Archive for the ‘Morality’ Category

How I see the world: politics and political economy

August 8, 2014 Leave a comment

Brad DeLong tries to make sense of Hayek.   At the risk of making an @$$ of myself, I have to respectfully disagree.  The way I see it, libertarian-ish types have been trying to “claim” descendance from Adam Smith for generations.  The problem is that, if Smith is “classical liberalism” incarnate, then libertarians have no more claim to him then the socialists do.

To try and illustrate why, I’m including a cladogram of the major currents of thought in the philosophy of political economy.

My view of the evolution of economic political philosophy

My view of the evolution of economic political philosophy

Maybe this is right, maybe it’s wrong.  But let’s just assume it’s right for the moment.  I want to discuss the branches I’ve labeled 1-4.

  1. The classical liberalism of Adam Smith.  It is “classical” because Smith more-or-less invents the subject as it is now understood.  Smith has some libertarian-ish views, or libertarians would not try to claim him, which include things like opposition to monopoly (in the day, entirely government created) and a belief in the effectiveness of market solutions (“invisible hand”).  He also had some non-libertarian views such as the dangers of private collusion (“[capitalists] seldom meet… but the conversation ends in a conspiracy against the public”) or the benefits of social well-being (“… some principles in [man’s] nature… interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it”).
  2. Marx.   It’s hard for me to look at Marx and not see Adam Smith: look how close they are!   The truth is that Marx is best thought of as one branch of the first major split in classical liberalism.  I want to get back to that split for (4), but for now just think of socialism as classical liberalism with a heavy emphasis on the well-being of the worker-class.   This strain of liberalism has a complicated relationship with government (Marx himself is probably closest to the Left Anarchists).
  3. Same thing as with Marx, the Laissez-Faire branch of liberalism is one of two major branches which lead away from classical liberal thought.  In this case, though, there is a heavy emphasis on the well-being of capitalists and a complicated view of monopoly.   Unlike libertarians out there, I tend to view this strain as all but dead as an intellectual force, but there are lines of influence from these ideas to more modern theories.
  4. Ricardo and the direct intellectual descendants of Smith.  Ricardo himself may have leaned right-ish a bit, but I think it’s fair to characterize his view as opposed to landed aristocracy.   As such he imbodies both socialist (pro-labor) and laissez-faire (pro-capital) views.  Ricardo may have leaned more towards capital politically, but his theory of comparative advantage was built assuming that labor is the only important input.

My takeaway from this is that the most important cleavage in liberal thought has to do with the factor of production that each strain identifies with.

Laissez-Faire thought identifies with the capitalists and quickly incorporates Nietzeschian notions of “supermen” to justify the super-wages which the capitalists earn within this otherwise liberal tradition.  The incorporation of Nietzesche makes the Laissez-Faire  strain the least classical, since Adam Smith himself is (I think, but I could be wrong) borrowing from Kant as his moral philosophy guide.

Socialist thought identifies with labor, but quickly recognizes that labor needs to band together in some way (recognizing a power disparity between owner and worker).  Thus, along this strain there is a mighty back and forth over the role of government where the importance of the debate is often obscured by the fact that all these strains agree on the goal of an empowered workforce.

Then, there’s the neoliberal tradition.  Direct descendants of Smith, this is basically the mainstream of the economics profession.   What separates this tradition is precisely the indifference between labor and capital which are handled interchangeably.   I don’t include every branch here, but I’d place Polyani along with the instutionalists.

Hayek is not here, obviously, along the neoliberal branch.  Instead it’s hard for me to view the Austrian school as anything other than the last surviving branch of the laissez-faire strain.

Now maybe all this is wrong.   Although, all I’m really doing here is classifying schools of thought using a standard clade-like (i.e. evolutionary) approach–strains of thought are related which are most alike.   But if I’m am wrong, I’d like to know why.  Rearrange the family tree and show me.


Economic Rights are Positive, Political Rights are Negative

Simon Wren-Lewis has a great post up which relates to a point I’ve wanted to make for a long time…  It’s not really a new point, per se, (I heard similar points being made with respect to “right-to-work” laws and there is this from Brad DeLong in a similar issue), but… well… Simon just has a great thought experiment:

Employees are already beset by red tape if they try to improve their working conditions. Now the UK government wants to increase the regulatory burden on them further, by proposing that employee organisations need a majority of all their members to vote for strike action before a strike becomes legal, even though those voting against strike action can still free ride on their colleagues by going to work during any strike and benefiting from any improvement in conditions obtained. Shouldn’t we instead be going back to a free market where employees are able to collectively withhold their labour as they wish?
I doubt if you have ever read a paragraph that applies language in this way. Yet why should laws that apply to employers be regarded as a regulatory burden, but laws that apply to employees are not?
Here’s how I’d make the same point more generally:  Economic rights are always positive rights–rights provided by the government to expand citizen’s choice set–while political rights are always negative rights–that is, freedom from interference.
The fundamental unit of an economy–the economy’s “atom”, if you will–is the Transaction.  I do something for you, then you do something for me.  That’s what makes an economic system economic.
But a transaction cannot be defined for an individual.  Transactions always involve two (at least!).   That’s key.  There’s you, there’s me and we’re trying to trade something.  So what does this have to do with economic rights?
Consider freedom of contract.  There’s you, there’s me and we’re trying to come to agreement.  Obviously, we can come to agreement without government interference.  If we do, though, what happens when both of us are caught off guard by how events actually play out?  Well, we renegotiate.  But the possibility that we will renegotiate itself makes certain contracts/agreements undesirable, because each of us knows that we may be at a disadvantage if we have to renegotiate (this is called the hold-up problem).
Doesn’t sound like a big deal?  Consider the example of the humble spot transaction.   There’s no government, so suppose I have a horse you need to get around on (since there are no roads anymore) and you have a fistful of gold (since there’s no currency without government to provide it).  I’d like to trade my horse for your gold.  We meet, I get off my horse, you hand me your gold… now, what’s to stop me from jumping back on my horse and riding away?  Now I have both horse and gold.
Stealing the horse is a “spot-renegotiation” because it happened while the transaction was proceeding.   It just so happens that at one point during the transaction, I had all the bargaining power because I was physically in possession of both goods.   If we can’t manage to trade horse for gold simultaneously, this will always happen to one of us or the other, so we probably won’t even bother trying.   Really, this is a point you should already be familiar with from movies or TV when the good guys need to trade something with the bad:   doesn’t something always go wrong?
On the other hand, if there’s a government, guys with guns come to my home, take the horse back and lock me in jail.  That makes it easier for us to come to come to an agreement in the first place so we can trade that horse for gold.  The government provides the ability to make contracts  which will be upheld by our counter-parties because the government will actively use force to make sure everyone lives up to their agreements.  It’s what I called the “visible hand” of the market in previous posts.
This need not be a particularly anti-libertarian view.  After all,  this is the reason that libertarian philosophers like Nozick argue for minarchy rather than anarchy.  The government needs to exist to provide economic rights (at a minimum), because economic rights are always positive rights–they only exist when the government provides them.   Whenever people transact, there must always be someone to say to them, “live up to your agreement!”   And that someone is “the government” whether they want the designation or not.
The libertarian mistake is thinking that economic rights flow from a principle of non-interference.  Government is a necessary, if silent, collaborator in every transaction because government is what makes everyone play by the rules.  Non-interference is a property of negative rights and only negative rights are political rights.
Political rights govern our interactions with government itself.   “Free speech” doesn’t mean I can say what I  want without consequence.   I can get fired for trashing my company in front of clients, and rightly so.  Free speech only means that the government has no standing to punish me for my views about government.   Political rights are the activities with which government can’t interfere.
Libertarians are trying to have it both ways.  They want economic rights (ownership, contract) to be supreme over political rights (suffrage, speech, religion), but they also want non-interference to be supreme over positive rights.   Positive rights over negative rights over positive rights.
Nozick’s Wilt Chamberlain thought experiment tries to get around this problem by simply ignoring issues of ownership (an economic right) in his theory of distributive justice.  It’s not that he’s wrong precisely, but instead it’s weird to say “a distribution is fair if it resulted from non-interference”… right after assuming that all ownership rights are sorted out and agreed upon by all parties.    Agreeing on and sorting out those property rights is exactly the reason government exists.   It’s almost like saying “assume government isn’t needed, ergo non-interference by government is best”.  Well, duh.   It’s easy to miss this, because Nozick concentrates on Chamberlain’s human capital–which no one objects to his owning–and ignores everything else.
So, libertarians, this is your challenge.   Choose which is more important to you, economic rights above political rights, or non-interference/negative rights above positive rights.  Those positions are in direct conflict.
I’ve ranted on long enough.  So let me leave it at that.

Greed and the Visible Hand

April 7, 2014 2 comments

Great article by John Paul Rollert (JPR) over at the Atlantic today–basically a history of the “Greed is Good”-meme.  Go read it.

I want to make a related point, which I’ll call the visible hand.

Adam Smith didn’t believe that greed is good in itself and he didn’t believe that the unregulated market will produce the best outcomes.  What he believed is that (h/t JPR)

…the moral logic of free markets was a law of unintended consequences.

More than that;

We get what we want in a complex commercial society—indeed, we get to have a complex commercial society—not because we seize things outright, but because we pursue them in a way that acknowledges legal and cultural constraints.

An economy is a complex web of trading, with every single trade between at least two consenting people.  Each trade is good for the participants, but why should that trade be good for society?

It is the laws and customs of society which guarantee that each transaction at least does no harm.  A mugging is a transaction, of a sort… a private transaction of safety for money.  Once the victim has a gun pointed at her head, handing over money to have that gun taken away makes her better off, just as the mugger is better off.  But, a law which makes this sort of transaction impossible, or unprofitable, could indeed make her happy; if it would mean that she never has a gun pointed to her head.

That’s the visible hand: the laws, norms and customs–that is, the infrastructure of the economy–which make sure our economic interactions lead to broad prosperity, specialization and free exchange, rather than exploitation and coercion.

It’s a visible hand because someone, somewhere has written those laws and paid the police and courts to enforce them.  Someone has raised the taxes that make that possible.  Someone has put a lot of thought into how the economy works on its deepest levels.

At its deepest levels an economy requires trust.  A commitment to the common good.  Greed will destroy all of our prosperity if we let it.   How do I know that?  Consider the game board below:


This game is a simple schematic representing the payoff to each of the two players in the game of trade, when it is possible for them to try and cheat each other (‘v’ is the value of the good to the buyer, ‘c’ the cost of the good and ‘p’ it’s price; assume v>p>c so that trade is optimal).   Notice that the unique Nash equilibrium of this game is that there should be no trade.

Trade happens.  Why?  It’s not because we trade on a turn-table that guarantees that the money changes hands only at the exact instant the good does.  It’s because if I steal your things the police will come and throw me in jail.   If I try to pay the police to let me go, my sentence gets longer instead.   Trade happens because someone somewhere is not acting like homo economicus.

Ayn Rand‘s vision of markets free from interference which glorify and reward the most exceptional is both bad economics and bad morality.  In Rand’s perfect economy the powerful must (figuratively speaking) stab the rest of us in the back for the wealth we hold in our pockets.   There is no other way, since there could be no trade.   All for the glory of the powerful!  The rest of us view greed as a vice because we wisely seek the prosperity that only cooperation can bring.

The invisible hand needs the visible hand to be there, in the background, making sure that markets really do make us better off.

Miley Cyrus and Human Pair Bonding in Equilibrium

March 26, 2014 Leave a comment

I don’t know much about, or follow, Miley Cyrus.   Still, since Twerk-gate, I’ve been asking myself what the phenomenon of Miley Cyrus teaches the rest of us about ourselves–and perhaps about her future.

In particular, the question that I want to ask is this:  Is Miley a Madonna, or is she a Marilyn Monroe?  Here’s what I mean by that.   Both women used sex to enhance their fame… but they each ended very differently.   I suppose that Madonna could still end badly, but it certainly seems as though she has ended her career rich and as well-adjusted as any of us… probably better than most, in truth.   Marilyn Monroe, on the other hand did not.

Yes, really, I’m going to use Miley Cyrus to talk about game theory, because I am just that much of a geek.

My point is not to get moralistic here, but instead to explore the issue of human sexuality as dispassionately as I can.  I want to use these two women to explore the subtleties of human pair bonding, in particular I’ll present the skeleton for a model of evolutionary game theory which predicts two likely outcomes (Madonna and Marilyn) from a “promiscuous” strategy (as opposed to monogamous) and then I’ll attempt to place Miley in one of those bins.

Why Pair-Bonding?

I’m not an anthropologist, but my understanding of the current state of understanding human pair bonding as an evolutionary adaptation is basically this:

  1. Increasing brain size in hominids put a great deal of evolutionary pressure on human reproduction:  Any mother will tell you that it’s very difficult to pass the head through the birth canal.
  2. This evolutionary pressure led to human births at an earlier state of development for the baby.   This is also true, to a lesser degree, in other apes.
  3. Hence, evolutionary mechanisms which facilitate child-rearing will be strongly selected for… in humans, that generally means that parents will bond as a couple.
  4. That is:  Sex allows humans to “imprint” (“fall in love”) with our partners, so that offspring can be raised by two parents instead of one.

That’s the basic story.   Of course, I doubt I need to convince anyone who might read this that humans are not quite so monogamous as this story implies, but more monogamous than other animals.  Supporting this hypothesis, there are other monogamous apes who are in fact more likely to be monogamous than other mammals as the outline above would predict.   So, the large brain => monogamy story outlined above likely has at least some truth to it.

Eusocial Polygamy?

Then, there are our closest relatives: chimpanzees… actually, the closely related Bonobo, a species famous for its promiscuous nature.

The point I wan to make with this is that the Bonobo uses sex as a means of communal rather than pair bonding.   Sex is the glue that holds the society together (diffuses conflicts, welcomes newcomers, etc), a kind of eusocial adaptation.   Think about it:  if none of the males can be certain who fathered which kids, they have the incentive to cooperate in the rearing of all the group’s offspring.  Forget about having two parents, in this social setting, everyone has a dozen parents.

Two Evolutionary Strategies

So, consider this hypothesis:  humans are not monogamous pair-bonders, but rather our sexual tendencies are a “mixed” evolutionary strategy between these two extremes.  We are, primarily pair-bonders, but at some rate, people are born with the polygamous pair-bonding gene.  Which is to say that some of us are born psychologically better prepared for communal child-rearing and polygamy and others for pair-bonding and monogamy.

After all, humans really do exhibit some eusociality and are obviously not entirely monogamous.   What if there is just a little Bonobo in each of our psychic make-ups?

Madonna and Mixed Strategy Child-rearing

Now, I’m getting closer to my original question.   First, though, I need to take a slight detour and ask what the difference is between a strategy which is a deviation from the equilibrium strategy and a mixed strategy which is a part of the equilibrium.

In this case, the hypothesis is that there are some individuals with a eusocial polygamous attitude toward sex as part of the equilibrium strategy.   These individuals are born at a constant rate, and their existence is part of the glue which holds the society together… and it is for this reason, that we’d expect these types to be tolerated by society and reasonably well-adjusted (i.e. no worse-off psychologically than the rest of us).

It is these types that I’m calling Madonnas.  Madonnas use sex to smooth over social situations.   They are built, psychologically, to not only handle many partners but also the social shunning that goes with it.   Part of my hypothesis is that these types have a very social view of children and child-rearing… the real Madonna is also famous for her adoption of African children which suggests to me a very eusocial attitude on her part toward child-rearing.  I am simply hypothesizing that the existence of people like her are a part of our genetic make-up and show up regularly in healthy societies.

As an aside, let me state that I am implicitly imagining evolution acting on both the structure of society, the genes of the individuals within it and the psychology of those individuals.   All of those things are passed on to children, and so we should regard them all within a single evolutionary process.   The promiscuous are shunned in most societies to reinforce the more common pair-bonding strategy, but polygamy to some degree is allowed in all societies, as is a collective responsibility to child-rearing… and our genes give all individuals some propensity to be either type (depending on of psychological upbringing) with our willingness to help raise the offspring of others a result of the delicate dance between all these forces.

That’s the mixed strategy that I have in mind, and the women I call Madonnas are an integral part of it.

Deviants and Marilyns

Of course, our society’s “genes” really exist in a continuum.  So, a deviant is someone whose make-up is outside the norm.    That is, they are mutants; although mutants here includes their psychological make-up within social structures.  When these deviants are of the promiscuous variety, it is entirely possible that they are not built, psychologically, to handle the social stigma that comes with that position.  This is what it means to be a mutant in my setup.

Let’s call them Marilyns… society reacts to all promiscuous types the same way, they are shunned, but the Marilyn type (unlike the Madonnas) can’t handle it because she’s not carrying quite the correct genes (or upbringing) to have the psychological make-up to shake it off.  We might hypothesize that her life is always at risk of a kind of downward spiral of sex, social stigma and substance abuse: she is a player in the evolutionary game who refused to play by the rules and is worse off for it.

So which is Miley?

That’s a good question.

On the one hand, her (to me) desperate attempts to capture fame and attention are prima facie evidence that she has strong eusocial tendencies which might suggest she’s a Madonna type.

Somehow I don’t think so, though… from what I know of her behavior there is a certain recklessness to Miley (apparently she’s spitting on people now) which suggests to me that she doesn’t think much of her audience.   That would suggest deviant (in the game theory sense) to me.   I think she’s a Marilyn and if I’m right about that, it’s only a matter of time before sex tapes and drug abuse become the story.

Poor Miley… let’s hope that she ends up better off than the real Marilyn.

Categories: Morality

Governments are people?

July 15, 2012 1 comment

Miles Kimball argues that corporations are people.   I agree with (almost) everything he says, except his conclusions.   Let me hand the mic to him for a moment, emphasis mine:

…There are two potential meanings of this statement, and I want to agree with both:

  1. When the government taxes a corporation, the tax ultimately falls on some human being.
  2. When a corporation makes a decision, some set of human beings is behind that decision, and they are morally responsible for that decision.

Mitt wanted to emphasize the first point: that any tax on corporations is ultimately paid by some human being. That is a sound principle in the academic field of Public Finance. The big problem with corporate taxes is that, despite efforts on the part of many economists, economists don’t have that good a handle on exactly who ends up paying them…So if the intent is to make taxes depend on income, for example, it is a lot easier to get the intended effect on that score by taxing people directly rather than by taxing corporations…

…I want to focus more on the second meaning: when a corporation makes a decision, some set of human beings is behind that decision, and they are morally responsible for that decision…When approaching corporate decisions ethically, it minces words not to recognize the people behind the decisions, even when their exact identities are not clear

…Now, although corporations are people, typically a corporation is not a person, but instead many people. To the extent that corporate decisions reflect the outcome of a game  among many people (in economists’  technical sense of the word “game”), the actions of a corporation may not reflect any coherent objective function…its actions can be judged in relation to the intended objectives of the corporation. In that way, we can try to protect people from Frankenstein monsters of corporations that are doing things no one intends because of internal games being played

…I don’t know of any theorem suggesting that an invisible hand will work within a corporation to make good things happen that no one intended. And the wisdom of literature such as Scott Adams Dilbert or TV shows such as The Office suggest, to the contrary, that entropy often reigns—so that corporations often do less well than the intentions of the people in them

First and foremost, I think Miles  is missing a key meaning for the statement “corporations are people”, that is the reason the issue is in the news at all: if corporations are people, do corporations have any rights?   In Citizens United, the Supreme Court said yes.

This is not a question about taxes–the government can tax individuals who most definitely have rights–and its not an issue about morality–free speech as an example is not a moral imperative, it rather defines an individual’s relationship to the government.   I’ll get back to this, I’d like to say a few things first.

Me being agreeable

Like Miles, I’m not particularly interested in the tax argument either.   It is completely true that taxing corporations as something other than people is potentially problematic.   To the extent that standard theory has anything to say about this issue, the key takeaway is that we should tax all income equally and income always–eventually–flows to a human being.   If one source of income is taxed at a different rate than another,  that encourages agents to play games disguising one source of income as another–and these games are pure economic waste.

As one minor caveat to that, my understanding is that the corporate tax was instituted in the first place to close a tax loophole wherein personal income could be disguised as un-taxed corporate income.

So I’d like to focus a little more time on the second point.

At one point in my life, I would have agreed with Miles, here completely.   A long long time ago–in a Texas classroom not long after the Gingrich revolution–I found myself alone debating this exact position.   That was my first thought.

The only problem is I no long think it’s quite right.  Sure the people at a corporation have a moral responsibility for their actions, but do we conclude that, therefore, corporations are people?    I’ve highlighted select passages from Miles’ post above.   There is a theme.

By its nature as a conglomeration of individuals, a corporation–or any firm, government or organization–cannot truly be said to make decisions at all.   If two try to steer a car simultaneously, can one be blamed for crashing through a storefront window.   If a corporation were to bulldoze the wrong house because no one bothered to double check the address, IS there someone to blame, even in theory?   Can anyone be blamed for the inaction of everyone?

Satisfying Godwin’s Law

Miles has the right argument, but draws the wrong conclusion.   A corporation is not a person precisely because it cannot be held accountable for its own actions.   It is a ‘frankenstein’s monster’ of individuals, but also procedures, paperwork and lines of authority, stitching them all together.   An individual can have moral culpability, but only when that individual has made a decision.

If I were to ask you whether a German Jew were responsible for the Holocaust, you would rightly scoff.   Yet as an organization of people, the German government is the responsibility of all German voters.   Conversely, if this government were a person responsible for its own actions than would it still be right to blame Hitler?   No one would agree to that; we all feel viscerally that Hitler is the villain (along with more than a few of his henchmen and enablers).   You can’t blame individuals for the actions of organizations of which they are a part and you can’t absolve individuals for improper actions on behalf of their organizations.

In what sense does this make a corporation a person?

Me being less agreeable

I would characterize my argument above as a minor quibble: I’m endorsing his argument, while rejecting the label he seems to think it implies–it is not an argument, but a meta-argument.   Is it helpful to say that “Lehman Brothers” is a person, when it comes time to assign blame for its actions?  I would tend to say ‘no’, Miles seems to be saying ‘yes’.   Yet we would both agree that the management at Lehman is ultimately responsible.

Mitt Romney may have been discussing taxes; yet, none of this is what the public debate is really about.   We are talking about corporations as “people” because “corporate rights” have been thrust into the center of the public debate.   If a corporation is a person, does it have free speech rights, so that (if money is “speech”) it may spend unlimited sums of money to influence a democratic election.

This is the third possibility of what it may mean for the “corporations are people”-meme, which Miles completely ignores.   A person has “rights”–“rights” defining what a government can’t do to a person.   Therefore, as a  person the government cannot regulate activities of corporations which it cannot for individuals–which it turns out are many.

A few questions:

  1. If a person can vote, do we have universal suffrage while corporations can’t vote as well?
  2. If a person can be punished for wrong doing, should not we a corporation (or a government!) be sent to prison for wrongdoing?   If another Nazi massacre is discovered, should not “Germany” be punished for it?   Whatever previous punishments had been doled out for previous crimes, there is no statute of limitations for murder.
  3. If a government is a person–and why would a government not be a person, if a corporation is one–why would it not have the right to flood the public with propaganda?   Draft enemies lists?   Deny government services to those it deems unworthy?

The solution is clear.   These questions are nonsense, because an organization–though composed of individuals with rights–is an unthinking Frankenstein’s monster that has no rights.

A monopoly for coercion

July 5, 2012 1 comment

Following on my last post, I’d like to discuss an issue that I didn’t really get to (that post was already going far too long).   Libertarians at least have a theory, i.e. (as summarized by Holbo)

  1. maximize property and contract rights, so as to
  2. maximize “freedom”–especially for the worthy–whatever that is suppose to mean, for the purpose of
  3. maximizing human welfare

It’s a good theory:  intuitive and with a grain of truth to it.

I made the argument in my last post that regulation could in theory improve welfare and “freedom”.   I never got a chance to expound a political theory, however, on the limits–or possibly the lack thereof–of interventions.   After all, if you think that regulations (i.e. government coercion) are OK then why aren’t private forms of coercion?

This is the converse of the libertarian problem that I spent so many words on in that post.    I think libertarians are wrong, but what do I as a progressive believe which would make an intervention right?   Managers are people too, so why can I take away their options?

The problem as I see it, is succinctly explained by Keynes:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.

Libertarians have ideas–they are wrong, but they are influential.   Yet it is not enough to fight the encroachment of libertarian ideas, we have to offer an alternative.

A few possibilities:

  • welfare/utilitarianism:  There is a declining marginal utility of options, to restrict options for those who have many and reallocate options to those with few is welfare improving.
  • the need to fight power and wealth as self-reinforcing phenomena:  I’ve made this point before.   Consider this.   Give 100 people each a $1 bill. Have them match up, and bet on a fair coin toss an amount equal to half the wealth of the poorer individual.   Repeat.   It is not hard to see that, asymptotically, all the wealth will be in the hands of a single individual.   This result is robust–as long as the coin toss is fair, it is truly unfair because those with more wealth can afford a loss.   The problem remains even if someone is more “skilled”–using an unfair coin–the wealth buffer matters more than a rigged coin toss.   You can apply this idea to an entire economy and get the same result.
  • coercion as a form of violence:  The government is the monopoly supplier of violence.   This has been the case for a long time as the alternative caused more problems than it solved.   But coercion is a form of violence, so why isn’t the government the  monopoly supplier of coercion?   Hence the title of the post.

A basic theory on the use of coercion in society

Like the libertarians, I want to be somewhat utilitarian–as an ultimate, but ultimately unreachable goal human welfare should be maximized.

However, unlike libertarians, I recognize that property and contract rights will not work.   In addition to the good they do, property rights protect the powerful and as such harm the rest of society, since wealth and power are self-reinforcing.

So here goes.

  1. Property and contracting are privileges given by the rest of society and may be revoked at any time by that society (which granted those privileges in the first place).
  2.  All forms of private coercion are anathema to a free and fair society.    I would accept this as a definition of “free and fair”, being that these ‘freedom’ and ‘fairness’ are hard to define otherwise.    Call this the “my right to swing my arms ends at your nose” principle.
  3. The government has a monopoly on the use of violence and hence coercion (as a form of violence).   It is not possible to have a society without the threat of both–there is a no-trade theorem (which should be the subject of another post)–so the provision must be relegated to someone.
  4. By 2 and 3 (and recognizing that governments are run, ultimately, by private individuals), a free and fair society is one run by the rule of law.
  5. By 2, and recognizing that laws are written by private individuals, a free and fair society is one in which all people must have the options of voice at all times over those laws which will apply to them and the right of exit must be respected.   Call this the democratic principle.   For example, the people of Hungary are less free than they used to be because they have less voice over new laws moving forward.   This, I hope, answers Hayek’s objection.

I think this sums up my political philosophy.   Its definitely not as sexy as the “contract and property rights = freedom = maximal human welfard”, but I think its more right.

If you have some objections/corrections, let me know.

A model for efficient regulations

July 5, 2012 2 comments

[Edit:  I changed the title of this post since I never explained the old title–BSE]

[Edit II:  see also the excellent post by Noah Smith on this topic.]

There’s been a fascinating back-and-forth on the nature of public and private coercion and labor markets.

To start things off Chris Bertram, Corey Robin and Alex Gourevitch (BRG) argue that libertarians ought to care as much about private modes of coercion as they do about public modes.   Specifically, they should care about coercion in the workplace.   If you truly believe in a philosophy of maximizing freedom why would you accept a situation in which workers are forced to endure a thousand indignities  which they did not specifically contract for?

Critical to their point is that exit (i.e. quitting) from a bad job situation is not sufficient to ensure worker freedom–exit is expensive (lost wages), uncertain (the next job may be as bad, if it comes along at all) and bosses may use a “boiling frog” strategy in which individual humiliations are added one at a time and none of them are so horrendous to induce workers to up and quit.   I might add that homo economicus might leave in such a situation, homo sapien would not.

Tyler CowenAlex Tabarrok and Adam Ozimek (CTO) respond by asking (to paraphrase) what would workers be willing to sell their freedoms for?   A very strange opinion, in my view, for libertarian freedom lovers, but Adam adds the distinction between ‘static’ and ‘dynamic’ freedom.   I think his argument is entirely missing the point, but that’s me.

In defense of BRG, Miles Kimball makes a good argument that worker protections can certainly be justified, morally and economically (he uses the example of ‘worker’ protections in the military).    My favorite response, though, comes from John Holbo; which I’ll discuss in a moment.

Surprisingly, Matt Yglesias enters the fray (here and here)  on the side of the libertarians.   He argues that as long as there is full employment in the labor market, then exit is a credible threat and so having no labor market regulations will be efficient.   To quote Matt:

…But you have to make the argument that tighter regulation of permissable work rules will in fact benefit the intended beneficiaries in a world where labor market regulation isn’t going to suddenly increase employers’ benevolence…

Challenge accepted.   My response will mostly be geared toward Yglesias, and I will have a model!   I love ya Matt, but I gotta bring some economics beatdown…

That’s a lot of reading, but interesting.   Before I get to my model, let me first make a couple of points.

 This is a problem for Libertarians, not Liberals
Via Holbo, Hayek argues that someone who contracts out their freedom is not more free, but less so;
The danger of confusion here is that this use tends to obscure the fact that a person may vote or contract himself into slavery and thus consent to give up freedom in the original sense. It would be difficult to maintain that a man who voluntarily but irrevocably had sold his services for a long period of years to a military organization such as the Foreign Legion remained free thereafter in our sense; or that a Jesuit who lives up to the ideals of the founder of his order and regards himself “as a corpse which has neither intelligence nor will” could be so described. Perhaps the fact that we have seen millions voting themselves into complete dependence on a tyrant has made our generation understand that to choose one’s government is not necessarily to secure freedom. Moreover, it would seem that discussing the value of freedom would be pointless if any regime of which people approved was, by definition, a regime of freedom.
Think about the context that Hayek has in mind:  he’s arguing against the social democrats who define permissible government behavior as anything supported by the majority of the people.   Hayek is saying that if the people elect a tyrant, they are still slaves whether or not there was an election.
Holbo (as well as BRG) are simply pointing out that this same principle applies as well to private as to social contracts.   Liberals, who do not view contracting as a sacred right but a practical and useful tool, are quite comfortable with the idea that contracting may reduce freedom.   For liberals like me, the Bill of Rights exists precisely because we recognize the possibility that the social contract may be a source of un-freedom.    It is a set of principles that can never be renegotiated.
Libertarianism and un-freedom
The point is that libertarianism is a philosophy of un-freedom one way or another.   To quote Holbo
…libertarians are unconcerned with maximizing freedom…Different ways of regulating the workplace will plausibly increase freedom-as-non-coercion relative to the levels that a libertarian regime will produce, and libertarians are not willing to go for it. They are unwilling in principle. From which it follows that libertarians are not concerned to maximize freedom.   They are maximizing contract rights and property rights. They don’t see they are not, hereby, maximizing freedom because they make the mistake Hayek diagnoses…: contracting away your freedom is not tantamount to keeping it.
 …Libertarianism does not take freedom as an end but as a means. Hayek is a utilitarian…
To quote Hayek,
If there were omniscient men, if we could know not only all that affects the attainment of our present wishes but also our future wants and desires, there would be little case for liberty.
So why all the liberty talk from libertarians?   Hayek points directly to the informational issue (which will play a role in my model), Holbo adds some thoughts:
…because the thing that actually belongs on the pedestal can’t be directly aimed at… In part we don’t even know what it is: the true standard of overall welfare for humanity…Maximizing freedom is the best proxy for maximizing welfare for humanity…So how do you maximize freedom? Here rubber meets road. You don’t maximize it by ensuring property and contract rights the way Hayek and other libertarians want. As BRG say, this will sometimes result in less freedom
Now as Yglesias says, this could all be a red herring.   True, he says, but so what?    Show that labor market regulations increase freedom (at full employment).   As Matt says
…in almost all political contexts, including this one, both the concept of freedom and the concept of property rights are red herrings. A political movement genuinely focused on freeing people from the coercive authority of the state would spend a ton of time tackling the everyday tyranny of traffic signals, lane striping, jaywalking laws, and the dozens of other similar regulations that impinge upon the day-to-day lives of hundreds of millions of law-abiding American citizens. By the same token, a movement obsessively focused on property rights would be outraged by the fact that every automobile driver and factory owner in America is causing fine particulate emissions to traspass on people’s backyards all across this fine land.
Fair enough, so let’s deal with the practical issue.   After all, both Holbo (speaking for the libertarians) and Yglesias have reduced the problem to a practical one.   Libertarians have this theoretical problem that contracts and property rights won’t maximize what they say they want, but what about the alternatives?   Could labor regulations make sense?
Libertarianism is the philosophy of the powerful
Before I get to that, one more Holbo quote–because he already deals with this objection–and then I’ll discuss my model:
Libertarianism isn’t a philosophy that blows different directions in the shifting winds of the labor market – coming out against unions when they get bloated and corrupt and exclusive but turning against management and capital when they are, as they certainly may be, objectively greater threats to freedom than any actually existing labor union. Actually existing libertarianism is the philosophy of treating as axiomatic that maximizing contract/property rights is tantamount to maximizing freedom…
…Hayek fails to see that he is not actually interested in maximizing freedom because, actually, he thinks that some people’s freedom is a lot more valuable than other people’s freedom. Liberals always want to ensure the maximum freedom consistent with enjoyment of that freedom by all. Hayek is definitely not on board…:“To grant no more freedom than all can exercise would be to misconceive its function completely. The freedom that will be used by only one man in a million may be more important to society and more beneficial to the majority than any freedom that we all use.”  Ideally, we would find that one man and even make all others his slaves, if that is what it took to let him exercise his freedom to the fullest… But obviously the point would not be that the man might have some preposterously bottomless capacity to be free. Rather, Hayek is saying that a world with much less freedom – a world in which this one-man-in-a-million is even a tyrant, perhaps – is better than a world full of freedom.
 In my own words, Hayek (and all libertarians) believe in the right of the powerful–presumably Galt-like supermen–to take away yours [rights].   As Holbo says of Hayek’s philosophy, “We can pick out a class of people who are likely to be better users of freedom. This is no part of Hayek’s official philosophy, but the reason he sees coercion on one side (workers) not the other (employers)”
An example of labor market regulations increasing freedom and welfare
 I’m going to use the example of workplace safety.   Workers value “safety” in their workplace, but of course they differ on exactly how much wages they would trade to be certain they will not be injured on the job.   Working in “un-safe” conditions does not guarantee injury any more than “safe” workplaces guarantee non-injury.   This means that safety is valued to the extent that it has an insurance value.
Workplaces chose their level of safety which all workers will share.   Presumably, this safety is expensive to supply but there is an opportunity for smart entrepreneurs to offer optimal trade-offs to potential employees on the “safety” vs. “wages” choice.   In particular, the “true” wage is the sum of worker’s willingness to pay for their safety (i.e. the insurance value of that safety which I’ll refer to as the “safety wage”) and the actual (i.e. money) wage.   In a full information equilibrium, workers will self-select into jobs whose safety matches their own preferences and the system is efficient.
So what’s the problem?   How exactly do workers know before they accept their jobs and start working what the insurance value of the job will be?   For example, they don’t see missing fingers until they start working the assembly line.   Signals require realizations.   The safety wage is unobservable at the time of contracting.
What all this means is that there is an informational asymmetry at the heart of the labor market–potential workers don’t know if their potential workplace is the sort of place where fingers are lost until they see it for themselves, but bosses certainly know what they’ve spent on safety.   Thus, firms cannot attract workers by offering higher safety wages and so the industry wide money wages must equalize.   Given this, bosses offering higher safety wages (which are costly for firms) will either lose employees or be forced to raise prices–which would drive away customers from their product.   So bosses offering higher safety wages will either drop out of the market, or they will cut back on safety.
In equilibrium all workplaces are unsafe–workers don’t have the option of finding better working conditions since the market has driven a race to the bottom in terms of safety.
The same model, of course, applies to boss ‘jerkiness’.   Boss’s jerkness is not observed by workers until they are on the job and ‘non-jerkness’ is clearly costly.   Bosses are not just being capricious when they are jerks, as Cowen himself points out
I had a job in the produce department of a grocery store.  They made me wear a tie.  They did not let me curse.  Even if there was no work at the moment, I could not appear to be obviously slacking for fear of setting a bad example.  They had the right to search me, including for illegal drugs
 Failing to search would be costly–presumably–in terms of more stoned cashiers.    Presumably there are some, unlike Cowen, who do not like being felt-up for drugs.