Last weekend’s Daily Reckoning turned out to be suspiciously popular. We’ll try harder this time.
This week, let’s take on the right wing of politics. Although it’s not really clear what that actually is. Conservative? Fascist? Nationalist? Heck, some call themselves liberals. Sorry… ‘Liberals’. Which is the opposite of liberal, right?
It’s pretty difficult to hit a moving target, so let us know your definition of ‘right’ at firstname.lastname@example.org and we’ll expose the flaws next week. Until then, how about a third option?
If you find yourself too confused to stick to the one team, left or right, why not analyse each issue as it comes? Sounds novel, but you’ll soon find yourself with remarkably consistent conclusions. Far more consistent than either the left or the right.
That’s because both sides advocate doing something to other people. They want to redistribute wealth, fight wars, prevent producers from polluting, define marriage, prohibit immoral and unhealthy practices, regulate voluntary exchanges and kiss babies.
Nobody ever asks the baby. But maybe it doesn’t want to be kissed by the person who will tax it, send it to die in a foreign country, stop it from making stuff, tell it who it can or can’t marry, influence or define what it can eat, drink and otherwise ingest – and, worst of all, determine what it can agree to.
There is a moral, ethical and philosophical argument against all this interfering. But that’s not what convinced your editor to reject the left and the right. At least initially. It’s the hopelessness of their cause. You may think starvation in Africa is bad. But sending aid just makes the problem bigger. You may think workers are being exploited. But minimum wage laws only make jobs disappear. You may think discrimination in the workplace is wrong. But creating laws against it discourages employers from hiring people from minority groups. The list of failed interferences is endless.
What were the notable policies of the past few years? Were any of them successful? Only if you have the wrong definition of success. Think of it this way: If it were a good idea, it would have been done voluntarily. Instead, it had to be done with the threat of force. Either a fine or prison for anyone who objected.
The saddest part of all this is that politicians don’t know when to give up and go home. In that sense, they have the same outlook on life as central bankers. (And the opposite of people in the private sector.) The interventionists all advocate doing more intervening when their intervention – thus far – hasn’t worked. It usually exacerbates the problem. Albert Einstein defined insanity as ‘doing the same thing over and over again and expecting different results’.
People have repeatedly been quoting him ever since.
On the other side of things, an Australian businessman of the year once said his motto was ‘if it works, multiply the sh*t out of it’. Unsuccessful business people don’t last. And in business, you know exactly what success is: Profit – which is defined as serving your customers so well they will pay you more than it costs to provide the service.
Apart from that, if your accountant promises not to charge you for something called a ‘carbon tax’ or ‘GST’ and then does, you have all sorts of contractual remedies. They have breached the contract between you. Try suing a politician for their broken promise. And what about all the laws we live under but never agreed to? When did you agree to pay a flood levy?
For those of you who think a world with hardly any government would simply shift power elsewhere, you’d be right. Buy only to the extent that it benefitted people. Companies need profit to survive, which means they need customers, which means they need to be beneficial to their customers. Looking at the alternative, we know unbridled democracy leads to a welfare state. But who has the power in that kind of democracy? The majority or the rich?
Companies don’t vote, but they sure seem to get a lot of government cash when they kick up a fuss. Again, something the taxpayer never agreed to.
Not to worry though. Debt levels are maxing out. On a global scale. And the interventionists will run out of other people’s money soon. In the meantime, they are keeping busy. Taxing, banning, regulating and investigating.
At least you can give politicians the benefit of the doubt when it comes to intentions. Statisticians that call themselves economists should get less leeway. Together, they are a disastrous duo. Here’s an example of the kind of economic theory politicians base policy on:
‘Men are nine times more likely to be attacked by a Great White shark than women’.
Before you know it, the government will be implementing the Anti- Discrimination Act (Great White Sharks) 2011.
The idea that great white sharks discriminate is of course rubbish. Men are just more likely to be surfing and swimming. But the headline makes you believe otherwise. It doesn’t say ‘any part of the population disproportionately represented in the number of swimmers and surfers are more likely to get attacked by sharks’. Instead, the headline makes you think that a shark, presented with a choice of a female and male dinner, will choose the male. And politics is based on headlines. Not just because of populism and the media. But also because the kind of economist who is willing to back up their statistic rubbish with policy advice is the kind that gets to give policy advice. In the case of shark food, this would be the economist who comes up with idea of a compulsory sex change for professional male surfers. Occupational health and safety is a serious issue. On that note, there are going to be huge changes to Australia’s OHS legislation from 1 January 2012. If you need to find out how to prepare for them, click here.
Anyway, the female economist that goes swimming with sharks, believing her sex makes her safe, is a plonker.
It’s a silly example. But no less stupid than many of the statistics we base policy on. For example, inequality statistics show that the distribution of income is widening. What is rarely mentioned is income mobility. Someone in the bottom 20% might have moved to the top 20% of income earners the next year. But the statistics won’t show that. The policy solution to unequal distributions of income are to have progressive tax rates. The effect of this is to reduce the income mobility – the very thing that allows the poor to get rich.
The inherent problem with using statistics to reach conclusions is that it’s impossible to adjust for all the other pressures that might affect whatever you’re measuring. So if black people earn less money, a statistician will conclude blacks are stupid or are discriminated against. Only one of those two conclusions will get a statistician a job, so that’s the one they pick. But the conclusions they have reached are completely invalid without adjusting for all sorts of variables. Age and work experience are two non-controversial examples. If blacks have a lower age on average, they are likely to earn less on average. It’s pretty much impossible to actually adjust for all the variables. And many aren’t really measurable.
One way to work around this is to select your data set more carefully. So, if you choose blacks and whites of the same age, education and all other similarities you can come up with, you might be able to discover something. Economist Thomas Sowell (who is African-American) does this type of analysis. From memory, he concluded that blacks and women of precisely comparable characteristics to whites and men earn more, not less, than their counterparts.
For more information on the nature of government’s lost causes, check out these videos. Or just read the newspapers.
Daily Reckoning Australia Weekend