If you’ve been following the news at all, you have probably heard your fair share of Obama PropagandaRama. One such item on the ObamAgenda is the Cash for Clunkers scheme, where the government puts up the funds for a $4500 credit toward the purchase of a new car if someone brings in a “clunker” to the dealership. The objective, so the Obamanauts say, is to put more fuel efficient cars on the road AND save the auto industry in America.

Bollocks. What a massive load of bollocks. If you think that paying someone to destroy wealth is beneficial to anyone except the payee (and anyone else sitting on the gravy train along the way), you need to seriously reevaluate whether you should be forming opinions on economic issues at all.

Of course it’s going to stimulate auto sales (though not always American auto sales, so even that part of the mercantilist argument is shot). It’ll even raise the fraction of cars with over 30 MPG on the road. But that’s hardly a step forward for everyone, especially because everyone minus the auto salesmen and rebate-cashers are going to have to pay for this insanity.

The reasoning for this one is easy. There is an economic value in getting from point A to point B. For example, without this ability, some people would not be able to get to their jobs where they produce valuable goods and services. The cost of a car is part of the cost of assuring the ability to get from point A to point B. “Clunker” or not, the proposition for most people is a net benefit, whether they drive a 2009 Toyota Prius or a 1995 Jeep Cherokee. And the proof of this is that a 1995 Jeep Cherokee still has a market value (somewhere in the ballpark of $1500-$3500). While that’s only a small fraction of the value of the vehicle when it was driven off the lot, it’s still significant value that’s being destroyed when you aggregate it into thousands of trade-ins that are getting destroyed as a result of this program.

Imagine a program that paid people to not work for the last 10% of their working lifetimes. Not only would they not be working and producing, but others who are working and producing will have to pay for that program. The net impact is a double-loss of value – first, of the value of the goods and services that would have been initially produced by the program’s beneficiaries, and second, the value that is typically lost via wealth transfer due to resource mis-allocation. Think Napoleon paying people to dig ditches and fill them again (broken window fallacy). And, of course, nevermind the moral questionability of such a policy.

But the environmental impact, you say? It is indeed true that since there will be fewer  clunker automobiles on the road that there will be fewer sources of emissions on the road. But that’s a far cry from saying that our overall environmental impact will be lower. Obvious fact: to create and transport new energy efficient cars, energy is required, from pulling the metals out of the ground, to refining them, to assembling them, to shipping them off to the lot. Even if the policy still results in a net reduction in “environmental impact,” it won’t even be anything close to what the policy-peddlers claim it will be. And, of course, reduction in environmental impact isn’t an end in itself; if that were the case, then eradicating humankind would be the best policy. So the question that has to be asked is: are we paying an acceptable price for the net reduction we might get in an environmental impact? Of course not. Any policy that requires advanced management or planning is something the government will invariably bungle.

A "bungle" is possible, of course, only if you assume that the people who turn the gears in the government really have reduction in environmental impact in mind. Considering that bills like these function as A) transfers of wealth from one group (taxpayers) to another (the auto industry) and B) make-work to make it look like the administration is solving problems, there seems to be a bit more to it than the altruistic preservation of nature. At a price tag of $1 billion for the first wave, it shies in comparison to the spending that will result from Obamacare and the many other policies that are currently being rammed up our collective asses. It does, however, buy a disproportionate share of media time.

Also, take note that the Obama administration is refusing to release data regarding where the rebates went. Why would they want to, anyway? It’ll just give everyone some data to analyze and calculate the net effect of the policy which is, naturally, a huge waste of money. What would we do without the government?

My advice to individuals: as usual, take advantage of this program if the opportunity comes your way. After all, it’s you and your children and your children’s children’s taxes that are going to have to pay for this kind of absurd theft, and you might as well get some of it back. Hell, a $4500 credit would more than wipe out my individual tax contribution for 2008. It’s a start.

I was actually turking, working on Amazon’s Requester’s “Ask a Question” task when this article popped up: Restore Economic Confidence by Robbing Banks by Spencer Green. The article draws a parallel between our current economic crisis and the 60s bank robbing duo Bonnie & Clyde, suggesting that a new brand of “populist criminals stand up for all of us.”

The interesting thing about this article is that I can’t tell whether it’s a parody of Keynesianism, or it’s someone with a Keynesian viewpoint simply being facetious but still oblivious to the absurdities of his position. Reading it like a libertarian, I see good satire (which is basically true of any statist piece read as a consistent libertarian; it’s either something someone really written or really good satire of the nonsense people believe). Reading it as a real statist piece, it makes my stomach turn.

It’s posted under “Comedy News,” so I’m really thinking it’s satire, but I don’t know. Someone advise me?

Apparently, Hawaii’s hailed “universal child health care” initiative has been, well, uninitiated.

http://news.yahoo.com/s/ap/20081017/ap_on_he_me/child_health_hawaii

HONOLULU – Hawaii is dropping the only state universal child health care program in the country just seven months after it launched.

Gov. Linda Lingle’s administration cited budget shortfalls and other available health care options for eliminating funding for the program. A state official said families were dropping private coverage so their children would be eligible for the subsidized plan.

“People who were already able to afford health care began to stop paying for it so they could get it for free,” said Dr. Kenny Fink, the administrator for Med-QUEST at the Department of Human Services. “I don’t believe that was the intent of the program.”

…

Basically, this is an illustration of why mixed economies don’t work effectively. If the government guarantees a good or service of certain value to those who don’t have it, it will be exploited. More broadly, any entitlement system will be exploited because it’s simply economically stupid to do otherwise. If you can foist the cost of anything you need onto someone else and you don’t notice or have no moral qualms about the force involved, why wouldn’t you?

In terms of health care costs, the long-run result of this kind of health care plan is a distribution of health care costs precisely along the lines of the discriminatory tax system. In other words, what you end up “paying” for healthcare is a direct function of your politically-determined tax burden, not your level of health care consumption. And where individuals can consume without cost or consequence to themselves, there will naturally be an explosion of cost and consequence.

So what then must you do to preserve the system? Regulate individuals’ behavior? If smokers have to pay for their own healthcare, that’s an incentive against smoking. If someone else is going to pay the difference between the smoker’s tax contribution and their health care needs, then that’s simply going to fail to discourage smoking. OK, so regulate smoking. Tax cigarettes.

But then what about dietary considerations? Shall we regulate that as well, since people’s dietary decisions ultimately play a large role in determining their lifetime health care costs? Sure; regulate that, too.

What about genetic considerations? If some couples don’t have to pay for healthcare on their first two genetically ailing children, then they can afford two more that they otherwise wouldn’t have had if they had to foot their entire healthcare bill. Regulate that, as well?

It is clear that with an entitlement system like health care, one is put in the ethically compromising position of deciding what’s more important: sustaining the system of entitlements’ ability to meet its obligations, or allowing individuals to live their lives with their own bodies how they please. The two form a source of constant tension. And it’s not surprising: the former is socialism, the latter is the free market.

Economically, for reasons like the the craziness above, mixed economies simply are not sustainable in the long run. The moment a system of entitlements is put in place, incentives for good behavior go down for those who don’t have to pay for the consequences of their actions. This results in the system becoming costlier, to the point where it can not be sustained as is. At that point, there are two options: end the system or try to legislate cost-reducing good behavior (or against cost-raising bad behavior). Forgoing option 1, which Hawaii quite wisely took, we must then ask the question: does legislating good behavior work? Further, is it possible to not only legislate, but enforce every behavior which has a significant effect on healthcare costs? And if it is possible, are the costs of doing so even higher than the costs of letting bad behavior grow freely?

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From time to time an author or thinker will create a work, often in the Utopian genre, which lays out a detailed design of an ideal society. Fourier’s phalanestères are one example: they are described as the structure of a social unit, all the way down to the number of inhabitants and to the shape of the actual buildings that house them.

The general problem with these plans is that they lack generality over time and space. They fail the test of universality. The following will be my random walk through some of the problems with rationalist institutional construction and the subsequent problems of central planning. –more–>Most people would recognize that a particular building design or architecture can become obsolete. Many would laugh if there were an actual plan to actually construct Campanella’s City of the Sun or Fourier’s phalanxes in the present day. Their reasoning would be obvious: those things were designed in an entirely different time, under different circumstances. This is not to say that those authors and many like them put forth their ideas as timeless and never requiring change (some occasionally have had the delusion of technological growth simply stopping at one point), but a large degree of universality is frequently attached to more abstract kinds of social planning.

Some examples of central design are much more concrete than others, but central planning when it involves a particular kind of physical engineering is not the only instance in which central design encounters severe problems. It can also include institutional design. For a long time, it was thought to be sound business strategy to always have a middle-man for many kinds of transactions. With changes in technology, the middle-man has frequently been cut out, and with good reason: he’s no longer needed. Yet what would happen if, in my ideal construction of a society, there were always a middle man between wholesale and retail? What if I claimed that this middle man led to the greatest well-being of my society’s members? Economics would most certainly stand against me.

Despite that, all kinds of social manifestos, utopias, and even national constitutions establish permanent institutions as a feature of the society. It can be a ruling council of Thirteen, a Guardian class, or a president, a 480-member congress, and a 11-member judiciary. They make the mistake of integrating information available at the current time and creating a set of concrete institutions that are to be held as universal, but are not in fact universal. This is symptomatic of a general problem with leftist thought, which is that it is often too concrete-bound in its approach to society. Those contingent concretes – such as the current distribution of income and power in society – are then used as premises from which “universal principles” are derived, like: there’s always the class of the rich and the class of the poor, and the former always oppress the latter. The problem is that those supposedly universal principles only apply in narrowly contingent cases, which makes them not universal (not even considering whether the derivation of those principles is valid). They ignore changing circumstances and technology (never mind all the other fallacies, like the total fabrication of principles of justice, ignorance of actual factors that cause poverty, etc. )

The general empirical principle underlying this is that no mind or group of minds can ever gather, process, and coordinate all of the information necessary to perfectly govern complex human conduct. Even without any normative principles relating to individual autonomy, the idea of governance – especially economic governance – by few over the many is riddled with problems, in theory and as it has been demonstrated in practice. Every economic agent has a delicately unique and complex set of circumstances and preferences, and has direct access to his own set. Supposing that someone trying to make economic decisions for this person was acting totally altruistically (another very generous premise, again as demonstrated in practice), he would require a means of translating that agent’s changing circumstances and preferences (closely related to subjective experiences of pain, pleasure, etc. into usable information which he then must process to prescribe a course of action which must be then executed correctly. Multiply this process over thousands or millions of people, and there is quite a huge problem. It is wishful thinking already that one person can make decisions for another effectively (people already have enough problems making decisions for themselves), so it must be even more wishful to think that some people can do it for many others, even suspending for a moment the selfish interests of those decision makers.

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Only the free market (which is run by, precisely, nobody) is capable of coordinating the largely diffuse information spread among economic agents into forming an optimum output. This is not just an optimum regarding maximal manufacturing output for the lowest possible cost, a common straw man constructed against the free market to paint it as a cutthroat institution of total efficiency. That notion is just a Platonic hangover as if goods are produced for the goods’ sake which ignores why those goods are created in the first place: to enhance an individual’s well-being. The free market forms an optimum output with respect to the amount of resources available, and, more importantly, to the totality of the individual preferences of all market participants.

Very closely related to the information problem of central planning is pricing or, more broadly, valuation of goods, services, or virtually everything whose control and consumption can be transferred from one individual to another. Valuation by demand is self-defining: what someone is willing to pay for something is what it’s worth. No Platonism necessary, no intrinsicism, just pure empirical fact. In a centrally planned system that prohibits free association, value must be decided; otherwise, there is no meaningful way of allocating produced goods among the members of society. Again, suspending the selfish interests of the appraisers, this leads to bizarre information problems and to the humorous possibility of the “value” contributed by producers exceeding the amount of goods and services available in an economy, resulting in people deserving more than is possible to provide.

Another problem with central planning is, in brief, the actual presence of human beings. Markets can’t be avoided; the free market is all about incentives. Proof in practice of markets is the responsiveness to incentives embedded in human nature, no matter what system prevails. Black markets develop in response to government prohibitions; defying the law becomes a business, where risks are taken but large profits are reaped. In totalitarian systems (especially those with distributive wealth patterns, like in communism) individuals use their positions as or connections with bureaucrats and politicians in order to gain a bigger share of the pie. Even in our purportedly “free” economy in which the government intervenes to harness the “dangers” of the free market, interest groups spend billions of dollars yearly lobbying federal, state, and local governments getting laws passed in their favor to the detriment of others and electing politicians and bureaucrats who use the force of the law to increase business profits.

(Incidentally, the few errant cases in which people’s preferences are static and minimized do not undermine this universality of the human condition, for the reason that incentives can be structured to shun accumulation of material possessions or other conventional measures of well-being. Some tribes have a social value of personal prestige over wealth, and thus individual members will often spend all of their wealth on extravagant feasts for the tribe or on constructing large memorial edifices. )

Up to this point I’ve freely switched back and forth between central institutional design and central planning. Though there is a distinction between the two, they ultimately suffer from the same problems. First, even in a static environment, central design and planning simply lack the coordination of information necessary to achieve anything close to efficiency. Gathering the information is either next to impossible or is so costly to achieve that it defeats the purpose of establishing any institutions in the first place. Then, not only must the institution measure up to the circumstances of the time, it must be resilient and adaptable to the rapidly changing and non-ergodic world. The environment changes. Technology changes. People change. If the institution itself entails an active form of intervention (such as value arbitration, as in Marxism), the central planners constantly face the problem of incomplete and changing information.

Any societal plans that establish hard-and-fixed institutions and that rely on constant governance are prone to disaster, especially when abuse of power is considered. Up to this point, I’ve neglected to address that fact, which is the most important of all: much of the preceding discussion generously takes for granted that those involved in the central planning have no interest but doing their job the best they can. For the most part, that means that I’ve ignored an even more fundamental flaw in central planning. Yet even with that, it still had problems, didn’t it?

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