Monday, June 25, 2012

McCloskey Wisdom

I recommend a gorgeous essay by Deirdre McCloskey, "Factual Free Market Fairness" (hat tip, Kyle N's comment on Sunday's post "Legal News").  Some choice bits:
I’m from economics and history, and I’m here to help you... The High-Liberal political philosophers... rely...on a factual story which they take to be so obvious as to not require defense.  I claim that on the contrary their master narrative is mistaken, as anthropology or economics or history.
The story is, in a few brief mottos to stand for a rich intellectual tradition since the 1880s:  Modern life is complicated, and so we need government to regulate.  Government can do so well, and will not be regularly corrupted.  Since markets fail very frequently the government should step in to fix them.  Without a big government we cannot do certain noble things (Hoover Dam, the Interstates, NASA).  Antitrust works.  Businesses will exploit workers if government regulation and union contracts do not intervene.  Unions got us the 40-hour week.  Poor people are better off chiefly because of big government and unions.  The USA was never laissez faire.  Internal improvements were a good idea, and governmental from the start.  Profit is not a good guide.  Consumers are usually misled.  Advertising is bad. ....

No.  The master narrative of High Liberalism is mistaken factually.  Externalities do not imply that a government can do better.  Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers.  Efficiency is not the chief merit of a market economy: innovation is.  Rules arose in merchant courts and Quaker fixed prices long before governments started enforcing them.

How do I know that my narrative is better than yours?  The experiments of the 20th century told me so.  ...anyone who after the 20th century still thinks that thoroughgoing socialism, nationalism, imperialism, mobilization, central planning, regulation, zoning, price controls, tax policy, labor unions, business cartels, government spending, intrusive policing, adventurism in foreign policy, faith in entangling religion and politics, or most of the other thoroughgoing 19th-century proposals for governmental action are still neat, harmless ideas for improving our lives is not paying attention.

In the 19th and 20th centuries ordinary Europeans were hurt, not helped, by their colonial empires.  Economic growth in Russia was slowed, not accelerated, by Soviet central planning.  American Progressive regulation and its European anticipations protected monopolies of transportation like railways and protected monopolies of retailing like High-Street shops and protected monopolies of professional services like medicine, not the consumers.  “Protective” legislation in the United States and “family-wage” legislation in Europe subordinated women.  State-armed psychiatrists in America jailed homosexuals, and in Russia jailed democrats.  Some of the New Deal prevented rather than aided America’s recovery from the Great Depression.

Unions raised wages for plumbers and auto workers but reduced wages for the non-unionized.  Minimum wages protected union jobs but made the poor unemployable.  [JC: In both cases, I would add, minorities were especially hurt.] Building codes sometimes kept buildings from falling or burning down but always gave steady work to well-connected carpenters and electricians and made housing more expensive for the poor.  Zoning and planning permission has protected rich landlords rather than helping the poor.  Rent control makes the poor and the mentally ill unhousable, because no one will build inexpensive housing when it is forced by law to be expensive.  The sane and the already-rich get the rent-controlled apartments and the fancy townhouses in once-poor neighborhoods.

Regulation of electricity hurt householders by raising electricity costs, as did the ban on nuclear power.  The Securities Exchange Commission did not help small investors.  Federal deposit insurance made banks careless with depositors’ money. The conservation movement in the Western U. S. enriched ranchers who used federal lands for grazing and enriched lumber companies who used federal lands for clear cutting.  American and other attempts at prohibiting trade in recreational drugs resulted in higher drug consumption and the destruction of inner cities and the incarcerations of millions of young men.  Governments have outlawed needle exchanges and condom advertising, and denied the existence of AIDS.....
It goes on like this. There's no need for me to keep quoting. Just go bask in the whole original.

The case for free markets, and social freedom, is practical. It need not be ideological. It's based on the clear lessons of history. We all have the same stated goals. It's not about who cares more. It's about what works.

Admire McCloskey's post also for the writing. The author of "The Rhetoric of Economics" (Article and  Book -- an absolute must-read for every young economist) knows what she's doing! Rather than write an article expanding on one of these points, or a three-volume encyclopedia explaining the factual basis of all of them, she make the withering case by stating each point just once, but layering all of them in one place. 


  1. "Federal deposit insurance made banks careless with depositors’ money."

    Of course, anyone with passing knowledge of this topic can tell that this claim is stark raving lunatic.

    1. Private deposit insurance would set rates that would cover the losses if risks were taken and which would be high enough to deter risk taking. A federal program increases moral hazard that the government will bail out banks rather than just the depositors. Private insurers would have stronger motivation to monitor banks to set rates appropriately. Up until the S&L crisis, the FDIC charged fixed rates with no risk premium. Free market types predicted another banking crisis if that continued. They added only minor risk weighting in a few tiers didn't really cover the cost, and of course we had another banking crisis.

    2. when you have people who think that the S & L crisis was caused by risk, there is no hope for ever having a factual conversation about anything in this country.

      the S & L crisis was caused costs---the floating of rates paid for deposits, which before Carter had been fixed by law.

  2. As I commented to Dr McCloskey (who was kind enough to reply to me). Some people, will no doubt take her article as meaning that she thinks no actions of government are ever necessary or wise. But that is not the gist of her argument.

    Her argument is that before any Government action is taken to supposedly alleviate some market "failure" we must first ascertain if it will actually do any good, and if there might not be unintended consequences. Since, as she describes, history shows that such government action is more likely to cause problems than to solve them.

  3. This is a crisis in our education system. Virtually every professor who is not in the field of economics is brainwashed. They all refuse to acknowledge peer review. They accept it for their own field but reject it completely when it comes to documentation and logic in the social science. They are so trivialized that mathematic factors ... Anger...oooo
    Calculation is not part of their lives since they can sell their worthless research to the public without the public consent. They therefore have no need to recognize the limits of mortality and their cloistered lives makes them unfit to teach people about living in society, yet every student respects them as the literati. This is because our universities have become places to get permission. Not an education. Down with all liscencing. Our literati is the problem. They do not respect peer review. This is the definition of UNEDUCATED and this is every professor in the natural and physical sciences. And SOSH profs go in this too. It is so frustrating to talk about economics with these imbiciles. I believe we should advertise to do heart surgery for half the price that they do it in the hospital. Maybe they might begin to ask questions. I have doubts. We could also offer chemistry and physics doctorates in the Econ dept. my point being. If our literati rejects peer review, then it is no wonder that society rejects peer review.

    1. Did anyone notice that Obama appointed a physician as the world bank head??? Not a word from any of our literati. This is supposed to bring shame on our educated credentials. NOBODY in America thought this was wrong. Shame on the literati. No. They are too stupid to apply logic to life.

  4. yes, also these unemployment numbers are fake, created by the masters of High Liberalism. Down with the building codes !

    1893 8.09%
    1894 12.33%
    1895 11.11%
    1896 11.965
    1897 12.43%
    1898 11.62%
    1899 8.66%

  5. I just think this column shows nothing. It's a litany of past government failures. But without a similar litany of government successes, how can we know how effective government is, even on average? This isn't's just a rant.

    1. The job of an econmist ???
      phycians identify and cure biological desease.
      economists identify and cure social desease.
      it looks like you are in need of some electric shock theropy. I am itching to give it to you. Milton Friedman told us to give you hell and I take my job very seriously.

    2. If you didn't read the article and the debate it was set in then you failed to understand what she is saying. She is pointing out that there are other outcomes than the ones anticipated by those who are always pro-government.

      In other words, it is best to think clearly and go slowly instead of always jumping to the conclusion that big government is gonna save the day.

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  7. Regulation aimed at preventing greed-induced reckless behavior for the greater good is not always a bad idea. Example: Out of the 20 biggest Real Estate Markets, only 2 have reached (with just 1 surpassing) 2006 house price levels. Dallas is the one that reached its 2006 level. Houston is the only one that has surpassed it (by 5%). And all of this thanks to ... [wait for it]... PROPER MARKET REGULATION [gasp!]. Fun factoid: The regulation that kept Texas' Real Estate market from crashing in this crisis originally comes from legislation made by Coahuila's Legislature (back when Texas was Mexico). yup. Texas owes part of its current stability to 1830's Mexican lawmakers.

    1. I don't believe that any economist, even the most extreme Austrians, think that government never ever helps. Just that government solutions are notorious for unintended consequences. And those always must be considered.

  8. My eyes caught this sentence and I stopped. When this level of mendacity is paraded around as fact, watch out:

    In the 19th and 20th centuries ordinary Europeans were hurt, not helped, by their colonial empires.

    Last time I looked, this same folks were touting Globalization (cheap imports) as the salvation of the average man (whose wages have been stagnant for 35 years.

    The fact is that the empire gave G.B. access to unlimited raw materials for its factories at nominal prices, resulting in a transfer of wealth from the empire to the Isle.

    In fact, the author admits this truth when she complains that Africa's oil isn't for Africans.

  9. When we stop trying for exceptionalism, mediocrity will be acceptable, when mediocrity becomes acceptable we will degenerate to inferiority. Regulations that prevent some degree of greed ensure this will be the result.

  10. Wow. Typical McCloskey. Not one fact cited. Just insults and innuendo. No wonder economics is in such bad shape.


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