Monday, March 10, 2014

The Adventures of Toad and Frog, and lessons for rules and constitutions

Yesterday, my mother-in-law was reading Caroline a story from "The Adventures of Toad and Frog".

Frog baked Toad a bunch of cookies and brought them to his house. Pretty soon they found themselves eating too many cookies. Toad told Frog they needed willpower, which is what you have if you don't do something you want to do. First - to get willpower - Toad put the cookies in a box. That didn't work - they could open the box, Frog pointed out. Then he tied the box up with string. Frog pointed out that they could cut the string. Then he got a ladder and put the box of cookies, tied with a string, up on a tall shelf. Frog pointed out that they could get the ladder, bring the box down, cut the string, and open the box. Exasperated, Toad took the box of cookies outside and fed the rest of the cookies to the birds.

When we talk about rules and discretion, and policy-making vs. constitution-making in monetary policy or any other policy area there is often a one-upsmanship when someone wants to be more pro-rules-based-policy-than-thou. The proper response is usually to ignore them, for a number of reasons. Chief among these reasons is personal sanity, of course. But another good reason is illustrated by Toad and Frog. The more pro-rules-based-policy-than-thou attitude almost always plays into the hands of the nihilists and libertarians because the most credible commitment you can make is to feed all the cookies to the birds.

We all know there are potential problems with discretion in monetary policy. What's the tightest system of rules we can clamp down on them? Don't just establish policy rules. Don't just establish legislative guidelines on policy. Perhaps don't even establish constitutional guidelines on policy. Eliminate the monetary authority!

We all know there are potential problems associated with the welfare state. What's the tightest system of rules we can clamp down on the welfare state? Eliminate it! Constitutionally ban it! No one has to worry about labor supply elasticities then!

You hear this sort of thing over and over and over again from libertarians. "You don't think politicians are trustworthy - then why let government do things?"

What the argument ignores of course is that Frog and Toad don't have any cookies anymore when they feed them to the birds, and that's not a good situation to be in by any reasonable standard (unless, of course, that's what you wanted in the first place - although most people don't). I don't think a box of cookies tied up on a high shelf is as reliable as feeding all the cookies to the birds either, but that doesn't mean I prefer to feed the cookies to the birds.

It's a basic economic point about trade-offs. When we think about rules/institutions/constitutions the question should not be what the most credible commitment is (and that's usually a constitutional commitment rather than a legislative or policy commitment), it should be about how we balance constitutional restraint to avoid bad outcomes with the liberty to achieve good outcomes.

It's precisely that balancing act that we celebrate the American founding fathers for, but in a lot of discussions of rule-based policy making I think it's often missed.

A couple times I've alluded to the fact that ignoring this standard bit of economics is in libertarians' interest. The issue Frog and Toad faced was that they wanted to eat the cookies but they didn't want to eat them all at once. They wanted to eat them in a reasonable fashion. If you don't share Frog and Toad's preferences - if your actual end goal is not to have cookies (or welfare, or monetary policy), then a very good way to push that is to forget trade-offs and economic principles in discussing rules and constitutions and instead just push the discussion towards feeding all the cookies to the birds.

The U.S. Constitution (the only one I really know to any appreciable degree) is not libertarian. It's good and classically liberal, though, in that it constrains government and allows it to do a restricted set of things to provide for the general welfare. But it is also flexible and provides mechanisms for contesting and deliberating over the parameters of the Constitution.

The U.S Constitution, in other words, is like putting the cookies in a box, tied with a string, on a high shelf. It does not feed the cookies to the birds. And that's a good thing.


  1. The U.S. Constitution (the only one I really know to any appreciable degree) is not libertarian. It's good and classically liberal, though, in that it constrains government and allows it to do a restricted set of things to provide for the general welfare.

    Daniel, do you think that the US government right now, generally speaking, is respecting the bounds of federalism as established by the US Constitution?

    1. So as I read it the Constitution doesn't place very restrictive bounds on provision for the general welfare, and most of the incursions on state activities are regarding general welfare type issues.

      So the way I think of it is that the federal government is making poor decisions in a lot of cases by being more active in areas where states should take the lead. I am not sure I'd say it violates constitutional boundaries, although I would say it violates good government and federalist principles (do you have any particular bounds in mind? None come to mind for me).

      This is the "fault" of state governments as much as the federal government, I think. When I say "fault" I'm just referencing my own preference ranking:

      1st: States take lead, Feds have some minimal standard safety net/services but less prominent.
      2nd: Feds take lead, states do what they do.
      3rd: No one does anything.

      Some states may do nothing because they prefer my third choice, but enough people agree with me to move it up to the second. I do wish it would move up to the first, but I'm not entirely sure it's a constitutional problem that it doesn't.

    2. And I don't mean the last half of my post to be so pessimistic. There have been positive moves on this front, from the Rehnquist court to welfare reform to pot legalization/SSM trends. It's a mixed bag, but the trajectory has been nice.

      There have also been moves in the other direction - most notably in health care and the ACA. Some nice state activity was going on, but we were really looking at a choice between my 3rd and 2nd choice. We went for the 2nd. Not ideal, but probably a good thing in the end.

    3. Sure, "generally speaking". It is after all the "Federal" government, not the "Confederate" government.

      Canada was founded as a confederation with big powers to the Provinces but its Federal government is still large and powerful.

  2. Speaking of stories for children, Daniel...were you aware that there are comic books which are aimed at explaining the subject in an entertaining, visual way? (I'm assuming that the book you read to Caroline was one of those books - simple sentences to teach her how to read, filled with lots of lively drawings.)

    Here are the three examples I have in mind:

  3. I remember reading that story as a kid and thinking it had a positive ending. They ate roughly as many cookies as they wanted to. Next time they should make cookies in smaller batches.

    We have our modern system of government because the Constitution is incapable of enforcing itself. Amending it turned out to be a really big hassle, so Frog & Toad discovered it was easier to just ignore bits of it. The nihilist response is that it was a mistake to create a national government through the Constitution in the first place.

  4. Daniel, the reason we have central banks isn't for the sake of the financial system or for reasons of good economics. Central banks exist for war finance.


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