Sunday, 9 October 2016

Obama's Mindblowing Contradictions Pt. 1

I'm stunned. Speechless, even. And clearly suffering from some emotional roller-coaster syndrome. First, I find that the New York Times published an Op-ed by McCloskey last month, praising capitalism and markets. Someone at NYT must have been asleep at the wheel (I'm sure Krugman is furious...). Then I see the Hillary-Wikileaks-so-called-'Scandal' that she secretly dreams of free trade "powering growth and opportunity to every person in the hemisphere". (Now Krugman surely had a heart attack).

Then, I see this quote on twitter:

I find the article ("The Way Ahead"), and it turns out Obama was writing a longer op-ed piece in The Economist. Wait, what? Since when did the Economist publish these sorts of political op-eds? And he actually did praise capitalism - it wasn't taken out of context. Altogether great news! Maybe the tide of economic illiteracy and unreasonable anti-free trade is changing?

The media news, from The Guardian to ABC News, had a field day, summerizing his story as a starch defense of free trade and capitalism - some even calling it a "centrist bid".

Expect, I quickly realized, that it wasn't. Obama spent the rest of his 3000 words giving us examples of where he believes markets fail, how he wants to correct them, turn them around, force them into something he likes, re-figure them, control them. In other words, the opposite of endorsing capitalism.

Below follows a corrected version, addressing 12 points that at the time of reading seemed to me the most outrageous. I decides to split them into two posts, mostly for convenience and readability. Perhaps most disturbing of all is Obama's internal contradictions and inconsistencies between various sections of his essay. The entire piece comes across as disrespectful and patronising, presuming his audience incapable of remembering what the previous sections said. Not even showing his readers the courtesy of a civilized conversation.

There were at least a few dozen more points I could have jumped on (pretty much every sentence contained some lie, mistake, incorrect fact or reasoning), but despair prevents me from re-reading them, and humility from making all the attacks myself.

Let's begin with where all the fuss comes from, a point where Obama gets part credit: 
But amid this understandable frustration, much of it fanned by politicians who would actually make the problem worse rather than better, it is important to remember that capitalism has been the greatest driver of prosperity and opportunity the world has ever known.
a) Barack Obama, known as "the socialist" by my friends in the South, says that Capitalism has been the greatest driver of prosperity the world has ever known. It's like he's been reading McCloskey or Mokyr.

b) did he just admit that politicians creates social division among people, and "actually make[s] the problem worse rather than better"?

Ten points, Mr. President. But I'm sure I must be mis-interpreting his actual story. And I almost wanna let him get away with all the other garbage for these quotes alone. Almost.

1) Globalisation and Automation

Decades of declining productivity growth and rising inequality have resulted in slower income growth for low- and middle-income families. Globalisation and automation have weakened the position of workers and their ability to secure a decent wage. (my emphasis)
Just a few days before, the Economist discussed the findings of Fajgelbaum (UCLA) and Khandelwal (Columbia) that high-income earners would lose 28% of their purchasing powers should we close borders for trade, compared to 63% by the poorest decile; that is, globalisation seems to bring larger benefits for the poor than the rich. And some months back, again the Economist discussed the recurring fears about automation, old as humanity itself; it still hasn't happened (and no, it doesn't seem different this time around):
rather than destroying jobs, automation redefines them, and in ways that reduce costs and boost demand. In a recent analysis of the American workforce between 1982 and 2012, [James Bessen, Economist at Boston University] found that employment grew significantly faster in occupations (for example, graphic design) that made more use of computers, as automation sped up one aspect of a job, enabling workers to do the other parts better. (my note)
Claims about declining productivity growth are an endless source of confusion, with some underlying interesting academic disputes (see Gordon (2016), Cowe (2013), Katz & Goldin (2008)).

If the poorest workers have benefitted most from globalisation, if automation helps the very workers it allegedly hurts, and if income growth really hasn't decline as much as the doomsayers claim, Mr. President is absolutely wrong in his statements.

2) Divine Pretense of Knowledge; or God Emperor Obama knows best

In the very next sentence, following (1), Obama states matter-of-factly:
Too many potential physicists and engineers spend their careers shifting money around in the financial sector, instead of applying their talents to innovating in the real economy.
The pretense of knowledge here is incredible. How in the name of everything holy can Barack Obama know the abilities and desires of 'potential physicists', their employers and the value of their services compared to what they otherwise could have been doing? How can Obama even possible know that there are too many of them in the financial sector? 

Time for Econ Class, Mr. President: the purpose of markets is to provide us with information so that we can know such things, and they come in form of prices, preferences and individual choices - not delivered as a daily and measurable report on your desk. But consider the irony from his claim a half-dozen paragraphs further down:
Further progress requires recognising that America’s economy is an enormously complicated mechanism [...] It cannot simply be redesigned wholesale and put back together again without real consequences for real people.
Expect, of course, if these 'real people' are potential physisists working at investment banks, or real people doing their health insurance business the wrong way (see (3)). Snarkiness aside, if the economy is enormously complicated, but Obama is wise enough to know that "too many potential physicists" are in the financial sector, that must mean one of three things:
(a) Obama was lying above in the first quote
(b) Obama is lying now, and the American economy is simple
(c) Obama has some Divine Source of Knowledge, escaping the rest of us, that allows him to know what potential physicists should be doing with their skills.

Enough said. 

Second line of attack: does he really think all the financial sector is doing amounts to "shifting money around"? 

We could equivalently say that all the extraction industry is doing is "shifting dirt around", or the construction industry "shifting material around", or - my personal favorite - the food industry "shifting nutrients around". What does it even mean to discard a sector responsible for a tenth of the American economy because it is "shifting money around"? I guess those 9m people simply sit around, rolling their thumbs all day long, while cashing nice cheques.  

Shifting things around has a value, Mr. President, if those things are more urgently needed elsewhere. That's what markets do - they coordinate actions between individuals who couldn't possible know the extent to which other demand was placed on those same scarce resources. That information is carried by prices, of food and material as well as stocks, bonds and credit derivatives. 

Third line of attack: if we grand his assertion that people indeed could be doing something more valuable in the "real" sector (and we assume that we could know objectively what more valuable meant), we must ask why they aren't. Is it because doing anything in the U.S. is a regulatory nightmare? Because it's harder to start a business and pay your taxes in the U.S. than in Azerbaijan? Because "The Rule of Law has been replaced by the Rule of Lawyers"?

Maybe, just maybe Obama himself had something to do with that.

3) Markets can fail and all economists know this

[The Profit Motive] will not lead to broadly shared prosperity and growth. Economists have long recognised that markets, left to their own devices, can fail.
He gives three examples:
(a): Tendendy towards monopoly
(b): environmental externalities
(c): information asymmetries that leads to overly expensive healthcare
(d): Rent-seeking

As for monopoly, it's a charge as old as Marx himself and has pretty much only ever been accurate when governments have granted legal monopolies or prevented entry into certain sectors. Not a charge against unfettered markets, not to mention the theoretical reasons for why it doesn't matter, or historical examples where monopoly has been associated with massive consumer gains. 

Environmental externalities is the most boring charge against markets. Most of the time it's irrelevant and can be adequately handled by free-market legal systems. Not to mention how most so-called environmental worries are misleading, or attributable to (socialist) governments. See Soviet Union or Kuznets Curves.

Information asymmetries is a real critique, that Akerlof, Spence and Stiglitz were awarded the Nobel Prize in Economics 2001 for asking and solving (Spence: Signalling; Stiglitz: Screening). Thanks, Obama, for kicking in already-open doors. The second half of (c) is amazingly entertaining: Again, Obama invoking this Divine Knowledge of his: how could he ever know that something was "overly expensation"? Besides, how ironic is it that the President whose signature act amounted to forcing insurance providers into unprofitable lines of business, preventing them from price discrimination and thus raising premiums for everyone is accusing markets for producing expensive healthcare? In other words, the person who single-handedly created a problem is now accusing unfettered markets for that very same problem.

And the most wonderful piece of mental acrobatics: markets fail because of rent seeking. To convince anyone that capturing crony Governments, passing laws to favour certain companies is a feature of unfettered markets is a feat worthy of great recognition.

All in all, Obama accuses markets of things that they've already solved, he himself created, or outcomes occuring because states intervene in the economy. Great job, mate, terribly convincing.

4) Capitalism is unaccountable to the many

a capitalism shaped by the few and unaccountable to the many is a threat to all. 
Oh, the irony of a president voted into power by less than a majority of his subjects, accusing capitalism for not being accountable to the many. That's funny. Especially considering that capitalism by its very nature is accounting to everyone, sincen in capitalism companies exist and provide goods and services for the many in quantities and qualities and prices they deem beneficial. The many decide what to pay, and hold business accountable, in complete opposition to how governments work.

Again, capitalism here is the very thing Obama is accusing it a threat of. Let's quote some Mises:
Capitalism is essentially a system of mass production for the satisfaction of the needs of the masses. It pours a horn of plenty upon the common man. It has raised the average standard of living to a height never dreamed of in earlier ages. It has made accessible to millions of people enjoyments which a few generations ago were only within the reach of a small élite.
No, Obama. Wrong again.

This is the first part of the post. The second part is found here: "Obama's Mindblowing Contradictions Pt. 2"

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