Economics

Lit in Review: Things that move people

Derrill Watson Economics, History , , , , , , , ,

Three papers from this year’s American Economic Journal: Economic Policy deal with shocks that change people’s willingness to migrate to another location. As usual with these, I’m reporting on recent research results that readers might find interesting, but I’m not otherwise commenting.

Nian and Wang, “Go with the Politician”

In a study of crony capitalism in China: when a Chinese local leader is transferred from one prefecture to another, large firms in the old prefecture buy up 3x more land than average in the new prefecture at half the normal price. These land parcels show lower use efficiency afterwards. For the last 30 years, land sales make up 60% of local government revenue. There is no effect going the opposite direction (firms in the new prefecture buying land in the old one) and there is no effect when that politician subsequently moves to the next prefecture.

Moretti and Wilson, “Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy”

Following the Forbes 400 richest Americans from 1981-2017, it is clear that they are very likely to move away from states with estate taxes, particularly as they get older. They “find a sharp and economically large increase in estate tax revenues in the three years after a Forbes billionaire’s death.” Putting the two effects together, they find that it is still profitable for most states to adopt estate taxes despite some departures with a cost/benefit ratio of 0.69.

Liu, Shamdasani, and Taraz, “Climate Change and Labor Reallocation: Evidence from Six Decades of the Indian Census”

A panel fixed-effect model looking at how the climate changed decade by decade shows that fewer Indian workers move from rural to urban or ag to non-ag firms within a district, but no effect on movement between districts. They also show this comes from changes in demand patterns: higher temperatures lower rural yields and incomes, so they buy less from non-ag sectors, which reduces the demand for non-ag labor. These effects are larger in districts with fewer roads and/or less access to the formal banking sector.

Albania: People and Ruins

Andrei Znamenski Culture, Current Events, Economics, History, Liberty, Politics , , , ,

During my long traveling over Europe this summer, among other areas, I ventured to Albania, a country where houses frequently do not have numbers and where I located the building where a friend of my youth now lives by a drawing on a gate. This is a country where the so-called oriental bazaar is buzzing everywhere, where towns literally hang on cliffs, and where one easily runs across the ruins of the Roman, Byzantine, and Ottoman legacy of the country and the “archaeology” of the recent communist past (small concrete family bunkers, tunnels for the former communist nomenklatura, monumental sculptures and mosaics in the socialist realism style).

It was interesting to see how this country, which lived much of the 20th century under the most vicious communist dictatorship (1944-1990), is now trying to live a normal life.  To some extent, Albania is very similar to present-day Russia: decades of the negative natural selection under communism killed much of self-reliance, individual initiative, and produced the populace that looks up to the government for the solutions of their problems. For the past thirty years, a new generation emerged, and things did dramatically change. Yet, very much like in Russia, much of the populace feels nostalgia for the “good” old days, which is natural.

According to opinion polls, 46% of the people are nostalgic for the developed communism of dictator Enver Hoxha (1944-1985), an Albanian Stalin, and 43% are against communism; the later number should be higher, given the fact that many enterprising Albanians (1/4 of the population) live and work abroad.  During the last decades of its existence, Albanian communism slipped into a wild isolationism of the North Korean style. Except for Northern Korea and Romania, all countries, from the United States, Germany, UK (capitalist hyenas) to the USSR, China, and Yugoslavia (traitors to socialism), were considered enemies.  Incidentally, Albanian communism was much darker and tougher than the Brezhnev-era USSR. Nevertheless, as it naturally happened in Russia and some other countries, in thirty years, the memory of a part of the population laundered and cleansed the communist past, and this memory now paints this past as a paradise, where everyone was happy and looked confidently into the future, where secret police and labor concentration camps existed for a good reason, and where the vengeful dictator appears as a caring father.

In the hectic transition to market economy and with the lack of established judicial system, there naturally emerged a widespread corruption, nepotism. But, at the same time, small business somehow flourishes. The masses and elites of the country aspire to be united with neighboring Kosovo since both countries are populated by Albanian majorities. On top of this, Kosovo is the birthplace of Albanian nationalism.  However, unlike current Russia, which is spoiled with abundant oil and gas resources (the notorious resource curse factor), corrupt Albanian bureaucrats that rule over a small country exercise caution. Although that small country is too blessed with oil, natural gas, chromium, copper, and iron-nickel, they do not waste their resources on sponsoring geopolitical ventures and harassing their neighbors. For themselves, the Albanians resolved the Kosovo issue as follows: we will be administratively two different states, but de facto economically and socially we will be tied to each other, and all this makes life easier for people, preventing any conflicts. Not a small factor is that, unlike, for example, Russia or Turkey, Albanian nationalism is devoid of any imperial syndromes, and therefore there is no nostalgia for any glorious lost empire. The fact that Albania is a member of NATO also plays a significant role, which forces the Albanian elites behave. Acting smartly, instead of geopolitical games, they decided to fully invest in the development of the tourism business, believing that, in addition to mining their resources, this is the best development option.

Lit in Review: The impact of epidemics on historical economics, part 1

Derrill Watson Economics, History , , , , ,

The most recent Journal of Economic Literature includes four essays on how historical epidemics and pandemics affected major macroeconomic variables. Together, they account for 170-someodd pages, which I will summarize below. Each of them is a detailed literature review on decades of historical research. While they are dense, they are for the most part readable. Part 2 will summarize three articles from The Journal of Economic Perspectives on Macro Policy in the Pandemic.

“Modern Infectious Diseases: Macroeconomic Impacts and Policy Responses” – D. Bloom, M. Kuhn, and K. Prettner The greatest strength of this paper is in critically discussing the various methodologies and theories we have available to even answer the question of how epidemics affect the economy. This is aside from the problem that “narrow economic considerations take inadequate account of the ethical, normative, and political dimensions of decisions that relate to saving lives.”

Generally, micro-based methods that focus on the impacts on individuals and add them up ignore indirect, complex interactions that macro-based methods do capture. For instance, increasing the probability that a 15 year old survives to age 60 by 10 percentage points (roughly equivalent to moving from India to China) increases labor productivity by 9.1 percent. On the other hand, most macro models miss behavioral responses are an insufficiently complex. One problem is that my individual incentive to take preventative actions depends on everyone else. This is something I noticed in my own life – here in Texas where almost no one wore a mask, I had a strong incentive to stay masked myself; when we traveled to any state west of us, almost everyone was masked and surfaces were regularly cleaned, so I felt much less urgency to wear a mask myself. Their conclusion is that diseases will be difficult to eradicate via “private actions alone.” They therefore conclude that some form of government lockdown is likely to be warranted.

Epidemics will have different impacts on the economy depending on a) disease-specific characteristics (how much do they impact working-age population, how much long-term damage do they do, etc) b) population characteristics, particularly how much poverty there is and c) country characteristics, particularly government capacity. Because of this, the same epidemic might have minor impacts in one country, create a poverty trap in a second, impose economic hardship in a third while leaving long-run health mostly untouched, or leaving the economy mostly unaffected but harming health and increasing the incidence of other diseases in a fourth.

“Epidemics, Inequality, and Poverty in Preindustrial and Early Industrial Times” – G. Alfani Most important point: epidemics reduce poverty by either a) changing society/laws/markets in ways that are pro-poor and b) killing more poor people than other socioeconomic groups. If a particular disease leads more to the latter, then there will be very small impacts of disease on poverty. Standard intermediate macroeconomics says that wages come from productivity and the more land or physical capital each worker has, the higher their wages will be. Because of this, the usual story I tell my students about the Black Death that killed off 20-35% of western Europe but left the capital alone is that it raised wages for the poorest and created a large middle class, setting the stage for the Renaissance. Alfani shows Gini coefficients [measures of inequality] falling by 30 percent or more.

But this didn’t happen everywhere. “Government intervention may have suppressed wage bargaining for an extended period of time” in post-Colombus Mexico (Scheidel 2017), or Black-Death-era Spain (Álvarez-Nodal and Prados de la Escosura, 2013), and Poland.

And it didn’t happen always. Repeated epidemics in the 17th century that were as deadly as the Black Death in some communities didn’t seem to reduce inequality at all, either in total or compared to what happened in communities that were unaffected. Why not? One difference is that when epidemics happened more often, governments changed inheritance rules to ensure large amounts of wealth stayed controlled by only a few. He also argues that demand for labor will decrease, and if it decreases as much as the labor supply, wages may not increase at all. On top of these effects, I infer from his paper that later epidemics killed a higher percent of skilled workers than the Black Death did, and that stunted any change in the skill premium. Then there are diseases like cholera that not only hit poor areas hardest, but tended to increase and concentrate the negative aspects of poverty.

Alfani and Murphy (2017): “From the fifteenth century, most plagues were particularly harsh on the poor. This has to do both with the poor’s relatively unhealthy living areas, but also with how they were treated during the epidemics. Once doctors and health authorities noticed that plague mortality tended to be higher in the poorest parts of the city, they began to see the poor themselves as the potential culprits of the spread of the infection.” That attitude is contrasted with efforts to improve sanitation and nutrition to both reduce disease and improve the lives of the poor.

“The 1918 Influenza Pandemic and Its Lessons for COVID-19” – B. Beach, K. Clay, and M. Saavedra “The first lesson from 1918 is that the health effects were large and diffuse” and we may never know just how large because of inaccurate record keeping, “issues that also undermine our ability to quantify the impact of COVID-19.” The second lesson: The Spanish flu epidemic was more likely to kill working-age adults, so it had a major long-run labor supply shock which COVID is unlikely to cause, even though both have caused recessions.

Among the differences between the two are that epidemics were not unusual in 1918 and it happened right at the end of World War I, which had upset many economies already and led to falling productivity for reasons unrelated to the pandemic. We have also documented a wide range of negative health impacts from the 1918 epidemic and are only beginning to document the longer-term impacts of COVID, which will have to be studied in the future.

Interestingly, while there was some attempt at social distancing and closing society down in 1918, it was much shorter-lived and not as severe as what we tried during COVID. While they were “somewhat effective at reducing mortality in 1918, … the extent to which more restrictive [regulations] would have further reduced pandemic mortality remains debated.”

“The Economic Impact of the Black Death” – R. Jedwab, N. Johnson, and M. Koyama There are three primary lenses through which economists have viewed the Black Death. Malthusians argue that smaller populations increase wages (by raising the capital/labor or land/labor ratios) and lower inequality. The “Smithian” view is that larger populations are necessary for a greater division of labor, specialization, and larger markets that support important technologies. The third strand focuses on the role of institutions, both as causes and effects.

“In the very short run [the Black Death] caused a breakdown in markets and economic activity more generally.” In a longer run sense, though, England, Spain, and Italy had very different divergences between wages and productivity. Put another way, England had larger Smithian effects than Spain or Italy and Italy had the largest Malthusian effects. Thus, rather than one model being “right” and the other “wrong,” there is more of a continuum, moderated in part by institutions.

In the years after the plague, people moved out of rural areas to the cities that had been hardest hit because wages had increased more there, which also increased reforestation. In Western Europe, workers’ bargaining power increased, eroding the institution of serfdom. Craft guilds increased dramatically, though their net effect is questionable – decreasing competition through monopoly power but increasing human capital accumulation through apprenticeships. States grew in size and influence, perhaps because there were fewer people to oppose them, with growing taxation accompanying investment in public health and the ability to impose quarantines.

Stimuli For Your Moral Taste Buds

Vishnu Modur Culture, Current Events, Economics, Liberty, Links, Philosophy, Politics, Religion , ,

Based on anthropologist Richard Shweder’s ideas, Jonathan Haidt and Craig Joseph developed the theory that humans have six basic moral modules that are elaborated in varying degrees over culture and time. The six modules characterized by Haidt as a “tongue with six taste receptors” are Care/harm, Fairness/cheating, Loyalty/betrayal, Authority/subversion, Sanctity/degradation, and Liberty/oppression. I thought it would be interesting to organize articles I read into these six moral taste buds and post them here as a blog of varied reading suggestions to stimulate conversation not just on various themes but also on how they may affect our moral taste buds in different ways. To some of you, an article that appeals to my Fairness taste bud may appeal to your taste bud on Authority.

I had planned to post this blog yesterday, but it got delayed. Today, I can’t write a blog without mentioning guns. Given that gun violence is a preventable public health tragedy, which moral taste bud do you favor when considering gun violence? Care and Fairness taste buds are important to me.

I’ve only ever been a parent in the United States, where gun violence is a feature rather than a bug, and my childhood in India has provided no context for this feature. But, I can say that India has not provided me with reference points for several other cultural features that I can embrace, with the exception of this country’s gun culture. It is one aspect of American culture that most foreign nationals, including resident aliens like myself, find difficult to grasp, regardless of how long you have lived here. I’d like to see a cultural shift that views gun ownership as unsettling and undesirable. I know it is wishful thinking, but aren’t irrational ideas salvation by imagination?

Though I’m not an expert on guns and conflict, I can think broadly using two general arguments on deterrence, namely:

A) The general argument in favor of expanding civilian gun ownership is that it deters violence at the local level.

B) The general case for countries acquiring nuclear weapons is that it deters the escalation of international conflict.

I sense an instinctual contradiction when A) and B) are linked to the United States. The US favors a martial culture based on deterrence by expanding civilian gun ownership within its borders while actively preventing the same concept of deterrence from taking hold on a global scale with nuclear weapons. Why? The US understands that rogue states lacking credible checks and balances can harm the international community by abusing nuclear power. Surprisingly, this concept of controlling nuclear ammunition is not effectively translated when it comes to domestic firearms control. I get that trying to maintain a global monopoly on nuclear weapons appeals to the Authority taste bud, but does expanding firearms domestically in the face of an endless spiral of tragedies appeal just to the Liberty taste bud? Where are your Care and Fairness taste buds languishing?

Care: The Compassionate Invisibilization Of Homelessness: Where Revanchist And Supportive City Policies Meet/ Liberal US Cities Including Portland Change Course, Now Clearing Homeless Camps

[I’m sharing these two articles because my recent trip to Portland, Oregon, revealed some truly disturbing civic tragedies hidden within a sphere of natural wonders. I hadn’t expected such a high rate of homelessness. It’s a shame. “Rent control does not control the rent,” Thomas Sowell accurately asserts.]

Fairness: America Has Never Really Understood India

[I’d like to highlight one example of how “rules-based order” affected India: In the 1960s, India faced a severe food shortage and became heavily reliant on US food aid. Nehru had just died, and his successor, Prime Minister Lal Bahadur Shastri, called upon the nation to skip at least one meal per week! Soon after, Shastri died, and Prime Minister Indira Gandhi took over, only to be humiliated by US President Lyndon B. Johnson for becoming dependent on food aid from his country. The progressive US President was irked by India’s lack of support for his Vietnam policy. So he vowed to keep India on a “ship-to-mouth” policy, whereby he would release ships carrying food grain only after food shortages reached a point of desperation. Never to face this kind of humiliation, India shifted from its previous institutional approach to agricultural policy to one based on technology and remunerative prices for farmers. The Green Revolution began, and India achieved self-sufficiency. The harsh lesson, however, remains: in international relations, India is better off being skeptical of self-congratulatory labels like “leader of the free world,” “do-gooders,” “progressives,” and so on.]

Liberty: Can Islam Be Liberal? / Where Islam And Reason Meet

[I would like to add that, in the name of advocating liberalism for all, personal liberty is often emphasized over collectivist rights in the majority, while collectivist rights are allowed to take precedence over personal liberty in minority groups, and all religious communities suffer as a result.]

Loyalty: Black-Robed Reactionaries: Has The Supreme Court Been Bad For The American Republic?

[Is it all about Life, Liberty, and the Pursuit of Supreme Court Majority?]

Authority: How Curing Aging Could Help Progress

[In my opinion, the indefinite future that awaits us compels us to contextualize our current activities and lives. What do you think will happen if anti-aging technology advances beyond the limits of our evolutionary environment? Furthermore, according to demographer James Vaupel, medical science has already unintentionally delayed the average person’s aging process by ten years [Vaupel, James W. “Biodemography of human ageing.” Nature 464.7288 (2010): 536-542]. We have 10 extra years of mobility compared to people living in the nineteenth century; 10 extra years without heart disease, stroke, or dementia; and 10 years of subjectively feeling healthy.]

Sanctity: India and the Indian: Hinduism, Caste Act As Unifying Forces In The Country

[Here is my gaze-reversal on caste as a moderate Hindu looking at a complacent American society: If caste is a social division or sorting based on wealth, inherited rank or privilege, or profession, then it exists in almost every nation or culture. Regardless of religious affiliation, there is an undeniable sorting of American society based on the intense matching of people based on wealth, political ideology, and education. These “American castes,” not without racial or ethnic animus, organize people according to education, income, and social class, resulting in more intense sorting along political lines. As a result, Democrats and Republicans are more likely to live in different neighborhoods and marry among themselves, which is reflected in increased polarization in Congress and perpetual governmental gridlock. The intensification of “American castes,” in my opinion, is to blame for much of the political polarization. What is the United States doing about these castes? Don’t tell me that developing more identity-centered political movements will solve it.]

I intend to regularly blog under this heading. To be clear, I refer to regularly using the Liberty taste bud rather than Fairness.

The meaning of Hayek’s main views on monetary theory

Federico Sosa Valle Economics , , , , , ,

The one who is set to determine what Friedrich Hayek’s monetary theory consisted of will discover that his was a labyrinthic exploration conducted to dead-ends, which taught him what paths not to follow.

In his first years of research, Hayek was focused on the business cycle theory and on the monetary effects on the business cycles, his main objective being the pursuit of a neutral currency. This means, a monetary system that does not interfere in the price system, i.e., that the variations in relative prices express only the variations in the relative scarcity of goods, without any monetary disturbances. In this first stage, Hayek concentrated on the study of what he called “Cantillon effects,” in which the variations in the money supply did not affect prices simultaneously but were transmitted from capital goods firstly to consumer goods later, generating thus an intertemporal distortion or falsification in relative prices.

This distortion in the intertemporal value of goods is expressed in the distortion in the interest rate. It is worth clarifying about this last aspect, that for the Austrian School of Economics, which was where Hayek came from, time preference is the predominant element in the interest rate and that the monetary element represents, precisely, a disturbance in said time preference scale.

The monetary disturbances on the interest rate had two main consequences for Hayek: the first, the generation of cycles of boom and recession; the second, a process of continuous decapitalization of the economy.

In turn, in this first stage of Hayekian economic thought, stability in the purchasing power of money would not necessarily mean a neutral monetary system: that the money supply accompanies an increase in money demand, for example, could lead to a cycle of boom and recession with an initial stage of stability in the general level of prices, since the increase in the money supply would first be channeled into the capital goods market, generating an effect similar to an initial drop in the interest rate, which would then rise when the increase in the money supply reached the market for consumer goods.

In this last stage, the demand for consumer goods would increase, but the supply of such would not be able to satisfy it, since the resources -induced by the initial drop in the interest rate- had previously been redirected to the production of capital goods.

For Hayek, therefore, crises were not generated by underconsumption, but quite the opposite, by pressure on the demand for consumer goods. If this additional demand for consumer goods was not validated by further increases in the money supply, adjustment and recession would ensue. It is what was called The Concertina Effect -which later received severe critics from Hayek’s former disciple and translator Nicholas Kaldor.

But if indeed the monetary authority validated the expectations of consumers permanently, in order to avoid the slump, this would induce a gradual substitution in the production of consumer goods for capital goods. A process of a sort that John Maynard Keynes had already mentioned in his “A Tract on Monetary Reform” -to which Hayek adhered: The phenomenon of capital consumption that caused high inflation. Such a process of erosion of the capital structure of an inflationary economy would be the central theme of Hayek’s studies on the Ricardo Effect, which John Hicks proposed to rename the Ricardo-Hayek effect. This theme of his youth will accompany him both in the works of his adulthood and in his old age, as exposed in his essays “The Ricardo Effect” (1942) and “Three Elucidations of the Ricardo Effect” (1969).

To summarize, Hayek’s initial concern on monetary theory was not focused on the stability of the price level but rather on the attainment of the neutrality of money. His most relevant conclusions on this subject could be found in his short note titled “On Neutral Money” (originally published as “Über ‘neutrale Geld’” in 1933), in which he stated what follows:

“Hence the relationship between the theoretical concept of neutrality of the money supply and the ideal of monetary policy is that the degree to which the latter approximates to the former provides one, probably the most important though not the sole, criterion for assessing the maxims of monetary policy. It is perfectly conceivable that monetary influences would always give rise to a ‘falsification’ of relative prices and a misdirection of production unless certain conditions were fulfilled, e.g., (1) the flow of money remained constant, and (2) all prices were perfectly flexible, and (3) in the conclusion of long-term contracts in terms of money, the future movement of prices was approximately correctly predicted. But the implication is, then, that if (2) and (3) are not given, the ideal cannot be attained by any kind of monetary policy at all.”

In turn, in 1943, he rehearses the proposal of “A Commodity Reserve Currency“, with the purpose of giving a functional meaning to the phenomenon of hoarding: an increase in the purchasing power of money caused by a monetary demand for a reserve of value would translate into in a greater demand for primary goods by the monetary authority, which would curb the fall in prices and the monetary disturbances on the level of activity. Correlatively, a rise in spending would be offset by the sale of raw materials by the monetary authority and the concomitant sterilization of means of payment, thereby decompressing inflationary pressures. The big problem with such a proposal was the instrumentation itself: having a reserve system for a basket of raw materials is laborious and costly; in the same way that the choice of goods that make up said basket of goods is not exempt from controversy.

That is way Hayek’s attitude towards the inevitability of monetary shocks to the real economy is one of apparent resignation. When it comes to describing the incidence of the money multiplier by the banking system, Hayek points out that not much can be done about it, other than to understand that this is how capitalist economies work.

However, in 1976 – 1977, Hayek returned to contribute to monetary theory from his proposal of competition of currencies in “Denationalisation of Money”, where he questioned whether the monopoly of money was a necessary attribute of the nation state -something that dates back to the times of Jean Bodin- and proposed that the different countries that made up the then European Economic Community, instead of issuing a common currency, compete with each other in a selection process of currencies by the public.

Although Hayek is credited with having outlined inflation targeting in that book and is regarded as an inspiration to the private and crypto currencies, his main contribution remains yet to be assessed: The competition of currencies is not the best monetary system but the best procedure to discover a better one.

Previously, in his essay of 1968, “Competition as a Discover Procedure”, Hayek had stated that: “Competition is a procedure for discovering facts, which, if the procedure did not exist, would remain unknown or would not be used.” Thus, we will never define by ourselves, speculatively, how it would work the perfect monetary system, but the competition of currencies would enable us with a more powerful tool to discover which monetary system would better adapt to the changing conditions of the economic environment. The denationalization of money is not a monetary system by itself, but a device to improve the existing ones.

Reasonable decisions leading to lousy results

Michalis Trepas Books, Economics , , , , , ,

Early 20th century Greece

A novella fucked me up. Not now. That would be some 20 years ago, at the nationally held university admission exams. So, last week I went for a complete re-read of the thing, “Η Τιμή και το Χρήμα” (translates in either Price or Honor, and Money, a witty ambiguity in Greek) by Konstantinos Theotokis. It follows a family drama in Corfu island, circa 1910. It’s prose is something for its own sake, but more importantly, it is a relatively rare depiction of lower class people, not as proud, hard-working laborers, but as quite cold calculating individuals.

Rigid constraints are in place, from tradition and custom: Social hierarchy is alive and kicking, with old noble families and new-moneyed ones on top and the poorer, working ones beneath. Women are generally subordinate. There is a clear distinction in occupations, so that men of higher heritage are unavoidably expected to be masters, not employees, securing that their women do not (need to) work. The drama arises as the son (Andreas) of such a family, plighted by ill economic tidings, and the daughter (Rini) of a lower family, fall in love. It gets more complicated as the girl’s mother (Epistimi), the acting head of their house and a business partner of sorts to the prospective groom, refuses to offer the requested dowry.

It is a sad story, with just a bit of silver lining so no to come as downright depressing. Some take-aways:

  1. Smuggling was thriving. Andreas smuggles commodities and cattle.
  2. Epistimi, a factory seamstress, buys smuggled products from Andreas to resell them, and also lends him money for his endeavors. A homebrew little merchant – money lender she is.
  3. The interest rate is around 20%-25% for a term of weeks or so. In written pact.
  4. Smuggling operations have a nearly explicit political coverage. Andreas uses his family’s connections to remove the local constable at some point.
  5. This patronage is flimsy, as governments change. Smuggling shifts to the new minister’s electoral district. Hardly a good fit for trade theorizing.
  6. Per Andreas’ uncle, who is also his accomplice, smuggling is as decent as any dealing, and those “fat cats” at the capital could do with less taxes.
  7. Women’s’ social position plainly sucked. But at least they could take some initiatives.
  8. Hard labor is in fact praised throughout the novella.

Juveniles lack context to understand and appreciate the novella, I think. I agree it should be taught, but not in the hammer-it-in-your-head way it was presented back then.

Monday’s Vintage Whines

Michalis Trepas Economics, Law, Liberty , , ,
  1. Brilliant metal puns shall not be forgotten
  2. I generally like Noah Smith’s economics made simple explanations and have read him since his old blog days (I still check his substack, and Bloomberg, pieces)
Skyclad rocked (never got interested in their pagan tendencies and gibberish fonts, though) – Source

So, NS reposted The liberty of local bullies, a decade-old critique of libertarianism (using, in perfect economist style, a completely libertarian world as the basic assumption). I am sure almost everything is already said and done (late to the party!), but here goes anyway (from “theoretical” to “real-world” order):

  1. Those cartels that will push anyone not to their liking aside would not necessarily be invincible. Cartels/ trusts/ consortia/ whatever (probably) use government regulations to dig-in even more solidly. Take away the government’s heavy hand, and they get more exposed to competition.
  2. The high transaction costs of moving/ working elsewhere also go the same way.
  3. Liberal thought is not blind to misuses of private power (the usual quote here being *the* Adam Smith). Αt least one European liberal strand requires active trust-busting policies as a prerequisite for protection against such consolidations (ordoliberalism of 1930s-50s). Also, the mother of legislative trust-busting, the US Sherman Act of 1890, was signed by a Republican President. Since NS hedges as he gears his offensive to American expressions of the liberty creed, I am at a loss if this law could claim a liberal (libertarian?) root.

A Liberal View on Trade and Development

Edwin van de Haar Current Events, Economics, Liberty, Philosophy, Politics , , , , , ,

This is the pre-edited text of an article that will shortly be published in World Commerce Review (https://www.worldcommercereview.com)

The liberal tradition in political thought is by no means unified. The original ideas developed in the (Scottish) Enlightenment, most importantly by David Hume and Adam Smith, have been modified extensively. This has led to different definitions and practical applications of individual freedom, the core idea of liberalism, but also of most other ideas associated with the liberal tradition.[i] Regardless this proliferation, the wide liberal support for free trade and globalization as a means to alleviate poverty and foster human development more broadly has been rather constant, although the ideal of trade free from all government interference has never been within reach. With the World Trade Organization at shambles, the increase of bilateral and regional trade treaties which often hamper free trade more than fostering it, and a general anti-liberal sentiment across the globe, the liberal ideals may not be a very popular at present. However, this does not say anything about their empirical or moral validity. Liberal recipes to fight poverty and to foster development still work and need support, both through domestic and international policies. 

Global inequality

In international relations inequality is the norm, in many different fields. Often this is not problematic in liberal eyes, as long as individuals get the chance to use their talents in the way they see fit. Grave hindrances, for example caused by a lack of basic needs and insufficient protection of classical human rights should be removed, as they often make individual flourishing impossible.

In contrast to what is often thought, liberals are convinced it is possible for all countries to implement policies that foresee in these basic liberal preconditions. Most often, bad circumstances don’t just happen to countries, nor should they be seen as the inevitable result of regrettable historical events such as slavery, imperialism, let alone the alleged detrimental effects of capitalism. As Lomasky and Téson show, the fate of the inhabitants of developing countries lies not in the hand of failing rich countries, but are mainly due to poor domestic policies, lack of, or failing, domestic institutions and a no respect for classical human rights, such as freedom of opinion, right to property, or a free press.[ii] 

Evidence

Of course, this is a broad topic, which can be approached from many angles. In this short piece, the focus is on the above-mentioned classical liberal rights and measures, but also includes broader topics such as governance and the development of human capital, in Sub-Sahara Africa. This is made visible through an -admittedly- rough measure: the outcomes and ranking of countries in a number of well-known and internationally respected indexes. These indexes compare countries on domestic policies.

A presentation of this kind has to be treated with caution. Methodologically, the indexes are different and a comparison is not always easy or fully warranted. Definitions and operationalizations differ, just like the way results are aggregated into (final) scores.

Nevertheless, these indexes provide a useful indication of good policies from a liberal view. Especially for the countries of Sub-Sahara Africa, which mostly contain low income countries. Contrary to some assumptions that is no barrier for some governments to implement different policies. Being a low income country does not automatically lead to bad policies!

Indexes

Given space limitations, the five indexes are introduced by a broad outline. Please use the references for further information. For practical purposes 5 indexes are used, published in 2018 and 2019.     

  • Since the 1970s, Freedom House publishes the Freedom in the World Index, which determines how individual rights and liberties are applied and protected, on the basis of 25 indicators. It groups countries in ‘free’, ‘partly free’ and ‘not free’. The top 5 free countries in Sub-Saharan Africa are Ghana, Botswana, Namibia, Benin and Senegal.[iii]
  • The International Property Rights Index is published by the American Property Rights Alliance (PRI), expressing the degree of protection of property rights, both material and intellectual, per country. The PRI emphasizes that property rights are also human rights, and that they are essential for economic and social development. In 2019 Rwanda (42nd), South-Africa, Botswana, Ghana, Burkina Faso and Tanzania (73th) were the highest ranking Sub-Saharan countries.[iv]
  • Transparency International publishes The Corruption Perception Index, ranking countries to the degree there is corruption and fight corruption, surveyed among business people and experts. Corruption undermines the trust people have in the political and social-economic systems within societies. In the ranking, Sub-Saharan Africa is perceived as the region with the most corruption, still the countries that score best are Seychelles, Botswana, Cape Verde, Rwanda and Namibia.[v]
  • The Ibrahim Index measures the governance of African countries, defined as ‘the provision of political, social and economic public goods and services that every citizen has the right to expect from their government, and that a government has the responsibility to deliver to its citizens’. In the overall governance category, we find Namibia, Botswana, Ghana, South Africa and Rwanda.[vi] 
  • The World Bank publishes the Human Capital Index, which focuses on different indicators, such as infant mortality, life expectancy, and the chances on education for girls and boys. Countries that score best are: Zimbabwe, Gambia, Ghana, Namibia, Botswana and Senegal.[vii]          

This leads to the following summary:

IndexTop
Freedom in the WorldGhana, Botswana, Namibia, Benin, Senegal
International Property RightsRwanda, Zuid-Afrika, Botswana, Ghana, Burkina Faso, Tanzania
Transparency InternationalSeychellen, Botswana, Kaapverdië, Rwanda, Namibië
IbrahimNamibië, Botswana, Ghana, Zuid-Afrika, Rwanda
Human CapitalZimbabwe, Gambia, Ghana, Namibië, Botswana en Senegal

Especially Botswana, Namibia and Ghana succeed in implementing relative liberal policies, with South Africa, Senegal and Rwanda following their lead. It must be noted that a position on an index is always relative. None of the Sub-Saharan countries are in the absolute top, although some score surprisingly high. Also, this is not to claim these are countries without problems, or that they are liberal countries, let alone liberal-democratic ones. Their absolute rankings do not warrant such a suggestion. It does indicate that being a low-income country does not need to be a barrier to implement relatively liberal policies, which provide individual citizens more (social-economic) opportunities than is the case in other Sub-Saharan countries. Hence, the liberal emphasis on domestic policies is fully warranted.

Liberal international policies

Liberals believe domestic policy is most important to promote development. Still, the perennial practice in international relations also is: what can other countries do in support of this? The short liberal answer is one of restraint: stay clear, do not (militarily) interfere, be modest about the possible success of ‘helping’, while ensuring the best global economic conditions.

The latter is done through ensuring free trade, also the foreign economic policy liberals are most strongly associated with. The popularity of free trade has known its high and low tidings, ever since the Ancients.[viii] Therefore the current low esteem of free trade is nothing new. There have always been people who distrust trade, for economic, political or moral reasons.[ix] On the other hand, there are also too many liberals who have claimed way too much on behalf of free trade, especially its peace-enhancing effects, which are erroneous.[x] The lack of support for trade still deserves to be fought. Friedrich Hayek and Milton Friedman, to name two great thinkers, have shown the importance of continuing to argue against the topical grain.

The evidence continually shows the superior results of even relatively free trade, which has real effects for the improvement of the life of (poor) people. Countries that are committed to free trade become richer and are able to create more possibilities for (economic and human) development. Columbia University’s Arvind Panagariya is just one of the many who found clear evidence for that. In his book Free Trade and Prosperity he shows that developing countries have enormously profited from the recent wave of increasingly free world trade.[xi] The World Bank is even clearer:

Trade is an engine of growth that creates better jobs, reduces poverty, and increases economic opportunity. Recent research shows that trade liberalization increases economic growth by an average by 1.0 to 1.5 percentage points, resulting in 10 to 20 percent higher income after a decade. Trade has increased incomes by 24 percent globally since 1990, and 50 percent for the poorest 40 percent of the population. As a result, since 1990, over one billion people have moved out of poverty because of economic growth underpinned by better trade practices.[xii]

Yet, in contrast to Richard Cobden’s famous argument, it must be acknowledged free trade is no panacea. Domestic policies are needed to see that trade benefits find their way to the wider population. Also, when some groups are out-competed at the world market, they (temporarily) need domestic support. Still, the less than perfect trade arrangements of the last decades have had enormous positive effects on development.

Foreign Aid

By way of a closing remark, in contrast to trade, governmental development aid is not supported by liberals. It still largely is, as Lord Peter Bauer had it, ‘bringing money from the poor in the rich countries, to the rich in the poor countries’. The research of his modern day successors, most notably William Easterly and Dambisa Moyo, largely confirm this.[xiii] The structural effects of governmental foreign aid are minimal and often detrimental, resulting in ‘aid addiction’ in the receiving countries. Liberal have the same doubts about the structural effects of aid by private donors such as NGO’s (positive local effects are possible, for example in health care or education). Yet as long as these private donors donot use public money, this remains a case between donor and recipient. However, in liberal eyes it fails as an international policy to foster development.

Conclusion

Inequality and poverty remain a global reality, which can have detrimental effects to the development of individuals. Liberals think this should change, but emphasize this is mainly done through improved domestic policy in low-income countries based on proven liberal principles. This is not just theory, it is a real possibility, as the some of the countries in Sub-Sahara Africa show. The best way the world can assist in this process is to provide truly free trade, while abandoning governmental foreign aid. Global development is too important to not make the effort.  

Dr Edwin van de Haar is an independent scholar specialized in liberal international political theory and political economy (see www.edwinvandehaar.com). This article is based on a chapter published in a Dutch volume entitled Difference There Must Be. Liberal Views on Inequality, published by the liberal think tank Prof. Mr. B.M. Telders Foundation (www.teldersstichting.nl) 

[i] Edwin R. Van de Haar, Degrees of Freedom. Liberal Political Philosophy and Ideology (New York and London: Routledge, 2015).

[ii] Loren E. Lomasky and Fernando R. Tesón, Justice at a Distance. Extending Freedom Globally (Cambridge: Cambridge University Press, 2015).

[iii] Freedom House, Freedom in the World 2019 (Washington DC).

[iv] Property Rights Alliance, Property Rights Index 2019 (Washington DC).

[v] Transparency International, Corruptions Perceptions Index 2019 (Berlin).

[vi] Mo Ibrahim Foundation. 2018 Ibrahim Index of African Governance (London and Dakar).

[vii] World Bank, Human Capital Index 2018 (Washington DC).

[viii] Ronald Findlay and Kevin O’Rourke, Power and Plenty. Trade, War, and the World Economy in the Second Millennium (Princeton and Oxford: Princeton University Press, 2007).

[ix] Douglas A. Irwin, Against the Tide. An Intellectual History of Free Trade (Princeton: Princeton University Press, 1996); Jagdish Bhagwati, In Defense of Globalization (Oxford & New York: Oxford University Press, 2004); Razeen Sally, Trade Policy, New Century. The Wto, Ftas and Asia Rising (London: Institute of Economic Affairs, 2008).

[x] Edwin R. Van de Haar, “The Liberal Divide over Trade, War and Peace,” International Relations 24, no. 2 (2010); “Free Trade Does Not Foster Peace,” Economic Affairs 40, no. 2 (2020).

[xi] Arvind Panagariya, Free Trade and Prosperity: How Openness Helps the Developing Countries Grow Richer and Combat Poverty (Oxford: Oxford University Press, 2019).

[xii] www.worldbank.org/en/topic/trade/overview#1 (accessed 19 November 2021)

Monday Links and unders – NOLite te bastardes

Michalis Trepas Current Events, Economics, Law, Links , , , , , , ,

Also, armchair public policy analysis. Caveat emptor: may contain BS

Not posting here could be due to good reasons, or nasty reasons. Fortunately, it was a very good reason that kept me from posting for few weeks (hint: it was expected, and involves diapers). The (invisible to the naked eye) gap was covered via a spontaneous, à la WWE tag team display by Brandon (who, btw, restarted nightcapping, yay! And then got tarpitted again, nay).

Has the U.S. Supreme Court Effectively Overruled Roe v. Wade? (Verfassungsblog)

A take on the recent abortions slugfest. A decisive overturn of the post – 70s judicial status will probably spell similar changes elsewhere. The shadows have been stirring, the battlefront is wide, the divisions remain deep. Only recently, a proxy “skirmish” took place in Greece: A so-called “1st Panhellenic Conference on Fertility” or something got cancelled, after its anachronistic/ derogatory undertones provoked a digital uproar:

Ovaries and Outrage: How Social Media Took Down Greece’s Fertility Conference (MDI)

This metal feminist slogan came to mind:

Nolite te bastardes carborundorum

The Handmaid’s Tale

I have not read the book (nor watched the series), but this mock-Latin line rings timely and has an interesting history itself.

Lynn Parramore at INET argues that modern libertarians tend to overlook the subject, while the likes of Ayn Rand and Murray Rothbard were assertive in defending the right to abortion as part of the self-determination of one’s body/ life in general:

Why Aren’t Libertarians Protesting the Freedom-Busting Texas Abortion Law? (Institute for New Economic Thinking)

INET is not particularly fond of the liberty creed, but still, the picture is disheartening. What’s worse, it fits my own troubling perception (incomplete as it is, based on limited observations) that this kind of intrusion into individual freedom ranks lower than others. The whole issue seems mostly relegated to a “feminist” or “gender” only thing, bogged down by religion and politics, an underdog among individual rights (Scott Lemieux over at Lawyers, Guns & Money also notes something along this lines. LGM has been consistently slamming the Texas law and the SCOTUS response). And that’s why I did not exactly lament the conference cancellation, even if it borderline breached freedom of speech. It rhymed with an underway underhand undoing of that underdog.

A post in RCL (picked by Brandon here) makes an interesting case regarding the feasibility of free choice for both parts of the equation, doctor and patient. However, it also reminded me of this haunting story, and the possibility of a gap between elegant theory and brutal reality:

Italian doctors on trial for manslaughter after refusing abortion (Financial Times)

The FT article also showcases the heavy information asymmetries that plague healthcare services-at-large, which serve as a foundation for state intervention, be it regulation, public supply or whatnot. At least in the realm of textbook econ as I remember it.

Dismantling government policy – source

The other day, I used the same apparatus – old reliable econ – peppered with some basic public choice insights to smite a couple of state initiatives (in my head, that is).

(1) The Greek government recently ramped-up the vaccination push through mandates, prohibitions and fines. More heavy – handed intervention will beget more bottom-up webs that game the system, I decreed (right, late Mancur Olson documented this in his Power and Prosperity book, especially if the public’s trust is lacking, just pushing open an already unbarred door here). As it turns out:

Ten vaccination centers scrutinized over suspected fake Covid certificates (eKathimerini)

(2) A law enacted in early 2020 awards a one-off allowance of EUR 2,000 (that would be like four times the Greek minimum wage) for every childbirth (there are some conditions to be met, income level, residence etc, but they are quite lax). So, a generous gesture, meant to incentivize people to have children, and also to offer support with child-rearing costs, according to the relevant explanatory memorandum. The law is seated in the state’s duty to protect “family…motherhood and childhood”, somewhere in the underbelly of our Constitution’s list of individual and social rights.

At the face of all these, the free-market credo in my econ grasp whispered:

I will not fail in my strike, warrior. I will not fail in my strike.

The Last Mythal

I unfolded my offensive in two lines. First, the smell test: Nudging a life-changing decision with just a hand-out seems overstretched (a scheme of consistent financial aid is a different beast). And second, the econ-kick-in: This subsidy (you can actually feel my contempt here) will have the fate of other transfers that mess with the price mechanism. Will not the maternity services providers just jack-up prices to take a slice? Presto! (I left the actual cost – organizing/ funding – of implementing the policy plus the arbitrariness of the sum out, as too easy targets).

Well, the jury is still out about the first part, since it’s mostly an issue of empirical analysis. It surely made a nice PR exercise (that could also have a positive effect, and maybe this was the main point from the start). My price call went out of the window, though. The relevant costs have barely budged from the last time we needed maternity services, few years ago. First-hand observation is not statistics, but it did the trick. Nice, neat and clean inferences can still be BS, obviously.

Monday’s frivolous, flimsy, frail flailings

Michalis Trepas Economics, History, Law, Liberty, Links , , , , , , , , , , ,

Or, some Monday links on flavors, figurative flags and fails

I mean, it would be impossible to have a business like this in the States, a wood-burning fire – illegal, the meat – illegal, the dog – illegal, the cheese sitting out uncovered – illegal. Basically, everything that makes this place good would be illegal in the United States.

Anthony Bourdain: No Reservations ep. 1 – 01 France: Why the French don’t suck (Jul. 2005)

The other day, Brandon highlighted (the review of) a cultural history book, one that documents the postwar shift of cultural gravitas from Paris to New York. So, the talk is about the big league, the respectful duo of countries that gave us, among other things, modern constitutionalism and an understanding of the natural hue of fundamental rights. Here, I venture to present a sincere, if arbitrary (and somewhat superficial, since I never learned French, to my mother’s disappointment) selection of other Franco-American bites, that shadowed greater trends, or even shaped them.

160 years ago, chef Charles Ranhofer, a Frenchman, traveled to the US for a second time. A year and a false dawn at another premise after, he was hired at Delmonico’s in New York, an already established name. There, he proceeded in making it the definite flagship of American fine dining for the next 30-35 years.

A note issued by the restaurant at the time chef Ranhofer joined the team (1862) – source

His achievements include the invention of renowned dishes, innovations in the dining business model and a massive Franco-American culinary encyclopedia (The Epicurean, 1894, complete with nearly 1000 dishes and thorough guidelines for the proper tables/ menu setting, depending on the occasion). The story fits well in the Gilded Age picture, though I would guess not at front center.

Our own Escoffier (Los Angeles Times)

My pastry trilogy came a full circle only last year, having started some ten years ago: a Mississippi mud pie, a cheesecake (early 2010s, both under the guidance of my wife) and a tarte Tatin (May ‘20 lockdown, unsupervised, our then nearly-5-year old provided merry company). Of the three creations, the final was the most refined, as deserves to a French recipe from late 19th century. Like, it needed some real – if basic – technique, not the average ingredient gathering I was used to. It was also a mild failure. I followed a modern take, one to safely blame without retort. Will try again, someday. There are relevant recipes aplenty, though not in its contemporary Epicurean.

Deconstructing tarte tatin, the classic French dessert (National Geographic)

The Gilded Age was nearing its end when the famous Lochner v New York decision was delivered (1905). The Supreme Court struck down a New York state law on regulating working hours, as a breach of the liberty of contract, which was protected under the Due Process Clause of the Fourteenth Amendment. A few decades later, in United States v Carolene Products Company (1938), an interstate trade case, the Court lowered the standard of review for economic legislation, effectively demoting economic liberty vis-à-vis the other personal liberties.

Both decisions refer to the food industry, bakeries and milk manufacturers respectively. They hold vast importance and warrant further study (for starters – note to self – judicial activism in Lochner, individual rights in Carolene).

As a certain minstrel in a certain fantasy realm would have it, the truth of these decisions became something bigger than the facts. The two cases work as handy banners of the paradigm shift from “unrestrained economic liberty” to “state interventionism”, which happened as right/ left-wing totalitarianisms convincingly challenged the prewar liberal order. Liberal-minded thinkers from the two sides of the Atlantic tried to revitalize the liberal creed in the interwar years. Some of them convened at Paris – few months after the Carolene decision – to honor the visit of the American journalist/ author Walter Lippmann, a notable critic of the New Deal.

There were deep differences, but also a strong agreement on the threat posed by central planning and some tentative overlapping on the perceived failings of “old” classical liberalism and, interestingly, the potential of the state in enhancing personal freedom by pursuing limited social goals. The – middle – way forward needed free markets in a solid, impartial legal frame, which would enforce competition and even provide for a modicum of social justice. By one account, it was during this meeting that the term “neo-liberalism” took root (other ideas included “left-wing” or “constructive” liberalism. Chicago theorists – not represented at the Colloque Lippmann- had previously written about “positive” liberalism), though the term is older. The resolution led to nowhere in particular, since World War II broke out shortly after. It is nonetheless considered a kind-of precursor to the Mont Pelerin Society, the well-known organization founded after a conference in 1947, at the invitation of Hayek.

The neoliberal position is nicely summarized by Milton Friedman (who was present at the 1947 proceedings) in a short piece from 1951:

Neo-liberalism would accept the nineteenth century liberal emphasis on the fundamental importance of the individual, but it would substitute for the nineteenth century goal of laissez-faire as a means to this end, the goal of the competitive order… The state would police the system, establish conditions favorable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress.

Neo-Liberalism and its Prospects (Hoover Institution)

The term can also be found in scholarly papers from 50s-60s, but upon closer inspection they mostly focus on its German variant, “ordoliberalism”, which was closely associated with the “social market economy” – the postwar platform that defined West Germany (though voters could hardly tell what it exactly was).

My understanding is that, at some point postwar, the French involvement dwindled. Also, some German theorists fell from grace in the Mont Pelerin Society context, while US membership increased in number and clamor. The whole approach tilted closer to classical liberal/ libertarian (another note to my – European – self, Edwin van de Haar offers precious nuance regarding such terminology in a fresh post) and away from the “free market, strong state” convictions of Colloque Lippmann. However, Hayek retained cordial relations with the University of Freiburg – where the original ordoliberal theses formed.

Then the shade of neo-liberalism faded, only to be invoked as a nebulous catch-all characterization of free market policies a couple of decades later, almost devoid of its competitive and social security chops. It got a life though, since it was fleshed in the founding Treaties of the EU of the 50s. The institutional apparatus of the Union smugly radiates “free market within the properly defined lines” (the US influence is not be discounted, of course. Case in point, competition law).

EU, as with the Colloque: The French grabbed a coffee with the Americans and threw a party. Then, they took a step back as the Germans stopped being shy and hit the decks.

Back to the kitchen. Late 60s and into the 70s, gastronomic developments trace the retooling of society-at-large. That was the time various “new” national cuisines rose, with the French Nouvelle cuisine once again leading the way and the New American Cuisine taking clue from it (in Greece we usually talk about the “(new) urban cuisine” of that period, as the country experienced a rapid urbanization wave in the preceding decades).

Fantasy unchained: A cooking center in 1980 as imagined in 1973 – source

In the meantime: Political turmoil, be it protests or terrorism, there go Bretton Woods arrangements, productivity flattens, environmental concerns kick-in, enter competition from Asia, human rights against the Soviet Block, university studies expand, telecommunications and transport improve, oil crises, the lights go out in Britain and elsewhere, inflation runs, and so on and so forth. The next decade coincided with the emergence of new political leaderships across the West, as the turbulence discredited the previous guard.

The consensus got a drift for privatizations, deregulation and liberalization of international transactions, with US and Britain adhering to it (though to say that they indeed rolled-back the size and scope of State is questionable). This time, the Nobel Memorial Prizes in Economic Sciences awarded to Hayek (1974) and Friedman (1976) served as a flag (or a scarecrow) for the transition to market-based prescriptions.

The endgame was meant to play out in France. In May 1981, Mitterrand won the presidential election on a pretty standard socialist agenda. The program of nationalizations, hiked taxation, capital controls, grants and subsidies run its course till 1983, when the bad results in deficit, employment, inflation and the exchange rate – underlined by an equally poor performance in local elections – prompted a turn to anti-inflationary rigor and a realignment with more market-oriented policies (Spain and Greece, btw, more or less copycatted the French experience).

In a twist in the myth, three Mitterrand guys even went to assume head posts in international bodies, like the IMF (a member of the unholy trinity of the “Washington Consensus”), and promote capital account liberalization from there.

Endnote: The No Reservations show of late Anthony Bourdain had a role in our family’s inconsistent knack for things cooking/ baking. While writing this, I found out that a documentary on the man’s life just premiered at the Tribeca Film Festival.

‘Roadrunner: A Film About Anthony Bourdain’ Review: The Insatiable Life and Enigmatic Death of a Foodie Superstar (Variety)

Encore: “To France”, Mike Oldfield’s cover by power metal band Blind Guardian, from their The Forgotten Tales album (1996). Pas mal.

Wat’s On my mind: tax and subsidy impacts

Derrill Watson Economics , , ,

I’ve been reading through some recent (2021 and 2015) papers on the impacts of various tax and subsidy changes. Here is a short review of the latest to be learned from the research. My  tl;dr takeaway is that taxes and subsidies are less distorting than my priors expect. Unless otherwise stated, all papers are in the American Economic Journal: Economic Policy.

“Complex Tax Incentives” by Abeler and Jäger 2015 (http://dx.doi.org/10.1257/pol.20130137). They run an experiment where subjects do some work for pay and compare how their subjects respond to changes in income taxes. If the tax structure is simple, higher taxes mean less effort; if the tax structure is complex (with 22 different rules determining the optimal level of work), subjects make smaller adjustments to their effort and some don’t react at all. Most of the average impact is from the people who don’t react at all, who also tend to have lower cognitive ability.

“Unemployment Insurance Generosity and Aggregate Employment” by Boone et al 2021 (https://doi.org/10.1257/pol.20160613). During the Great Recession, a number of states changed the maximum benefit an unemployed worker could receive. They compare neighboring counties in different states and find that higher unemployment insurance benefits had very small impacts on aggregate employment. They also point out flaws in previous work by Hagedorn and co-authors who had found much larger impacts.

The Journal of Policy Analysis and Management in 2015 sponsored a point/counterpoint debate on this overall topic as well. Moffitt comes down on the side that most of the programs in the US safety net have been shown to have very small labor disincentives – with SNAP (food stamps) close to 0, extending unemployment benefits by one week increases average unemployment spells by 1/10 of a week, and EITC increasing work, though housing subsidies reduce employment by 4 percentage points. Mulligan, on the other hand, argues that ACA is effectively a 20% marginal income tax on those who are affected by it and that social programs responding to the Great Recession reduce the rewards to working by about 12%.

“Asymmetric Incentives in Subsidies: Evidence from a Large-Scale Electricity Rebate Program” by Ito in 2015 (http://dx.doi.org/10.1257/pol.20130397). Voters tend to prefer receiving subsidies for reducing bad behavior than being taxed for it. California set up an electricity rebate program where, if you reduced your electricity usage by 20% in the summer of 2005, you would get a 20% rebate each month. It turns out that Californians living on the coast reduced their electricity usage, but folks living inland where it warmer and they use more electricity for air conditioning did not.

“How is Tax Policy Conducted Over the Business Cycle” by Vegh and Vuletin in 2015 (http://dx.doi.org/10.,1257/pol.20120218). They compile a dataset of 60 countries from 1960-2009 and their marginal tax rates for VAT, corporate, and personal income taxes. They find that: tax rates are “more volatile in developing countries than in industrial economies” and “tax policy is acyclical in industrial countries and mostly procyclical in developing countries”. This matches the fact that government spending tends to be procyclical in developing countries and countercyclical in industrial economies.

“Do People Respond to the Mortgage Interest Deduction? Quasi-Experimental Evidence from Denmark” by Gruber, Jensen, and Kleven in 2021 (https://doi.org/10.1257/pol.20170366). In 1986-87 Denmark significantly decreased the tax break high and middle-income households receive in paying mortgage interest. Over the following years, they find that “a tightly estimated and robust ZERO EFFECT of tax subsidies ON HOMEOWNERSHIP for high- and middle-income households,” but that average house SIZES and PRICES decrease significantly [emphasis mine]. Low-income households, however, had only a very small change in their eligibility, so one would not expect there to be a large difference. So the paper cannot address whether the deduction encourages homeownership for poorer households. It does suggest that a cap on the deduction would reduce deficits without much cost in ownership rates.

“The Macroeconomic Effects of Income and Consumption Tax Changes” by Nguyen, Onnis, and Rossi in 2021 (https://doi.org/10.1257/pol/20170241). From 1970-1997 the UK shifted their tax burden from income taxes (70% to 55% of revenue) to consumption taxes (15% to 35%). They have some good news: as theory predicts, consumption taxes are less distortionary and so the move increases GDP, consumption, and investment. Further, government spending shrinks. I’m not entirely convinced by their identification strategy, based on identifying exogenous changes in “a narrative measure of consumption and income tax liabilites changes” [sic]. But at least the arrows are all in the right direction.

“Income, the Earned Income Tax Credit, and Infant Health” by Hoynes, Miller, and Simon in 2015 (https://dx.doi.org/10.1257/pol.20120179). They find that higher EITC payments reduce the probability that a baby will be low birthweight, both because families are able to get more prenatal care and because they smoke less. This is the only paper of the set that has an economically-large impact of tax policy changes.

“Heterogeneous Workers and Federal Income Taxes in a Spatial Equilibrium” by Colas and Hutchinson in 2021 (https://doi.org/10.1257/pol/20180529). Some places are simultaneously more expensive to live in and more productive work environments, and thus they tend to pay workers more there to compensate. But if you have a progressive income tax code, that will tax people more for living in expensive places. It seems reasonable to assume that higher-productivity (higher-income) individuals will also be more mobile, so they will be more likely to move to lower-productivity/lower-wage places to escape the progressive income tax. But moving high-productivity people to lower-productivity places also impacts wages and rents for everyone else. They find that these deadweight losses amount to 0.25% of GDP, mostly from the federal income tax (0.14%), with state income taxes (0.07%) and payroll taxes (0.04%) the rest. Moving to a flat tax would reduce these distortions to 0.16% of GDP. Adjusting income taxes by a location-based cost of living index would reduce it to 0.09% of GDP, but also make poorer people worse off.

Monday’s Reserved Judgements (and Satisficing Hopes)

Michalis Trepas Culture, Economics, Law, Links , , , , , , , ,

Or, some Monday links on central banks, manners over matters and hard-boiled decisions

That bond salesman from the Jazz Age was right. Reserving judgement, at least sometimes, allows for a fairer outcome. Take for example the Brick film (2005), a neo-noir detective story set in a modern Southern California high school. Here in Greece it made some ripples, then it was forsaken for good. Not sure about its status in the US or elsewhere, but “overlooked”/ “underrated” seem to go with it in web searches. I agree now, but when I first watched it, its brilliance was lost to me ( and no, it was not allegedly “ahead of its time”, as some lame progressive metal bands of late 90s hilariously asserted when they zeroed in sales…).

The theatrical release poster – source

The film’s peculiarity was obvious from the titles. A couple of gals left the theater like 10’ in. My company and I were baffled for most part, by the gritty atmosphere. And I have not even begun with the dialogue. The language was something from off the map. As late Roger Ebert noted:

These are contemporary characters who say things like, “I got all five senses and I slept last night. That puts me six up on the lot of you.” Or, “Act smarter than you look, and drop it.”

You see, the whole thing was intended to serve tropes, archetypes and mannerisms from the hard-boiled fiction of 1920s-30s. A manly man vs crime and (corrupted) government, and so on and so forth. We went there, un-f-believably how, clueless about all these. We did, however, make a recurring joke from the following lines:

Brendan: You and Em were tight for a bit. Who’s she eating with now?
Kara: Eating with?
Brendan: Eating with. Lunch. Who.

Seen in this light, everything made sense to my gusto. Anyway, seems that reserving judgements not only does better assessments, but also protects the lazy unaware.

Now, I have previously indicated that I have a soft spot for the “technology of collective decisions” that are central banks. I usually reserve my judgements on them, too. This comment summarises recent developments, including a few interesting links:

In which the Rich Get Richer (Economic Principals)

A new paper by Carola Binder examines central bank independence vis-à-vis a technocratic – populist merge in the age of digital media:

Technopopulism and Central Banks (Alt – M)

The author argues that central banks, supposedly the bastions of technocratic approach, tend to “respond” (i.e. be nudged by and directly appeal) to a perceived “will of the people”, as it is expressed on-line or via events like the “FED Listens” series. This bend acts as a claim to legitimacy and accountability, in exchange of trust and extended discretion, leading to a self-reinforcing circle almost beyond the democratic election process. In other words, not quite the “Bastilles” contra “modern Jacobinism” (to remember how Wilhelm Röpke deemed independent central banks in 1960). A way out could be made, concludes the author, by introducing of a rule-based monetary policy.

Central banks, as institutional arrangements developed mostly during the 20th century, share a common mojo and tempo with the FED. They gradually assumed more independence, and since the emergence of modern financial markets, (even more) power. This rise has been accompanied by increasing obligations in transparency and accountability, fulfilled through an ever-expanding volume of communication in terms of hearings, testimonies, minutes, speeches etc. This communication also plays a role in shaping economic actors’ expectations, a major insight that transformed our understanding of macroeconomic outcomes. Andy Haldane talks all these, along with other delicious bits, in an excellent speech from 2017 (his speeches have generally been quite something):

A Little More Conversation A Little Less Action (Bank of England)

Plot twist: The endeavor of more communication has a so-so record in clarity, as documented by the rising number of “education years” needed to follow and understand central banks’ messages. The same trend goes for the pylons of rule of law, the supreme courts, at least in Europe. We certainly have come a long way since that time at the 70s, when a former Greek central bank Governor likened monetary decisions to a Talmudic text, ok, but we are not there yet.

As a parting shot, let us return just over a year back, when the German Federal Constitutional Court delivered a not exactly reserved decision (5 May 2020) about the European Central Bank’s main QE program. The FCC managed to:

  • scold the top EU Court for flawed reasoning and overreach in confirming the legality of the program in Dec 2018 (the FCC had stayed proceedings and referred the case to the Court of Justice of the EU, for a preliminary ruling in Jul 2017. Europe’s top courts are not members of the Swift Justice League, apparently).
  • indirectly demand justifications from ECB, which is beyond its jurisdiction as an independent organ of EU law, by
  • warning the German public bodies that implement ECB acts to observe their constitutional duties, while
  • effectively not disrupting the central bank’s policy.

Notorious FCC, aka Bundesverfassungsgericht – source

The judicial b-slapping provoked much outcry and theorising, but little more, at least saliently. The matter was settled by some good-willed, face-saving gestures from all institutions involved, while it probably gave a push to the Franco-German axis, to finally proceed in complementing monetary policy measures with the EU equivalent of a generous fiscal package. The rift between the EU and the German (in this case, but others could follow) respective legal orders may never be undone, though. If anyone feels like delving deeper into the EU constellation, here is a fresh long slog:

Constitutional pluralism and loyal opposition (ICON Journal)

I don’t. But then again, maybe I will act smarter than I look.

Transaction Costs are Injustice

Kevin Kallmes Books, Economics, History, Law, Liberty, Philosophy, Politics , , , , , , ,

Every Law Professor: ‘what is justice?’

In law school, I found that the central goal of legal academics and practitioners was to construct systems of thought, regulation, and courts providing justice. In that endeavor, my peers and professors constantly asked, “what is justice?”

I think well intentioned lawyers would agree, the law should provide access to justice via a system that is generally agreeable to those subjected to it, and that matches in rules what the general public aligns on in spirit. However, beyond these generalities, I find the conversation of ‘what is justice’ to be too abstract to be useful. However, that does not mean we should give up on it, we just need to change approaches, and instead ask ‘what is injustice?’

The Via Negativa

The basis for this is that it is easier to agree on what is unjust than on what is just: injustice in the form of concrete, tangible wrongdoing can be protested to, and people from diverse viewpoints can find agreement in what they mutually despise. Through the via negativa, then, we can fill in the negative space around justice, and by recognizing what it is NOT, we can start to give it form.

I know exactly where I would start, since I spend way too much time around lawyers, and I have noticed that they are open to any discussion of how lawyers can bring justice, but get very prickly if you suggest that the cost in time, money, and lost control by delegating justice to lawyers is in any way problematic. Let’s just say, lawyers don’t like being reminded that they are rent seekers in the process of achieving justice. So, my bold assertion is:

Transaction Costs are Injustice

Let me unpack this. What I mean by this is that, whatever a just outcome may be, it is unjust to delay this outcome when speed is possible, it is unjust to have complexity and opacity when simplicity is possible, and it is unjust to demand control when voluntarism and mutuality is possible. In effect, it is unjust to make the process of finding justice costly.

The Appeal Labyrinth: The Town of Castle Rock v. Gonzales

This issue actually came up to me in a conversation about the heartbreaking case of The Town of Castle Rock v. Gonzales. In June 1999, Jessica Lenahan-Gonzales was a resident of Castle Rock whose estranged husband kidnapped her children from her house, and when she called the police and asked them to enforce an active restraining order against him (he had been stalking her and her children). They did not react quickly, and 12 hours later, her children were found murdered in her estranged husband’s car after he engaged in a deadly shootout with the police.

Now, there is no good outcome from such a situation, especially for Jessica. However, one route for her was to sue the police department under, of all things, under a law originally passed to fight the KKK. In her lawsuit, she claimed the federal government had an interest in enforcement of the restraining order and alleged that the police department had “an official policy or custom of failing to respond properly to complaints of restraining order violations.”

Jessica’s case was initially dismissed by the District Court, but she appealed and, in 2002, it was reversed by the Tenth Circuit, which said she could recover under procedural due process but denied that she had a right to recover via substantive due process (for Scalia’s take on substantive due process in general, see this amazing video). However, the Circuit court also noted that while the town was liable, the officers were covered by qualified immunity.

The town appealed and actually was granted cert by the Supreme Court. SCOTUS reversed the Circuit Court in a 7-2 decision; Scalia wrote for the majority that officers were not required by law to immediately enforce restraining orders, that even if they were it would not give individuals a right to sue (instead, the right would be with the state). Lastly, he noted that even if enforceable, this would have no monetary value and could not lead to an individual payout via Due Process.

So, in the end, SCOTUS gave Jessica nothing. Now, we can all weigh in on whether Scalia ‘did justice’ to her; I have incredible sympathy for Jessica but happen to think his argument is correct, that under the law and Constitution, a restraining order does not give her the right to get money from the town. But I will say that the court did her a great injustice, in sending her down a 6-year rabbit hole of being denied, then allowed, then denied again from recovery. How, then, can we all agree that the court was unjust? The injustice was the delay. The injustice was the tremendous cost in time, money, and emotional damage. The injustice was that the process for answering the question of how a mother should react to the murder of her children and how a town should support her gave no closure, and instead just had transaction costs in landing her, in 2005, exactly in the same spot she was in 1999.

The Lazy Counter: justice takes time!

Now, angry lawyers out there, don’t mistake me here: I am not saying appeals never bring justice. I too am in awe of the work of the Equal Justice Initiative, which uses the appeals process to fight wrongful convictions. I am not arguing appeals are unjust. I am arguing that a legal system that takes 6 years and millions of dollars to answer any question is doing an injustice to EJI’s clients as well. Was Walter “Johnny D.” McMillian served well by a justice system that put him in jail for years while his appeal stagnated?

What is obvious here is that lawyers, in their blindered vision of pursuing justice, are doing their best to get to the right outcome, and while cost may be a consideration for process improvement, it is not a consideration for justice. Maybe a simpler, more transparent, faster court process would do a worse job. But I think that every complexity, opacity, and delay is an injustice done by our system to the people who are seeking justice through it, and I would be amazed if Johnny D would have been thankful for all the technicalities that could be used to get the right outcome after what the Alabama prison system put him through.

Is “justice” trying to do too much?

Unlike in the case of Johnny D, Jessica’s case may show how we stretch the bounds of the system to get to an outcome that feels right, rather than being by the rules. Johnny D was caught up by a racist abuse of criminal justice, which is intended to keep citizens safe; there was no ‘community solution’ available for the murder of which he was falsely accused.

Jessica, however, was simply not treated right by her town. Anyone, regardless of their politics or views, would hope that the town has some level of care for their aggrieved, and that the community could pull together around her. Obviously, this did not happen–and especially not by the town’s police department, which had the opportunity to admit it was asleep at the wheel under the knowledge that they had qualified immunity. Since community solutions were lacking, she brought a civil case, which had a desirable end–helping an aggrieved mother and recognizing that her case was mishandled–but inadequate and undesirable means: lawyers lawyering.

I would be amazed if Jessica herself thought of the connection of: restraining order->Ku Klux Klan Act->federal oversight of law enforcement->property recovery under the Due Process Clause->monetary damages for police inaction. From my legal education, this sounds like the highly technical argument of a creative activist lawyer, who wants to change the law as much as he wants to help his clients. So, were Jessica’s lawyers trying to do too much through the justice system? Was the better solution, then, not to turn back to the community and use public truth-telling or even honest requests for help?

The elites-for-the-people against the people

This made me react against a phenomenon I have seen across law schools, firms, and courts. At elite law schools, the administration touts the number of Access to Justice projects and amicus briefs written by faculty in cases like Gonzales. At elite law firms, they attract top performers with huge salaries, sure, but they mostly talk about how many interesting pro bono cases their associates can take on. And on top Circuit Courts, most famously the Ninth, my classmates go on to help judges think creatively about how to reach just outcomes via legal wrangling. All of these activities are done with a mix of noblesse oblige and self-importance, but are honestly intended to help find justice for the downtrodden. I simply think these do-gooders don’t notice that all these activities are costly.

If you are not a lawyer, you may not realize how systematic this cost has become. Non-lawyers view courts as places where people with causes of action come and get answers based on the law. Lawyers know better: this certainly happens, but in parallel, dozens of groups (plaintiffs lawyers and activist groups on all sides of every issue) are targeting certain laws and certain constitutional questions, and are searching madly for standing. As in, they comb the news and low-level lawsuits to find one they can fund through as many appeals as possible to get the law changed or even just to get a ruling on a fact pattern that is friendly to them. In this, let me pick on my own team: in Carpenter v. US, in which the government used the cell phone location records of Carpenter and his friends without a warrant to arrest and convict them of robberies, there were no fewer than 16 amicus briefs by privacy activists (the CEI, EPIC, EFF, the Fourth Amendment Scholars, and the list goes on). Carpenter v. US was about many deep legal deliberations on the importance of privacy, but I have to say, long before it reached SCOTUS, it was no longer about justice for Carpenter, who had been in jail for two years and who wasn’t getting out even if he won. While it was a victory for my ‘team’ in saying that the government needs warrants if it wants cell phone location records, maybe justice isn’t just about getting victories for my team, if that victory comes at the cost of multiple appeals, dozens of lawyers and clerks, national media coverage, uncertainty for cell phone users and companies, and those 16 institutions writing briefs.

I therefore ask proponents of justice, who are trying to use their elite position to improve the system’s outcomes for the downtrodden, to be a little bit more humble and self-focused. Instead of sitting in seminars or court sessions deliberating on ‘what is justice,’ ask whether the justice system is the right way to seek the right outcome. Ask whether, maybe, it would be better to go out and act positively toward your fellow man rather than demand money, time, and attention to the causes, cases, and opinions of the (all elite and elitist) members of legal groups.

Invasiveness is Injustice

Across all legal disputes, I think the thing that rankles me–and all non-lawyers–is how prominent law is in our lives. If I need to use the justice system, I know it will become a major part of my life’s spending, but even if I never am called into court, I know that court cases are going to continue to be high-profile, lawyers are going to continue to increase their share of the economy, and professors are going to keep publishing books, seminars, articles, and blogs about ‘how can people like me bring just outcomes?’

So, maybe, we can find some justice for all if the legal system simply recognizes that ‘what is justice’ is not a question of all-encompassing, existential values, but a question of how to run an institution. Maybe what is important here is not the rights that we seek to gain for the oppressed by any means necessary, but of building and maintaining a structure (a Constitution, if you will) where anyone can engage, or not, with a system that uses just methods. High cost, delay, opacity, and central control are not just methods and show that the system is not working effectively.

We can all agree, left and right, that regardless of the answer, the system, the method of justice is itself broken if it cannot help but be a burden. Justice should not be so costly in our lives, and it is a failing of lawyers and judges to make their own jobs so important, pervasive, in control. I hope, with all the fantastically intelligent amicus-brief-writers out there, we can find a way to at least cut back that injustice.

CTRL + C: How can ideas find freedom in a digital world?

Kevin Kallmes Books, Economics, Law, Liberty, Philosophy , , , , ,

I propose a debate! The place: The NOL podcast. The people: anyone with fresh takes on copyright and patent in software (and who contacts me). The question: what are actions that businesses can take to carry out a vision of open collaboration via IP strategy?

As a former law student and current software company CEO, I have become frustrated with how abstract and academic IP discussions are. I know enough to be dangerous, and actually want to center in on: how can people like me use IP strategy to make our projects more open to collaboration, without making them exposed?

I’d love to get strategic advice in a debate environment. I’d also like to lay out below the IP landscape as I understand it to exist, and recall to some of the great IP visionaries of the early internet days, especially the Grateful Dead lyricist-turned-IP scholar, John Perry Barlow. Enjoy, and I will update this post once Brandon lets me set a date!

Copyrighting Code: Function masquerading as form

When I was taught about intellectual property, I learned about Google vs. Oracle, a case where the US Supreme Court considered the question, “Are API’s functional?” This may seem a strange question (when I ask computer scientists this question they always laugh helplessly), but the background is: According to US Copyright Law, “In no case does copyright protection . . . extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” This means that code may be copyrighted if descriptive but not if a functional, ‘useful article‘–and so, the esteemed Court needed to decide, effectively, is the Application Program Interface (API) code that allows softwares to request or send data purely decorative?

Until the Supreme Court, thank god, ruled that copying API code was in fact a “fair use” of API’s, the lower court’s ruling had actually held that: (1) API’s are creative, nonfunctional, and copyrightable, and (2) Google owed Oracle money for their impudent CTRL + C of API code. I’m relieved Google won, but I was totally shocked that the Supreme Court reversed only part two of the lower court decision, leaving part one unaddressed. I actually was speechless, because if they recognized it was a fair copying (in the case that API’s were useful), how could they still allow Oracle to claim copyright over them in the first place?

This is just one of the ways in which law school showed me that IP law had a reckoning, from the 1990’s to today, on how it should live on in a field that has undermined its very purposes for existing. By that I mean, if intellectual property keeps people from copying inventors and thus reducing their benefit (compared against patent-granted artificial monopolies) or raising their cost (from the cost of printing, one of the key justifications of copyright), how will it live on in the world where printing is free and inventions benefit more from CTRL + C than they suffer?

Patenting Code: Calling Dibs on How Everything Works

While my copyright classes mostly shocked me by showing me how much we lie and pretend useful things are ‘creative’, patent classes astounded me in the ways companies would assert that they invented general practices. Patents are only supposed to be eligible if they are novel, useful, and non-obvious, and they cannot cover nature, abstractions, or mathematical formulas. Or, rather, that is what the rules say; the actuality is that patents constantly used to monopolize basic processes like “one click” buying or “rounding the edges of a square.” However, rather than pick on low-hanging fruit, I’ll note that the current leading case in software process patents is Alice v. CLS, which like Google v. Oracle, struck down IP for a very limited reason that betrays the nonsense that patents are in a digital world.

Alice Corp. had patented a software method for financial trading systems to reduce ‘settlement risk,’ the risk that one party does what they are supposed to do and the other does not. This sounds fancy, but if you read the early opinions, even the district court judge noticed that the patent basically covered the idea “of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.”

This made it all the way to the Supreme Court, and thank god, they decided that Alice failed the following test of patentability of methods related to abstract ideas: (1) does the software method contain an abstract idea? (2) If yes, did the patenter add an “inventive concept” that gives the idea “something extra.”

In case you were wondering, yes, they literally said “something extra.”

Thus ended a multi-year lawsuit over whether Alice could stop other companies from minimizing risk. As if we need any more proof that judges and lawyers simply cannot understand how coding works, or how invention works, or how natural law works, one appellate judge recommended extremely broad patentability of general principles, abusing the Einstein quote of “even gravity is not a natural law” to imply that, maybe, Einstein could have patented general relativity?

These sorts of vague precedents that leave the door open to patenting basic processes. Outside of software, there are a Myriad of cases (pun intended, about a case where the Supreme Court ruled that excised DNA was patentable because Myriad figured out how to slice it) where judges let companies patent things that stretch credulity. It makes me wonder, especially given that research on the history of patents in the physical world shows that patents often hamper and harm innovators that make me question what we restrict in the name of rewarding innovators. In DNA, patents have overreached in an attempt to control a growing, organic, copying engine. In software, they often do the same, leaving developers in fear of the power of CTRL + C.

The shared vision: Wine without Bottles:

In setting up this debate, I am stealing the creative work of IP pioneer and Grateful Dead lyricist, John Perry Barlow, who posed the following riddle:

If our property can be infinitely reproduced and instantaneously distributed all over the planet without cost, without our knowledge, without its even leaving our possession, how can we protect it? How are we going to get paid for the work we do with our minds? And, if we can’t get paid, what will assure the continued creation and distribution of such work?

Barlow’s central question cuts to the very core of IP. If the goal of restricting CTRL + C was to reward innovators for generating copies of their work, what is the point of these restrictions when generating copies is free? If we no longer must pay to produce bottles to hold our wine, and it flows forth as a bounty from the springs of invention, should we force this flood to be contained at all?

The riddle has but one answer, and I cannot say it better than Barlow; anyone who is interested should read his whole treatise on Wine without Bottles here. I will add only that, as an inventor, I know that his vision of bottlers minding their own business has not come to pass fully, but that the growth of open-source projects shows that bottling code does not, in fact, age it like fine wine. In fact, if you follow the money, “Smart developers like to hang out with smart code. When you open-source useful code, you attract talent.” This gives me hope, and I want to build on that hope with ways to make his vision a reality.

Let’s debate the best way to enact a vision, rather than the vision

As an inventor considering how to build a successful software company meaning that I literally face the question of how to engage with the IP system, this question is one in which I am deeply interested. I’d like to hear fresh takes on how entrepreneurs can realistically act when deciding, should we bottle our wine? Should we allow other people to bottle and sell it? If my goal is to bring wine to those who are thirsty, how can I think about bottles?

I’m looking forward to what I hear, and as a bonus, I’ll give you my most inspiring Barlow quote, from his Declaration of the Independence of Cyberspace:

Cyberspace consists of transactions, relationships, and thought itself, arrayed like a standing wave in the web of our communications. Ours is a world that is both everywhere and nowhere, but it is not where bodies live.

We are creating a world that all may enter without privilege or prejudice accorded by race, economic power, military force, or station of birth.

We are creating a world where anyone, anywhere may express his or her beliefs, no matter how singular, without fear of being coerced into silence or conformity.

Your legal concepts of property, expression, identity, movement, and context do not apply to us. They are all based on matter, and there is no matter here

. . . .

You [world governments] are terrified of your own children, since they are natives in a world where you will always be immigrants. Because you fear them, you entrust your bureaucracies with the parental responsibilities you are too cowardly to confront yourselves. In our world, all the sentiments and expressions of humanity, from the debasing to the angelic, are parts of a seamless whole, the global conversation of bits. We cannot separate the air that chokes from the air upon which wings beat.

Julian Simon’s life against the grain

Edwin van de Haar Books, Culture, Economics, History, Liberty, Philosophy, Politics , , , , ,

I did not meet many of the postwar great thinkers of classical liberalism. There are two exceptions. In 2005 I had a chat with James Buchanan to ask him if I could translate the talk he gave to an audience of graduate students at the IHS summer seminar at the University of Virginia at Charlottesville. He agreed and I translated and published his ideas on ‘the soul of classical liberalism’ in a Dutch liberal periodical.

The other exception is Julian Simon. Perhaps not in the same league as Buchanan, he was certainly a maverick thinker and a classical liberal great. A navy officer, business man, and advertising expert who turned to academia, he is known, to name just a few, for his arguments in the field of population growth, immigration studies and of course the book The Ultimate Resource. In it he argues that all raw materials become cheaper, while humans are the ultimate resource, among many other issues. He also won a famous wager with his critic Paul Ehrlich, stating that the prices of the raw materials Ehrlich could choose (in fact copper, chromium, nickel, tin, tungsten) would decrease (inflation adjusted) over the period of a decade they agreed upon. But that is just the tip of iceberg of this most interesting man. You should really read his autobiography A Life Against the Grain, whenever you have the chance.

In 1995 a friend of mine and I founded the Dutch Benedictus de Spinoza Foundation, meant to group young people educated in (classical) liberalism. In our first public Spinoza-lecture in 1996 Simon agreed to be the speaker. If memory serves right he was on his way to or from a Mont Pelerin Society meeting in Vienna, and was willing to make a small detour. We spent two full days with him, touring The Hague, arranging an interview in a national paper, have a formal dinner with Simon as gues of honor and speaker, and so forth. He was the most congenial guest one can wish. He clearly did not want to be among the hot shots only. In fact he insisted that we should visit ‘the worst neighborhood of the city’. So we went to one of the poorest parts in town, which he found delightful, not because of the (relative) poverty, but because of the multicultural experience and multicultural food at the market.  An other remarkable feature was that in the half hour before we opened the lecture hall, he wished to take a nap on the floor right there!

In his autobiography he is open about his many rejected papers throughout his career, and the way he described how difficult it is to convince academic colleagues of a point that goes against conventional wisdom. No matter how strong the counter-evidence, people will choose to ignore the new facts or insights and keep the author out of the inner circle for as long as possible. I must say it sounds familiar to me, as an author who has attempted to change the views of (classical) liberals and IR theorists on international relations and (classical) liberalism. Even the obvious fact that trade cannot possibly foster peace seems impossible to establish. Alas, reading Simon one also learns to never give up, the truth shall be told, although there is no guarantee of success!