The concept of lending money for interest hasn’t needed many defenders since roughly the Renaissance, when usury laws fell out of fashion. Even so, some people are still innocent of economics and the time value of money. They still attack the very notion of interest. Ludwig von Mises offers a pithy defense on p. 41 of 1940′s Interventionism: An Economic Analysis:
In order to do away with interest we would have to prevent people from valuing a house, which today is habitable, more highly than a house which will not be ready for use for ten years. Interest is not peculiar to the capitalistic system only. In a socialist community too the fact will have to be considered that a loaf of bread which will not be ready for consumption for another year does not satisfy present hunger.
Objections to interest then, must clear hurdles as high as human nature, hunger, and time itself. Good luck, I say.
The line of thought that Kurt Vonnegut describes on p. 27 of Breakfast of Champions isn’t true of all people, but it is still distressingly common.
Ideas on Earth were badges of friendship or enmity. Their content did not matter. Friends agreed with friends, in order to express friendliness. Enemies disagreed with enemies, in order to express enmity.
There is a good reason why Vonnegut’s depressing observation is true. Humans evolved as a tribal species, and we haven’t quite grown out of it yet. This is one reason an immigration debate still exists, even though economists decided the issue more than two centuries ago. More to the point, agreeing or disagreeing with people for merit-unrelated reasons is one way that people define their in-groups and out-groups.
Two great quotes from “Economists and Public Policy,” from Coase’s collection Essays on Economics and Economists:
If we took seriously the argument used by those who advocate price controls and similar measures, we would expect much more extreme, and less sensible, proposals than are actually put forward. Thus, some senators belive that lower prices for gasoline would benefit consumers, so they introduce a measure which would make the gasoline prices of last December  mandatory, not the still lower prices that prevailed in the 1930s.
Which implies that even senators tacitly acknowledge the laws of economics. The quotation below is self-explanatory, and has rightly become famous:
An economist who, by his efforts, is able to postpone by a week a government program which wastes $100 million a year (what I would consider a modest success) has, by his action, earned his salary for the whole of his life.
It has always been fashionable to lament the decline of morals and decency. Every generation has had some variation of the “kids these days” trope. Applying this folk wisdom to modern century politics, the rise of special-interest groups during the 20th century must certainly have been a disturbing development to witness. Even today, it seems like pressure groups grow more powerful with every election cycle. What is happening to our democracy?
Whatever is going on, moral decay has little to do with it. On pp. 285-6 of their classic Calculus of Consent, James Buchanan and Gordon Tullock offer a much more realistic theory on why K Street is what it is:
A hypothesis explaining the increasing importance of the pressure group over the last half century need not rest on the presumption of a decline in the public morality. A far simpler and much more acceptable hypothesis is that interest-group activity, measured in terms of organizational costs, is a direct function of the “profits” expected from the political process by functional groups.
In other words, if the amount of money in politics disturbs you, then you should advocate for less politics. Just as bank robbers go where the money is, so do rent-seekers.
Sometimes offhand comments are the most revealing of all about someone’s character. Many Nobel laureates are defined by their vanity at least as much as their accomplishments. Not Buchanan. In an aside near the end of an autobiographical essay — written, at least in part, so he could shoo away pesky journalists asking about his life story, telling them to read this instead — he remarks that he doesn’t even feel like a part of the discipline whose highest honor he had recently won:
I am not, and never have been, an economist in an narrowly defined meaning. My interests in understanding how the economic interaction process works have always been instrumental to the more inclusive purpose of understanding how we can learn to live one with another without engaging in Hobbesian war and without subjecting ourselves to the dictates of the state. The “wealth of nations,” as such, has never commanded my attention save as a valued by-product of an effectively free society.
-James Buchanan, Better than Plowing and Other Personal Essays, p. 17
Right in line with the subtitle of Buchanan’s favorite book of his, The Limits of Liberty: Between Anarchy and Leviathan. The Buchananite approach is so much more relevant to the real world than the discipline’s conventional approach of inapplicable, if pretty, mathematical gymnastics.
The only significant difference between the Republican and Democratic parties is their rhetoric. When it comes to policies actually enacted, a much better metric, they are remarkably similar. Despite their similarities, the parties will still reliably oppose whatever the other team is proposing.
A case in point is how tax cuts affect total revenues. Reagan-era supply-side economists argued that tax cuts, by sparking economic growth and aggregate spending, could actually increase tax revenues under certain conditions. Their basic insight that tax revenue has dynamic economic effects was, and is, correct. But the dynamic effects were too small to counteract the lower marginal rates, let alone Reagan’s spending hikes in defense and other areas; the deficit grew. Democrats have sneered at supply-side tax ideas ever since.
Of course, twenty years before that, Democrats were proposing exactly the same policy, and for the same reason. In chapter 16 of Passage of Power, the fourth volume of Robert Caro’s Lyndon Johnson biography, Johnson has just assumed the presidency, and is figuring out how to pass as much of the late John F. Kennedy’s legislative program as possible, beginning with the FY 1965 budget. His thinking was this would improve his chances of winning the 1964 election. Caro explains how progressives (he misuses the word “liberal”) and conservatives butted heads in that year’s budget battle:
Liberals wanted a larger role for government, wanted bigger, and new, government social welfare programs and therefore a larger budget. They believed the $11 billion tax cut [proposed by Kennedy] would, by putting more money into people’s pockets, stimulate the economy and thereby increase tax revenues, and the money the government would have available for these programs. Conservatives, uneasy about an expansion in government’s role and about the proposed new programs, were opposed to the higher spending, and believed the deficits would be increased by the tax budgets.
Somewhere, Art Laffer is either smiling or scowling. Not sure which.
When one country puts up a barrier to foreign trade, its partners tend to return the favor. This is, to put it politely, a poor recipe for economic health. On page 360 of Lawrence White’s excellent book The Clash of Economic Ideas, he quotes Joan Robinson explaining why in one pithy sentence:
The logic of embracing free trade unilaterally, that is, no matter what policy any other national government adopts, is well expressed in an adage attributed to the economist Joan Robinson: Even if your trading partner dumps rocks into his harbor to obstruct arriving cargo ships, you do not make yourself better off by dumping rocks into your own harbor.
National governments tend to ask for a quid pro quo from their citizens’ trading partners before lowering tariffs and quotas and other nonsense. One understands the impulse; that is why it takes internationally negotiated agreements such as NAFTA to get anyone to dredge up said rocks. The point is that those rocks are a bad thing in and of themselves. Get rid of them, then. Even if you have to do it alone.
Comes from the New York Times, circa 1945 in the aftermath of the Labour Party’s trouncing of Winston Churchill:
After winning the election by a wide margin, Prime Minister Atlee informed reporters that he, not Professor Laski, would be in charge of policy making. The New York Times duly ran a story with the droll headline: “Britain Not Run by Intellectuals.”
-Lawrence White, The Clash of Economic Ideas, p. 174.
On page 140 of Douglas Arnold’s book The Logic of Congressional Action, while discussing why Congressmen are so reluctant to close unneeded military bases in their home districts, he states the first law of congressional behavior:
[N]ever impose costs on one’s constituents that might be directly traced to one’s own individual actions.
This is both true and important. Reforms that ignore this law are doomed to failure.
While James Buchanan’s simple insight that politicians are just as self-interested as the rest of us may have shocked the economic discipline, it strikes the rest of humanity as simple common sense. John Locke, writing well before the rise of Samuelson and Nordhaus, shows such common sense towards the beginning of chapter 12 of his Second Treatise:
And because it may be too great a temptation to human frailty, apt to rasp at power, for the same persons, who have the power of making laws, to have also in their hands the power to execute them, whereby they may exempt themselves from obedience to the laws they make, and suit the law, both in its making, and execution, to their own private advantage, and thereby come to have a distinct interest from the rest of community, contrary to the end of society and government: therefore in well-ordered commonwealths, where the good of the whole is so considered, as it ought, the legislative power is put into the hands of divers persons, who duly assembled, have by themselves, or jointly with others, a power to make laws, which when they have done, being separated again, they are themselves sunject to the laws they have made; which is a new and near tie upon them, to take care, that they make them for the public good.
That incredibly long sentence says two things, and both of them are true: legislators act in their own interest, and we should design our political institutions with that in mind to minimize the harm they can do. Buchanan would agree on both fronts.