Kling on the Market is an Empirical Process

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I think that many commentators contrast the market and government as mechanisms for making decisions. In this contrast, the market sometimes has an efficiency advantage, but government is presumed to have a moral-authority advantage.

Instead, think of the market as a process for testing hypotheses. The process is brutally empirical, winnowing out losing strategies and poor execution. In contrast, elections are a much weaker testing mechanism. Elections are unable to winnow out sugar subsidies, improvident loan guarantees, schools that produce bad outcomes, etc.


Source: Arnold Kling,"The Market is a Process, not a Decision Mechanism," askblog.com, December 13, 2013

Rizzo on Tolerance

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The classical liberal insistence on a society that makes maximal room for a pluralism of values starts with the insight that markets permit individuals to make decisions according to their own hierarchies of values. Markets do not insist that we all share the same goals about the use of resources. And yet, subject to a few basic general rules, we can have coordination (not homogenization) of values through the price system. You can work , for example, for Amazon to help pay for your child’s clothing while the manager in your Amazon division is saving for a flat screen TV; the executive working for Amazon may be working for a vacation while the senior-citizen stockholder of Amazon is using the appreciation of stock-value to pay for copays on his medicine. And then there are all of the different goals of those working or investing in firms that deal with Amazon. And so forth as we spread our sights through the whole complex system of market interactions.

Source: Mario Rizzo, "Let Wedding Cake Bakers Discriminate in Peace," thinkmarkets, December 8, 2013

Ridley on Energy Efficiency

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Anyhow, the forces that have driven energy prices up in recent years appear to be fading. Consider some of the reasons that oil and gas prices rose in 2011, the year energy companies pushed up prices even more than this year. Japan suffered a terrible tsunami, shut down its nuclear industry and began scouring the world for gas imports to keep its lights on. At about the same time Libya was plunged into civil war, cutting off a key supplier of gas. Add in simmering tension over Iran, Germany’s sudden decision to turn its back on nuclear power, the legacy of a couple of cold winters and the lingering depressive effect on oil and gas exploration of low energy prices from much of the previous decade, and it is little surprise that oil and gas producers pushed up prices.

Contrast that with today. Several years of high prices have driven a surge of new exploration. Deep offshore technology is advancing rapidly and huge gas fields have been found in the Mediterranean and in the Indian and Atlantic oceans. In the United States, the shale revolution has glutted both gas and oil markets, displacing imports. Iran is coming in from the cold, Libya is back on stream and Australia is preparing to export huge volumes of gas. Should the rest of the world start producing shale gas — China, Argentina, Poland and others are on the brink, even Britain might one day deign to join them — that would further add to supply.

and

Meanwhile, the argument that the running out of fossil fuels is what has been driving up prices has been proven once again, for the third time in my lifetime, to be bunk. America, the most explored and depleted oil and gas field in the world, is now increasing its oil and gas production at such a rate of knots that it is heading towards self-sufficiency. If an oil field as gigantic as the Eagle Ford can be found (through technological innovation) in Texas, think how much awaits explorers in the rest of the world. Even five years ago, gas was thought likely to be the first of the fossil fuels to run out. Nobody thinks that now.


Source: Matt Ridley, "Gas and Oil Prices May Soon Fall," therationaloptimist.com,December 07, 2013

Pethokoukis on Obama and Inequality

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Here’s the bottom line: America’s pro-market turn some three decades ago reversed what then seemed like unstoppable national decline. (Nations that didn’t make that choice, such as Japan and France, have not fared well.) Yes the rich got a lot richer, mostly due to technology and globalization. But the middle-class did pretty well, also. Pre-tax incomes at the bottom end suffered, but the safety net has helped a lot. Inequality has likely increased sharply at the very high end, but has been stable elsewhere along the income distribution spectrum. Mobility could be better, but the big problem is really upward mobility from the very bottom. And America remains the world’s innovation leader.

Obama’s revisionist history and one-sided, black-and-white economic analysis may please his dispirited base, but they won’t help America make the right decisions going going forward about how to boost growth and ensure those economic gains are as broadly shared as possible.

Source:James Pethokoukis, “Obama’s Big Inequality Speech: Short on Facts and Vision, aeiideas.com, December 5, 2013

Mead on the End of History Ends

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Call the challengers the Central Powers; they hate and fear one another as much as they loathe the current geopolitical order, but they are joined at the hip by the belief that the order favored by the United States and its chief allies is more than an inconvenience. The big three challengers – Russia, China and Iran — all hate, fear and resent the current state of Eurasia. The balance of power it enshrines thwarts their ambitions; the norms and values it promotes pose deadly threats to their current regimes. Until recently there wasn’t much they could do but resent the world order; now, increasingly, they think they have found a way to challenge and ultimately to change the way global politics work.

This is not, yet, a pre-war situation. The Central Powers know that they can’t challenge the United States, the EU, Japan and the various affiliates and associates of what we might call the Maritime Association head on. The military and economic facts on the ground would make such a challenge suicidal. But if they can’t challenge the world system head on, they can chip away at its weak spots and, where the maritime powers leave a door unlatched or a window open, they can make a quick move. They can use our own strategic shortsightedness against us, they can weaken the adhesion of our core alliances, and they can use the mechanisms of the international system (above all, the United Nations Security Council where Russia and China both wield the veto) to throw bananas in our path.


Source: Walter Russell Mead, "2013: The End of History Ends," ViaMeadia/The American Interest, December 2, 2013.

Noonan on Obama and His Lack of Real Knowledge

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It’s a leader’s job to be skeptical of grand schemes. Sorry, that’s a conservative leader’s job. It is a liberal leader’s job to be skeptical that grand schemes will work as intended. You have to guide and goad and be careful.

And this president wasn’t. I think part of the reason he wasn’t careful is because he sort of lives in words. That’s been his whole professional life—books, speeches. Say something and it magically exists as something said, and if it’s been said and publicized it must be real. He never had to push a lever, see the machine not respond, puzzle it out and fix it. It’s all been pretty abstract for him, not concrete. He never had to stock a store, run a sale and see lots of people come but the expenses turn out to be larger than you’d expected and the profits smaller, and you have to figure out what went wrong and do better next time.
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Source: Peggy Noonan, "Low-Information Leadership," Peggy Noonan's Blog at The Wall Street Journal, December 3, 2013

Kling Reviews Mass Flourishing by Edmund Phelps

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Phelps believes that such a dynamic economy requires cultural support. He writes, 

"Modernist beliefs include some distinctive ideas of what is right: the rightness of having to compete with others for positions of higher responsibility, the rightness of greater pay for greater productivity or greater responsibility, the rightness of orders from those in responsible positions and the rightness of holding them accountable, the right of people to offer new ideas, and the right of people to offer new ways of doing things and to offer new things to do. All this stands in contrast to traditionalism with its notions of service, obligation, family, and social harmony. (page 99)"

However, modernism generated a backlash. One form that the backlash took was socialism. However, socialism never acquired the popular support of another form of backlash, called corporatism. Phelps writes, 

"One of the corporatist criticisms of the modern economy was that it had no leadership... The desire for direction (for dirigisme, as the French said) was a major strand of corporatist thought.

Many corporatists saw the uncoordination in capitalism as another source of disorder. They sought a system of concerted action. At the micro level, a company's owners could act on a proposal only if "stakeholders," such as employees, agreed (codetermination or mit Spreche). At the macro level, legislative action needed the consent of the main players, capital and labor (Concertazione). (page 138)"

Source: Arnold Kling, "Modernism vs. Corporatism," econlib.org, December 2, 2013