Saturday, December 30, 2006

Does econ make you conservative?

Harvard University’s economics Professor Greg Mankiw is known for his popularity, especially as he seems to actually enjoy teaching introductory economics courses (while most of his peers tend to favor spending time with advanced, post-graduate students). He even runs a blogsite so that he can keep in touch with his students, now dispersed worldwide.

One student posed a question on that site recently that’s actually quite central to the kind of ideological divide we see in Finnish politics today: does the study of economics make people more conservative (or more classically liberal, in academic terms)?

I believe the answer is, to some degree, yes. My experience is that many students find that their views become somewhat more conservative after studying economics. There are at least three, related reasons.

First, in some cases, students start off with utopian views of public policy, where a benevolent government can fix all problems. One of the first lessons of economics is that life is full of tradeoffs. That insight, completely absorbed, makes many utopian visions less attractive. Once you recognize, for example, that there is a tradeoff between equality and efficiency, as economist Arthur Okun famously noted, many public policy decisions become harder.

Second, some of the striking insights of economics make one more respectful of the market as a mechanism for coordinating a society. Because market participants are motivated by self-interest, a person might naturally be suspect of market-based societies. But after learning about the gains from trade, the invisible hand, and the efficiency of market equilibrium, one starts to approach the market with a degree of admiration and, indeed, awe.

Third, the study of actual public policy makes students recognize that political reality often deviates from their idealistic hopes. Much income redistribution, for example, is aimed not toward the needy but toward those with political clout.

These are lessons certainly lost on Finland, where entrenched socialist ideology sees any challenge to its moral precepts as a threat. In fact, most of Finnish counter-arguments focus on the demonization of any contending models to the welfare-state, even to the extent of employing state-sponsored bigotry to ensure the status quo.

Sunday, December 03, 2006

Zero Tuomioja and the Tobin Tax

One of the preoccupations of Finland’s foreign minister “Zero” (as Chirac allegedly called him) Tuomioja, has been the implementation of the CTT, or Tobin Tax, especially in relations to ATTAC, where he is a member. Though Tuomioja’s rationale sounds benign enough, there are more considerations behind this folly than initially meets the eye.

Consider whom such a Currency Transaction Tax would affect. Far from dissuading currency speculators (as it was initially intended to do), a CTT is designed to collect taxes from two willing international trading partners and forwarding those tax monies to other countries who have no role at all in that particular trade. Thus, for example, if an American company wires money to a factory in China to produce some goods for America, a country like Bolivia, - which has introduced socialist policies designed to dissuade international trade – would benefit from that kind of international transaction taking place. In other words, Bolivia would enjoy a freeride at the expense of the other two countries, without ever needing to revise its own trade-stifling policies.

Obviously, Zero Tuomioja also enjoys the other aspect of such a tax: it would collect the most money from the one nation that thrives on international trade: the United States. As the cost of such a transaction would eventually be transferred to the American consumer, making goods more expensive as a whole, it becomes quite clear that this tax is just another manifestation of European anti-American bigotry. And, when we consider that it is the American consumer that has done the most when it comes to lifting third world nations out of poverty, the CTT can be seen as quite counterproductive to its poverty-fighting ideals.

In other words, it is folly, though it'll certainly never be comprehended as such by Zero Tuomioja.