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3 Stock-Market Tips from an Economist – Article by Robert P. Murphy

3 Stock-Market Tips from an Economist – Article by Robert P. Murphy

The New Renaissance Hat
Robert P. Murphy
September 11, 2015

Recent volatility has Americans talking about the stock market — and getting a lot of things wrong in the process. Let’s discuss some general principles to help clear things up.

(Let me say up front that I won’t be disclosing which stocks are going to go up next month. Even if I knew, it would ruin my advantage to tell everybody.)

1. Money doesn’t go “into” or “out of” the stock market in the way most people think.

On NPR’s Marketplace, after the recent big selloff, host Kai Ryssdal said, “That money has to go somewhere, right?”

This language is misleading. Let me illustrate with a simple example.

Suppose there are 100 people who each own 1,000 shares of ABC stock. Currently, ABC has a share price of $5. Thus, the community collectively owns $500,000 worth of ABC stock. Further, suppose that each person has $200 in a checking account at the local bank. Thus, the community owns $20,000 worth of checking account balances at the bank.

Now, Alice decides she wants to increase her holdings of cash and reduce her holdings of ABC stock. So she sells a single share to Bob, who buys it for $4. There is no other market action.

In this scenario, when the share price drops from $5 to $4, the community suddenly owns only $400,000 worth of ABC stock. And yet, there is no flow of $100,000 someplace else — certainly not into the local bank. It still has exactly $20,000 in various checking accounts. All that happened is Alice’s account went up by $4 while Bob’s went down by $4.

2. Simple strategies can’t be guaranteed to make money.

Suppose your brother-in-law says: “I’ve got a great stock tip! I found this company, Acme, that makes fireworks. Let’s wait until the end of June, and then load up on as many shares as we can. Once the company reports its sales for July, we’ll make a fortune because of the holiday numbers.”

Clearly, your brother-in-law would be speaking foolishness. Just about everybody knows that fireworks companies do a lot of business around July 4, and so the price of Acme stock in late June would already reflect that obvious information.

More generally, the different versions of the efficient market hypothesis (EMH) claim — with varying degrees of strength — that an investor can’t “beat the market” without access to private information. The reason is that any publicly available information is already incorporated into the current stock price.

Not all economists agree with the EMH, especially the stronger versions of it. If two investors have different theories of how the economy works, then to them, the same “information” regarding Federal Reserve intentions may imply different forecasts, leading one to feel bullish while the other is bearish. Yet, even this discussion shows that it can’t be obvious that a stock price will move in a certain direction. If it were, then the first traders to notice the mispricing would pounce, arbitraging the discrepancy into oblivion.

3. An investor’s “track record” can be misleading because of risk and luck.

Suppose hedge fund A earns 10 percent three years in a row, while hedge fund Bearns only 4 percent those same three years in a row. Can we conclude that fundA’s management is more competent?

No, not unless we get more information. It could be that fund A is highly leveraged (meaning that it borrowed money and used it to buy assets), while fund B invests only the owners’ equity. Even if A and B have the same portfolios, A will outperform so long as the portfolio has a positive return.

However, in this scenario, fund A has taken on more risk. If the assets in the portfolio happen to go down in market value, then fund A loses a bigger proportion of its capital than fund B.

More generally, a fund manager could have a great year simply because of (what we consider to be) dumb luck. For example, suppose there are 500 different fund managers, and each picks a single stock from the S&P 500 to exclude from their portfolio; they own appropriately weighted amounts of the remaining 499 stocks. Further, suppose that each manager picks his pariah company by throwing a dart at the stock listing taped to his conference room wall.

If the dart throws are random over the possible stocks, then we expect one manager to exclude the worst-performing stock, another to exclude the second worst-performing stock, and so on. In any event, we can be very confident that of the 500 fund managers, at least many dozens of them will beat the S&P 500 with their own truncated version of it, and the same number will underperform it.

Would we conclude that the managers with excess returns were more skilled at analyzing companies, or had better money-management protocols in place at their firms? Of course not. In this example, they just got lucky. What relevance our hypothetical scenario has for the real world of investments is not as clear, but the tale at least demonstrates that past performance alone does not necessarily indicate skill or predict future performance.

Studying economics won’t show you how to become rich, but it will spare you from making a fool of yourself at the next cocktail party.

Robert P. Murphy has a PhD in economics from NYU. He is the author of The Politically Incorrect Guide to Capitalism, The Politically Incorrect Guide to The Great Depression and the New Deal, and  Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

This article was originally published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Exemptions for Anti-Vaccination Activists Are Incompatible with Liberty: A Response to Robert P. Murphy – Article by G. Stolyarov II

Exemptions for Anti-Vaccination Activists Are Incompatible with Liberty: A Response to Robert P. Murphy – Article by G. Stolyarov II

The New Renaissance HatG. Stolyarov II
July 12, 2015

The anti-vaccination movement today constitutes one of the most astounding rejections of scientific progress. Taking many steps beyond an aversion to emerging medical breakthroughs, this movement turns its back on modern medicine established as long ago as Edward Jenner’s famous experiments with vaccination in the 1790s. Largely fearing the completely discredited and fraudulent “connection” between vaccines and autism, opponents of vaccinations have no qualms about exposing masses of people to the infectious diseases that shortened typical lifespans by factors of two or three in the eras before vaccination was prevalent. The anti-vaccination movement’s scare tactics have already led to a resurgence of measles in the United States, bringing about the first death from the disease in 12 years within American borders. If vaccination rates continue to drop, we can expect more ancient killers to be resurrected, particularly endangering the lives and well-being of those who are unable to be vaccinated for legitimate medical reasons.

Vaccination has been among the most successful medical techniques in history. We have it to thank for the eradication of smallpox and impressive reductions of the rates of polio, tetanus, typhoid, cholera, and many other maladies that routinely reached epidemic proportions in the premodern world. The evidence is overwhelming that opponents of vaccination are not just mistaken, but dangerously so. Their pseudo-scientific rhetoric does not merely affect personal lifestyle choices, but also exposes innocent individuals to harm. Yet the question has arisen as to how libertarians, who reject the initiation of aggression as a matter of principle, ought to respond to the anti-vaccination movement. Even if one considers the refusal to vaccinate to be misguided and scientifically unfounded, should it remain a legitimate personal choice from the standpoint of the law or of private institutions within a hypothetical libertarian-leaning society? Recently, the Foundation for Economic Education (FEE) hosted a debate between Robert P. Murphy, who argued that mandatory vaccinations are incompatible with liberty, and Randal John Meyer, who presented a case for the legitimacy of mandatory vaccination (in some circumstances) from the standpoint of the non-aggression principle.

As greatly as I respect Dr. Murphy’s work as an economist and a libertarian political theorist (despite some notable differences between us in the latter area), the strength of Dr. Meyer’s articulate arguments, as well as a recognition that opponents of vaccination do not only endanger themselves, lead me to wholly disagree with Dr. Murphy’s position in this debate. Dr. Murphy seems to agree with the medical science supporting the use of vaccines, but, out of libertarian considerations, writes that “Mandatory vaccinations are a gross violation of liberty.” Here I will argue that providing exemptions to mandatory vaccination on the mere basis of “philosophical” opposition to vaccination is the true violation of liberty.

Like Dr. Meyer, I base my argument on the non-aggression principle and the recognition that people do not have the right to involuntarily expose others to deadly diseases that, with continued vaccination, could become eradicated or remain at minimal levels. Unlike anti-vaccination activists, somebody who decides to take recreational drugs or consistently overeat or reject the scientific evidence about evolution harms only himself – physically or intellectually or both. While counterarguments might be made regarding indirect harms of such behaviors to others, those indirect harms are not proximate and can be prevented by the individual himself or by the choices of those who refuse to be affected. Therefore, such mistaken choices of lifestyle or belief should only meet with voluntary persuasion and education. A libertarian respects the right of others to be wrong, as long as their wrong inflicts no involuntary harm upon others. But to infect unwitting others because one is “philosophically” opposed to vaccination is not a valid exercise of personal freedom and not a behavior that harms oneself only; it is, rather, a negligent infliction of harm in violation of others’ rights.

To be clear, my position does not recommend mandatory vaccination for everyone – since there can be legitimate medical reasons not to vaccinate some people who might be at greater risk of usually rare side effects or who might be too vulnerable for the vaccine to work properly (e.g., pregnant women, infants, or the elderly in the case of certain vaccines). But precisely because not everyone can be safely vaccinated, anyone who can be, should be – in order to prevent the spread of disease to those who cannot directly protect themselves. As my central position on this issue, I strongly support abolishing all “religious” or “philosophical” exemptions to vaccination, as well as any exemption based on the purportedly medical advice of a doctor who is a “vaccine skeptic”. Only medical doctors who recognize the benefits and efficacy of vaccination in the majority of instances, but consider the risk of adverse side effects to be too great for a particular patient, should be able to provide exemptions to vaccination. Furthermore, medical doctors who fabricate reasons for vaccine exemptions or who deny the efficacy of vaccines in fighting disease, where such denial affects their areas of practice, should be stripped of their licenses by the credentialing organizations that oversee them.

Nor does the elimination of belief-based vaccine exemptions imply the necessity of overwhelming enforcement of vaccination mandates. There should be enough enforcement, combined with education and social pressure, to bring herd immunity back to levels where a disease is kept at bay even if a few individuals slip through the cracks of the vaccination system for whatever reasons. The key is to avoid systematic allowances that lead to vaccination rates dropping below crucial thresholds.

Dr. Murphy writes that “Mandatory vaccinations involve a supreme violation of liberty, where agents of the state inject substances into someone’s body against his or her will.” However, nothing in my position requires the government to forcibly inject any person against that person’s will. Rather, the institutional mechanisms that have sufficed to maintain herd immunity prior to the rise of the anti-vaccination movement should simply be allowed to work without a belief-based exemption to get in their way. For instance, one can debate the legitimacy of public schools – but so long as they exist and remain a part of the lives of many families, they can justifiably be governed by rules designed to preserve the health of their students. Parents who refuse to vaccinate children (without a legitimate medical exemption) should simply be disallowed from sending those children to public schools, where they could serve as carriers of deadly diseases to other innocent children. Private schools could also choose to adopt similar criteria, requiring evidence of vaccination as a prerequisite for admitting a student (and, I hypothesize, in a libertarian society where legitimate science is able to triumph on a free market of ideas, almost all private schools would adopt such criteria). As a libertarian, I would consider the use of physical force against people’s bodies to achieve vaccination to be too disproportionate a remedy – but refusal of access to government facilities and services, along with a healthy dose of education, cultural pressure, and ostracism of the unvaccinated would be perfectly legitimate as ways to prevent the dangerous misconceptions of the anti-vaccination activists from resurrecting age-old killers. Anti-vaccination activists should face not a stick, but the removal of the carrots that almost everybody else would receive.

The remainder of this essay will cite each of Dr. Murphy’s main arguments, followed by my response.

Dr. Murphy writes: First, among those who hew strictly to a nonaggression principle and a stateless society, mandatory vaccinations are, of course, a nonstarter. Whether they identify themselves as ‘strict libertarians,’ ‘voluntaryists,’ or ‘anarchocapitalists,’ this group would obviously never condone the state’s forcing someone to be vaccinated, because most believe the state is illegitimate.”

I respond: While I am not an anarcho-capitalist and consider some government functions to be legitimate as long as they respect individual liberty, it is possible to be anarcho-capitalist and also support widespread vaccination with no belief-based exemptions. Virtually every anarcho-capitalist will support some form of private law, since the case for anarcho-capitalism relies on the possibility of social order without a central authority. Furthermore, this private law, to be legitimate, would need to be based on the theoretical foundations of libertarianism – which might be natural law or might be utilitarian or consequentialist considerations, or some combination thereof, depending on the philosophical persuasion of a given libertarian who would advocate for such a system. A private law based on natural law would recognize scientific truth, since scientific truth is part of natural law – and the efficacy of vaccination in protecting against disease, as well as the consequences of a widespread lack of vaccination, constitute some of the best-established scientific truths. A private law based on consequentialist considerations (for instance, minimizing the harm that people are able to inflict upon others) would also recognize that allowing anti-vaccination activists to run rampant while carrying highly contagious infections would not be in the interest of maximizing human well-being or ensuring that people are protected against unwanted harm. Therefore, it is entirely conceivable that a hypothetical anarcho-capitalist society, through networks of private courts or arbiters, would develop a theory of negligence that encompasses those who, in their refusal to vaccinate themselves or their children, recklessly and needlessly endanger the health and lives of others.

Dr. Murphy writes: Second, for minarchists, the proper role for the state is that of a ‘night watchman,’ a minimal government that only protects the individual from domestic criminals and foreign threats. In a minarchist framework, it is only legitimate for the state to take action against someone who is violating (or threatening to violate) the rights of another. A person’s failure to become vaccinated is hardly by itself a violation of someone else’s rights. Flipping it around, it would sound odd to say you have the right to live in a society where everyone else has had measles shots.”

I respond: An important implication of the non-aggression principle is that it is illegitimate to expose others to involuntary violation of their lives, liberty, or property. This principle applies even when the aggressor does not realize that he or she is engaging in aggression. (For instance, a thief who steals another’s property and genuinely believes himself to be doing good, because he intends to redistribute that property to the poor, is still a thief who is violating his victim’s rights.)

The intentional transmission of disease to others clearly impinges on those others’ lives and liberty. One might be killed by the disease, or one might be incapacitated or inconvenienced to the point of being unable to pursue opportunities one might otherwise have had. Technically, transmitting any disease to any unwilling person would constitute an act of negligence in a society guided by libertarian principles, and would require proportionate compensation. However, in many cases, it is practically difficult to determine who transmitted a disease to whom and how. Furthermore, medical science has not yet discovered consistently reliable ways to prevent the transmission of certain infections, such as the common cold. Therefore, while it is still infeasible to prevent the spread of all infectious diseases, a libertarian who supports the non-aggression principle ought to support the prevention of disease transmission where it is currently technically feasible. Vaccination is one of the major tools in the current arsenal for preventing disease transmission. Those who are vaccinated against a given disease gain the benefit of a greater likelihood of their own protection from the disease, but – more importantly from a libertarian perspective – they reduce their likelihood of becoming unwitting initiators of aggression against others. I agree fully with Dr. Meyer that, where it is cheap and practical to vaccinate, while the costs of not doing so can include a devastating, deadly epidemic, the decision to require vaccination as a condition of participation in public life is justified.

Dr. Murphy writes: Third, and most interesting, let’s consider a broader notion of liberty, which balances a presumption of individual autonomy against the public welfare. In this approach, there’s not a blanket prohibition on the state restricting the liberties of individuals — even when they haven’t yet hurt anybody else — so long as such restrictions impose little harm on the recipients and possibly prevent a vast amount of damage. This is the only conception of the state for which the mandatory vaccination debate is possible.”

I respond: I will interject here only to reiterate that this is not the only view of the three described by Dr. Murphy which could justify mandatory vaccination. As I discuss above, any libertarian school of thought can consistently embrace vaccination requirements, if the implications of the non-aggression principle are fully applied to the transmission of infectious disease.

Dr. Murphy writes: Let’s be charitable and assume this more expansive definition, under which, for example, even self-described libertarians might not object to stiff penalties for drunk driving or prohibitions on citizens building atomic bombs in their basements. How does mandatory vaccination fare in this framework, where we’re not arguing in terms of qualitative principles but instead performing a quantitative cost-benefit test? Even here, the case for mandatory vaccinations is weak. First of all, the only realistic scenario where the issue would even be relevant is where the vast majority of the public thinks it would be a good idea if everyone got vaccinated, but (for whatever reason) a small minority strongly disagreed. This is obvious: if the medical case for a vaccine were so dubious that, say, half the public didn’t think it made sense to administer it, then there would hardly be an issue of the government clamoring to inject half the population against their will.”

I respond: Scientific truth is true no matter what proportion of the population believes it to be. If, in a hypothetical society, 1% of the population was enlightened and recognized the role of vaccination in preventing epidemics, while the other 99% believed that only bleeding and magic rituals could cure disease, it would still be justified to require vaccination – since the objective mechanisms of disease transmission are not affected by the prevailing beliefs in a society. I bring up this point not merely for hypothetical purposes, but to highlight the dangers of the anti-vaccination activists’ pseudo-scientific and anti-scientific propaganda. Like many Neo-Luddite and “back to nature” movements, the anti-vaccination movement is dangerous precisely because it does have the potential to persuade a critical mass of people who lack the training to distinguish between scientific truth and deception, and who find the siren song of a romanticized primordial Eden alluring. Anti-vaccination activists exploit widespread primal fears of the technological, the modern, the “artificial”, and exhort people to return to a mythical age of bliss that never was. In fact, if enough people embrace anti-vaccination propaganda, we will indeed revert to an earlier paradigm – the Hobbesian primitive world in which life was nasty, brutish, and short. Anybody who supports reason and science and endorses technological progress as a pathway toward individual flourishing should recognize anti-vaccination activists to be great foes of human well-being and civilization.

Dr. Murphy writes: We’re dealing with a scenario in which the vast majority of the public thinks it would be a good idea for all of the public to become vaccinated. In that environment, if vaccines are voluntary, then we can be confident that just about all of these enthusiasts would go ahead and become vaccinated. In other words, any ‘free riding’ would only take place at the margin, if most of the population had gotten the vaccine and thus an outbreak of the relevant disease was unlikely.”

I respond: The flaw with this argument is that effective herd immunity often requires not just a majority or even a substantial majority of people to be vaccinated – but rather an overwhelming majority. For some diseases, such as measles and pertussis, herd-immunity thresholds are significantly above 90%. Because vaccines are not always 100% effective on those who do get vaccinated, this means that the entire population is at risk of the disease if the anti-vaccination activists persuade even 5 to 10 percent of the public to refuse to get vaccinated out of fear. To minimize our individual chances of becoming victims of a preventable disease, we need as many people to be vaccinated as is safely possible. While it is true that effective herd immunity can coexist with tiny pockets of the unvaccinated, the danger of the anti-vaccination movement is that it will not confine itself to such tiny pockets of the most zealous believers, but rather seeks to spread its damaging influence to as many people as possible. The real danger arises when this pseudo-scientific movement ceases to be the purview of lone cranks and becomes a trend in upscale areas such as Orange County, California, now known for miserably low vaccination rates.

Dr. Murphy writes: When a person gets vaccinated, the primary beneficiary is himself. And this benefit is all the greater the lower the rate of vaccination in the population at large. In other words, among a population of people who all believe that a vaccine is effective, the individual cost-benefit analysis of taking the vaccine will only yield a temptation of ‘free riding’ once a sufficient fraction of the population has become vaccinated, thus ensuring ‘herd immunity.’”

I respond: While I agree that individuals are indeed often beneficiaries of their own vaccinations, the primary benefit from a libertarian standpoint is the reduction in the probability of their unintentional aggression toward others. From a libertarian political standpoint, the case for mandatory vaccination rests precisely on the fact that lack of vaccination poses negative external harms. Additionally, in the case of parents who refuse to vaccinate their children (which is the type of situation to which most of the controversies regarding vaccination pertain), the case can be made that those parents are negligently exposing their children to harm, in situations where the children do not have sufficient information or autonomy to override their parents’ fear-based judgments.

Furthermore, I disagree regarding herd immunity being a necessary precondition for the “free riding” of the anti-vaccination movement to arise. Such a state of affairs would presuppose that the “free riders” actually agree with the scientific case for vaccination, but consider it too inconvenient or burdensome to be personally vaccinated. If only this were the case with the opponents of vaccination today! The very reason why the anti-vaccination movement is so dangerous is because it is, like all “back to nature” movements, rooted in an anti-technological, Neo-Luddite ideology of fear. The anti-vaccination activists refuse to get vaccinated not because of a pragmatic (if sloppy) cost-benefit analysis, but rather because of a burning hatred of vaccination due largely to the mantra that “vaccines cause autism!” No amount of evidence or demonstration of the fraud involved in the alleged vaccine-autism connection suffices to dissuade those for whom this view has become an article of faith. No matter how low the vaccination rates are driven, or how many people are felled by the resurgent epidemics, the anti-vaccination activists will continue to hew to their irrational dogmas. For this reason, it is the task of the remainder of Western civilization to protect itself against the harms the anti-vaccination activists perpetrate.

Dr. Murphy writes: Unlike other examples of huge (alleged) trade-offs between individual and public benefits, with vaccinations there is no threat of a mass outbreak in a free society. With vaccines, we have the happy outcome that when someone chooses to vaccinate him or herself, so long as the vaccine is effective, then that person is largely shielded from the consequences of others’ decisions regarding vaccination.

I respond: The key phrase in the above argument is “so long as the vaccine is effective”. It turns out that most vaccines are quite effective, but not always 100% effective. The U. S. Department of Health and Human Services states that “most childhood vaccines produce immunity about 90 – 100% of the time” but some vaccines, such as the seasonal flu vaccine, achieve effectiveness rates in the ranges of 40% to 60% during good years. This is still nothing to scoff at, but it reinforces the point that some people might remain vulnerable to the diseases they got vaccinated against, in spite of their best intentions. This is another reason why maintaining herd immunity is crucial; it protects those individuals whose specific vaccinations failed to work. This also implies that getting individually vaccinated is not a guarantee of protection against the depredation of the anti-vaccination activists. In the short run, mandatory vaccination as a precondition for participation in governmentally run institutions can provide some added protection. In the longer run, the anti-vaccination movement needs to be relegated to the dustbin of history through persuasion, education, and social ostracism.

Dr. Murphy writes: Notice the irony and how weak the mandatory vaccination case has become. We are no longer being told that vaccines are ‘safe,’ and that anyone who fears medical complications is a conspiracy theorist trusting Jenny McCarthy over guys in white lab coats. On the contrary, the CDC warns certain groups not to take popular vaccines because of the health risks. This is no longer a matter of principle — of the people on the side of science being pro-vaccine, while the tinfoil-hatters are anti-vaccine. Instead it’s a disagreement over which people should be taking the vaccine and which people should not take it because the dangers are too great.

I respond: The above argument regarding the implications of the non-universal safety of vaccines is far too simplistic. The key element missed by this argument is the existence of objective, scientific truth regarding which segments of population vaccines are safe for, and which segments of the population are vulnerable. The scientific truth is that individual vaccination remains safe for the vast majority of the population, whereas the anti-vaccination activists assert that vaccines are unsafe for everybody. There is an insurmountable qualitative gulf between a risk-based scientific assessment regarding vaccine safety by population segments and a reflexive, ideologically motivated condemnation of all vaccination efforts just because adverse side effects might occur somewhere for somebody. The disagreement is still one of principle – whether objective, scientific evidence should guide the administration of vaccinations, or whether the fears of the “back to nature” types should be allowed to override the health and safety of everyone else.

Dr. Murphy writes: Regarding children, social conflict can be resolved through the fuller application of private property rights. If all schools, hospitals, and daycare centers were privately operated and had the legal right to exclude whichever clients they wished, then the owners could decide on vaccination policies. Any parents who were horrified at the idea of little Jimmy playing with an unvaccinated kid could choose Jimmy’s school accordingly.”

I respond: I concur that, if all of the institutions described by Dr. Murphy were privately operated, their owners could set vaccination policies. I would suggest that most such owners – if acting in their genuine, long-term, rational self-interest – would recognize the scientific evidence and require some evidence or vaccination or at least refuse access to overt anti-vaccination activists. I expect that Dr. Murphy would agree with me that this would be consistent with libertarianism and the non-aggression principle.

The disagreement arises in a world where governmentally run institutions do exist and are not going away anytime soon. The vast majority of people attend and use these institutions because the incentives of the current “mixed economy” leave them with no better options. Given that these institutions exist, it is still desirable for them to operate in such a manner that maximizes genuine individual liberty and reduces the involuntary infliction of harm upon others. Therefore, rules for the operation of governmental institutions, designed to prevent those institutions from being hotbeds of disease transmission, are entirely reasonable and justifiable within the imperfect world which we inhabit. Just like the administrators of a public school airport can legitimately implement prohibitions on littering or visitors who carry the Ebola virus, so can they legitimately require evidence of vaccination as a prerequisite for admission. Ideally, of course, we should strive toward a society where such presentation of positive evidence would not be necessary, because everybody who is medically eligible would get vaccinated out of a recognition of vaccination’s overwhelming benefits. However, as long as the anti-vaccination movement remains a prominent force in public discourse, one cannot fault administrators for taking precautions to protect those who use their facilities.

Dr. Murphy writes: We have seen that even assuming the best of government officials, it is difficult to state an argument in favor of mandatory vaccinations. Yet, the debate tilts even more when we recall that throughout history, government officials have made horrible decisions in the name of public welfare, either through incompetence or ulterior motives. It should be obvious that no fan of liberty can support injecting substances into an innocent person’s body against his or her will.”

I respond: This may be a valid concern to raise in response to a forced-injection program, but not in response to a mere denial of positive benefits (like access to certain government services) for those who refuse to be vaccinated. Furthermore, I am not arguing for any extraordinary level of coercion – just a return to the system of vaccination requirements that existed before religious or “philosophical” exemptions to vaccination came into vogue. The empirical evidence suggests that those requirements did not result in any horrible abuses of power – perhaps because those requirements were compatible with the non-aggression principles and the legitimate functions of law (be it public or private law) in the first place.


Ultimately, the best of all worlds would be one in which everybody who could safely be vaccinated, would be, without the need for any mandates – just because people would be sufficiently enlightened to recognize vaccination’s scientifically established benefits and reject the fear-mongering of those who would return us to the age of blood-letting, witch-fearing, and “medicine” based on the “four humours”. It is likely that Dr. Murphy would agree with me that universal, voluntary vaccination would be the most desirable outcome. Where we differ, however, is in our assessment of how much involuntary harm the anti-vaccination movement is able to inflict upon the rest of us. By weakening herd immunity in the Western world, the anti-vaccination movement is perhaps the most dangerous of the “back to nature” strains. It is a cultural infection to which we should develop an immunity using as many tools as we can effectively deploy.

This essay may be freely reproduced using the Creative Commons Attribution Share-Alike International 4.0 License, which requires that credit be given to the author, G. Stolyarov II. Find out about Mr. Stolyarov here.

The Costs of Hysteria: How Economists are Misleading the Public on Climate-Change Policy – Article by Robert P. Murphy

The Costs of Hysteria: How Economists are Misleading the Public on Climate-Change Policy – Article by Robert P. Murphy

The New Renaissance Hat
Robert P. Murphy
May 5, 2015

Suppose the “scientific consensus” on climate change is right. Let’s also stipulate, for the sake of argument, that the computer projections used by the United Nations and the US government are correct, and that economists are able to translate those data into meaningful projections about costs and benefits to people living in the future with climate change.

Despite what the public has been led to believe, the situation is not a crisis at all — and certainly not something that demands drastic government actions to avert serious damage to the environment. In fact, implementing the wrong policy can cause far more damage than it can prevent.

It’s understandable that the public has no idea of the real state of the literature on climate change policy, because even professional economists use utterly misleading rhetoric in this arena. To show what I mean, first, let’s quote from a recent Noah Smith Bloomberg article, which urges left-liberals to support the Trans-Pacific Partnership (TPP) trade deal:

One of the bigger economic issues under debate right now is the Trans-Pacific Partnership (TPP), the multilateral trade deal that would include most countries in the Asia-Pacific region as well as the US. Many people both here and abroad are suspicious of trade deals, while economists usually support them. This time around, however, the dynamic is a little bit different — the TPP is getting some pushback from left-leaning economists such as Paul Krugman.

Krugman’s point is that since US trade is already pretty liberalized … the effect of further liberalization will be small.… I’m usually more of a free-trade skeptic than the average economist.… But in this case, I’m strongly on the pro-TPP side. There are just too many good arguments in favor.

University of California-Berkeley economist Brad DeLong does some quick back-of-the-envelope calculations, and estimates that the TPP would increase the world’s wealth by a total of $3 trillion. Though that’s not a big deal in the grand scheme of things, it’s one of the best reforms that’s feasible in the current polarized political situation. (emphasis added)

To summarize the flavor of Smith’s discussion, he thinks the TPP is “one of the bigger economic issues” today, and that its potential windfall to humanity of $3 trillion is “not a big deal in the grand scheme of things” but certainly worth pursuing if attainable. Krugman disagrees with Smith’s assessment, but their differences are clearly quibbles over numbers and strategies; it’s not as if Smith thinks Krugman is a “Ricardo denier” or accuses Krugman of hating poor Asians by opposing the trade deal.

We get a much different tone if instead we look at Smith discussing climate-change policy. For example, in June 2014, Smith wrote a Bloomberg piece on five ways to fight global warming. In the interest of brevity, let me simply quote Smith’s concluding paragraph:

If we do these five things, then the US can still save the world from global warming, even though we’re no longer the main cause of the problem. And the short-run cost to our economy will be very moderate. Saving the world on the cheap sounds like a good idea to me. (emphasis added)

Clearly, there is a chasm in the rhetoric between Smith’s two Bloomberg pieces. When discussing the TPP, it’s an honest disagreement between experts over a trade agreement that Smith thinks is definitely worthwhile, but in the grand scheme is not that big a deal. In contrast, government policies concerning climate change literally involve the fate of the planet.

At this point, most readers would wonder what the problem is. After all, isn’t man-made climate change a global crisis? Why shouldn’t Smith use much stronger rhetoric when describing it?

I am making this comparison because according to one of the pioneers in climate-change economics, William Nordhaus, even if all governments around the world implemented the textbook-perfect carbon tax, the net gain to humanity would be … drumroll please … $3 trillion. In other words, one of the world’s experts on the economics of climate change estimates that the difference to humanity between (a) implementing the perfect carbon-tax policy solution and (b) doing absolutely nothing was about the same difference as DeLong estimated when it comes to the TPP.

To be more specific, the $3 trillion Nordhaus estimate comes from the 2008 calibration of his Dynamic Integrated Climate-Economy (DICE) model. (The numbers have gone up since then, but I studied his 2008 calibration in great detail.) Note that this isn’t some “denier” computer simulation, rejected by the serious scientists. On the contrary, Nordhaus’s DICE model was one of only three chosen by the Obama administration when it set up a working group to estimate the monetary damages of carbon dioxide emissions. To help the reader understand the trade-offs humanity faces when it comes to climate change, let me reproduce table 4 from my Independent Review article that critically evaluated Nordhaus’s model:    

The table shows Nordhaus’s estimates (made in 2008 based on the “consensus” scientific assessments of the time) of the net benefits of various possible governmental climate policy approaches. The first row shows what happens if governments do nothing. There will be $22.55 trillion (in present value terms, and quoted in 2005 dollars) of environmental damage, but virtually no economic costs of complying with regulations, for a total harm of $22.59 trillion.

In contrast, if governments around the world implemented Nordhaus’s recommended “optimal” carbon tax, the world would be spared a little more than $5 trillion in future environmental damage, while future economic output would be $2.2 trillion lower due to complying with the carbon tax. Adding it all up, humanity would suffer total harms of $19.52 trillion, meaning the world would be $3.07 trillion wealthier with the optimal, global carbon tax (because $22.59 − $19.52 = $3.07).

Central to the economic way of thinking is the concept of trade-offs. Every possible policy — including a policy of doing nothing — comes with costs. But the public tends to hear about only one set of costs, not the full array. For example, as the earlier table shows, the wrong climate policy can be much, much worse than doing nothing. Nordhaus evaluated Al Gore’s suggestion to cut emissions by 90 percent, and estimated that it would make humanity some $21 trillion poorer compared to the do-nothing baseline — a net harm seven times greater than the net benefits of the textbook-optimal approach.

My point here is not to trumpet Nordhaus’s numbers as being gospel. (My Independent Review article was a full-blown critique of his model.) Rather, I am pointing out that even one of the leading models that underpins the so-called consensus on climate-change activism shows that this is hardly the planetary crisis that the rhetoric of Smith and others would suggest. The actual numbers are in the same ballpark as those of trade deals — and nobody thinks the fate of the planet hangs on the passage of a trade deal.

More generally, what even most economists have failed to convey to the public is that climate-change policies at best will affect things on the margin. Nordhaus’s table beautifully illustrates this. The optimal carbon tax doesn’t eliminate the climate-change damage that his computer simulations predict. On the contrary, the carbon tax only reduces it from about $23 trillion down to $17 billion. The reason it doesn’t make sense to enact a more aggressive carbon tax is that the (marginal) harm to the conventional economy would exceed the (marginal) environmental benefit. There are several policies in the table that reduce environmental damage below the $17 trillion mark, but they hurt the economy so much more that, on net, they are inferior approaches.

It is understandable that noneconomists would fail to employ marginal analysis and would engage in overblown rhetoric when discussing something as controversial as climate-change policy. However, too many professional economists have also fallen into this bad habit, including not just Smith but also Krugman and many others.

Robert P. Murphy has a PhD in economics from NYU. He is the author of The Politically Incorrect Guide to Capitalism and The Politically Incorrect Guide to The Great Depression and the New Deal.

This article was originally published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Dispelling Popular Great Depression Myths: Robert Murphy’s “The Politically Incorrect Guide to the Great Depression and the New Deal” (2009) – Article by G. Stolyarov II

Dispelling Popular Great Depression Myths: Robert Murphy’s “The Politically Incorrect Guide to the Great Depression and the New Deal” (2009) – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
Originally Published November 25, 2009
as Part of Issue CCXIX of The Rational Argumentator
Republished July 23, 2014
Note from the Author: This essay was originally published as part of Issue CCXIX of The Rational Argumentator on November 25, 2009, using the Yahoo! Voices publishing platform. Because of the imminent closure of Yahoo! Voices, the essay is now being made directly available on The Rational Argumentator.
~ G. Stolyarov II, July 23, 2014

Download a free audio recording of this essay here.

We live in times when fact and propaganda are all too easily – and often deliberately – conflated. I recall, a long time ago, sitting in my public high school’s Advanced Placement US History course, when the instructor explicitly mentioned “lack of government regulation” as one of the causes of the Great Depression. The odd aspect was that he prefaced this explanation with an explicit warning to me that I would not like what he was about to say.

It was as if he knew that he was presenting an ideologically charged position as fact – and he did it anyway, because, in his mind, no other interpretation of the Great Depression was possible. He and millions like him would benefit immensely from reading Robert P. Murphy’s The Politically Incorrect Guide to the Great Depression and the New Deal.

The myth of the Great Depression being caused by laissez-faire capitalism – and being solved by either the New Deal, World War II, or both – is so prevalent that in popular-opinion surveys, Franklin Delano Roosevelt routinely appears in the top five of all US presidents, while the name of Herbert Hoover has become synonymous with government inaction during an economic crisis. Hundreds of books, essays, and even works of fiction have been published to challenge these notions – but somehow the fallacies have prevailed; and they have been eagerly exploited by the would-be FDRs of the past seven decades.

For millions of Americans who have not studied Austrian economics and the Mises/Hayek theory of the business cycle, or read the brilliant critiques of the New Deal by H.L. Mencken, Isabel Paterson, Albert Jay Nock, Garet Garrett, and John T. Flynn, the commonplace myth of laissez-faire as ruinous and FDR as savior appears true, self-evident, and incontestable. Unfortunately, many of these same people vote for politicians and policies that promise a “New New Deal.” Such a plan would further exacerbate the current economic crisis, which is fueled by hyperregulation, Federal Reserve manipulation of the money supply, and the unforeseen consequences of prior interventions, including the original New Deal.

Murphy’s work seeks to correct popular misunderstandings of the Great Depression by attacking them directly. Virtually every single commonly encountered assertion – that the Depression was caused by the excesses of capitalism, that Hoover exacerbated the Depression by “doing nothing,” that the New Deal revitalized economic activity and mitigated unemployment, and that World War II energized the United States into recovery – is refuted at length. In the course of this debunking, the reader is treated to concise, elegant explanations of the Austrian theory of the business cycle, the economics of tax reduction, the virtues of the gold standard and the dangers of fiat currencies, and to discussions of the errors both in Keynesian prescriptions for deficit spending and in the Chicago School’s suggestion that the Federal Reserve triggered the Great Depression by failing to inflate sufficiently.

To add flavor to the book and enable readers to identify with more concrete aspects of the policies it criticizes, Murphy discusses many of the follies and corruptions of the New Deal: FDR’s use of “lucky numbers” to set the price of gold, the persecution of the Schechter brothers for defying the National Recovery Administration’s restrictions on poultry production, FDR’s attempt to pack the Supreme Court with his supporters after the court ruled in favor of the Schechter brothers, the confiscation of private citizens’ gold holdings, and the New Dealers’ pervasive use of government funding to bribe and intimidate constituencies into supporting FDR’s policies.

Murphy skillfully reminds us that the politicians who seek to suppress our economic and political liberties in favor of a central plan are neither omniscient nor benevolent; they quite frequently pull policy prescriptions out of thin air and they are anything but evenhanded, tolerant, or concerned for objective human wellbeing. Behind the lofty rhetoric and faux amiability of men like FDR stands the harsh, impatient, implacable, and often indiscriminate enforcer, in the mold of those thugs who broke into peaceful men’s homes to ensure that they were not violating the National Industrial Recovery Act by sewing clothes at night.

If there is any hope for an intellectual rejection of New Deal ideology in the United States, Murphy’s book will be one of the crucial elements motivating it. Murphy bridges the gulf between high theory and the concerns accessible to the majority of readers. While it is unfortunate that, given the state of education in our time, most Americans would not be able to immunize themselves against common economic fallacies by directly reading Menger, Mises, Hayek, and Rothbard, Murphy helps bring some of the key ideas of these thinkers into a format more accessible to a layman with no formal economic training.

Murphy also incorporates the work of such historians as Burton Folsom and Paul Johnson, and he draws on biographical information to shed light on the lives, motivations, and personalities of Calvin Coolidge, Herbert Hoover, and other key figures of the 1920s and 1930s. Murphy does for the popular understanding of the Great Depression in the early 21st century what Frederic Bastiat did for free trade in the mid-19th and what Leonard Read and Henry Hazlitt did for basic economic principles in the 20th.

I am a former student of Murphy, and I can credit his instruction for enabling me to advance from a basic understanding of Austrian economics to the publication of a paper in the Quarterly Journal of Austrian Economics. From personal experience, I know him to be well-read, cosmopolitan, sophisticated, and capable of articulating the arguments – and recognizing the strengths and weaknesses – of an immense variety of theories and worldviews. At the same time, he possesses a talent for communicating complex and challenging ideas, connecting them to concrete phenomena, and even joking about them.

As such, he is eminently suited to bringing some of the most important economic and historical insights of the 20th century to a mass audience. Indeed, it might reasonably be hoped that thousands of readers of this book will use it as a gateway to discovering the works of the many free-market thinkers cited therein. The lists of suggested readings (“Books You’re Not Supposed to Read”) peppered throughout the text make it a worthwhile purchase by themselves.

Perhaps someday my old US history teacher, and men like him, will use The Politically Incorrect Guide to the Great Depression in their courses to balance the many explicitly pro-New Deal and prointerventionist texts and presentations that dominate public-school curricula today. If this is too much to hope for, then at least this book has the potential to appeal to many young students and be sought out by them on their own initiative – as an antidote to the fallacies they encounter from “mainstream” sources.

Read other articles in The Rational Argumentator’s Issue CCXIX.