Short, Sweet & Efficient

Seven years ago, Thomas Sargent (Nobel, 2011) gave perhaps one of the shortest (and therefore best) commencement addresses ever:

I remember how happy I felt when I graduated from Berkeley many years ago. But I thought the graduation speeches were long. I will economize on words.

Economics is organized common sense. Here is a short list of valuable lessons that our beautiful subject teaches.

1. Many things that are desirable are not feasible.

2. Individuals and communities face trade-offs.

3. Other people have more information about their abilities, their efforts, and their preferences than you do.

4. Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always end up working as intended.

5. There are tradeoffs between equality and efficiency.

6. In an equilibrium of a game or an economy, people are satisfied with their choices. That is why it is difficult for well-meaning outsiders to change things for better or worse.

7. In the future, you too will respond to incentives. That is why there are some promises that you’d like to make but can’t. No one will believe those promises because they know that later it will not be in your interest to deliver. The lesson here is this: before you make a promise, think about whether you will want to keep it if and when your circumstances change. This is how you earn a reputation.

8. Governments and voters respond to incentives too. That is why governments sometimes default on loans and other promises that they have made.

9. It is feasible for one generation to shift costs to subsequent ones. That is what national government debts and the U.S. social security system do (but not the social security system of Singapore).

10. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation.

11. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).

12. Because market prices aggregate traders’ information, it is difficult to forecast stock prices and interest rates and exchange rates.

Rand Paul: Two DOMA-Related News Stories

The ABC News story: “Rand Paul: On Gay Marriage GOP Needs to ‘Agree to Disagree’”

Sen. Rand Paul, R-Ky., told ABC News he believes the Supreme Court ruling on  the Defense of Marriage Act  was appropriate,  and that the issue should be left to the states. He praised Justice Anthony Kennedy for avoiding “a cultural war.”

“As a country we can agree to disagree,” Paul said today, stopping for a moment to talk as he walked through the Capitol. “As a Republican Party, that’s kind of where we are as well. The party is going to have to agree to disagree on some of these issues.”

The comments from Paul, a likely GOP presidential candidate in 2016, highlight how the party’s field could divide over  gay marriage. Many Republicans have been unusually muted in their reactions to the Supreme Court rulings today.

Paul said he agreed with Kennedy, whom he called “someone who doesn’t just want to be in front of opinion but wants government to keep up with opinion.” He said Kennedy “tried to strike a balance.”

The Louisville Courier-Journal story: “Rand Paul suggests gay-marriage ruling a step closer to legalizing human-animal unions”

U.S. Sen. Rand Paul suggested Wednesday that the U.S. Supreme Court ruling striking down the federal Defense of Marriage Act moves the country toward accepting marriages between people and animals.

Paul’s spokeswoman, however, said the senator was being sarcastic.

The comment came after radio talk show host Glenn Beck raised questions about whether the law could prohibit polygamous marriages following the ruling that requires the federal government to treat legally married gay couples the same as heterosexual couples.

“Who are you to say, if I’m a devout Muslim and I come over here and have three wives … that I can’t have multiple marriages?” Beck asked Paul.

Paul responded: “I think it’s a conundrum. If we have no laws on this, people take it to one extension further, does it have to be humans, you know?

Bagley said in a statement that Paul’s words were misunderstood.

“Sarcasm sometimes doesn’t translate adequately from radio conversation. Senator Paul did not suggest that striking down DOMA could lead to unusual marriage arrangements,” she said. “What he was discussing was that having no state involvement in marriage could lead to marriages with no basis in reality.”

Chris Hartman, a spokesman for the Fairness Campaign, said Paul’s statement “proves his capacity for bigotry.”

Hartman said Paul is “is talking about a radical redefinition of two people in love” and that he does so out of “bigotry, ignorance and potentially hate.” He said the “right wing is losing its grip” and that Paul’s words remind him of the cartoon character Wile E. Coyote, “desperately clawing at a cliff that is not there.”

“If Senator Paul wants to marry his dog, he can work to create the groundswell of support to do something like that, but that is not what this is about,” Hartman said.

A Thought on the Criminal Law

“Fuzzy, leave-the-details-to-be-sorted-out-by-the-courts legislation is attractive to the Congressman who wants credit for addressing a national problem but does not have the time (or perhaps the votes) to grapple with the nittygritty. In the field of criminal law, at least, it is time to call a halt.” – Sykes v. United States

Quote of the Day

“Policy failure has often been attributed to mistakes and ignorance, but it might rather be the result of the rational pursuit of interest and not really a failure from the perspective of those whose interests are controlling the choice at hand.” – Richard E. Wagner

An Important Thought

“If you’re going to fight Mike Tyson, you’re not going to box against him, because, even though he is crazy, he’s going to kill you. But if you can challenge him to a game of chess, you might have a chance.” – a Venezuelan opposition leader

Elinor Ostrom Is among the ‘Time 100’

Nobel Laureate Elinor Ostrom is among Time Magazine’s “100 Most Influential People in the World.” I read quite a bit of her work last year and enjoyed it immensely, not just for the broad range of study but also because of the strength of the conclusions she’s able to credibly draw from that diverse body of work.

But of everything I’ve read or heard from her, this statement at a George Mason University event spoke to me the most. It’s a simple, easily forgotten insight that more economists should burn into their brains.

One quibble with the article. It reads:

Ostrom, 78, has done field studies of the world’s fisheries, roamed with shepherds in Swiss pastures and trudged around the Los Angeles water basin to distill the essentials of harnessing cooperation to overcome selfish interests.

I think it’s fairer to say that her work provides insight into how simple rules can harness selfish interests to achieve cooperation.