Archive for the 'Economics' Category

The genealogy of envy

The rulers of North Korea flail their domain like little demon kings, but for what? I’ve read that DVD players and vacations abroad remain exclusive privileges of the ruling class there. DVD players and vacations abroad!? That places them where, in the lofty company of the top 70% of Americans? Sure, Kim Jong-Il might have a couple of billion tucked away somewhere, but he’s squeezed the tube about as hard as one possibly can, driven half the population to the brink of starvation, so there can’t be much more to be had. Compare that to the commercial magnates of the outside world, some of whom have much greater wealth and almost limitlessly greater potential to gain more. So it’s not exactly a trade-off between personal gain and suffering for everyone else. It seems more like collective suffering, where even the rulers stand to lose from their oppression.

So from an economic sense it appears utterly perverse that the rulers themselves shouldn’t choose to release the vice a bit. Surely they could take the path that China has and contrive to hold on to their DVD’s and overseas holidays at the very least, and improve the lives of so many others. And as China proves, going that route there is not even a very big chance that they would all wind up hanged as war criminals. So why not change? Perhaps there’s something repulsively appealing to them about being so much better off than all those around them, which would not be possible in the comparatively greater equality of an open society even if they were richer.

Such an impulse not just to be well-off but specifically to be better off than one’s fellow man might not make sense economically, but it does evolutionarily. Almost every impulse accompanying an evolutionary function can be hoodwinked in a sense, satisfied without fulfilling that function: sex with contraceptives intentionally blocking conception, the offspring-nurturing impulse distracted by animals or adopted children (though these might not be wholly evolutionarily non-productive). Evolution is in its deepest grasping heart comparative (or I suppose “positional” is the currently fashionable term), actuated on being better off than everyone else in one particular sense. Why is it unreasonable to suppose that the mania for being #1 might lead to a situation, like in North Korea, where mercilessly guarding one’s own preeminence causes everyone to suffer materially? Or maybe it’s even evolutionarily adaptive, since the very specific sense in which evolution favors primacy lies in having the most offspring (actually it’s more about creating the maximum number of copies of DNA, but that distinction is not terribly important here), and even if the rulers of North Korea are not nearly as rich as the wealthiest non-North Koreans, in a society where the only possible path to a half-decent existence for oneself and one’s family and children runs through them their reproductive opportunities, to put it very crudely, are probably quite plentiful.

And yet so many thinkers continue to either ignore envy and the desire for preeminence as a fundamental human trait or pander to it. Strange that the free-marketers who generally pride themselves on their realism in acknowledging the self-interest and greed of humanity should so often dismiss the evidence of its enviousness, or at least the implications this has on, for example, their tolerance of income inequality. And as for those who believe envy worthy of being propitiated for its own sake… Envy cannot possibly be sated on a society-wide scale. It’s self-contradictory. And in a way, those that think it can be by, for example, imposing economic inequality are just as dismissive of the basic reality of envy as the others. Because how logical is it to think that the desire to be better off than others can be satisfied precisely by denying anyone the ability to be better off than anyone else?

Finally putting that econ class to use

Via TeleRead I see that the One Laptop Per Child (OLPC) project is inching ever closer to reality. For those that haven’t been keeping up, OLPC is a non-profit headed by Nicholas Negroponte, the founder of M.I.T.’s Media Lab. Originally known (at least colloquially) as the “M.I.T. $100 laptop project”, the OLPC’s goal is to produce cheap laptops to sell to third-world governments so that they can give them to poor kids.

Which is a fine idea. The American public schools are a joke, but American kids still have a leg up on third world kids in that they’re familiar and comfortable with computers and networks. Since such familiarity is an absolute necessity for success in the modern marketplace, giving third world kids computers ought to be an excellent way to prepare them to succeed in that marketplace. Of course, one could certainly make the argument that there are more pressing priorities in the third world which could be solved more cheaply and straightforwardly. Maybe so, but M.I.T. computer geeks probably ought to stick to their area of specialty rather than trying to tell people how to produce potable water or whatever Moreover, if that’s your goal, laptops are better than desktops because kids can take them to school and bring them home at the end of the day, rather than having to (perhaps fancifully) hope that their favorite desktop in the computer lab will still be there and functional the next day. Also, since electricity tends to be iffy in the third world, something that can run on battery at least part of the time is a necessity.

Anyway, the point is that I am, more or less, a fan of the OLPC project and wish them well. One aspect I’m not a fan of, though, is that they seem only to be interested in producing cheap laptops to sell to third-world (and therefore, practically by definition, corrupt) governments on the wishful premise that those governments will then give the laptops to malnourished but cute and bright-eyed kids. The key word in the above sentence being “only”. The OLPC doesn’t seem to have much interest in selling their laptops (current expectation is that they’ll cost about $130) to consumers, either in the first or the third world.

Which is, I submit, not very bright. Now, I understand they want to primarily devote production to third-world kids, but why not mark the things up to $150 or so, There is some talk on the OLPC website about selling their laptops to the first world for three times the price, but that’s a non-starter: for $400 one can buy either (a) a real computer with a hard drive, four times as much RAM and a bigger monitor or (b) a Nokia 770 which is in the same performance ballpark but a fifth as big. sell ’em to people like myself who’d be willing to spend $150 for an essentially disposable laptop and apply the profits towards giving computers to kids in countries which can’t even afford $130 computers? Actually, to put it more strongly, this isn’t a case of “Why not?” so much as “How could you not?” because if you don’t there are plenty of opportunistic types who will recognize an arbitrage opportunity and divert these laptops from their intended recipients to the grey market (to re-iterate: the plan is to sell cheap laptops to third-world governments which are, practically by definition, corrupt. What could possibly go wrong?). So if you don’t sell the laptops to the first world directly, the first world will just buy the laptops off the poor kids you’re making them for.

The OLPC recognizes that this could be a problem, but doesn’t seem to have figured out that the (rather simple) solution is to sell to consumers at a markup which is big enough to make it worthwhile financially while small enough to make buying on the grey market from corrupt governments unattractive. Econ 101, one would think.

Speaking of economic fallacies, I meant to post a while ago about Warner video competing with pirates by offering “The Aviator” DVDs in China for $1.50. Well, that’s not the economic fallacy. In fact, it’s a pretty intelligent business strategy, almost certain to be more effective than trying to get China to enforce any semblance of copyright law.

No, the fallacy lies with how the digerati responded to this news. You can see a sampling at the bottom of the above article in the “Blog community responds” section, but Real Tech News’ Michael Santo gives a typical reaction:

Hey, if it’s a question of the plastic DVD case costing me the extra $10 – 20 that I would pay for this video in the U.S. (depending on where I get it), sell it to me without it. I mean, half the time I replace the case with a better one (aftermarket) anyway. As far as the quote in the article of “a move likely to anger consumers in developed markets?, they’ve already got one such angry consumer — me.

Don’t hold your breath, buddy. DVDs are expensive because the studio has to recoup its expenses incurred from (a) making the movie (i.e. actor salaries, production costs, etc.) and (b) promoting the movie. The cost of the actual, physical DVD and its packaging is negligible. That being the case, by the time the studio is selling DVDs of a movie, all of its major expenses are sunk costs, meaning that it’s worthwhile for the studio to sell DVDs for any price above manufacturing and distribution cost. Obviously, the studio wants to charge as a high a price as possible, but the phrase “as possible” has different meanings in China and in the U.S. In China, where high-quality pirated versions of popular movies are readily and cheaply available, $1.50 is apparently as much as the market will bear. Here in the U.S., there are obviously a lot of people willing to spend $20 for a DVD. Thus, differential pricing.

Which is fine for a couple of reasons. First, it may be worthwhile for Warner to sell “The Aviator” in cheap cardboard cases for $1.50 (since the manufacturing and distributing costs are less than that), but a buck and a half a pop isn’t going to make much of a dent in Leonardo DiCaprio’s salary. It’s only because people here are willing to spend $20 for the same DVD that the studio could afford Also, let’s not forget that a successful movie like “The Aviator” has to subsidize all the less successful movies produced by the same studio. to hire DiCaprio as the star and Martin Scorcese as the director in the first place (I won’t argue whether having DiCaprio and Scorcese involved is desirable or not, but obviously a lot of people thought it was).

Second, people in the U.S. are way the hell more affluent than Chinese people. Chinese people can’t afford $20 DVDs; we can. Bitching about having to pay ten times as much for a DVD when you make ten times as much is pretty crass. I know, I know, it’s pretty harmless in this case. Who cares about Leonardo DiCaprio DVDs? But this same crassness is killing people in the third world, so I think it’s still worthwhile to point out.

Everything’s relative

Yesterday Arts & Letters Daily linked to a New Yorker article suggesting that poverty is a relative, not absolute, condition. Which is to say, an attempted rebuttal of the “How poor can you really be if you own a car, a color TV and a microwave?” argument. While I think there’s some merit to this position, I have issues with several aspects of the article.

First, there’s the evidence provided to support this claim: the article cites a British study which found that mid-level civil servants die sooner than their bosses, research by Amartya Sen which found that Indians live longer than African-Americans despite being absolutely poorer, and animal studies suggesting that low-status monkeys are more stressed than their high-status counterparts.

Of course, you can’t directly compare the health or mortality of rich/high-status to that of poor/low-status people and animals; the rich and powerful typically eat better, smoke less, etc. In the case of the British study, the New Yorker article claims that a follow-up study demonstrated that “less than a third of the difference in patterns of disease and mortality can be ascribed to behavior associated with coronary risk, such as smoking or lack of exercise”, which would be a relatively easy thing to check with some regression. Straightforward as that sounds, though, it’s misleading. The one third only applies (assuming the paraphrase is accurate) to coronary risk, but what about other health risks that might correspond to poverty? For example, does the coronary risk associated with smoking also take into account the increased lung cancer risk? What about non-coronary nutritional issues? What about the increased environmental toxicity (and thus cancer risk) of low-income neighborhoods relative to their high income counterparts? What about the (presumable: I know virtually nothing about British health care other than that a lot of people I know say it sucks) lower access to preventative and emergency health care that poor people have? If volitional coronary risks account for one-third of the difference, mightn’t these other factors explain a good chunk of the remainder?

The above isn’t relevant in the case of African-Americans versus Indians, since in that case the richer group dies sooner. The article suggests that African-Americans are dying younger because, although they’re absolutely richer than the Indians they’re compared to, they’re poorer relative to the society that they live in. But the direct comparison is misleading here as well. Being richer in an absolute sense, African-Americans are more able to indulge in a number of activities that are bad for you but (in a global sense) quite expensive: Yes, I’m aware of the disjunction in simultaneously claiming that poor British people engage in more health-antagonistic activities than rich British people and that poor Indians might have healthier lifestyles than the (absolutely) richer African-Americans. But this is at least plausible if not definitively true: vice is, coarsely speaking, a luxury good and both the poor British and African-Americans are, on an absolute scale, quite wealthy and so likely to consume more vice than Indians who are poorer. So why don’t rich Brits consume even more vice? Because, as with many luxury goods, income inelasticity of demand isn’t constant; for the super-rich, vice (maybe) takes on more of the qualities of a normal or even inferior good. Plus, it has to compete with the whole health food/healthy lifestyle thing, which seems to follow a complementary trajectory. drug and alcohol abuse, smoking, a sedentary lifestyle and eating high-lipid foods, among others (only one such, recreational homicide, is addressed in the article). Dietary issues are of special interest, since the majority of people in Kerala (the region of India used for the comparison) are Hindus, meaning that vegetarianism was probably much more prevalent among the Indians in the study (especially since vegetarianism is particularly prevalent among South Indian Hindus) than among the Americans.

That’s not to say the argument that relative status is an important component of wealth (in the broad sense of that word) is completely dead: the animal studies cited are (presumably; I haven’t read them) compelling counter-evidence, as is the argument that you need more than color TV and microwaves to be able to navigate the modern job market. That being said, I also take issue with the statistic cited to cap this section of the article:

Research by Tom Hertz, an economist at American University, shows that a child whose parents are in the bottom fifth of the income distribution has only a six-per-cent chance of attaining an average yearly income in the top fifth. Most people who start out relatively poor stay relatively poor.

This is one of those statistics that sounds impressive but is, absent significant context, almost worthless. First, note the misdirection in the statement: by using “fifth” rather than percentages to describe the income levels, the above encourages a subconscious comparison of 6% to 100% rather than the 20% one would expect in a perfectly meritocratic society in which everyone had completely equal access to education and the job market (a.k.a. fantasyland). Also, counting the numbers of poor who make it to the top fifth is misleading in and of itself, since comparing top and bottom is guaranteed to give the least encouraging picture of income mobility; another measure might test what percentage of the children of the poor end up in poverty themselves: is it 20% (the utopian ideal)? 30%? 50%?

Anyway, these statistical quibbles aside, my more serious objections are to the “solutions” section of the article. The author suggests calculating poverty on a relative basis (set the poverty line at half the median income) rather than–as currently calculated–absolutely (the purported minimum necessary to afford food, clothing, housing, etc.). I don’t necessarily have a problem with that (other than to the extent that setting a poverty line is only relevant if you’re going to give tax-funded benefits to the poor), but his refutation of objections is weak. For example:

Many Americans are skeptical about government anti-poverty programs, because they believe that the impoverished bear some responsibility for their plight by dropping out of high school, taking drugs, or committing crimes. Raising public awareness about relative deprivation could help to change attitudes toward the poor, by showing how those at the bottom of the social hierarchy continue to face obstacles even as they, along with the rest of the society, become more prosperous. The Times recently reported that more than half of black men in inner cities fail to finish high school, and that, nationwide, almost three-quarters of black male high-school dropouts in their twenties are unemployed. “It doesn’t do a poor person any good to say ‘You are better off than you would have been thirty years ago,’ ” Fuchs said. “The pathologies we associate with poverty—crime, drug use, family disintegration—we haven’t eliminated them at all.”

It may just be me, but responding to the notion that many of the poor bear responsibility for their plight by saying that half of inner-city blacks drop out of high school and that three-quarters of those end up unemployed seems pretty non-sensical. I mean, if you drop out of high school despite the fact that three-quarters of the guys in your neighborhood who did the same are unemployed, then it seems to me that your probable future unemployment is, in large measure, your own fault. That’s not to say that a high school diploma (especially from an inner-city high school, where, based on my own limited experience, it seems like you only need a pulse and a willingness to get out of bed every morning to get a diploma) is a guarantee of employment, but neglecting to expend even that minimal amount of effort to make yourself employable seems to almost perfectly embody the responsibility argument that the author so casually dismisses.

Next paragraph:

The conservative case against a relative-poverty line asserts that since some people will always earn less than others the relative-poverty rate will never go down. Fortunately, this isn’t necessarily true. If incomes were distributed more equally, fewer families would earn less than half the median income. Therefore, the way to reduce relative poverty is to reduce income inequality—perhaps by increasing the minimum wage and raising taxes on the rich. Between 1979 and 2000, the inflation-adjusted earnings of the poorest fifth of Americans increased just nine per cent; the earnings of the middle fifth rose fifteen per cent; and the earnings of the top fifth climbed sixty-eight per cent.

The third sentence in the above is only partially true; really, only incomes below the median are relevant to the argument being advanced here. It’s easy to visualize a hypothetical income distribution with vast wealth differentials between the richest and the median, but with nobody earning below half the median: simply cluster the bottom half near the median.

With this picture in mind, it’s immediately apparent that raising taxes on the rich has absolutely no effect on poverty as defined in the article (other than insofar as those tax revenues on the one hand fund welfare programs and, on the other hand, reduce the ability of the rich to employ the poor). In fact, this definition of poverty makes an entirely different tax strategy orders of magnitude more effective: repeal all taxes on everybody who makes more than the median (since their income is irrelevant to what the median actually is) while aggressively taxing those who make between 50 and 100% of the median. Implement this tax regime and pretty soon there will be no poverty under the given definition (of course, as typically happens in such scenarios, the definition would be changed). Sound ludicrous? I guarantee that, if this new definition of poverty becomes the governmental standard, you’ll see more subtle implementations of similar strategies within five years.

But that’s not even the dumbest part of the sentence in which it’s suggested: that honor goes to the suggestion that raising the minimum wage would reduce relative poverty. It’s unbelievable to me that there still people who think raising the minimum wage helps the poor. Of course, some people still believe the earth is flat; what’s really unbelievable is that the belief that minimum wages are negatively correlated to poverty is a common, probably majority view. As pointed out by Matt MacIntosh on Wednesday, it’s common knowledge among economists that raising the minimum wage is bad for poor people. As with many economic truths, this is self-evident if you just think about it. If raising the minimum wage really helps the poor, why not just raise the minimum wage to, oh, $500/hour? In fact, mandating a “living wage” of, say, 50% of the median would, most likely, increase the number of households below that threshold.

Finally, a more general objection: while I do think there’s some merit to the idea that poverty is a relative (as opposed to purely absolute) phenomenon, the argument (especially in context of the dodginess of much of the supporting evidence and, especially, of the purported solutions) strikes me as superfluous (or, perhaps, self-aggrandizing) in much the way that modern Western feminists have made themselves largely superfluous. In both cases, a lesser domestic evil is being subjected to the minutest scrutiny while a greater global evil is largely ignored. After all, no matter how bad relative poverty is, absolute poverty still exists in the world and is unquestionably worse.

Manifold man

A good summary of the current direction of research in behavioral economics is available here. For the most part I think this trend is a pretty valid one in analyzing economic behavior, although for me personally the concept of rational “economic man” is a bit of a straw man, insofar as I always took it to be more of a conceptual ideal than an actual description of the way people behave. And, in addition, it seems to me that it is not just a matter of rationality in many of the examples of “irrational” economic behavior. It seems to me that rationality basically consists of acting and thinking in accordance with one’s goals and values. Obviously one would be inclined to see someone else as irrational for not acting in accordance with one’s own ideas even if they are acting consistently with their own.

Now, if one presumes that increasing one’s own wealth is the basic goal in life, then it is easy to see a whole gamut of common behaviors, from altruism to revenge, as irrational. But I believe that human desires are often a bit more complicated than this, or at least more indirect. Altruism may be inexplicable from a wealth-amassing perspective, but it follows logically from, and in fact is most often necessary to, most ethical systems. And even in terms of pure self-interest the neo-Darwinians have convincingly demonstrated a variety of scenarios in which it is beneficial. Or take the example from the article of people refusing to accept some amount of money from someone else who would take an unfairly larger share for themselves. Maybe from the perspective of wealth some money is better than none, but in terms of social status the accepting party would in a sense be accepting a subordinate position relative to the donor. By refusing the money an equality between the two is maintained, or the refusal could even serve as a bargaining chip to increase their share if negotiation or multiple offers are permitted in the scenario. Thus, in these instances the seemingly irrational behavior could be conducted according to a different set of principles, or they could be ways of seeking out long-term economic benefit beyond the immediate situation. This is not to say that some behaviors are not better than others at procuring economic benefits than others, but it requires a broad, long view to evaluate these. And beyond that, there is a kind of implicit judgment in the word “irrational” that all the behaviors so described are the result of ignorance, prejudice or inferior intelligence, which seems to me to indicate a rather narrow-minded view of human motivation.

Friedman: the advent of the dreaded “-ism”?

Here’s an interesting but weird debate debate between Milton Friedman and the CEOs of Whole Foods and Cypress Semiconductors. On the one hand you should probably read it and draw your own conclusions first, but I would like to give my own interpretation of it nonetheless. While I find it annoying on the specific level that the Whole Foods CEO uses the opportunity to shamelessly plug his own company throughout, and while I doubt that Whole Foods is the moral paragon he conceitedly claims it is, on the theoretical level, surprisingly, I find myself more in agreement with him on the general role of corporations in society. This is somewhat surprising, because I am generally quite suspicious of self-serving BS masquerading as idealist rhetoric about altruism. But at the same time I find Friedman’s and Rogers’, the Cypress CEO, outright hostility to the very concept of altruism even more baffling. Sadly, it seems to me evidence that Friedmanian economic thinking has hardened into a dogma. After all, who decrees that the purpose of a corporation is one thing or another? While Friedman and Rogers explicitly acknowledge that Whole Foods investors and anyone else has the right to to do with their money as they choose and invest where they will, they clearly disapprove of any proximate goal or use that is not tied to the ultimate goal of corporate profit maximalization. But this exclusive focus on corporate profit maximalization seems, as Mackey, the Whole Foods CEO, says, a bit narrow-minded. And, considering that the basic economic unit is the individual and not the corporation, doesn’t it seem a little, well, collectivist?

I, at any rate, certainly believe that corporate profit is itself only a proximate goal, and hence of variable value, and that the ultimate goal of capitalism, or any other social system, is to maximize the welfare of the constituent indviduals. Generally speaking I believe that individuals know in what their happiness consists better than anyone else, so I drift towards the laissez-faire end of economic philosophy, which is why I have to wonder, in a system of voluntary economic transactions, why the hell Friedman and Rogers are chastising other people for what they do with their money and won’t just be tolerant of it. Adam Smith was certainly correct that individuals often do the most good by taking care of their own affairs, but if that observation hardens into a principle it becomes as oppressive as any other orthodoxy. The foundation of a liberal society must be the awareness that no single mind can know what creates the most good or the greatest happiness for everyone, and that therefore decision-making power over how to pursue their own happiness must be granted to individuals (and defended from the depradations of others). Friedman and Rogers don’t seriously challenge that right, but their de-valorization of any economic action outside of corporate profit creation betrays a narrowness of spirit that fails to fully acknowledge that philosophical basis.

p.s. I admit the title of this post is a little opaque, but it stems from my belief that when any body of ideas has congealed the point that they can be identified as an “-ism” they are probably dead. Whether Friedman has gotten to that point with his fixation on corporate profit-maximizing, despite my admiration for a lot of his ideas, is unclear to me.

Opening up

If you haven’t checked it out yet, Paul Graham’s latest essay is quite good. He talks about what businesses can learn from the open source community and movement and identifies three key lessons that might enhance corporate productivity: professionalism is overrated, working in a traditional office sucks, and good ideas generally percolate up from the bottom rather than being handed down from above. On that last note, Graham makes a particularly astute observation (though not, admittedly, an original one):

Ironically, though open source and blogs are done for free, those worlds resemble market economies, while most companies, for all their talk about the value of free markets, are run internally like communist states. → I should point out that I’m not one of these open source zealots that thinks anything and everything involving the term is automatically good and that anything whose source is closed is bad, but, as Graham notes, there are certain unavoidable parallels to be drawn between open source and, to use Popper’s term, the open society

Graham goes on to note that, just as in a Communist state, traditional corporate employers have taken on a very paternalistic role these days:

Nothing shows more clearly that employment is not an ordinary economic relationship than companies being sued for firing people. In any purely economic relationship you’re free to do what you want. If you want to stop buying steel pipe from one supplier and start buying it from another, you don’t have to explain why. No one can accuse you of unjustly switching pipe suppliers. Justice implies some kind of paternal obligation that isn’t there in transactions between equals.

Most of the legal restrictions on employers are intended to protect employees. But you can’t have action without an equal and opposite reaction. You can’t expect employers to have some kind of paternal responsibility toward employees without putting employees in the position of children. And that seems a bad road to go down.

And, as he goes on to note, “[i]t’s demoralizing to be on the receiving end of a paternalistic relationship, no matter how cozy the terms. Just ask any teenager.” Note that what Graham has to say about “justice” not being a consideration in “transactions between equals” is equally applicable in other realms; the “fair trade” nonsense that continually arises in the context of the third world and much of the affirmative-action talk spouted by self-appointed saviors of the black race are just two examples.

Anyway, speaking of open source, Cory Doctorow had an excellent post yesterday explaining why open source DRM is impossible. He correctly points out that there’s a big difference between encryption like SSL (which certainly admits of open source implementation) and digital rights management:

In SSL you have a sender, a recipient and an attacker. The attacker is never supposed to be in possession of the cleartext. It doesn’t matter, however, if the recipient gains access to the cleartext. That’s why you can have open source SSL.

In DRM you only have a sender and an attacker, who is also the recipient. DRM relies on the attacker/recipient only gaining access to the cleartext while their machine is in the grips of non-user-accessible code that restricts what they can do with the cleartext (in particular, DRM seeks to ensure that the cleartext can’t be saved back to the drive while still in the clear).

And so, obviously, DRM implementations can’t, by definition, be user-modifiable. And there are probably a lot of people out there who ain’t gonna like it too much when they figure it out. Including, ironically, publishers. → see also: my rant, Adam Engst’s rant, Dan Burk’s paper (PDF) and Cory Doctorow’s classic rant.

Oh, and just for the record: whoa.

Preservation vs. the plebes

So now someone wants to introduce large African animals like lions, cheetahs and elephants to North America (i.e. the U.S.). Feeling it my duty to provide the interpretation of maximum cynicism, I can’t help but see this as example #2 of Environmentalists Screwing Over the Poor. All the gameparks and wildlife reserves dotting Africa were set up on the premise that the economic loss suffered by those who forwent farming on this land would be more than compensated by the payoff of ecotourism by First Worlders who would want to visit these unspoiled natural habitats. But if you can see lions, cheetahs and elephants in Texas, do you suppose that tourists in any great numbers will continue to want to visit Africa, the poorest region in the world?

End platitude dependency!

I’m no lover of the Saudi royal family or SUV’s, but it strikes me the trendy environmentalist battle cry to “end oil dependency” would sound a lot less attractive if it were “let’s impoverish the Middle East,” which is what it really means. Of course creating or sustaining poverty is the dark unstated goal of the environmental movement as a whole, since wealth is a function of consumption of resources and the environmental movement generally takes as its cue the witholding of natural resources from human use. But in this case I find it particularly amusing that the environmentalist bleating happens to accord so nicely to nationalist economics and politics.

Isn’t the problem with the Middle East not that it profits too much from international trade but that it is not involved enough? I don’t deny that the situation is far from ideal to today, when a single region and culture holds near-monopolistic control over a single critical natural resource, which comprises virtually the whole of its economic output. But the call to “end oil dependency” is a purely negative step: subtract oil, thus cutting off the Arab world’s cash flow, and what will you have? Africa. Less dangerous internationally for the immediate future? Undoubtedly. Better overall for humanity? Only the callous and myopic would believe that. As I recall a debate of a somewhat similar nature ensued during the occupation of Germany after World War II. Since the German political system had seemingly showed itself incorrigibly expansionist, autocratic and militant, some believed that the country should be reduced to a pre-industrial pastoral state to spare the rest of the world. Fortunately, some people (here’s looking at you, Mr. Hayek) recognized that the problem was not that Germany needed to be cut off from the rest of the world but that it had never really been integrated enough, with its nationalist-based economy and political system. Say what one will about the EU, its undoubted achievement has been to make Germans, and all Europeans, realize that they really cannot exist without each other.

The oil industry pretty much functions as a giant welfare program for Middle Eastern nations. It produces huge amounts of money but, due to its particular nature, it doesn’t actually require the residents to engage in economic activity to any great degree. It is a resource, essentially inalienable, that just sits underground until someone pays the owner of the ground above to let them tap it. No need to produce anything that consumers wish to buy–the product is already there, so these nominal producers don’t have to do anything. The change in social institutions and personal habits that usually accompanies the birth of a commercial society is thus not necessary. It should be no surprise then that the political liberalization that usually ensues from this development has not obtained in the Middle East to a degree commensurate with the amount of wealth created. And that money has given greater reach and influence to the non-liberal ideals of these societies even though it has not had the power to liberalize them. But just because the money derived from oil has not brought about sufficiently deep changes in these societies, does not mean that subtracting that money will be any kind of solution to the basic problems. How much oil is there in Pakistan? Afghanistan? Somalia? Chechnya? Morocco? Are these states any less problematic to their own citizens or Westerners? In short, while I definitely concur that it is highly desirable that the nature of trade with the Middle East change, it seems to me that the only true solution to the problems in our relationship to the Middle East is a broader economic investment in those states, not a lesser one.

Orthodoxonomics

I was thinking recently about getting Freakonomics, the super popular book by the economist Steven D. Levitt and Stephen J. Dubner, despite annoyance at the “rogue economist” pose adopted by a totally institutional figure (he teaches economics at U. Chicago, for God’s sake!) applying archiorthodoxe economic analytical premises and methodology to standard market questions. But I come to find out soon after that the most important contention in the book, that the legalization of abortion has caused crime to decrease, had already erupted in factual despute a full six years ago. Here is a debate between Levitt and his primary critic on this issue, Steve Sailer (you have to click on the different days to read all the responses and counter-responses). It’s a good example of how two presumably intelligent people with two different sets of statistics can talk entirely at cross-purposes.

Levitt shows a pretty strong correlation between falling crime and the advent of legalized abortion, being that crime rates began to fall 18 years after Roe v. Wade, that crime rates in the four states that legalized abortion three years earlier began to fall three years earlier as well, that states with higher abortion rates experienced a greater fall in the crime rate in the ’90’s than states with low abortion rates, and that the fall in crime for those years is restricted to the under-25 demographic. Quite suggestive, though hardly conclusive.

Then Sailer introduces a bit of a non sequiter. Rather than offering an alternative explanation for the decrease in rate of crimes as a whole, he chooses to concentrate only on the fluctuations in murder rate. Why, I’m not sure, though I seem to recall him in another article that he wrote claiming that he felt general crime statistics to be unreliable, since murder is virtually the only crime that almost by definition does not suffer much from under- or over-reporting. However, as I have indicated before, statistics can have comparative validity even if their absolute validity is suspect. In other words, a difference in numbers between different locations or groups or a change over time may indicate a definite trend or difference even if the figures themselves are dubious. If the same methodology is applied constantly, then changes or variations are probably caused by something real. The other problem is that focusing only on murder narrows both the number and type of cases, making the data more suspeptible to distortions that do not affect the whole spectrum of crimes. And in fact the principal factor that Sailer identifies, the crack epidemic of the late ’80’s and early ’90’s, is even by he himself acknowledged to be something of an aberration. Despite Levitt’s insinuations, he is not really suggesting that the crack problem had anything to do with abortion, but its statistical effect was probably disproportionately concentrated in a few types of crime: murder, drug trafficking (obviously), and maybe a few incidental categories like burglary and weapons charges. Probably few people, certainly not I nor Levitt, would dispute that Sailer’s analysis of what was happening with the murder rate during these years is probably correct, but it is precisely the factor he identifies as the primary culprit which makes it hard for me to believe that the murder rate is a better indication of the true state of crime during this period than general crime statistics (unless one could argue that the effect of abortion on crime would also be concentrated to the same degree in the same categories as crack, but there is no support offered for that possiblity).

However, rather than settling for a response of that nature, Levitt launches an even stranger non sequiter. He bizarrely insists that for Sailer’s hypothesis to be plausible the murder rate has to conform to the pattern of his general crime statistics over the time period in question and that for some reason there has to be a correlation between areas of high abortion rates and the epicenters of the crack explosion. These criteria are so obviously random and unrelated that I cannot believe them to be purely the result of confused thinking, particularly by an economist of good standing (who is reputed by his supporters to be a genius), and I am forced to conclude that it is probably a deliberate obfuscation of the issue on the part of Levitt. Levitt seems either blind or averse to the fact that Sailer never accepted the general crime statistics upon which he bases his analysis in the first place, and hence the two cannot even agree on the nature of the phenomenon that they are analyzing, let alone what caused it. Sailer is not so much disputing the reasons for the drop in crime as disputing that there even was a drop in crime. And yet one would expect the growth of an enormously profitable narcotics industry to temporarily overwhelm long-term structural changes that cause reduced crime, much as the advent of the heroin trade 30 years earlier caused a similar spike in mafia-type crime. And even Sailer acknowledges that the rise in the murder rate might have been even greater had abortion not been legal.

So Levitt seems to me to have a stronger case, but I have my doubts that abortion really decreases crime, not least because it is not certain that it is even an isolable phenomenon. Sailer very perceptively notes at the end that abortion has accompanied a broad number of social trends associated with the growth of the underclass which are not exactly conducive to decreased crime (see Dalrymple again). I think he is quite right that the number of unwanted babies aborted may be overwhelmed by the even greater number of babies conceived casually because it was assumed that thanks to abortion contraception was unnecessary and then not aborted for whatever reason. That, of course, we will probably never know. Secondly, I’m not sure that the abortion/crime statistics for other countries would back Levitt up. In much of Europe, for example, where abortion has been legal (except in Ireland) for at least as long as in the States, crime has been rising in recent years, esp. in the U.K., where crime rates have surpassed those in the U.S. in all major categories except murder. But then again, one can only debate that issue if one believes that crime in the U.S. has actually gone down in the first place…

Hayek’s ghost

One couldn’t find a better indication of the failures of central planning than this, as what appears initially as a somewhat promising debate over the means and goals of environmental management immediately degenerates into a strangely nasty fight over the relative importance of specific environmental problems. It’s quite possible that in the case of the air, for example, the tragedy of the commons is inevitable since air cannot really be divided up among people, but those cases are the exception rather than the rule, and by and large this sort of exchange envisions exactly the sort of situation that characterized the early part of the 20th century in economic affairs, with the government pushing money and resources around from one crisis to another, with no long-term solutions in sight because no one affected had any means of taking care of their affairs independently.