February 05, 2005

Abuse? I'll show you abuse!

Posted by shonk at 02:19 AM | permalink | 17 comments

Note to Curt:

Just because the state claims the authority to apprehend and punish rapists doesn’t mean that apprehending and punishing rapists is a form of state coercion. Nor is the notion that rape is bad an example of state coercion. Depending on your perspective, this is either a moral truth derived from God/reason/whatever or a widely-accepted social convention. Similarly, the notion that one can own property is (again, depending on your perspective) either morally necessary or a widely-accepted social convention that seems to work pretty well (here I’m dispensing with Communists and other fools who have nothing intelligent to say on the matter). Either way, the fact that the state claims ultimate authority to adjudicate property disputes does not make private property a form of state coercion. (Further reading)

February 01, 2005

The abuse of a college education

Posted by Curt at 07:25 PM | permalink | 5 comments

“Perhaps you’re familiar with “the tragedy of the commons,” a social dilemma outlined by the late biologist Garrett Hardin in a famous 1968 essay of the same name. The dilemma is that when individuals pursue personal gain, the net result for society as a whole may be impoverishment. (Pollution is the most familiar example.) Such thinking has fallen out of fashion amid President Bush’s talk of an “ownership society,” but its logic is unassailable.”

That response seems like a pretty damn obtuse interpretation of the essay, simply because the essay is nothing if not a plea for the creation of property rights. Furthermore, while it is true that Hardin claims that pursuing individual gain leads to group catastrophe, the word “when” in the paragraph above implies that there are times when the individual doesn’t, whereas Hardin claims that individuals basically always pursue their own interest, which is the problem in high-density situations where some amout of coordination is necessary. However, upon re-reading it, I realize that for Hardin property rights only forms a part of a wished-for imposition of coercive measures which will prevent individuals from pursuing personal gain at the expense of their environment. Which makes sense, because property rights, for all this may get lost in the ceaseless ideological wrangling today, are themselves forms of state-imposed coercion. Dismiss the semi-metaphysical nonsense in Locke and Kant about gaining “just propriety” over an object by making a visible mark on it. Think about it: animals control exactly as much “property” as they can defend; cheetahs peeing on trees only works because they will fight to defend what they have claimed. By contrast, think about who adjudicates the (in theory) incontestable property rights: the authorities, i.e. in our society, the State. The corollary of this, of course, is that nationalized or federal property is not “public property,” in the sense of property owned by the public—quite the contrary. The dichotomy between it and “private property” is spurious. “Public property” is simply property owned by the government. This no doubt seems obvious and intuitive, but based on the foolishness I cited above, it bears repeating that property rights, whether granted to others by the government or to itself, are not opposed to coercive state power but are in fact the very essence of it. That fact is perhaps more apparent in regards to so-called “intellectual property.”

As a marginal note, Hardin’s essay, despite the pithiness of its central analogy, is rather dispiriting insofar as it takes Hegel’s statement that “Freedom lies in the recognition of necessity” as its motto and guiding spirit. That formulation is, as I believe I have said before, perfectly monstruous. Freedom means nothing if it is not the absence of restriction, and it is perhaps a sign of the evasive confusion of priorities in Western culture that one would pretend to celebrate this value in such a way while in fact describing its opposite. Freedom is not an act or a thought, but rather a set of conditions under which action and thought occur. This is the same idealistic debasement of the language that has turned love into a deed: making love.

December 22, 2004

Wal-Mart wants you poor

Posted by shonk at 12:27 AM | permalink | 3 comments

Once upon a time, reading The Chronicle’s rip on Wal-Mart would have made my blood boil, but now the only reaction it seems to cause is a slow, sad shaking of the head at its spurious reasoning. The article’s author, Liza Featherstone, wants to portray Wal-Mart, yet again, as the bad guy, causer of poverty and wrecker of lives.1 Now, it goes without saying that the argument is light on facts and heavy on anecdotes; as it happens, the only hard demographics in the whole article are the following:

Only 6 percent of Wal-Mart shoppers have annual family incomes of more than $100,000. A 2003 study found that 23 percent of Wal-Mart Supercenter customers live on incomes of less than $25,000 a year. More than 20 percent of Wal-Mart shoppers have no bank account, long considered a sign of dire poverty. And while almost half of Wal-Mart Supercenter customers are blue-collar workers and their families, 20 percent are unemployed or elderly.

Based on these facts, Featherstone jumps in line to agree with former UFCW vice president Al Zack that “[t]he only problem with [Wal-Mart’s] business model is that it really needs to create more poverty to grow” and then goes on to suggest that it is doing exactly that. Now, would it be nice if Wal-Mart paid their workers better? Sure. But the above demographics hardly prove that Wal-Mart has a vested interest in keeping people poor.

So 23% of Wal-Mart customers have incomes lower than $25,000? Well, 28% of households and 20% of families have incomes in that range;2 if anything, the poor are slightly underrepresented among Wal-Mart customers. 20% of Wal-Mart customers are unemployed or elderly? Well, 19% of the populace is over age 62 (16% over 65) and 7.6% is unemployed. Like the poor, then, the elderly and unemployed are slightly underrepresented among Wal-Mart customers. Now, 14% of households have incomes over $100,000, so the rich are (as one might expect) also underrepresented. So what does that leave? The middle class. As should surprise nobody except sociologists with an axe to grind, the middle class are Wal-Mart’s biggest customer base, both in terms of sheer numbers and in terms of relative percentages. If anything, Wal-Mart has an incentive to make sure everybody is middle-class (which is impossible, of course, but that hasn’t stopped socialist fruitcakes from trumpeting that is the ideal since, oh, the 18th century).

After a rambling harangue against Wal-Mart’s alleged gender discrimination (even after re-reading the article, I have no feel for whether Wal-Mart is really “systematically discriminating against women”, Featherstone goes on to argue that Wal-Mart needs to be stopped but that, get this, “Boycotts Don’t Work”. Why? Because customers save 20-25% by shopping at Wal-Mart over competitors and “poor women need those savings more than anyone.” Well, aside from the fact that we’ve already dispensed with the notion that the poor constitute the core of Wal-Mart’s customer base, what’s so different about this than any other boycott situation? Boycotting a store or service-provider always incurs costs among the boycotters; if it didn’t, they wouldn’t be “boycotting”, they’d simply be “shopping somewhere else”, sorta like how I don’t buy my groceries at Trader Joe’s because their prices are outrageous and they don’t sell frozen orange juice.

So why doesn’t boycotting work? Well, according to Featherstone, because everybody has a “consumer mentality” these days:

In addition to replacing the “worker,” the “consumer” has also effectively displaced the citizen. That’s why, when most Americans hear about the Wal-Mart’s worker-rights abuses, their first reaction is to feel guilty about shopping at the store. A tiny minority will respond by shopping elsewhere—and only a handful will take any further action. A worker might call her union and organize a picket. A citizen might write to her congressman or local newspaper, or galvanize her church and knitting circle to visit local management. A consumer makes an isolated, politically slight decision: to shop or not to shop. Most of the time, Wal-Mart has her exactly where it wants her, because the intelligent choice for anyone thinking as a consumer is not to make a political statement but to seek the best bargain and the greatest convenience.

Featherstone claims that “[t]o effectively battle corporate criminals like Wal-Mart, the public must be engaged as citizens, not merely as shoppers.” Aside from the “corporate criminal” crack (Wal-Mart may be a criminal organization, but not because they only pay their workers $8/hour), my response is: no shit. Obviously, any sort of principle-based social change requires people to take responsibility for the consequences of their actions.

Of course, that’s not really what Featherstone wants. Her proposed solutions boil down to “stronger labor laws” and “forcing employers to pay a living wage”. Typical. The entire legislative thrust of the last century has been to create state-funded institutions which insulate people from the consequences of their actions (which has the necessary consequence of forcing the prudent to subsidize the imprudent).

Featherstone blames the Wal-Marts of the world for the “consumerization” of the citizenry, and there may be something to that. But far more important, in my view, are the effects of increasing wealth and increasing nanny-statism.

The former is almost absurdly obvious. In large part, people identify themselves as “workers” less and less because work is no longer something that dominates one’s life. People in the U.S. spend more time, on average, at leisure than at work. As such, it should be no surprise that leisure activities define us more and more. The 19th century farm worker that spent 16 hours a day at backbreaking manual labor had no choice but to identify himself as a “worker” because the only other activities he had time for were eating and sleeping. And, to address Featherstone’s numerous references to the “big girls” that work and shop at Wal-Mart, nobody, and I mean nobody, that is morbidly obese can be considered, in the context of the broader human experience, “poor”. Most people around the world and throughout history have trouble getting enough food to survive, let alone to require plus-size clothing.

The effects of nanny-statism on the “consumerization” of culture may be a bit less obvious, so let’s try to define exactly what we mean by “consumerization”. So far as I can tell, Featherstone seems to mean by this term an increasing materialism and an increasing lack of regard for the consequences of one’s actions, especially buying goods and services. As for materialism, what could be more crassly materialistic than the incessant harangues about how if only Social Security/Medicare/Medicaid/welfare/the schools/the environment got more money from the government, then all social problems would be resolved? Aside from the fact that it simply isn’t true (do a bit of research on the Newark school system if you don’t believe me), this sort of nonsense simply entrenches the notion that money solves all problems.

Okay, so what about refusing to take responsibility for one’s actions? As I said above, this is precisely what 95% of legislation in the last century has been driving towards. Rather than parents taking responsibility for their children’s education, we have public “education” that assuages the guilt without actually educating much of anybody. Rather than people taking responsibility for their own health, we have smoking bans everywhere, 15 year drug approval processes in the FDA, the Drug War and, if Noam Chomsky gets his way, crappy but “free” universal health care. The list goes on and on. Featherstone’s solutions, not surprisingly, are simply more of the same. Rather than advocating that people take responsibility for whatever bad consequences (if any) result from shopping at Wal-Mart, she wants government to force Wal-Mart to do “the right thing”.

And let’s not forget who is hurt most by “living wage” laws. That’s right, the poor.

  1. It should be pointed out that I have no particular love for Wal-Mart. Hell, I don’t even shop there (though mostly because I can’t afford a car and Wal-Mart is way the hell too far away to walk). Anyway, if they really are discriminating against women, that’s pretty uncool. If they really are encouraging workers to go on welfare while employed as the article suggests, that’s despicable (though, to be honest, the fault lies more with the government agencies who are colluding to subsidize Wal-Mart in this way). I know they benefit from the little condemn-land-via-eminent-domain-and-sell-it-to-a-big-sales-tax-source-for-pennies-on-the-dollar scam that local governments enjoy perpetrating on the citizenry, but, again, this sort of thing is impossible without government collusion. My point is, I’m not trying to defend Wal-Mart as some sort of corporate good samaritan.
  2. All demographic data in this paragraph is drawn from U.S. Census Bureau data.

December 12, 2004

On being well-read

Posted by shonk at 04:18 AM | permalink | comment

Mark Edmundson, who’s admonishing people to read more, apparently has never heard of Friedrich Hayek:

[BRIAN] LAMB: Here’s an older book spoken about by Milton Friedman, on the other side.



MILTON FRIEDMAN, AUTHOR AND ECONOMIST: It’s a book well worth reading by anybody, because it’s a very subtle analysis of why, how it is that well-meaning people who intend only to improve the lot of their fellows, tend to favor courses of action which have exactly the opposite effect.

I think in my, from my point of view, the most interesting chapter in that book is one labeled, why the worst rise to the top.


LAMB: He’s talking about “Road to Serfdom” - Hayek - a bible for people on the conservative political side.

EDMUNDSON: I’m glad to know about it. Until this moment, I’ve heard nothing about it. But I will write it down and give it a look.

I’d say Billy Beck has a point:

How on earth do Americans get to that man’s point in life without knowing about “The Road To Serfdom”? How does that happen?

Are they all going to college, or what?

Screw college; The Road to Serfdom ought to be required reading in high school. As I recall, I first read it in about 8th or 9th grade when my father recommended it, along with Eric Hoffer’s The True Believer. Good parenting, that.

Of course, given that Hayek’s critiques are especially relevant to the school system (my god, have you met some of the people in charge of the schools where you live?), it should be no surprise that it’s not.

(Incidentally, I should point out that Lamb is delusional if he thinks The Road to Serfdom is actually a “bible for people on the conservative political side”; ’twould be nice, but it ain’t so)

June 27, 2004

In case you've got some spare time

Posted by shonk at 12:45 AM | permalink | comment

Some topics of note:

  • Fahrenheit 9/11 — Michael Moore’s newest movie is out and is, according to most of the reviews I’ve read (and not terribly surprisingly), an unabashed and unapologetic piece of propaganda. Which means, depending on your ideological persuasion, you’ll probably either love it or hate it. Christopher Hitchens hates it, whereas the subtitle of David Edelstein’s review pretty much expresses his sentiment: “Michael Moore’s Fahrenheit 9/11 is unfair and outrageous. You got a problem with that?”. At some point, I’ll probably watch it and post a review here.

  • Globalization — A topic we’ve discussed here a few times already, but I came across two interesting articles today that explore some new themes. In the first, “Low Taxes Do What?”, Thomas Sowell argues that jobs “exported” from the United States by globalization have been significantly outweighed by jobs “imported” by that same globalization. In the second, “Beggars Can Be Choosers”, Bob Murphy makes the surprisingly controversial case that charity doesn’t hurt people. Both are worth a read.

  • the gravey train — That’s the name of John Graves’ new weblog. John is a quantitative researcher at the Urban Institute, a fellow Sewanee alum and a good personal friend. Check him out.

June 17, 2004

Why social scientists need to throw away their classical paradigms

Posted by shonk at 09:55 PM | permalink | 7 comments

Brian Doss has responded to my response to my initial response to his critique of Steven Strogatz’ book Sync (whew! Have I broken the record for hyperlinks in a single sentence yet?). There’s a lot to cover here, but I’ll try to do what I can with it.

First, he rightly points out that much of his original point is uncontroversial:

My small beef with the concept that there was any sort of ‘the emerging’ science of spontaneous order was in the (I thought) uncontroversial point that the fields of Biology (macro, micro, and molecular) and Economics both concern themselves with spontaneous order and have done so for centuries (more or less) prior to the publication of ‘Sync’. As that was the case, I further noted that since we have 2 sciences studying specific kinds of spontaneous order and that neither science requires mathematics to either understand the subject matter or to gain knowledge in the first place, that perhaps the author of ‘Sync’ should take some hints and possible insights.

This is all true, but at the same time misleading. While biology has generally done a good job describing the spontaneous order processes that come into play in evolution, the “pure” biological approach is not well-suited to, for example, explaining the tertiary structure of proteins. The tertiary structure of a protein is the general shape of the protein, which is determined by the sequence of amino acids of which the protein is made, but which can be surprisingly complex and three-dimensional. One of the big revelations to come since proteins were first understood as sequences of amino acids is that knowing the higher-order structure of a protein is crucial to understanding what it does and how. And scores of mathematicians are intimately involved in trying to understand exactly how these higher-order structures arise.

In fact, mathematical biology is one of the hottest fields in mathematics today, and much of the research in that area stems from attempts to understand the structures of both proteins and of nucleic acids (i.e. DNA and RNA). And, perhaps surprisingly, advances in that field have had bidirectional influences on supposedly “abstract” areas like knot and braid theory.

Also, to borrow the definitive example from Strogatz’ book, biology did a very poor job of explaining the spontaneous order evident in the simultaneous flashing of Thai fireflies. It took some very hard-core mathematics (and some extreme simplifying assumptions) to even begin to explain how millions of fireflies could all flash in unison without having some “master” firefly. Even verifying those explanations (or discrediting them, for that matter) is something that should be experimentally possible, but such an experiment would be very difficult and has not, as yet, been carried out. This fact, along with the fact that the explanation required significant assumptions, is what led me to say in my previous post that “the mathematics of spontaneous order is both several steps ahead of and well behind the real world.”

The point of this digression is simply to suggest that the classical approaches are reaching their limiting points even in biology and that the days where one didn’t need to know mathematics to do chemistry are swiftly fading. Which isn’t to say that mathematics might not benefit from incorporating the techniques of biology and economics as they relate to spontaneous order, but, based on my admittedly very limited understanding of those two subjects, I have my doubts as to how much fruit such an attempt would bear.

Why do I have doubts? Quite simply, because biology and economics have generally done a good job noting that spontaneous order does arise in the relevant areas, but have not done a particularly good job by themselves of explaining why. Which is not to say that the why is not understood, but the best explanations I’ve seen (here I would cite, for example, Dawkins’ The Selfish Geneor pretty much any microeconomics course) derive, ultimately, from game theory, which is itself a distinguished mathematical discipline, dating back to at least [Fermat].

Back to Doss’ post: he rightfully points out that I unfairly posed the following parenthetical question:

(as a side note, both Doss and Swanson, in the original Catallarchy post linked above, seem to reject mathematics because it conflicts with the principles of Austrian economics and the Austrians’ rejection of empirical economics is well-known; so my question is this: if Austrians reject empiricism as well as mathematics (i.e. deduction), how, exactly, do they advocate gaining knowledge? (Of course, I know the answer, but the Austrian-sympathizers would do well, in my opinion, to keep this question in mind)).

Of course, mathematics does not conflict with the principles of Austrian economics/praxeology (although some of the more zealous and narrow-minded Austrian sycophants seem to think it does); rather, it is the application of mathematical methods to economics in parallel to the classical application of mathematics to physics that conflicts with Austrianism. Or, as Doss puts it, the classical “methods appropriate for studying the physical sciences are inappropriate for studying thinking, acting, subjective humans.”

However, I do think that many Austrians have a fairly poor grasp of exactly what mathematics is, which is why I added the disclaimer that they would do well to keep the above question in mind. I grant that this strikes of pedantry, but I think it’s an important point, and Doss seems to be one of those Austrians who doesn’t seem to understand mathematics very well:

Mathematical methods work in the physical sciences (and to a lesser extent in life sciences) because (a) there is an objective, unchanging reality to the physical laws of the universe and therefore it is (b) possible to design experiments where aspects of reality can be held constant, and thus strict, formal, mathematical relationships can be inferred from the data.

The key misunderstanding, I think, derives from a conflation of the terms “mathematical” and “computational”. Not that this is an uncommon confusion: my non-math friends occasionally ask me what it is, exactly, that I do, occasionally jesting that I must be adding some really big numbers. In fact, mathematics is, ultimately, the discipline devoted to determining the abstract structure that logically follows from a particular axiom set. Mathematicians aren’t, generally speaking, taking a particular equation and plugging a bunch of different values into it to see what results.

In this sense, in fact, mathematics is remarkably similar to Austrian economics itself. Doss links to a Mises article which explicitly compares economists to mathematicians, a comparison I’ve made myself many times before. In fact, in my view, the Austrian school is the most mathematical of all schools of economics by a wide margin. As Doss points out, though, “[t]he difference, of course, is that Austrian scholars have followed a verbal logical formalism instead of a mathematical one.” Which is something I have never well understood. I simply cannot understand why the Austrians consistently reject symbolic logic (which I would call “formal logic”, though obviously an Austrian would contend that my definition is incomplete). Which isn’t to say I haven’t seen the arguments, it’s just that I don’t understand them. For example, here’s what Rothbard has to say on the matter in “Toward a Reconstruction of Utility and Welfare Economics” (which parallels his argument in Man, Economy and State):

The suggestion has been made that praxeology is not really scientific, because its logical procedures are verbal ( literary ) rather than mathematical and symbolic. But mathematical logic is uniquely appropriate to physics, where the various logical steps along the way are not in themselves meaningful; for the axioms and therefore the deductions of physics are in themselves meaningless, and only take on meaning operationally, insofar as they can explain and predict given facts. In praxeology, on the contrary, the axioms themselves are known as true and are therefore meaningful. As a result, each step-by-step deduction is meaningful and true. Meanings are far better expressed verbally than in meaningless formal symbols. Moreover, simply to translate economic analysis from words into symbols, and then to retranslate them so as to explain the conclusions, makes little sense, and violates the great scientific principle of Occam s Razor that there should be no unnecessary multiplication of entities.

In a sense, Rothbard is correct to point out that the Austrians’ deduction is slightly different from standard formal logic, because, in formal logic, you are free to use valid propositions in the deduction even though those propositions may not make any sense when translated into natural language, whereas the Austrians want to use propositions that are both valid and meaningful at every step along the way. However, I disagree with his suggestion that, as such, translating into a formal language is a pointless and superfluous step. If Austrian deductions are, in fact, valid, then they should be translatable into formal language and still hold as valid deductions; the fact that many other deductions might be possible in that formal language that would be invalid to the Austrian would be irrelevant. Rothbard’s objection serves, it seems to me, as a valid rationale as to why an Austrian wouldn’t want to deduce in the formal language itself, but I don’t think it at all justifies the apparent disdain the Austrians have for confirming the deductions they’ve already made in this rigorous way (such confirmation being something I’ve asked for before).

Now, Rothbard is quite right that meaning is better expressed in words than in symbols, which is why it would, presumably, be difficult to translate Austrian axioms/deductions into formal language, but difficulty, in and of itself, shouldn’t serve as justification for not attempting the task. I also find it curious that Rothbard employs Occam’s Razor as a scientific principle, as the Austrians seem to be so disdainful of scientific methodology in economics. Besides the fact that Occam’s Razor is totally inapplicable in this realm, anyway, as the notion that “the simplest explanation is usually the best” says nothing about how to go about confirming conclusions that one has reached.

Having digressed again, I want to make the point Doss (and many other Austrians, for that matter) may be closing his mind to mathematical insights that actually buttress his position because he views mathematics through a classical lens. As a matter of fact, modern mathematics, with its investigations into chaos and complexity, is actually making the case that predictive determinism is essentially impossible. As commenter buck40 points out:

One of the main insights [of modern mathematics] is that prediction and control are in most cases false hopes. Those who apply the insights of complex adaptive systems to social sciences do not seek control, do not counsel control. Quite the opposite, they help policy makers understand why efforts to control will surely fail. You might find that they are your allies in a way, that they are all Hayekians in a manner of speaking.

In that light, consider, for instance, the recent No Treason post “Butterflies and Sweatshops,” where John T. Kennedy suggests that not only is the effect of an individual purchase on third world working conditions too small to predict, but that the effect of that purchase simply cannot be predicted to any level of certainty. I think we would all agree that the world economy is more complicated than the three body problem, yet even the three-body problem cannot, in general, be solved explicitly. Hayek and Mises argued that central planners suffered from a knowledge problem, that someone trying to direct the economy could not, practically speaking, acquire enough knowledge to accurately predict how their interventions would affect the economy. Chaos theorists have extended that further, essentially demonstrating that this is not merely a practical problem, but that, in fact, such a prediction is manifestly impossible, even in the abstract. So, chaos/complexity theorists are “all Hayekians in a manner of speaking”.

Similarly, insights in network theory are helping to explain, for example, both the scale-free aspects of internet hyperlinks and the resiliency of the power grid. One can only imagine that a solid grounding in network theory coupled with an understanding of economics might well yield new insights into economic phenomena.

And, finally, it should be pointed out that the work being done by Strogatz and others is demystifying spontaneous order, demonstrating that there’s nothing supernatural about markets or evolution, but rather that the fruits of spontaneous order are all around us and that the mechanisms that underlie this order are often very simple. To return to the fireflies, the simultaneous flashing that is almost certainly a result of the interaction of coupled oscillators is more extensive than could ever be coordinated by some master firefly keeping time.

May 26, 2004


Posted by shonk at 03:48 AM | permalink | comment

Good news in Nairobi’s slums:

Last year, a group of Nairobi slum dwellers banded together and asked the city council to give them the land that they had been squatting on illegally. In return, they promised to build proper houses, schools, and community centers without any government money.

“We went to the council and said: ‘We know this land belongs to you, but we have lived here for 30 years and if you help us, we will make it a clean environment with good security,” says Peter Chege, secretary of the housing association. “In the end, they agreed to draw up title deeds to the land in our name.”

Not surprisingly (at least for those who have read Hernando de Soto’s The Other Path), things are looking up for the slum-dwellers in Nairobi, where plots are being marked out and three-story cement houses are rising from the cardboard wasteland. As pointed out in the article, the primary impetus for these new developments in Nairobi is Slum Dwellers International, “an Indian pressure group that encourages people living in slums to find their own solutions to housing problems”, but their inspiration almost certainly comes, at least in part, from de Soto’s seminal work, which was the first to effectively demonstrate that the primary impediments to wealth-creation in the third world are state restrictions on the acquisition and protection of property.

The Other Path is basically a detailed study of poverty in Peru which argues that this poverty is largely a result of the fact that government policy effectively prevents the majority of urban Peruvians from owning land or running legitimate businesses. As in Nairobi, a huge number of Peruvians (at least at the time of the book’s publication — the new government that came into power at about the same time has done much to reverse these situations) squatted on state-owned land, where they had constructed and maintained dwellings of varying quality, but the fact that the state refused to recognize title to this “property” meant that capital improvements were extremely minimal (this refusal wasn’t completely outright, as groups which had sought title to the land they occupied were occasionally granted it, but the average amount of time this process took was on the order of 7 years). Similar restrictions on entry into the retail and transportation market (to take the other two primary examples from the book) made it such that the majority of both retail and public transport was being conducted by black-market businesses which, since they were technically illegal, were not able to expand beyond very small operations and thus were denied the possibility of taking advantage of economies of scale. Or, as de Soto puts it:

Secure property rights, on the other hand, encourage holders to invest in their property because of their certainty that the property will not be usurped. From a strictly economic standpoint, therefore, the true purpose of property rights is not to benefit the individuals or entities holding those rights, but to give them the incentive to increase the value of their assets by investing, innovating, or combining them advantageously with other resources, something which would have beneficial results for society. (The Other Path, pp. 159-60)

De Soto concludes that the best thing Peru (and, by extension, other similar countries) could do to reduce poverty would be to liberalize economic regulations, making it easier for the poor to own the land they live on and operate their businesses without fear of police raids. This as opposed to, say, building more state-funded low-income housing (which was inevitably of poorer quality than even the squatter’s settlements). Based on the article, it seems that there are a number of parallels between today’s Kenya and the Peru de Soto describes (circa 1986) and it seems that precisely the sort of liberalized land policy de Soto advocates is working for Nairobi as well.

On the subject of de Soto, I wrote a response to someone who wanted to know if de Soto’s work implies that government recognition of property rights is a prerequisite of free-market wealth-creation. Since it provides a sort of general summary of The Other Path as well as a suggestion that de Soto’s work actually indicates that government isn’t strictly necessary (even though de Soto himself probably wouldn’t agree), I reproduce that response here (actually, before we get to that, let me just briefly mention that the complete title of the book is actually The Other Path: The Economic Answer to Terrorism; it might be interesting to think about de Soto’s arguments within the context of the terrorism problems we’re currently experiencing, both generally and specifically as those arguments might apply to the development of Iraq):

I don’t think DeSoto is arguing that capitalism can only flourish in the presence of property taxes, nor that government is necessarily required to enforce property rights (well, he would say it is, but applying his logic consistently doesn’t, in my opinion, yield that conclusion). Rather, he argues that the people of Peru and other third world countries want to be entrepreneurs, but the State actively prohibits them from doing so. For example, when the book was written, it took something on the order of 8 months and several thousands of dollars (this in a country where the average per capita income is in the neighborhood of $2000) to get a small business legally recognized. Researchers at the ILD (Instituto Libertad y Democracia) actually tried to set up such a business, approaching it as a small businessman would, paying bribes only when necessary, fulfilling all the legal requirements, etc. Similarly, acquiring title to previously unowned land took something on the order of seven years. As a result of the extremely high cost of achieving legal recognition, most business owners and land “owners” simply choose to operate in what DeSoto calls the “informal” sector. Most end up being street vendors, bus drivers (for informal bus companies), etc. and living in informal settlements which are, nonetheless, better than the publicly funded low-income housing. Given the uncertain nature of their continued existence, businesses and homeowners have developed elaborate solutions to the problems of titles, property rights, dispute resolution, and the like. In fact, these are excellent examples of so-called “private law” in effect. DeSoto himself even praises the ingenuity of these solutions, but notes their shortcomings: since they are still technically illegal, there’s a high degree of uncertainty involved in entrusting your livelihood or your home to these schemes. As such, informals have far less incentive than regular businessmen/homeowners to invest in capital improvements, and the opportunity for taking advantage of economies of scale is virtually non-existant.

Nonetheless, modern, concrete-and-glass buildings have been constructed illegally at a rate of seven times those constructed legally in Peru’s capital, Lima. The overwhelming majority of low-income housing is constructed illegally; in some cases the state eventually recognizes title in a way reminiscent of how California ended up dealing with Gold Rush claims, but many informal settlements remain technically illegal even 20 or 30 years after their initial settlement. About 95% of Lima’s “public” transportation is provided by informal bus/taxi systems, and a majority of retail is also informal. These statistics, along with a detailed description of specifically how the informal retail, housing and transportation markets work are used by DeSoto to demonstrate that the people of Peru want to be entrepreneurs and property-owners, that they aren’t simply lazy and/or Marxist types that want to live off welfare. However, the enormous legal restrictions that exist to entering these markets are daunting enough to prevent most from “going legal”, entailing the problems detailed above.

So what’s the big deal about “going legal”? Why would the Peruvian economy be so much better off if all these businesses were recognized by the government? Well, quite simply, because the government is the only game in town. The “private law” solutions developed by the informals do well amongst themselves (for example, street vendors tend to have “rights” to their particular patch of sidewalk, which are respected and defended by their neighbors), but outside of the informal realm, they don’t work so well, since the state still, ultimately, holds a monopoly on the legitimate use of force. If a “legitimate” businessman wants some competition shut down, he need only use his political connections to make it so (in fact, as a side note, DeSoto found that political connections, even for informals, are generally more important than almost any other factor in determining success). Similarly, informal landowners run the risk that government will grant title to the land beneath their feet to someone else with better political connections. Also, if an informal wants to shoot (actually, I’m not sure guns are legal in Peru, but that’s another issue) a burglar on his property, he can be prosecuted for murder, since the State doesn’t recognize his property rights and thus he can’t use defense of his property as a defense. The importance in getting recognized by the state is, ultimately, not to protect yourself from other private individuals (as mentioned above, the “private law” arrangements in place between informals tend to do well within that group), but rather to protect yourself from the state.

May 20, 2004


Posted by shonk at 04:12 AM | permalink | comment

A few things of note:

  • The Jesus Landing Pad — Apparently, the Bush administration is consulting with apocalyptic, evangelical groups with a self-decribed “theocratical perspective” on issues relating to Israel, the West Bank, the Gaza Strip, etc. Ironically, the most radical Zionists are apparently no longer Jews, but rather evangelical Christians who are convinced that the rapture cannot occur without a unified Israel. Apparently, the most outspoken of these groups is a Pentecostal group called the Apostolic Congress which, aside from appropriating the Great Seal iconography, is apparently represented in Israel by a missionary who fears witchcraft emanations from Harry Potter books. Needless to say, somewhat disturbing.

  • Michael Moore Hates America — A new documentary being directed by Mike Wilson, who apparently intends to turn the tables on Moore a bit. Be sure to check out Wilson’s journal page, currently detailing a couple of offers made to Moore to live up to his own professed principles. For more, check out the Telegraph article, which also references one of the most tasteless jokes I’ve ever heard, wherein Moore apparently suggested in jest at a recent live show that if the doomed 9/11 flights had been populated by blacks instead of “pampered whites”, the passengers would have fought off the hijackers. (Links via Catallarchy)

  • Atkins News and the Technical Interpreter — Also from Catallarchy, Jonathan Wilde uses recent Atkins-related reporting as a jumping-off point for a more general critique of the presentation of science and scientific results in the media. Along the same lines, check out John Allen Paulos’ Innumeracy, which I’ve mentioned before.

  • AIM viruses — Lucky for all of us, we can now get viruses over AIM. The worst offender so far seems to be BuddyLinks, which is using a viral dissemination approach for its games.

  • “Half the world has never made a phone call” — Ever heard this claim? Well, it may have been true back in 1994, but certainly not anymore, as Clay Shirky demonstrates pretty clearly in this article (which itself is from 2002 and is, therefore, almost certainly out-of-date in its own right). Of course, he’s also quite correct to point out that the sort of thinking that lies behind this phrase is exactly the wrong sort of thinking:

    Something incredibly good is happening in parts of the world with dynamic economies, and that is what people concerned with the digital divide should be thinking about. If the world’s poor are to be served by better telecommunications infrastructure, there are obvious things to be done. Make sure individuals have access to a market for telephone service. Privatize state telecom companies, introduce competition, and reduce corruption. And perhaps most importantly, help stamp out static thinking about telecommunications wherever it appears. Economic dynamism is a far better tool for improving telephone use than any amount of erroneous and incomplete assertions on behalf of half the world’s population, because while The Phrase has remained static for the last decade or so, the world hasn’t.

  • And, last but not least, Tim is back in the blogging game, even though he promised not so long ago never to blog again. Be sure to check out his post on the preposterousness of “owning” a word, a follow-up to the notorious EULA.

May 12, 2004

Taxis and unintended consequences

Posted by shonk at 02:42 AM | permalink | 4 comments

In keeping with the DC theme, I wanted to comment briefly on the taxi fare system in Washington. The first time you ever take a DC cab, it’s a bit of a disconcerting experience, because there’s no meter running. Instead, fares are calculated based on a system of zones, with a flat rate based on how many zones you cross along your journey.

So far as I can recall, Washington is the only city I’ve ever spent any time in which employs this particular methodology for calculating taxi fares. From which data you can probably guess how much sense it makes.

For example, it seems pretty silly that two trips from point A to point B would cost the same even if one were undertaken on, say, an early Sunday morning and the other took place in the depths of a weekday rush-hour (and the rush-hour traffic can be horrendous in Washington). After all, the rush-hour trip might take 4 times as long and occurs during a time in which demand for taxis is probably much higher. Similarly, it seems vaguely inappropriate that two trips of equal time and distance would cost a different amount, merely because one happens to be entirely contained within a single zone whereas the other crosses two or three zones.

As such, it should come as no surprise that this fare system arises from regulation rather than from market forces (admittedly, most cities set regulations regarding taxi fares, though, as I said, Washington is the only place I’ve seen where fares aren’t metered). Now, given all the disadvantages of the zone system mentioned above, along with many others that are easy to come up with, why would even politicians be silly enough to require this particular system? Because, of course, there are some advantages to be gained, and the zones in Washington favor those most likely to be influential in the regulatory process.

If you zoom in a bit on the above-linked fare calculator and know much about Washington’s geography, you’ll notice immediately that the zones are drawn on the map in such a way as to be distinctly advantageous to someone traveling from, say, DuPont Circle to the Capitol. Even though the trip is more than 3 miles right through the heart of downtown Washington, the entire trip will cost you the minimum possible taxi fare (currently $5.00, I think), since both locations lie in the same fare zone. Now, if you’re not very familiar with DC geography (like me), you’re probably wondering what the significance of this is. It’s quite simple: most of the major embassies as well as many of the best restaurants and membership clubs are in the DuPont Circle area, so politicians, bureaucrats and diplomats are constantly making the trip between DuPont and the Capitol and its surroundings. Which means that those politicians, bureaucrats and diplomats are making out like bandits from the zone fare scheme. Needless to say, I somehow doubt that this is a coincidence.

I’m sure someone with more knowledge of the DC area could point out several other ways in which the fare zones are constructed to the benefit of those with political clout, but, fortunately, I haven’t spent much time in Washington.

The next natural question, of course, is the following: what are some of the unintended consequences of this situation? I mean, it seems clear that the politically powerful are benefitting at the expense of taxi drivers, but most of us are neither politicians nor taxi drivers, so should we really care? Well, if you’re trying to get from somewhere in Northwest down to the area of the Capitol (including, for example, the residential area just east of the Capitol), especially late at night, you probably should. I’ve never had occasion to try it myself, but I’m told that getting a taxi-driver to agree to pick you up for such a trip is virtually impossible. Also, if you’re trying to take a taxi from somewhere in the city to, say, northern Virginia, you should probably care. Since DC taxis don’t have meters, the driver has to estimate what expense a meter would have added to the trip once you leave the city and, needless to say, those estimates probably tend towards the high end of plausibility.

Given these various distortions on the taxi market, it shouldn’t come as much of a surprise that the taxi black market is apparently thriving. I’m always disposed to look favorably on the entrepreneurial spirit, so I was happy to take one such informal taxi from the bus station to the restaurant where I was meeting up with friends on this latest trip. It wasn’t much of an issue for me on that particular occasion, but the black market driver’s main attraction seems to be that he will take you places other taxis won’t, at least based on my conversation with the driver I wound up with. It might cost you a little more than the legal rate, but the unofficial taxis will take you to the places it’s simply not profitable for the legally licensed variety to bother with. Since they’re not officially licensed, black market taxis don’t follow the official rates, so you’ll have to negotiate your own price up front, but if you’re traveling from DuPont Circle to the Mall (or, for that matter, from the bus station to Pennsylvania Ave. when most taxis loitering around the station are hoping for long trips to the suburbs), it might be well worth it, even if only for the educational value as a lesson in the unintended consequences of regulation.

May 03, 2004

The invisible hand defended from its enemies

Posted by Curt at 05:31 PM | permalink | 19 comments

I’m probably not going to make too many more forays into economics and politics, but this book review by Terry Eagleton seems to get so many little things right along the way to its general conclusion that fascism and capitalism can work exceedingly well together that it at least, I think, deserves a brief consideration of the charge once again. Consider this passage, from near the beginning:

“Exactly what fascism consists of, however, is far less clear. In some leftist circles, the word is lobbed loosely around to vilify anyone in the cramped space to the right of Conrad Black. Yet fascists are radicals, unlike right-wing conservatives. Conservatives believe in God, tradition, the monarchy, civilisation and the individual, whereas fascists are pagan, primitivist, collectivist state-worshippers who prefer jackboots to crowns. Fascists admire productive workers (including productive capitalists) and denounce effete aristocrats and the idle rich; conservatives tend to champion both groups, among whose ranks they themselves can frequently be found. Ezra Pound was a fascist, but T S Eliot was a conservative. Fascists strut, while conservatives lounge.”

There are obviously some problems with this as a general description; for one thing, it seems a lot more descriptive of conservatives in Britain, where they are no longer a very viable political force, than in America, where this brand of conservatism is being more and more taken over on that end of the political spectrum by religious fundamentalism, which can be extremely radical in its own right, given that it is not fundamentally tied to any of the existing pillars of social organization except scriptural literalism. But in any case, few I think could argue deeply with the fundamental distinction between conservatism and fascism made here, especially as a description of the early part of the century, when the identifiably fascist movements were most prominent in the West. I especially like this little closing touch:
“Fascism is an anti-political kind of politics, which elevates national unity over class distinctions, gut prejudice over ideological debate, and race over reason. Its leaders tend to be grubby lower-middle-class yobbos with unstable mentalities and criminal records.”

I even think the author’s definition, which he approvingly cites, is one of the better summaries one could think of to define fascism as a movement:

“he sees fascism as a mass-based form of militant nationalism, one working in uneasy alliance with the usual elites, which pursues policies of internal cleansing and external expansion so as to unify and regenerate what it regards as a victimised, humiliated nation. It springs from a major crisis of the liberal capitalist order, and elevates cultural particularism over democracy, individualism and universal rights.”

Probably most readers of this site at any time will find the development of this definition more troublesome, however:

“Paxton admits that “fascism is inconceivable in the absence of a mature and expanding socialist left”. Bankers and manufacturers may have baulked at shaking hands with a ranting, off-the-wall runt like Adolf Hitler, but this book concedes that the two social forces co-operated fairly well once they had struck their Faustian pact.

If fascism claimed to be radical, it was a bogus revolution that never once put its anti-capitalist rhetoric into practice. Instead, it set about efficiently exterminating the political left. For all their crafty appeals to lower-middle-class grouses, fascist regimes left existing patterns of property and social class largely intact. The disgruntled petite bourgeoisie were taken for the longest ride in their unenviable history. With breathtaking insolence, the fascists used aspects of their ideology to prop up the very state that they found so oppressive.”

And even more so this:

“It remains to be seen whether the world will revert to fascism. But there are certainly signs that a planet well stocked with authoritarian capitalist regimes is on the cards. Liberal capitalist nations are becoming more authoritarian under the threat of terrorist attacks, while societies which were already authoritarian, such as China, are turning capitalist. The two systems are meeting each other, so to speak, coming the other way. Meanwhile, the globe is well furnished with capitalist set-ups that were never liberal in the first place, as well as with regimes whose former colonial proprietors exported market forces to their shores while forgetting to include democratic institutions in the cargo. The assumption that the free market and political democracy go naturally together was always pretty dubious, and fascism is one dramatic refutation of it. But we might now be moving deeper into a world where the two go together like a horse and cabbage.”

The ultimate message seems to be that capitalism is at the least not antithetical in practice to pregmatic fascism, and furthermore that the two may co-exist very well together, the point being to challenge the dogma that capitalism is somehow itself a guardian against creeping totalitarianism. I suppose the point is that Eagleton, who made a name for himself decades ago as a Marxist literary critic, wants to imply that capitalism is at the least insufficient as an ideology to reject authoritarianism. But given that in the article he seems to implicitly claim that Stalin was a fascist, and that the fascists themselves sold out their principles to gain power in Europe (as well as access to the financial resources of the bankers and the industrialists), one could perhaps say with justice that there is no ideology under purview here that is sufficient to rule out in practice the emergence of its opposite.

I am no lover of capitalism for its own sake, primarily because in my opinion the centreal ideological point of capitalism is that the maximum marginal benefit to be gained in trade is the primary goal of all agents in society, which I find to be as reductive in its own way as Marx’s philosophy. But I can at the least see the benefits of defending any idea from a slander on it. I can easily see that the first part of that ideological point, without the caveat “through trade,” could easily justify any sort of oppression and violence imaginable. But it seems to me that real trade presupposes two conditions, transparency of information and freedom on the part of the consumer and producer to make decisions without coercion. Such conditions in my opinion make capitalism fundamentally incompatible with violence and the use of coercive force as well as, of course, lying, slander, false advertising, etc. Now I would agree that, say, Nazi Germany was relatively prosperous during most of its existence relative to most other collectivist states in its time, especially the Soviet Union, and that many of the pre-existing financial and industry institutions in Germany were preserved at least ostensibly by the Nazis, but that should blind no one to the fact that the primary sources of revenues, especially during the war, were arms procurement, resource confiscation and forced labor, somewhat akin to the slave-economy of the Roman Empire. It was in no way primarily a trade-based economy, hence it was basically un-capitalistic.

I certainly do not claim that it is impossible or even unlikely that the current creeping authoritarianism in American government and society will not rise apace with the gross national product, but when one considers how much the military budget, or the Dept. of Homeland Security, or the re-provisioning of Iraq costs each and every resident of this country every day, one should see that these two forces are at the least heterogenous, if not oppositional. Similarly, when one sees that Boeing, for example, has largely switched its production to fulfilling military contracts, or that the leading American carmakers are now lobbying for statist healthcare to alleviate their overhead, or that (perhaps) leading public utilities companies are pushing for expanded anti-counterterrorism efforts, one should bear in mind that they may in fact be pursuing the maximazation of their marginal benefits, but nonetheless they are abandoning the principles of trade to do so.

April 20, 2004

Free-market fundamentalism? Not hardly

Posted by shonk at 11:53 PM | permalink | 5 comments

If you really want to get your blood boiling, read “Entrepreneurship Gets Slaughtered”, an L.A. Times op-ed on the Department of Agriculture’s disgraceful decision to prevent Creekstone Farms from testing all its cows for mad cow disease (free registration required):

According to the Washington Post, Creekstone invested $500,000 to build the first mad cow testing lab in a U.S. slaughterhouse and hired chemists and biologists to staff the operation. The only thing it needed was testing kits. That’s where the company ran into trouble. By law, the Department of Agriculture controls the sale of the kits, and it refused to sell Creekstone enough to test all of its cows. The USDA said that allowing even a small meatpacking company like Creekstone to test every cow it slaughtered would undermine the agency’s official position that random testing was scientifically adequate to assure safety.

That is to say, the Department of Agriculture would rather expose Americans to the risk of a rather horrible death from mad cow disease than to admit that maybe, just maybe, they are not as capable of protecting consumers as the private sector is. And that’s their official statement, the one which presumably contains the most favorable rationalization of their actions.

What didn’t get mentioned in their official statement, but which is correctly pointed out in the article, is that the more likely reason for Agriculture’s decision is that most of the meat-packing industry is vehemently opposed to the notion of testing every cow:

“If testing is allowed at Creekstone … ,” the president of the National Cattlemen’s Beef Assn. told the Post, “we think it would become the international standard and the domestic standard, too.”

There are three separate issues here that I’d like to address one at a time. First, let me re-emphasize the fact that Creekstone was voluntarily choosing to go above and beyond the required safety measures in an attempt to guarantee that their meat was clean. Apparently, this should come as no big surprise, as Creekstone is known for working hard to reduce the use of antibiotics, for using humane slaughtering techniques and for paying high wages. The point, though, is that the notion that, absent government regulation, companies would produce shoddy, dangerous products is utterly absurd. Sure, many companies would like to be free of government safety regulations, but consumers rather like not contracting diseases from their food, being injured by their appliances, etc. and many are more than willing to pay extra to prevent such things. In fact, the primary way for slipshod, cut-rate corporations to prevent their competitors from luring customers with safer products is through (surprise) government regulation.

Which brings me to my second point: agency capture. From the article:

The Department of Agriculture seems to have only one purpose in preventing Creekstone from testing — appeasing the big slaughterhouses. The USDA has a long history of doing the bidding of the meatpacking industry at the expense of the public. Indeed, in many academic studies, the department is presented as a textbook example of the problem of “agency capture,” wherein an agency becomes so identified with the companies it regulates that it becomes an extension of those companies.

Agency capture is a phenomenon closely related to the rent-seeking that engenders special-interest legislation, pork-barrel spending and all the other so-called “corruptions” of government that are, in fact, the necessary consequences of a government with the ability to control the economic fates of millions through legislative and even bureaucratic actions. In the case of agency capture, both the agency and the currently successful corporations in whatever area the agency is supposed to be regulating have an incentive to maintain something pretty close to the status quo (another example can be seen in the European Patent Office’s ridiculous attempt to destroy e-commerce). The currently successful corporations have that incentive because the status quo is obviously treating them pretty well, and why change anything when you’re getting rich? The agencies have that incentive because the status quo is something they know how to deal with, whereas changing conditions require smarts and adaptability, qualities inherently antithetical to the bureaucratic mindset.

Which brings me to my third point: the economy currently operating in the United States is a pretty far cry from a free market, despite the mindless babble about Bush and his administration being “free-market fundamentalists.” The fact that the Department of Agriculture thought it reasonable to justify their shutdown of Creekstone’s testing on the grounds that it would undermine their “scientific credibility” (as if they had any to begin with) is just further proof of this fact. What we have in this country is a state-sponsored corporatism beloved of Democrats and Republicans alike because it puts the reins in their hands while maintaining just enough freedom to avoid (at least for the moment) the Communist death-spiral. Marx invented the term “Capitalism” even though the system he was denouncing already had a perfectly good word to describe it: mercantilism. Somehow, he and his followers came to confuse the mercantilism against which his writings were opposed with the laissez faire notions being propounded by what were then called liberals and so this strawman of “Capitalism” came to be the symbol of the free market. As such, it should come as no surprise that those who derive their political and economic ideas from Marx confuse the neo-mercantilism of the status quo with a free market, but the real disgrace is that so many purported “defenders of liberty” make the same fundamental mistake, mouthing a dogma of free markets while identifying the corporate-welfare sector as “capitalist heroes”.

Maybe I’m dead wrong about everything. Maybe a free market would be as terrible a thing as the diehard socialists claim. But we’ll never know until the Creekstones of the world are given the freedom to try to produce a safer product without federal regulators, working in concert with the worst of the mega-corps, shutting down their operation.

April 13, 2004

That tired topic

Posted by shonk at 11:29 AM | permalink | comment

Over at mock savvy, Neil uses the “tired topic of outsourcing” as a jumping-off point for a somewhat more generalized thesis. Definitely read the whole thing, but here’s a sample:

What is troubling about the whole affair is that somehow, as a society or whatever, artificial standards of living have been set that muddle the idea of voluntaryism. Again, this is not to say that benevolence is bad—I think it is crucial that social support structures exist (I am not talking about government-sanctioned welfare programs)—but across the spectrum of wealth distribution, from the disgustingly wealthy to the dirt poor, the notion of arbitrary entitlement is so destructive yet so pervasive as to be deeply troubling to anyone who really considers the consequences. It fosters a sense of complacency that propagates such that a society, although perhaps not destined for complete collapse, experiences a spiritual vacuity that undermines the sense of self-worth vital for anything that is to resemble harmonious operation.

March 18, 2004

Uncommon Sense

Posted by shonk at 10:13 PM | permalink | 1 comment

It’s been a banner day on the blogosphere. Two highlights:

  • Over at the Dynamist Blog, Virginia Postrel states concisely a point that Curt, and to a lesser extent myself, has been making for a while:

    True liberation makes the personal apolitical.

    (Link via Catallarchy)

  • No Treason’s newest writer, Joshua Holmes, states the obvious: “Outsourcing rules.” But he’s not talking about outsourcing to India; he’s talking about the biggest single form of outsourcing of the last 200 years: industrialization.

    Indeed, what is the difference between replacing jobs with machines and replacing them with Indians? In both cases Americans lose their jobs. In both cases it’s done to cut costs. In both cases the price lowers. Surely, those who blog and comment on the Internet wouldn’t want to give up their electric lights - replacing tallow and wax makers, cars - replacing horse breeders and buggy whip makers, running water - replacing drawing and purifying it yourself, or any other modern convenience, even though these conveniences replace jobs. Why are they so upset when foreigners replace Americans?

    I would only point out that many of the same people who get exercised about offshoring also get exercised about the mechanization of labor. Which isn’t to say that consistency equals correctness.

March 09, 2004

On globalization

Posted by shonk at 06:14 AM | permalink | 4 comments

In the comments to JC’s recent post on globalization, Eliot gets riled up:

My sense is that globalization will lead to annihilation of cultures, natural destruction, and to large corporations becoming de facto governments.

Now, first off, this critique seems a bit strange coming from the user of a camera made in Malaysia, but, given my present circumstances as a traveller, I have a bone to pick with this contention. Now, as I’ve recently, if tangentially, noted, globalization can indeed have a negative impact on culture, but it’s impact can also be exceedingly positive. As an example, I’ll merely point out that, by way of some pictures I’ve taken, readers of this blog have been exposed to a bit of Bulgarian culture that they otherwise might never have had any awareness of. Given that I’m an American who flew to Bulgaria on a German airline, took the pictures with a camera made in Malaysia and powered by Japanes batteries manufactured in China, edited them on an American-designed computer made in Taiwan whose operating system is largely based on the work of the international open source community and presented them in an open-source photo gallery whose authors appear to include an Indian and a Frenchman, I’d say this cultural experience was heavily assisted by various aspects of that international bogeyman we call “globalization”. This, of course, serves as but a single example.

All of this is not to say that globalization has a unilaterally positive effect on culture; rather I merely want to point out that the various markets, products and services that fall under the globalization rubric have made it possible for people other than the extraordinarily wealthy to experience other cultures, either directly, as I am doing right now, or indirectly, through photographs, music and video. In other words, globalization greatly expands our cultural choices. What we do with those choices is not the fault of globalization, which is not, after all, a volitional actor. Rather, if we make choices that lead to “annihilation of culture” then I would argue that the fault lies with us for making those choices, rather than with globalization, which ultimately is just a facilitator for our choices.

(I’m proud to note that with this post I’ve just sent JC his first-ever Trackback ping. Welcome to the club, JC!)

EDIT Fixed a wrongful attribution

February 27, 2004

The War and Peace of blog posts

Posted by shonk at 02:39 AM | permalink | 16 comments

I’ve been thinking a lot about Austrian economics lately. I decided to write up some of those thoughts, and the result is almost certainly the longest post I’ve ever written. What follows is probably less than completely coherent, but hopefully interesting and somewhat thought-provoking.

Despite the fact that I’m still in the middle of Underworld, yesterday I decided to start reading Murray Rothbard’s Man, Economy and State. I’ve been arguing with some devotees of Austrian economics for the last few weeks, but I figured I could more profitably spend my time just reading Rothbard than trying to get clear answers online. The following is a somewhat extensive introduction to both my general thoughts on Austrian economics and some critiques of the first chapter of Man, Economy and State. I’m hoping to continue to post my reactions as I read the book, but I think it will be more productive (at least for my thinking), if I periodically post critiques or responses rather than try to encapsulate my thoughts in a single review after finishing the book.

Just to give a little context, I’m agnostic on the whole Austrian vs. Neoclassical debate; I think both have valid criticisms of their opponents and I think both have valid contributions to make to economics. I want to state from the outset that I do not claim to know anything about economics, so any mistakes here are based on an honest misunderstanding, not a deliberate attempt to slander whatever theory you identify with. Nor am I under the delusion that forum-junkies (who I will quote occasionally here) necessarily represent the correct interpretation of a school of thought (which is part of the reason I’m reading Rothbard). Anyway, to me, the defining difference between the Austrian and Neoclassical schools is that the Austrians conceive of economics as a deductive field of study, whereas the Neoclassicals take a more empirical approach.

My specific beef with the Austrians, though, is that I’m dubious as to how well-founded their deduction really is. Even with no knowledge of the specifics of their deduction, one can easily see that there might be problems with applying a deductive approach to trying to understand human action since humans tend to be intuitive rather than deductive in their cognition and action. Here is Ludwig von Mises’ justification

Human thought serves human life and action. It is not absolute thought, but the forethought directed toward projected acts and the afterthought that reflects upon acts done. Hence, in the last analysis, logic and the universally valid science of human action are one and the same.

My initial reaction was that the third sentence does not follow from the first two. Human thought need not be rational and the interactions between humans that is the result of that thought is often distinctly irrational, so why would logic be the proper way of studying human action?

The Austrian response seems to be that their deductions are based on such necessarily true propositions that the derived conclusions must also be necessarily true. As something of a skeptic of the notion that logic closely coheres with the universe as it exists, I have some qualms about accepting this outright, but let’s stipulate, for the sake of argument (and to avoid metaphysics), that logical deductions from true propositions do accurately reflect reality and truth. So what are these obviously true statements, or “Axioms”? In the linked discussion, one poster posits these four:

1.) I think, therefore I am.
2.) Truth, and knowledge of truth, exists.
3.) Conscious humans act.
4.) Humans are capable of argumentation and hence know the meaning of truth and validity.

Before I really get into the dissection, I want to add one final caveat: in a way, I want the Austrian methodology to be the right one; as a mathematician (aspiring, at any rate), deduction is my stock in trade, so a deductive methodology appeals both to my self-interest and my aesthetic sense.

Anyway, back to the axioms. My first complaint is that, although they are relatively basic propositions, none is really an “axiom” in the sense usually used by mathematicians and logicians. These aren’t mere starting points, they are the conclusions of deductions. For example, the first, which is just Descartes’ famous statement, is the conclusion of a chain of deduction, which itself must be based on earlier axioms. I make this point merely to point out that the use of the word “axiom” in this context is one that follows in the tradition of epistemology, but not in the tradition of formal logic. However, since it ultimately doesn’t matter very much, this isn’t a deep critique. To make for easier reading, I will refer to these as “axioms” throughout the rest of this post.

Slightly more instructive is a careful analysis of the fourth axiom in the above list. The first three are pretty evidently true, or apodictic, but the fourth has some problems. The problem isn’t in the content of the axiom, as both clauses are pretty clearly true, but rather in its structure. Although the “and hence” construction is a little vague, this reads as an implication. In other words, as presented this statement seems to claim that “[humans] know the meaning of truth and validity” follows from “[h]umans are capable of argumentation.” However, a justification of the second clause follows from the second axiom, not from the first clause. In fact, the first clause (the antecedent) apparently has nothing to do with the second clause (the consequent). If this is the case, then this fourth axiom is actually an invalid implication, even though both clauses are true. It would make much more sense, to me at least, simply to make “Humans are capable of argumentation” the fourth axiom and leave the bit about knowing the meaning of truth as a separate axiom (or as a theorem derived from axiom 2 if the two could be shown to be logically equivalent).

To me, this is an important point, as the implication in axiom 4 seems to underlie much of the Austrian program. That is, the assumption that we can arrive at truth through argumentation is fundamental; of course, since this is a fundamental assumption of most systems of study, it’s not an indictment of Austrian economics per se, merely something to think about within the broader context of how we perceive truth.

One of my fundamental concerns about the axioms stated above is that they may be difficult to translate into the formal language of modern logic. I’ve tried and failed to translate any of the four axioms into a non-trivial formal proposition, but admit that my training in formal logic is pretty much limited to first-order logic, so I don’t want to claim that it cannot be done. However, given Mises’ statement that the study of human action is logic, it would seem to me that anyone who seriously advocates the Austrian methodology really ought to make that translation a top priority. Which isn’t to say that it hasn’t been done, but I found no evidence on Google.

The reason it’s important to translate these axioms into formal language is that if such a translation is made, then, at least in theory, any valid theorem derived from them will be derivable in that formal language using the rules of implication natural to that language. Hence, the formal language serves as a sort of safeguard against sloppy deduction — if one has serious doubts about a theorem, one can go back to the formal language and mirror the deductive steps in that language, thereby either convincing oneself that the theorem is valid (if the derivation is valid in the formal language) or seeing where exactly the reasoning went awry. This is, admittedly, a step of last resort, equivalent to reading a computer program in assembly language, but it is, ultimately, the formal underpinnings that make logic and mathematics “work”.

In fact, as will hopefully be made clear, I have concerns that Rothbard makes precisely the sorts of sloppy deductions that I mention; without this foundation of a formal language, though, it is considerably more difficult to point out precisely where the sloppiness occurs.

Getting back to the axioms, the one that is most important to the Austrian program is the third axiom, the Axiom of Action. Rothbard states it in the very first paragraph of Man, Economy and State and deduces all that I have read so far from it. I don’t intend to highlight every stage in the deduction, but rather to comment on some objections I have to some of the conclusions reached therein.

The first one that seems a bit dubious occurs on page 2 of my edition (the 1970 Nash publication): “The first truth to be discovered about human action is that _it can only be undertaken by individuals_.” This isn’t a statement I disagree with; I just think the deduction is a bit cyclic. Rothbard defines action (“purposive behavior”) in such a way that this is necessarily true, but that merely leaves open the question of whether this is a good definition or merely one that is convenient to what are, presumably, Rothbard’s pre-existing biases. If one wants to get metaphysical (which I don’t, particularly), one could question what exactly is meant by an “individual”. At least in the materialist worldview, the aggregate of the reflexive responses of individual brain cells can constitute an action, since those chemical and biological reactions serve as the substrate for our consciousness. Hence, the inclusion of the collective non-action (since nobody seriously claims that individual cells are purposive) of brain cells in the realm of “action” juxtaposed with the exclusion of the collective action of humans seems to me to be an intuitive, rather than a deductive, conclusion.

Similarly, the statement that “there is never any possibility of measuring increases or decreases in happiness or satisfaction” (pg. 15) seems similarly intuitive. So far as I can tell, this does not follow from the Axiom of Action (or any of the other listed axioms); rather it seems to be a pragmatic, almost empirical observation. Rothbard’s treatment of scales of values is nice (though we’ll get to this), but the incomparability of values and happiness does not flow from this. Instead, this appears to be an ad hoc observation; from our experience with people, we know that it isn’t realistic to think that the utility that I derive from, say, a good meal is comparable in any meaningful way to the utility that a friend derives from drinking a good stout.

Now, as for the preference scales of value scales. I have no dispute with the idea that, given their imperfect knowledge of the future, the scarcity of resources, etc. humans rank or scale their “alternative ends” according to the perceived benefit of each. The example that Rothbard gives is simply, but illustrative. In it, Jones is watching a baseball game and contemplating what he will do with the next hour of his finite time, so he ranks the alternative ends as follows:

(First) 1. Continuing to watch the baseball game
(Second) 2. Going for a drive
(Third) 3. Playing bridge

This example first appears on page 5, but is also included in the discussion leading up to the statement of the Law of Marginal Utility. Now, my first objection is not to the scale of values as such, but rather the the reductionism inherent in Rothbard’s treatment. Examples of such scales are presented as short, discrete lists. However, the notion of a finite, discrete scale of preferences does not follow from the Axiom of Action. An infinite, even a continuous (non-discrete) scale of values would accord just as well with the deduction. The presentation of discrete lists is convenient for presentation purposes, but it may actually impede good deduction. This is often a problem in mathematics, when an example of a structure begins to serve as the basis for cognition on that structure. For example, all the easiest examples of rings (the integers, the reals, the complex numbers) are commutative, whereas general rings tend not to be; if one allows ones thinking about rings to be influenced too heavily by one’s experience with the commutative examples, this can lead to faulty thinking in the more general setting.

In fact, I would argue that, logically, it would be more consistent to think of scales of preference as being infinite. After all, if you were to offer me a finite list of “all” the choices currently available to me, I could always come up with another possibility not on the list. This, in and of itself, isn’t necessarily a problem, as discrete infinite sets are well-understood, but the next possibility is a bit more unsettling: one could coherently argue that preference scales should actually be continuous, that between any two “alternative ends” one could come up with an infinite number of continuously varying possibilities that flow from one to the other. The set of alternative ends would then be, not just infinite, but actually uncountably infinite. After all, one could include “watch the game for half an hour, then go for a short drive” in the above list, or “watch the game for 22.3 minutes, then go for a slightly longer short drive” or any number of possibilities in between. Not that either of these possibilities would necessarily be ranked between “watch the game for an hour” and “go for an hour-long drive”, as both of the “mixed” possibilities might be less preferable than the non-mixed ones, but there’s no logical reason from excluding these mixed possibilities from the list.

In fact, I would argue that the limitation to finite lists (or discrete infinite lists) is the result of intuition, rather than deduction. Humans seem to intuit a certain small number of possible actions in any situation, basically ignoring the myriad of possibilities not in this list. This is a wonderful time-saving device, but not a strictly logical one. My point is that the treatment of preference scales is heavily influenced by experience and ad hoc intuition, rather than strict deduction. I’m okay with that, but to claim that the conclusions achieved thereby are strictly logical is misleading.

I would like to point out that, if “alternative ends” are non-discrete and uncountably infinite as I suggest, then it would actually be impossible even to create a “list” at all. Without a list (and sometimes even with one), one cannot necessarily even speak of immediate successors. In other words, when we think of the integers, we can always tell what the immediate successor of an integer is. The immediate successor of 2 is 3, the immediate successor of 512 is 513, and so on. However, when we get to the real numbers (the easiest example of an uncountably infinite set), we have no sense of immediate successors anymore. What’s the immediate successor of the square root of 2? Now, there’s a theorem in mathematics that any set can be given a well-ordering, that is, a structure such that every element (except the largest element, if there is one) has an immediate successor. However, this theorem is logically equivalent to the Axiom of Choice, which is, to put it mildly, somewhat controversial. Since the notion of an immediate successor seems integral to the Law of Marginal Utility (see below), this should be setting off alarm bells for any Austrians that have actually made it this far in the post. After all, the Axiom of Choice implies the Banach-Tarski Paradox, which says (more or less) that you can cut up a marble into finitely many pieces and reassemble those pieces into a ball the size of the sun. This isn’t particularly troublesome to mathematicians, but I have trouble envisioning serious economists wanting to accept such a result merely in order to be able to derive the Law of Marginal Utility (which isn’t particularly controversial, so far as I know).

Moving on to the Law of Marginal Utility, there are, as I see it, at least two problems with Rothbard’s deduction. The law says that

The greater the supply of a good, the lower the marginal utility; the smaller the supply, the higher the marginal utility.

This is presented in the context of a man with six horses, each of which performs some task for him. The man has the six tasks rated in terms of their importance to him. At some point, he has to give up one of the horses; when he does so, his horses can now only do five of the jobs. Obviously, the man will have the remaining horses do the five highest-rated jobs, leaving the sixth undone. The “marginal utility” mentioned in the law is simply the end that would be given up as a result of the loss of a unit (a horse in this case). Within this context, the law is obviously true. However, it applies only in the case where there is a “supply of a good”, defined to be a homogeneous group of units “equally capable of rendering the same service to the actor”. Hence, in the example, the six horses would be a “supply” if they were all interchangeable. If one follows the deduction all the way through, though, one must conclude that there really is no such thing as a “supply of a good”. No two goods are completely interchangeable or homogeneous; to act or think as if they were is often useful, but does not follow logically. Especially since the valuations of any particular good are subjective, it would actually seem to fly in the face of the logical framework to suppose that any two goods should even have the same label, let alone be considered homogeneous or interchangeable. The fact that we think of, say, horses as being relatively homogeneous is the result of a sort of intuitive shorthand, one that is usually useful and rarely leads to difficulties, but not one necessitated, or even condoned, by pure logic.

In other words, the Law of Marginal Utility, at least as developed in the Austrian framework, is (more or less, depending on how serious my other critiques of the Austrian methodology are) valid and true, but totally inapplicable to the real world. After all, we can conceive of homogeneous groups, to which the law would be applicable, but in the real world such things do not, strictly speaking, exist, so the law is only vacuously applicable to “supplies of goods” consisting of a single unit.

Another problem I have with the Law of Marginal Utility is that, as presented, it seems useful, but that’s really only because the examples are so easy. Obviously, in the case of six interchangeable horses doing six different jobs, applying the law is easy. But what if those six horses are doing twenty different jobs? Then each is doing multiple jobs, perhaps in pieces. When the man has to give up one horse, it isn’t necessarily just a matter of cutting the three lowest-rated jobs; instead, the man must rate the combinations of jobs and choose to cut the lowest-rated combination that can be done by five horses.

To consider a simple example, perhaps there are three ends that I value as follows: I value A over B and B over C. There are cases where this may not be transitive (i.e. I may actually prefer C over A), but we need not get into that case. Instead, simply consider the case where I must cut some of my factors of production, meaning I can no longer accomplish all three ends. Suppose also that, although, individually, I rate A over both B and C, I prefer the combination of B and C to A alone. Hence, if I can still accomplish both B and C with my remaining goods, it will turn out that A is actually the relevant marginal utility of the supply, even though it occurs at the top of my scale of preferences.

In other words, for any given scale of preferences, I must have a meta-scale of preferences, rating each of the combinations of preferences. This, then, is the relevant scale for consideration in the Law of Marginal Utility. Of course, logically, there is no reason to stop at this level. I would also have a meta-meta-scale, and a meta-meta-meta-scale and so on. Since at each level I am strictly increasing the cardinality of the list, this presents a serious problem. In the basic example just explained, I have three things, A, B and C, on the original scale of preferences, but 6 combinations on the meta-scale, and then 720 meta-combinations on the meta-meta-scale.

Given the discussion above that even the original scale of preferences may well be uncountably infinite, we see that, although not at a logical impasse, we are at a pretty severe practical impasse. The only way to get around this problem, which I would emphasize derives logically from the original axiom, is to take an intuitive approach.

This, ultimately, is the point I hope the reader draws from this little exposition: Austrian deduction depends fundamentally on intuitive, inductive and even empirical reasoning in order to arrive at its conclusions. It only provides meaningful results because it is not strictly deductive. As I’ve tried to show, even simple results have this dependence. This is easy to overlook, as our own thoughts are shaped so strongly by intuition, but it is, to my mind, an almost devastating critique of the formal deduction of the Austrian methodology. I readily admit the possibility that I am wrong or that Rothbard addresses these issues later in the book; if so, then I apologize for expostulating before having read the entire book.

February 14, 2004

Actual Scholarship

Posted by shonk at 02:50 AM | permalink | 1 comment

Over the last couple days, I’ve been doing a lot of work and a lot of reading, but not very much writing. I hope you’ll excuse me for merely providing links to two very thought-provoking articles. If you have the time, I strongly recommend reading both. If you only read one, I would encourage you to read the second (especially you law school types). And yes, it’s a complete coincidence that both are written by professors at George Mason.

“Why I Am Not an Austrian Economist”, by Bryan Caplan.

“The Myth of the Rule of Law”, by John Hasnas.

An excerpt from the Hasnas article:

If four generations of jurisprudential scholars have shown that the rule of law is a myth, why does the concept still command such fervent commitment? The answer is implicit in the question itself, for the question recognizes that the rule of law is a myth and like all myths, it is designed to serve an emotive, rather than cognitive, function. The purpose of a myth is not to persuade one’s reason, but to enlist one’s emotions in support of an idea. And this is precisely the case for the myth of the rule of law; its purpose is to enlist the emotions of the public in support of society’s political power structure.

People are more willing to support the exercise of authority over themselves when they believe it to be an objective, neutral feature of the natural world. This was the idea behind the concept of the divine right of kings. By making the king appear to be an integral part of God’s plan for the world rather than an ordinary human being dominating his fellows by brute force, the public could be more easily persuaded to bow to his authority. However, when the doctrine of divine right became discredited, a replacement was needed to ensure that the public did not view political authority as merely the exercise of naked power. That replacement is the concept of the rule of law.

People who believe they live under “a government of laws and not people” tend to view their nation’s legal system as objective and impartial. They tend to see the rules under which they must live not as expressions of human will, but as embodiments of neutral principles of justice, i.e., as natural features of the social world. Once they believe that they are being commanded by an impersonal law rather than other human beings, they view their obedience to political authority as a public-spirited acceptance of the requirements of social life rather than mere acquiescence to superior power. In this way, the concept of the rule of law functions much like the use of the passive voice by the politician who describes a delict on his or her part with the assertion “mistakes were made.” It allows people to hide the agency of power behind a facade of words; to believe that it is the law which compels their compliance, not self-aggrandizing politicians, or highly capitalized special interests, or wealthy white Anglo-Saxon Protestant males, or _______________ (fill in your favorite culprit).

But the myth of the rule of law does more than render the people submissive to state authority; it also turns them into the state’s accomplices in the exercise of its power. For people who would ordinarily consider it a great evil to deprive individuals of their rights or oppress politically powerless minority groups will respond with patriotic fervor when these same actions are described as upholding the rule of law.

Consider the situation in India toward the end of British colonial rule. At that time, the followers of Mohandas Gandhi engaged in nonviolent civil disobedience by manufacturing salt for their own use in contravention of the British monopoly on such manufacture. The British administration and army responded with mass imprisonments and shocking brutality. It is difficult to understand this behavior on the part of the highly moralistic, ever-so-civilized British unless one keeps in mind that they were able to view their activities not as violently repressing the indigenous population, but as upholding the rule of law.

The same is true of the violence directed against the nonviolent civil rights protestors in the American South during the civil rights movement. Although much of the white population of the southern states held racist beliefs, one cannot account for the overwhelming support given to the violent repression of these protests on the assumption that the vast majority of the white Southerners were sadistic racists devoid of moral sensibilities. The true explanation is that most of these people were able to view themselves not as perpetuating racial oppression and injustice, but as upholding the rule of law against criminals and outside agitators. Similarly, since despite the . 60s rhetoric, all police officers are not “fascist pigs,” some other explanation is needed for their willingness to participate in the “police riot” at the 1968 Democratic convention, or the campaign of illegal arrests and civil rights violations against those demonstrating in Washington against President Nixon’s policies in Vietnam, or the effort to infiltrate and destroy the sanctuary movement that sheltered refugees from Salvadorian death squads during the Reagan era or, for that matter, the attack on and destruction of the Branch Davidian compound in Waco. It is only when these officers have fully bought into the myth that “we are a government of laws and not people,” when they truly believe that their actions are commanded by some impersonal body of just rules, that they can fail to see that they are the agency used by those in power to oppress others.

The reason why the myth of the rule of law has survived for 100 years despite the knowledge of its falsity is that it is too valuable a tool to relinquish. The myth of impersonal government is simply the most effective means of social control available to the state.

February 12, 2004

Deregulating the Airwaves

Posted by shonk at 04:15 AM | permalink | comment

Unfortunately, I don’t have time to comment on this, but I thought I would pass along the link: “Why airwaves should be deregulated”

February 10, 2004

Politics on Drugs

Posted by shonk at 12:41 AM | permalink | 6 comments

In a very thoughtful article in Wired, “Stop Making Pills Political Prisoners”, Lawrence Lessig addresses the following issue: many people in poor countries are dying because the drugs that could save their lives are too expensive.

This behavior outrages many in the developed and developing worlds alike. How can drug companies be so callous? How can they deny medicine to millions just so they make more money?

The pattern also puzzles economists. Patents give drug companies monopolies over their products. The rational strategy for a monopolist is to price-discriminate, to charge more in places that can afford it and less in places that can’t. For example, with price discrimination, it would make economic sense to charge Africans practically nothing for drugs sold in Africa, as long as the same product could be sold in the US for lots more.

So what’s the problem? Why doesn’t this sort of benign price descrimination result in cheap drugs for the third world? As Lessig notes, arbitrage is a problem, but not an impossible one.

Another reason is more intractable: the grandstanding politician. If big pharma price-discriminates rationally, it guarantees the following query from some representative in some committee hearing: “How come a hospital in Lagos spends $1 for this pill, but the local Catholic hospital in my district must pay $5,000?” And, of course, in the Inquisition that is congressional testimony, there is no effective way to answer such a question. Graphs about monopolies and proofs about the benefits of price discrimination don’t get you far on Capitol Hill. The rational drug company thus expects that rational price discrimination would lead to irrational price control - and the end of the ability of big pharma to earn enough from high-paying countries to support the cost of developing drugs.

Yet again, we see the justification of the equation

rational ignorance + public choice = massive suffering

It is quite rational for the politician to be ignorant of the beneficial side effects of price discrimination; after all, his overriding priority is to get re-elected, and the people in Lagos aren’t casting ballots in Congressional District 3 (hence the public choice part of the equation). Now, one might well argue that a congressman has no duty towards the people dying in Lagos. Be that as it may, the simple fact of the matter is that the hypothetical drug company being discussed will charge a profit-maximizing price in as many places as it can, so the politician is really doing his constituents no good by grandstanding about the price-discrimination. The net effect is that everybody (except the politician) is the same or worse off than they would be otherwise.

Just to make things perfectly clear, I would just like to point out that, although the proximate cause of unneccessary suffering and death in Lagos is, as the anti-globalizationists point out, the greed of big corporations, the ultimate cause is, in fact, the self-serving state. By which I mean to say that, indeed, the reason cheap drugs aren’t widely available in the third world is exactly because it’s not profitable for the pharmaceutical corporations, which have profit as their number-one priority. However, the reason offering cheap drugs to the third world isn’t profitable (at least in this scenario) is not because of “market failure”, stunted morality or any of the standard reasons, but rather because of the perverse incentives created by state action. And not just malicious state action, either: as I’ve pointed out, the politicians who would potentially intervene and try to stop price discrimination are not acting irrationally, given their incentives, nor are they actively trying to screw over the third world. I’m not a fan of corporatism, but I do feel sorry for those in charge of big corporations who get the blame for the problems in the third world when the blame rightfully lies at the feet of the same people who have managed to hoodwink the public into believing that they offer a solution. That Which is Seen, and That Which is Not Seen, indeed.

At this point, it seems appropriate that I insert a caveat. I’m not trying to justify the patent system in this post, as anyone who is a frequent reader is probably aware. Rather, if patents are going to be enforced, it seems to me that they ought to be enforced consistently. That is to say, part of the justification for patents is precisely the sort of beneficial price discrimination being discussed, since the arbitrage hurdle is more difficult to clear absent a legal monopoly (by arbitrage, I mean someone buying pills in bulk for a buck in Lagos and then selling them for a fraction of the $5000 price tag in New York), so it simply makes no sense to justify the patent system on one hand with beneficial price discrimination while effectively never allowing that price discrimination to take place.

February 05, 2004

Playing by the Rules

Posted by shonk at 11:31 AM | permalink | comment

Over at Old fishinghat, Bill Russell responds to John Edwards’ South Carolina victory speech :

The other problem I have with Edwards is that he likes to characterize the poor in America as typical Americans, who play by the rules, but get the shaft. One might ask the question to Edwards, what are the rules that one should play by avoid poverty in America?

I would argue that the rules for a fair society would be that anyone who completes high school, has children only while married, and works full time should not be poor. How do Americans who play by these rules do?

- Of workers who work at full time jobs, at least fifty weeks a year, only 3.3% live below the poverty line.
- Of all workers who have only completed high school, only 5.8% of them earn income below the poverty line.
- Of all children, 5.6% of those living with married parents are poor compared to 26.4% of those living with single mothers.
- For families where the parents are married, and both work, only 1.4% or 374,000 live below the poverty line.

In the comments, Joe J. adds “Furthermore, to characterize the very small percentages of below poverty line individuals in your examples, it should be noted that their is a high probability that their poverty is a transitory condition.”

February 01, 2004

Why the Rich Fear Globalization

Posted by shonk at 03:40 AM | permalink | comment

After finishing up The Ball and the Cross this evening, I spent some time catching up on some old posts scraped by my aggregator and came across a post at AnarCapLib that linked to an Indian article on “Why the rich fear globalisation”. I was reminded, of course, of Curt’s recent post and the linked Wired article about outsourcing to India. One of the points made in that article stood out:

What begins to seep through their well-tiled arguments about quality, efficiency, and optimization is a view that Americans, who have long celebrated the sweetness of dynamic capitalism, must get used to the concept that it works for non-Americans, too. Programming jobs have delivered a nice upper-middle-class lifestyle to the people in this room. They own apartments. They drive new cars. They surf the Internet and watch American television and sip cappuccinos. Isn’t the emergence of a vibrant middle class in an otherwise poor country a spectacular achievement, the very confirmation of the wonders of globalization - not to mention a new market for American goods and services? And if this transition pinches a little, aren’t Americans being a tad hypocritical by whining about it? After all, where is it written that IT jobs somehow belong to Americans - and that any non-American who does such work is stealing the job from its rightful owner?

In “Why the rich fear globalisation”, Surjit Bhalla makes something of a similar point:

The leaders and operators of the anti-globalisation movement are the formerly colonising rich whites, who, as per their heritage, need non-white intellectuals as their disciples and followers.

Fundamentally, Bhalla’s argument is based on the following simple observation:

During the twenty years pre-globalisation period (1960-1980), per capita incomes in the poor world grew at 2 per cent per annum compared to the rich industrialised world’s growth rate of 3.4 per cent i.e. the poor world grew at a considerably slower rate.

In the globalisation period (post 1980), the poor countries began their long march towards catch-up. In sharp contrast to the previous 20 years, the fortunes were exactly reversed —the poor economies registered a growth rate double that experienced by the rich countries - 3 per cent per annum compared to the rich countries considerably slower growth of 1.5 per cent per annum. And the poor in the two poorest countries, India and China, saw their incomes increase at an even faster pace — above 5 per cent per annum for over 20 years.

Coincidence? Maybe, but I suspect not. The “intellectual” vanguard of the anti-globalization movement may or may not be motivated by a different sort of “intellectual vulgarity” (to use Curt’s phrase), but the rank-and-file of the anti-globalization movement, the people that make it something to be reckoned with are more likely, I suspect, to fit the profile of the Pissed-Off Programmer described in the Wired article, people motivated not by a desire to actually help those in the third world, but rather by their own pocketbook. Which I can certainly understand, but spare me the platitudes.

January 31, 2004

Dammit, I Should Have Thought of That

Posted by shonk at 01:17 AM | permalink | comment

In keeping with a recent theme around here (and to sustain the incestuous Trackback cycle), I want to point out another disturbing IP-related development (link courtesy Catallarchy):

Do you know about United States Patent No. 6,671,714? You should. The patent, recently granted to one Frank Weyer of Beverly Hills, California, grants the patent holder full rights to: A method for assigning URL’s and e-mail addresses to members of a group comprising the steps of: assigning each member of said group a URL of the form “name.subdomain.domain”; and assigning each member of said group an e-mail address of the form “name@subdomain.domain; “Sound familiar? Well, it should, because the patent describes what is essentially one of the most basic, most crucial underlying structures of the World Wide Web, namely the domain naming system.

On January 17, 2004, Meyer brought suit against Internet heavyweights Network Solutions, Inc. and Register.com, claiming the two services are infringing upon Meyer’s newly-granted patent. In the suit Meyer claims damages of an unnamed amount and requests an immediate injunction against the two companies. Meyer states that he hopes to “work with” NSI and Register.com to license his patent. NSI and Register.com don’t seem to be cooperating thus far, however.

Let’s just say this whole patent paradigm needs to be rethought.

January 28, 2004

And now for something actually pretty similar

Posted by Curt at 08:11 PM | permalink | 4 comments

It’s interesting, because I stumbled across a somewhat related article in the same issue of Wired, this one about outsourcing to India. Of course, everyone knows the essence of the issue, even the protectionists seem to have largely abandoned any pretensions to rational argument, and indeed the intellectual vulgarity of their argument is rather breathtaking even if, like me, one never really accepted the notion that any real transformative evolution in anything other than a rhetorical sense has occured in American attitudes since the end of our official political isolationism (more or less) 60 years ago. The obvious inevitability of this economic internationalization almost disappoints me, for the protectionist delusions hardly even seem to need the shattering. The other striking feature of the article is the truly invigorating effect of unabashed bias and even, gasp, argumentation on the part of the writer of an ostensibly investigative article. Of course, it surely helps that I agree with the agenda that the writer is advancing, but even the remaining fervent supporters of “objective” reporting cannot fail to notice how much more exciting and stimulating is an interview in which the interviewer begins arguing with the interviewee and confronting her with the intellectual fatuousness of her position, rather than simply docilely accepting the warring soundbites of ideological opponents and then juxtaposing them without comment. It seems to me that comprehension of most issues of this sort is fundamentally dialectical, and one needs to get a feel for the arguments and counter-arguments in order to actually understand the issue. This is the great failing of the journalistic philosophy of superficial objectivity. That is why I so enjoy posting on this site—instant feedback. However, in this case, I hardly feel that this particular argument even requires that effort: economic protectionism is entirely intellectually indefensible from any perspective. I detect a strong note of pity in the author’s description of the anti-outsourcing activists.

Intellectual Property and Cargo Shipping

Posted by shonk at 11:34 AM | permalink | 1 comment

I don’t mean to flog what for most of you is probably already a dead horse, but I just wanted to point out this Wired article comparing the prevailing attitude among the big IP industries to that which basically destroyed the the US cargo shipping fleet in the 1970s. Be sure to read the whole article, but here are the concluding two paragraphs:

There’s still time to avoid the shipping industry’s fate: American IP owners can stop demanding maximum and extreme protections. The US Patent and Trademark Office can stop taking a head-in-the-sand approach - last summer it strong-armed the World Intellectual Property Organization into canceling a discussion on open source projects - and instead use the WIPO to forge a global policy that works for all nations.

By taking a flexible approach to IP, companies could capitalize on the next wave of innovation rather than shirk from it. But wait too long and this ship will have sailed.

December 29, 2003

The revolution will hopefully be televised

Posted by Curt at 05:58 PM | permalink | comment

If you haven’t already, check out this interview with Johan Norberg, who recently published “In Defense of Global Capitalism.” There are no new arguments in refutation of anti-globalization activists here, but Norberg seems to be exceptionally talented at articulating them in a way that many economists seem unable to do. Because of his young age (30), and roots in left-wing anarchism, which surely ought to give him credibility with his intellectual opponents, he could be an extremely effective spokesman for an eminently defensible intellectual position, and I hope that his book gets wide attention in America. My favorite quotes from the interview:

“The broader an economy is, the more wealth and income are spread around. The best thing that could happen to the Arab world would be for them to run out of oil. Then they’d have to open up to trade…”

“The most vocal opponents of globalization in poor countries are often funded by critics from wealthier countries…There are the old groups that have always been scared of foreign competition. Corporations that wouldn’t be able to beat competition from other countries are one of them. In the U.S., that includes the textile industry, which has funded a lot of the anti-sweatshop propoganda. You see the same thing when it comes to unions that are trying to educate people against free trade…”

“People are dying because we in the West are unwilling to change and to actually live by the free-market rhetoric we often spout…it’s not merely developing countries that lose out by these policies. We do, too…Agricultural subsidies cost something on the order of $1 billion a day in Western countries.”

I think especially acute in Norberg’s contention that the real economic legacy of colonialism is not a depletion of the resources in former colonies but rather a concentration of political power in areas of high resource wealth, which has the effect of uniting political power and wealth in a marriage as unholy as that between church and state (although the strength of the agricultural and industrial lobbies in the U.S. shows that it is not an entirely foreign affliction). In his view, areas poor in natural resources have generally become much wealthier through diversification.

In general, then, I find Norberg to be a very hopeful voice of reason. That said, I can anticipate several weak points in his argument, which ought to be resolved. I appreciate his understanding that economic modernization cannot proceed without passing through the industrialization-smokestack-sweatshop period, which globalization critics do not seem to recognize in their false dichotomy between the developed world and some mythological bucolic pre-industrial society with fauns scampering through the forest, and I can appreciate the point that many environmentalists seem motivated not just by a desire to preserve nature but by a hatred of modern life, but he does not seem terribly conscious that, while it is true that pre-industrial life included much more starvation, disease and death than our world, there have nevertheless been losses and sacrifices in the “progress” of civilization. It seems to me pretty clear that there is a certain tendency to abstraction and rootlessness in the modern world, which I find to be the most troubling elements of life now, and unless one really engages oneself with these issues deeply, then little work can be made to the enrichment of human life in those areas without the loss of all the other positive aspects of material well-being which have come to be in the last couple of centuries.

On another point, while he calls the WTO “the free-traders’ deal with the devil,” he nevertheless admires its ability to “lock in” nations to international trade. But if the benefits of free trade are so apparent, why would nations need to be compelled to engage in it? In any case, how does the WTO bind the nations to trade freely any more than the UN binds nations to remain peaceful? If their first protectionist urge is to withdraw from international trade, how does excluding them from it put any effective pressure on them? And aside from all that, why should anyone be more interested in engaging nations in free trade at the governmental level rather than at the buyer-and-seller level?

And lastly, while I am aware that Norberg’s expertise lies in economics rather than religion, his argument that Muslims might have an easier time of liberalizing their societies economically than Christians because Muhammed was more supportive and favorable towards trade and the amassing of wealth than Jesus, while intriguing, I find to be a pretty thin and tenuous line of reasoning. It may be somwhat overly univeralist of me to say so, but if the vicissitudes of fortune of the Orient and the West teach us anything, I think it should be that the fortunes of a civilization generally have little to do with its specific religious dogmas, which according to Norberg himself, as an advocate of the separation of religion from public life, is as it should be. And of course anyone following events of the last six months or of the last century will be amused, if sadly, by his contention that “Europe figured out ways of having different beliefs without slaughtering one another.” Anyway, these are all mostly quibbles, although important ones to address in order to bolster a substantially very valid and convincing point of view.

December 22, 2003

Ski Areas

Posted by shonk at 03:41 AM | permalink | comment

Although I’ve been skiing the last couple of days, I have devoted a couple of moments to serious thought. Specifically, I’ve been thinking about the economics of a ski area and whether the ski area model is a good one or not. So far as I understand it, at least in Colorado, most of the ski areas are actually on national forest land leased from the National Park Service. For example, Breckenridge, the area I’ve been skiing at, is in the Arapaho National Forest and is run by Vail Resorts, which also runs Vail, Beaver Creek and Keystone.

Now, what’s interesting to me about the way in which ski areas are operated is not so much the leasing aspect, but rather the way in which ski areas make money. The most obvious way is by selling lift tickets. Now, what’s interesting about a lift ticket is that it is precisely what the name would imply: a ticket which allows one to use the chairlifts on the mountain. What isn’t so obvious is that you are not required to have a lift ticket in order to use the mountain; in fact, you will often see snowshoers climbing up the mountain, presumably without a lift ticket. If one had the desire (and stamina), one could even ski the mountain without buying a lift ticket, so long as one walked back to the top instead of riding the lift. In other words, the ski area does not make money by claiming ownership of a particular piece of land and then charging people to use that land (remember, the ski area does not, technically speaking, even own the land), but rather by charging people for the privilege of using the value they have added to the land (in the form of ski lifts). Hence, in a sense, the ski area is a departure from the landowner/renter relationship that many on the left (along with the Georgists) find fault with.

Okay, so that’s not exactly earth-shaking, nor is it very well-researched. But I thought it was an interesting observation, another example from the multitude of ways in which organizations can be structured and land-use relationships can be realized.

November 16, 2003

The New Twenty

Posted by shonk at 03:30 AM | permalink | 1 comment

Today, for the first time, I saw one of the new twenty-dollar bills that have been so heavily advertised. I have to admit, I was somewhat underwhelmed. Though the bluish eagle in the background was a bit of a surprise, the bill still looks remarkably similar to the old ones, despite all the hue-and-cry about the "radical" new design.

As for security features, here are the ones I've noticed:

-The blue background eagle

-The blue "Twenty USA USA Twenty" script behind the Treasury Department Seal

-The Watermark

-The color-shifting ink on the "20" on the bottom right

-The color-shifted silver eagle crest directly to the right of Jackson's shoulder

-The micro-printed "The United States of America 20 USA 20 USA" between the bottom-left "20" and Jackson's shoulder

-Higher relief in the serial number pressings

-The concentric hexagons in the background of the green-shaded areas

-The now-familiar security strip

-The oft-repeated malarial-yellow "20" to the right and left of the White House on the back

-The diamond-shaped lattice pattern in the bottom-right "20" on the back

-The green and red "threads" throughout

-Two textured, grooved patches on the bottom center of the back

I'm not actually sure if this last is an intentional security feature or just an accident, but these grooved patches appear on both of the bills in my possesion, so I'm assuming they are.

Long as this list is, I'm not sure how much these features (some new, some old) will do to discourage counterfeiting. How closely do store clerks really look at bills, anyway? I've never seen one looking for the watermark or security thread, though they've been on twenties for years, so I don't imagine that is likely to change (though it could be reasonably argued that, were a major counterfeiting scare to hit, people would start looking for these things). As Dennis Forgue says:

Everything they've done before has been superseded by better counterfeiters. With the effectiveness of computer-generated images these days, they can make some pretty nice counterfeits pretty quickly.
And that's likely to be more than good enough in the vast majority of cases.

Another objection is the following: sure the new features look impressive when they're on a brand-new bill, but how noticeable will they be on a faded, year-old bill? It seems to me the true test of effectiveness for stopping counterfeiters comes with age, as smart counterfeiters surely realize that, economies of scale (and withholding) being what they are, their best bet is not in trying to pass inferior new-looking bills, but in passing faded and nondescript-looking phonies. There's some literal truth to the term "laundering money".

Of course, one really has to wonder if the threat of counterfeiting is really significant enough to justify what was presumably a multi-million-dollar development process (and the $32 million price tag on the advertising campaign). Based on the U.S. Bureau of Engraving and Printing's own figures, "the level of counterfeit notes in circulation worldwide [is] between 0.01 and 0.02 percent, or about 1-2 notes in every 10,000 genuine notes."

Balanced as I'm trying to be in all of this, I can't help but laugh at amount of effort being extended in the ironic attempt to prevent the counterfeiting of an already counterfeit currency (that's fiat currency to you economists). But, then, I'm cynical like that.

Conspiracy-theorists will be pleased to note that you can do the same folding trick on the new twenty as on the old to see supposed images of the Pentagon and the WTC going up in flames. Clearly a sign of...something.

November 14, 2003

The Shape of Debates to Come

Posted by Curt at 03:05 PM | permalink | comment

In the hawing about the differences between the American and French economies in terms of the cost-benefits of regional living costs and options, individual capital value and otherwise more or less entirely missing the point, those who talk without breathing always fail to decide whether striking constitutes the sexiest form of labor relations.

October 26, 2003

Schnezhanka for All

Posted by shonk at 02:56 AM | permalink | comment

For those that think globalization is approximately as reprehensible as child-molestation, I give you the case of KFC and its scrumptious schnezhanka.

September 26, 2003

Those old tenured playboys

Posted by Curt at 04:45 PM | permalink | comment

Just one two final thoughts for today, but my brother is doling out such irresistable topics, and I couldn't contain this in a little comment post. For one thing, the preposterousness of the acclaim accorded to celebrities is not confined to athletes nor to the present day. Leave Hollywood aside for the moment; just think of Descartes, most trenchantly described by one of his biographers as a "parasite on his family." One could probably make a universal claim about the inversion of our values in according fame and prestige, but that doesn't interest me all that much. Much more interesting and amusing to me is that people who spout off that old saw about teachers and athletes rarely mention that only a miniscule proportion of athletes are millionaires, probably only those competing in less than 20 leagues in various sports worldwide. One way of re-imagining the teacher-athlete dichotomy, in fact, would be to note that the worst teacher makes far more than the worst professional athlete. Aside from those privilaged few in the MLB, NFL, NASCAR, et al., professional athletes in general would probably be hard-pressed to match even a grade-school teacher's wage, let alone that of a tenured professor. Of course, the principal difference lies in the fact that sports leagues have a substantially differentiated pay-scale based on achievement, which stands in stark contrast to the educational system, except insofar as being a member of a teacher's union constitutes an achievement. But oh wait, I was forgetting about those tenured professors. Colleges engage in bidding-wars for celebrity professors just as fierce as those of squabbling European soccer clubs. In fact, I would be willing to bet that Stephen Hawking, Cornell West, Stephen Jay Gould, etc. have a higher income than all but a handful of professional athletes, but interestingly I have never heard a hew-and-cry against Harvard for paying West, who probably teaches only one class a year, if that, six times the salary of an elementary school teacher in D.C. working 50-hour weeks.

September 24, 2003

A killer idea

Posted by Curt at 01:50 AM | permalink | comment

Screw "Seeing Paris on a budget" or whatever the latest tourist guide-book trend is. I want to write guidebooks for the world's great cities entitled "Seeing _______ while hungover." Since this is the manner in which a substantial number of the world's tourists experience the cities which they are visiting, it opens up a whole wealth of information which standard guidebooks only address in an offhand or accidental way: what cities have the least and the most offensively blaring lights? Which have the traffic most likely to hit you while you lurch across bridges and so forth? Which have metros with directions utilizing at least three different senses for the temporarily impaired? Venice, for example, is a beautiful city to visit but a wretched one in which to go drinking (as I know all too well). It is not only because a rum-and-coke costs $6 there, but also because of the total lack of any form of transportation other then one's feet, the byzantine and identical-looking alleys throughout the city with no directions posted anywhere and the distant-yet-constant risk of falling in a canal. Anyway, this is what I think people really ought to know, because the somewhat fuzzy scenery of the disheveled faces of unemployed ex-deodorant testers staring incredulously at them while they lie prone outside "Les Deux Magots" is probably the sight they will come to know best. This may not be a profitable idea for me as the drunken expatriates wandering through the backalleys of the world's great cities are probably the least likely people on earth to solicit anyone's advice, let alone in guidebook form.