The Lionization of the Free Market: "But at some point, this game has to stop":

In an interview with Ezra Klein, the Director of the Institute for New Economic Thinking Robert Jackson makes the above quote. He also expands on a basic argument that our financial and political structure is institutionally biased towards creditors (e.g. banks) rather than debtors. In short, that "our politics, our lawmaking institutions, are set up to disproportionately represent people who have money." (Bold mine - JMG)

What Jackson sees as a functional result is that:

when given the choice between forcing Greek citizens through the grinder of austerity or attempting a debt restructuring that can unleash unknowable consequences in the credit default swap market or the relations between large banks, to choose austerity. They don’t understand what kind of collateral damage will be done when you resort to restructuring rather than imposing more austerity.

Those that will suffer under their government's austerity (and people will suffer, that point is elided by far too much) are underrepresented in government relative to the people who would suffer under Greek debt restructuring.

The important point I mean to make with this, is that political structure and market structure are mutually re-enforcing institutions that are shaped-at least in part-by political choices. I say this point is important, because in the process of lionizing the free market that political representatives often engage in, we lose sight of the actual complexities of markets themselves.

The basis for the appeal the "free market" has as a political slogan is rooted in an oversimplification of the idea. The internal logic is that market outcomes are must be by definition just, since the patterns of the market are inherently non-coercive. This leads all kinds of silly post hoc rationalizations for unseemly conduct because; if patterns of a free market only produces just outcomes, then the outcomes of the free market can only be just. (For an example of the genre, read Michael Levin's defense of Ebeneezer Scrooge.)

What this kind of simplistic exhalation of the market ignores is the very real dynamics of how political and cultural institutions influence the market itself (and how the markets influence those institutions). The government of Greece is much more willing to push for austerity in part because those that would suffer more under austerity are underrepresented relative to those who would suffer more under debt restructuring. To seek to understand these dynamics is the accept the fact that economic outcomes does not always occur in a vacuum of political influence, that markets are shaped many factors, and that the justice of those factors is not always clear.

Modern 'Calvinism'

Since this is supposed to be an economics blog, (in intellectual content, anyways) this seems appropriate.

The irony, I see anyways, is how relevant Calvin's voice is in our current political/economic climate.  It's frustrating that it's taken so long for the United States to have a cultural/economic crisis on a national scale to finally engage in some soul-searching about our overall political philosophy and understanding of personal ethics.  We live very much in a "me"- based culture; which has some positives and negatives.  One of the biggest negatives that I see, is an insistence on 'if it doesn't effect me, why should I care?'  I see this commonly coming from conservative and especially libertarian political affiliates.  THe biggest problem with this, as I see it, is a willful ignorance of not only the practical issue of second- and third-tier effects, but also a override of the concept of empathy.  

People suffer, and it is a shame.  A person suffering, even if it does not immediately, or even transitively effect you, I feel a ethical actor should have an empathic approach in mind. 

Hilzoy (I believe) wrote a few weeks/months ago: 

if morality requires anything at all, it requires that we take other people seriously as people, with their own independent existence, rather than using them as screens onto which we project our own psychological needs at will. So I would think that anyone who was genuinely concerned to do the right thing would recognize this sort of freefloating hostility, and the lack of concern for others that lets it emerge, as vices dressing themselves up as virtues.

I'd like to build on this point some more later.  I feel like this is, in a way, at the heart of the liberal philosophy, and the mark of a mature society.

Is Jeff Jacoby Stupid?

Or better yet, just how stupid is Jeff Jacoby?

In his latest column, Jeff makes an economic argument.  He suggests that, since environmentalists are for high gas prices, they also should support the biggest gas-guzzling cars.  The reasoning goes that, since low mpg vehicles use more gas, they'll drive gas prices up faster, and reduce gas consumption.  Whereas high-mpg vehicles would have the opposite effect, reducing the petroleum consumed, and keeping gas demand stable (or even reducing it).  

While I am happy Jeff understands the concept of supply and demand, and I'm sure he feels like he's really put one over the leftists with his awesome point to prove they wrong; he, like certain Texan representatives, Jeff's awesome attempt to make a sweet political point just makes him look stupid.  Why?  Because while he stuck around in Econ 101 to learn that rule of supply and demand, he didn't stay long enough for the coverage of externalities.  Carbon consumption hurts everyone, in the form of increased presence of greenhouse emissions, throwing the planets carbon cycle out of whack, and contributing catastrophic weather.

So Jeff's point, that environmental activists should support the use of low-mpg vehicles, because they'll drive of the price of gasoline up, misses the point of why high gas prices would be desirable; which is to reduce overall petrol use.  If everyone switched their car from whatever they owned; to a hybrid, or any general 'low-mpg vehicle,' then gas consumption would fall.  Which is the point.  A high price of gas is just another way to reach the same end, a reduction of carbon emissions.

I can go even further into this, if we start considering the elasticity of gasoline demand.  Gas is, and will be for quite sometime, a necessary part of the U.S. (and global) economy.  This makes the  individual, and the economy as a whole, very insensitive to the price of gasoline - i.e. our demand is inelastic.  So why not gradually reduce demand over time, with the use of low-mpg vehicles, allowing this very essential, and soon to be scarce resource to be slowly reduced from demand, rather than drive a ton of Hummers and invite potential oil shocks?  

So this whole piece on how environmentalists are "silly" in lobbying for increased low-mpg vehicle use isn't, in any way, an intelligent addition to our policy debate.  It's sophistry, and a really lame example of that too.