Friday, February 28, 2014

Arizona law banning some slavery vetoed

The nation should, by now, be aware of the Arizona bill that would have allowed businesses to deny service to gays and lesbians on religious grounds. This bill was vetoed by the governor of Arizona.

Anti-discrimination laws, whether meant to protect gays and lesbians or racial minorities, are legalized slavery. That is why this bill should have been passed and why it did not go far enough. The constitution of the United States explicitly prohibits involuntary servitude.

It is not hard to show that anti-discrimination laws are slavery.

1. All forms of involuntary servitude are slavery.
2. Anti-discrimination laws are involuntary servitude.
3. Therefore anti-discrimination laws are slavery.

Proposition one is noncontroversial, it is the definition of slavery. Proposition two is clearly true.

4. The purpose of anti-discrimination laws is to force people to serve those who they would discriminate against.
5. Forcing people to serve is involuntary servitude.
6. Therefore, anti-discrimination laws are involuntary servitude.

Both propositions four and five should be non-controversial. If you disagree with four, you must now explain what you believe the purpose of anti-discrimination laws is.

This does not mean I condone discrimination. There may be times when discrimination is appropriate. Other times it is not. Using the guns of government to deal with discrimination is the solution to this problem. In a free society, some people will make choices we disagree with. But violence and slavery are not the correct tools to deal with these people.

Friday, February 21, 2014

Deflation is not to be feared

One of the most bizarre concerns that economist have is of falling prices, commonly referred to as deflation. We hear horror stories about how deflation is associated with economic collapse and we need to avoid inflation at all costs. Nothing could be farther from the truth.

Inflation is actually historically more commonly associated with depression than deflation. (Andrew Atkeson and Patrick J. Kehoe, "Deflation and Depression: Is There an Empirical Link," American Economic Review Papers and Proceedings 94 (May 2004): 99–103.) This purported link is mainly due to the observation of falling prices during the Great Depression. However, in general this is not the case as Atkeson and Kehoe show. Even if such a correlation existed, it would not prove any particular causal relationship.

A different argument against deflation is that if prices fall, people will put off their purchases. Certainly in the short run people will be willing to wait for prices to fall before they make a purchase for certain items, but in general it is an absurd argument. Simply look at the video game industry. Gamers willingly buy titles on the launch date, even pre-order titles, that in a year will be discounted 20-50%. Prices of computers have been falling and yet people continue to buy despite the fact they could pay less if they waited a year.

So the economic arguments against deflation are bogus. More importantly though is the moral argument against inflation, meaning the increase of the money supply that leads to higher prices. By increasing the supply of money, the value of money decreases and prices rise. This devaluation of the currency directly hurts the poor and savers. For this reason alone, regardless of other reasons, we should oppose any policy that is intended to increase inflation.

Friday, February 14, 2014

The moral case for default

I recently made the case that the government has only 2 real options for dealing with the debt crisis, default or hyper inflation. While it is logically possible that the government could raise taxes or cut spending and actually pay off the debt, these are not feasible options.

While the official debt is in the neighborhood of 17 trillion, the real debt is at least an order of magnitude greater because of the unfunded liabilities not just for Social Security but for Medicare. With the baby boomer generation entering retirement, these liabilities are going to exacerbate the current crisis.

If the only two possible options are default and hyperinflation, which option should the government choose? We could discuss the economic impact of both options but regardless of which is best economically, which option is the most ethical? We do not debate gay right and civil liberties based on their economic impact but on what is the moral choice.

Hyperinflation is a form of wealth destruction. Any wealth held in currency is quickly destroyed as the currency is debased. Those most dependent on holding cash in order to complete transactions will be hurt more than those who can hold wealth in assets. This means hyperinflation greatly hurts the poor more than the rich. Clearly hyperinflation is a bad choice.

There are negative consequences to default as well. People who hold government debt were promised a return for their investment and reneging on that promise would be wrong. But unlike with hyperinflation, those holding government debt are not innocent victims. They know that they payments they are expecting are the result of taxation. The government must steal from the people in order to repay these loans. If an individual loaned in order to finance criminal activity and expected a return from such activity, we would not consider it unjust if the criminals abandoned crime and refused repay their debtors. These debtors are accomplices to the crimes the helped fund.

The moral case is clear, we can either hurt the innocent and disproportionately hurt the poor or we can deprive accomplices to government criminality of ill gotten loot.

Thursday, February 6, 2014

Rising Student Loan Debt

In life there are trade offs. Student loan default rates have risen as student loan burdens also continue to rise. The purpose of student loans has been to make college education more affordable but has instead turned to making it easier for young adults to get degrees that they will never use.

What is the trade off that student loans require? Which problem is worse, a generation facing massive student loan debt and degrees that do nothing or a low debt generation where some people may not be able to afford college?