Monday, May 7, 2012

This and That

A lot of times I end up saving articles in my inbox, or my blog reader, or in other places, for the purposes of posting them on here later, or sending them to someone, or what have you. I probably only end up posting/sending/whatever-ing the stuff I save like a quarter of the time, and then eventually I delete it wherever it's stored because it's so long after the fact. Today, I'm just going to link/excerpt everything that came in the last few days that is currently in my online digital storage. So here goes...

How to buy a new car:

Here are the basics if you don't want to watch the video:

So let me lay out how to buy a car. It’s very easy. Decide exactly what car you want to buy, make, color if it matters to you, options and so forth. Then do not go to a dealership. Let your fingers do the walking. Telephone all of the dealers who sell the vehicle you’re interested in who are, say, within a 50 mile radius, a 25 mile radius, 75, however far you’re willing to go.

To each of them make the same statement: “Hi, my name is so and so. I plan to buy such and such a car today at 5pm. I’m going to buy it from the dealer who gives me the best price. What is your best price?” 

The economists over at Cafe Hayek had this to say about central planning:

My eye recently caught on t.v., in passing, an old film clip of someone trying to fly like a bird.  This would-be aviator had wing-like things strapped to his arms.  Of course, no amount of flapping would get this human being to take flight like the birds he sought to imitate.  One important reason, of course, is that we humans – as smart and clever as we are – can observe only a tiny fraction of the details of what enables birds to fly.  We can observe a handful of large details (“bird flaps limbs that extend kinda, sorta from bird’s shoulder”; “bird’s flapping limbs are made of lightweight things that we call ‘feathers’,” and so on).  But the amount of detail that we don’t – can’t – observe with the naked eye (even with a naked eye as careful as that of Leonardo) is overwhelming.  The bird’s musculature; cardiovascular system; weight and position and minuscule maneuverings of its tail – these and countless other relevant details aren’t observed.

The human being observes a bird in flight and then analogizes his – the human’s – limbs and muscle movements to what he supposes, from his observations, are those of the bird.  But the human is too easily misled into thinking that he can easily-enough mimic the bird’s body and movements and, thereby, achieve flight.

Obviously, no human can do so.  Such attempts as there have been by man to strap on wings, flap, and fly invariably failed – sometimes catastrophically for the pretend Icaruses.


Attempts to centrally plan economies are very much like attempts to fly by dressing like and flapping like a bird: utterly futile because the most that can be observed of any successful economy are a handful of large details (“assembly lines,” “retail outlets”…..).  The vast majority (99.99999999999…9 percent) of the details that must work reasonably well aren’t observed by the would-be central planner.  What Hayek called “knowledge of the particular circumstances of time and place” – knowledge of details spread today across the globe and across billions of different human minds – is not incidental to the successful operation of a modern economy.  Utilizing that knowledge – vast, deep, changing, incredibly fine-grained detailed knowledge – is the very key to a successful market economy.

Central planning is as futile as trying to strap on wings and fly like a bird – and potentially as calamitous.

Of course, few people today advocate full-scale central planning of economies.  But smaller-scale interventions suffer the same problems as do attempts at central planning: inevitably inadequate knowledge of how to intervene.  Asserting, for example, that the key to economic recovery is to “increase aggregate demand” is a fiction borne from observing a true, but only large and inadequate, fact about successful economies: most producers, at any given time, are able to sell most of what they plan to sell.  But to leap from this observation to the conclusion that “therefore, government can stimulate economic recovery by increasing aggregate demand” is akin to a human being costumed-up as a bird and leaping off of a mountaintop, flapping away, hoping, hoping, hoping to fly.

And then I thought this post was pretty interesting. It's called the Curley Effect, which is when a politician increases his political power by driving away opponents through some kind of radical or distortionary policies. One example is Detroit. Guess the other example...right...California....sigh...

In their paper, Glaeser and Shleifer write:

We call this strategy--increasing the relative size of one's political base through distortionary, wealth-reducing policies--the Curley effect. But it is hardly unique to Curley. Other American mayors, but also politicians around the world, pursued policies that encouraged emigration of their political enemies, raising poverty but gaining political advantage. In his 24 years as mayor, Detroit's Coleman Young drove white residents and businesses out of the city. "Under Young, Detroit has become not merely an American city that happens to have a black majority, but a black metropolis, the first major Third World city in the United States. The trappings are all there--showcase projects, black-fisted symbols, an external enemy, and the cult of personality" (Chafets 1990, p. 177). Zimbabwe's President Robert Mugabe abused the white farmers after his country's independence, openly encouraging their emigration even at a huge cost to the economy.

I think something similar is happening in California. California has become a heavily Democratic state. The majority Democrats in the legislature and the Democratic governor are pursuing highly wasteful projects: a "high-speed" rail that probably won't be high-speed but will surely be high-cost, and higher marginal income tax rates (already among the highest in the United States) on the highest-income people, to name two. They don't seem to be restrained by the worry that many of the most-productive people will leave and are leaving the state. You can attribute this simply to ideology, and I'm sure that's an element. But I also think one of the Democrats' goals is to reduce the population of potential anti-Democrat voters so that their majority is assured.

Will that hurt many of the people who vote for them? Sure. But we need to distinguish between the fortunes of those who vote Democrat and the fortunes of the Democratic politicians. The California state government pays legislators pretty well in pay and perks when you consider the opportunity costs of many of them. And the state government is larded with high-paying sinecures for those few who ever lose an election or get redistricted out.

1 comment:

Colette said...

Ah, I JUST bought a new car on Saturday! Wish I had known that car-buying technique!!