A Simple Model of Free Speech

In light of the very tragic and gruesome attack on Charlie Hebdo Magazine today, in which at least twelve people are dead because a few others have taken offence at drawings, I wonder how great the expenses are, which the government will incur in protecting cartoonists and others from people who prefer to kill  rather than talk, before free speech begins to be restricted. Here is a simple model:

• Protection is costly, so ceteris paribus, the more protection is needed, the more appealing prohibitions on free speech become.
• People will tend to speak more freely when they do not pay the full cost associated with the protection which they want when peevish murderers are out to take their lives.
• So, governments limit the freedom of speech in order to economize on protection costs.

I am not aware of any outright limitations on free speech which have coincided with greater protection costs, but hints of that come from the barring of Robert Bruce Spencer and Pamela Geller from travelling to the United Kingdom. Mr. Spencer and Mrs. Geller are essentially unwelcome in Britain because of what they say. This model is upsetting because it hints that free speech is only possible while the nitwits are sufficiently mild-mannered.


Here is how free speech might be made to last even among plenty of world-record holders in cantankerous behaviour: Privatize security and law. Under a system of private law, individuals would pay providers of legislation a fee and if they desire legislation which is costlier to enforce that fee would be higher than if they desire cheap-to-enforce legislation. Other individuals might desire different legislation. The providers would work out agreements amongst themselves which outline how disputes between their clients should be settled, etc. This is all in David D. Friedman's valuable book The Machinery of Freedom, the first edition of which is available for free from his website.


Under this system, if an individual behaves in a way which others decide to find sufficiently annoying to want to kill him, he would demand additional protection services and because his protection agency has to agree with other protection agencies on terms to be upheld in times of conflict (since conflict is a lot more costly than peaceful bargaining), the threatened individual will tend to pay the full social cost of being annoying (or funny, really).


Sure, some individuals may decide to keep their mouths shut (and thereby not be so funny anymore) rather than pay more. If the sentiments among the humourless nitwits are strong enough, it might be that speech is highly restricted. However, speech remains free in the sense that it is accessible, albeit at a price. Of course, the more popular is one's humour, the likelier it is that one will pay that price. I can't imagine that the humourless murderers would really force up the price of free speech for a long time, though. If one take a look at the world and compares to how it was hundreds of years ago, one gets the impression that the murderers in Paris today are getting increasingly rare. This of course proves nothing, but one may hope the long-run trend continues.

The So-called Traffickers, Again

EU Commissioner for Migration, Dimitris Avramopoulos, has referred to the smugglers of people, topical in Italy during the past week or so, as "employing new methods in order to exploit desperate people" (BBC article). I don't know this fellow, but I am willing to bet the much-maligned "traffickers" have done far more for truly desperate people than Mr Avramopoulos is likely to ever do.

 

Remarkable statement? Not at all. Apply some economic thinking and it will be clear that Avramopoulos is quite the troublemaker compared to the smugglers. According to the same BBC article, Avramopoulos has called for "decisive and co-ordinated EU-wide action" against his moral betters. But if they face greater risks when doing what they do, they must charge a higher price from the refugees or their business is no longer profitable (according to the same BBC article again, the Italian Police calculate that the smugglers "made $3 million from the recent 359 illegal immigrants", but that is counting only revenues and not expenses and risk and the statement is probably made with a view to whip up opinion against the smugglers).

 

Has Mr Avramopoulos ever brought individuals fleeing war into comparative safety? If he has, the number saved will probably fade in comparison to just one ship full of refugees, and there are of course many ships. Made Avramopoulos objects to the high fares charged, but then he should advocate indecisive, rather than decisive, and uncoordinated, rather than co-ordinated, action so as to reduce the risks faced by the smugglers. The smugglers will still want to make a profit, but competition will force down the price they charge, just like no-one pays hundreds of dollars for a loaf of bread though any baker would want that kind of payment.

 

Maybe Mr Avramopoulos objects to the rough circumstances the immigrants face during their journey to the EU? But if he does, then he should advocate the same things as are listed above. Then smugglers are likelier to compete on comfort as well as on price. Compare again to other market situations, where one pays less for flying "no-frills" airlines, more for first-class train tickets, etc.

 

What does Mr Avramopoulos imagine is the best alternative for these illegal immigrants? Where are the shipping companies, airlines, buses, trains, etc., that take them to Europe for less money and with more comfort? If I were in the immigrants' position, I would probably wish to be "exploited" by the smugglers, too. And Mr Avramopoulos would condemn my saviours.

These things are not hard to figure out. So, unless Mr Avramopoulos be either ignorant or just plain stupid, what he really objects to is immigrants. I wish he would just say so, but I don't expect him to, because that would leave the door open for accusations of xenophobia and a lack of compassion with the unfortunate people who flee war-torn countries, characteristics which are true mainly of Bad Men.

The Migrants in the Port of Gallipoli

The news recently has contained reports from two distressed ships in the Adriatic and Ionian Seas. The burning one, and the one containing refugees, illegal immigrants, that was tugged to the port of Gallipoli in Southern Italy early on New Year's Eve (Newsweek's report). Apparently, smugglers of people often abandon ship if they fear an inspection by the authorities will cause them to be found out.

 

I would imagine that events such as these cause other "human traffickers" to be reminded of the risks involved in their trade and therefore to think twice before trying to carry more immigrants to Europe (or anywhere), and that is too bad. The people being smuggled evidently desire to come to Europe. The smugglers, at a price, are willing to take the legal risk to get them there. The evidence as far as I can judge suggests that the people of the recipient countries are mostly better off by the influx of others. What stands in the way for immigrants is typically nothing more than some silly legislation.

 

The reports from this particular incident mention a spokesman for the Italian Coastguard saying that a "disaster" was averted as the abandoned cargo ship could be safely tugged into port. While I am not clear on exactly why the ship was abandoned, it would seem that, in similar episodes, disaster could also be averted if the authorities simply stopped inspecting cargo ships in the first place. Then the people smugglers would lack one reason to abandon ship and smuggling would be safer. This would cause the prices which illegal immigrants have to pay to fall, and more people to get what they want.

 

The Yad Vashem Holocaust Memorial in Jerusalem intends to list the many individuals who helped the Jews escape the terrible fate which the Nazis wanted for them. The so-called "human traffickers" who carry illegal immigrants to better places are not in general nearly as righteous as the ones listed in Jerusalem; they resist legislation preventing free movement of people rather than the outright killing or enslavement of them, and their motives are pecuniary (morally neutral) rather than humanitarian, but in terms of what their actions ultimately accomplish they deserve far more honour than do the ones wishing to put a stop to their trade and prevent people from peacefully crossing borders.

No news report I have seen mentions what will happen to the individuals whose risky journey to Europe is now at an end, though I guess it will be some kind of lengthy internment at first, followed by the granting of asylum at best or deportation at worst. I hope they can somehow have a better new year than that.

How to Circumvent the Minimum Wage (Maybe)

Would it make a difference if the government were to command employers to pay nothing or more to their employees, as compared to a situation when the government did not order anyone about? The former might be annoying; akin to someone telling you over lunch not to stick your fork in the eye and turn (and threatening punishment if you do anyway), but aside from the nuisance of useless advice, maybe there would be no effect?

Perhaps somebody were prepared to pay for the "privilege" of working for someone else. Then the government's command would destroy a valuable opportunity. But the fact that a person is willing to pay to work somewhere indicates to me that it is really the "employer" who provides the service. Thus, the roles are reversed: employer is now employee and employee is employer, as "the present now will later be past, for the times they are a-changin'". Problem solved.

Which leads me to wonder, why do not prospective employees who would like to be working for the minimum wage but cannot because their work is not valuable enough simply hire their employers? The employers would do some sinecure such as guarding a wristwatch. This is easily done, since they might just carry it around, looking at it occasionally, say when wondering what time it is. The wage would be the minimum one and the wage paid to the previously unemployed fellow would be the minimum wage plus what little money his labour is worth. He is paid on net an amount less than the minimum wage.

A concrete example: suppose the minimum wage is $5.00. The worker's labour is valued at $3.50, so he hires his boss at the minimum wage to carry a watch around. The boss hires the worker at a wage of $8.50 to do some proper work. On net, the boss pays the worker $3.50 and it is all legal (and perfectly morally acceptable - if not why not?).

I am ignorant, but I hope to better myself by asking questions. So, is there a law against this or what is the reason these relationships do not exist? Maybe there are fixed costs to hiring someone, or maybe the additional income to the employer working for the minimum wage would be taxed fairly steeply, but then the otherwise unemployed could settle for less instead. If the transaction costs are too great, why not outsource the matching process to a third party that hires the employers on behalf of the workers, paying them the minimum wage ($5.00), and hires the workers on behalf of the employers, paying them $8.50. Such a middle-man could charge $5.01 and $8.51, respectively, for its services.

As far as I can tell, the data on who makes minimum wages show no wristwatch-carrying employers, so I am pretty sure this way of circumventing minimum wage legislation is not legion. But if even I can think of ways to get around idiotic price floors, then others should have developed much more sophisticated techniques. Maybe this is part of the reason why researchers ever and anon fail to find disemployment effects of increases in the minimum wage.

The Imminent (?) Brown Bag-Ban

California Governor Jerry Brown is poised to sign a piece of legislation banning single-use plastic bags (i.e. not "thick" plastic bags) in California, "reasoning" that "there are about fifty cities with their own plastic bag ban and that's causing a lot of confusion", in reference, it would seem, to chain stores having to send different bags to different locations. I don't know but I guess this ban is imminent. I have not paid attention to the issue until now so I cannot say. Hence the "(?)" in the title.




Unlike the Governor, I am not an expert on logistics and so cannot offer comment on the chain stores' shipment difficulties. However, it strikes me that locations differ in many other respects, too, besides whether their local politicos look favourably on thin plastic bags. For instance, chain stores presumably send more ice cream to any given retailer in San Diego than to one in Eureka, and fewer umbrellas to Los Angeles than to Crescent City (on the Pacific shore near the Oregon border). Maybe the consumers who preferred single-use plastic bags could accommodate confused retailers on these matters as well?

And why stop there? The beleaguered postmen all over the world must sort newspapers so that the right household gets the right subscription. Can't just all the newspapers merge and every household subscribe for the resultant paper? If these proposals seem silly, it is because they are. So is the proposal by the Sacramento legislators. Other things count beside avoiding "confusion". Maybe the cities which have banned single-use bag had some particularly good reason for doing so? I doubt this is true in every case, but it could be true for some of them. The one-size-fits-all agenda will certainly stop some people's confusion, but like all central directives it will be costly to those of a different size and strike a blow (albeit a small one) to the prospects of Tiebout competition.

Apart from the issue of confusion, there is also an environmental aspect. Of course, plastic degrades slowly and is thereby anathema to many environmentalists. I wonder, however, whether the extreme thinness of single-use bags, which I have frequently used, makes them more environmentally friendly than the thicker bags after all. For example, if the multi-use bag can be used, on average, a thousand times more than can the single-use bag but has a thousand-and-one times greater mass, it would seem plain that the multi-use bag is environmentally the worse option.




Perhaps the environmentalists and the politicos favouring the ban have already thought of all this and answered that multi-use bags are indeed better. If so, I have just missed the part when they said all this. But given the plethora of ill-considered policies in place throughout the world, ranging from minimum-wage legislation and CAFE standards to tariffs and drafts, my guess is that it is, for the moment, an open question whether single-use bags are actually any worse for the environment than are multi-use bags. And even if they are worse, if they are only a little bit worse it would likely still be a terrible idea to ban them since many people find it in their interest to use them and the environment is not all that counts.




PS. Notice in the title the importance of hyphens (-). Ban of the lunch bag would see the hyphen between "brown" and "bag" as in Brown's "Brown-Bag Ban". As far as I understand the English language, it is up to the writer whether he wants a hyphen between "Bag" and "Ban" as in the title of this post. I do it to connect the ban with bags rather than with bags which are brown.


PPS. This blog post seems to have momentarily disappeared for some reason. This is the second attempt at posting.

Another Day of Nonsense

I have previously written about special days on which certain interests ask that we please think about them (here and here, for instance). On Tuesday, it was "Earth Overshoot Day" or "Ecological Debt Day", another day of nonsense on which humanity's consumption of resources supposedly exceeds Mother Earth's capacity for regenerating them. This cannot mean that there isn't anything left to consume until New Year's Day of 2015, because when shopping, I have observed several well-stocked shelves since Tuesday. Rather, it must mean that "outtakes" of renewable resources are greater than the amount which the Earth can sustain in the long run, given some trends and estimates of future consumption, and that by-products of humanity's consumption, such as greenhouse gasses, are greater than the Earth can absorb.

 

Notice that this is about renewable resources, not non-renewable (or, more accurately, resources which regenerate very slowly) ones such as oil. So this particular day of nonsense is one which calls on people to be "aware" or the "problem" of things like deforestation or overfishing. Now there is the well-known tragedy of the commons argument to support some of these fears; if the individual's outtake has no discernible effect on total supply, very many people will take out too much, resulting in depletion. Overfishing, for instance, results from a lack of property rights of the oceans and seas (or of difficulties in introducing them, since fish are mobile creatures and pieces of the ocean are hard to close off). But fish farming, the successful raising of fish in tanks for human consumption, elegantly solves the problem. The fishermen in these cases can secure themselves of a future supply by leaving some of the current fish to reproduce. Not all kinds of fish thrive in such circumstances, but as far as I have been able to understand there is a great deal of progress in this field.

 

As for deforestation, I do not see any reason for rational fear. Landowners who leave nothing to grow for future cutting will suffer if future prices are expected to be sufficiently high. If landowners expect trees to be in short supply in a couple of decades, they will cut fewer trees and grow more trees now. There is a qualitative similarity here with the treatment of non-renewable resources. If I guess that some resource will near depletion in a couple of years, it would make sense for me to hoard said resource right now (or leave it unharvested), provided the eventual pay-off exceeds what I might expect from putting my money elsewhere. This means, as Harold Hotelling realized, that the price of non-renewable resources rises with the interest rate (actually, they have been fairly constant for many decades as far as I know, which is odd, but consistent with a vast array of explanations such as surprise finds). Renewable ones are not part of Hotelling's treatment. Hardly indicative of approaching doom. Those afraid of the message of the "Earth Overshoot" crowd should ask themselves what reasons there might be for renewable resources to be managed so much less well than are non-renewable ones.

 

In addition to the aforementioned commons problem, uncertain property rights may be such a reason. If I fear expropriation, I am unlikely to behave in the way described above to help stave off depletion. However, this reason seems a poor one in general; while property rights are insecure in many parts of the world, they should be sufficiently secure in other places so that more is conserved there in response to overzealous usage elsewhere; if supply will be very short in places with insecure property rights soon, it is an added pressure to conserve now. At any rate, this takes the discussion into one about non-renewable resources and so is a digression.

 

Many renewable resources are well-managed and will be in good supply in future thanks to property rights. Where property rights do not exist or may be impractical there are some reasons to worry, but as shown by the fish farming example there are solutions even there. There is no known solution to all of the commons problems, though. Global warming is the best-known such instance. The obvious solution is to tax emissions of greenhouse gasses, but if this is done, production is likely to shift to low-tax countries, putting a downward pressure on green taxes. Global agreements are therefore likely to fail. Perhaps a better approach is to tax the carbon content of final products, so that if so and so many tonnes of greenhouse gasses went into the production of my Weetabix, just tax the delicious breakfast cereal where it is sold. I can imagine this would impose harsh demands on producers and be tricky to calculate, but carbon taxation, though theoretically attractive, is certainly not going to work.

 

However, as economist David Friedman has repeatedly argued, in the case of global warming there is really no good reason to expect present temperatures to be optimal. Maybe greenhouse gasses should be subsidized instead? There is also a case to be made that any political solution will be polluted by the - completely rational - idiocy of the average citizen on the issue. For example, in this paper, Chicago Booth's Luigi Zingales Northwestern Kellogg's Paola Sapienza show that among the general public, almost two-thirds prefer car standards - such as CAFE standards - to a carbon tax, as compared to the economists' widespread (92.5 per cent) preference for carbon taxes (though I believe carbon taxes will fail they are certainly better than CAFE standards). At any rate, the worries of "Earth Overshoot Day" are vastly overblown.

On Disagreeable Disagreement

Boston University's 2012 presidential hopeful and Economics Professor Larry Kotlikoff recently pleaded with Nobel Laureate Paul Krugman to stop being so rude to his intellectual opponents. If Professor Krugman's point with his abrasive debating style is to better advocate his opinions (and I don't know if it is, it just seems like one candidate to explain why he writes his popular column and blog for the New York Times), it strikes me that his rudeness may score points with some subset of like-minded folks who, for one reason or another, have no problem with abrasive commentary, but otherwise fail to advance Krugman's views.

 

The reason is that advocacy is futile, but the point of this blog post is not to talk about Professor Krugman's advocacy or his disagreeable debating style in particular, but rather about disagreeable disagreement in general. If somebody were to tell an adherent of Ideology A that he likes Ideology B, the result may be a fierce and infected dispute. The thing is that this makes about as much sense as scolding a driver of an SUV - or whatever those large cars are called - because he contributes to global warming. It makes about as much sense because the impact on policy and the impact on global warming are both less than a drop in the bucket from an individual's liking some ideology or an individual's driving a car which consumes a great deal of petrol. Your having views different from mine will not affect the world I live in, so why should I display anger about it?

 

Of course, the disputants may succeed in changing one another's opinions, but that success is worth very little in combating the disliked ideology or global warming. More to the point, what reason is there to expect hostile argument to be more successful than a pleasant dialectic? I would think that the psychology of the situation suggests that pleasantness encourages further interaction and thereby increases the odds of conversion, since pleasantness makes it more difficult for one of the disputants to throw up his hands and leave. It is hard to be rude to nice folks.

Maybe the reason for disagreeable disagreements is that in small, hunter-gatherer societies, intimidation, while just as epistemically worthless as it always has been and always will be, could win the "policy" debate. Because humans evolved under such conditions, hostile argument has survived. Such a pity.

HT: Greg Mankiw

Schumpeter's Calculation and the Present State of Things

In his great book Capitalism, Socialism and Democracy, Joseph Schumpeter envisioned further economic growth eliminating "want" (an unfortunate choice of word, since wants are really limitless, but what is meant is destitution or something like that) in just a few decades. The kind of economic growth which would achieve this immense feat would have to be in line with the growth numbers which had been seen during the past century or so up to his writing the 1947 edition of the aforementioned book. On page 67, for instance, Schumpeter notes the availability of modern dentistry to workmen which Louis XIV would not have obtained even if he had spent all his wealth. On page 69, Schumpeter continues:

"Now if the system had another run such as it had in the sixty years preceding 1928 and really reached the $1,300 per head of population, it is easy to see that all of the desiderata that have so far been espoused by any social reformers - practically without exception, including even the greater part of the cranks - either would be fulfilled automatically or could be fulfilled without significant interference with the capitalist process. Ample provision for the unemployed in particular would then be not only a tolerable but a light burden."

The emphasis is in the original. According to the BLS's inflation calculator, $1,300 in 1928 is $17,963.80 in 2014, well below even half of the American GDP per capita. So by the Great Austrian's reckoning, spending on transfer payments should be a very low fraction of GDP, indeed. Yet the welfare state consumes a lot more today than it ever has before. For instance, Charles Murray's Coming Apart cites the figure $1,500,000,000,000 (called a trillion and a half in America; I wonder if numbers have ever got this big in the UK, but Britons would call the figure one and a half billion) spent purely on income transfers in America, and throughout the West, total government spending as a share of GDP is typically around 40 per cent.

 

Now consider the $1.5 billion (or "trillion") figure and relate it to what Schumpeter had to say about eliminating want. It comes to almost $5,000 per American (of whom there are almost 320 million according to the Census Bureau), which is not that much less than one third of the $1,300 per-capita GDP in 1928 that Schumpeter nicely argued would suffice for wants to be eliminated "without significant interference with the capitalist process". But almost a one-third of per-capita GDP being spent on transfers is surely significant interference. Yet there remains poverty, although it is incredibly rare by world standards. What gives?

 

These facts indicate to me that the welfare state is not really about helping poor people. Moreover, there is the suspicion that there are laws in social science which make it incredibly difficult for welfare programmes to fulfil their ostensible purpose. One such candidate is Director's Law, named after University of Chicago Law Professor and Economist Aaron Director. It is not really a "law" as much as a vast and coherent set of empirical findings, for instance that tuition at fancy universities is often subsidized even though college students typically come from fairly affluent families.

 

However, there is some logic to Director's "Law", independent of observation. If a welfare programme is designed to help the poorest decile (say), it is plain that this is paid for mostly by persons far richer that that. The poorest decile is not a very useful group for office-seeking politicians, who must seek the approval of many more people than these in order to gain power (besides, people this poor tend not to vote much). Consequently, the winning proposals will have money shifted from fewer people than 90 per cent of the population, and to more people than just the poorest decile. Programmes specifically directed at the poor will tend to go unfunded.

 

What about expanded programmes? Everyone wants to be a beneficiary of such programmes, so they might easily grow a great deal, but once they have grown enough, the bottom ten per cent may no longer be such a valuable part of whatever coalitions form. Expanded programmes are palpably more attractive to interest groups than are narrower ones, and so those who can organize politically will tend to secure the benefits for themselves. Thus, farmers and other small and non-poor groups appropriate a lot of transfer money by good lobbying. Again, the poor folks lose out.

In addition, the poor may tend to be disadvantaged in utilizing whatever programmes for which they qualify. To get good health care, it helps to be articulate and to already know a bit about the system (for instance, by having friends within it), traits which the poor may well possess, but perhaps not as much as middle-class individuals. Services directed at poor areas may also be at a disadvantage when it comes to attracting talent to provide them. I can imagine good teachers shunning schools in poor areas. Raising the salaries in those schools will attract better talent, but as has been shown, this is politically difficult to do.

Schumpeter's calculations were surely correct and, on merely technical grounds, poverty could be eliminated today even with a much smaller government. It just happens that that is not how politics works.

Roger Myerson's Commonsense Case for Decentralism

Over the past several years, Chicago Economics Professor Roger Myerson has blessed those around him by taking many opportunities to  discuss the numerous advantages of decentralization of political decision-making. Why does centralism lead to poor(er) performance by governments? Because it causes leaders to lack the local experience and knowledge necessary to be nationally successful (or less unsuccessful). Compare decentralized solutions to the state's management of local issues, incentives to learn about local issues will surely be greater under the former regime than under the latter one, in which conditions in any one area constitute only a small part of some pool from which rewards (rent) may be extracted.

For instance, Myerson explains the topical issue of the unruliness after the regime changes in Iraq (starting 2003) and Afghanistan (2001) by the fact that the rules instituted by the coalitions responsible for the regime changes are insufficiently decentralized. If anyone remembers Paul Bremer, he was the person in charge of the occupation of Iraq until the reconstructed constitution had been ratified, and he would not permit local politics to develop until this had happened. Other tendencies towards centralism have been seen in Afghanistan.

 

In a recent article written for the Huffington Post, Myerson applies his ideas to the recent brouhaha in the Ukraine. Myerson argues that provincial governors, the supervisors of state administration in the provinces of the Ukraine, have neither knowledge of, nor significant stake in, local conditions in their provinces, because they are appointed centrally. By contrast, locally-elected counsellors are better at determining where the winds are blowing in their provinces. This local knowledge comes in handy when Vladimir Putin gives them a ring, perhaps with promises of rewards for various pro-Russian manifestations which could potentially result in annexation. Myerson highlight's Putin's skill in manoeuvring local conditions, a likely consequence of his experiences working within the local authorities in St Petersburg, as well as with provincial relations to Moscow under Yeltsin.

 

I strongly agree with Myerson that decentralization is the best way of stabilizing the situation in the Ukraine, as well as in other unruly parts of the world. However, there are probably many ways of achieving this outcome. For instance, the nationally-appointed governors of the Ukrainian provinces mentioned above could be paid for performance in their provinces, incentivizing them to gain more local knowledge. This will not look very decentralized, because the governors are still appointed as before, but - depending on the exact design of the reward structure - the effects could be identical.

 

The question remains why states would become centralized to begin with. One explanation is that foreign interposing in national affairs is an added channel for rewards and punishments for the national leaders, which may cause them to neglect local conditions when strings are attached. I don't know, but I think this may be something for me to consider as I resume my hiatus.

The FIFA World Cup and the Poverty of Many Brazilians

Today is the start of the FIFA World Cup, held in Brazil. I will likely watch a game or two, but I don't know that much about the subject. Many economists have offered their predictions (e.g., here and here). NYT's 'The Upshot' has an extensive poll about people's attitudes towards the "beautiful game", which shows sympathies across nations (unsurprisingly, Argentinians want England to do poorly). Me, I won't offer any predictions at all. I do note, however, that Ladbrokes have Brazil as their favourite to win the lot, likely beating Argentina in the final. For higher odds, "dark-horse" teams with plenty of youth like Belgium and England might be worth betting on.

But the main point of this blog post is the discussion about Brazil hosting a costly event while many Brazilians live under highly unenviable material circumstances. Recent protestors have campaigned against spending money on building stadia rather than on housing. I don't know who's spending the money, which I would argue is extremely relevant to the issue. If it is private individuals, then I do not see any problem with building stadia rather than handing out alms; although the latter would of course be a very nice thing to do, the moral principle that one should not spend money on one's self because others can be helped cannot be maintained in a world of insatiable wants. Individuals can help others if they want to, but forcing them to do so is a breach of their sovereignty, their dignity, and their sense of being in control of themselves.

However, from the fact that the President of Brazil, Dilma Rousseff, has defended the World Cup, I surmise that it is really the Brazilian government which are constructing stadia. If there is to be a government, it should arguably spend tax-payers' money on socially useful projects. So then maybe the protestors have a point. By the argument made above, maybe the government should not have any money to begin with, but once the "damage has been made" the money might as well be spent wisely.

In this case, I do not see how the protestors' point is any less valid when applied to welfare payments to citizens of rich countries. After all, assuming away concerns about disincentive effects to work from transfer payments, those recipients are relatively well-off and not kept from abject squalor by hand-outs from the state. If this money were instead directed to the poor folks of the favelas (and again, if the disincentive effects to work are assumed away), a far greater success of poverty alleviation would have been achieved.

It may be objected that transfer payments going abroad only drain the nation's economy, but why should the calculus of altruism be restricted to nations? The loss to one "nation" is outweighed by the benefits to another. As long as the greatest wants are satisfied first, this means global gains of vast proportions, indeed. The fact that governments palpably do not work along these lines suggest to me some deep underlying problems in the mechanics of politics.

Of course, rather than sending money to Brazilians (and before them Haitians, Malawians and many, many poor people of other nations), rich countries could do something for which there is precedent, namely open their borders to these poor individuals. Food for thought while watching the games.

Are Germans Who Voted for the Nazis in the 1930's Morally Blameworthy? If so how much?

Is a German citizen who voted for the Nazis in the 1930's morally blameworthy? Why should he be? His vote was not pivotal in giving power to Hitler. If his vote was still a small force for evil, then abstaining for voting would also have been a force for evil, albeit a smaller one, because a vote for no-one is a vote which could have been placed on someone relatively "good" but was wasted. (All of this blog post assumes that power does not incentivize swayholders to pursue very particular actions, so that different people would actually act differently if given power.)

 

If voting decisions are morally important, then so are very many other decisions as well. In life one faces a vast array of ethical problems but time permits satisfactory handling of vanishingly few of them (how should I raise my kid, how well should I take care of my parents, should I tell my friend's wife if he has been unfaithful, to name just some of the bigger ones). I recently wrote about these problems on this blog. The fact that several ethical problems deserve much more of an individual's time than does voting need not lead to immoral political decision-making if all but a few voters randomize, with the remaining few voting in accordance with sound moral theory (whatever that is), for then moral soundness wins in expectation. Alas, this is a pipe dream.

 

The - absolutely correct - view that only individuals make decisions leads to biases in the infinitesimal moral thought devoted to political decision-making. Akin to Frédéric Bastiat's famous distinction between the seen and the unseen, the vast majority of people who - rightly - devote extremely little moral thought to political decisions are apt to think mostly about what is obvious and little about what is hidden below the surface. Thus, they swallow ethically challenged nonsense such as the proposition that it is better to pour money on war-torn countries than admit more refugees because the refugees really want to stay where they are, or bans on trade in internal organs on the basis that, were it allowed, poor people might sell them, as if being given an option one needn't use is so horrible.

Once part of a large-scale apparatus for collective decision-making, there is nothing one can do to avoid doing harm inside this apparatus, except to neglect far more important ethical problems deserving of much more attention, because for them what one does will be pivotal. Alas, what is morally blameworthy is the system itself. A market for states would erase these moral shortcomings, so that one joins a state like one joins a club, pays fees ("taxes") and enjoys the benefits and switches to another state-club if one does not like one's present one.

What moral shortcomings might such a system produce?

Obama's Queer Praise for Peace Officers

In his 9th May proclamation praising American peace officers, POTUS described their work thusly:

As we mourn the fallen, let us also remember how they lived. With unflinching commitment, they defended our schools and businesses. They guarded prisons; patrolled borders; and kept us safe at home, on the road, and as we went about our lives. To their families, we owe an unpayable debt. And to the men and women who carry their mission forward, we owe our unyielding support.

The thing is that some of these things are actually quite bad and reflection upon just a couple of easy cases should lead most folks to strongly doubt whether they really do owe the families of perished peace officers an "unpayable debt".

 

For instance, border patrols keeps productive individuals out who would by most estimates vastly constribute to American productivity. Perhaps the peace officers' commitment to this particular cause should flinch. The gains are, of course, greater still if one takes a global perspective (see Michael Clemens' Journal of Economic Perspectives article about it here for some truly vast estimated benefits).

 

Keeping the population safe is surely an overstatement. The peaceful folks who choose to take up drugs or swap labour for dollars at less than the legally stipulated minimum wages are not kept safe by those who unflinchingly enforce legislation. They certainly owe neither gratitude nor support to the law enforcers. Should they be thrown in prison for their peaceful activities, they may feel justifiably upset that those guarding them do not relent in "carrying their mission forward".

 

While reasonable people might hesitate to agree that they owe an unpayable debt to perished peace officers and their families, one should also remember that peace officers are, on the other hand, in no way worthy of scorn either. Milton Friedman spelt out the case that bad legislation should be enforced with particular fervour, so that the sufferers would speak up and thereby teach others the terrible consequences of bad legislation. More generally, it would be most uncivil to condemn a group of professionals who do indeed carry out much valued work, too. Disagreement with Obama's praise should only be partial. Where his praise does not apply, it is simply a natural consequence of the dilution of moral thought that comes with collective management.

Much of what peace officers do is indeed praiseworthy. The same, however, may be said for the actions of dust men and hair dressers. Why not? Respectively, they keep our streets sanitary by removing disgusting filth out of our sight and they help make us presentable so that we may go to work without feeling shame. One might add that in the process of doing these heroic deeds there are no causalties of failed ethics (at least no intended casualties) such as perished illegal immigrants or imprisoned drug users.

I have mentioned just dust men and hair dressers, but there are many, many other people worthy of similar praise. The calendar is not long enough to properly celebrate all their services, so it is a good thing that there are markets to reward them.

Hat tip for the proclamation to EconLog's David Henderson

The Economics of John Steinbeck's 'The Grapes of Wrath'

I recently wrote a review of the lovely book Nightfall, and thought I might blog about John Steinbeck's The Grapes of Wrath, too. It is a classic and a true example of the Great American Novel, so my praise for its terrific readability, wonderfully captured personalities (including accents) and chillingly evocative illustrations of despair would in all likelihood be a reprise of what other critics have said before. Instead, I will focus on how some of its truly amazing writing was sadly wasted on bad economics and misinformed history.

 

The economics is really terrible, even Luddite. Remarkable statement? Not at all! In the fifth chapter, Steinbeck discusses the mechanization of farming. A farmer using machines can work greater areas, so other tenant farmers are let go. These farmers tell the tractored one that he makes his three dollars a day at the expense of the redundant farmers' ability to feed their families, and then talk in a threatening fashion about performing many violent acts in response to their sorry situation.
     The problem here is that there is no fixed number of jobs. Anyone who reads The Grapes of Wrath will be unable not to feel sympathy for the Joads and down-and-out families and individuals like them. Nevertheless, one should not let such sad facts permit poor economics. The illogic expressed in the idea that mechanized farming costs jobs deserves a sound thrashing. About two hundred years ago, nineteen out of twenty individuals were farmers while today it is well below one in twenty. What has happened is in great part that farming has become more productive due to advances like the Green Revolution and mechanization, so by Steinbeck's logic something like eighteen out of twenty people should be unemployed today, or wages would have been competed down to peanuts.
     This is palpably false, and the reason it is false is that there are attractive alternatives for farm labour, employed or unemployed but probably the alternatives are more visible in the latter case. A common finding is that a person's reservation wage goes down the longer he stays unemployed, which sounds fairly reasonable. Suppose a piece of legislation prevents mechanization from destroying jobs which pay a dollar a day, and that an entrepreneur could offer work at 85 cent a day. Unmechanized farming will shed workers much more slowly than will mechanized farming, causing prospective industry to struggle when it could flourish. When, ineluctably, workers are eventually laid off the idea may be gone.
     Unemployed workers possess skills, a willingness to apply themselves and other qualities which are praised by the prospective employer. Something else did come along for those eighteen out of twenty former farmers, and something else will come along whenever willing workers can offer something to a willing employer, be it work at a very low wage if nothing else.
     Now this is a point which is surprisingly hard to argue, even though it must be true. The retort is obvious: "If jobs are to disappear, at least tell us what will come instead". The truth is that no-one really knows what progress will bring. But two things are beyond dispute: (1) workers kept in obsolete unproductive jobs wastes resources, and (2) technological progress has a truly amazing record, but it can be delayed severely with the adoption of sufficiently wrong-headed policy.

Where Steinbeck gets his economics right, it conveniently happens to support the points he is trying to make. Steinbeck has some grasp of game theory; for instance, as he shows when he deals with strike-breakers' continued failure to bargain for a higher wage due to the fact that it is individually rational to accept the lower wage. However, it is a shame that Steinbeck gives no hearing to the argument that the higher wage sought by the strikers would bring unemployment to some who could support themselves (just barely) on the lower wage.
     The poor economics is particularly pernicious because it is mixed with instances of better and clearer understanding. Part of the above is one such instance; another is the good grasp of social interactions expressed on page 36 (of the Mendarm 1990 edition) illustrating the deep squalor of the Okies: "We got no clothes, torn and ragged. If all the neighbours weren't the same, we'd be ashamed to go to meeting". This does not really require great perception, but it is accurate. Misery loves company. An unkempt appearance is less of a bad thing if everyone else is the same.

So much for the appalling economics. The Grapes of Wrath is not even as good an historical statement as is often believed. In the 25th chapter, Steinbeck blames the profit motive for the deliberate destruction of farm produce without noting that this was profitable only because the federal government were paying for non-production. I would be ill at ease arguing that the free market always produces stable economic conditions, but it is more than a stretch to blame the free market for the shocking non-production.
     In 1942, there was actually a decision taken by the Supreme Court, Wickard v. Filburn, according to which farmers were legally prevented from producing even for on-farm consumption if this production exceeded the limits imposed during the Depression. So the profit motive restricted supply only through ill-conceived interference.

But Steinbeck's is a society of conflict and whoever owns or attempts to make a profit must be pitted against those who do not own (as much) and do not (in an obvious way) try to make a profit. This leads to the above kind of nonsense. A natural question which is conspicuously absent from Steinbeck's (otherwise truly) Great American Novel is who is currently giving the workers a better way of supporting themselves. Can the greatest scourge of the hard-up workers really be their employers? Those who might do more is everyone who is currently not engaged in any productive activity, not those who are.
     In conclusion, The economics of The Grapes of Wrath is shocking in two senses: The first is its poverty. The second is the way in which the story of extreme destitution plays on emotion and thus loads the dice against careful analysis. To wit, the tragic story may shock the reader into accepting poor economics. But the laws of economics do not stop working because circumstances are bad. Thinking that they do adds upon the tragedy.

What Is Wrong with Inequality?

Thomas Piketty and the financial crisis have prompted talk and concern about "rising levels of inequality" (in both wealth and income) in recent years. Paul Krugman repeatedly talks about those making most money (the top 0.01 per cent, I believe) as "the Oligarchy", and POTUS has urged people deemed rich to pay "their fair share".

 

A simple question may motivate this blog post: "If A willingly gives B money for some product or service and B piles it up, perhaps only to make a bigger pile, why should there be a problem with that?" Maybe the transaction involved externalities, but suppose that it did not. If transactions of this type happen many times, the vast array of possible outcomes includes some in which B becomes very wealthy, indeed. This blog post collects and evaluates some arguments why inequality is a problem. In my judgement, none of them does very well.

1. The Utilitarian Argument: Because the utility of additional wealth or income is lower the greater is the wealth already possessed or the income already earned, many utilitarians like to argue that wealth equalization (or, as much of it as is possible without disincentivizing effort) raises total utility because the resources that did little for an already rich person have a greater positive effect on utility for the indigent. The problem with this argument is that there is no way of knowing whether a wealthy individual has become so because even after having amassed millions of dollars he really wants additional wealth. Marginal utility is surely lower for him when he makes a lot of money, but it could still be greater than even the utility of the first dollar for a penniless person. Maybe those preferences are the ones which lead to large fortunes? Conversely, maybe poor folks do not care for even small fortunes, and that those preferences are why they remain poor?
2. The Idealistic Rational Egoist Argument: This one is also known as the Rawlsian argument. The argument is idealistic because it envisions a scenario in which future generations must agree upon certain rules on how society is to be governed, and it is rational and egoistic because the individuals behind the veil of ignorance are assumed to care only about themselves and to realize that, since they cannot know their position in society, they can sacrifice potential fortune for guaranteed security. I have not read Rawls' book in full, so I am going out on a limb here by critiquing it. If anyone can correct me, I will be very happy, but it is my impression that Rawls envisions realized (post-veil) society as consisting of rather static positions, with individuals denied personal advancement, even if they apply themselves. If I am right, I do not see how the Rawlsian argument can be saved. Certainly, there are some positions in society from which great advancement is really hard, but there are hardly any positions from which it is impossible. Maybe the Rawlsian point is that no effort should have to be so very high? But if effort can improve lives, why should individuals behind the veil of ignorance ignore it in devising society's rules?
3. Inequality Aversion: Interesting laboratory experiments, mainly associated with economist Ernst Fehr and collaborators, have convincingly shown that persons playing the Dictator Game choose to share what they are given with co-players, even when recipients have no way of finding out who it was that chose to share or not share some given amount. Many smart economists have tried to incorporate these queer preferences into standard models (Matthew Rabin comes to mind), but, unfortunately for them, I believe these efforts are not really going to be remembered in fifteen or twenty years. John List came along and showed that the received wisdom from the laboratory experiments was largely in error. For instance, if participants in these experiments were made to work for their money, or if, in addition to the possibility of giving an option to steal was introduced, the standard results were mostly restored. Since it is not robust to variations of the sort introduced by List, inequality aversion is a poor argument against inequality.
4. "Guilt-by-Association" Arguments: Finally, there is a whole class of arguments in which opposition to inequality is a by-product of opposition to "really bad" things that happen to be caused by inequality. Maybe inequality makes some few people very politically powerful, so that they monopolize leadership positions in their political jurisdiction and keep others down as best they can? I do not have any evidence on this and I doubt the accuracy of this particular example, but I only mean to suggest the possibility that inequality might bring about disagreeable things. The obvious retort to these arguments is that, since they do not provide any principled opposition to inequality, inequality may persist, or even increase greatly, if the things that are actually bad are solved in a way that does nothing to inequality.

Have I been unduly unfair to some or all of these arguments? Or have I neglected other arguments against inequality? I will be happy to entertain suggestions, but in the meantime I will have to tentatively believe that no really good argument against inequality exists. And because attempts to "rectify infelicitous wealth distributions" necessarily violate private property and voluntary arrangements made on its basis, I will also tentatively believe that there is really nothing that should be done "against" wealth (or income) inequality.

The Power of Ideas, Eh?

According to a passage in Lord Keynes' important General Theory, the world is ruled by "little else" than the ideas - good and bad - of economists and political philosophers. Virtually every discussion I have seen on Keynes that mentions this belief he had notes it with approval. For instance, I have heard both Milton Friedman and Gary Becker argue that academics' seemingly unimplementable brain-children have a good chance of taking over if old ideas result in failure, which they will if not good enough.

Yet I wonder what the evidence is that this view is right. To be sure, any action that was in some way premeditated may be said to be the result of some idea. To give more content to Keynes' position, I shall take it to mean that those ideas rule the world which have not been shot down, by logic or by empirical research, a generation or so before implementation.

To motivate my quaere, I set up a rivalling hypothesis according to which some ideas indeed do rule the world - namely, the ideas which translate into the greatest returns to whatever ruling politicians care about. These ideas are different from the ones discussed above, since they may never have enjoyed any academic respect at all (which does not necessarily make them bad ideas).

 

A common example of a good idea is free trade. Within the profession of economists, finding anyone willing to argue the benefits of autarky is almost surely impossible. For good reason. Yet, there remain many restrictions on the free movement of goods, services and labour around the world. If ideas truly rule the world, it does not seem to be the ones Lord Keynes had in mind.

 

Against this, one might argue that the world has become significantly more liberal with respect to free trade over the past few decades. Maybe so far Keynes' hypothesis is tied with mine, because I know of no good way to judge how much trade liberalization is enough to justify the proposition that academically respected ideas do eventually prevail.

Like autarky, rent control is a very bad idea. Swedish economist Assar Lindbeck has likened rent control to bombing as a method of destroying cities, yet rent control persists. Again, maybe its prevalence has shrunk in recent times (I don't know), making the truly venerable ideas (i.e. the ones respected on logical and empitical grounds and hence by academics) the really influential ones over time. But how influential is influential? The difficulties remain.

Perhaps one could claim that the existence of cycles in bad policy (such as the introduction of new trade restrictions after periods of relatively free trade) is evidence against Keynes, provided no cycles occurred in the ideas concerned at the relevant time (no apparent Lazarus ideas). Yet, at best this could only push Keynes back a little bit, because the obvious retort is that bad policy would have risen from the dead even more forcefully had it not been for academics' having buried the ideas which supported said bad policy. Alas, I do not seem to get very far in judging this contest between ideas about ideas. But if testing Keynes' proposition is so hard, what makes so many others so confident that Keynes was right?

A related issue is whether the belief in the power of ideas incentivize people to think harder about world problems. Perhaps, but if so, the incentive should have greatest bite among those who want to influence the world, which could be good or bad. Those wishing to influence society are apt to also want to simply understand it if they are to have any ideas, so the belief that ideas rule the world may not be too strong an incentive after all. At any rate, one should not hesitate to offer arguments against a proposition just because belief in its accuracy may have certain good consequences.

"Equal Pay" Legislation

Last week was Equal Pay Day in America, this year it fell on the 97th day of the year, marking the amount of additional time a woman needs to work to earn a man's wages. As I have asked before on this blog, it is a mystery to me why anyone would expect men and women to have similar averages in anything they do, since there are good evolutionary rationales why we might differ. Not that differences are necessarily large; the pay gap is not really the 77 cent on the dollar, as the organizers of Equal Pay Day presumably claim, but rather something like five cent once factors such as different occupations and job experience have been taken into account. No-one really knows why there remains a (much smaller) gap and it is an intriguing question.

 

But in this post I want to focus on attempts to equalize pay by legislation under the hypothesis that what really causes the pay gap is employer discrimination against women. Suppose women and men in some occupation possess equal amounts of human capital and are equally productive workers. If employers discriminate against women, they are willing to forego some money income in order to satisfy their taste for discrimination. How much profit depends on the strength of their preferences for discrimination. Since non-discriminating employers are willing to pay a man's wage to a woman, women will prefer working for such employers.

 

This means that positions available at non-discriminating firms be first to be filled, followed by positions at firms which discriminate only a little, followed by firms discriminating a little more, and so on. The employers with the strongest anti-woman preferences will never hire any women, because the women all choose to work for non-discriminating employers who are willing to offer higher wages.

 

The last position which was filled might have paid something like 85 cent on the dollar, but the woman who filled that position - the last woman in the work force - has no better options, so she takes it. Now what happens if all firms are ordered by the government to pay their female employees one hundred cent on the dollar ("Equal Pay for Equal Work")? The 85-cent-on-the-dollar woman is fired at the first opportunity. There is no way her employer will pay a man's wage for her job. In fact, all women are fired whose discriminating employers do not value their work the same as work by men. Maybe the government will make it illegal to fire women as well, but then fewer women would get hired in the first place, so unemploymet would still be the ultimate consequence of "equal-pay" legislation.

 

I wish this analysis were original with me, but it is actually found in Gary Becker's The Economics of Discrimination. It is for the above reason, also, that relatively great unemployment among women or among some minority is probably not explained by discrimination provided firms are not required to pay the same to all groups. Because if firms are allowed to reduce wages for discriminated groups, the incentive to hire members of non-discriminated and discriminated groups will be the same once different wages incorporate tastes for discrimination.

 

I don't know, but I think that, if women are significantly discriminated against by employers, "Equal Pay" legislation is bound to either fail or be fairly toothless given the above considerations. I would not expect governments to introduce legislation which results in significant and relatively great unemployment among women, and if they did I would expect other policies to follow which provide loop holes for discriminating employers, effectively annulling the first piece of legislation. Therefore, if a forceful "Equal Pay" act ever comes into existence, I would take that as evidence that women are not suffering significantly from discrimination in the labour market.