## Sunday, November 17, 2013

### 7 Things No One Tells You About Being Homeless

7 Things No One Tells You About Being Homeless:

1. It Doesn't Take Much to Wind Up Homeless
2. Having a Job Won't Save You
3. Government Benefits Aren't as Much Help as You Think
4. Shelters Are a Band-Aid
7. Most Homeless Are Young, and They're Only Homeless for a Couple of Months

## Saturday, November 16, 2013

### Health insurance

miller's confusion about health insurance is understandable, because with modern medical technology, health insurance makes absolutely no sense.

The rational purpose of insurance is to allow people to switch a bet from the side they cannot afford to lose (or if society cannot afford them losing) to the side they can afford to lose, even if the expected value of switching sides is technically lower.

Here's a bet: you can take the A or B side of it. A pays B \\$1. B flips a fair coin 20 times; if it comes up all heads, B pays A \\$1,000,000. If you go by pure expected value, you want to take B's side of the bet, since the probability that B has to pay \\$1,000,000 is 1/220, or 1/1,048,576. In the long run, B wins \\$1 1,048,575 times, and loses \\$1,000,000 once; thus his expected value for each bet is \\$48,575/1,048,576 or about \\$0.046.

Here's the rub: if you take B's side and lose, and you don't have \\$1,000,000 in your pocket right now, you die.

This is why insurance companies exist: An insurance company does have \\$1,000,000 in its pocket, so it can take the B side of the bet. You do not have \\$1,000,000 in your pocket, and you (presumably) don't want to take a 1/1,048,576 chance of dying, certainly not for less than a nickel, so you take the A side of the bet and pay \\$1 to the insurance company.

Even worse, it may be that if B doesn't have \\$1,000,000, someone else will die. The state, then, requires that you take the A side of the bet, or convince the state that you really do have \\$1,000,000.

Hence, the state requires, and I happily comply, that I buy auto insurance. I'm a very good driver, but even the best driver makes mistakes, and it's a matter of chance whether those mistakes might lead to a large liability. I also have a high deductible, because I can afford to lose \\$1,000; it would hurt, but it wouldn't be a catastrophe, and I'm a good enough driver that the probability that I'll cause an accident, for which I would pay at most \\$1,000, is low enough that my expected value of betting that I will not have an accident is higher than betting that I will.

The general rule for buying insurance is: if you can afford to "lose the bet," don't buy insurance. If you cannot afford to lose the bet, buy the insurance.

Thus I never pay for extended warranties, which are just insurance bets. I can replace my phone, my computer, my printer, etc., and the money I save by not buying insurance more than pays for the replacement costs.

On the other hand, I cannot afford the medical bills of someone I might seriously injure in a car accident, so I have auto insurance. When I owned a house, I could not afford for it to burn down and leave me homeless, bankrupt, and destitute, so I paid for fire insurance. I also paid extra for earthquake and flood insurance.

It makes a certain degree of sense, even to this communist*, for insurance to be private. Private, profit-maximizing businesses have an incentive to set prices based on an accurate calculation of risk. If one company sets premiums too high, other insurance companies, who calculate risk more accurately, will take your customers with a lower price. If one company sets premiums too low, it will go bankrupt. There's an element of moral hazard, too; an insurance company has a strong incentive to renege on contracts, and it has an incentive to charge too-low premiums to insure against events that are rare not only for the individual, but in the aggregate (e.g. earthquakes). Hence insurance companies are (usually) heavily regulated by the state.

*I don't believe it's necessary for insurance to be private.

To sum up: Private insurance is the appropriate model when:

• The risk to any individual is low
• The cost of "losing" is too high for a typical individual to pay
• The risk can be accurately calculated
• There is little, if any, ability to differentiate between individuals' risk

It used to be the case that medical care was very much an insurance-like proposition. Most injuries, illness, or disease were either fatal (and hence not worth insuring against), or immediately and expensively treatable. More importantly, it was impossible to predict whether any individual would get injured or sick. Medical insurance really was, like all other forms of insurance, a way of socializing risk.

However, modern medicine transformed many illnesses, especially geriatric illnesses, from fatal to chronically treatable at substantial expense. Furthermore, it made these expenses predictable. Now, almost everyone will eventually have an expensive chronic illness, if for no other reason than old age. Because old age is known to be expensive and virtually certain, we have Medicare, which socializes not risk (since there's no risk in a near-certainty) but cost.

The situation is a little different for younger people.

With modern medicine, everyone, including each individual him- or herself, knows which individuals are at low risk, and which are at high risk, of developing a chronic, expensive illness. Even if there were perfect competition in the insurance industry, there would be price discrimination between low- and high-risk individuals. Low risk individuals do not want to pay more to subsidize high-risk individuals, and high-risk individuals, because everyone knows they're going to lose the expensive bet, have to pay nearly the full (and very expensive) cost of their treatment to "switch sides" of the bet.

Furthermore, the market for medical care developed very weirdly; most routine medical care was fee for service, and rare, expensive medical care was covered by private insurance. There was no such thing as an expensive chronic condition. (Even diabetes was relatively inexpensive to treat chronically, and the complications, when they inevitably arose even with treatment, untreatably fatal.) Today, however, expensive chronic medical conditions, especially cancer (if you have cancer once, you have a much higher risk of developing cancer again) don't fall into either category. Furthermore, because, as a society, we mandate that hospitals have to provide emergency treatment to everyone without regard to ability to pay, and we don't give them enough tax money to cover expenses, they have to charge someone more. The insurance companies have enough power to pay, so they shift the costs to people without insurance who need even routine medical care. Demand for medical care is relatively price inelastic: an increase in the cost of medical care does not cause a proportionate decline in the demand for care. This means that private, competitive producers of medical care have a market incentive to increase costs high enough to price many people out of the market, especially in a society with a lot of wealth and income inequality.

The problem we need to solve in medical care is no longer how to social risk, but whether and how to socialize costs. Like any other attempt to socialize costs, some people will be net payers, and some will be net beneficiaries. This is true even of costs and risks socialized through the private sector: Because I am a good driver, I have paid far more in liability insurance than liabilities I have caused others: in 30 years of driving, for which I've paid conservatively about \\$20,000 in liability insurance payments, I've had one accident where I was at fault, with about \\$2,000 of liability, and I've received about \\$2,100 for the one accident where the other driver was at fault.

There are basically three choices to socializing anything. First, don't socialize costs. If a poor person has an expensive chronic condition, we don't treat it, and that person dies or lives in pain. Second, we socialize costs through taxation, as in Medicare. Third, we socialize costs through the private sector, kind of as we socialize risk with auto insurance.

The PPACA (a.k.a. Obamacare), like its template in Massachusetts (a.k.a. Romneycare), is an attempt to socialize medical care costs through the private sector, by compelling people to buy insurance and compelling insurance companies to insure everyone equally without regard to individual risk.

The alternative is to socialize costs through taxation. Everyone pays some sort of tax, and the government pays for all medical care, either directly by also socializing the production of medical care, or indirectly by paying private producers.

I'll talk about the relative merits of these strategies, and why the PPACA is deeply problematic, in another post.

### Why I Make Terrible Decisions, or, poverty thoughts

Why I Make Terrible Decisions, or, poverty thoughts
by KillerMartinis

There's no way to structure this coherently. They are random observations that might help explain the mental processes. But often, I think that we look at the academic problems of poverty and have no idea of the why. We know the what and the how, and we can see systemic problems, but it's rare to have a poor person actually explain it on their own behalf. So this is me doing that, sort of.

Rest is a luxury for the rich. I get up at 6AM, go to school (I have a full courseload, but I only have to go to two in-person classes) then work, then I get the kids, then I pick up my husband, then I have half an hour to change and go to Job 2. I get home from that at around 1230AM, then I have the rest of my classes and work to tend to. I'm in bed by 3. This isn't every day, I have two days off a week from each of my obligations. I use that time to clean the house and soothe Mr. Martini and see the kids for longer than an hour and catch up on schoolwork. Those nights I'm in bed by midnight, but if I go to bed too early I won't be able to stay up the other nights because I'll fuck my pattern up, and I drive an hour home from Job 2 so I can't afford to be sleepy. I never get a day off from work unless I am fairly sick. It doesn't leave you much room to think about what you are doing, only to attend to the next thing and the next. Planning isn't in the mix.

When I got pregnant the first time, I was living in a weekly motel. I had a minifridge with no freezer and a microwave. I was on WIC. I ate peanut butter from the jar and frozen burritos because they were 12/\$2. Had I had a stove, I couldn't have made beef burritos that cheaply. And I needed the meat, I was pregnant. I might not have had any prenatal care, but I am intelligent enough to eat protein and iron whilst knocked up.

I know how to cook. I had to take Home Ec to graduate high school. Most people on my level didn't. Broccoli is intimidating. You have to have a working stove, and pots, and spices, and you'll have to do the dishes no matter how tired you are or they'll attract bugs. It is a huge new skill for a lot of people. That's not great, but it's true. And if you fuck it up, you could make your family sick. We have learned not to try too hard to be middle-class. It never works out well and always makes you feel worse for having tried and failed yet again. Better not to try. It makes more sense to get food that you know will be palatable and cheap and that keeps well. Junk food is a pleasure that we are allowed to have; why would we give that up? We have very few of them.

The closest Planned Parenthood to me is three hours. That's a lot of money in gas. Lots of women can't afford that, and even if you live near one you probably don't want to be seen coming in and out in a lot of areas. We're aware that we are not "having kids," we're "breeding." We have kids for much the same reasons that I imagine rich people do. Urge to propagate and all. Nobody likes poor people procreating, but they judge abortion even harder.

Convenience food is just that. And we are not allowed many conveniences. Especially since the Patriot Act passed, it's hard to get a bank account. But without one, you spend a lot of time figuring out where to cash a check and get money orders to pay bills. Most motels now have a no-credit-card-no-room policy. I wandered around SF for five hours in the rain once with nearly a thousand dollars on me and could not rent a room even if I gave them a \$500 cash deposit and surrendered my cell phone to the desk to hold as surety.

Nobody gives enough thought to depression. You have to understand that we know that we will never not feel tired. We will never feel hopeful. We will never get a vacation. Ever. We know that the very act of being poor guarantees that we will never not be poor. It doesn't give us much reason to improve ourselves. We don't apply for jobs because we know we can't afford to look nice enough to hold them. I would make a super legal secretary, but I've been turned down more than once because I "don't fit the image of the firm," which is a nice way of saying "gtfo, pov." I am good enough to cook the food, hidden away in the kitchen, but my boss won't make me a server because I don't "fit the corporate image." I am not beautiful. I have missing teeth and skin that looks like it will when you live on b12 and coffee and nicotine and no sleep. Beauty is a thing you get when you can afford it, and that's how you get the job that you need in order to be beautiful. There isn't much point trying.

Cooking attracts roaches. Nobody realizes that. I've spent a lot of hours impaling roach bodies and leaving them out on toothpick pikes to discourage others from entering. It doesn't work, but is amusing.

"Free" only exists for rich people. It's great that there's a bowl of condoms at my school, but most poor people will never set foot on a college campus. We don't belong there. There's a clinic? Great! There's still a copay. We're not going. Besides, all they'll tell you at the clinic is that you need to see a specialist, which seriously? Might as well be located on Mars for how accessible it is. "Low-cost" and "sliding scale" sounds like "money you have to spend" to me, and they can't actually help you anyway.

I smoke. It's expensive. It's also the best option. You see, I am always, always exhausted. It's a stimulant. When I am too tired to walk one more step, I can smoke and go for another hour. When I am enraged and beaten down and incapable of accomplishing one more thing, I can smoke and I feel a little better, just for a minute. It is the only relaxation I am allowed. It is not a good decision, but it is the only one that I have access to. It is the only thing I have found that keeps me from collapsing or exploding.

I make a lot of poor financial decisions. None of them matter, in the long term. I will never not be poor, so what does it matter if I don't pay a thing and a half this week instead of just one thing? It's not like the sacrifice will result in improved circumstances; the thing holding me back isn't that I blow five bucks at Wendy's. It's that now that I have proven that I am a Poor Person that is all that I am or ever will be. It is not worth it to me to live a bleak life devoid of small pleasures so that one day I can make a single large purchase. I will never have large pleasures to hold on to. There's a certain pull to live what bits of life you can while there's money in your pocket, because no matter how responsible you are you will be broke in three days anyway. When you never have enough money it ceases to have meaning. I imagine having a lot of it is the same thing.

Poverty is bleak and cuts off your long-term brain. It's why you see people with four different babydaddies instead of one. You grab a bit of connection wherever you can to survive. You have no idea how strong the pull to feel worthwhile is. It's more basic than food. You go to these people who make you feel lovely for an hour that one time, and that's all you get. You're probably not compatible with them for anything long-term, but right this minute they can make you feel powerful and valuable. It does not matter what will happen in a month. Whatever happens in a month is probably going to be just about as indifferent as whatever happened today or last week. None of it matters. We don't plan long-term because if we do we'll just get our hearts broken. It's best not to hope. You just take what you can get as you spot it.

I am not asking for sympathy. I am just trying to explain, on a human level, how it is that people make what look from the outside like awful decisions. This is what our lives are like, and here are our defense mechanisms, and here is why we think differently. It's certainly self-defeating, but it's safer. That's all. I hope it helps make sense of it.

It's worth noting opalcat's comment to the above:
I smoke. It's expensive.
Really? \$9 for a pack of cigarettes and you are bitching and whining about not having any money?

FUCK.

YOU.

Leaving aside the health problems, of which I sincerely hope you have a ton as a result of this incredibly moronic choice you have made, how DARE you whine and complain and bitch and blub about how UNFAIRSSSSSZZZZZZZZ!!!!!!!! it all us that the rich get everyfing for free while poor little you has to work two jobs and is on food stamps or whatever and then you try and FAIL to sneak in, oh yeah I smoke as if we're not supposed to notice.

You also whine and bitch about how Planned Parenthood is three hours away and that's a lot of gas. MAYBE IF YOU WEREN'T THROWING AWAY \$9 A FUCKING DAY ON GODDAMN CIGARETTES YOU'D HAVE MONEY FOR GAS.

Christ.

That's nearly 3 gallons of gas you are sucking up into your stinking lungs, and yet you dare to whine and complain?

FUCK.

YOU.

Especially since the Patriot Act passed, it's hard to get a bank account.

What does this even mean?

All I have to do to get a bank account is look on the Net to see which bank is going to fuck me in my butthole the least painful way, go to the nearest branch and sit down at the goddamn desk with an associate for 20 minutes. I need one form of id and some actual money, though it can be in another bank, and there are these things called 'transfers' by which money is moved from place to place and bank to bank.

Oh and everyone saying what a great OP this is and throwing you a huge pity party can go fuck yourselves as well.

KillerMartinis responds:

I see that you are very angry at the assumptions you have made about me. Perhaps I can clear some of them up for you.

To begin with, I do not live where you live. Thus, things cost different amounts for me than you are used to. It is really none of your business, but I spend probably about \$45 a month on my vice. You see, there is no law saying one has to buy brand-name anything, and it turns out that there are less expensive alternatives.

You also seem to think that I begrudge people things. I do not get that on rereading, but I think maybe it has more to do with your assumptions. You see, I do not mind that people get free things. I mind when people wonder why the poor don't avail themselves of more of them, because the world in which things are free is not the one I live in. That is a different thing entirely.

You assume that I am on public assistance. That is untrue. I was on WIC while I was pregnant. I got Medicaid for my other pregnancy. But I do not cost you anything, and you do not buy my food. You are not allowed to take that tone because you assume you're covering me. You're not, unless you are counting roads.

You assume that I have the slightest inclination to visit my closest Planned Parenthood. What I said was that it is too expensive for many women, and I used my own location as a handy example. I do not understand why that makes you angry, because it is true.

What the part about the bank account means is exactly what I said: it's harder to do now. You see, there was a very large terrorist attack, and the country went slightly berserk and decided to fight terrorist money laundering. Thus, the document requirements are now more cumbersome. It is similar to voter ID issues.

I think that perhaps you did not read all the way through, because I was pretty clear that I was not writing this for sympathy. I wrote it because someone asked me a question that I thought I could answer, and because people like you feel entitled to wish me harm simply because I dare to have a vice whilst poor. I wonder, are you truly angry that I have a vice? Is that what drives your rage? How much money would I need to make before I am allowed to decide for myself how to survive in the most logical way?

I hope you do come back, because I am curious: why are you really so full of vitriol? What is actually driving this?

## Wednesday, November 13, 2013

### Thinking like a conservative

Thinking Like a Conservative (Part One): Mass Shootings and Gun Control

Despite a continuous flow of examples to the contrary this spring, summer and, now, autumn, our side keeps on wishfully, willfully and rather ignorantly denying the plain evidence in front of their faces about how conservative politics works. Namely, I keep seeing predictions that this, that or the other signal from polls or the political establishment or a traumatized public will “finally” “break the spell” of right-wing extremism on a certain issue, or even on all issues—and then we see that prediction spectacularly fail.

We can’t keep on going this way, my friend. You have to finally come to terms with how conservatism works. Now, that guy in the White House, Obama—I’ve given up hope that he’ll ever get it. I still have faith in you, though. Stop judging conservative by the logic of “normal” politics, or by the epistemology of the world as you, a liberal, understand it. Or as Poli Sci 101 understands it. Every time you do that, you denude us of strength for the fight. Grasp the right on its own terms. Stop trying to make it make sense on your own. . . .

[On gun control,] if you think like a conservative, and you think in terms of good people and evil people, the predominance of evil people makes you want less gun control, and more guns. And if the bad guys have a machine gun, you need a bazooka.

Thinking Like a Conservative (Part Two): Biding Time on Voting Rights

[A]s Corey Robin explains in his indispensable book The Reactionary Mind, [conservatives understand] that the direction of human history is not on their side&emdash;that is why they are reactionaries&emdash;because, other things equal, civilization does tend towards more inclusion, more emancipation, more liberalism. They could not survive as a political tendency unless they clothed reaction in liberal raiment. You’ve seen that happen over and over again—like when people like Grover Norquist, whose aim is to roll back the entire welfare state, including Social Security, says what he’s really trying to do is save Social Security.

Thinking Like a Conservative (Part Three): On Shutting Down Government

This is war for them, folks. Stop pretending to try like it isn’t. William Baroody, head of the American Enterprise Institute, October 1972: conservatism is a “war for the minds of men.” Ralph Reed, November 1991: “I do guerrilla warfare. I paint my face and travel at night. You don’t know it’s over until you’re in a body bag.”

Perlstein quotes Brent Bozell Jr. who ghostwrote Barry Goldwater's Conscience of a Conservative,
“Any election of Barry Goldwater would presuppose a sea change in American public opinion,” as if American society, “prisoners of all those years, succeeded in passing blithely through the walls of Alcatraz and tripping lightly over the shark-infested waters and treacherous currents, to safety on the shore.”
and notes,
Yes: if you were a conservative, Lyndon Johnson’s Great Society—Medicare,the National Endowment for the Arts, etc.—was the equivalent of incarceration in Alcatraz. And this was conservatism’s grown-up.

Thinking Like a Conservative (Part Four): Goalpost-Moving

I’m worried . . . that Obama might not grasp the fundamental nature of the entire modern conservative project. They really do believe that a smoothly functioning federal government is the enemy—a Satanic enemy, for the more theologically minded among them.

Thinking Like a Conservative (Part Five): Epistemology and Empathy

Have you ever noticed how conservatives who say the most controversial things imaginable think no one actually disagrees with them?

They will admit that, yes, people might claim to disagree. But they will explain, if pressed, that those who do so are lying, or nuts, or utter the non-truths they utter out of a totalitarian will to power, or are poor benighted folks cowed or confused by those aforementioned totalitarians. (Which, of course, makes the person “finally” telling “the truth” a hero of bottomless courage.) Or the people who disagree are simply stupid as a tree stump. This is why “agree to disagree” is not a acceptable trope in the conservative lexicon. A genuine right-winger will be so lacking in intellectual imagination—in cognitive empathy—that imagining how anyone could sincerely reason differently from them is virtually impossible.

## Sunday, November 10, 2013

### Hayek's theological epistemology

Had Friedrich Hayek simply stated that economics and the social sciences in general have the most complicated subject matter so far known, i.e. human society, and that we should formulate social policy with extreme caution because the scientific knowledge we can gain about our society is limited, he would have been correct. And he might also have been profound: it is perhaps the case that economists are too confident about their scientific knowledge. But in his Nobel Prize speech, The Pretence of Knowledge, Hayek makes a much stronger claim. Economists, Hayek argues, have made serious policy errors because they have aped the forms of science in a field where science itself does not and cannot apply. Hayek first establishes that there is a problem, the "serious threat of accelerating inflation." Hayek attributes this problem proximately to "scientism," the idea of a "simple positive correlation" between employment and aggregate demand; Hayek asserts that economists accept this idea because they employ a "mechanical and uncritical application of habits of thought to fields different from those in which they have been formed."* Hayek does not believe that this correlation between employment and aggregate demand is unscientific; he admits that it that is is the only theory for which "strong quantitative evidence can be adduced." However, Hayek believes it is "fundamentally false" and "harmful" to use to guide public policy.

*Hayek quotes himself here, from "Scientism and the Study of Society, " reprinted in The Counter-Revolution of Science.

According to Hayek, economics (and presumably all social sciences) cannot productively use the scientific method. The data necessary to construct good scientific theories are "necessarily limited" and important information may not be available. In contrast, Hayek asserts that in the physical sciences, all important information is "directly observable and measurable." Because of the limitations on the availability of data, instead of observing what is important, social scientists declare that only what is observable is important. This tendency "quite arbitrarily limits the facts which are to be admitted as possible causes of the events which occur in the real world. . . . We know . . . a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information." Because these facts cannot be confirmed by quantitative measurement, they are excluded from consideration in mainstream economics. Thus, Hayek asserts, scientism causes economists to accept false theories with good scientific support, such as the causal connection between employment and aggregate demand, and reject true theories without scientific support, such as Hayek's alternative explanation of structural unemployment. Although Hayek is correct in identifying the society as the most complex object of study, his analysis is otherwise completely incorrect, and his alternative is utterly without any intellectual support.

Hayek first mischaracterizes the scientific method. Although he mentions Popper approvingly, he deprecates the notion of falsifiability and instead imputes to science a requirement of behaviorism, also known as positivism. Taken from psychology, behaviorism specifically asserts that because we cannot directly observe what is in a person's mind, the mind has no physical; at best we can merely talk about correlations between observable inputs and observable behavior. More generally, as proposed in philosophy by the Vienna Circle, positivism asserts that only that which is directly measurable has any physical meaning. The Vienna Circle, including Carnap, Popper's primary intellectual opponent, quickly realized positivism's untenability and abandoned the concept. So far as I know, no philosopher today holds that positivism is a foundational concept in the philosophy of science. Had Hayek criticized economists and social scientists for positivism, his critique would have been correct and perspicacious.

But Hayek believes that science itself requires positivism. Positivism, according to Hayek, is a routine, unobjectionable element of the physical sciences: "[I]n the physical sciences it is generally assumed, probably with good reason, that any important factor which determines the observed events will itself be directly observable and measurable." This is simply not true of any science, not even physics. In 1946, Albert Einstein criticized Ernst Mach's positivism, saying,
[Mach] did not place in the correct light the essentially constructive and speculative nature of all thinking and more especially of scientific thinking; in consequence, he condemned theory precisely at those points where its constructive-speculative character comes to light unmistakably, such as in the kinetic theory of atoms.*
Hayek's attribution of naive positivism to science is simply mistaken.

*Quoted in Einstein's Philosophy of Science, by Don A. Howard.

Curiously, Hayek opens his speech with a purely scientific critique of a simplistic correlation between employment and aggregate demand. Assuming such this simplistic correlation really is fundamental to economic theory at the time, it is falsified by the directly observable experience of inflation: a simplistic correlation would predict that increasing the money supply when there is above-normal unemployment will not cause inflation. Under Popperian falsification, Hayek's criticism is dispositive: we have directly observed events which contradict predictions of the theory, therefore, there is something incorrect or missing from the theory. However, the phenomenon of observations contradicting theory is routine in science; that a theory has been contradicted by observation does not in any sense invalidate a discipline as unscientific or "scientistic."

Hayek, however, does not conclude that the simplistic correlation between employment and aggregate demand is incomplete; he makes the much stronger assertion that it is "fundamentally false [emphasis added]." He must mean that there is no actual causal relationship whatsoever between aggregate demand; that all the observed correlations, which he admits, are either spurious or indicative of parallel or indirect causation. Hayek, however, concludes that any correlation between employment and aggregate demand is incorrect because it is measurable, and because it admits of only what proponents "regard as scientific evidence."

Hayek's alternative is that all unemployment (other than routine frictional unemployment) is fundamentally structural. Without apparent qualification, Hayek asserts that "the chief actual cause of extensive unemployment . . . [is] the existence of discrepancies between the distribution of demand among the different goods and services and the allocation of labour and other resources among the production of those outputs." Hayek, however, cannot actually prove this theory. Hayek admits he cannot offer quantitative evidence in support of his theory: "[W]hen we are asked for quantitative evidence for the particular structure of prices and wages that would be required in order to assure a smooth continuous sale of the products and services offered, we must admit that we have no such information." Hayek continues, "[W]e can never produce statistical information which would show how much the prevailing prices and wages deviate from those which would secure a continuous sale of the current supply of labour [emphasis original]." His single attempt is to declare the theory would be proven false "if, with a constant money supply, a general increase of wages did not lead to unemployment." This account, however, is obviously inadequate either to support his own theory or to challenge an account linking aggregate demand to employment, because by a "constant money supply," Hayek is holding demand constant a priori. Where Hayek does not misunderstand science, he directly rejects it.

Hayek's only "intellectual" support for both his criticism of the scientific method as used by economics and the social sciences is not just an assertion of "a mistaken conception of the proper scientific procedure"; it is essentially "theological," in that it relies explicitly on revealed truths that cannot be contradicted by experience. Hayek asserts, "We know: of course, with regard to the market and similar social structures, a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information." This assertion makes no sense: if have only "imprecise and general information," then we can know these supposed facts only by revelation, not by any sort of scientific inquiry. Indeed, Hayek admits that "the effects of these facts in any particular instance cannot be confirmed by quantitative evidence." These supposed facts cannot be observed directly, their effects cannot be observed directly, and yet they are still, according to Hayek, actual facts. Hayek's justification of his own theory is thin to the point of nonexistence: "few . . . will question the validity of the factual assumptions [!], or the logical correctness of the conclusions drawn from them." Hayek engages here in a wholesale repudiation not just of positivism, but of scientific knowledge in general.

Everything about Hayek's reasoning directly mimics the arguments of creationists and pseudoscientists. Who are you going to trust, Hayek asks, your preconceptions and prejudices, or your lying eyes? That Hayek received a Nobel Prize in cconomics is as absurd as it would be to award the Nobel Prize in physics to Deepak Chopra; that Hayek is even mentioned in a university curriculum about economics is a disgrace to the discipline, not because of his ideology (everything is ideological) but because of his contempt and dismissal of the scientific method.

## Saturday, November 09, 2013

### Social security and the ideological struggle

Social Security and Me: Ayn Rand, the Four Freedoms, the Road to Serfdom and the Leninist Strategy by Bruce Webb

According to Webb, the battle over social security
is a manifestation of a clash of philosophies between two irreconcilable camps. One camp takes its collective inspiration from a canon that includes Ayn Rand’s Atlas Shrugged and The Virtue of Selfishness, Milton Friedman’s Capitalism and Freedom, and Friedrich Hayek’s The Road to Serfdom. Each work and its respective acolytes subscribe to one or both of the following equations: Capitalism = Freedom and Socialism = Tyranny. In this camp the firm and often fervent belief is that any and all government interventions in the Free Market via central planning, regulation or programs that redistribute gains from productivity are if not Socialism per se, certainly steps along the path. They may admit that such interventions might be well motivated and even for a time have positive net effects by Utilitarian Greatest Good for Greatest Number calculations but still maintain that promoters of them are either dupes or active collaborators with a fundamentally anti-Freedom and anti-Capitalist agenda. Which as Friedman suggests are ultimately the same thing.

On the other side of this divide is a group that takes its inspriration from a quite different canon, one that includes FDR’s Four Freedoms Speech and for the more religious the Sermon on the Mount. If you had to some [sic] up the unifying philosophy it is explicitly anti-Rand in holding that not only is Selfishness NOT a Virtue and still less the PRIME virtue, but instead close to The Root of All Evil.

As a result there is little room for compromise in the parallel battles of Chicago vs. Hyde Park, Objectivism v. the New Deal, or Libertarianism vs. Social Democracy, each draws on a different vision of what it means to be fully human.

## Friday, November 08, 2013

### Centralism and decentralism

Under democratic communism, like most nation-states, there are three general levels of government: national, regional (state/province), and local (city/county) government. The allocation of "purely" political legislation is a topic for another post; I want to discuss economic centralization and decentralization here.

There are certain things in an economy that must be centralized, most notably the creation and destruction of the national currency. Hence, the national government must assume this role. However, the actual allocation of capital to firms is best decentralized. Thus, the national government will create new money as it sees fit (subject to certain requirements noted below), and then give it to regional and local governments on an absolute per-capita basis, to allocate to firms as they see fit. Regional and local government then pay the government rent on that capital, which is then "destroyed" by the national government. The national government can impose income and wealth taxes on individuals if it wishes to destroy more money to manage inflation.

The national government must create new money, if necessary for the following purposes. First, they must always fund their operations. (In contrast to our recent contretemps, no one can "shut down" the democratic communist government.) Second, they must always pay interest on any money they choose to borrow. Third, they must always make social insurance (retirement, medical care, unemployment insurance, etc.) payments. Finally, they must always pay workers who come to government for work, even if those workers are employed by a regional or local government.

In contrast to the national government, regional governments are budget constrained: they can spend only what they collect in rent, taxes, borrowing, and allocation from the national government. They therefore have an incentive to allocate capital to more productive (rent-creating) or socially desirable (taxation-justifying) endeavors. Because they are budget constrained, they have to be able to go bankrupt; the national government, therefore, has to set government bankruptcy law.

Note that regional governments do not operate firms; they merely allocate capital to those firms. Any endeavors they actually manage directly have to be funded by taxes and fees, not rent on capital.

One of the biggest differences between capitalism and democratic communism is how a firm is run. Unlike state communism, or "communism of the parties," which places control of firms in a closed, self-selecting Communist Party, democratic communism encourages active worker management of firms, to smash the position of authority and control that the owners of capital have over their workers, and to prevent a communist party from simply becoming bureaucratic capitalists.

Most firms will receive their capital from the government, and the condition the government requires is that firms are potentially worker-managed. When starting, a firm must have a charter, a set of by-laws as to how the firm is managed and who manages it. There can be a lot of flexibility, but the government imposes two requirements on the charter: first, if two-thirds of the workers in a firm so vote, the charter can be amended or replaced, and second, workers may not under any circumstances be prevented in any way from organizing and persuading their fellow workers to amend or replace the charter. An individual or group can run a firm as a "dictatorship" or an "oligarchy" so long as more than a third of the workers consent. The government encourages, but does not require firms to be actually worker-managed. Workers are never dependent on a firm for survival: they can always go to the government for a job that pays a living wage, and they have equal access to capital to start their own firms. Workers have the fundamental power; an entrepreneur can become rich only if she runs a successful business and persuades her workers, either directly or indirectly, to allow her to become rich.

As in capitalism, firms pay rent for their capital. However, this rent typically goes to the democratic government, to be allocated as the people, not the privileged capitalists, see fit.

## Sunday, November 03, 2013

### This government?

An economic professor asked me, "But do you want this government having anything to do with the allocation of capital?"

Well, no. I don't want this government doing anything at all. This government exists as an organ of the capitalist ruling class, and the representatives and bureaucrats live in the context of a capitalist society: they, like everyone else, are competing in a life and death struggle for money and power. There are so many incentives for "corruption" (using official power for personal gain) that it seems a miracle that so many civil servants avoid corruption.

Instead, I want a democratic government in a communist context making decisions about the allocation of capital. A democratic government, as opposed to our present republican government, really is run by the people themselves, directly as far as direct democracy is practical, and otherwise by delegated, as opposed to trustee, representation. In a communist context, people are not locked into a life and death struggle for money, and economic power is not the essence of political power.

People like power, and I have no illusions that there will be struggles for power under democratic communism. I believe, however, that we can move the field of struggle for power away from economic power to something else, probably popularity. A person will become politically powerful to the extent that she gains the admiration, trust, and respect of the people. There will be demagogues, certainly, and the majority of people can, like any other group, make serious mistakes. But the power of a demagogue is much more transient and evanescent than the power of a capitalist, and the fundamental principle of democracy is not that the people are less prone to error than an elite, but rather that the mistakes of the people are preferable to the self-interest of an elite.

## Friday, November 01, 2013

### Innovation

Under democratic communism (as I envision it) during the "socialist" phase*, an individual can become relatively wealthy. Perhaps BMW or Mercedes Benz wealthy, 5,000 square foot home wealthy: i.e. about as relatively wealthy as an upper-middle class professional today, but almost certainly not Bill Gates or Warren Buffet or Mark Zuckerberg wealthy. Thus, the very reasonable question that capitalist apologists** pose: "Under communism, where vast wealth is unavailable, would we lose the valuable innovations that people like Gates, Buffet, Zuckerberg, and others such as Steve Jobs, Larry Ellision***, etc. have given us?" We cannot know for certain until we try, but although there will certainly be differences, innovation need not cease under democratic communism.

Democratic communism is different from republican capitalism, so it is definitely the case that the kinds of innovation will differ between communism and capitalism. Obviously, any potential entrepreneur who requires the possibility of staggering wealth to create his innovation will not have that motivation under communism. More importantly, the general conditions of winner take all and innovate or die under capitalism will be greatly relaxed. Generally speaking, neither people nor firms will work as hard at something if it is no longer a matter of life and death. I expect that innovation under communism will occur at a much less frenetic pace as under 19th and 20th century capitalism.

*In the communist phase, the material conditions of society are developed to such a degree that relative wealth becomes as meaningless for ordinary people as relative access to air.

**I mean "apologist" in the neutral sense, as someone who argues for a position.

***The bias here towards technology entrepreneurs is partly due to my own history as a computer programmer.

But slower is not stopped. Even a cursory study of history shows that many people have contributed substantial innovations without the prospect of enormous wealth. Academic scientists and scholars have created numerous innovations, from relativity to educational methods to critical race theory, without the realistic possibility of enormous wealth. People sometimes act like the iPod sprang Athena-like from the head of Steve Jobs, but in reality Apple's innovative products are the work of many thousands of engineers and technicians — not to mention all the people supporting their efforts: even the most brilliant engineer is going to have a difficult time innovating if the bathrooms are filthy. I use many free software packages, not just prestige products such as Firefox, but a host of innovative and useful applications created by people who just wanted to see something cool in the world. Capitalists are just as prone to ethnocentrism as anyone else: they themselves are motivated by solely by wealth, so they tend to think that everyone is motivated solely by wealth. But of course people have a lot of different motives, and the urge to create is a basic human desire, and people will innovate even if there were no social incentives at all.

We also must look critically at the kinds of innovation that capitalism supports: capitalism supports only those innovations that have the potential of making some capitalists relatively wealthier, compared to each other and compared to the professional/managerial and working classes. This structure is problematic in a variety of ways. First, innovation is concentrated on private goods, and innovation in public goods either languishes or is actively blocked. Hence we have Viagra and Rogaine, but research on new antibiotics is practically nil. Innovations in health care financing are actively blocked, as demonstrated by the absolutely unnecessary tsuris over the PPACA, when the obvious answer — not even innovative anymore — is the expansion of Medicare. Second, innovations in what are more or less "naturally" public — non-exclusive, non-rival — goods require that we attempt to make them into private — exclusive, rival — goods. The most obvious example is copyright law. In the electronic age, movies and computer programs are "naturally" non-exclusive and non-rival; copyright law tries, by brute force, to make these goods exclusive and rival. Finally, some "innovations" focused on capitalist wealth, such as recent "innovations" in the financial system, have proven to be unmitigated social disasters, making everyone but a few vastly worse off, and nearly wrecking the global economy. There are many capitalist innovations that few would miss if their motivations were removed.

In contrast, communism stresses innovation in public rather than private goods. Allocation of capital under communism is directly democratic. Under capitalism, the entrepreneur must convince people who are already rich that her innovation will make them richer; under communism, the entrepreneur must convince citizens that her innovation will make them better off. Critics of communism thus must either "bite the bullet" and say that democracy itself is fundamentally evil or ineffective; they must say that what will garner the approval of a democratic majority is not best, or that citizens do not and cannot know what will make them better off. Assuming democracy is not an evil, then the objection of capitalist apologists is easily met: entrepreneurs will innovate along lines that will gain the approval of the majority, and the majority will innovations they do not want.

Finally, I want to reiterate a point that I've made many times earlier: communism cannot and will not actually happen until it is clear that capitalism itself has become a fetter on the means of production. Revolutionary ideology does not and cannot in good conscience advocate replace a system that is working, however imperfectly, with an untested system whose foundation is purely theoretical; not only is such advocacy morally wrong, its goal is practically impossible. As long as apologists and reformers can keep the system working, however imperfectly, they will not fall.* However, when the "innovations" of capitalism nearly always do not have the effect of increasing the public good but only maintaining the power and privilege of the capitalist ruling class, communists have the opportunity of introducing a newer, better paradigm of innovation.

*There is more scope for changing a merely imperfect system in the alternative mode of revolutionary change, "allopatric" revolution, similar to the concept of allopatric speciation in biological evolution.

Let me close with a quotation from J. S. Mill, from Principles of Political Economy:
I confess I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on; that the trampling, crushing, elbowing, and treading on each other's heels, which form the existing type of social life, are the most desirable lot of human kind, or anything but the disagreeable symptoms of one of the phases of industrial progress. It may be a necessary stage in the progress of civilization, and those European nations which have hitherto been so fortunate as to be preserved from it, may have it yet to undergo. It is an incident of growth, not a mark of decline, for it is not necessarily destructive of the higher aspirations and the heroic virtues; as America, in her great civil war, has proved to the world, both by her conduct as a people and by numerous splendid individual examples, and as England, it is to be hoped, would also prove, on an equally trying and exciting occasion. But it is not a kind of social perfection which philanthropists to come will feel any very eager desire to assist in realizing. Most fitting, indeed, is it, that while riches are power, and to grow as rich as possible the universal object of ambition, the path to its attainment should be open to all, without favour or partiality. But the best state for human nature is that in which, while no one is poor, no one desires to be richer, nor has any reason to fear being thrust back by the efforts of others to push themselves forward. (bk. IV, ch. VI sec. 2)