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July 2005

So what's wrong with the Laffer Curve?

Link: RGE - Deja Vu Voodoo Economics...or Supply Side Voodoo Black Magic....

I was yesterday morning on CNBC debating Arthur Laffer on supply side economics and the Bush tax cuts. Laffer is the father of the "Laffer Curve", the idea that tax cuts will not increase the budget deficit but would rather be self-financing given the strong suplly side response of labor, savings and investment to tax cuts. George Bush father referred to Supply Side Economics as "Voodoo Economics" when he was running for the Republican Presidential nomination against Ronald Reagan in 1980. Twenty five year later, supply side tax cuts are still Vooodo Economics!

So, what's wrong with the Laffer Curve? Won't tax revenues fall to zero if tax rates were either 100% or 0%? If yes, then it must be true that tax revenues must be same for atleast two different tax rates (otherwise how do you connect the dots at the 100% and 0% rates).

Darwinism, anyone?

Link: EconLog, Resolving the Sibling Paradox, Bryan Caplan: Library of Economics and Liberty.

Intelligent critiques of evolutionary theory are extremely rare, but they do exist. Probably the best of the lot is philosopher David Stove. Stove has zero sympathy for religion; his complaint about evolutionary theory is that it makes false predictions.

In an excellent essay, "So You Think You Are a Dawinian?", he points out ten predictions/propositions of Drawinism that are obviously false:

 Most  educated people nowadays, I believe, think of themselves as Darwinians.  If they do, however, it can only be from ignorance: from not knowing   enough about what Darwinism says. For Darwinism says many things,  especially about our species, which are too obviously false to be believed by any educated person; or at least by an educated person who retains any capacity at all for critical thought on the subject of Darwinism.


I  give below ten propositions which are all Darwinian beliefs in the  sense just specified. Each of them is obviously false: either a  direct falsity about our species or, where the proposition is a  general one, obviously false in the case of our species, at least. Some of the ten propositions are quotations; all the others  are paraphrases.


1. The  truth is, ‘the total prostitution of all animal life, including  Man and all his airs and graces, to the blind purposiveness of these  minute virus-like substances’, genes.
2    '…it is, after all, to [a mother’s] advantage that her child should be adopted’ by another woman.
3. All  communication is ‘manipulation of signal-receiver by signal-sender.’
4. Homosexuality  in social animals is a form of sibling-altruism: that is, your homosexuality  is a way of helping your brothers and sisters to raise more children.
5. In all social mammals, the altruism (or apparent altruism) of siblings               towards one another is about as strong and common as the altruism  (or apparent altruism) of parents towards their offspring.
6.  '…no one is prepared to sacrifice his life for any single person, but everyone will sacrifice it for more than two brothers  [or offspring], or four half-brothers, or eight first-cousins.'
7.  Every organism has as many descendants as it can.
8. In  every species, child-mortality - that is, the proportion of live births which die before reproductive age - is extremely high.
9. The  more privileged people are the more prolific: if one class in a  society is less exposed than another to the misery due to food-shortage,  disease, and war, then the members of the more fortunate class will have (on the average) more children than the members of the other  class.
10.  If variations which are useful to their possessors in the struggle  for life ‘do occur, can we doubt (remembering that many more individuals  are born than can possibly survive), that individuals having any advantage, however slight, over others, would have the best chance  of surviving and of procreating their kind? On the other hand, we  may feel sure that any variation in the least degree injurious would be rigidly destroyed.’
The point, namely, that if most educated people now think they are Darwinians, it is only because they have  no idea of the multiplied absurdities which belief in Darwinism requires.

I absolutely loved David Stove's essay, "What is Wrong with Our Thoughts? A Neo-Positivist Credo", in which he tries to construct a nosology of human thought!

Bleeding hearts and unintended consequences

Link: EconLog, The Economics and Philosophy of the Cruise Ship, Bryan Caplan: Library of Economics and Liberty.

Furthermore, if you stopped cruising out of moral indignation, you would hurt the workers, not help them. Your behavior would make it harder to get a job on a cruise ship, which means that more people will be stuck in their native countries earning one-tenth as much. Some favor.

Nevertheless, labor economics 101 did not completely put my mind at rest. Yes, the workers are better off than they would be at home. But then it struck me: Many of these workers are far more qualified than Americans who earn as much money as they do without having to live like Morlocks. Cruise ships employ world-class waiters, who would fit in at the fanciest restaurant in New York. The only thing stopping them from getting these jobs is U.S. immigration law.

Undoubtedly most of my fellow passengers fully supported our immigration laws. So when I looked at their faces, I couldn't help thinking: You people really do exploit and oppress the employees of this cruise ship. As consumers, you expand the workers' job options and help them build a better life for themselves. But as voters, you have done everything you could to keep these poor people from competing in First World labor markets on equal terms. In a just world, your diligent assistant waiter from India might be your boss.

Brian Caplan really hit this on the right spot! Talk about unintended consequences! These bleeding hearts do not want to allow immigrant workers here. They will not take services from them because according to them they are getting exploited by their employers. They will support putting high labor standards as a part of free trade agreements causing wide spread unemployment in third world countries. They will oppose foreign investment in third world countries. Then they will perpetuate the poverty in the third world countries by egging on World Bank and governments of the developed countries to send aid to the third world countries. The aid will only support mad dictators who will take turns to commit genocide of their own population. Worse, when the dictators go out of control, they will support sanctions further screwing up the local population. And then, when they realize sanctions are killing children they will support programs like oil-for-food furthering corruption and nepotism!

Is there anything else that can be done to screw the people in the third-world countries? Is it possible?

First do no harm

Link: Marginal Revolution: Rx for OTC.

Why aren't more pharmaceuticals available over the counter?  In other words, why must we pay the priestly caste known as physicians for the right to treat ourselves?  "Safety," we are told (second only to "for the children" as an excuse for giving up liberty).  But, as Sam Peltzman pointed out long ago, safety runs both ways.  Not getting a pharmaceutical because it's too expensive and time consuming to go through a doctor has adverse safety consequences and there is no evidence that the costs of potential mistreatment outweigh the costs of undertreatment.  (In anycase, politics not safety is often the reason for restrictions on OTC drugs e.g. the morning after pill.)

I agree completely. There is no reason why doctors should dictate what medicines we can take! Whatever happened to the principle: "First do no harm"?

Osama's worst nightmare


Irshad Manji has already been dubbed ‘Osama’s worst nightmare’ for her criticisms of Islam. Now she wants Britain’s Muslims to stand more firmly on the side of freedom
No wonder Irshad Manji has received death threats since appearing on British television: she is a lipstick lesbian, a Muslim and scourge of Islamic leaders, whom she accuses of making excuses about the terror attacks on London. Oh, and she tells ordinary Muslims to “crawl out of their narcissistic shell”. Ouch. . . .

The underlying problem with Islam, observes Manji, is that far from spiritualising Arabia, it has been infected with the reactionary prejudices of the Middle East: “Colonialism is not the preserve of people with pink skin. What about Islamic imperialism? Eighty per cent of Muslims live outside the Arab world yet all Muslims must bow to Mecca.” Fresh thinking, she contends, is suppressed by ignorant imams; you can see why she has been dubbed “Osama’s worst nightmare ”.

“The good news,” she insists, “is it doesn’t have to be like this.” She wants a reformation in Islam, returning it to its clever, fun-loving roots. “The world’s first ‘feminist’ was an 11th-century Muslim man. Baghdad had one of the first universities in the 9th century; the Spanish ‘Ole!’ comes from ‘Allah’; Islam even gave us the guitar.”

But now it gives us the suicide bomber: why? She does not rule out alienation and all those Muslims-as-victims explanations, but thinks the Muslim Council of Britain is negligent for “not even acknowledging religion might also have played a role”. Richard Chartres, the Bishop of London, said terrorists could not be Muslims but Manji hits back: “The jury is out on what Islam is.” . . .

She recalls asking Mohamed al-Hindi, political leader of Islamic Jihad, where the Koran glorifies martyrdom; he insisted it was there, but even after looking up books and phoning colleagues, he couldn’t find one reference. “His translator suggested I better go if I wanted to leave alive,” she recalls. “I asked why he had even given an interview, and the translator said, ‘Oh, he assumed you would be just another dumb westerner’.”

She is also author of the book, The Trouble with Islam.

Saddam Hussein, al Qaeda connection

Link: Power Line: That Was Then, This Is Now.

This ABC News video from five years ago, courtesy of Media Research Center, is a classic. Before Democrats had a partisan motive to claim, contrary to all the evidence, that there was no relationship between Saddam Hussein's Iraq and bin Laden's al Qaeda, their close and dangerous relationship was common knowledge. That common knowledge is reflected in this ABC news report, as it was in the Clinton administration's indictment of bin Laden in 1998 for, among other things, collaborating with Saddam on weapons of mass destruction.

It really is a fascinating question: in this era of digital media, can the news media and the Democrats get away with trying to flush what they said as recently as 1998 and 2000 down the memory hole?

Let's hope not.

Thanks to reader Adam Smith.

Offshoring and immigration

Link: :: Daniel W. Drezner :: An immigrant's take on offshoring.

Of course, it's heart-wrenching to see American programmers - many of whom are of Indian origin - lose their jobs and have to worry about how they'll pay the mortgage. But they are ill served by politicians who promise to bring their jobs back by the facile tactic of banning them from leaving. This strategy will ensure only that our schools stay terrible; it'll be an entire country run like the dairy industry, feasible only because of price controls and subsidies.

One reason for offshoring  is curbs on immigration. If you control the H1-B visa (control the number and add the condition that each H1B visa holders wage cannot be less than the prevailing market wages) then the capital will leave to the places where labor is cheaper. It is pretty simple!

In fact, the capital in the IT industry is much more mobile as it is mostly intellectual (patents, source code, and so on). When IBM decides to cut jobs in the US and move them to India, it doesn't need to relocate factories to India. All it needs to do is purchase new hardware in India and transfer the documents and source code to its India's office. And work can begin in India within a few days.

In such conditions it is futile to expect that you can control wages in US by controlling number of H1B visa granted or putting some stupid conditions that prevailing wages be not disturbed!

Just like her mother-in-law

Earlier, Bibek Debroy had resigned from the directorship of Rajiv Gandhi Institute of Contemporary Studies after being asked by Sonia Gandhi to get all research papers vetted by the executive committee.
The Economic Freedom for States of India publication had given high marks to Modi Government Gujarat angering Indira Sonia Gandhi:

Subodh Kumar of Friedrish Naumann Stiftung, the German institute that commissioned the report, said: ‘‘The Congress has to be blamed more than Modi for such an unwise move. If Modi has been irresponsible, then Sonia Gandhi, giving in to pressure from her own party members, has been reckless in her decision.’’

The study's author Laveesh Bhandari writes in Business Standard on the study and the controversy:
Link: Opinion & Analysis.

As a co-author of the Economic Freedom for the States of India index (which rated Gujarat as the top state on the index in March this year), I have been mutely witnessing the great tamasha that a simple rating of economic conditions across India has become. It is unfortunate that conditions were created where the independent-minded (but in all likelihood, Congress-sympathetic) Bibek Debroy had to resign from the directorship of Rajiv Gandhi Institute of Contemporary Studies (RGCIS). It does not matter that Narendra Modi’s ads on the top ranking his state got were a farce, and it is totally irrelevant to the matter that Gujarat’s ranking had nothing to do with Narendra Modi. It was the result of hard work and good decisions by many previous administrations — those of the BJP as well as the Congress. The key issue, however, is that of institutions, institution builders and institutional independence.

By responding to the crass Narendra Modi ads (that even the BJP did not take seriously) the RGICS governing council has, in one stroke, wiped away the energy and atmosphere that characterised the institute.
Jawaharlal Nehru was instrumental in setting up the National Council of Applied Economic Research 50 years ago.
NCAER was set up
outside the government and was given complete autonomy to freely
critique what Nehru’s favourite child — the Planning Commission — was
up to.
Nehru deliberately
did not head NCAER, nor did he allow its independence to be
overshadowed by momentary political considerations.
But then Nehru was an institution builder.

The Real Lincoln

Link: Mises Economics Blog: Largest Mass Execution in American History.

Three hundred and three Indians were sentenced to death, and Minnesota political authorities wanted to execute every one of them, something that Lincoln feared might incite one or more of the European pwoers to offer assistance to the Confederacy, as they were hinting they would do. So his administration pared the list of condemned men down to thirty-nine, with the promise to Minnesota's politicians that in due course the Federal army would remove every last Indian from Minnesota. This was the bargain: Lincoln would look bad if he allowed the execution of three hundred Indians, so he would execute only thirty-nine of them. But in return he would promise to have the Federal army murder or chase out of the state all the other Indians, in addition to sending the Minnesota treasures $2 million.

It is a fact that our leaders are made up of myths! Beyond their great legacies lies some horrible crimes that we choose to ignore because it doesn't fit the great leader story! If this is case in a free society, I shudder to think how much horrible "leaders" like Mao, Lenin, Stalin, Hitler, Mugabe, KIM Jong Il and others!