Freedom's Just Another Word For Pigouvian Taxation

By Robert H.

For confusing reasons, the government taking away more of your freedom does not always mean you are less free.  Here's why:

If you are worried about human freedom, I think the right way to look at the growth of government is in absolute terms, not relative terms.  A government that devotes 1 percent of a trillion dollar GDP to the police state can simply do things a government that devotes 2 percent of a billion dollar GDP cannot.  10 billion dollars buys you lots more coercion than 20 million.  Just so, if the government takes a thousand dollars from you it has constrained what you can do significantly more than if it takes one dollar, regardless of your overall income.  You may lose less marginal utility, but you definitely lose more freedom.

So it should follow that personal freedom is also best measured in absolute terms, not relative terms.    If we pretend government does not exist, it's obvious that I am free to do things a medieval peasant is not purely because I (along with most everyone else) have a higher income.  Even if my government is "bigger," I am still free to go on plane rides to parts of the world he doesn't know exist.

Oh, you are engaging in subsistence farming?  That's cool.  Yeah, I am in Maui drinking mixed drinks that would be as  nectar to you, but subsistence farming is good.  

So it is possible, if incomes climb, both for government opression and personal freedom to meaningfully grow.  The net result could be freedom enhancing even if government is more tyranical.  

The first infrence we can draw from that is that no one should assume we are less free than in the past merely because government is bigger.

The other inference is that  libertarians should, in some circumstances, embrace growth enhancing redistrubituon. Unless you've fallen into the "public choice theory means government can do nothing good ever" trap a libertarian might look favorably at government programs meant to redress market failures in the economics sense (regulating pollution, funding basic research, etc) or to policies meant to help with agency problems (for example, kids aren't rational enough to make schooling decisions but their agents, parents, have different lifetime goals and preferences from their kids and might make choices that their kids, if they were rational, would not).  Even though the government program will hurt freedom and be bad, the net growth it creates will be freedom enhancing and make the policy worthwhile.

I bring it up because Matt Yglesias thinks it is illogical for Greg Mankiw to 1. reject utilitarian arguments for redistribution, but to 2. support regulating market failures on what Matt assumes are utilititarian grounds.  The solution might be that he thinks policing market failures will lead to higher growth and be freedom, not utility maximizing.

Japan Data Update

By Charlie Clarke

In April, I did a post showing inflation expectations data in Japan that come from Japan's Inflation indexed bond market.  At the time, the data showed that over the next year, inflation would be a small .35%, while over two years, it would be a much higher 1.34%.  Since two years is an average between .35% and the second year, that means the second year's inflation expectations were a substantial 2.33%.

I thought it was time to update.

The 1 year breakeven rate is up to 1.283%:

The 2 year breakeven rate is 1.826%.

The implied second year rate is 2.36%.

The market expects Japan to start experiencing inflation this year.  Both market forecasts from last post and this post could be right, if inflation is moderate until March or April and then starts rising pretty quickly.  Though it is not necessary to read them together like that, as the time path of inflation may have changed.

What I am struck by is that the market said QE in Japan worked.  It dramatically raised expected inflation in Japan.  Look at the big spike in March 2013 of the two year graph.  Yet, the market predicted that nothing would happen for about a year.  It, essentially, predicted that everyone watching actual measure inflation would think QE was having no effect.

Why Do Libertarians Like Federalism? Why Does Anyone?

By Robert H.

I know why libertarians like government of limited powers: libertarians think government is an armed thug that forces people to do things at gunpoint, so they want to use it to force everyone to live in a minarchy at gunpoint.  The idea that the rest of us might have a right to have some sort of democratic say in how big government should be, or that democracy might by a better tool for ordering society than their personal whims and beliefs, can be dismissed.  After all, people keep voting for things libertarians dislike, so democracy must be wrong and need limits.*

But I don't get for one moment why libertarians are so into American federalism.  I honestly don't.

Here was the idea behind the constitution: government of near unlimited power with that power divided horizontally (executive, legislature, judiciary) and vertically (federal vs states).  The second division is federalism.  Theoretically it could work to avert tyranny (state and federal power will check each other) and promote limited government (if government gets too onerous in a state you can move, federal power can't get too onerous because it is limited).  

In reality state power was used to enslave people, institutionalize racism, and perpetuate corruption on a scale not even the federal government could match (Tammany Hall was not a national machine).  And states weren't even any more friendly to small government: during the lochner era we had the states desperately trying to create a nanny state and the federal judiciary just as frantically dismantling it.  It was the mirror image of what a pro-federalism libertarian might expect.

And yet libertarians act like federalism was a great idea.  I honesty don't get it.  "Unlimited power distributed vertically" is such a far cry from "limited power" that I don't see the theoretical appeal.  And the states have been so abusive of liberty historically that I don't get the appeal in practice.  Honestly I just do not get this.  Every scrap of American history seems to show that going back to a more federalist structure would just lead to fifty, worse run, more abusive little welfare states, not libertarian utopia.  We would be the EU, where citizens get to vote with their feet for exactly which kind of socialist (little s) state they prefer.  And if we were really lucky, some of those states would enslave millions of people again,

Man, f--- federalism.  Someone explain to me how anyone still embraces this terrible idea.

*Not to over-praise democracy.  It's dependent on good social norms, rights sometimes function in a counter-majoritarian way, and the iron triangle sucks and distorts democratic outcomes.  Libertarians can and do overemphasize these problems.

Riches to Rags

File under counterexamples to infinitely lived agents or very high discount rates.

From Andrew Ang's forthcoming textbook:

Cornelius Vanderbilt (1794-1877), known as the “Commodore,” was one of the richest men of his day. He was born rich, created even more wealth, and amassed a fortune of more than $100 billion in today’s dollars, enough to make him the richest person in the world by a comfortable margin. Even today “Vanderbilt” has the connotation of rolling-in-dough, filthy rich. His heirs lived the high life, squandering their inherited wealth on yachts, estates, grand parties and whatever took their fancy. In two generations, they had burned through all of it. According to a scion of the Vanderbilt family, several descendants died penniless, and “when 120 of the Commodore’s descendants gathered at Vanderbilt University in 1973 for their first family reunion, there was not a millionaire among them.”

I think this book by Jerry Patterson is the original source, but I'm not sure because the index does not appear to be finished.

Emily Oster on Pregnancy

Emily Oster (rising star economist) tackles the medical data on pregnancy.  Can you drink coffee and wine?  How much?  What about soft cheeses and deli meats?  Emily Oster is a top applied economist.  She is extremely skilled at reading and interpreting experimental data and applying cost benefit analysis.  That doesn't mean you have to agree with her preferred place on the risk spectrum or even her interpretation of the research, but it's an interesting endeavor none the less.

On bacteria risk:

Pregnant women are also given a long list of off-limit foods: deli meats, soft cheeses, sushi. These are restricted because of the risk of various pathogens. The most serious by far is listeria bacteria, to which pregnant women are especially susceptible; it can cause late miscarriage and stillbirth.

I knew I didn't want to snack directly on listeria bacteria, but I wondered how much I could limit my risk by avoiding certain foods. What share of listeria infections was due to soft cheeses, for instance? It turns out that queso fresco, a Mexican soft cheese, has been implicated in about 20% of listeria outbreaks since 1998, and deli turkey in 10%. The rest of the recent outbreaks seemed random. One involved cantaloupe, another one, celery.

I concluded that avoiding queso fresco and deli turkey was a good idea, but in the end I didn't feel that it made sense even to exclude other deli meats.

What about alcohol?

One big worry about drinking during pregnancy is that it will result in child behavior problems later. One of the best studies of this issue was published in 2010 in the British Journal of Obstetrics and Gynecology. What makes it a reliable study? The sample group was large (3,000 women), and the researchers collected information about maternal drinking during pregnancy—not afterward. The study also followed the children of these women through the age of 14 and looked at behavior problems starting at age 2.

The other thing I liked about this study was that it was run in Australia, where recommendations on drinking during pregnancy are more lax than in the U.S. Because the rules are more permissive, Australian women who drink occasionally aren't necessarily the kind of women who go against medical advice; it's more likely that differences in drinking levels there are just random variation. Drinkers in the study were classified in five groups: no alcohol, occasional drinking (up to one drink a week), light drinking (2-6 drinks a week) and moderate drinking (7-10 drinks a week).

The researchers compared the mothers' drinking level at 18 weeks of pregnancy with the children's behavior issues at age 2. They found that 11% of the children whose mothers did not drink during pregnancy had behavior problems—versus 9% of the children of light drinkers and 11% of the children of moderate drinkers. (Nearly 14% of 2-year-olds whose mothers occasionally drank had behavior problems, but the difference is small and, statistically, could have occurred by chance.) The results were very similar for older kids.

There's much more in the article.  And it looks like a book is coming too.

Big Data and Depression

Seth Stephens-Davidowitz, a man with three first names, explores google searches for depression and the possible causes and correlates.  My favorite finding is that most people are happiest at Christmas:

Depression is, unsurprisingly, highest on Mondays and lowest on Saturdays. The date on which depression is lowest is Dec. 25, followed by a few days surrounding it.

I quite enjoy Christmastime, and I'm glad to hear others do too.  I was a bit surprised as quite a few people report Christmas blues.  The most depressing day of the year is February 27th.

The takeaway is that weather correlates with depression (searches) much more than anything else.  People are happier in warmer weather.  While I'm quite happy in CT, a nice vacation to some place warm at the end of February sounds pretty great.

This Is Bad

By Robert H.

Remember when I said the biggest threat wasn't the NSA collecting information, it was the NSA using the information at trial without revealing the source?  Well it's just come out that the NSA is passing information on to the DEA, which then lies about the source of the information at trial, thusly avoiding judicial scrutiny.

Again, our system isn't set up very well to keep the government from abusively collecting information, our main protection is that the exclusionary rule keeps the government from using  that information.  Well that is totally undercut if the Feds can lie about how they got the info in the first place.

If the news stories are accurate, this is an enormous threat to your personal freedom, and significantly increases the chance you will be thrown in jail illegally.  You should be writing your congressmen.  Write now, right now.