Thursday, October 25, 2007

Liberals Should Be Called "Suppressives" Rather Than "Progressives"

I have recently blogged about Peter Levine's book New Progressive Era and note that although Levine claims that public deliberation ought to replace free markets, public deliberation is impossible because progressives dislike speech that disagrees with their own and because progressives' choices, which are mostly erroneous, become institutionalized. Upon institutionalization, discussion about them is foreclosed. Some examples are the rat-infested New York City subway system; the near-bankrupt social security system; and the income-inequality and poverty-generating Federal Reserve Bank.

As well, a key problem with progressivism is the willingness of progressives to distort facts, to lie, in order to secure programs or institutions that are bound to fail. The public finds it difficult to debate when, for instance, the Fed claims it is managing the "federal funds rate" rather than increasing the money supply (or more to the point, counterfeiting). Likewise, the public finds it difficult to debate about "social security" when its proponents claim that it is a fair insurance program rather than primarily a welfare or transfer program.

Perhaps the worst lies of all concern the names that the "progressives" call themselves. When I was growing up in New York,the high crime rates were attributable to "limousine liberals". Liberals became associated with the ACLU, welfare, corruption and incompetence. Rather than divulge the truth, today's liberals call themselves "progressives". It would be much more conducive to intelligent dialogue for all of us, and much fairer, to call liberals "suppressives".

Progressivism and Authorianism

I am beginning to read Peter Levine's New Progressive Era: Toward a Fair and Deliberative Democracy (Lanham, MD., Rowman and Littlefield, 2000. 255 pp.) and am intrigued by Levine's discussion of deliberation in a democracy. The concept of deliberation resonates with me, in part because of its Aristotelian foundation (deliberation is the foundation of Aristotle's ethical model in Nichomachean Ethics). But the progressive model that Levine proposes is totalitarian in its implications. The campus left's intolerance of and refusal to hire political conservatives, for instance, is intimately linked to its claim to be deliberative via collegial processes. Excessive emphasis on deliberation induces tyranny of the majority and suppression of minority views. It is only through the limited state that deliberation's implicit authoritarian threat can be contained.

The problem with the deliberative solution is that it faces the cost and information constraints that all democratic processes face. Deliberation devolves into authoritative nostrums proposed by authoritarian progressives.

Importantly, the advantages of marginalism are lost when the public becomes overzealous in making decisions. Most or all economic actors make errors. Distorted decisions result in social losses. If there is no equation of marginal costs and benefits, the errors become massive. Such massive errors are characteristic of totalitarianism. Marginalism involves the equilibration of costs and benefits by firms and consumers who bear the costs of their own decisions. They also must cope with the possibility of counter-strategies by economic actors who have insights (either because of intuition or better information) that counteract the mistakes of the infra-marginal establishment. Much of the establishment is made up of conformists who are wrong much of the time. Mutual fund managers do not beat the stock market, for example. Without marginal decision making society will become stagnant. Nikola Tesla, the eccentric inventor of AC electricity, could not have succeeded in a deliberative society. If Peter Levine has his way, we will be living in primitive huts working in farming as serfs. It is only marginalism that can induce progress, not deliberation.

The results of excessive emphasis on deliberation are extremism, poverty and exclusion. Levine does not address what to do if democratic processes result in, for instance the Nuremberg Laws. Indeed, these outcomes have been intimately linked to progressivism in the past. The first "progressive" state was Bismarck's Germany, which preceded Hitler's Germany by fifty years.

Levine's discussion of deliberative democracy and the progressives' ideas is inspiring, but deliberation's totalitarian implications become evident when he talks about the "marketplace" (p. 17). He emphasizes that economic power is distributed unequally, suggesting that markets are inequitable. But he neglects to comment about the skewness in progressives' definitions of the terms of public debate that typically also are distributed unequally.

Thus, for instance, intelligent debate about the Federal Reserve Bank is difficult when the field of economics, the news media and politicians cloak a simple relationship between money supply and inflation in nonsensical terminology such as "reducing the federal funds rate" and claim, as does the Economist this week, that the people who expand the money supply at the Fed are geniuses whose work in causing inflation is really fighting inflation and cannot be understood by ordinary people. Levine does not address this kind of distortion, on which most of the progressives' successes have depended. Rather he emphasizes that sellers of goods are larger than buyers.

Worst of all, Levine claims that "through the democratic process I can advocate general rules that will bind me and all of my fellow citizens permanently." This is a frightening argument. Levine argues that although people say that they would be willing to pay more for a better environment, when it comes to actually buying they do not favor environmentally friendly merchandise. So Levine feels that it would be advantageous to for people to be able to force each other to live by the self-important statements they make to polling agencies.

It doesn't occur to Levine that mass psychology and cognitive dissonance favor nice-sounding public statements, but those statements may be unrealistic. Millions of Germans saluted Hitler. Levine seems to think that it is all to the good that they weren't forced to pay up out of their own pockets for the policies that Hitler implemented, the war, the concentration camps, etc., all of the massive costs that deliberation in Germany caused.

Tuesday, October 23, 2007

Stop the Internet Tax

Oct 23, 2007

Senator Charles Schumer
United States Senate
313 Hart Senate Office Building
Washington, DC 20510-0001

Dear Senator Schumer,

I urge you to support Sens. John McCain (R-Ariz.), John Sununu (R-N.H.), and Ron Wyden (D-Ore.) in their drive to enact a permanent ban on Internet taxes. New York State does not need more taxes, especially since so much of our bleeding economy depends on the Internet.

Last week, the House passed a bill that would extend the existing moratorium on Internet taxes until 2011, and the Senate is scheduled to take up legislation this week. Sens. McCain, I urge you to propose an extension until 2211. Better yet, I urge you to support a permanent ban.

Congress wisely decided some years ago that Internet access and commerce should not be encumbered with multiple state and local taxes. Due in no small part to this decision, the Internet and e-commerce have thrived. Today, approximately 70 percent of the U.S. population uses the Internet, and it has become a vital engine for economic growth.

Enacting a permanent ban will provide much-needed consumer and business confidence and help keep our economy robust and strong.

I urge you to support any effort to make the Internet tax ban permanent.


Mitchell Langbert
PO Box 130
West Shokan, NY 12494

Queen of Collegiality: Susan O'Malley Serves Legal Papers

Susan O'Malley, former faculty representative on the CUNY board of trustees, and officer of CUNY's extremely left wing and dysfunctional union, the Professional Staff Congress, has filed a law suit against Sharad Karkhanis, a Community College professor who has criticized her extensive no-teaching time and her political views. O'Malley, represented by Attorney Joseph Martin Carasso, is suing Karkhanis for $2 million dollars for:

"wrongful statements made and printed and or published by defendants and based on the causes of actions of libel, defamation, inflection of emotional distress, both intentional and negligent, violation of the right of privacy, and for a preliminary and permanent injunction prohibiting the defendants from making, printing, publishing and distributing wrongful statements regarding the plaintiff herein in the future, and such other and further relief that this Court finds just and equitable."

Although O'Malley was critical of Professor KC Johnson, claiming that he "lacked collegiality", O'Malley resorts to a law suit to resolve conflicts with Karkhanis.

Dental Malpractice and the Wisdom of Markets

The Economist's lead story this week is "Lessons from the Credit Crunch". The leader raises more questions than it answers, and I was surprised to see the venerable British newspaper equate Ben Bernanke to a dentist. A dentist who commits malpractice would be more to the point.

In 1979 I rented an apartment on the east side of Manhattan, diagonally across from the United Nations. The rent was $240 per month. The cockroaches were thrown in for free. Today, New York's cockroaches have multiplied several times, but apartment values have gone up even more. My father-in-law's apartment on the west side of Manhattan runs in the range of $2.5 million.

Of course, Manhattan apartment prices have gone up more quickly than prices in general. The Bureau of Labor Statistics, a branch of the US Department of Labor, has an inflation calculator that says that the a 1979 dollar has the purchasing power of $2.87 today. Thus, the value of that dollar has eroded to 1/2.87th or 34.8 percent of its value over the past 28 years. This equates to a compound inflation rate of about 3.7% per year over the past 28 years. Currently, savings account rates range in the New York Metro area from 0.10% at Astoria Federal to 5.23% at Amtrust Direct. Thus, a large part or all of the return on savings accounts is eaten up by inflation. No wonder more Americans do not save and that they have been on a borrowing binge. Because of Fed policy, the chief way to get ahead with saving is through the stock market.

But is every American supposed to be a stock market guru? What effect does this distortion of returns have on other economic choices, such as where to locate factories or what careers people might pursue? Can the Fed's economists answer such questions? Do they care that they have played a role in distorting and perhaps grievously harming the United States's economy?

It would seem that people who put money into savings accounts see small or negative returns. Who puts money into savings accounts? Not the affluent readers of the Economist, who have Ph.D.s, law degrees or MBAs and work in high paying jobs. Rather, the low-wage worker, older retiree and schoolteacher. They are the Economists' suckers.

1979 was the last full year of the Carter administration. Thus, the moderately aggressive inflation that has proceeded since 1979 has been the product of the Greenspan Fed, which spanned three Republican and one Democratic administrations. Given the relatively high rate of inflation, which has served to harm the thrifty, one would suppose that few media outlets would have much to say that is positive about the Fed's competence at fighting inflation. But this is not the case. The Economist and the other media outlets have little negative to say about 3.7% inflation over 28 years, which is more than enough to cause massive distortions in expectations, investment and economic decisions.

Moreover, these statistics understate the problem because the federal government has gotten into the confidence game. In general, government has not proven itself competent in areas like education; health care financing (to wit, the massive fraud in Medicaid in New York); regulation of taxi cabs; rent control; social security; crime; operations ; the Iraqi War; Vietnam; the New York City subways; higher education; welfare; or virtually anything else government goes near. It bungles everything. Yet, economists, Democrats, Republicans, the major news media and the Economist encourage trust in government inflation statistics.

There are specific reasons to question the veracity of inflation statistics. The Department of Labor discontinued inclusion of house prices in the Consumer Price Index about 25 years ago and replaced them with rents. Probably not coincidentally, house prices have gone up at a much faster rate than rents. My apartment in 1979, a one-room hell-hole, probably sells for $500,000 today. By replacing house price increases with rental increases, the Department of Labor may have reduced the visible inflation rate by one third. The true inflation rate since 1979 may be closer to 5% per year. Lying about it makes the effects worse, not better, because the least sophisticated, the poorest Americans are the ones who make the worst choices.

The St. Louis Fed publishes M-1 money stock statistics here In September 1979 the stock was $379.3 billion. In September 2007 it was $1,368.8 billion. In other words, the money supply has grown 360% while official prices have gone up 287%. People who keep their money in savings accounts, the middle class schoolteacher for instance, are poorer. Hedge fund managers and Wall Street financiers are wealthier because low interest rates invigorate the stock market. Low rates do this by increasing the present value of expected earnings (for an explanation of this point see my blog "The Fed's Inflation Has Driven American Jobs to the Third World"). Moreover, official CPI increases may be understated by one third or more, so the true inflation rate may be very close to the 28-year m-1 money stock increase.

The Economist's leader involves much double talk. Double talk is common among economists and media that cover money supply and income inequality because the Federal Reserve, banking and financial system is the one thing that the establishment really cares about protecting. Moreover, both political parties and the labor unions, which are mainly in construction and the public sector, have a major stake in the Fed and in inflation, and the Economist and economists are part of the establishment gravy train, as is the academic left and, which owes its funding to hedge fund operator George Soros. Thus, the entire ball of wax aims to blow smoke about the Fed. The school teacher and truck driver have no friend.

The Economist fails to disappoint in its leader. First, the Economist claims that:

"since the 1970s, the central banks' record has been remarkable."

The writers don't specify why they believe a compound inflation rate of 3.7% and negative returns to savers, increasing income inequality and a dollar crisis are "remarkable". Perhaps the Economist believes that the Fed's performance has been "remarkable" in the sense that PT Barnum was remarkable.

Second, the Economist makes the argument that

"Central banks have done more than enough to justify the argument that monetary policy should be run by technicians rather than by elected politicians--an astonishing achievement in a democratic age."

Anyone familiar with the history of the Fed knows that is nonsense. There were no monetary policy experts before 1913, and there is no need for monetary policy experts now. Government destroys everything it touches. By claiming expertise, the state bamboozles the public. The banking lobby has convinced the public that there should be government involvement in the money supply, then establishes a Fed that panders to bankers, Wall Street and large corporations while claiming that some "technical calculation" is involved in counterfeiting. No special expertise is needed beyond a lack of conscience and a comfort level with fraud. Since 1913 there have been steady increases in the money supply and inflation. American democracy thrived from 1776 to 1913 without a Fed. It has no need for technicians of the Alan Greenspan and Ben Bernanke variety. The Economistt advocates quackery.

Moreover, the Economistt makes the claim that "central banking has become an increasingly technical business performed by leading monetary economists". This is gibberish. There is nothing technical about increasing the money supply 4 percent a year. The Fed represented the interests of banks and the wealthy in 1913; they represented them when Roosevelt took the US off the gold standard in the 1930s; they represented them when Nixon took the dollar off gold internationally in 1971; and they represent them now.

The Fed is a political body. As Mancur Olson has pointed out, special interest groups benefit tremendously when they can pretend policy issues are complex, or when they can make simple issues like monetary policy seem complex. Indeed, monetary policy need not be a governmental function at all. Claiming it is complex is like claiming that the determination of oil prices is complex. It isn't complex if you have a free market. It is complex if you try to mimic a market, or replace fallible human judgment for the market. Then you make work that seems complex, but it is nonsense work.

The Economist claims that "if any economists have become the 'dentists' that John Maynard Keynes thought they should aspire to be, it is those in central banks." But if the central banks have become like dentists, the dentists commit malpractice. They drill where there are no cavities. They print money and cause inflation. They extract wealth from the poor and reallocate it to the wealthy.

Indeed, the Economist contradicts itself in the following paragraph. On the one hand it claims that the Fed has performed like dentists. On the other, they say that "loose monetary policy is partly responsible for the mess that the central bankers are now trying to clean up." Which is it? Technical experts? Or dentists who commit malpractice?

Monday, October 22, 2007

Howard S. Katz's "The Guy Who Pays Is You"

Howard S. Katz has an excellent blog this week at Katz argues that the banks' plan to bail out the sub-prime lenders, M-LEC, is merely a pretext for inflation by the Federal Reserve Bank. Katz argues that the only possible reason for M-LEC is to facilitate inflationary policy by the Federal Reserve Bank, and that the history of inflation is the history of economic decline.

The problem facing America today is inflation or depreciation of the dollar, but more fundamentally, the mentality that you can get something for nothing. Jim Cramer and many on Wall Street argue for low interest rates, i.e., currency depreciation, in order to stabilize the markets. But such terminology is just pretext for "subsidizing my stock portfolio". Where do the subsidies come from? They come from consumers who pay higher prices at the supermarket checkout because of the inflation that lower interest rates create.

Thus, we have a ninety year old policy of the average American's subsidizing wealthy investors through low interest rates and inflation. We also have a ninety-year history of opportunistic academics' providing bogus justifications for low interest rates, such as "full employment", even as Fed policies have stimulated robust stock markets that encourage top managers to think in terms of moving plants overseas to maximize their executive stock option holdings.

Katz is right that monetary depreciation causes misallocation of resources and economic decline. Why has it proceeded for so long? The answer is self-indulgence on the part of America's wealthy, a self-indulgence that parallels welfare in prior decades and the something-for-nothing mentality characteristic of liberalism.

Moses Maimonides, Profit Maximization and the Case of a Disabled Actor

I recently posed the following discussion question to students in my web-based human resource management course:

>"Your name is Daryl F. Zanuck, co-founder of Twentieth Century Fox. It is the early 1950s. A talented actor, recently graduated from Yale Drama School, asks to meet with you. He says that he wants to be a leading man for Fox. The problem is that the actor is missing an eye. He had lost an eye in a childhood illness. You tell him that although he has acting ability, it is not realistic for someone missing an eye to be a leading man. Appearance is an essential job requirement, a job related requirement or a business necessity, and you cannot consider him for such a role. Only one in a million people gets to be a movie star. Someone missing an eye has to be ruled out. The answer was "no".

(1) Did Zanuck make the right decision?
(2) What are the two or three chief ways to validate staffing decisions and employment tests?
(3) Did Zanuck apply a potentially validated selection criterion?
(4) Does your answer to (3) matter to your answer to (1)?

All students must participate. Do not wait until the last minute as failed postings will not get credit."

Of the twenty-odd responses, only two or three said that it might be possible that the actor should be hired. Most said that he should not. Several students contrasted profit-maximization (not hiring) with altruism (hiring). None suggested that the profit maximizing decision would be to hire the actor if he were competent.

The following response was typical:

>"Depending on how you look at it the decision that was made could have been right or wrong. The two ways of looking at it is the legal way or your own selfish way. Legally the decision Zanuck made (may be) against the law, since it's discrimination to reject some one due to a defect or appearance (if they're the best qualified and reasonable accommodation can be made). But on the other hand if I was looking from my own selfish point of view I made the right decision because the job does require appearance and for this job he was not the right candidate even though he might have been an outstanding actor but sex sells."

(Technically, the above answer is incorrect because if appearance is an essential job requirement, as it is with actors, then the Americans with Disabilities Act does not mandate hiring.)

The question is a trick one, because it is based on the A&E biography account of Peter Falk.

Wikipedia's entry on Peter Falk states:

"Falk's unusual gaze is due to a glass eye that he has had for most of his life. His right eye was surgically removed at the age of three because of a malignant tumor."

According to the Peter Falk official site, Falk has appeared in 38 films, to includ "Murder, Inc.", "It's a Mad, Mad, Mad, Mad World", "A Woman under the Influence", the (1979) original "In Laws" in which he co-starred with Alan Arkin, "Wings of Desire" and "The Sunshine Boys". He has been nominated for two Academy Awards. indicates that he has appeared in 130 television shows.

Falk is best remembered for his starring role as Detective or Lieutenant Columbo, one of the best known and most memorable roles in television history.

According to Falk's A&E Biography, Daryl F. Zanuck told him that he could not be a star because of his eye.

In Economics of Discrimination Gary Becker showed that not discriminating, basing hiring decisions on pure performance criteria, is profit maximizing. Thus, economic justice and the maximization of profit coincide. The individual who best fits the job ought to be hired regardless of race, creed or disability.

The idea that a disabled actor might be best qualified is not intuitively obvious. Human resource management ought to serve the end of rationalization; HR ought to overcome psychological and social biases and develop employment methods that are profit maximizing. This is an ethical quest. However, the rationalism of good human resource management is seldom appreciated because it does not acknowledge the egos of senior managers, who may flatter themselves into believing that their judgment is more reliable than methods that are statistically validated over long periods of time. One example might be not doing something stupid like hiring an actor with a glass eye.

In fact, few American firms utilize human resource management policies that could improve financial performance to the extent that they might. One example is in hiring boards of directors. I have not heard of firms using statistically validated selection methods in hiring boards. The idea is almost never suggested. Yet, current governance problems could be swept away if the current "I shoot pool with a guy so let's put him on the board" approach to corporate governance is replaced by identification of the skills needed; development of ability, knowledge or assessment center tests; and application of those tests to the rational selection of corporate boards.

The equation of justice and ethics has Aristotelian roots and has many links to the Judeo-Christian tradition. In an article in Online Athens Ronald Gerson discusses the ideas of Moses Maimonides, the famous Aristotelian Jewish philosopher, about the rungs of charity:

>"While he emphasizes anonymity in the higher rungs, when he reaches the eighth and highest level, this is what he says: 'The highest form of charity is to strengthen the hand of the poor by giving him a loan, or joining him in partnership, or training him out of his poverty, to help him establish himself.'"

That is, the best form of charity is to enable people to help themselves. This is done by empowering them with competence and the ability to succeed on their own. Good human resource management involves uncovering the competencies that can best support firms' performance; finding most competent employees; and finding ways to enable the most competent employees to flourish.