My semester is over and I’ve just turned in my grades.  One of the courses I taught this term was “History of Economic Ideas,” and one of my final examination questions asked students to compare the views of Karl Marx and Joseph Schumpeter with the Marshallian-neoclassical view on profit.  These views are very relevant to the way people assess the workings of a market economy today.

Marx, building on a labor theory of value, believed that the value of goods is equal to the value of the labor used to produce them.  Therefore, if all of the revenue from the sale of goods does not go to the laborers, they are not paid their full value.  Profit was obtained only by exploiting labor, which capitalists were able to do because they controlled the jobs.  They paid labor less than it was worth, and kept the difference as profit.

Marx was a supporter of unions, because unions could give workers some collective power to limit their exploitation.  Legislation like the proposed “card check” to extend union representation, and the ceding of substantial shares of GM and Chrysler to the UAW are some examples of Marx’s ideology at work.  Although his brand name rarely is attached to the selling of his ideas, those ideas remain current today.

In the Marshallian-neoclassical view, which characterizes modern mainstream economics, competitive equilibrium is the benchmark for economic efficiency, and profit (beyond a normal profit to keep firms in business) is a sign of inefficiency.  Profit results either from markets being out of equilibrium, which is inefficient, or from monopoly power of firms, which also is inefficient.

Thus, antitrust laws are employed to limit firms’ monopoly power, mergers are closely scrutinized, and anti-competitive behavior of firms is in general illegal.  Profits are undesirable because, in this view, profits signal inefficiency.

While both the Marxist and Marshallian-neoclassical views hold profits to be undesirable, Joseph Schumpeter viewed them to be necessary.  Schumpeter said profits were the return to successful innovation, and economic progress depends on profits.  Profits give entrepreneurs the incentive to innovate, and the profits they earn show the value of that innovation.  Without profit there would be no economic progress, and without economic progress there would be no profit.

Schumpeter described the process as “creative destruction,” as innovation in the form of new goods and new production processes displaces existing goods and existing processes.  Profits are a sign of efficiency, because they are the return to innovation that continually improves people’s standard of living.  Consider how much better off we are today than people a century ago, or even a decade or two ago.  Without profit, that innovation would not occur.

The hostility that mainstream America, and the mainstream media, shows toward profit has a solid academic foundation, but a foundation that ignores the way that economic progress continually makes our lives better.  When pundits argue that profits are a sign of inefficiency and exploitation, academics can go back to Marx and Marshall to make the case.  But Schumpeter showed that profit is essential.  The Industrial Revolution would not have occurred without the ability of entrepreneurs to profit from their innovations.

Marx is a bit outside the mainstream these days, but the neoclassical mainstream in economics provides several reasons for viewing profits undesirably, and that’s the bulk of what our university students get in their economics classes.  If this is what we are teaching our students, no wonder they view profits with suspicion, as citizens, as journalists, and as politicians.  A larger dose of Schumpeter is needed.

In 1941, the Roosevelt administration commissioned a radio special, “We Hold these Truths,” to commemorate the 150th anniversary of the Bill of Rights. Listen to it here.

The producer and writer was Norman Corwin (an ardent New Dealer who is still going strong at age 99). It featured an all-star cast including Orson Welles, James Stewart, Walter Brennan, and Edward G. Robinson, and closed with a speech by Roosevelt.

Broadcast only a week after Pearl Harbor, it still holds the ratings record for any dramatic show. About half the American population tuned in. The actors, especially Stewart and Welles, give a hyper exuberant commentatory on each amendment.

Despite Corwin’s leftist political beliefs, the content (with a few exceptions) does not reveal a pro-New Deal slant. The section on the second amendment (32.35 minutes into the program) seems downright libertarian. It interprets the amendment as not only protecting gun ownership by individuals but also their right to use these weapons to overthrow an oppressive government.

An announcement from the Massachusetts Institute of Technology informs us that Paul A. Samuelson died on Sunday, December 13, 2009, at the age of 94. The announcement also gives a good account of why Samuelson was for more than half a century a towering figure in the economics profession and, to some degree, in the wider world.

Although my one personal encounter with Samuelson was brief and not altogether pleasant, I was greatly affected by his influence on economics. In the 1960s, when I was being trained in economics, he was generally regarded as the greatest living economist, and his way of doing economics was generally regarded as virtually defining how to carry out economic analysis scientifically.

Having suffered through this Samuelsonian training, I immediately began to move away from it once I became an economist. In fact, I increasingly grew to believe that the worst aspects of modern economics owe more to Samuelson than to any other single economist. Eventually I became convinced that the modern mainstream’s so-called scientific economics is not truly scientific at all, but a species of scientism—the misapplication of methods developed for the study of material reality to the study of human choice and cooperation. Having had my say about Samuelson’s baneful influence in this regard (here and here), I need say nothing more upon his passing.

Except that however misguided I believe he was in his approach to economics, he was a man of enormous intellect and tremendous influence. I only wish that his great talents had been aimed in a different direction.

After writing Race and Liberty in America: The Essential Reader (2009), I’ve bumped into a few articles that come to the same unorthodox conclusions about individuals I profile in my “race reader.” One such “unorthodox” column appeared in the Wall Street Journal on 25 November 2009. In “Not-So-Silent Cal Wrote with Eloquence,” Ryan Cole lauds Coolidge’s Autobiography as an example of his eloquence. Cole concludes that “Barack Obama isn’t the first man of letters in the White House.”

I have been told–but not verified–that Coolidge was the last president to write his own speeches. After reading Coolidge’s writings, published while he was president, I am not surprised in the least. “Silent Cal” could be a man of few words but when he had something to say, he did it like a master; and when delivering speeches, he knew that the audience was as important as the speaker. After all, the Ku Klux Klan was at high tide and he refused their offer to speak and chose instead group forums that represented the very minorities attacked by the Klan!

Race and Liberty in America: The Essential Reader includes two documents by Coolidge. I note that his record was mixed on race (and other issues) from a classical liberal perspective. Most significantly, he signed the immigration restriction act of 1924 which slammed the door shut on virtually all immigration from outside the Western hemisphere.

Nevertheless, he invoked the Constitution and classical liberal principles to defend blacks and white ethnics (Catholics, Jews) under assault by the KKK. While Coolidge was not a “perfect” president, one can appreciate him all the more because he did not have such an enlarged view of the presidency or of himself. Après Coolidge, presidential humility went out the window, with some presidents more egotistical than others.

Below readers will find some of my commentary followed by an excerpt from one of the documents in Race and Liberty in America (footnotes omitted):

“Coolidge Denounces White Racism” (1924)

Historians often compare “Silent Cal” Coolidge (1872–1933) unfavorably with the activist presidents of the Progressive Era. A survey of academic historians conducted in 1983 found that they rated ­Theodore Roosevelt and Woodrow Wilson  as  “near  great,”  with  Coolidge  among  the  “ten  worst.” Th­e Ku Klux Klan was the hot civil rights issue of the 1924 election: it was a national organization directing its hatred not only at blacks, but especially at Catholics and others deemed less than “100% American.” Historians fault Coolidge for not denouncing the KKK by name during the campaign. Th­ey fail to note that the Democratic candidate—segregationist  John W.  Davis—called upon Coolidge to speak when the president’s son was dying from an infection—a two-month ordeal that devastated Coolidge. (Consider the irony: Davis is best known for defending segregation in the Brown v. Board case). Soon after his son’s death, Coolidge spoke eloquently of religious and racial toleration before a parade of one hundred thousand Catholics honoring the Holy Name Society. Klan leaders grumbled when the president refused to show up for their parade.

Also compare Coolidge’s strong denunciation of lynching with that of “progressive” presidents ­Theodore Roosevelt and William H. Taft. In a 1906 address, Roosevelt stated “the greatest existing cause of lynching is the perpetration, especially by black men, of the hideous crime of rape—the most abominable in all the category of crimes—even worse than murder.” In a 1909 message, Taft blamed lynching on “delays in trials, judgments, and the executions thereof by our courts.”  By contrast, Coolidge made no excuses and urged Congress to punish the “hideous crime of lynching.”

In the following document, President Calvin Coolidge responds to a man who  desired  a  lily-white  government.  ­The  Chicago  Defender,  a  leading  black newspaper,  praised  Coolidge’s  rebuke  with  the  front-page  headline,  “Cal Coolidge Tells Kluxer When to Stop.” Coolidge reprinted this letter in a collection of his presidential addresses.

My dear Sir:

Your letter is received, accompanied by a newspaper clipping which discusses the possibility that a colored man may be the Republican nominee for Congress from one of the New York districts. Referring to this newspaper statement, you say:

“It is of some concern whether a Negro is allowed to run for Congress anywhere, at any time, in any party, in this, a white man’s country. Repeated ignoring of the growing race problem does not excuse us for allowing encroachments. Temporizing with the Negro whether he will or will not vote either  a  Democratic  or  a  Republican  ticket,  as  evidenced  by  the  recent turnover in Oklahoma, is contemptible.”

Leaving  out  of  consideration  the  manifest  impropriety  of  the  President  intruding himself in a local contest for nomination, I was amazed to receive such a letter. During the war 500,000 colored men and boys were called up under the draft, not one of whom sought to evade it. ­They took their places wherever assigned in defense of the nation of which they are just as truly citizens as are any others. Th­e suggestion of denying any measure of their full political rights to such a great group of our population as the colored people is one which, however it might  be  received  in  some  other  quarters,  could  not  possibly  be  permitted  by one who feels a responsibility for living up to the traditions and maintaining the principles of the Republican Party. Our Constitution guarantees equal rights to all our citizens, without discrimination on account of race or color, I have taken my oath to support that Constitution. It is the source of your rights and my rights. I propose to regard it, and administer it, as the source of the rights of all the people, whatever their belief or race. A colored man is precisely as much entitled to submit his candidacy in a party primary, as is any other citizen. ­The decision must be made by the constituents to whom he offers himself, and by nobody else. . . .

Lord (Christopher) Monckton interviews a Greenpeace-campaigner at the U.N. conference in Copenhagen on the actual science of global warming.

In a December 13th article in the London Daily Mail, David Rose reveals more details from Climategate (or “Warmergate” for some) on how scientists at the University of East Anglia’s Climate Research Unit and elsewhere deliberately distorted the data and subsequent IPCC graphs. Rose discusses the new findings by Steve McIntyre that are posted in detail at the website, Climate Audit, on how Michael Mann and others performed their “trick” to “hide the decline.”

[T]he full context of that ‘trick’ email, as shown by a new and until now unreported analysis by the Canadian climate statistician Steve McIntyre, is extremely troubling.

Derived from close examination of some of the thousands of other leaked emails, he says it suggests the ‘trick’ undermines not only the CRU but the IPCC.

There is a widespread misconception that the ‘decline’ Jones was referring to is the fall in global temperatures from their peak in 1998, which probably was the hottest year for a long time. In fact, its subject was more technical – and much more significant.

It is true that, in Watson’s phrase, in the autumn of 1999 Jones and his colleagues were trying to ‘tweak’ a diagram. But it wasn’t just any old diagram.

It was the chart displayed on the first page of the ‘Summary for Policymakers’ of the 2001 IPCC report – the famous ‘hockey stick’ graph that has been endlessly reproduced in everything from newspapers to primary-school textbooks ever since, showing centuries of level or declining temperatures until a dizzying, almost vertical rise in the late 20th Century.

There could be no simpler or more dramatic representation of global warming, and if the origin of worldwide concern over climate change could be traced to a single image, it would be the hockey stick.

Rose traces the emails among Keith Briffa, Phil Jones, Chris Folland, Michael Mann in which the “trick” was planned:

This is the context in which, seven weeks later, Jones presented his ‘trick’ – as simple as it was deceptive.

All he had to do was cut off Briffa’s inconvenient data at the point where the decline started, in 1961, and replace it with actual temperature readings, which showed an increase.

On the hockey stick graph, his line is abruptly terminated – but the end of the line is obscured by the other lines.

‘Any scientist ought to know that you just can’t mix and match proxy and actual data,’ said Philip Stott, emeritus professor of biogeography at London’s School of Oriental and African Studies.

‘They’re apples and oranges. Yet that’s exactly what he did.’

Since Warmergate—broke, some of the CRU’s supporters have claimed that Jones and his colleagues made a ‘full disclosure’ of what they did to Briffa’s data in order to produce the hockey stick.

But as McIntyre points out, ‘contrary to claims by various climate scientists, the IPCC Third Assessment Report did not disclose the deletion of the post-1960 values’.

On the final diagram, the cut off was simply concealed by the other lines.

By 2007, when the IPCC produced its fourth report, McIntyre had become aware of the manipulation of the Briffa data and Briffa himself, as shown at the start of this article, continued to have serious qualms.

McIntyre by now was an IPCC ‘reviewer’ and he urged the IPCC not to delete the post-1961 data in its 2007 graph. ‘They refused,’ he said, ‘stating this would be “inappropriate”.’

But it gets even worse as data was deliberately distorted elsewhere as well:

Last week, an article posted on a popular climate sceptic website [Climate Skeptic] analysed the data from the past 130 years in Darwin, Australia.

This suggested that average temperatures had risen there by about two degrees Celsius. However, the raw data had been ‘adjusted’ in a series of abrupt upward steps by exactly the same amount: without the adjustment, the Darwin temperature record would have stayed level.

In 2007, McIntyre examined records across America. He found that between 1999 and 2007, the US equivalent of the Met Office had changed the way it adjusted old data.

The result was to make the Thirties seem cooler, and the years since 1990 much warmer. Previously, the warmest year since records began in America had been 1934.

Now, in line with CRU and IPCC orthodoxy, it was 1998.

At the CRU, said Davies, some stations’ readings were adjusted by unit and in such cases, raw and adjusted data could be compared.

But in about 90 per cent of cases, the adjustment was carried out in the countries that collected the data, and the CRU would not know exactly how this had been done.

Davies said: ‘All I can say is that the process is careful and considered. To get the details, the best way would be to go the various national meteorological services.’

The consequences of that, Stott said, may be explosive. ‘If you take Darwin, the gap between the two just looks too big.

‘If that applies elsewhere, it’s going to get really interesting. It’s no longer going to be good enough for the Met Office and CRU to put the data out there.

‘To know we can trust it, we’ve got to know what adjustments have been made, and why.’

Last week, at the Copenhagen climate summit, the Met Office said that the Noughties have been the warmest decade in history. Depending on how the data has been adjusted, Stott said, that statement may not be true.

Pielke agreed. ‘After Climategate, the surface temperature record is being called into question.’ To experts such as McIntyre and Pielke, perhaps the most baffling thing has been the near-unanimity over global warming in the world’s mainstream media – a unanimity much greater than that found among scientists.

Rose then explains how this has happened:

In part, this is the result of strongarm tactics.

For example, last year the BBC environment reporter Roger Harrabin made substantial changes to an article on the corporation website that asked why global warming seemed to have stalled since 1998 – caving in to direct pressure from a climate change activist, Jo Abbess.

‘Personally, I think it is highly irresponsible to play into the hands of the sceptics who continually promote the idea that “global warming finished in 1998” when that is so patently not true,’ she told him in an email.

After a brief exchange, he complied and sent a final note: ‘Have a look in ten minutes and tell me you are happier. We have changed headline and more.’

Afterwards, Abbess boasted on her website: ‘Climate Changers, Remember to challenge any piece of media that seems like it’s been subject to spin or scepticism. Here’s my go for today. The BBC actually changed an article I requested a correction for.’

Last week, Michael Schlesinger, Professor of Atmospheric Studies at the University of Illinois, sent a still cruder threat to Andrew Revkin of the New York Times, accusing him of ‘gutter reportage’, and warning: ‘The vibe that I am getting from here, there and everywhere is that your reportage is very worrisome to most climate scientists … I sense that you are about to experience the “Big Cutoff” from those of us who believe we can no longer trust you, me included.’

But as Rose also notes, this is changing now directly because of Climategate:

[I]n the wake of Warmergate, such threats – and the readiness to bow to them – may become rarer.

‘A year ago, if a reporter called me, all I got was questions about why I’m trying to deny climate change and am threatening the future of the planet,’ said Professor Ross McKitrick of Guelph University near Toronto, a long-time collaborator with McIntyre.

‘Now, I’m getting questions about how they did the hockey stick and the problems with the data.

‘Maybe the emails have started to open people’s eyes.’

HT: Manuel Klausner

With its usual grandstanding, the U.N. calls for developed nations (that’s us) to cut their carbon emissions up to 95%. It’s a nice way to eliminate the entire history of industrialization, human progress and all the attendant problems such as longer lives, better education, and no fear of hunger.

Meanwhile, the federal EPA has declared carbon dioxide a dangerous pollutant. Funny, I thought it was necessary for life but life causes emissions and we can’t have that, can we?

I’m sure some people were happy living in 1870 but I’ll stick with the 21st century, warts and all.

Apparently, the Obama administration will slit our economic wrists to “make up for lost time”–not since 1870, mind you–but since the Dark Ages of G.W. Bush.  Oy vey.

According to an analysis of federal payroll data by USA Today, the federal bureaucracy has flourished during the current recession.

Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession’s first 18 months—and that’s before overtime pay and bonuses are counted.

Federal workers are enjoying an extraordinary boom time—in pay and hiring—during a recession that has cost 7.3 million jobs in the private sector.

The highest-paid federal employees are doing best of all on salary increases. Defense Department civilian employees earning $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009, the most recent figure available.

When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000.

The trend to six-figure salaries is occurring throughout the federal government, in agencies big and small, high-tech and low-tech. The primary cause: substantial pay raises and new salary rules.

…

The growth in six-figure salaries has pushed the average federal worker’s pay to $71,206, compared with $40,331 in the private sector.

The report notes that the data analyzed do not include employees of the White House, Congress, the Postal Service, and the intelligence agencies or uniformed members of the armed forces. Adding these employees to the analysis probably would not alter the general outlines of the study’s conclusions.

This development would be remarkable at any time, but it seems even more remarkable when it coincides with a more-than-doubling of the unemployment rate, a 4 percent decline in real GDP, and the evaporation of trillions of dollars of private wealth in the markets for corporate shares, other financial securities, and real estate.

This development also highlights the division of interests at the heart of classical liberal class analysis: the division between those who gain their income from honest production and trade (which Franz Oppenheimer called the “economic means”) and those who gain their income by plundering the producers (which he called the “political means”). Plutocrats are no longer only the Daddy Warbucks types, wearing diamond stickpins and puffing on oversized cigars (although Hank Paulson clearly illustrates that such types have not disappeared). Now they are also the blank-faced bureaucrats, dozing over their desks in nondescript office buildings.

Even Franklin D. Roosevelt made a better showing in this regard, at least at the start of his presidency. Having campaigned against Herbert Hoover’s excessive enlargement of the bureaucracy and his large budget deficits, Roosevelt pushed through the Economy Act of 1933. This statute provided for substantial cuts in federal spending and veterans’ benefits and gave the president authority to eliminate some federal agencies to achieve greater government economy. Subsequent congressional and executive actions overturned most of the act’s provisions, but at least in this regard, Roosevelt’s heart was initially in the right place.

Unfortunately, we cannot say the same for Barack Obama’s heart. From his campaign, to the massive “stimulus” bill enacted in February, to the obscene hypertrophy of the federal bureaucrats’ pay, perks, and power during the past two years, we see all too plainly that while those of us who use the economic means to gain our living are struggling, those who use the political means are enjoying tremendous success in their plunder of the productive class, and that this conjunction has been anything but accidental. Members of the plundering class wanted it, and they have brought it about, owing to the threats of violence that serve as the basis for all of their actions under the state’s banners.

Thus, the current recession cum financial debacle certainly has been a severe misfortune for you and me, but for the federal bureaucracy, it has been a godsend—complete, we might note, with a messiah to lead the way.

I was talking with a 21-year-old libertarian-minded college student who I’ve known for quite a while, who had a dream of someday owning a Corvette.  His plan was that by the time he was 25, he would have saved up enough money for the car, and by then his age would qualify him for insurance rates he could actually afford to pay.  He told me that now that the federal government owned GM he no longer wanted a Corvette.

This is just an anecdote, but I wonder how many other people will shy away from buying an automobile from a government-owned corporation.  Aside from ideological reasons, one has to wonder about the long-term viability of the company.  There is not much chance GM will be able to buy back its stock from the government to regain its independence.  For pragmatic reasons alone, if I were looking for a pickup, an F-150 would look better to me than a Silverado.  Yet another reason why nationalizing GM was a bad idea.

GM got $50 billion in TARP money from the federal government.  At today’s stock price of $9 a share, the entire Ford Motor Company is worth $30 billion.  Clearly, the entire GM is worth less than what the federal government has put into it in the past year.  That college student’s dreams are not the only ones that are shattered, but unlike the Bush and Obama administrations (using taxpayer dollars), the student doesn’t stand to lose any money in the deal.  It’s easy to spend irresponsibly when you are spending someone else’s money.

From a posting by Eduardo Zorita, Scientist at the Institute for Coastal Research in Germany, on the blog “Die Klimazwiebel“:

The email alluding to the ‘Mike’s Nature trick’ has been perhaps the one most frequently quoted.

Background: temperatures during the past few centuries and millenia are reconstructed from the so-called climate proxy data, of which the rings of old or fossil trees are the best example. In some places, at high altitudes or high latitudes, the growth of trees is severely constrained by cold temperatures, so that in warmer than normal summers, trees tend to grow thicker rings or build wood of higher density, for instance. By applying statistical methods, the treering width can be interpreted in terms of past temperatures being above or below normal on those locations. The statistical methods themselves are subject to considerable debate, but this is not what this particular ‘trick’ is about. It happens that some trees—how many and where is also debated—show a ‘divergence’ from their local temperature since 1980 or so: they do not reflect the warming experience in some of these locations in the last 20-30 years. The reasons for this divergence are so far not well known, but several hypothesis concerning other environmental factors, such as air pollution, have been put forward. To explain this divergence is important, because as long as it remains unexplained, it can be suspected that this divergence may have happened also in the past, thus increasing the uncertainty in the reconstructions of past temperatures.

The ‘trick’ was to not show this mismatch between treering records and temperatures in the late 20th century. Instead of showing the treering records drifting away from the instrumental temperatures, the instrumental temperatures were substituted for them, ‘hiding the decline’ of the treerings (and not of the temperatures). In doing so, a potential problem of temperature reconstructions was ensconced and an artificial sense of robustness of these reconstructions was conveyed. An important consequence is that claims about the record level of warmth of particular recent years, say 1998, against the backdrop of the past millennium are not really meaningful, because data of different nature are being compared: instrumental versus treerings.

By the way, this divergence problem was and is well known by dendroclimatologist. Some accept this ‘trick’ as as a makeshift solution until the real explanation for the divergence is found. But the current situation would have been avoided if, from the very beginning, these difficulties had been openly presented and discussed.