Richer Than Rockefeller

Our final section in Chapter 5 (Political Economy) of George Will’s The Conservative Sensibility (2019) is “Being Richer Then Rockefeller”.  Historians estimate that on September 29, 1916 John D. Rockefeller became America’s first billionaire.  An economist once asked if you want to be a billionaire – then accept this bargain.  You can be as rich as Rockefeller but only if you consent to live in 1916.  Would you do it?  George Will proceeds to detail all kinds of dramatic lifestyle advantages and benefits that we have today that did not exist in 1916.  You live far, far better now than a billionaire did in 1916!

 

Wealth is relative over time and across people. It has a critical psychological component.  Americans have always and will always be restless and a bit insecure about the wealth they control – that’s American economic culture as Alexis de Tocqueville documented in 1835.  Government cannot and should not attempt to remove free market discipline and risk.  (Ben Franklin said those that would give up a little freedom for a little security deserve neither)

 

I’ll continue to pound away at these notions week after week while polemic propagandist pinheads in the public square try and deceive people into believing that socialism (or a European style welfare state) will improve lives. It would only improve the lives of the politicians who are somehow able to con voters into believing their bullshit.  Here are some books that discuss the absolutely critical impact psychology has on economics (summaries by Tom Butler-Bowdon from his 50 Economics Classics (2017)):

The Theory of the Leisure Class (1899) – Societies are wholly driven by emulation and the need for status. A goal of life in capitalism is not to have to work – or to take the appearance of not needing to work.

Protestant Ethic and the Spirt of Capitalism (1904) – The spirit of capitalism is not greed and consumption, but the creation of order and the best use of resources. For those with a “calling”, there is no problem in reconciling the spiritual and economic aspects of life.

Misbehaving: The Making of Behavioral Economics (2015) – “Homo economicus”, or rational man, is quite a different species than homo sapiens, which often seems to make economic decision that seem to go against its own interests.

Bourgeois Equality (2016) Capitalism did not create prosperity by itself. The historically recent philosophy of liberalism unleashed the powerful potential of unprivileged people. The world became wealthy thanks the ideas of classic liberalism.

 

George Will concludes: “Americans have no alternative to embracing economic dynamism, with its frictions, and casualties and uncertainties.  Otherwise they must live with the certainty of stagnation and the zero-sum politics of distributional conflicts driven by government as the allocator of wealth and opportunity”.  – – living in the ‘security of the barracks’ instead of enjoying the liberty our nation’s founders bequeathed to us.

 

Stay secure and successful – richer than Rockefeller.

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The Twisted Reasoning of Wealth Redistributionists

Chapter 5 of George Will’s The Conservative Sensibility (2019) calls out the twisted logic of economists and pundits who advocate wholesale wealth redistribution and expansive Government.  Their reasoning is increasingly and demonstrably flawed. Will leans on the sarcastic, humorously on-point wisdom of John Cochrane, who blogs at The Grumpy Economist, to make his point.  Here is a killer article from 2014, which should embarrass Nobel laureates Joe Stiglitz and Paul Krugman:

https://johnhcochrane.blogspot.com/2014/09/why-and-how-we-care-about-inequality.html

 

That article tracks and explains nicely so much of what we study here weekly that I was surprised I had not seen it until the book we’re examining cited it. George Will (whom The Wall Street Journal called “the most powerful journalist in America”) publishes a book in 2019 quoting a 2014 Cochrane essay at length.  Cochrane’s arguments have not been refuted for over 5 years.  Here’s his 1-2-3 anti-wealth redistribution/anti-statist knockout punch.

 

First, the consumption gap between the rich and the middle class is far less dramatic than the wealth gap. “Rich people mostly give away or reinvest their wealth.  It’s hard to see just how this is a problem”.  Today, Marie Antoinette is not living in splendor saying let them eat cake while peasants starve and die in the streets.  But Joseph Stiglitz argues that inequality is a problem because of “a well-documented lifestyle effect – people outside the top one percent increasingly live beyond their means”, what he calls a “trickle-down behaviorism”.  Cochrane writes “Aha! Our vegetable picker in Fresno hears that the number of hedge fund managers in Greenwich with private jets has doubled.  So, he goes out and buys a pickup truck he can’t afford.”  It’s a dumb argument that wealth redistribution is needed to encourage thrift in the lower class.

 

Second, some economists argue the exact opposite. Rich people save too much and poor people do not save enough.  Redistributing wealth from rich to poor stimulates consumption that avoids “secular stagnation” (see my last post).  Cochrane writes “I see.  Now the problem is too much saving, not too much consumption.  We need to forcibly transfer wealth from the rich to the poor in order to overcome our deep problem of national thriftiness”.

 

Finally, the pattern of egalitarians deciding on the result they want – expansive Government that confiscates and redistributes wealth – and then coming up with a problem that justifies it, continues. How about money in politics? The root of evil inequality is that the wealthy buy political influence.  The intellectual contortions and twists of logic are astounding.  The argument is that campaign contributions unfairly determine electoral outcomes (a dubious empirical claim).  So we must purify politics by prohibiting private money to avoid corruption.  What they really mean is that they want government to confiscate and regulate private wealth so that individual wealth cannot influence politics in directions they don’t like.

 

“If the central problem is rent-seeking, abuse of power of the State to deliver economic goods to the wealthy and politically powerful, how in the world is more government the answer?”  Redistribution isn’t an efficient, costless transfer to help the poor.  Bloated, corrupt, inefficient Government must forcibly impose it.  The problem is not that wealth is the primary determinant of political power but rather that political power is too often the primary determinant of wealth.

 

Next week, we conclude our romp through Chapter 5 of The Conservative Sensibility.

Positional Striving

The next section in Chapter 5 of George Will’s The Conservative Sensibility (2019) is Envy, Positional Striving, and Andrew Carnegie’s Sixteen Cents.  It circles back around on the ideas introduced here on 7/23/19, as we entered the chapter. Envy is a negative human emotion.  And envy increases as society becomes wealthier.  This was observed by Fred Hirsch, Social Limits to Growth (1976), in which he distinguishes the “material economy” from the “positional economy”.

 

The material economy is the aggregate production of goods and services. The positional economy refers to the goods and services that can only be enjoyed by a minority of people.  As American affluence satisfied more and more basic needs, money, aspiration and energy have turned to “positional competition” – quest for the good life – nice home, cool car, awesome vacations, “superior” job and overall financial security. The good life also provides plenty of time to pursue passions – athletics, art, music, literature – whether you get paid for it or not.  Not everyone can enjoy these things because they are, by definition, relative.

 

Positional striving is a zero sum game where one person’s gain is necessarily a loss for others. It produces substantial wealth inequality.  Isn’t that bad?  Well, a society that values individualism, enterprise and economic freedom should not be surprised or scandalized by extreme wealth inequality.  We should welcome it because the only real ways that “fix it” are damaging and unpleasant (e.g. war, revolution, plague, stock market crash).  There is a fine line between positional striving and politically generated resentment, which is just evil envy.  George Will writes that positional striving results in a healthy “deferral of gratification that makes possible high rates of investment in capital…good for society as a whole and are encouraged by high rewards for those who accept the discipline involved”.

 

Besides, we learned in the first year of this Blog on 9/22/15 from philosopher Harry G. Frankfurt that inequality is not objectionable as a matter of moral reasoning. His books On Inequality (2015) and On Bullshit (2005) make it clear that anyone claiming otherwise is either bullshitting or attempting to impose an economically damaging political agenda of Big Government wealth redistribution.  Those arguers try and convince you that you don’t have enough – they’re wrong, your personal war chest is plenty; or, that others have way too much – seeking to stir up unfounded envy and resentment – don’t let them.

 

Next week, before we leave this section of the chapter, the Grumpy Economist is back at it ferreting out the folly of fallacious economists like Paul Krugman and Joseph Stiglitz.

Preview: if you follow economic policy debate, read John Cochrane’s 8/23/19 blog post.

https://johnhcochrane.blogspot.com/2019/08/summers-tweet-stream-on-secular.html

He is incredulous that a few economists continue to push “secular stagnation” – that term seems to be used by economists making a political argument but disguising it as an economic one.

Wealth Inequality is Unlovely NOT Unjust

 

George Will makes an excellent point in our next section of Chapter 5 of The Conservative Sensibility (2019) at pg. 273 “Few would disagree with the proposition that there are some extremes of inequality that are intolerably unlovely.  That word puts off, for the moment, the use of the more problematic unjust, which propels the argument into deep and choppy philosophic waters…. It is not logically entailed that social arrangements that produce inequalities, even unlovely ones, are for that reason unjust.”

 

Discussion (or argument) about who should have what and how much are inherently moral, so it is helpful to begin by deploying reason, before resorting to moral judgement. We spent some time here probing the book Science and the Good (2018), which concludes that moral truth is real but highly elusive; no one will ever have all the answers.  There are, however, many good historic moral arguments against wealth re-distribution:

 

Thomas Jefferson (1816) – To take from one, because it is thought that his industry and that of his father has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry or skill, is to violate arbitrarily the first principle of association, the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.

 

Abraham Lincoln (1864) – Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built.

 

George Will’s overall point in this section is that we don’t even need to get into moral arguments about wealth redistribution via taxation; it is logically ineffective. Will does not believe we should just unquestionably accept “unlovely” market allocations of wealth, rather, he believes it is wrong to try and inject arrogant policy makers views into our economy based on their two-fold over confidence in (1) their moral vision of the ‘correct’ distribution of social rewards; and (2) their ability to engineer this condition, which of course will require constant fine-tuning by them.  The section concludes that the case for progressive taxation and redistribution is uneasy^* for three reasons:

1. Markets (the consensual transactions of millions of people making billions of daily decisions) – deserve initial deference.
2. Inequalities of wealth, which arise from unequal attitudes (work ethic and values) along with unequal aptitudes (abilities, strength, intelligence, creativity) are essential to adding value to the economy; they are not prima facie disturbing.
3. To the extent inequalities are disturbing, progressive taxation and redistribution is a blunt and ineffective solution for the reasons we’ve explored here for years.

Tell me why again? Because most of the transmission of cultural values that build wealth occur through the family and no government program of taxation and redistribution can completely neutralize this vital leg up. Cultural inheritance necessitates inequality.

 

I’ll continue belaboring these points here weekly. The longer I go without finding a decent argument refuting the conclusion that wealth redistribution is irrational and immoral, the more confident I am that Government can never lay siege to my clients’ wealth and well-being.

 

* “Uneasy” refers to a famous essay by two Univ. of Chicago Law School professors – The Uneasy Case for Progressive Taxation (1952).  They annihilated back then the arguments I still see being made today for collectivist nonsense (“you didn’t build that!”) and the tired old marginal utility of wealth thing [additional $1,000 makes a poor person happier than an additional $1,000 to a rich one].  That ostensibly scientific form of utility/sacrifice theory deviously conceals that the arguer is making an aesthetic judgment (it’s “unlovely” for the poor to be poor) or a moral judgment (it’s unjust for the rich to be rich).

Contradiction and Government Largesse

I attended a lovely wedding at The University of Chicago on Saturday. While admiring the intricately ornate Rockefeller Chapel, my mind turned to the great free market economists who worked in the hallowed halls of this particular university.  In the 1960s, they began merrily rowing against leftist political currents that both then and now flow through out-of-touch intellectuals.

 

Our next section in Chapter 5 of The Conservative Sensibility (2019) is “Welcoming Waywardness.”  It delights in the wildly unpredictable surprises of an open, free market society.  “Freedom-loving people should relish the way the future unfolds in spurts that defy anticipation.”  Leftist social planners hate this and they despise people like George Will who are “wary of government supplanting markets as the primary allocators of resources and opportunities.”

 

Progressives see Americans as incompetent victims, to be treated as wards of a government run by, you guessed it, progressives. They look down their upturned noses at free markets and those who thrive in them.  George Will writes that “intellectuals’ disdain is a manifestation of resentment about the fact that markets generally function nicely without their supervision.” Those of us engaged in commerce make the intellectual class possible since “intellectuals are not inexpensive”.  Their disdain for us is the resentful ingratitude of power grubbing malcontents.  They are “disconcerted by the permanent unpredictability of things in a capitalist society, which defeats those who delight in discerning and then planning the future.”

 

Having heaped requisite scorn on the chattering class, George Will next articulates the natural contradiction in both (1) laissez-faire capitalism; and its alternative, (2) The welfare state:

(1) Capitalism flourishes because of virtues that its flourishing undermines. Its success requires thrift, industriousness and deferral of gratification, but this success produces abundance, expanding leisure, and the emancipation of appetites, all of which weaken capitalism’s moral prerequisites.

(2) Welfare states produce in citizens an entitlement mentality and a low pain threshold. That mentality inflames appetites for more entitlements, broadly construed to include all government benefits and protections that contribute to material well-being, enhanced security, and enlarged leisure. The low pain threshold causes recoil from the rigors, insecurities and dislocations inherent in the creative destruction of dynamic capitalism.

 

Will concludes this section of his book with stark warnings against government intrusion into the allocation of economic benefit. Many historical thinkers cautioned against the damage government largesse wreaks on society.  Economic peril is produced when competition to capture government favoritism supplants free market competition.

 

Next week, we turn to why attempted government wealth redistribution via taxation is increasingly frenzied, futile and destructive.

Hayekian Humility

The next section in the chapter of the book The Conservative Sensibility (2019) on political economy we cover is “It’s Easy to Raise Snakes” – it’s George Will’s nod to economist John Cochrane, who blogs at The Grumpy Economist.  Cochrane became an economist “one day very young, reading a newspaper story about a program to get rid of poisonous snakes.  The Government had offered a bounty on each dead snake.  Guess what happened?  Hint:  It’s easy to raise snakes.”

 

The law of unintended consequences is powerful and insurmountably frustrating to social planners. Government intervention intended to tame economic processes are apt to be larger than, and opposite to, the intended effects.  It’s remarkable that our hubristic elites don’t understand that.  Decades from now, historians will look back at today’s mainstream writers and wonder – how could those guys be such arrogant idiots?  We live in sad intellectual times with regard to knowledge of the political economy.  But there is solace in reading the work of George F. Will, John H. Cochrane and many others.  They rejoice in ‘Haykean Humility’ (Hayek taught us that knowledge is diffuse – decentralized).  Free market thinkers easily demolish bad ideas of big government Statist writers like, for example, economist Paul Krugman – who has astounded me for years with his wonderment of wrongness.

 

One might ask why a Nobel Prize winning economist is wrong, and you, a smart-ass lowly lawyer, correct? Maybe it’s you that’s wrong Overmann!  No, it’s many others, much smarter and credentialed than me, who illuminate the reality of intellectual and moral truth and false certitude.  I’m not a terribly original thinker – just a relentless seeker of knowledge, especially of political economy and law.  I’m humble enough to realize that I’ll only acquire a smidgen of the answers but smart enough to see wrong ones illuminated.  I’ll continue devoting way too much time analyzing work of brilliant, intellectually honest and highly observant writers.  It’s they who are clearly correct and elucidate the weakness of wrong viewpoints on wealth, not me.  I just enjoy understanding and presenting their reasoning – kind of made a hobby out of it.

 

Cochrane’s 7/24/19 post (Notes from A Nameless Conference) on his Grumpy Economist blog illustrates our elites’ wrong-headedness and complete lack of self-awareness. It made me laugh. And his 7/22/19 post on the syllabus of an actual college course named “Everything is F**cked” is hilarious (that’s also the name of blogger Mark Manson’s new book by the way).

Here’s Cochrane exposing Krugman’s folly in 2009:

https://faculty.chicagobooth.edu/john.cochrane/research/Papers/krugman_response.htm

I had to look up what “swift-boat them” means at the end of that article. …Shheeeshk! – the nastiness of today’s political discourse is frightening.  Why is everyone so angry, dishonest, uninformed and mean?

[Scott Alexander on 8/12/19 at Slate Star Codex cites authors who believe we’re in a “secular cycle” in which everyone hates each other – ‘inequality increases, but concern about inequality increases even more, zero-sum thinking predominates, and social trust craters (both because people are actually defecting, and because it’s in lots of people’s interest to play up the degree to which people are defecting). By the crisis phase, partisanship is much stronger than patriotism and radicals are talking openly about how violence is ethically obligatory’.]  …Whoa.

 

Next week, we wade into waves of waywardness. Come on – it’ll be fun!

Alexander Hamilton

This is a bonus edition of the War Chest. My daughter won a couple of front row seats to the Broadway musical Hamilton.  We’d gone before but yesterday’s performance of that incredible production moved me even more.  There are dozens of index references to Alexander Hamilton (1757-1804) in George Will’s Conservative Sensibility (2019), chapter 5 of which we are currently exploring.  The finale of Act One of the musical Hamilton points to the fact that Hamilton wrote 51 of the 85 Federalist Papers.  The substance of his ideas and writings are beyond influential.  They are the bedrock moral foundation of our nation.

 

It’s a shame that so many lack appreciation of and gratitude for the Founding Father’s moral vision. The philosophy that makes America so different and yes so superior to other countries is an anti-lazy work ethos.  A commercial society, wrote Hamilton, provides a “greater scope for the diversity of talents and dispositions which discriminate men from each other… To cherish and stimulate the activity of the human mind, by multiplying the objects of enterprise, is not among the least considerable of the expedients, by which the wealth of a nation may be promoted.”

 

Lyrics in the musical have characters asking Hamilton multiple times “Why do your write like your running out of time?” His mental energy was legendary – and contagious.  He incited the spirit of a success-oriented, hard-working, entrepreneurial, wealthy investor class that propels and encourages the betterment of our great nation.  He wrote like he was running out of time, not for fear of death – he was clearly not afraid to die.  Rather, he never wanted to squander the precious resource of time.  And so we should also strive to never waste time.  Get to work achieving, producing, understanding and accomplishing.  See y’all Tuesday.