Pitchfork Economics

I should probably apologize for not having posted in so long; however, that is the nice thing about having this blog. One of my friends suggested that I start listening to the podcast "Pitchfork Economics" shown above. Now realize, my friend and I are about as far apart on the liberal/conservative spectrum as we could possibly be. In spite of that, I believe our discourse has always been impassioned, yet open minded and respectful. I think our society could use more of what my friend and I are trying to do. With that in mind, I started listening to the podcast. As expected, it has a very, for lack of a better word, "progressive" bent, and I almost turned it off when they started impugning my economic hero, Milton Friedman. I decided to stick around anyway, and came to realize that, economically speaking, we're not as far apart as I would have expected. I too believe that markets can fail, economic inequality occurs, etc. However, I differ as to the solution. Pitchfork's trust is with "benevolent dictators" (e.g. government) to bring policy change to the marketplace, whereas I distrust government to solve anything. As bad as the results of our economic system may be perceived, there's been no other economic system through the ages that holds a candle to the productive power of capitalism. As for me personally, I cannot divorce my economic thinking from my Christian values. I genuinely love my employees, want the best for them, and implement business strategy accordingly. I cannot ignore the plight of the homeless and the downtrodden, so I deploy my resources, as best I see fit, to help in these issues. I live in Fresno, CA and was excited when a guest on the podcast used Fresno as an example of developing a climate for economic inclusion. However, my economic thinking sometimes clashes with the benevolence I feel. For instance, I recently ran into someone who works with an organization that gives tents to the homeless. As I said in earlier posts, even the homeless respond to incentives. Providing tents incentivizes homelessness, and therefore, my resources are better deployed to the local Fresno Mission that works directly with the homeless, but does not incentivize the problem.

Regarding wealth inequality, I'm not disturbed by the wealth of a guy like Jeff Bezos. Amazon allowed me to quarantine during Covid, and yet have everything I need shipped directly to my door with no human intervention! Would Jeff Bezos, and his creation exist in any other economic setting? I think not. When I taught economics at the Air Force Academy, my dear friend Allen Moore was an expert in Soviet economics (an oxymoron I know). He had a large chart in his office of how the Soviet Union one year had the largest grain crop on record, yet the end result were bread lines. How was that possible? Lack of mechanization, spoilage, broken equipment...the list went on, and on. The things we take for granted here in the US -- adequate grocery supply at Costco, etc., are not automatic when alternate economic systems are employed. Many Soviet defectors, when interviewed, were most surprised of all things, by our abundantly stocked grocery stores! One of the greatest disappointments in my economic education was when I entered graduate school. Much to my surprise, many of the faculty derided the free market system. When pressed, they felt that we had matured to the point where a more "socialized" economic system would now be possible. Technology, and our more advanced knowledge, would shield us from the negative outcomes of the Soviet Union. I never bought into this. Once you go down the road of unchecked government intervention in the market place (beyond fixing clear market failures) you will inevitably end up on the same path as the soviets. Do you need examples? How about USPS? The VA medical system? Dare I say, the public education system? Attempts at "throwing more money" at any of these bureaucracies has not, and will never work.

A recent Pitchfork episode dealt with an "Economic Bill of Rights." This Economic Bill of Rights would include (among other things):

1) Free education up to, and including college.

2) The right to a job, and a "living" wage.

3) The right to a home.

By having this bill of rights, they assume that greater economic inclusion would occur, leading to GDP growth. As per most "progressive" discussion, this all sounds marvelous. It assumes a "benevolent dictator" passing out free benefits, which in turn causes economic growth. Most of these ideas ignore the bedrock of microeconomic theory -- people respond to incentives. First of all, the added expenditures of these ideas would necessarily increase the existing bureaucracy. HUD would be tasked with building new homes for the marginalized. The welfare department would be enlarged to insure "basic income" is distributed, again to the marginalized. Does anyone think these bureaucracies deserve additional funding? Let's put USPS in charge of the new bill of rights! There is no benevolent bureaucracy. There's plenty of economic research to suggest that government bureaucrats are more interested in increasing their budgets, than pursuing any sense of economic efficiency. In addition, the marginalized recipients of this new government largesse are economic actors themselves. My basic problem with refuting these ideas is that I no longer read economic research; however, I've got a lifetime of anecdotal economic observation. By the way, a fundamental lesson of economic research it that you can lie with statistics -- never trust anyone except your mother and check up on her every once in awhile! I'll never forget when my oldest son was in elementary school. The teacher asked what everyone wanted to be when they grow up. The usual answers surfaced: policeman, fireman, nurse, etc. Once little girl raised her hand and said she wanted to be on welfare when she grows up. When my son told me this, I didn't believe him, so I asked his teacher who was a good friend of mine. She responded, "Oh yes, In fact, her mother and grandmother have been on welfare most of their lives..." Is it surprising to think that if we incentivize laziness, that plenty will take you up on it and not work? Again, without my Christian beliefs, this would make perfect economic sense. "Is anyone righteous? No, not one!" We are born wicked and remain so, unless by the grace of God, we become aware of the error of our ways. I'm actually surprised that capitalism achieves any measure of success in an economy over time for this very reason. I'd like someone to explain to me how incentivizing people to stay home increases productivity? Anyone? Anyone?

The podcast host(s) feel that the public face of economics has been, for far too long, dominated by old conservative dudes (like me) preaching free markets at the expense of all else. In fact, they believe, guys like Milton Friedman, lacked fundamental scientific analysis in their economic work, and were "hired guns" for businesses looking for less regulation. I will say that Milton Friedman was indeed a great orator and story teller. I've posted many of his musings here in this blog. In fact, I've yet to see any contemporary economist with this skill set. Having taught introductory economics for most of my adult life, Pitchfork assumes that I've been "over selling" the free market system. What's ironic here is that the one "throwing the stones" is Nick Hanauer. Nick is enormously wealthy and has clearly benefited from the capitalist system in place, yet now rails against it. I haven't been in the classroom for many years; however, microeconomic theory is pretty ironclad. The microeconomic definition of a "perfectly competitive" market is very narrow: many buyers and sellers, homogeneous product, perfect information, etc., etc. When any of these assumptions are not met, the market may "fail." Classic examples of market failure are: Monopolies (only one seller), Oligopoly (imperfect information), and Externalities. I never neglected discussing these failures in my teaching, but I did not allow them to dominate the discussion either. Market failure, in one area of the economy, does not categorically derail the entire economic system, and in fact, economists have put forth excellent ideas as to how best to deal with these failures.

I'd like to speak directly to Externalities, because climate change would fall into that category. Pitchfork holds that climate change could properly reshape economics, so let's discuss. One way an externality occurs is when the free market fails to account for all the "marginal costs" of production. On a personal level, this means that as I'm driving around in my petroleum powered car, I'm not considering the true cost to society of my pollution. From society's standpoint, this leads to too much pollution. Well, how much it too much? Economics, at its core, is about measuring marginal costs and marginal benefits. Without getting into the weeds, society's overall welfare is maximized when Marginal social cost = Marginal social benefit. For instance, if we all stayed home and did not drive, what is the marginal benefit of driving that first 30 min? It's pretty darn high, because stuck at home, nothing gets done, yet the marginal cost is virtually zero (because no one is driving hence no pollution). Moral of the story: If the marginal benefit of doing something exceeds the marginal cost, then do it! Society is better off if we allow some driving at the expense of some pollution. By the way, don't fall into the trap of so many binary thinkers. By this I mean, thinking that pollution is bad; therefore, we must ban all driving. Everything we do incurs a cost. Consider plastic bags. In California, plastic bags are "bad"; therefore we banned them. But wait, Covid hit, and suddenly reusable bags being handled by many, vs. plastic (one use) bags seemed like a bad idea, so the plastic bag ban was lifted. Did plastic bags suddenly become good? Economists have a pretty simple solution here: tax the use of plastic bags, and use the proceeds to clean up the oceans. Please note that I'm actually suggesting government intervention in the marketplace here! Low and behold, a Milton Friedman loving economist suggesting a role for government in the marketplace.

That brings me to another aspect of academic research, and climate change. As previously stated, you can lie with statistics. Lieing works both ways, for conservatives and progressives alike! I do not deny that the climate is changing. However, in my economic/scientific education, I learned that we must be very careful when trying to differentiate between causality and correlation. It is clear that climate change is correlated with increased human productive activity, but is it caused by human activity? My fear is that we may be victims of the worst case of "post hoc ergo propter hoc" in history. Riddle me this: once upon a time, before many humans, the climate changed, and the ice age ended. Clearly humans did not cause this, so what did? Assuming human causality for climate change will have huge economic consequences; however, if I'm even remotely right, vast economic sums will be flung at this problem, but at the end of the day, the climate may continue to change. For those scientists who flout their expertise, remember all the scientists who said the earth was flat...