did my last free market double standards post, which received some flak. To be honest, I think some of the criticisms were fair. Having said that, I don’t search for these contradictions just to wind up libertarians (though that can be a desirable side effect); generally they are quite obvious once you look past the way the right frame the debate.

I think the nature of many right wing arguments lends itself to contradiction: the shape shifting free market, which seems to mean something different to everyone; the nature of reactionary arguments, which causes people to make bizarre claims about proposed policies (see 5). Many right wingers also, despite themselves, end up supporting Republican candidates, which of course lends itself to all manner of contradiction (18).

I’ve also got some more economic theory ones in here. In particular, I’ve noticed economists ask some tough questions about new models, seemingly forgetting the various responses they have to the same criticisms of their own models (or if they don’t have responses, forgetting to apply these apparently pertinent criticisms to their own models). There are no links when I consider a point to be well established.

Anyway, enough preamble – let’s commence:

1. Libertarians emphasise that people didn’t consent to the state. They do not ask questions about whether people consented to the existing property distribution.

2. Mises and other libertarians thought socialism is about supposedly superior men running the world, which is wrong. Mises also said:

You have the courage to tell the masses what no politician told them: you are inferior and all the improvements in your conditions which you simply take for granted you owe to the effort of men who are better than you.

in a letter to Ayn Rand (p. 996).

3. NGDP targeting proponents will generally reference the Lucas Critique during discussions of modern macro. However, I have yet to see one apply the critique to NGDP targeting, when it is actually incredibly pertinent.

4. NGDP targeters defend supposed incidences of Central Bank’s inability to control NGDP (like 2008) by arguing that the CB must announce a policy rule for it to work, but simultaneously hold up Israel and Australia – where the CB has done no such thing – as examples of NGDP targeting working.

5. Stephen Williamson – and I’m sure he is not the only one – has at different times claimed QE will have no effect, and that it will produce runaway inflation.

6. Austrians generally present businesses as smart and forward looking, but their business cycle theory effectively asserts business decisions will be wildly thrown off by temporary short term interest rates changes.

7. Milton Friedman emphasised that regulatory capture would create a lot of problems, but also suggested looking at the amount of regulations, rather than their actual enforcement, as a guide to the ‘level’ of regulation. So he simultaneously endorsed the bizarre idea that regulation is a dial we can turn up and down, and the idea that it’s really more complicated than that.

8. Milton Friedman argued that businesses have no social responsibility, but should not engage in fraudulent behaviour, and “stay within the rules of the game.” Which is a form of social responsibility.

9. Milton Friedman endorsed both the Friedman Rule and the K-Percent Rule. They are contradictory.

10. Anarcho-capitalists are against the state, preferring insurance companies to provide what are commonly known as ‘public goods.’ They also have no trouble with monopolies. So if an insurance company that uses force is the only game in town (and owns all the land), how is that different from a state?

11. According to libertarians, if you can possibly leave a job, your freedom cannot be impinged during the job. Of course, many of us are free to leave our countries but libertarians still complain about coercive legislation.*

12. Libertarians are often resistant to the applicability of behavioural economics. Yet companies use behavioural insights in advertising and marketing to expand profits, something that’s usually a sign of efficacy in a libertarian world.

13. Libertarians generally oppose fraud in abstract, but many have the same knee-jerk reactions against prosecuting any specific instance as they have to most questioning of business practice.

14. David Smith (and other austerity defenders) tried to pin the decline in UK output on bank holidays. But this implies a day contributes a significant amount to output, so during every working day the economy must have boomed!

15. Again, austerians such as David Smith can’t decide whether to defend austerity by insisting it’s working (see 14) or whether it isn’t happening at all.

16. Economists complain a lot about sticky wages causing unemployment. But as of yet, I have yet to see one volunteer for a pay cut!

17. Economists love ceteris paribus. But apparently if preferences are held constant in a model, it must be worthless.

18. Greg Mankiw’s textbook analysis of the financial sector implies asset bubbles do not have a major effect on the real economy. But he also attributes Clinton’s boom to the internet stock bubble, implying the exact opposite.

19. Generally economists argue they shouldn’t be expected to make accurate predictions about the future. But when one of Steve Keen’s specific predictions did not come true, they took it as grounds to dismiss him (btw, bonus points for reading that entire thread and staying sane).

20. Economists, though few endorse a ‘hard’ version of Friedman’s methodology, will generally reference a derivative of it when pushed. However, when criticising alternative models, they raise questions about their internal mechanics.

21.

What is original in the book is not true; and what is true is not original.

- Henry Hazlitt on Keynes’ General Theory, a quote originally attributed to Samuel Johnson.

Neither true nor original, then.

*Note also that Hayek roughly endorsed my position on this, but AFAIK he never drew attention to the workplace.

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  1. #1 by Olle J. on October 13, 2012 - 3:47 pm

    A few possible extentions/editions: 8b) MF argues that the only purpose of a private business is to make profits for its owners. In this way MF is overriding business-owners free choice as they might actually want something else with their business besides making money.

    16b) I read a lot about unemployment being voluntary. Labour shortage is however rarely the result of employers paying wages that are too low.

    • #2 by Unlearningecon on October 13, 2012 - 4:00 pm

      See number 8, coincidentally, on this one:

      http://unlearningeconomics.wordpress.com/2011/12/14/more-free-market-double-standards/

      I think they have some contortion to try and justify your second one. It is ‘voluntary’ because people are ‘choosing’ not to accept low wages.

    • #3 by john77 on October 13, 2012 - 5:16 pm

      MF recognises that the law requires company directors to act in the interest of shareholders.
      As a self-employed individual I have a lot more freedom and can work for nothing (less than nothing after expenses) if I choose to do so – but a company director is breaking the law if he commits the company to uneconomic behaviour without a prior binding resolution from the shareholders approving this course of action. Forty years ago a number of UK companies were in the habit of asking shareholders at their AGM to approve or disapprove of the company making political and charitable donations. This has lapsed because many institutional shareholders do not want to accept responsibility for these decisions (wrongly, in my view)

      • #4 by Olle J. on October 14, 2012 - 12:05 pm

        That might be the case, but that is not how the statement are being used. I can’t remember any explicit references to ‘the law’ (whatever law that is) the times that I have noticed anyone making the aforementioned statement regarding the role of private companies.

      • #5 by john77 on October 14, 2012 - 4:30 pm

        That isn’t necessarily Friedman’s fault!

      • #6 by Olle J. on October 15, 2012 - 5:49 am

        True, but as far as I can remember he has not mentioned anything about the law the couple of times I’ve read him make him the statement.

      • #7 by Nathanael on October 21, 2012 - 8:30 am

        There’s actually a weird subtlety here — as I understand it, in UK law, it is perfectly permissable for a corporate organizational document to *specify* that the purposes of the company are not strictly economic, at which point the company directors can proceed to do whatever they think is most in keeping with the stated corporate purposes, without breaking the law. (This is not how most corporate articles of association are written, but some most certainly are.)

        In the US, it is actually difficult legally to organize a company on “potentially for profit, but not strictly for profit” lines. Why?

      • #8 by john77 on October 21, 2012 - 7:56 pm

        You might like to read what I actually said (” a company director is breaking the law if he commits the company to uneconomic behaviour without a prior binding resolution from the shareholders approving this course of action.”) before contradicting what I didn’t actually say. Some charities are actually incorporated as companies. I was once (jointly with my wife) a shareholder in a UK company whose objects were to promote “fair trade” with the “third world” so its directors were not beholden to maximise trading profits. At one time the newly created taxation manager of company for which I then worked and in which I had purchased a tiny shareholding realised that an anomaly in the tax treatment of pension and life assurance policies had resulted in the shareholders getting a fatter slice of profits than had been intended when the company was set up so the directors proposed a change in the articles of association to rectify the effect of the anomaly – thereby reducing future dividends: my boss came back from the AGM and told me that he was surprised that the resolution was passed with over 90% in favour (he had expected more than one in ten to be greedy). [I wasn't senior enough to be allowed to leave work to attend but I had bothered to send in a proxy in favour in case there was a large vote against.]
        BUT the directors have a fiduciary duty to the owners of the company so *unless otherwise stated* they a legal obligation to work in their interests.

  2. #9 by john77 on October 13, 2012 - 4:01 pm

    You do not need to be a Libertarian to support free markets (although most rational thinkers would prefer the government to act as a referee in *most* markets). So denouncing a handful of libertarians is not the same as demonstrating that all supporters of free markets have double standards. That is like complaining that Bob Crow insists on his “right” to live in a heavily subsidised council house (half market rent) while claiming that government policies don’t do enough to provide decent houses for the poor.
    Since most Libertarians live in the USA, their answer to (i) would be that they are born into a state but they have created their own property distribution (like Dickens’ Mr Gradgrind who had dragged himself up by his bootstraps). You don’t get many British aristocrats in the Libertarian party.
    “Mises … thought socialism is” “supposedly superior men running the world, which is wrong.” – the nearest thing to that I can find in the site to which you refer is “That Socialism would be immediately practicable if an omnipotent and omniscient Deity were personally to descend to take in hand the government of human affairs is incontestable.” It is clear that the word translated as “socialism” would be “communism” is standard English as “Acts of the Apostles” shows a communist society actually working until the sack of Jerusalem. In which case I have to say that you need (a) to show Mises thought that (plausible) and (b) that he was wrong in the face of evidence from all communist governments except San Marino that they did try to do that.
    If I go through all 21 both of us will go spare but I’ll just point out that 7 is not a contradiction and statute law requires directors to act in the interest of shareholders, which in the long run involves protecting the company’s reputation so 8 is not a contradiction: Milton Friedman is merely pointing out the implications of statute law. 16 David Cameron isn’t an economist but he did read PPE – there are lots of examples of right-wingers taking pay cuts

    • #10 by Unlearningecon on October 13, 2012 - 5:45 pm

      I don’t think every person on the right shares these double standards by any means. However, the fact that they appear to be so pervasive to me suggests something. Perhaps you could do one for the left – in my opinion identifying them is a constructive exercise.

      When born people have not consented to or been involved in the creation of any number of things, including the state and property distribution.

      With 8 you are confusing is and ought – just because something is the law, doesn’t conceptually mean it’s right. Friedman did think that businesses had some responsibility to behave in a certain way (and be punished when they didn’t); he just drew the line at a different place to many on the left. Yet he spoke as if the line wasn’t there, rather than him moving it.

      I’m not sure what you talking about with Mises. I think there is a contradiction in the way he paints ‘the market’ as being about everyone, yet for him and many others, entrepreneurs are the most important, in telligent people in the economy who create wealth for everyone else, who, as he says in that quote, are apparently parasitic.

      • #11 by john77 on October 13, 2012 - 7:22 pm

        They “seem” to be pervasive because the tiny handful of bloggers are more noticed that the silent majority. “Perhaps you could do one for the left” – you’re not called Gunga Din, by any chance are you? It would require more self-discipline than I think I possess (as well as more time than I have to spare) to match your analysis and I have seen more examples of double standards on the left than on the right, even adjusting for selective memory (I remember the very few races that I won or did well in much better than those where I did badly, so I know that I need to adjust for subconscious bias).
        I don’t think *I* am confusing “is” and “ought” – it is reasonable to say that businesses ought to have social responsibility but they are legally debarred from doing so. Any director who wishes to exercise “social responsibility” needs to be able to defend his decisions if some *** “activist investor” challenges them. You seem to be complaining because Friedman works within the law.
        “When born people have not consented to or been involved in the creation of any number of things, including the state and property distribution.” is quite true but Libertarians can argue that they can and have influenced property distribution but not the state. Individuals who spend less than they earn generate wealth.
        As to Mises – you may well be right: I haven’t analysed his writings but may I suggest that you think about my comment which is actually right?

      • #12 by Will on October 13, 2012 - 11:29 pm

        “Perhaps you could do one for the left”

        I’m down for some friendly fire, which may or may not be fair. Many left economists, specifically, routinely take issue with the unrealism of the assumptions of New Classical/New Keynesian theory, e.g., rational expectations, Ricardian equivalence, markets consisting of a single consumer who lives forever and has perfect foresight, &c. But many of the same are comfortable using highly abstract, unrealistic models like Sraffa’s corn model.

      • #13 by Unlearningecon on October 14, 2012 - 11:43 am

        Yeah Sraffa’s model is highly abstract, personally I interpret Sraffa as building it simply to refute neoclassical theory on its own grounds, though many Sraffians would disagree – they seem to see it at a base which can be developed further.

      • #14 by Nathanael on October 21, 2012 - 8:31 am

        John77 — put up or shut up! I contend that there are very few intellectual double standards common on the left, and that the reasons you haven’t named any is that they don’t exist.

      • #15 by john77 on October 21, 2012 - 9:39 pm

        The reason that I haven’t done so far (or answered the Hayek Bastiat debate) is that I actually have to work for a living and commenting on internet blogs is something I can do for mental relaxation (employing my brain at a level suitable for economists is occasional relaxation) but to provide an analysis up to UL’s standards would require too many hours of work with my brain actually switched on.
        But, for starters,
        “We believe in freedom of speech – until you disagree with us”
        Means testing is wrong. No, means testing is right.
        Council housing should be for those in need. No if you are born in a council you should inherit the subsidised tenancy (Bob Crow’s pay is several multiples of my family income, Frank Dobson;s exceeds it).
        Equal rights for all. Women must be elected to Parliament even if they get less votes (currently the European Parliament but they have women-only shortlists for safe seats)
        Denounce “Tory Toffs” when more Tories in their two-thirds of the Cabinet got their education through scholarships than those in the 100% Labour Shadow cabinet and oppose Tory plans to scrutinise the pay of public sector/quango employees paid more than the Prime Minister.
        Condemning tax avoidance *after* the Millionaireband brothers made a Deed of Variation to their father’s will to avoid/reduce the IHT payable and while Trade unmions are advertising tax avoidance schemes to their members.
        Individuals should not inherit positions unless they are sons/daughters of prominent communists (or left-wing politicians in countries where atheism is unacceptable such as Pakistan).
        Ralph Miliband was a communist millionaire. David Miliband got a place at Corpus Christi College Oxford despite getting really bad A level results (which have been deleted from Wikipedia – see comment no 1).
        The government *must* protect the poor from the exploitative price rises by the oligopolistic energy companies when the subsidy set up by Labour to windfarms and the middle-class who can afford to install inefficient solar panels is a larger percentage of their bill than the profit margin of British Gas. Also screams about cutting the subsidy on future solar installations.
        Cut back on greenhouse gases. Stop building nuclear power stations.
        FYI I as one of those who didn’t have a bully pulpit who was worried/appalled at Japan building nuclear power stations in an earthquake zone: for a long time (longer than UL’s lifetime) it looked as if I was wrong. The UK is *not* in an earthquake zone and more people have died in Chinese coal mines since the Communist takeover than as a result of nuclear power in all of history (including Hiroshima and Nagasaki as well as Chernobyl – more people died at Chappaquidick than at Three Mile Island)..
        We want coaches to bring us into London and Glasgow for marches while we strike
        Protect the poor. Give pay rises to public sector workers whose pay is already higher than that in the private sector.
        More to follow if I have time next Sunday (I try not to work on Sundays) and *you* have the stomach for a thorough refutation of your junk.

      • #16 by Nathanael on October 21, 2012 - 8:33 am

        “Libertarians can argue that they can and have influenced property distribution but not the state. Individuals who spend less than they earn generate wealth.”

        The theory that most individuals have control over this is hilarious. Only a minority have any control over this, because most are paid less than the minimum reasonable standard of living, and make up the difference with debt.

      • #17 by john77 on October 21, 2012 - 8:21 pm

        So you define a minimum reasonable standard of living as being in excess of the median wage? If you live in Somalia, how are you able to access this blog over the internet? Come to that, if you live in Somalia, how can you borrow money since Islam prohibits usury?
        UK GDP per capita is more than twice the world average (US is even higher).
        I earn less than the UK median wage, my wife earns not vastly more and our student son earns nothing (he spent the university vacations doing voluntary work for a local charity) so our income per head is below the UK average but we are far from back-breaking poverty – in fact we are quite comfortable (please do not equate that to “comfortably off” which means at least double our income). I do save money and make a payment every year to a Pension policy.
        Polly Toynbee with her villa in Tuscany rants about inequality and you sound just as over-privileged and detached from reality.

  3. #18 by Diego Espinosa on October 13, 2012 - 5:28 pm

    Not sure I agree on Williamson. Reading his post on inflation, its not clear he established a relationship between QE and what he saw as emergent inflation pressures. Further, he takes pains to write that, since he’s argued QE is ineffective in creating inflation, reversing QE should also be ineffective in restraining it.

    What was the source of the incipient inflation Williamson observed in the data? This is a valid question. He writes of, “demand for and supply of the whole gamut of intermediated liquid assets” being the determining factor, but unfortunately seems to throw up his hands as to whether we can observe that dynamic. Perhaps a contradiction with his QE-is-ineffective views can be found in that phrase, but its too murky for me to make it out.

    • #19 by Unlearningecon on October 13, 2012 - 10:15 pm

      Yeah fair point, he actually doesn’t seem to think QE is a major cause of the runaway inflation. That sort of begs the question: what is? As you mention, it’s pretty hard to determine. So he’s not really making sense, but perhaps not a double standard.

  4. #20 by ??? on October 13, 2012 - 8:08 pm

    “19. Generally economists argue they shouldn’t be expected to make accurate predictions about the future. But when one of Steve Keen’s specific predictions did not come true, they took it as grounds to dismiss him (btw, bonus points for reading that entire thread and staying sane).”

    This is totally wrong. It’s perfectly legitimate to bring up failed predictions to dismiss Keen, whose entire argument for people taking him seriously is his predictive capacity. The point is that he’s declared the qualities by which he wants to be judged, but not only are those not the ways you’d judge a serious economist, he also doesn’t even earn merit on those qualities.

    As usual (and as EJMR correctly called you out for), you attempt to misframe the argument to make it look like you have a legitimate point, as you (and Keen) do, for example, with your repeated deliberate misinterpretation of that ‘benevolent dictator’ quote from MWG.

    • #21 by Unlearningecon on October 13, 2012 - 10:05 pm

      Nah, I agree with economists that they shouldn’t be expected to make accurate predictions. What I don’t agree with is that they shouldn’t be able to see a crisis coming at all. There’s a crucial difference between, say, a date, and a general warning that the current system is unsustainable.

      I have realised the MWG quote is wrong; that much I have already added to a future post where I respond to criticisms of Keen’s work.

      I’ve given you the benefit of the doubt but I have a feeling that you are someone I have previously banned. Hopefully I am wrong.

  5. #22 by Julia on October 13, 2012 - 8:32 pm

    “Anarcho”-capitalism itself is a complete oxymoron. So much of their argumentation relies on twisting the meanings of words like “state”, “monopoly”, “voluntary”, “democracy”, “exploitation”, etc. etc. so that everything they say appears logically true. For example, they have no problem with firms that acquire monopoly status naturally so long as competition remains open, because as far as they’re concerned monopolies are only “monopolies” if they prevent other firms from stepping in the market in the first place. They also don’t see competing police firms as anything close to resembling a state, so as long as there’s competition. It’s a dangerous ideology.

    • #23 by john77 on October 13, 2012 - 8:59 pm

      Of course “anarcho-capitalism” is a complete oxymoron, Capitalists are those who invest their savings to generate wealth in the future and this (except for the Cosa Nostra) depends upon laws that protect property.Just to use the term requires a refusal to recognise reality.

    • #24 by Unlearningecon on October 13, 2012 - 10:07 pm

      Indeed, anarchy implies a rejection of hierarchy except perhaps in a very limited form. Capitalism centres around hierarchical work structures so to combine the terms is an oxymoron.

      • #25 by Will on October 13, 2012 - 11:34 pm

        “Note also that Hayek roughly endorsed my position on this, but AFAIK he never drew attention to the workplace.”

        Where did Hayek say this?? This only adds to my puzzlement that he is an icon of the hard right…

      • #26 by Unlearningecon on October 14, 2012 - 11:42 am

        The danger of confusion here is that this use tends to obscure the fact that a person may vote or contract himself into slavery and thus consent to give up freedom in the original sense. It would be difficult to maintain that a man who voluntarily but irrevocably had sold his services for a long period of years to a military organization such as the Foreign Legion remained free thereafter in our sense; or that a Jesuit who lives up to the ideals of the founder of his order and regards himself “as a corpse which has neither intelligence nor will” could be so described.

        I was wrong that he didn’t draw attention to the workplace, though he didn’t seem to think it was a major problem.

  6. #27 by Gavin Jackson (@GavinJackson7) on October 17, 2012 - 7:40 pm

    14 is wrong.

    If people work the same number of days as before and productivity per day worked is constant then output would be constant. Taking away a day would therefore reduce output. If there are around 90 days in a quarter then taking away 1 day of work would reduce ouput by 1/90th, if everything else is constant.

    This is an oversimplification because some people work on Bank Holidays and within the 90 days of the quarter there are weekends and that. So it’s a little more complicated. But you can hopefully see the logic.

    • #28 by Unlearningecon on October 17, 2012 - 8:47 pm

      You are right, but my claim was that pinning the quarterly decline on a day worth 1/90th of output is illogical. This is true within what you yourself say.

      • #29 by john77 on October 17, 2012 - 9:13 pm

        BUT most people don’t work 90 days per quarter (pace housewives whose work is not included in GDP calculations) – most work 65, a minority work 78. So as a first approximation the additional bank holiday reduced quarterly GDP by 1.6%. Then there is the effect of more people taking that week as a holiday …. Of course there are offsetting effects from the catering and entertainment industries but far smaller
        The handful of continuous process industries now constitute a tiny percentage of GDP.
        GDP declined by less than 1.6%. David Smith’s position on this: that reducing the number of working days for a large majority of workers by 1.6% reduced GDP by 0.5% seems somewhat conservative (with a small c) and less illogical than yours.

      • #30 by Gavin Jackson (@GavinJackson7) on October 17, 2012 - 9:17 pm

        It’s not really illogical. On Hume’s fork this is a matter of fact rather than a relation of ideas. It requires evidence to prove one way or another. The main support the austerity guys have is a Bank of England forecast that in the past an extra bank holiday has knocked 0.5% off output.

      • #31 by Unlearningecon on October 18, 2012 - 1:13 pm

        A day contributes x output.

        There are, say, 50 working days.

        Output = 50x

        Output with a bank holiday = 49x

        If the difference between the two is high, X is high. But that implies output would be high anyway.

  7. #32 by john77 on October 17, 2012 - 9:26 pm

    Re: 15
    If you read John Redwood (I gave up because I got fed up with his suppressing my quite reasonable comments) you will learn that government spending has actually risen in nominal amount and that a lot of public sector workers are still getting annual pay rises despite the official freeze. So David Smith is entitled to be confused – a few people are suffering from austerity but for most people it hasn’t happened yet. What IS hitting the economy is the cut-back in consumers spending borrowed money that they haven’t earned which is only partially offset by Osborne’s budget deficit that must have JM Keynes, let alone Peter Thorneycroft,turning in his grave..

    • #33 by Nathanael on October 21, 2012 - 8:35 am

      Which country are you referring to? UK? That’s correct for the UK. Debt deflation is the main effect going on there. The US has had some fairly nasty austerity due to state and local effects.

      • #34 by john77 on October 21, 2012 - 8:27 pm

        Well, duh!
        What country was UL referring to with an extra Bank Holiday for the Queen’s Diamond Jubilee?
        It would have been pleasantly flattering if the USA had decreed a public holiday to celebrate the 60th anniversary of the Coronation, but I have not heard that it did so.
        In which country do *you* think David Smith of the “Sunday Times” works?

  8. #35 by john77 on October 25, 2012 - 3:13 pm

    Today’s Q3 GDP figures – a 1% growth quarter-on-quarter – is largely attributed to the effect of the extra Bank Holiday in Q2 with a much smaller impact due to the Olympics

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