Organic and Industrial Economics

As much as I enjoy a good rap throw-down between the ghosts of long-dead economic theoreticians, and admire all who seek to bring economic education to wider audiences, I’ve been experimenting with a simpler approach lately – using alternate terminology. Especially when speaking with “liberals” (hereafter written without the quotes), I’ve found using the terms ‘industrial economics’ for Keynesian-derived approaches and ‘organic economics’ for Austrian School-rooted strategies, to be most effective.

The current era offers a unique opportunity for libertarian-types to forge relationships with liberals and make some progress on agenda items of common agreement. It’s been said that a liberal is a libertarian who doesn’t yet understand economics (of the sort that makes testable predictions and provides useful modeling). Something has changed when Bernie Sanders’s website looks like Ron Paul’s might have a few years ago, and we should be using this opportunity to engage and enlighten our misguided friends.

“You see, the problem you fail to grasp here is well understood by the economists of the Austrian School, but completely missed by the Keynesians.” “Wah, wah wah,” as Charlie Brown’s teacher would say. Let’s skip the history lessons and focus not on how the models came into being, but what they’re really describing. That there even are competing economic models is unknown to a large portion of the population, so what we need is a way to quickly distinguish and characterize them.

I’ve found the terms ‘organic’ and ‘industrial’ to be concise, useful, and apt. The Keynesian model, relying on government economic planners and central banks, really is the industrial model. It’s the Economy Factory, with its owners, foremen, and workers. By contrast, the Austrians tell us to distribute those decisions to the millions of capable minds in the marketplace, let the small principles of the pricing mechanism form spontaneous order and create allocation instructions, all without the participants being directly aware of their participation. That man in Lebanon, New Hampshire thinking about buying a sheet of plywood to build a dog house can be as aware of the increased need for plywood due to a hurricane in Homestead, Florida as a uracil nucleotide is of its current role in building a frog eyeball – yet the systems still work. Truly, the Austrians take the organic approach.

As a thought experiment, think of strolling around your local farmers’ market with a clipboard, asking people if they think the government should run based on organic or industrial economics. Ignoring the problem of people answering surveys rather than admitting ignorance, the terminology already has built-in positive bias for the target audience. Adding to that, it’s less likely to bring up questions about whether this has something to do with Arnold Schwarzenegger (or, yes, even Paul Hogan).

There are some liberals who really do care about increasing the size of government more than they care about the people they claim to fight for, but they’re not the voting majority. Most liberals (I’ll call them ‘values-liberals’ to distinguish from the power-mad variety) have been taught that big government is the only way to achieve what they care about, but they can be re-trained, and ultimately become allies. I have former-liberal friends who call themselves libertarians now, and their confidence is among the highest, as they’ve already tested the other hypothesis.

The organic (aka Austrian) economic model provides plenty for values-liberals to like. It focuses on production, not spending. When talking to your values-liberal friends, that means jobs (union jobs even) as widgets still need humans to make them. It demands sound money, which means helping poor people save to lift themselves out of poverty. It relies on free markets, which deliver goods to the needy at the best prices while also slashing crime (particularly interesting to our urban friends). This list can be (and surely has been) extended for volumes.

As much as we might have trouble understanding it, not everybody has spent hundreds of hours studying competing schools of economic theory, yet the fundamental concepts can be explained inside of five minutes. If they ask for the long backstory, then that’s their own fault, but to get started, just focus on the essential distinctions between organic and industrial economics.

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Pardon Our Dust

I have the blog moved over to the new WordPress infrastructure but haven’t had a chance to build proper re-direct maps yet.  Please use the search in the meantime.

 

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Please Vote Against the Fugitive Slave Act

[note: this is a letter I sent to NH Senators. Please feel free to re-use]

Please vote tomorrow to pass the most important piece of Civil Rights legislation in the Legislature this year, HB 146, “relative to the right of a jury to judge the application of the law in relationship to the facts in controversy.”

In the 1850’s, prosecutions under the Fugitive Slave Act were largely unsuccessful because juries refused to convict runaway slaves under an unjust law. They judged not the guilt or innocence of these men under the law, but rather the law itself. Undoubtedly, every New Hampshire legislator would today vote against a Fugitive Slave Act, but what I’m asking you to do tomorrow is to vote to ensure that such bad laws will always be defeated.

The jury as the last means of defense against unjust laws is a well-established tradition, predating the United States in English Common Law, and strongly upheld through modern times.

The US Supreme Court has consistently found this power to be essential, throughout the Country’s history:

"The jury has a right to judge both the law as well
 as the fact in controversy" - John Jay, Chief Justice 1789

"The jury has the right to determine both the law and the
 facts." -Samuel Chase, Justice 1796

"The jury has the power to bring a verdict in the teeth of
 both law and fact." - Oliver Wendel Holmes, Justice, 1902

"The law itself is on trial quite as much as the cause which
 is to be decided." Harlan Stone, Chief Justice, 1941

I have some personal experience with the tragedy of the status quo in the New Hampshire courts. Two years ago I was called to jury duty in Sullivan County Superior Court in Newport. After packing citizens in an overheated room like sardines, we were forced to watch an industrial video about the courts for quite a long time. It was riddled with half-truths, inaccuracies and falsehoods about the nature of the courts, the New Hampshire and US Constitutions, and the powers of juries (I noted at least forty). The worst of these was an indication that the Judge in the case be the final arbiter about the law. We were then told that if we had any problems with anything in the video we were to come to the Judge as each case was called. So, I did.

Successively, he called people selected as jurors and asked if there was any reason they could not serve. As a matter of conscience I approached the bench each time. I explained to him that the video made a travesty of our system of justice and that it was especially wrong about the powers of juries. He demanded to know where I got the gumption to question the Court, so I cited the aforementioned Supreme Court decisions. I was dismissed in each case and returned home, ‘merely’ having wasted a day.

“The pages of history shine on instances of the jury’s exercise of its prerogative to disregard instructions of the judge,” the Court wrote in United States v. Dougherty, 473 F. 2d 1113 – Court of Appeals, Dist. of Columbia Circuit 1972. I recommend a reading of the entire decision for a good modern interpretation of the powers of juries.

Wouldn’t it be grand if the governments were immune from passing bad, unjust, and immoral legislation? Yet, each time a bad bill is repealed, we have the judgment of the Legislature that it previously erred. Between the time a bad bill is passed and the time it is repealed, we have the juries to protect our civil rights. Letting them know that they have this essential power isn’t too much to ask.

Thank you for your consideration.

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New Medical Schools in the United States

I’ve frequently heard the claim that one reason for high physicians’ salaries is that the AMA hasn’t allowed new medical schools to be built in the United States. By keeping supply low, the theory goes, the demand is high and accordingly so are the prices. I may have even repeated this once or twice without checking.

Well, the theory may be plausible, but data contradicts it. At least current data – new medical schools are currently being built. See the chart below:

Chart of New Medical Schools

There are even more slated to open in the coming years.

That said, there’s a surprising gap from the late 70’s to the early 2000’s. Perhaps this was true in the past, and people just haven’t gotten over their old anecdotes.

With the Baby Boomer physicians retiring in the coming decade (about half of all of them) just as the Baby Boomers are needing more medical care, there is a serious shortage of physicians on the horizon. Whether these new medical schools can fill the gap will remain to be seen. Even if they can make up the difference, there will be a serious reduction in the average experience level of the medical profession, which in itself will reduce the average salary. Unless there aren’t enough physicians to go around.

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New Medical Schools in the United States

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Teachers’ Unions – The Ultimate Scapegoat?

The data really isn’t clear that teachers’ unions have a causal benefit for students. In the 16 US States without teachers’ unions, when controlling for demographics, the data is mixed. Some of the positive systems that teachers’ unions tend to bring to the schools (peer review, etc.) have not been controlled for.

Taxpayer bills seem to inevitably be higher. This is a negative for the taxpayer if there’s not a clear demonstrable benefit. What is clear is that the model is incompatible with a free society (even FDR said as much), and there are no circuit-breakers to stop an out-of-control union in the public sector as there are in the private sector (the monopoly problem). State laws that remove incentives for unions to bargain only further tip the scales.

Reforming the corrupt system is the better option. Unions can work well in the private sector. In cities where inner-city youth have been given the option to take vouchers to private schools, all have flourished. An ecosystem of competing schools would not be incompatible with teachers’ unions, as the ones that negotiate bad contracts would simply be unable to provide an education for the voucher amount (or voucher+voluntary contribution). In many respects, blaming the teachers’ union for the problems of a State-enforced monopoly is scapegoating.

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Paula Deen Riding a Dewback

paula deen on a dewback/

Look, Sir, lard!

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Echoes of the Federal Reserve

In our town there have been endless meetings about combining some of the lower grades in school because there are so few students.  As you can imagine, there are people on both sides of the issue and tensions run high.  Our principal is applying to other schools, perhaps because of the shrinking demographics and the lack of career advancement  potential with a small school (and the stresses involved with managing such a decline).

But, why is this happening? Because there are fewer young families moving to town.

Why?  Because the housing prices are so high, advancing far more quickly than wages.

Why?  Because of the housing bubble.

Why?  Because Alan Greenspan created it with artificially low interest rates to try to avoid the pain of the NASDAQ collapse.

The true costs of the Federal Reserve are likely incalculable, but they’re much higher than any standard economic analysis is likely to reveal.  This is just one example of why we can no longer afford the Federal Reserve.

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Health Insurance Third Way

There are clear problems with the existing health insurance regulations, but one that gets notable attention is that purchasing health insurance 'across state lines' is forbidden.

Some argue for the need for States' 'protection' regimes, while others argue for the efficiency of competition (like car insurance).  Federalists are often torn between the States' competition and market competition, and fear centralized rules at the Federal level.

Even the Congressional Budget office makes a strong argument for enabling competition, saying:

“Therefore, CBO expects that there would be an increase in the number of relatively healthy individuals, and a decrease in the number of individuals expected to have relatively high cost, who buy individual coverage.”

But the choices presented are a false dichotomy: either the States regulate and force their preferences on their residents, or the Federal Government decides the regulations.

We already have a hybrid situation, in limited situations (College students, new movers, temporary workers, etc.): If I have a policy purchased under one State’s regime and visit another State and need to use the insurance, the originating State’s regime dictates my contract terms, even if care is provided elsewhere. This doesn’t seem to bother anybody or have adverse outcomes.

So, perhaps an acceptable middle ground might be to allow people to purchase policies as if they were residents of the State of their choosing, much as an individual can form a corporation in another State.

Then, each State can compete in the laboratory with their regulatory regimes, but people/patients can still sign up for as much State ‘protection’ as they feel comfortable with. The States won’t have to give up their powers, but they will have to develop compelling offerings. The only thing the States will have to give up is the power to force their regime on the residents of the geographic area they claimas  their jurisdiction, but it’d take a dyed-in-the-wool authoritarian to accept that as a necessary condition for good health policy.

Federalists could accept this as a way of not centralizing authority but allowing competition.

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Airport Security Screenings vs. Car Buying

The tactic of using an airplane as a missile was only valid until 9:57 AM on 9/11/2001. An airplane full of ordinary Americans figured out the security equation over a field in Shanksville, PA. The hardened cockpit doors made double-sure immediately thereafter.


So, the public risk has been eliminated. There are private risks – getting on an airplane with no security screening would be minimally more risky than getting on an airplane with full strips and body cavity searches, but there's a tremendous privacy and cost benefit to the former. The risk differential is a smaller margin than encountered when deciding what kind of motor vehicle to drive, but these are the kinds of risks a free society leaves with the People to decide.

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