Between 1958 and 1980 the number of businesses in the U.S. economy increased from 10.7 million to 16.8 million. But the relative economic importance of small business in the overall economy declined over this period. Between 1958 and 1977 the share of employment accounted for by firms with fewer than 500 employees decreased from 55.5 percent to 52.5 percent. Between 1958 and 1979 the share of business receipts obtained by companies with less than $5 million in receipts declined from 51.5 percent to 28.7 percent. Between 158 and 1977 the share of value added contributed by firms with 500 or fewer employees decreased from 57 percent to 52 percent. (Zoltán J. Ács, Bo Carlsson, and Charlie Karlsson 1999, 7)
That’s an enormous relative increase in the importance of big businesses. Consider that change in light of macroeconomic conditions and political thought at the time. It seems almost like the dark ages. I think it also shows an apparent correlation between business, government, and ideology. Since the mid ’70s, small businesses have gained importance in the U.S. economy while also leaving the dark ages of mid-20th century illiberalism.
Arthur Chu, the “mad genius” of Jeopardy has continued his streak with the power of game theory! But apparently many viewers are upset. Chu is playing within the rules of the game, but he’s been accused of being unsportsman like. He responded:
‘Being unsportsmanlike is calling your opponents names or refusing to shake their hands. It shouldn’t apply to playing the game as hard as you can and trying to win as hard as you can, within the confines of the rules.
‘Not giving my opponents a chance to answer’, to me, is just like not giving your opponents the chance to shoot in basketball or not letting them get within range of the goal in soccer. It’s not ‘unsportsmanlike’, it’s playing defense,’
We know that rules affect how people compete and that in spectator sports that affects how fun it is to watch. So Chu’s success might mean that Alex Trebeck has to change the rules to give viewers what they want. If he does, this is what I would have to say:
The essence of a bubble is that you can flip an asset one more time before the bubble bursts. Most people know it will burst, but as long as prices are still rising, we might be able to fleece one more sucker. But we have to get the timing right or we might be that sucker.
But what about college? I can’t sell my degree (and there are other things that Jon Lajoie can’t do with it, but that’s neither here nor there), so I can’t flip it. But I can get rents on it. I give up $100,000 to get a degree with a present value of $300,000, and I feel peachy-keen. That’s a recipe for increased demand leading to higher tuition, sure, but could there be a bubble?
Let’s start with equilibrium so we have a counterfactual. Basic supply and demand here: higher incomes for college grads increase demand, and increased demand increases prices. In equilibrium the marginal student’s value of the degree will be equal to or greater than the opportunity cost of getting the degree.The student’s value is the benefit of cool college parties, mind/horizon expansion, reduced expected unemployment in the future, and higher expected income. Their opportunity cost is tuition, loan interest, stress from doing homework, and time not spent working. The question of going to school is different for different students; some will enjoy college more, will get more out of it, will have an easier time of it, etc. And the financial return isn’t the only relevant variable. At this point I’m thinking that maybe the current market is actually pretty sensible… we can ask questions about the sustainability of subsidies, but given everything, it’s likely that the students going to school are making the right choice, as are the ones who don’t go. Mistakes will be made, but it isn’t necessarily the case that there are systemic, wide-spread mistakes.
Now let’s think about what it might mean for the bubble to burst. First off, there would have to be a bubble: too many people paying too much to be in school; too little incentive for any individual to change their behavior. Then all at once, there is a flood away from the market, and recent grads are left holding the bag. During the bubble, I can get financing for my degree and I can reasonably expect (even if I see that there’s a bubble) that I will come out ahead, as long as I jump ship soon enough. Let’s say that during the bubble, I pay $10k to get a degree and I earn an extra $1k per year (and lets also assume, for simplicity’s sake, that we don’t have to worry about discounted values… a bird in the hand is worth one in the bush). My behavior is rational as long as I expect to keep getting that extra grand for the next 10+ years. So our bubble has a weirder time dimension than, for example, a beanie baby bubble where I can buy and sell rapidly.
Also, our bubble requires that my income is inflated compared to it’s post-bubble level. That would certainly be the case for me as an academic; if that bubble bursts, my income will drop. Will that be true of someone getting a business degree? American employers are keen to hire people with degrees, and so there’s a de facto licensure system. The assumption is that if you don’t have a degree there must be something wrong with you. As long as everyone holds this assumption then all would/could-be students will have to get a degree. But if no degree means ‘idiot’, that doesn’t mean that degree means ‘genius.’ Employers could well figure out a better vetting procedure, and students could get sick of undergoing the opportunity cost of attending school. But if this is a gradual change, then ‘bubble’ doesn’t seem like the right word. Even if the change in hiring practices is instant, the change in the labor market won’t be. If every 30 year old has a degree and suddenly degrees become unimportant, companies won’t rush out to replace them with 20 year-olds. The supply of lightly-experienced, qualified workers won’t change in the short run unless there’s a reserve army of qualified but un-credentialed labor currently in limbo as baristas.
So is there a bubble? It certainly seems like enrollments don’t reflect underlying realities. It also seems like there are profit opportunities for entrepreneurs able to improve hiring procedures; placement services could vouch for a candidate’s abilities, employers could accept non-college interns and hire from that pool, would-be students could become self-employed. I think the market is far away from equilibrium. But I’m doubtful that re-equilibration will happen rapidly. There isn’t room to “burst” a bubble, so much as there is room to avoid wasting a lot of 18-24 year-olds’ time.
Zach Weinersmith of SMBC comics just published Polystate: A Thought Experiment in Distributed Government. I’ve started reading it and immediately needed to start commenting. Before I get into the review, let me say that SMBC comics is an excellent web comic that everyone should read.
The basic idea ZW introduces is the polystate, a system of government comprised of anthrostates. An anthrostate is “a set of laws and institutions that govern the behavior of individuals, but which do not govern a behavior within geographic borders.” It is essentially government that individuals get to choose in the same manner that they get to choose their insurance company; so to neighbors can live under a different set of laws and any disputes between them are a matter for their anthrostates to sort out. At this point you should be thinking: Nozick did it. The idea of a polystate is essentially Nozick’s Utopia of Utopias.
He contrasts poly/anthrostates with geostates, the geographically defined monopolies on the use of force we are used to today. Does it need to be thus?
Why should we suppose that a person who likes hot dogs, is familiar with a two-party electoral system, and believes Abraham Lincoln was a great man is necessarily someone who should live in a temperate climate in the Western hemisphere?… This is not to deny that history and culture and the choices of individuals matter, but rather to assert that many of the “essential” qualities of nationhood are not, in the long run, meaningful ones.
I’ll agree and disagree. These qualities are relevant to some sense of cultural identity, but are not essential for defining the boundaries of a state. This cultural identity is part of the environment of informal institutions, which are part of a broader polycentric order. This is the underpinning of law (the way Hayek characterized it) which is much broader than legislation.
ZW approaches the problem like a mathematician and sets himself up with a hard sell, by assuming there will be a huge need for technological advances to overcome transaction costs. His argument rests largely on technological possibility and is highly concerned with interaction at the anthrostate level.
A polystate would likely increase the complexity of business and legal transaction. In a world with only 200 or so geostates, most commerce is not interstate and even if it were, geometry tells us that the number of possible two-state transactions is given by n(n-1)/2.
Nobody thinks the distribution of such transactions is uniform, and in real life we see a large proportion of international transactions go through countries that specialize in trade. Hong Kong would surely have an anthrostate analog. In fact, there are historical antecedents. He foresees rules being designed at the polystate level to simplify interactions but, “whatever rules were put in place, the results would be too burdensome to exist without a large bureaucracy or some sort of computational way to arbitrate these many interactions.”
The basic flaw in ZW’s approach is that institutions and laws are provided from the state, and so technology is the answer to transaction costs problems. In fact, the issue is that ZW (though he’s not alone on this) wants a change in institutions that will require a new order to emerge. His book will help to peacefully guide the process of societal change towards that new order. Technology will surely play an important role as well.
That gets us through the first four chapters. I will continue with more tomorrow evening.
As a young libertarian first exposed to economics (actually it was my third exposure where it took) I was struck with an exciting proposition: people don’t need the government to look after them because (we’ve assumed that) they’re rational! In that case, government can almost only ever do harm. Add in some public choice and Austrian insights and you’ve got a water tight defense of liberty.
But actually you don’t. Because as it turns out, people might actually be complete morons. I’ll bet if you marketed a brand of bottled water as having never been warm–cleaned with pre-chilled filters made in iceland, and never poured into room temperature bottles–it would sell. But if that’s the case, the world should be a scary place. People would be doing ridiculous things and electing ridiculous politicians to help them act even more absurdly.
I’m an economist and I still do plenty of irrational things. But it turns out that first taste of economics was econ of a particular variety: the study of what is rational. Not the study of how people rationally act. That’s not to say it’s worthless. David Friedman put it well in Hidden Order: if people are rational some times and act randomly other times, then we can still make useful predictions about their behavior. But I don’t think that economics is some sort of half-science that assumes away randomness in order to study some portion of people’s actions.
Mostly, I think the study of rationality lays a foundation, and offers a puzzle, to allow further study of ecological rationality. The world is orderly and roughly follows the predictions we make when we assume individuals are rational. And yet people seem far from rational. What gives?!
It turns out we have to pay attention to institutions. These often hidden rules of the game direct our actions and embed our learning in social rules. Those crazy (probably imaginary) sociologists might have been on to something when they said that individuals’ actions are shaped by social forces. It’s not that people don’t have autonomy, it’s that people don’t exist in a vacuum.
Yes they are.
What’s my point? Learning a little bit of economics goes a long way to making good arguments for liberty, but it doesn’t go far enough. We live in an a much more interesting world than the one we learn about in econ 101.
Addendum: I’m sure Marvin is sick of Marvin the Martian references by this point in his life but I’m keeping the picture because Marvin the Martian my favorite WB character, and is apropos enough…
Other than that, please understand that this post is made with respect to Marvin, and made public in order to offer an organized presentation of some recent exchanges here on Notes On Liberty.
I suspect the totally free society is where all civilizations started. Then someone stole something from someone else, and the people got together to deal with the problem of theft. The consensus decided that there should be a right to property, and they reached an agreement with each other to respect that right for each other and to come to each other’s aid when necessary to defend that right.
… with Marvin contemplating Buchanan’s constitutional moment. He continues with an amusing story of a quasi-voluntary provision of police, and an ad hoc ideological opposition from the first hold-out. He continued with a near analogous argument by a would be thief.
But I’m not going to follow that argument. For me, the interesting thing here, the pivotal term that tells us something meaningful about Marvin is “totally free”.
For Marvin, freedom means a lack of punishment for a given action. Therefore total freedom means no socially sanctioned punishment for any action. That state of affairs is one lacking in governance. The only person who remotely approaches that is Kim Jong-Un, but even he is ultimately constrained by (the apparently unlikely) possibility of revolution, and his near-total freedom is only within his borders. This contrasts with Brandon’s idea of mutually consistent freedom which depends on individuals having the right to not be subject to coercion.
Following Marvin’s commentary has been confusion over the terms liberty, freedom, and rights. What we all think of when we hear the term “free society” would not have what Marvin calls total freedom. This in turn has lead to dispute over the term law. Let me offer my own clarifications, focusing on the issue of law and rules.
When Dr. Foldvary used the term “truly free” he had in mind a situation with governance, but without top-down intervention. Marvin, I suspect, has confused this for a situation entirely lacking governance, or at least effective governance. I think this has roots in his belief that competition for scarce resources, as directed through the profit and loss system, will lead to unchecked cheating (e.g. pollution) in the absence of some disinterested third-party to enforce rules that reasonable people, if they’re being honest, would agree to. There are two problems with this:
First, the unmentioned one, is that the government isn’t a disinterested third-party and rules aren’t set behind a veil of ignorance (ensuring honest agreement among reasonable people). Marvin starts with the Hobbesian Jungle and arrives at the position that there is something like a social contract whereby we all (implicitly) agree to rules (restrictions on our choice set) for our mutual betterment. I don’t disagree that rules restrict our choice set and can (can!) be for our mutual betterment. What’s missing is the appreciation for the distinction between constitutional and post-constitutional rules (but that a can of worms unto itself). Beyond issues of incompatible incentives, there are also significant information problems.
Second, the government isn’t the only source of governance. Brandon and Marvin both use the term “law” in an all-encompassing way. I prefer Hayek’s distinction between law and legislation. Law, is the set of informal institutions that underlie (we hope) formal legislation. Law is emergent, but legislation is static (although it does change, just in punctuated equilibria). When government is responsive legislation will simply codify law, but when the two diverge it sets the stage for upheaval.
With that in mind, let me briefly respond to Marvin’s question:
In response to the loss of lives in the mining and manufacturing industries, government regulation requires safety precautions and inspections, like under OSHA. Should this type of regulation be eliminated to make the market “truly free”?
First off, nobody here is advocating for an unbound choice set. “Truly free” should be understood to mean “free from external [i.e. government] coercion, rule-setting, and back-room politics that are enforced at gun point.” With that in mind, the basic regulatory framework will be based on property rights and voluntary choice. Mines that acquire a reputation for being unsafe will soon be unable to find workers, unless they increase their wages. If we see poor working conditions at low pay, it doesn’t mean an injustice is being done, it means that the people working there see it as their best available option.
Final thoughts:
I think Brandon and Marvin have been largely talking past each other, but despite that the conversation has been interesting. I would like to see them engage in a debate on some particular topic. I propose that we find a topic agreeable to both, they both respond to that topic, open comments ensue for a few days, then each writes their final thoughts in a second blog post. I will summarize their points here.
“But–Professor, what *are* your political beliefs?”
“I’m a rational anarchist.”
“I don’t know that brand. Anarchist individualist, anarchist Communist, Christian anarchist, philosophical anarchist, syndicalist, libertarian–those I know. But what’s this? Randite?”
“I can get along with a Randite. A rational anarchist believe that concepts such as ‘state’ and ‘society’ and ‘government’ have no existence save as physically exemplified in the acts of self-responsible individuals. He believes that it is impossible to shift blame, share blame, distribute blame…as blame, guilt, responsibility are matters taking place inside human beings singly and *nowhere else*. But being rational, he knows that not all individuals hold his evaluations, so
he tries to live perfectly in an imperfect world…aware that his effort will be less than perfect yet undismayed by self-knowledge of self-failure.”
“Hear, hear!” I said. “‘Less than perfect.’ What I’ve been aiming for all my life.”
“You’ve achieved it,” said Wyoh. “Professor, your words sound good but there is something slippery about them. Too much power in the hands of individuals–surely you would not want…well, H-missiles for example–to be controlled by one irresponsible person?”
“My point is that one person *is* responsible. Always. If H-bombs exist–and they do–some *man* controls them. In terms of morals *there is no such thing as ‘state.’* Just men. Individuals. Each responsible for his own acts.”
…
Wyoh plowed doggedly into Prof, certain she had all answers.But Prof was interested in questions rather than answers, which baffled her. Finally she said “Professor, I can’t understand you. I don’t insist that you call it ‘government’–I just want you to state what rules you think are necessary to ensure equal freedom for all.”
“Dear lady, I’ll happily accept your rules.”
“But you don’t seem to want *any* rules.”
“True, but I will accept any rules *you* feel necessary to *your* freedom. *I* am free no matter what rules surround me. If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them. I am free because I know that I *alone* am morally responsible for everything I do.”
“You would not abide by a law that the majority felt was necessary?”
“Tell me what law, dear lady, and I will tell you whether I will obey it.”
…
Prof bowed and left, Stu and I followed him. Once in an otherwise empty capsule I tackled him. “Prof, I liked much that you said…but about taxation aren’t you going to pay for all this spending we’re doing?”
He was silent long moments, then said, “Manuel, my only ambition is to reach the day when I can stop pretending to be a chief executive.”
“Is no answer!”
“You have put your finger on the dilemma of all government–and the reason I am an anarchist. The power to tax, once conceded, has no limits; it contains until it destroys. I was not joking when I told them to dig into their own pouches. It may not be possible to do away with government–sometimes I think that government is an inescapable disease of human beings. But it may be possible to keep it small and starved and inoffensive-and can you think of a better way than by
requiring the governors themselves to pay the costs of their antisocial hobby?”
“Still doesn’t say how to pay for what we are doing now.”
“‘How,’ Manuel? You *know* how we are doing it. We’re *stealing* it. I’m neither proud of it nor ashamed; it’s the means we have. If they ever catch on, they may eliminate us–and that I am prepared to face. At least, in stealing, we have not created the villainous precedent of taxation.”
“Prof, I hate to say this–”
“Then why say it?”
“Because, damn it, I’m in it as deeply as you are…and want to see that money paid back! Hate to say it but what you just said sounds like hypocrisy.”
He chuckled. “Dear Manuel! Has it taken you all these years to decide that I am a hypocrite?”
“Then you admit it?”
“No. But if it makes you feel better to think that I am one, you are welcome to use me as your scapegoat. But I am not a hypocrite to myself because I was aware the day we declared the Revolution that we would need much money and would have to steal it. It did not trouble me because I considered it better than food riots six years hence, cannibalism in eight. I made my choice and have no regrets.”
Last week I heard a sermon on climate change (no, it was an actual sermon). I’m roughly agnostic on the existence and degree of climate change, but I err on the side of assuming it is a large problem of externalities with no obvious property rights solution and will have costs. And I think that under those assumptions there is an important moral element to it. With that in mind, below are some of my thoughts on the weak points of the sermon:
1) Authority is only a starting point; we cannot defer ultimate responsibility to authority. If an expert or someone I trust tells me something about X, and I don’t have any prior knowledge about X, then I believe them. In the case of global warming there are two basic sorts of information you will get from information: a) diagnosis (temperatures could rise X degrees in the coming century), and b) prescription.
The climatology involved in a) is well above my pay grade, and so rather than undergo the costs of informing myself on the existence or importance of climate change, I just figure the truth is somewhere in the middle of what reasonably informed people say and instead focus my effort on my areas of comparative advantage. Now the actions in b) are typically about reducing waste and that’s well within the realm of economic thinking, so I’ll comment on that!
1b) Blindly deferring to authority to assuage your guilt is wrong and bad. Someone says you should drive an electric care to save the environment? Don’t do it before thinking through the matter, this is a big decision for most people. Where’s the energy coming from to power that car? (Coal. That is burned hundreds of miles away from your car… that’s like having a car with a hundred mile long drive shaft.) How much energy and material does it take to make the car? (Hint: look at prices.)
2) It’s called climate change, not climate universal and uniform worsening. If climate change means a warmer climate for Canada and Russia, that will come with extended growing seasons and savings on winter heating costs. Burma? It’s probably going to suffer a lot. Climate change will surely have the biggest impact on the poorest people in the world, and this is where I see the real moral issue because…
3) We can respond to climate change in a way to reduce suffering. Specifically, we can open borders. First off, that would increase human well being, with an enormous benefit to the world’s poorest people. Second, the effects of climate change won’t harm the poor as much as they could. Is climate change still a bad thing if we do this? Sure, but if a building is burning, why not help people get out?
Loose ends:
Should I recycle everything? Only if it will actually help. Recycled aluminum is chemically identical to virgin aluminum and uses fewer resources to produce (which is why it’s cheaper!). Recycling paper creates a lower quality product, uses a lot of energy and creates pollution.
Paper bags are brown, that’s good, right? Plastic bags are almost ethereal; they use a fraction of the material per unit of carrying capacity resulting in big savings. Yes, there are offsetting costs to using plastic, but it isn’t as simple as “this brown, it must be natural and therefore good!” And while we’re on the topic, brown M&Ms are stupid. There’s a layer of white sugar between that brown outer layer and the actually brown chocolate. Brown M&Ms are as unnatural as any of the other colors.
Should I buy local? Maybe if you live in California, but not if you live in Massachusetts. The biggest environmental impact of food is growing it; plowing fields, planting, watering (outside where the water could just evaporate!), and harvesting use a lot more energy than transportation. So if you live in a place with poor growing conditions, then buying local only does more harm. That said, fresh food tastes better, so by all means pay the cost if you value the flavor, just don’t delude yourself into thinking you’re reducing energy usage by doing so.
Consider opportunity cost and present value! So you’ve got a solar panel and now electricity is free for the next 20-30 years! Or you’ve installed new modern insulation for your home. Or you bought a car that costs less to run (and you’ve promised not to increase your usage). But at what cost? If your solar panel used 40 years worth of energy to build and install, then you’ve done more harm than good. And you’ve done that harm upfront. Even if one of these investments has a positive return (it saves more resources than it uses), you should still consider whether it’s a good investment. We don’t have unlimited resources, and that means that if you spend $10,000 on insulation that will give you a 0.4% ROI then you’ve given up the chance to invest that money into something that will generate more good.
This article raises the important point that tenure is a form of compensation, and one that can reduce budget pressure. It also raises the point that tenure allows a more open-ended approach to schooling which, in my mind, frees teachers and students to engage in genuinely educational but non-measurable activities. At the end the author writes, “we conservatives are especially alive to what is lost when we transform all of our institutions according to the logic of the market.” I agree that conservatives (properly understood) are not pro-market, but as a pro-market libertarian, I also agree with him on the value of tenure. Really what it boils down to is that education (the result we hope students will attain in schools) really is unmeasurable and so can’t be neatly provided in a market or a bureaucracy; schools can be provided on a market, but there is an important civil-society element to them.
One of the core insights of economics, simple though it appears, is apparently not understood by schools (or even economics departments): everyone doing the same thing is unproductive. Diversity (no, not diversity of melanin content) is the basis of gains from trade, and product differentiation is the way to advance oneself. But what schools tend to do is try to imitate “better” schools by doing a worse version of the same thing. Imagine if restaurants did this; McDonald’s would sell budget foie gras, Applebee’s would sell slightly better foie gras in a kitschy atmosphere, and the only places you’d actually want to eat foie gras would (still) be the same restaurants that sell it in the world we actually live in.
The state of Tennessee has set up an incentive structure that ties funding to measurable outcomes, but makes that funding contingent on a school’s Carnegie rating. The effect is that trying to move up the prestige ladder will result in reduced funding unless a school is actually able to deliver results. “Take one of the state’s regional colleges, Austin Peay State University. If it tried to become more like Middle Tennessee State University by awarding doctorates, Austin Peay would very likely lose 4 percent of its state funds.”
If more institutions gravitate toward competency-based models, more and more students will earn degrees from institutions at which they take few courses and perhaps interact minimally with professors. Then what will a college degree mean?
It may no longer mean that a student has taken predetermined required and elective courses taught by approved faculty members. Rather, it would mean that a student has demonstrated a defined set of proficiencies and mastery of knowledge and content.
Sounds good to me! Although, as the author points out, we’re still left with the problem of how to evaluate students. It makes sense to allow someone to test out of an accounting class, but certification of competency isn’t the whole story for a liberal arts program.
If you want to learn skills, then a technical college with a competency-based degree makes a lot of sense. If you’re looking for an immersive environment that expands your appreciation for philosophy, art, and deep thought then you’re dealing with something unmeasurable. A BA from Wesleyan should communicate that you’ve experienced something like that, but that’s a different product than what most students are looking for (a piece of paper to help them get a good job). This goes back to the conflation of education and schooling. I’m not sure that credentials for liberal arts even makes sense; a better measure of a student’s success in lib arts would be the books and essays they write.
The author is concerned with the current state of affairs in social sciences where hiring and tenure decisions are based on a cumbersome publication process resulting in new research being kept unavailable until it has finally survived the publication process. But there’s an unexploited opportunity: have outside experts evaluate unpublished manuscripts and assign grades. These grades can be used for faculty evaluation, but they can also reduce transaction costs on the publishing end. Instead of a round robin, manuscripts (or articles) are evaluated once, and publishers compete for publishing rights. “The new slogan for upward academic mobility would be ‘produce or perish.’… Publishing was yesterday’s problem, vetting is tomorrow’s.”
There won’t be a MotoGP race at Laguna Seca this year and here’s why…
Unlike COTA and IMS, which are both privately owned, Laguna Seca is a non-profit operated by the Sports Car Racing Association of the Monterey Peninsula (SCRAMP), on property owned by the Monterey County parks department. This unique status disqualifies the facility from accepting large government subsidies available to tracks like COTA and IMS–the latter which reportedly received $100 million in state grants this year for track and facility upgrades to secure major events like MotoGP. “We can’t compete with that,” Campbell told the Herald. “Here, there are no tax credits or state subsidies.”
Hasta La Vista, Laguna Seca, Motorcyclist, January 2014
So the non-profit on public property isn’t eligible for subsidies but private tracks are?!
Adam recently posted that the British government is contemplating pretty outrageous penalties for Internet pirates. Naturally I wanted to chime in with an outrageously long comment about the nature of property and the (im)possibility of intellectual property (IP) rights. That’s just the libertarian thing to do! There’s a lot to say and it will take more than a few beers to sort this whole thing out, so I’m going to limit myself which means I’ll just raise more questions than I answer…
So let’s start with why IP doesn’t make a lot of sense. IP is information and information wants to be free. My use of a song doesn’t prevent you from using it. IP isn’t scarce in the way a car is. Besides, there’s some evidence that government enforcement of IP does more harm than good. And pirates end up spending more to buy IP than other people anyways (I usually listen to music for free on Grooveshark, but the other day I thought, “I’d really like to tell Willie Nelson that I think his music is great,” so I bought an album even though I could have listened to it for free!). And besides, musicians can make money by performing live.
But just because it isn’t a tangible thing, doesn’t mean we are forbidden from attaching rights to it, even in anarchy. Property rights are a “bundle of sticks.” I own my land, but you might have a right to the sunshine I would block if I built a skyscraper. Likewise, a society can come to some sort of quasi-unanimous agreement that the creator of a song has the right to control its use, even in the form of digital files.
Now, government enforcement of IP laws is fraught with difficulties even before we get to public choice issues. Should a patent be 20 years or 19.5? If the optimal patent length is 16 years, then the current system is a net subsidy and so creates economic inefficiency. But determining the optimal length in a world of benevolent political actors is an incredibly complex problem. How stringently should patents be enforced? How do we account for the differences in conditions that affect different patents (or copyrights, etc.)? This argument doesn’t say “don’t do IP,” it just says, “hey, this whole venture has its own set of costs we need to account for. It’s conceivable that we conclude that the optimal patent is probably between 5 and 20 years, but if we’re off by more than 4 years the costs of the error will outweigh the net benefits of the patent.
Then there’s the public choice problems. We don’t want IP law to be some Mickey Mouse operation set up to hurt consumers.
But (and that’s a big but!) we have to return to this issue of property rights. When I buy an apple, I’m concerned with the physical thing, but really I’m buying a bundle of rights. The rights are what’s being exchanged, and then later exercised. These rights are socially determined and often-but-not-always-or-even-mostly enforced by government. Yes, if I steal your car the government will probably get involved. Yes, the government provides a back-stop to rights enforcement in a lot of areas. But rights are ultimately a social-political construct that can exist in anarchy. What does this mean? First, it means that we could conceivably have intellectual property rights . Second, it means that we could have such rights in a state of anarchy.
Obviously the nature of the good will affect the viability of such a system. Enforcing IP laws is difficult enough when some third-party can come in and say “you’re a pirate and you’re going to jail.” In a common law situation where you have to make the plaintiff whole, it’s difficult to say what that means. Reputation plus property rights might keep comics from stealing others’ material, but it might just separate the comedy industry into auteurs with sophisticated audiences and Carlos Mencia with less sophisticated audiences.
We can safely label a law or institution as legitimate if it is unanimously accepted. In the case of IP, such unanimity seems unlikely. In any case, I still suspect that government involvement in IP does net harm although I’ll grant that it’s a (probably impossible to answer) empirical question.
Time for me to geek out on basic economics again. I’ve been on a Top Gear kick and I’m currently watching the North Pole special. Richard is taking a sled dog team to the north pole and Jeremy and James are racing him in a truck (in order to be the first people to drive a car to the North Pole).Their big advantage is that they can drive as hard as they want, whereas Richard is limited by how hard the dogs can go. Hypothetically he could push them harder and get their faster, but to do so would be cruel. This got me thinking.
The car is what economists call capital, whereas the dogs are labor. Strictly speaking the dogs are capital as well, but due to our enlightened modern ethical precepts we’re morally concerned with their welfare. Remember Planet of the Apes? Those damn, dirty apes had been thought of like chattel slaves, and the folly of that was shown by their taking over the earth. Legally, if your sled dogs won’t run, you can get rid of them. Putting them down might be considered cruelty to animals and thus illegal (I’m not sure), but it would certainly be considered immoral by many westerners. If we think about a labor-capital continuum, dogs are closer to the labor side than cattle, and a car is all the way over at capital.
So capital has a different moral standing than labor (or “quasi-labor” like dogs), but does that mean there’s no possibility of cruelty?Running the truck into the side of a glacier won’t make an engineer cry, but it would create work for a mechanic and wrecker operator (assuming they decide to recover it). “But wait,” you say, “jobs are awesome! JOBS!”
But I put it to you: jobs aren’t good. If they don’t pay the mechanic, then they’re making him (or her) suffer. To make someone work is to be cruel. But in the real world nobody makes mechanics do their work, people induce them to do that work by making it worth their time. Mutually advantageous trade is beautiful and kind. (Okay, that’s only certain with euvoluntary exchange).
Oh! And an I, Pencil moment: The truck made it to the north pole, allowing two middle aged, out of shape men, to make a journey that otherwise probably would have killed them. Through gains from trade, and capital that both represented and applied embedded knowledge, in order to reach a destination that has been visited by no more than a few dozen humans.
I’ll bet the 85 richest people in the world have been beneficiaries of a good deal of rent seeking, but I still think there’s a positive spin to stories like this.
Let’s say (for the sake of not working too hard to write this post) that when we adjust for theft and its dead weight costs, the net productive wealth of group A (the wealthy) is just 25% the total wealth, that’s a mean productive wealth of 10.3 million times the average member of group B. For a humanitarian, this means that their fight to improve the plight of the world’s poor, has the potential to pick up trillion dollar bills off the sidewalk. This isn’t just little embossed portraits of old dead white men, it’s genuine human flourishing! Of course this message would be more meaningful if the numbers were something like “combined wealth of the poorest 3.5 billion is equal to the combined wealth of the poorest X million residents of OECD countries.”
That made up percentage, if it’s even remotely accurate, is a similar call to arms for those of us opposing politically supported privilege. And it just so happens that the humanitarian and libertarian causes overlap nicely! There is institutionalized theft and there is poverty, and that’s bad news. But the problems have been recognized and solutions are being fought for.
The word entrepreneurship is thrown around a lot, but rarely defined. As far as I can tell nobody really believes (or is willing to admit they believe) that entrepreneurship is anything less than highly important (“Green child entrepreneurs are our future! Support our troops against breast cancer!”). It’s probably a wise political move to not pin down the idea because it means anyone’s cronies can be considered entrepreneurs. Speaking of which, “crony” is almost the antonym of entrepreneur. Cronyism evokes images of stagnation, inefficiency, “innovations” that make things worse, and opportunities for genuine improvement that are ignored.
So what does entrepreneurship mean? There are two general definitions, and both bear on the question of how to go about having a peaceful, productive, and morally praiseworthy society. The more general of the two is judgment in the face of uncertainty. That is, given that we don’t know what tomorrow will look like, and we certainly don’t know what the world will look like in 10, 25, or 50 years, we have to make wise, forward-looking decisions. We don’t have enough information to simply plug the relevant data into an Excel spreadsheet and get the “correct” action from a formula. In other words, understanding the ubiquity of entrepreneurship means that we still consider The Use of Knowledge in Society to be relevant.
The more specific definition is pursuit of pure economic profit (above “normal returns to capital, labor, etc.”) by pursuing hitherto un- or under-exploited opportunities. Such breaks from the status quo are the creative acts necessary for economic progress. Entrepreneurship is the human face of economic change that provides a micro-level description of what economists might otherwise wave their hands over and call “technology.” This sort of entrepreneurship is an important source of uncertainty about the future. 2014 is so much different from 1964 because of the actions of innovative entrepreneurs out to improve their own lives.
You’ll notice that I haven’t defined entrepreneurship in a way that actually is inimical to cronyism. That’s because not all entrepreneurship is productive. Destructive entrepreneurship is the pursuit of economic profit that makes the entrepreneur better off at the expense of someone else resulting in a net-loss. So we should be concerned not only with allowing individuals the autonomy necessary to be entrepreneurial (rather than merely reacting formulaically to top-down commands), but also with establishing institutions that direct people to help others.
A friend sent me an email expressing confusion at the idea of Conservative Liberalism, which is apt because it combines two frequently misused words in a confusing way. Let me offer my views/definitions of important political terms to shed some light on this. This post will almost certainly raise more questions than it answers so disagree with me in the comments!
Conservatism is a support for the status quo, and is inherently anti-radical. But that status quo is a historical phenomenon and so conservatism isn’t per se pro- or anti-liberalism. So Conservative Liberalism is possible, just not in America today.
Liberalism is almost synonymous with goodness. It’s a big concept and trying to describe it adequately requires a whole library. All forms of liberalism are essentially concerned with freedom (from the latin Liber, i.e. liberty).
Interventionism is a belief that the government can usefully intervene in society and/or the market. Be that outlawing homosexuality or regulating hotels, this view has a distinctly illiberal flavor, though it’s essentially an orthogonal concept.
Hayek describes these categories as though distinct ideal types and with good reason. There are recurrent divisions along these lines that support thinking of politics in three dimensions, and lead to the formation of three groups (libertarians, conservative Republicans, and liberal [though not classically so] Democrats in the U.S., and similar factions elsewhere). However, I think it makes more sense to think of these as dimensions than ideal types. This adds some vagueness and makes it more difficult to put people in boxes. There can be Conservative Liberals (just not following the last few increasingly illiberal decades), and modern liberals can be understood as being descendant from classical liberal. Ideally everyone would be happy with this vagueness and instead of using labels as short-hand we’d discuss these sorts of things in depth.
But alas, it’s not so easy and even three dimensions is too many for most people, so we’ve got Left and Right wings. Us versus them! Good and evil! Which puts libertarians in the awkward position of not quite fitting in with Democrats on the left or Republicans on the right. I think the Nolan Chart is a step in the right direction. It makes Libertarians (top of the chart!) equidistant from left and right, but not really centrist either. It strips out political labels and gets to the principles at hand. And it’s ahistorical so it leaves room for radicalism and conservatism.
But then we’re left with a tricky situation because we’ve just eliminated an important dimension! And that leads to confusion when we discuss left and right because the ideas aren’t quite as simple as just particular bundles of policies, and that’s especially obvious in a two dimensional graph. If someone asks a libertarian if they’re left or right they should respond “freedom top!” and a neo-con should respond “power bottom!” I view Leftism as being an approach that is radical (i.e. anti-status quo) and Rightism as being pro-established interests. But it isn’t as simple as that either because the historical origins of the terms, and every day practice involves self-identification. The Tea Party is definitely in the Right but their views are typically radical (either radically small-government-liberal, or radically socially-conservative). There are right-wingers who are pro-market (a liberal position) and those who are pro-business (a pro-established interest position).
So what’s the solution? Libertarians would probably like to see an accurate taxonomy that accounts for a wide variety of political and moral dimensions, but left/right has adequate for many for so long. I think the Nolan Chart is a good first step to breaking this false dichotomy, but I also think that using terms like classical liberal is a good choice when it invites conversation with people who aren’t familiar with these ideas. And Conservative Liberalism? It’s a paradoxical term that would also invite discussion, but it’s irrelevant since in the current historical context, the status quo is illiberal.
Notes On Liberty 