The Angry Economist

Nancy Cauthen, deputy director of the National Center for Children in Poverty, has a poverty of understanding. She is so clear on this issue that she has taken to writing about it. Unfortunately, I have to wonder what would she do if there were no children in poverty? I don't mean to be excessively cynical, but I think that when people's words are directly aligned with the source of their income, a reasonable person should take them with a grain of salt. For example, she says:

But research indicates that it takes an income of anywhere between one and a half to three times the current poverty level to meet basic family needs.

And yet somehow people manage to live. What does that tell you? It suggests two things to me:

• That "basic family needs" are exaggerated. Poor people do not need to be told that they're poor and need to be helped. My middle-class sensibilities are meaningless to someone without my income. Sure, I value having an outlet every eight feet of linear wall space (or whatever is the exact requirement of the UBC -- Uniform Building Code), but that's probably not a concern of someone without anything to plug in. Requirements like these make houses more expensive for everyone, but relatively less for the rich and relatively more for the poor, and infinitely more for the homeless.

• Or that people are lying about their income. It's well-known that people lie about what they throw out. You can go to their door and ask them what they threw out, and then go look in their garbage and ... well, they lied. So if people are willing to lie about their garbage, why wouldn't they lie about their income? Remember what I said above: if people's words are aligned with the source of their income, be suspicious. Because of means-based poverty assistance, and income taxes, everyone has an interest in understating their actual income.

Then she asks "So what can be done?" and answers her own question with "... it's time to talk also about the obligations of government to its citizens." Ahhhhh, now we get to the prescription: more subsidies. I'm sorry, but leftist strategies are the cause of our current problems, not the solution to them. We need to be clear: government spending does not create charity; government spending *displaces* private charity. The question is not whether people will help; the question is how they will help. The decision is not between government help and no help but instead between government help and private help. Remember: a government with enough power to tax to help the poor is a government with the ability to wage a permanent floating war.

I think that everyone is aware of the battle currently being waged over the distribution of music in digital form. This is currently being done by P2P (Peer to Peer) file sharing. People can share their digital music collection at the same time that they download other people's music files. Clearly this is a violation of copyright law.

Copyright law has two expressions, however: the state's law (the written-down law backed up by the power of the state) and the natural law (the way things work in the absence of state law). Many people don't understand natural law. They think that law can exist in only one fashion: through the action of the legislature in enacting a law, the action of the executive in enforcing the law, and the action of the judiciary in interpreting the law.

Natural law exists, however, and those who break it, do so at their own peril. For example, there are the three natural laws of thermodynamics, or the speed limit of sound in air, or light in transparent media. I hear people objecting to these as mere physical facts of the universe. And yet is not human nature not also a physical fact of the universe? The typical person wants to live and will do nearly anything short of killing themselves to do so. Thus there is a natural law against murder. People will take steps to ensure that they are not murdered, or if they are, then their murderer will be killed. State law has nothing to do with these natural laws, although it is one possible way of expressing natural laws.

State law cannot change natural laws.

The RIAA as breaking the the natural copyright law. They've managed to ensure that copyright never expires. The natural copyright law is a bargain between the publishers of copyrighted works and the recipients of copyrighted works. The publishers promise to eventually put the work into the public domain, and the recipients promise not to copy. Clearly, the RIAA has violated the law, and is suffering the consequences of doing so.

Whenever state law doesn't match natural law, you see massive disrespect for state law. Can you think of some examples of this?

Affirmative action must go. It is a crutch, and any healthy person who relies on a crutch will become dependant upon it.

Why are there so few economists and libertarians in elected office?

Economics: I think that if somebody thinks they can decide things for other people, they do not understand economics. If you understand economics, then you are humble and modest. Of course, that would explain why there are so few economists in elected office. You have to have a large amount of confidence that you can help people by forcing them to do things they wouldn't otherwise do.

Libertarianism has a philosophical problem in that the better a libertarian you are, the less likely it is that you will seek to control other people. The Libertarian Party is at best an effort to do the least bad possible, and who would vote for that? You're more likely to be successful in preventing the most bad by voting for the least bad major party candidate.

I asked a few friends why a significant number of people feel that it's not enough for your actions to help people; you have to have intended to help people. Also why some people think that actions intended to help people is sufficient regardless of whether the actions help or hurt them.

I got a reply from J.D. Von Pischke which I will explain in my own way below. Credit for the idea goes to J.D.; blame for a poor explanation of it goes to me.

There is a simple explanation for this: humans do not easily comprehend indirect effects. In Biblical times (which is to say the Jewish, Christian, and Muslim tradition), institutions were much simpler. Actions and results were linked more directly, and chains of actions were fewer. If you wanted to make yourself better off, you did more of the same thing. A carpenter would build more chairs or cabinets; a shoemaker more shoes; a baker more loaves. Indirect action was rare. If you wanted to help someone, you gave them help directly.

Slowly, over time, institutions became more sophisticated. People's interactions with each other and with groups became more complicated. If you want to help someone, you can still help them directly, but there are now groups and people whose life work is helping others. Your help is probably more effective when it is indirect: helping the helper.

Look at today's situation: you could drive down to the Gulf Coast to help people, but without good logistical support, it's quite possible that you could become a victim in need of aid yourself. This certainly happened a bit more than a hundred years ago at the Johnstown Flood, where the first people on the scene brought no food or water and needed to be fed alongside the victims later. Your aid is better done indirectly, by donating to the many groups who are helping. Are you helping? Surely. But because of the indirection, nobody is in a position to comprehend everything that's being done.

Just as aid organizations have become more sophisticated and effective, so have institutions which improve welfare and create wealth. They're harder to understand because they operate indirectly. Because of this, people look for simpler explanations. These may be based on scripture, such as the Biblical suspicion of material wealth -- a view was based on the creation and use of wealth in those simpler times. Other simple explanations have been used to obtain political power, as Marx's followers so devastatingly demonstrated in the past century.

Look at how Wal-Mart prepared for the storm. They knew from past experience that some of their stores would need extra supplies, so even before the storm hit landfall, they had many trucks loaded with relief supplies. They did this to make money, but indirectly they were helping people. They have also given millions of dollars in donations.

Today wealth is much more widely spread than in antiquity, as represented by modern liberal societies' great institutions, including education, health, commerce, justice, government, etc. These are also more difficult to explain and comprehend. A challenge for economists and many others is to sort out the dimensions of simplicity. This is an exceedingly complex task in an exceedingly complex world in which indirect leverage, i.e., complexity, has increasingly greater effects than direct action.

Why is it, that the first thing a politician does when under any kind of political pressure, is to do something which is economically moronic, bereft of good sense, stupid, and out and out damfool? They're no more sensible than a chicken with its head cut off.

Consider two politicians, Elliot Spitzer, and Darryl Aubertine (who is so lame that he doesn't even have a website). Elliot Spitzer proposes to thwart the free market's efforts to conserve precious gasoline. He proposes to deal sharply with people gouging drivers by charging high gas prices. He must have been studying the gasoline supply chain in his copious spare time, because he has suddenly become an expert on gasoline pricing. At least, he proposes to be able to distinguish "who is price gouging and who is raising prices to survive."

Sorry, Elliot, but you're not that smart. I'm not that smart either. No one person is that smart. It takes a village to set the price of gasoline properly. Only by individuals deciding how badly they need gasoline can markets properly adjust the price of gasoline to match the supply of gasoline. If the price goes way up, then that is what the individuals have decided should happen. If gasoline retailers, distributors, refiners, see that there is lots of money to be made by coming up with more gasoline, then that is what they will do.

Now on to ream Darryl a new one for suggesting in the 8/28 Advance*News that New York State should lower the its gas tax. Hey, Darryl, remember studying economics in college (assuming that you did, which is probably a stretch, but if you didn't, how is it that you get to interfere in the economy when you don't understand anything about economics)? Remember the law of supply and demand? If the demand is higher than the supply, the price goes up. If the demand is lower than the supply, the price goes down. Pretty simple, eh? So where do taxes come into this? If the supply shrinks because of a hurricane in the Gulf of Mexico, and demand doesn't shrink, the price will go up. Why do you think that, by lowering the New York State gas tax, either the supply will go up or the demand will go down?

Darryl, you don't have a magic wand. Lowering the NYS gas tax will only result in an unfair windfall to the gasoline retailers, distributors and refiners. Don't fiddle with things you don't understand.

Political control and free market control are inevitably at odds with each other. John Trever, Albequerque Journal, makes this obvious in this cartoon:

155 and one reasons why the government should stay out of disaster recovery. Update 9/4: Donald Boudreaux agrees