A Positive Program for Laissez-Faire?

by Mario Rizzo

I am deeply impressed by Henry Kaufman’s opinion piece in today’s Wall Street Journal. I think he makes a very good case for  breaking up financial institutions deemed too-big-to-fail as opposed to the regulatory alternatives being contemplated. As much as it pains me to think about the government regulating the size of any firm, this may be an option that is far, far better than the politically feasible alternatives.  You can imagine the horrors that are out there being proposed.

Many of my readers will disagree but I am very willing to be persuaded otherwise.

New Paternalism on the Slippery Slopes, Part 3: Hyperbolic Discounting

by Glen Whitman

New paternalists often rely on the phenomenon of “hyperbolic discounting” to justify their policies. Hyperbolic discounting is difficult to define in a non-mathematical way. It is sometimes summarized as excessive impatience, but that’s an over-simplification. A person with a high-but-consistent rate of time discounting would not be a hyperbolic discounter. What hyperbolic discounting really means is having inconsistent rates of time-discounting. One consequence is that a hyperbolic discounter may exhibit “time inconsistency,” a tendency to make choices and then reverse them. After explaining hyperbolic discounting (in more technical terms that I have here), Mario and I explain how paternalists have made unjustified leaps in their use of the concept (pp. 699-700):

In short, hyperbolic discounting means that people at first make long-term plans for saving or dieting but then, when the time comes to implement these plans, they succumb to the desire for short-term gratification. For the new paternalists, this type of behavior suggests an opening for paternalist intervention or correction. Examples include the previously mentioned proposal to automatically enroll people in savings plans, and to impose a sin tax (on unhealthy foods, cigarettes, and so forth) to provide additional incentive for impatient people to resist their temptations.

Mises Featured in the Journal

by Jerry O’Driscoll  

In today’s Wall Street Journal, hedge-fund founder Mark Spitznagel celebrates Ludwig von Mises as “The Man Who Predicted the Depression.”  Spitznagel opens by observing that “Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s.  We ignore the great Austrian at our peril today.”  

Spitznagel deals with The Theory of Money and Credit and does a good job presenting its principal arguments.  What I found most interesting, however, is the author’s argument that the book is a warning today. 

New Paternalism on the Slippery Slopes, Part 1

by Glen Whitman

As Mario has already announced, we’ve just published a new article, “Little Brother Is Watching You: New Paternalism on the Slippery Slopes,” in Arizona Law Review. You can find the full text here.

The article is quite long. As a result, I expect few people will read the whole thing. I’ve therefore decided to excerpt the article in a series of blog posts. I won’t be covering all of our arguments in the paper, but I’ll be pulling out some passages that I particularly like — and that might otherwise be missed.

Little Brother Is Watching You: New Paternalism on the Slippery Slopes

by Mario Rizzo  

Glen Whitman and I have published another article about the new paternalism – it appears in the Arizona Law Review, volume 51, no. 3 (2009). You can get it here. 

This article applies a slippery-slope or policy-dynamic analysis to the “moderate” policies proposed by some new paternalists. (The general slippery-slope analysis was first laid out in a UCLA Law Review article Glen and I published in 2003.)  

The following is a summary of the article:  

“The “new paternalism” claims that careful policy interventions can help people make better decisions in terms of their own welfare, with only mild or nonexistent infringement of personal autonomy and choice.  This claim to moderation is not sustainable.  Applying the insights of the modern literature on slippery slopes to new paternalist policies suggests that such policies are particularly vulnerable to expansion.  This is true even if policymakers are fully rational.  More importantly, the slippery-slope potential is especially great if policymakers are not fully rational, but instead share the behavioral and cognitive biases attributed to the people their policies are supposed to help.  Accepting the new paternalist approach creates a risk of accepting, in the long run, greater restrictions on individual autonomy than have been heretofore acknowledged.”  

Planning And Democracy: Redux

by Mario Rizzo 

The Senate Finance Committee has filed its current version of healthcare reform. It is here.  

(HT: Volokh Conspiracy)  

It is 1,502 pages long and it is in legislative language. If passed, it will affect our lives in important ways. Let me suggest that you all read it carefully and then let your senators know what you think. 

Of course you won’t do that and neither will I. We are rationally ignorant and we shall remain that way. 

Will the senators, not on the committee, read it? I doubt it. They will be too busy giving their opinions on selected portions. However, special interests will know about the particular provisions that affect them. As to the senators on the committee, staffers will give summaries. How much they understand or care about provisions that affect the general interests in contrast to the interests that elect them is unknown.  

The welfare state makes a mockery of the rule of law and of representative democracy.

Boudreaux Wins!

by Mario Rizzo

Some very good news. Don Boudreaux, Professor of Economics at George Mason University and former president of the Foundation for Economic Education, has been awarded the Thomas Szasz Award for Contributions to Civil Liberties. Although Don is an economist, his commitment to liberty is broad-based. He understands that freedom is important in all areas of human society and life.

For a more complete announcement of the award see the FEE blog,  Anything Peaceful.

Congratulations to Don!

“Causes of the Crisis Blog”

by Sandy Ikeda

Following up on its recent issue on the financial crisis, Critical Review has started a blog with contributors to that issue doing the posting.  So far they have “disputed the theory that bankers’ bonuses, irrational exuberance, or capitalism caused the crisis. And four posts have debated the role of economic theory in failing to understand the crisis.”

Contributors listed under the fold.

Rose Director Friedman, RIP

by Mario Rizzo

Rose Friedman, wife of Milton Friedman, insighful economist in her own right, has died today. She lived a very long life. But when a person has been so positive an influence even these years are not enough.

See an obituary here.

Ave atque vale.

Critical Review Explores The Causes Of The Financial Crisis

by Sandy Ikeda

The most recent issue of Critical Review on the Causes of the Financial Crisis includes contributions from John B. Taylor, Daron Acemoglu, Steven Gjerstad and Vernon L. Smith, Lawrence J. White, and Joseph E. Stiglitz to name just few.

I’ve not yet read the entire issue, but did have the opportunity to read an earlier draft of the introductory essay by CR’s editor, Jeff Friedman, entitled “A crisis of politics, not economics, complexity, ignorance, and policy failure.” While the title reveals where Friedman stands on the origins of the crisis, his emphasis on “ignorance” in particular reflects his appreciation of the role of what Kirzner has termed “sheer ignorance” in creating the unintended consequences that drive the dynamics of interventionism.  (He cites Hayek, Selgin, and myself, alas there is no reference to Kirzner.)  He points out the effect of policies not only on the existing structure of regulations, but also the impact on future, unknowable interventions

I also found that his article does an excellent job of clarifying a number of points for me, including the nature of tranches and CDOs, which to the uninitiated (like me) seem highly arcane, and shedding light on the subtle but crucial roles of the Basel I and II agreements in the crisis. It’s a very useful essay, telling what can be seen as an Austrian-based story of the financial crisis.