A Brief Defense of Economic Models

In this write up my goal is to convince some Austrians that mathematical models aren't as fallacious as they presume.  Before I get into my arguments I must first make this point and it is something that needs to be kept in mind as the readers works through this brief write up. Mathematics, insofar as it is utilized in economic theory, does not predict human action in a deterministic fashion, rather, it captures the laws of human action such that predictions can be made given the constraints of relevant conditions under examination within the theory.

To sum up the Austrian view of models, one could argue that they believe models use false assumptions and lead to fallacious results.  On the Austrian view, models cannot capture human action. I am not bold enough to claim that mathematical models can perfectly capture human action but I do think models are highly useful.  Consider the standard model of supply and demand.  It gives us proper results, is extremely intuitive and a wonderful teaching tool.  Austrians, on the other hand, believe that the assumed continuity of the supply and demand curves are false.  As far as I can tell, this is their primary objection to using this model. According to them, because supply and demand are not continuous it is much more unlikely to reach equilibrium.  I would just like to point out that adherents of this model do not assume that the supply and demand ever actually reach equilibrium, but rather, prices are always adjusting towards equilibrium.

But I digress.

If what Austrians said about mathematical models were true, I would not need to write this because I would probably agree with them.  However that is not the case.  Consider this quote out of one of the leading graduate school micro theory books:

"Imagine that you are trying to explain a particular phenomenon with one of two competing theories.  Neither fits the data perfectly, but the first does a somewhat better job according to the standard statistical measures.  At the same time, the theory is built on some hypotheses about behavior by individuals that are entirely ad hoc, whereas the second is based on a model of behavior that appeals to your intuition about how people act in this sort of situation.  I assert trying to decide which model does a better job of "explaining" is not simply a matter of looking at which fits better statistically.  The second model should gain credence because of its greater validity, which brings to bear, in an informal sense, other data" (Kreps, A Course in Microeconomic Theory, pg 8)

Does this quote seem to fit the Austrian argument that Chicago school economists are stat chasers and do not care about the validity of assumptions?  Quite the contrary actually.  It seems to me that Chicago School economists are concerned about human behavior/theory first and stats second.  I do not see why any economist should have a problem with this method of economics.  As long as the economist will admit some of the draw backs his assumptions might have, why should we completely throw models out the window? Note that when models are introduced through scholarly journals the author will always point out some of its downfalls but explain why it is still useful.

Another reason why I think models are important was touched on in my second paragraph.  Models are helpful learning tools because they are intuitive insights into real world phenomena.  Consider supply and demand again.  If I were to try and explain to someone why rent controls create housing shortages it is to my advantage to draw supply and demand curves and then show the different implications of keeping rent lower than the market clearing price.  It is much easier for the layman to see the consequences as a picture rather than sorting through all the material in their head.  Same goes for tariffs and minimum wage.  I have a hard time explaining why tariffs are bad even to a relatively knowledgeable audience, but as soon as I draw it out for them it clicks.

The last reason why I believe models are important is because even models that are falsified still help us gain knowledge.  This is because learning what assumptions lead to the false conclusions now gives us insight into why these assumptions won't work for future theories.  As long as the economist is trying to encompass human behavior as much as possible and it is fairly explanatory and predictive, why should anyone reject it? Models can have good explanatory power as to why things happen and to what will happen.

Lastly I would just like to point out this is barely scratching the surface of how much theory and thought goes into what makes a good economic model.  To simply reject these ideas based off of the use of models alone is preposterous

The Tyranny of Corporatism

(Image Courtesy of Google Images)

Most of today’s economic and political discourse has been promulgated by the interested sophistry of government and myriad interest groups, more prominently, business and labor. Moreover, these selective group interests conflict with the interests of the individual and limit the natural market protections for the individual laborer and the consumer. The only mechanism that protects both the consumer and the worker is individual self-interest by virtue of competition between firms for their products and services. Both corporations and unions can only benefit from the tacit cooperation with government to limit the competitive forces of the marketplace on both the input and output ends of production. Therefore, aligned with government and their coercive power, special interests privatize the profits and socialize the costs. Far from being a partisan issue, both Republicans and Democrats work similarly on both ends of production.

Corporatism is beneficial to politicians of both parties. Every business/organization wants to succeed, whether it creates a product or service the public demands or not. A pure free market system of profit and loss benefits only the consumer and those businesses that turn a profit. This creates demand by floundering businesses and or labor, for favorable political support against market forces, i.e. competition, that otherwise would not survive. Their rallying cry is usually “unfair competition” from other firms, or the preservation of the jobs in that particular firm or industry (also the argument for protectionism). Of course their only concern is their own business or their own job, congruous to the concerns of government and the politician, creating a perpetual partnership between both special interests and government that is antithetical to the self-interest of the individual. Eventually, the interested sophistry of special interests and government is promulgated and repeated by the politicians that benefit from their increased influence over the marketplace.

In the words of Adam Smith nearly two and half centuries ago, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” (The Wealth of Nations. Book I, pg. 12) The self-interest of the individual is what makes this country and our economy strong, it allows for the freedom of the individual to choose whatever economic arrangement best suits the needs of himself and his family, allowing for maximum freedom in the marketplace, as long as competition exists as a check. These arrangements work towards two ends, political and economic freedom. As Milton Friedman once wrote, “Freedom in economic arrangements is in itself a component of freedom broadly understood, so economic freedom is an end in itself… Economic freedom is also an indispensable means towards the achievement of political freedom.”(Capitalism and Freedom pg. 8).  An American citizen under various state laws may be unable to join an occupation such as law (BAR association) or medicine (AMA) without a state issued license, surely is deprived of freedom.(state licensure) Moreover, under federal commerce laws, the dairy farmer that cannot sell raw milk or the wheat farmer that cannot grow the amount of wheat he would like, are not without deprivation of their freedoms from the state.

There is an intimate relationship between economic, political and civil freedoms. Political freedom is the absence of force or coercion by man of his fellow man. The fundamental threat to freedom is the use of force by any central authority, or the forced will of the temporary majority over the minority. Civil liberties are best outlined by the Bill of Rights, private property being the cornerstone of all economic arrangements; if one were unable to reap the rewards of his labor, this would limit the incentive to work at all. As Thomas Sowell rightly points out, “For economic activities… property rights are a prerequisite, so that those who farm or invest in business can feel assured that the fruits of their activities will be theirs. “ (Economic Facts and Fallacies pg. 218). By keeping the economic arrangements out of the hands of the politicians and in the hands of a free people, diffuses the power of the government. Moreover, it limits the possibility and plausibility of coercion by the state over the individual. This verity directly correlates to less power for government politicians and bureaucrats, and although the need for politicians will continue to remain, this threatens the existence of and size of the bureaucracy altogether, and thus is anathema to those individuals in the bureaucracy.

We often think of politicians/government as looking out for the best interest of the people as a whole. Rarely do we think of politicians or government as looking out for their own self-interest, political power and longevity. Rarely, throughout human history do we see governments advocating for less power and less influence over the body politic (one rare instance being the Constitutional convention). What power would a politician have in government under the function of purely free market forces, in lieu of government intervention via regulations, what is now called “crony capitalism” or more aptly called corporatism. Both Republicans and Democrats are famous for employing this strategy for their own interests. Most notably, and the brain trust of the Republican party, the U.S. Chamber of Commerce is famous for its support of Republican politicians and the corporatist interests of the business community.

It is in the best interest of both the politician and the bureaucracy to grow and increase their power, otherwise risk losing their jobs. “Crony capitalism” is a phrase that refers mainly to business interests. Businesses will kick back money to politicians for campaigns, which serves their interests, and in return business will receive favors from government in the form of permits, grants, tax breaks or even subsidies and bailouts. Businesses that would otherwise fail due to competition in the marketplace as a result of either high prices, inferior products or a shift in demand can now do business in perpetuity on the taxpayers dime.

The success and subsidization of business is in the self-interest on the politician that receives the funds the business otherwise does not have to spend, essentially at the expense of the taxpayer, solely for the interests of the politician and the business. One cannot blame businesses for trying to limit the repercussions of competitive capitalism, the only market force that protects the individual at the expense of bad business; after all, a pure free market is a profit and loss system. Losing sucks for those involved and invested in a particular business, no doubt, but this type of corporatism limits the market for competitors and discourages entry of a firm that could offer better quality, lower prices or both to the consumer. Moreover, the government has initially taken money from the individual (through the power of taxation) with the threat of force, and used it to benefit a business he or she otherwise would not patronize. Thus, the self-interest of business and government through coercion, violate the rights of the individual for their own personal gain. Not only does this stifle competition and hurt the consumer, it also limits the amount of money the taxpayer has to spend. Unfortunately, business has far more company in its collusion with politicians and government.

Corporatism is favorable treatment not just to business, but to other special interest groups that otherwise would not succeed in the market or want to limit the competitive threat to their products or services using the coercive force of government. Labor unions operate in a similar fashion, insofar as their control over input. Most, if not all big labor unions heavily support the Democratic party on the national level. However, Republicans are also guilty of favoring unions at the local level for much the same reasons. In order to earn higher wages, in the absence of increased production or demand, labor unions must restrict the input for that particular firm or industry. The higher wages and benefits earned by the union come at a cost to the non-union laborer, concentrating the benefits and dissipating the costs, respectively. Due to the higher costs paid by a firm to their union employees (above and beyond their actual production) less access to a particular trade or firm is afforded to non-union laborers, mitigating the competition and thus decreasing the pool of human capital with the necessary skills to compete for jobs elsewhere in the marketplace.

Although, unions certainly have the right to free assembly and in my opinion most certainly should, union membership should always be voluntary; this is not the case in many state and local governments or in a closed shop (or union shop -whatever terminology unions use to circumvent the law and exploit labor). A union member must pay dues; these dues are in turn contributed to politicians that will favor union policy, and in the case of most public unions, come at the expense of the taxpayer. The greater the union membership, the more money can be kicked back to a politician, increasing the power of the politician in exchange for increased wages and benefits, at the expense of non-union labor. Unions concern lies invariably with dues paying members, and their own self-interest in the same way corporations are with their (voluntary) shareholders, and through the coercive force afforded only to the government, they collude and limit the freedom and choice of the individual in the marketplace.

There is however, one huge difference in business colluding with government and labor colluding with government insofar as a corporation/business can certainly put their hand in the taxpayers till, however they still cannot coerce demand. For instance, government can subsidize the car company Fisker all it wants without my consent, but for the time being, it cannot force my hand in purchasing said vehicle. On the other hand, unions coerce participation by only allowing members to retain their jobs, collecting dues regardless of the opinions or predilections of the individual laborer with little to no accountability to the union representation. What kind of freedom is that? And what system is really exploiting the “proletariat”? The power afforded to these businesses, unions and politicians by government (not capitalism) are the very reason so many economic myths are perpetuated and promoted by statists, and naturally politicians’ and bureaucrats. (Union PR, corporate PR, and government PR) The concentrated focus, organization and incentives of these special interests and politicians are an advantage over the dissipated costs to the much broader taxpaying public. 

One of the major objectives of this blog is to dispel these myths and reintroduce logic and empirical evidence in the prevailing economic discussions and debates throughout the media, the intelligentsia and academia. 

A Little Bit About Myself

Many people check into our blog pretty regularly so I figured it would be a good time to give some information about myself.

I am from Minnesota and am currently pursuing my MA in math.  I received my BA in economics and math.  I plan on getting my PhD in economics when I am done with my MA.  My favorite areas of math are game theory, real analysis and topology.  My favorite areas of economics are Micro Theory/Game theory, Environmental and Resource economics, and International Economics.

My favorite economist of all time, as you could probably guess is Milton Friedman.  My favorite philosopher is Robert Nozick.  My favorite mathematician is John Nash with von Neumann as a close second.  I consider myself a consequentialist libertarian or minarchist.  I refuse to adhere to Anarcho-capitalism because I think there are major holes in their theory which do not exist in a minarchists argument.

I consider myself a Chicago School economist.  This is because I believe their methodology is a better way of doing economics.  I think empirical studies and economic models give insights to real world phenomena.  While I do believe in the methodology of Chicago School Economics this does not mean I have a problem with how Austrians do economics.  The only problem I have with them is how they feel the need to bash those who use econometrics and math in their methodology.  That and the philosophical implications of their methodology.  (I could go much deeper into this but that is not the point of this post)

In my free time I enjoy reading fiction and non-fiction.  A few of my favorite books are The Cather in the Rye, 1984, Atlas Shrugged, Harry Potter, A song of Ice and Fire, and pretty much anything by Hemingway or Vonnegut.  As for non-fiction I usually read math text books.

Disclaimer:  I am only one of three contributors to this blog

Libertarianism vs. Republicanism

Here is a good conversation starter:

Mill vs Pettit

Two major philosophical positions on political and social justice are libertarianism and republicanism.  John Stewart Mill’s On Liberty is one of the most influential works on libertarianism and Phillip Pettit makes a strong case for republicanism in his work Republicanism: A Theory of Freedom and Government.  In this paper it will be shown that libertarianism makes a more consistent and compelling argument for individual liberty, which in turn promotes social justice.

In order to make a distinction between libertarianism and republicanism, non-interference and non-domination will be examined.  Mill describes libertarianism as a form of non-interference, which is the belief that one should be able to do as they please so long as they are not interfering with others, and one should be free from interference by others.  Mill has two main arguments on why this type of liberty is so essential, autonomy and individualism.  Autonomy, according to Mill, is being able to choose ones goals without interference, and one should be able to pursue the chosen goals without interference.  For example, if ones goal is to become a mathematics teacher there should be no outside force obstructing his path in pursuit of becoming a mathematics teacher.  Of course, it is assumed that the pursuance of ones goals does not interfere with someone else’s pursuance of their goals.  Individualism is important because it promotes progress.  If everyone conforms to the common belief then there will be no one to find the downfalls of the common belief.  For example, when the Pythagorean mathematician Hippasus of Metapontum discovered the existence of irrational numbers he was thrown overboard to drown at sea.  It is easy to see that this is a bad situation because the existence of irrational numbers creates a whole lot of interesting fields of mathematics that further increases humanity’s knowledge of the universe.  Therefore, if the majority has the ability to interfere with the minority in order to subdue opposing beliefs, new truths will be left off the table when debating justice or liberty.  Another example where individualism is important to consider is during state and federal election cycles.  More often than not debates between potential republican nominees are over very similar things and are essentially debating different versions of the same policy.  However, if there is one candidate that has very different opinions, if his views are closer to the truth and our constitutional principles but were subdued due to being the minority the public would be worse off for never hearing his opinions.  Thus, autonomy and individualism are important facets of liberty.

            

Mill would believe there are very few legitimate justifications for government intervention.  Basically, he would only be in favor so long as it promotes the type of freedom as stated above.  If a simplified society is examined, the type of government intervention that is legitimate is very clear.  Imagine a three-person society governed by a single agency.  If two people were engaging in a voluntary transaction, it would only be legitimate for the government to interfere if the third person were harmed by the transaction.  If a person is acting alone, the government has no right to step in and stop the act so long as he is not interfering with the other two people.  Obviously any voluntary transaction that takes place between all three individuals is allowable.  Now imagine if the three-person society takes place on an island with rough terrain and the three people living on all different corners of the island.  The governing agency would have a legitimate justification for some sort of taxation that will be used to pay for a form of transportation to decrease transaction costs between the individuals, i.e., the government can create a tax on X so that the efficiency of transactions increases to an equal or greater amount of the taxes.  One last thing that Mill would believe the government is justified doing is creating a tax on Y to pay for a national defense system.  It is hard to imagine how a defense system would be formed in such a simplified society, but the point is that a national defense system is one justified role of the government.  Would the government have any right to help the person whose area of the island is less endowed than the others?  The answer is no if it interferes with the other two citizens.  The discussion will clearly become more complex as the assumptions of the simplified society are relaxed, but the same basic principles of non-interference apply.

            

Non-domination as described in Pettit’s work Republicanism: A Theory of Freedom and Government will be examined.  The difference in non-domination and non-interference is that under non-domination principles one can be interfered with as long as the interference is not arbitrary.  If the laws that are interfering with the citizens are arbitrary then according to Pettit, the laws become the instrument of the governing agency’s will.  If this happens we have a regime of an absolute King in which the citizens become slaves and are entirely deprived of their freedom. (Pettit, 36)  Now the question is who decides on the arbitrariness of an issue and what is arbitrary?  The answer is the officials that are elected by the public through a democratic process.  These officials should not have arbitrary power that is stated in a proper constitution.  These officials should also not be able to pass any laws that allow one group of citizens to dominate another group of citizens, or for one group to arbitrarily interfere with another group.  This point arises in one of the initial questions of what is arbitrary.  Pettit says the following:

While the law necessarily involves interference-while law is essentially coercive-the interference in question is not going to be arbitrary; the legal authorities will be entitled and enabled to interfere only when pursuing the common interests of citizens and only when pursuing these in a manner that conforms to the opinions received among the citizenry.

By this Pettit means laws are not arbitrary as long as the citizens are not dominated in any form.  The inferior persons choice options should not be narrowed, nor should the interferer change their judgment.  It is also clear that in order to not be arbitrary it must be accepted amongst the majority of the citizenry, but still within the realm of the drafted constitution.

            

From the definitions alone there is not a clear distinction between non-interference and non-domination, but Pettit gives examples of being dominated while not being interfered with that paints a clearer picture.  His example of being dominated only is known as the benevolent slave owner.  He claims that if there is a slave that has an owner that allows them to do as they please they are not technically being interfered with; they are however, being dominated.  This slave is just as free as the slave with an unkindly master, so therefore according to Pettit freedom requires the absence of domination, not just the absence of interference.

            

These two philosophies are very prevalent in the current political climate of America.  Most politicians adhere to Pettit’s definition of republicanism and some hold to Mill’s definition of libertarianism. There are some clear overlapping policies endorsed by these politicians and there are also some very distinct differences.  For example, all politicians believe in the basic freedoms such as freedom of speech, freedom of the press, freedom of religion and other things that do not interfere with others, but these freedoms are also making sure that no group can dominate another.  Other freedoms beyond America’s Bill of Rights can start to become less clear.  For example, both a republican and liberal will be in favor of some taxes in order to pay for the basic necessities that a government must, or at least traditionally provide, i.e. roads and a national defense.  A republican however, can claim a government should provide many more things so long as it is not arbitrary.  For example, a libertarian would never believe that it is the government’s responsibility to provide its citizens with health care, just that the government doesn’t disallow people to receive health care or that the government doesn’t interfere with ones pursuit of receiving health care.   A republican on the other hand could claim that insurance companies and hospitals dominate the citizen’s life in that if the citizen cannot afford health care they have a higher chance of dying.  Then there is an argument that the government should step in and socialize health care.  Another area in which the libertarian and republican might differ is legalization of all drugs.  A libertarian would say if someone is doing drug M in their home, and doing this drug does not interfere with the life of anyone else there is no reason for the government to interfere with this person’s life.  But, a republican could claim that criminalizing drug M is not arbitrary because it is protecting the citizen from being dominated by a substance. Furthermore, it decreases the availability of the drug and should ultimately decrease its usage by the citizens.  Another issue these two philosophies will differ in is the presence of labor unions.  A libertarian would say that as long as the working conditions are came to by a voluntary agreement, the agreement is just and fair according to the two parties.  A republican would not agree with this because then the employer will dominate the employee.  Thus a labor union will protect the employees working environment, make sure the employee has a fair wage, make sure the employer can’t fire the employee in order to hire cheap labor and provide the employee certain benefits such as health insurance.  There are many more things that a republican would argue for that are beyond the scope the rights provided by a libertarian.

            

Now that the differences and similarities have been explained, it will be shown that libertarianism is a much more consistent view if individual liberty.  The example of the simplified society clearly points out the type of laws and institutions that a libertarian would be in favor of, but if the same example is looked at through the republican definition of liberty it gets much more complicated.  As pointed out, the governing agency would still have the responsibility of forming a tax code that pays for a national defense and a transportation system for the citizens, the voluntary exchange principle would be the same, but the example of one person having a less endowed portion of the island is a bit unclear. As pointed out, the libertarian island would not expect the government to intervene, but the republican government could claim it needs to intervene and it is not arbitrary.  If one person is less well off in the three-person society, they are going to be at the whims of the other two, and in a sense dominated by them.  Therefore the government needs to step in and help them not be dominated.  It is unclear how they will help, but nonetheless the government must take from one or the other citizens, or both.  Since the other citizens are now forced to work for the government in order to help the less well-off they are being interfered with and dominated by the government.  They are not choosing to help the other, thus they are being told what to do with their time.  Because they are being told what to do with their time they are disallowed to choose freely how they want to spend their time and therefore being interfered with.  So the government makes a claim of non-arbitrary interference for the benefit of one citizen, but now it is dominating and interfering with at least one other citizen.  Now the argument of whose rights of not being dominated are more important must be had in order to resolve this issue.

           

If complications arise in the simplified society many more complications will arise once the assumptions are relaxed.  For example, the labor unions as mentioned above would cause complications.  One can make an argument that if labor unions are formed then the employees are dominating the employer.  Then one must ask why the employee’s rights are more important than the employers, just because there are more of them?  Furthermore, if we look at past experience it can be seen that industries with high labor unions are ran inefficiently.  These inefficient industries lower the standard of living because prices must rise; profits will be lowered, and ultimately if these industries do not want to go bankrupt there must be some sort of trade restrictions to stop foreign firms without unions to dominate the unionized domestic firms.  Due to higher prices and more trade restrictions simple economic models can show the dead weight loss to a society.  Furthermore, as Joseph Schumpeter’s theory of creative destruction points out, a firm must have profits in order to invest in research and development in order to have technological innovations which further increase standard of living.  So now in order to protect the employees, the standard of living of an entire country is lowered by raising costs, increasing trade restrictions and slowing down the rate of technological progress.  This is just one of the issues a republican must tackle when they are arguing that non-domination is the best road to freedom; there are many more issues they must work very hard to prove that the interference is not arbitrary and that the interference would in fact create more freedom.

            

Another problem with Pettit’s non-domination is that it is assumed that one can be dominated while not being interfered with.  The example of the benevolent slave owner violates the Mill’s principle of autonomy.  If a slave has a benevolent owner, they are not free to pursue their goals without being interfered with.  Using the same example as before, a slave cannot become a math teacher even if their owner is benevolent to the highest degree, and if they can become a math teacher, they are not a slave.  Therefore the assumption that non-domination is more important than non-interference is not coherent with the ideal that Mill presents.

            

Based on the evidence presented, one must conclude that libertarianism is the most consistent form of individual liberty.  It is a clear and concise way of defining freedom.  It gives everyone equal rights without the chance of the government picking winners or losers, as in the case of the union example.  Therefore if a nation wants to progress it must promote social justice through libertarianism.

Sources

• Mill, J.S, On Liberty
• Pettit, Phillip.  Republicanism: A Theory of Freedom and Government. 
• Van Den Berg, Hendrik.  International Economics, 1^st edition. 

Ron Swanson on Government

Clarence Thomas' Dissent on Kelo V. New London; the Originalist Take on Property Rights.

This Dissent in Kelo actually serves a dual purpose. On one hand it demonstrates the tyranny of the Supreme Court and the lopsided power they posses to change the Constitution based on their own predilections. The other: it beautifully delineates the founders vision of private property rights in our Constitution and more accurately explains the Takings Clause. In order to understand property rights this a must read. Justice Thomas could very well be the best Originalist Supreme Court Justice we have, and at a close second is Antonin Scalia. He also mentions one of the more undervalued and pivotal legal influences on the creation of the Constitution, William Blackstone, who had great influence over both James Madison and James Wilson.

Click here for the dissent.

The Corporatism of immigration?

The message here is simple, either get rid of the Welfare state, or close the borders (I'm in favor of abolishing the welfare state, but that's not at all feasible). Amnesty only removes the incentives of aliens to continue working in the jobs that "American's don't want" and makes being a charge of the state more profitable, not at the fault of the alien, but in the self-interest of the politicians. The more people on the government dole, the more power they wield. After all, a check is more tangible and easier to sell than liberty. The common statist argument is that illegal aliens are not privy to government benefits. Assuming that no fraud exists, that doesn't exempt the fact that by distortion of the Citizenship Clause of the 14th amendment, their children are eligible. (Wong Kim Ark 1898). This provides further incentive to not only give birth to a child on American soil, but the more children you have the more money you receive. This is no fault of the alien, they're merely doing what's best for their own self-interest within the construct of the law. A clear example of how people tend to react to the economics of laws (incentives) . Gone are the days when foreigners would emigrate to the U.S. for opportunity, but today rather, for outcome.

Non-assimilation in a literal and figurative sense, pays for the alien and the politician, as it does for other "sub-cultures' in America. It keeps the money rolling in the for the individual in the non-assimilated community, and the amount they receive directly correlates to the amount of power the politician wields. Who would vote against their own self-interest? That's not to mention the enormous benefits to the race hustlers that encourage balkanization and glorify multiculturalism, at the behest of their own self-interest.

The problem is thus, when a conglomerate of the body politic (be it a business, union or voting block) and governments self-interest are congruent, ensuring the survival of that specific group which would not survive in the marketplace--only enabled and perpetuated by government--is a form of corporatism broadly defined (almost a perverted version of Director's law in this sense). A vote is exchanged for government largesse and payments in kind (housing, etc.), these benefits continue to grow and soon the amount paid is greater than the amount earned/produced by entering the marketplace. This comes at the expense of taxpayer, who receive no actual benefit, but is forced to subsidize (be it bad business, unsustainable pay or dependency). This also comes at the expense of production, as it no longer pays to gain the skills necessary for advancement in the marketplace. This is anathema to the individual and antithetical to the Constitution, which maximizes individual liberty and restricts the power of government. A sub-culture would never be able to compete with that of the American culture, as we have seen in the world marketplace, if not for the subsidization by taxpayers on the behalf of government self-interest/power.

Clearly, the goal is to not make balkanization and inferior cultures in opposition of the American ideal profitable. As the the system is set-up, the sub-cultures are subsidized by government and discourage assimilation of the cultural values instilled in the successful American tradition. Their assimilation and individual productivity would come at the expense of the political power held by the state, a reason why this form of corporatism will go on in perpetuity. When in history has government not tried to increase its power or grow in size?  This example can be juxtaposed by the open immigration policy prior to 1914, before the welfare state. During this period, far more distant and diverse cultures were entering the country at an enormous rate, yet coalesced to the prevailing American ideals. The Italians, Slavs, Jews, Poles and Irish didn't come here to remain as such, they came here to be American, a far better alternative to their motherland. It was their only choice, learn english, get a job and climb the economic ladder as high as possible, which they lacked the liberty to do in their mother country.

Moreover, contrary to the opinion of race hustlers, culture has nothing to do with race. The American culture is made up of many different races that coalesced around American principles while still retaining their ethnic diversity (the "melting pot"). To deny that one culture can be superior to another is to deny an a posteriori understanding of cultural history.

A Brief Overview of Judicial Interpretations and Judicial Activism

Let's start with the basics, Strict constructionist and loose constructionist are two of several methods of interpreting the Constitution, and the most commonly referred to. Strict constructionist is a sole adherence to the words used in the Constitution and only to be interpreted as such. No other interpretation is needed other than what is provided in the written text. I will get to the latter later on. 

A clear distinction must be made between “strict constructionist” and “original intent". “Original intent” or "Originalism" is a method of interpretation that considers the meaning of the words to the ratifying states at the time of the Constitution's ratification. In other words, how did the states interpret the meanings of the text in order to win their votes? After all, the only reason we have the Constitution today is because those states saw fit to vote for it and ratify it due to the meanings of the words at the time. Essentially, original intent was the only jurisprudence of the founders and framers of United States and Constitution respectively (obviously, since they established it on those very meanings, the reason for its existence today). Antonin Scalia and Clarence Thomas are examples of judges who currently employ this judicial philosophy. “Original intent” is not to presume that anyone knew what the framers were thinking about specifically when they drafted the law, which would be an impossible task. Moreover, that would most certainly imply a hidden meaning or an acknowledgement thereof, allowing manipulation and bias into the judicial process. The Framers could have been thinking about puppy dogs and ice cream when they wrote the first amendment or drafted Article I, but that is wholly irrelevant. 

A loose constructionist (the jurisprudence of judicial activism) would view the constitution as a “living, breathing thing”, merely a guideline that can be interpreted by how an individual judge's view the words in the constitution. This idea, with no coincidence, crept in along with the Fabian socialist ideas of the progressive movement. Woodrow Wilson advocated for a more "political" court, he felt that the constitution should not be interpreted in its "strict letter" but rather in its "spirit". Wilson explains it as:

 "That field they respectfully avoid, and confine themselves to the necessary conclusions drawn from written law. But it is true that their power is political; that if they had interpreted the Constitution in its strict letter, as some proposed, and not in its spirit, like the charter of a business corporation and not like the charter of a living government, the vehicle of a nation's life, it would have proved a strait-jacket, a means not of liberty and development, but of mere restriction and embarrassment."

What is a living government? Governments don't live, people do. Moreover, the Constitutions entire purpose was restriction of the federal government; this notion that natural law/liberty are conferred by government is insane. A once over of the Declaration of Independence is all a 2nd grader would need to understand that. The Court-as defined by the Constitution- is not at all to be political and was purposely made not to be subject to the whims of the political process. Hence, their lifetime appointments rather than elections and specific powers enumerated in the constitution. Checks and balances in government only work when each branch is "separate and distinct" (The words of James Madison, the "father" of the Constitution, federalist No. 48) Surely, this doesn't mean that nine unelected lawyers should have the power to usurp legislative duties from Congress. The first notable judicial activists were appointed by FDR, no coincidence there either.  He appointed justices favorable to his massive overreach of government (after both NRA and AAA were declared unconstitutional) and a court that eventually gave us Korematsu and Filburn (Filburn destroyed the original intent of the commerce clause and basically instituted central planning/socialism). Judicial activism is a viewpoint and process from which the federal government can deviate from the pure meaning of the ratifiers and the text, on a case-by-case interpretation, in other words, convey the ideological predilections of the Justices’. This "living" and "breathing" form of jurisprudence implies that the Constitution can be manipulated to present popular sentiment, relation to foreign law or subject to one’s own ideology. The ease in which five lawyers (a majority of the nine justices) can manipulate the law to reflect their own vision is stunning and is oligarchical in nature. As we have seen with Roe, Korematsu, Plessy, kelo, Dread Scott, and more recently the DOMA and Obamacare rulings. The practice of Stare Decisis is a further impediment to overturning the unconstitutionality of most laws.

Judicial activism is conferring a judge’s own ideology on the words of the constitution in order to institute legislation without the consent or accountability of the body politic. This method is used to affect change in the law without the proper constitutional amendment process (by-passing the people). Essentially, this was a way that the statist could circumvent the amendment process and impose their ideology on the individual. One cannot discuss Judicial Activism without mentioning the singular activist Supreme Court decision that led to all others, Marbury V. Madison.

In Marbury the court usurped the power of judicial review and constitutional authority away from the States and legislature, and created its own power not enumerated in the Constitution (Article III, Section 1 and 2). The Marbury court ruling gave all power of judicial review solely to the federal government via the Judiciary. Not only did the Federal Government make laws, they also were the sole grantor of constitutional authority of those laws. It was the very first breach of separation of powers, not only between the branches of the Federal Government but the diffusion of the Federal Governments power amongst the States, as Thomas Jefferson so eloquently summarizes, "The constitution, on this hypothesis, is a mere thing of wax in the hands of the judiciary, which they may twist and shape into any form they please."  This piecemeal approach to the judiciary by the Fabians led to the the soft tyranny we have today. 

Final Response to Andy Katherman

About a month ago I wrote a post critiquing a video by Tom Woods and Jeff Herbener.  In the video Woods and Herbener were having a Q & A discussion on deflation.  You can find my initial write-up here as well as a link to the video.  Andy Katherman's originally reply is here, and my response to this reply can be found here.  Finally, Andy Katherman's latest reply can be found here.  

In my opinion, what I said was economically non-controversial and I think Woods and Herbener did not address deflation in an appropriate manner.  No economist that I have read argues that people will put off buying coffee indefinitely because of falling prices.  No economist argues the lowering of prices due to advancements in technology is a bad thing (the  argument in the video about computers implies this).  My original write up focused on the reality that in general economists agree that deflation is not going to hurt the economy as long as it is not caused by drastic cuts in the money supply.  If there is deflation caused by drastic cuts in the money supply there will be negative consequences to the economy just as there are negative consequences to the economy when there is a drastic increase in the money supply.  I want to emphasize that this is not a controversial position.

Andy Katherman, who is well read and very knowledgeable on the Austrian theory, turned the argument into a philosophical debate about what money is and why deflation is good when it is due to increased productivity.  While his replies were thorough they ultimately did not address the points I made.  If Andy is trying to argue that drastic cuts in the money supply will have zero negative effects on the economy he is simply mistaken.  Drastic cuts in the money supply will necessarily cause negative effects in the economy and there is nothing more to be said on that matter.

In his most recent response he makes arguments that I agree with, namely that the market can correct for the supply of money.  I never said it couldn't.  I initially argued that if we have a federal reserve its goal should be to maintain a stable dollar.  This seems highly non-controversial, for the alternative is to have an unstable dollar.  At this point, I am not arguing about the philosophical definition of a dollar etc.  It seems as though Austrians tend to direct the debate toward an avenue that fits their philosophical positions which is why arguing with Austrians is such a daunting task - instead of staying on the point I was making the debate is changed into what a dollar is.  I made a non-controversial claim that is not a part of Austrian theory and Katherman turns it into a debate that should not even exist, which is a debate between Austrian theory and Chicago school/monetarist theory.  Instead of discussing the economic consequences of deflation the debate is all of a sudden arguing against Milton Friedman's positions and why they are allegedly wrong.  I would have little to disagree with if Katherman had said, "I hold to the Austrian theory of deflation and money but agree that Herbener and Woods do not address deflation properly."  Instead, he defended the video and as I have already pointed out the video lacks economic rigor; when the arguments in the video are weighed they are found wanting.

I present this final question to Andy:  If the Fed cut the money supply by 50% in one day, would that have a negative effect on the economy?  If your answer is no, then I seriously question the Austrian lens you are examining the world with.  If your answer is that the market will adjust to the new supply that is a non-sequitur.  If your answer is yes, then you agree with my point.  This is a yes or no question, which Andy can answer by utilizing the Austrian "imaginary construction" method.  This question has nothing to do with the optimal supply of money so any answer alluding to this should be considered as dodging the question.  

Imaginary Constructs and Regression

One of the methods of doing Austrian economics is imaginary constructions of economic situations.  When utilizing this method, the economist ponders how certain economic factors will affect other economic factors.  For example, I want to think about how the rise in a price of a substitute good will affect the demand of the good in question.  Another way to put it would be, how will a decrease in the price of chicken affect the demand of turkey.  When doing this, the economist has to hold certain variables constant in a thought experiment.  Using the chicken and turkey example, one must hold constant the fact that it is not November.  This is a good tool when constructing economic theory, no one will deny that.  However, the reason why Chicago School economists use regression is to find out the degree of which a price decrease in chicken will affect the demand in Turkey.

Consider how a Chicago School economist will handle this problem.  First, they will make use of the imaginary construct the same way an Austrian economist would.  Obviously, a decrease in the price of chicken should decrease the demand in turkey because they are substitute goods. Unless of course it is November where the demand of turkey sky rockets regardless of substitute goods.  So at this point the Austrian and the Chicago Schooler should have arrived at the same point.  Here is where regression comes in.  The next step for the Chicago schooler is to collect chicken prices and quantities of turkey sold over the same geographical areas and time periods.  This is where they will find the degree of how much price changes in chicken actually affect the demand in turkey.  It might be very large or very small.  What we can do to further test the affects the month of November variable has on this is introduce a "dummy variable," which basically tells us how much November increases the demand for turkey.

Why is this useful?  If a firm selling chicken and turkey has found turkey sales are declining they can now make a better estimate of how much they need to increase the price of chicken in order to increase the demand of turkey.  In my view, the theory is vitally important but the firm is more interested in the results produced by the regression.  Another reason why regression is so useful is because it holds the other variables constant in order to see your imaginary construct as values.  For example, if the price of chicken decreases by 50 cents the demand of turkey will decrease by .5%, holding all other variables constant.

Why Mises would claim that if we were to do a study using regression we learn nothing other than the amount price changes in chicken will affect the demand for turkey in that particular time period and geographical area is misguided at best.  In my view, a firm can gain vast amounts of information by using regression methods.  The firm learns how to change the demand for turkey by manipulating chicken prices, ceteris paribus.  Obviously we cannot change them based on quantitative certainty but it gives important insight insight nonetheless.