Archive for the 'Bad Reasoning' Category

The Analogists


Viagra analogies have been in the news a lot lately, both in connection with contraceptive coverage and in connection with state laws restricting abortion. I love good analogies and I hate bad ones, so I’d like to take a little time to sort out the bad from the good.

Because there are several scattered points to be made here, I’m putting them in sections and labeling them with Roman numerals, to make it easier for commenters to tell us just which section(s) they’re responding to.


My insurance policy covers Viagra. I would prefer that it didn’t. Given the costs and the probabilities, erectile dysfunction seems to me like a crazy thing to be insured against. There are a whole lot of other things I feel the same way about. I’d prefer not to be insured against losing my eyeglasses. On the other hand, I’m very glad to be insured against needing chemotherapy or kidney dialysis.

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Letter to a Reporter

I suspect we’re all getting bored of talking about Sandra Fluke, contraception policy, alternative solutions, and the reaction thereto, but I’ve just had an email from a reporter who’s confused on a point so basic, I thought it might be worth clearing it up for a larger audience.

The reporter writes:

As you might suspect, I disagree with your assertion that “All she said, in effect, was that she and others want contraception and they don’t want to pay for it.” I was wondering if you happened to catch the part of her speech where she talked about wanting women whose doctors have prescribed birth control pills to treat medical disorders like endometriosis to be able to get such drugs without having to pass tests demanded by religious institutions? Is this an unimportant part of the debate?

Here is a slightly edited version of my reply:

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Contraceptive Sponges

todayOver the last week, we’ve heard a lot from the people who (with a hat tip to one Joker), I now call “contraceptive sponges” — people who want others to pay for their contraception because — well, just because they don’t want to pay for it themselves.

I don’t think we need to take those people seriously. But others have taken the trouble to make actual arguments, both on this blog and elsewhere. Some but not all of those attempts deserve serious attention.

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Frank Redux

Thirteen years ago, in 1999, when I wanted to illustrate the astonishing march of progress, my Exhibit A was a new $250 stereo system that held 60 CD’s and could play tracks in random order.

My new Exhibit A is the fact that it’s been only thirteen years since this was a great example.

That was in an essay focused mostly on Robert Frank’s hypothesis that people care largely about relative position as opposed to absolute wealth. I was reminded of that essay following yesterday’s post, and I managed to dig out a copy, which I’ve posted here. Despite the dated examples, I still think it’s pretty good.

Click here to comment or read others’ comments.

In Which Paul Krugman Leaves Me At a Loss for Words

Okay, this one’s almost too bizarre for words. First, Paul Krugman makes an argument that ignores the existence of corporate dividends. Then, pretty much everybody in the world points out his error. Then, he admits his error, but, true to form, takes an irrelevant swipe at his critics. But in this case, the irrelevant swipe is: “Aha! You’ve just admitted that corporations pay dividends! So much for your past claims that corporations pay wages!”

Umm…Paul? They pay both. I’d lift Krugman’s own favorite dismissive phrase and say “That’s Economics 101″, but actually it’s probably standard knowledge among middle schoolers.

To review the details:

First, Krugman reposted (from the website of a left-wing advocacy group) a highly misleading chart purporting to illustrate the federal tax burdens borne by various income groups. The chart accounts for payroll and income taxes, but omits corporate taxes, thereby making the burden on high-income tax payers appear substantially smaller than it is, because corporate taxes reduce dividends which are disporportionately paid to high-income taxpayers.

Next, he got called on it by lots and lots of people, including, for example, Greg Mankiw.

Next, Krugman acknowledged his error. But, as always, he did so with the least possible grace, suggesting that his critics, by virtue of pointing out Krugman’s mistake, have somehow undermined their own principles.

In particular, his position is that by acknowledging that corporate profits benefit shareholders, “conservatives” have undermined their own ability to claim that corporations benefit anyone other than shareholders (e.g. workers). He relies, in other words, on the cockamamie notion that if something is good for group A, it can’t possibly also be good for group B.

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Mitt Romney’s Taxes

Mitt Romney says his tax rate is “probably around 15%”. It’s not clear what he means by that (marginal rate? average rate? federal rate? federal-plus-state-plus-local rate?) but the New York Times is quick to point out that he’s a beneficiary of the “fact” that investment income is taxed at a much lower rate than wages and salaries, leaving him with a lower percentage tax burden than the working-stiffs he employs.

For at least the eighth time on this blog, I want to point out that this widely believed “fact” is not true.

To understand Mitt Romney’s tax burden, you have to compare him to his doppelganger Timm Romney, who lives on a planet with no taxes. In the year (say) 2000, Mitt and Timm both earned (say) a million dollars. Timm invested his million dollars, saw it double over the past decade or so, and cashed out his investment this year, leaving him with two million dollars. Mitt, by contrast, paid 35% tax in 2000, leaving him with $650,000. He invested it, saw it double, and cashed out last year, paying 15% tax on the $650,000 capital gain. That leaves him $1,202,500, which is about 60% of what Timm’s got. In other words, the tax system costs Mitt almost 40% of his income.

By contrast, people on our planet without investment income collect their wages, pay 35% in taxes, and spend what’s left. The tax system costs them 35%, while it costs Mitt almost 40%. In other words, people with investment income bear a higher tax burden, as a percentage of their income, than anyone else — and that’s before you even start accounting for the taxes on dividends, interest, corporate income and inheritance.

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Off the Deep End

Paul Krugman argues that success in business is not, by itself, a qualification for making wise economic policy, and I agree. But then he goes all looney-tunes on us:

A businessman can slash his workforce in half, produce about the same as before, and be considered a big success; an economy that does the same plunges into depression, and ends up not being able to sell its goods.

So according to Krugman, it’s better for you and your spouse to earn $40,000 each than for one of you to earn $80,000 while the other stays home with the kids. I wonder how many two-earner families would agree with him.

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Alas, Poor Yoram

crazyskullThis just in: The study of physics makes people less compassionate. Data show that when cornered at a party by the inventor of a perpetual motion machine, physics majors are particularly unlikely to offer positive encouragement.

Also, the study of history leads to closed-mindedness. After taking an American history course, students become considerably less open to the idea that Millard Fillmore might have been Abraham Lincoln’s vice president.

Meanwhile, the study of chemistry makes people less ambitious. Chemistry students are particularly unwilling to invest in lead-to-gold conversion kits, even when they are conveniently offered over the Internet.

Geology students are just plain nasty. Among all majors, they are the least likely to participate in coordinated meditation exercises for the prevention of earthquakes — even when the organizers estimate that hundreds of thousands of lives might be at stake.

And economics majors are so greedy that they are particularly unlikely to donate to left-wing interest groups that seek to undermine capitalism.

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Why Not Bob Dole?

So Mitt Romney wants to exempt capital gains from taxation — but only for taxpayers who earn less than $200,000 a year. In Tuesday night’s debate, Newt Gingrich asked him (I’m paraphrasing) “Why the cap?”. Romney’s answer — that he’s looking out for the middle class because “the rich can take care of themselves” — was as incoherent as anything I’ve heard this election year.

Here’s why:

I interpret Romney’s answer to mean that he wants to cut capital gains rates not on efficiency grounds, not on supply side grounds, and not on philosophical grounds, but on redistributionist grounds. Well, okay, I myself don’t think very much of redistribution as a primary driver of tax policy, but Romney and I can disagree on that one. But where the incoherence comes in is this: If your goal is to redistribute from the rich to the middle class, why on earth would you do it by cutting the capital gains tax, as opposed to lowering income tax rates in the middle and raising them at the top?

To put this another way: If you care about efficiency, you’ll want to cut the capital gains rate to zero for everyone. If you care about fairness, and if you believe fairness mitigates against double/triple/quadruple taxation, you’ll still want to cut the capital gains rate to zero for everyone. If you care about redistribution, you’ll want to juggle the tax brackets. But I can’t think of a single thing you could care about that would lead you to laser in on cutting capital gains rates for middle income taxpayers only.

Now it might be that somewhere in Romney’s 59 point economic plan there’s an answer to this. If so, Herman Cain was surely right when he intimated that Romney himself can’t be terribly familiar with the contents of that plan. Because, when asked a simple question about the justification, Romney wasn’t able to come anywhere close to making sense.

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There He Goes Again

Paul Krugman’s latest venture into self-parody starts with a recent paper on the cost of air pollution, which finds that said costs are big and heavily concentrated in a few industries. Krugman then links to a New York Times article surveying Rick Perry’s past clashes with the EPA. With no further argument, he concludes that

Today’s American right doesn’t believe in externalities, or correcting market failures; it believes that there are no market failures, that capitalism unregulated is always right. Faced with evidence that market prices are in fact wrong, they simply attack the science.

Where to begin?

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Some commenters still seem confused about the locus of disagreement in this week’s back-and-forth with Paul Krugman. I post today not to beat a dead horse, but to clarify the issues for those who are interested in understanding them. Please keep any discussion both civil and on-topic. I’ve numbered the points below for easy reference.

Continue reading ‘Recap’

Krugman Followup

What I like about people in academics is that when we disagree, we actually care about figuring out who’s right — and therefore we have a tendency to reach consensus, though it can take a while.

Anybody who blogs often enough (very much not excluding yours truly) is occasionally going to post something that, at least as written if not as intended, is objectively plain flat out wrong. Paul Krugman did that a couple of days ago, I responded, he’s responded to my response, and at least 4/5 of our disagreement is now resolved. That’s exactly as it should be.

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Panglossian Economics

PanglossIn a radical departure from his previous expressions of dissillusionment, Paul Krugman has implicitly declared in his latest blog post that we are now living under the best of all policy regimes. I presume he will now be able to retire with satisfaction from his career as a gadfly.

The context is Eric Cantor’s demand that any federal disaster relief in the wake of Irene be offset by spending cuts elsewhere. Krugman thinks this is silly, and proves his point with an appeal to the standard Ricardian theory of public finance. According to that theory, which all economists understand and accept, if you’ve got to bear a cost, it’s best to spread that cost out over as many activities as possible. So ideally, you’d pay for disaster relief partly through spending cuts, partly through (current) tax increases, and partly through an increase in the deficit. Therefore says Krugman, “the bottom line is that basic, regular economics says that Cantor isn’t making sense.”

Since Krugman has carelessly neglected to spell out an important detail of his argument, let me fill in the gap for him: The Ricardian conclusion does not come from thin air; instead it follows logically from certain premises, key among which is that you’re starting from an ideal policy regime.

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A Consequential Study

By now you’ve probably encountered one of the various “do you push the fat man in front of the subway train to stop it from running over five innocent people trapped on the tracks?” puzzles that moral philosophers have been using lately to distinguish the consequentialists (who care only about ends) from the deontologists (who care also about means). (I invoked some of these puzzles, in a slightly non-conventional way, in Chapters 16 and 17 of The Big Questions.)

Now come psychologists Daniel Bartels and David Pizarro to report that choosing what they call the “utilitarian” solution (by which they mean the consequentialist solution, though one might have more faith in their scholarship if they’d used the accurate word) is correlated with higher scores on measures of psychopathy, machiavellianism, and “life meaninglessness”. Those who would push the fat man are more likely to agree with statements like “I like to see fistfights” or “The best way to handle people is to tell them what they want to hear” or “When you think about it, life is not worth the effort of getting up in the morning”. In other words, they are what we tend to think of as an unpleasant bunch.

But you see, here’s the thing: Bartels and Pizarro did the wrong test. Because in every one of the dozen or so moral dilemmas presented to the subjects, they asked: Would you shoot the crewmember? or would you execute one of the hostages? or would you flip off the switch to the ventilator? — which doesn’t get to the moral issues at all. The moral issue is this: In your opinion, should you shoot the crewmember or execute the hostge or flip the switch? The researchers never asked those questions, so we have no idea what the subjects’s opinions were.

Tell me a story about 20 children trapped in a burning building and ask me if I think I should rush in to save them. My answer is yes. Now ask me if I would. If I’m honest, I am very unsure I would do the right thing.

So what do we learn from this research? Here’s one interpretation: Maybe most people agree that you should push the fat man, and most people realize that they themselves would shrink from this moral duty out of squeamishness (just as most people agree that you should save the children from the fire, and most realize they might shirk this moral duty). Therefore they answer “No, I would not push the fat man.” But it’s only the psychopaths and Machiavellians who exaggerate their own moral virtues by claiming that they would rise to this particular occasion.

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Is “Legal Reasoning” an Oxymoron?

Our reader Jonathan Campbell has an excellent post on a bizarre example of legal “reasoning”. A defendant fires 95 shots into the woods; his friend fires 5. A man in the woods is hit by a bullet and dies. The defendant is 95% certain to be the killer (in other words, he is the killer beyond a reasonable doubt), but he is acquitted because the nature of the evidence is “statistical” and therefore cannot be the basis of a conviction.

This tends to confirm my suspicion that a legal “education” consists primarily of having your capacity for logic beaten entirely out of you. As Jonathan points out, all evidence is statistical in exactly the same sense that this evidence is. I put a bullet through your heart and you take five minutes to die. Did the bullet cause your death? Well, not certainly — there’s some small chance that you died of a heart attack that would have killed you anyway, thirty seconds before the bullet was able to finish its job. Is there a high probability I caused your death? Yes. Did I do so beyond a reasonable doubt? Yes. Is the remaining doubt of a statistical nature? Yes. So if there were any consistency in the law, of course I’d be acquitted. And of course I would not be. Which means, as has been noted in this space before, that the law is an ass. So, perhaps, are a substantial fraction of its practitioners.

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Dakota Winds

thune ethanol

Here is Senator John Thune (R-SD), speaking on the floor of the United States Senate:

Ethanol producers have been ripping us off for a long time, and they’ve come to rely on that for a source of income. So it’s only fair to let them rip us off a little longer.

I’m quoting from memory, so I might have the wording slightly off, but that was the gist of it. Oh, wait, here’s the exact quote:

We have a lot of folks who made investments, you have people across the country whose livelihoods depend upon this. I think it makes sense, when we put policy in place and we say it is going to be in place for a certain period of time, that it be honored.

As you can see, my parapharase was accurate.

Senator Thune speaks in the great tradition of his institution. Back in 1848, senators by the score made exactly the same argument for preserving slavery. A lot of folks had invested in slaves, you know. And their livelihoods depended on it.

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D’oh — Second in a Series

homerThe problem with locavores — the breed of environmentalists who tout locally grown food, partly to minimize energy costs — is that they’re insensitive to the quality of the environment. A New York locavore spurns California tomatoes because of the energy spent trucking them across the country. But to focus on a small number of factors, like energy consumption, is to ignore a vast number of others: Do California tomatos, grown in locations where there might have been vineyards, displace California grapes? Do New York tomatos, grown in greenhouses where there might have been housing developments, lengthen morning commutes? What other useful services might California or New York workers provide if they weren’t growing tomatos? What are the alternative uses in each location for fertilizers, or farming equipment, or the resources that go into producing fertilizers and farming equipment?

Last August, Steven Budiansky, the self-described “Liberal Curmudgeon”, wrote a New York Times piece that I criticized on this blog for, essentially, making 1% of the right point and ignoring the other 99%. Now, having reread Budiansky, I think I was unfair to him. He had this right all the way through.

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D’oh — The First in a Series

homerWhen something is wrong on the Internet, bloggers love to pounce. But since no blogger is infallible, most of us can find ample fodder in our own past writing, if we go back and reread it with a sufficiently critical eye. Over the next few weeks, I plan to revisit some things I got wrong the first time around. (You’ll recognize those posts by the Homer Simpson logo.) I hope others will be inspired to do the same.

To lead off this series: In December, 2009 I blogged about space scientiest James Hansen, who prefers carbon taxation to cap-and-trade. His argument: A carbon tax allows for the possibility of additional carbon abatements through altruism. Under cap-and-trade, if I altruistically decide to buy a fuel-efficient car, someone else gets to buy an SUV. Whereas under a carbon tax, if I altruistically decide to buy a fuel-efficient car, less gas gets consumed.

Wait a second, though. Under a carbon tax, if I decide to buy a fuel-efficient car, I drive the price of gas down, which encourages someone else to buy an SUV. So altruism is equally ineffective under either policy, no?

That’s the argument I made in December, 2009. I now believe that:

  • Under a plausible interpretation of Hansen’s argument, I was wrong.
  • But Hansen is still unconvincing, though for somewhat subtler reasons.

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Friday Quotes

Paul Krugman, economist:

This insight illustrates a general principle of the economics of taxation: the incidence of a tax — who really bears the burden of the tax — is typically not a question you can answer by asking who writes the check to the government.

Paul Krugman, blogger, remarking on a straightforward application of that principle:

There are multiple things wrong with this claim, but the most fundamental, I think, is that it represents a remarkable misunderstanding of the reasons why we have taxes in the first place.

(Edited to add: My response to Krugman is here.)

Click here to comment or read others’ comments.

Dead Man Followup

Since even Paul Krugman manages to be completely confused about this and this, allow me to summarize:

1) A tax imposes a burden.

2) If a tax has no effect on a man’s lifestyle, then it imposes no burden on him.

3) Therefore, if a tax has no effect on a man’s lifestyle, then it must impose a burden on someone else.

That is the argument that Krugman things betrays “no coherent picture of how the pieces fit together”. I would like to know more specifically whether he disagrees with 1), disagrees with 2), or disagrees with the logic that leads from 1) and 2) to 3).

In more detail:

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You Can’t Tax a Dead Man

On Monday, I wrote about the man who can’t be taxed. There were many comments, some confused, some insightful, and (at least) one brilliant. Let me highlight that brilliant comment, then beat the point to death a little, and then draw a large moral.

Our commenter Ken B invited us to imagine a dead man, with, say $84,000,000 in his bank account (and a will that requires this bank account to be maintained forever). And let’s suppose the government confiscates, say 82 of those 84 millions, thereby allowing it to reduce other people’s current or future taxes —making those people richer. They buy more stuff. They eat more, they burn more gas, they occupy more space. Where did that stuff come from?

(Alternatively, instead of lowering someone else’s taxes, the government takes the opportunity to spend more, in which case the government claims more stuff. We still have to ask where it comes from.)

It certainly did not come from the dead man, who was eating nothing, burning no gas, and occupying no more space than he continues to occupy. Instead, somebody else must decide to consume less.

But initially nobody wants to consume less. So people, collectively, are trying to consume more stuff than is available. This excess demand for stuff pushes up prices and/or interest rates until people are willing to cut their consumption.

There is no meaningful sense in which the dead man paid the tax. Instead, the tax burden is borne by those people who were hurt by rising prices and/or interest rates.

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The Man Who Can’t Be Taxed

Nothing makes my job easier than a journalist who writes about something interesting and gets it 100% wrong.

Thanks, then, to Elizabeth Lesly Stevens for her column in yesterday’s Bay Citizen. Stevens wants to tax the “idle rich”, her Exhibit A being Robert Kendrick, heir to the $84 million Schlage Lock Company fortune. According to Ms. Stevens, Mr. Kendrick appears to do pretty much nothing but park and re-park his four cars all day long. Taxing people like Mr. Kendrick, she says, has to be part of any solution to America’s fiscal crisis.

Here’s what Ms. Stevens misses: Assuming the facts are as she states them, it is quite literally impossible to raise revenue by taxing the likes of Mr. Kendrick. We could argue about whether it’s desirable, but because it’s impossible, the discussion is moot.

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Subtraction Distraction

Paul Krugman, getting less serious by the minute, on the budget deal:

It’s worth noting that this follows just a few months after another big concession, in which [Obama] gave in to Republican demands for tax cuts. The net effect of these two sets of concessions is, of course, a substantial increase in the deficit.

Well, no, actually. The net effect of these concessions is a (small but not insignificant) cut in spending coupled with a (somewhat larger) set of tax cuts.

To sum that up by saying that the “net effect” is an increase in the deficit is like saying that if a woman gives birth to twins and then murders her husband, the “net effect” is to increase the population. We’re entitled to care about more than just the bottom line.

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Unhealthy Reasoning

Paul Krugman on the Ryan budget proposal:

And then there’s the much-ballyhooed proposal to abolish Medicare and replace it with vouchers that can be used to buy private health insurance….

…The House plan assumes that we can cut health-care spending as a percentage of G.D.P. despite an aging population and rising health care costs.

The only way that can happen is if those vouchers are worth much less than the cost of health insurance.

Well, this is just plain illiterate. In fact, the only way that can happen is if the voucher system affects people’s health care choices. Which is, you know, the whole point.

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Senator B.S.

faceofevilA lot of people think of janitors as a group that’s not particularly well paid. Those people might be surprised to learn that in the last five years alone, American janitors earned over $250 billion! That’s billion! With a B!

Despite that enormous income, janitors pay no taxes whatsoever — or at least no taxes whatsoever over and above the taxes that are paid by you, me and other ordinary Americans. And shockingly, it appears that the U.S. Congress would rather cut spending than institute a new tax on janitorial income.

If the above strikes you as insane, congratulations. You are smarter than the intended audience of Senator Bernie Sanders, who observes in his new book “The Speech” that General Electric’s shareholders collectively earned a staggering $26 billion over the past five years, and paid absolutely no tax on that amount.

Of course $26 billion is only a tenth of what janitors earned over the same time period, but I guess it does look mighty big if you don’t bother dividing by the number of shareholders. Without having all the numbers in front of me, my best guess is that we’re talking maybe a few hundred bucks per shareholder, though of course (as with janitors) some earn more and others earn less.

And as for the shareholders paying absolutely no tax, perhaps they didn’t, as long as you don’t count taxes on dividends, capital gains and wages. To wit:

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Justice Denied

John Thompson spent 18 years in prison, 14 of them on death row, for a crime that it seems very likely he did not commit. Prosecutors were aware that blood found at the crime scene was not Mr. Thompson’s, but they failed to turn this evidence over to the defense attorneys.

Does Mr. Thompson deserve compensation? A jury thought so, to the tune of $14 million. But five Supreme Court justices disagree, so Thompson gets nothing.

That’s because, according to the majority, it was only a single rogue prosecutor who misbehaved, so it would be wrong to punish the whole district attorney’s office. The dissenting minority argued that in fact there was a pattern of lax training in that office, so the jury award should stand.

But if an innocent man spends 18 years in prison, why should his compensation depend on the nature of the misconduct that sent him there — or even on whether there was any misconduct in the first place?

Look. We’ve pretty much all agreed that we want to have a justice system. Since all justice systems make mistakes, that means we’ve pretty much all agreed that we’re prepared to tolerate a certain number of mistakes. The question, though, is: Who should bear the costs of those mistakes? Should the costs fall entirely on an unlucky few like John Thompson who just happen to have been in the wrong place at the wrong time, or should they be spread more evenly among the populace that is perfectly happy to share in the benefits of the justice system?

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Strategic Reasoning

Senator Jay Rockefeller adds his voice to the chorus calling for the U.S. to deplete the strategic petroleum reserve in order to bring down oil prices.

Put aside the question of whether we should want to bring down oil prices. Put aside the question of whether this is a good use of the strategic reserve. Let’s just ask whether this idea would even work.

Simple economics certainly suggests that the answer is no. Oil, after all, is an exhaustible resource. This means that every barrel sold today is a barrel that can’t be sold tomorrow. Therefore profit-maximizing oil suppliers, of whom there are many, must constantly be asking themselves whether they’d prefer to sell another barrel now or leave it in the ground to sell later. And the key inputs to that decision are the current price and the expected future price.

If the government starts depleting the oil reserve now (with, presumably, the intent to replenish it in the future), they bid down current prices and bid up expected future prices — creating an incentive for all the other suppliers to sell less now and more in the future — pushing current prices right back up again. For a non-exhaustible resource, this would partially offset the government’s action, but for an exhaustible resource (like, for example, oil) there should be a 100% offset, at least on a naive application of Hotelling’s Rule.

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Defici(en)t Thinking

Gerald Seib, in the Wall Street Journal, reports that “There is a cancer eating away at the budget from within, one that steadily drains American wealth, sends much of it overseas and only gets worse over time.”

This is economic illiteracy in spades. The fact is that every single dollar of interest we pay on the national debt comes right back to the pockets of American taxpayers. If you don’t understand that, then you’re not thinking clearly about the national debt.

Suppose the government owes $100 and pays $3 a year in interest. The alternative to paying that interest is to raise current taxes by $100 and pay down the debt. If you do that, taxpayers are going to have $100 less in assets, and will therefore earn less interest on their savings. That costs them (roughly) the same $3 a year.

In other words, the damage was done back when the government spent that $100 in the first place. (Of course, if the $100 was spent wisely, the damage might have been worth doing. Or not.) Once that $100 has been spent, the taxpayers are out $3 a year forever regardless of whether the debt is ever paid off.

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How’s That Again?

Paul Krugman’s latest gets my vote for his most incoherent column ever. As I understand his argument, it goes like this:

  1. Computers are good at routine tasks.
  2. Therefore the rewards to performing routine tasks are falling. This is true at all skill levels.
  3. Therefore education does not always make people more productive. It makes people more productive only when it trains them to do tasks that are not better done by computers.
  4. Therefore we need stronger labor unions and universal health care.

Say what?. The basic thesis — that there’s no point in learning to do something difficult if a computer can do it better, and that this is significantly affecting the returns to certain kinds of education — is an interesting one. The moral, of course, is that you can’t imitate your way to prosperity. If we want to be rich, we have to innovate.

So to encourage innovation, you want to strengthen the unions? To encourage innovation, you want to reduce the relative reward to innovation, by insuring that everyone gets the same health care regardless of their social contributions?

Now, you might suppose that Krugman was thinking something along the following lines: Large swaths of American workers are being rendered unproductive by computers. Somehow or another, we have to support those people even though they’re not producing much. Unions and universal health care will keep them afloat.

But that can’t be what Krugman was thinking. I’m sure of this, because I happen to know that Krugman has a Ph.D. in economics. Therefore he must surely be aware that you can’t divorce incomes from productivity. Sure, you can redistribute, but you can’t redistribute more than what gets produced. If the problem is that our old skills are no longer productive, then our incomes must fall unless and until we acquire different — and less computer-replaceable — skills.

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Dow 36,000 12,000

In 1999, the journalist James K. Glassman co-authored a book called Dow 36,000. The eponymous prediction did not pan out. A couple of days ago, Glassman popped up in the Wall Street Journal, trying to explain where he went wrong. “The world changed”, explains Glassman. The relative economic standing of the U.S. is declining. Plus terrorists and economic instability made the world a riskier place.

But there’s a better explanation. Glassman’s story never made sense in the first place, for reasons Paul Krugman explained when the book first came out.

Glassman has a substantial history of confusion about how financial markets work. Ten years before he wrote Dow 36,000, he was explaining in The New Republic that stocks are better investments than real estate:

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