Economics

Open Access Gary Becker papers, and a couple of thoughtful links on him

Brandon Christensen Current Events, Economics , , , , , , , , , , , ,

Nobel Prize-winning economist Gary Becker died Saturday. For those of you who don’t know about his work, go here. For the rest of you, economist Tyler Cowen has compiled a great list of articles by Becker that you can read:

    1. “Irrational Behavior and Economic Theory.”  Can the theorems of economics survive the assumption of irrational behavior? (hint: yes)
    2. “Altruism, Egoism, and Genetic Fitness: Economics and Sociobiology.”  The title says it all, from 1976.
    3. “A Note on Restaurant Pricing and Other Examples of Social Influence on Price.”  Why don’t successful restaurants just raise the prices for Saturday night seatings?
    4. “The Quantity and Quality of Life and the Evolution of World Inequality” (with Philipson and Soares).  The causes and importance of converging lifespans.
    5. “Competition and Democracy.“  From 1958, but most people still ignore this basic point about why government very often does not improve on market outcomes.
    6. “The Challenge of Immigration: A Radical Solution.”  Auction off the right to enter this country.

Cowen also linked to sociologist Kieran Healy’s fascinating take on Michel Foucault’s thoughts about Gary Becker’s work over at Crooked Timber (and here is a pdf of Becker on Foucault on Becker).

And economist Mario Rizzo shares some short thoughts about Becker’s work in relation to the Austrian School of Economics (Becker is associated with the Chicago School of Economics). Rizzo’s account of the early 1960s debate on rationality between Becker and Kirzner is worth a look.

Update: Here is Gary Becker’s 1992 Nobel Prize lecture (pdf)

The subsidies a…

Rick Weber Economics , , , , ,

The subsidies and protections that New Zealand governments once doled out so generously to both agricultural and manufacturing interests had consequences. The economic way of thinking enables one to discern these consequences more clearly and to predict the consequences of alternative policies. Doing so will often clarify the origin of the subsidies and protections, at least for anyone who believes that democratic legislators pay attention to the interests that are paying attention to them.

From Paul Heyne’s Are Economists Basically Immoral.

Fantastic phrasing of the issue of rent seeking. I think skeptics like to think the public choice theorists are cynical for assuming that political actors act in their self interest; this quote turns that view on its head.

Princeton Concludes What Kind of Government America Really Has, and It’s Not a Democracy

Rick Weber Current Events, Economics, Law, Liberty

Princeton Concludes What Kind of Government America Really Has, and It’s Not a Democracy

A new scientific study from Princeton researchers… found that in fact, America is basically an oligarchy.

“Princeton” concludes?! “A new scientific study…”?! This is some sloppy journalism that you should immediately ignore. But it gets worse…

“Perhaps economic elites and interest group leaders enjoy greater policy expertise than the average citizen does,” Gilens and Page write. “Perhaps they know better which policies will benefit everyone, and perhaps they seek the common good, rather than selfish ends, when deciding which policies to support.

“But we tend to doubt it.”

That’s the close of the article; these “scientists” are about as unsophisticated as the journalist reporting it. They repeat the same old adages about inequality that don’t really mean much: The rich are getting richer, the poor are getting less richer, and (we wrongly assume) membership in these groups is stable over time. Their conclusion is basically “rich, powerful interests promote their own interests… if only the middle class was in charge to promote the public good instead of their own interests!”

And yet, I think there’s something worth reading here. I think the conclusion that the U.S. is an oligarchy is roughly correct. The importance of politically connected individuals and lobbying groups affects wealth creation and distribution. This is an example of where the Left and Right should agree with libertarians: centralization of political power is leading to wasteful rent seeking that weakens the economy (Right/libertarian) and the outcome is that politically powerful groups are given an unfair advantage (Left/libertarian).

We know that Democrats are libertarian on social issues (and this is one of them!) and Republicans are libertarian on economic issues (ditto), but we hit a snag. Each group tends to see the faults of the other party’s pet projects and miss the root causes. Republicans see Democrats centralizing power and weakening property rights and step in to save the victim: businesses. The result is pro-business policy recommendations that also centralize power. The Democrats see this and step in to save the victim: the little guy (poor people and consumers). The result is centralization of power that creates rent seeking opportunities for big business!

Australia may ban [more] boycotts…

Adam Magoon Economics, Liberty, Politics , , , , , , ,

Australia has been in the news quite often in the last year for its new Prime Minister’s controversial legislation that protest groups say put vast areas of Australian nature in threat of destruction.  Environmental issues are one of the more complex issues facing libertarians today.  The vast entanglement of property rights can make explaining those issues to non-libertarians quickly and clearly quite difficult.  Luckily for me the Australian government is currently attempting to assault a far more basic set of rights.  The right to organize, the right to persuade, and the right to spend your money and time how you wish.  We are, as the title implies discussing the right to organize a boycott of a product or products.

The Australian secretary of agriculture Richard Colbeck wants to “remove an exemption for environmental groups from the consumer law ban on so-called “secondary boycotts”.  These secondary boycotts are also illegal in the UK and the United States.  For clarification a secondary action “is industrial action by a trade union in support of a strike initiated by workers in another, separate enterprise”.  

Libertarians often find themselves on the wrong side of both environmental and union actions but it is important to remember that liberty also means the freedom to refuse to purchase a product for any reason you can imagine; whether it is because the company that makes the product is partaking in actions you disagree with or because their logo is yellow.

Even though libertarians disagree with the end goals of the hard-line environmentalist movements (namely government control of industry) we cannot forget to support situations like this on principle and also to remember that environmental issues are essentially property rights issues and thus core to libertarian ethics.

Regulation doesn’t have to mean licensure!

Rick Weber Economics , ,

In my effort to become more misinformed I’ve started listening to the news. On PBS Newshour I learned that the National Taxpayer Advocate is pushing to restrict who can professionally prepare tax returns. It turns out the Institute for Justice is (so far) successfully beating back these efforts.

So why is anyone concerned? Surely because it’s poor people going to (potentially unqualified) preparers. Why not just go to H.R. Block? They’re cheap and trustworthy, but poor people probably make their decision of where to go the same way they decide how to bank. They want someone local and personal. That’s not going to change. Back to Newshour:

If you have someone who’s– who’s not ethical or doesn’t know what they’re doing, they’d have even more incentive to not sign a tax return and kind of just operate in the shadows.

I think that’s the correct prediction. Create licensure, and poor people will be less protected. Frankly, I doubt that even certification will make a difference; I think Joe Blow’s decision of who to get to prepare his return won’t be likely to change. What I think would help is a simplified tax code, and especially as it treats poor people.

Towards a Free-Market Global Climate Treaty

Fred Foldvary Current Events, Economics, Liberty ,

An article in the 19 March 2014 “NewScientist” featured Catherine Brahic’s interview of Christiana Figueres, executive secretary of the U.N. Framework Convention on Climate Change. She is leading a project to create a Global Climate Treaty in December 2015. A draft agreement is scheduled to be delivered to all country governments in May 2015.

A previous U.N. climate change conference in Copenhagen in 2009 failed to achieve an agreement. Christiana Figueres points out that while in 2009 there was doubt that countries would adopt policies to curb emissions, more than 60 countries now have climate legislation that apply to 90 percent of global emissions. There has been more investment in renewable energy. But this progress is much less than what is needed to reduce air pollution to a sustainable optimal level.

A major technological obstacle to the use of renewable energy is the expense of storing electricity in batteries in order to have a steady supply of power on grids. Another technology that is needed for emission reduction is carbon capture and storage.

Unfortunately this interview did not delve into the economics of climate policy. Economists are in wide agreement that the most effective policy to reduce widespread pollution is full-cost pricing, to make the polluters pay the social cost of the damage. The charge is passed on to the buyers of the products, who buy less. The firm either installs methods of reducing the emissions or else pays the fee and reduces pollution by producing less of the product.

A pollution charge or tax is more efficient than command-and-control restrictions, because the tax lets the polluter respond according to its particular costs. In contrast, when government dictates particular methods such as gasoline additives and engine technologies, these may not be the most effective means, and the mandates and restrictions may not encourage innovations.

There is much talk about carbon taxes, but carbon exists in both the inputs and outputs. A tax on the gasoline input does not create an incentive to capture the carbon and other emission outputs, and the tax imposes an excess burden on cars that have already reduced their pollution. A tax on the emission output does induce technology to capture the carbon, and avoids the excess burden.

The executive secretary talked about carbon neutrality, such that each factory, building, city, and vehicle has very low or zero carbon outputs. But the most effective policy is not to regulate and micro-manage, but to set an overall goal and an emission charge per ton of pollutant, and then let each person, enterprise, and facility adjust according to its own costs and benefits. If the cost of carbon neutrality is greater than the social benefit, then such neutrality is bad for the environment, because it wastes resources.

Unfortunately, governments are moving towards regulations rather than pollution taxes. The government of Australia is seeking to replace the carbon tax, enacted by a coalition of the Green and Labor parties in 2012, with a subsidy to industry and an emission permit trading scheme. On 20 March 2014 the Australian Senate voted against repealing the carbon tax, but the prime minister continues to seek repeal on July 1.

While emission permit exchanges are more efficient than regulations, the increase in the price of permits is a gain only to the permit holders, and the price of the permits may be different from the social cost of the pollution. A pollution fine, charge, or tax, however it’s called, enables the government to enact a “green tax shift” to replace market-hampering taxes on income, sales, and value added, with payment for emissions that not only reduce pollution, but also prevent what would otherwise be a subsidy to polluters by not having them pay the full social costs.

Economists and their journalist followers should be in the forefront of promoting a green tax shift as the best policy both for the environment and the economy. Even the skeptics of global warming should embrace the green tax shift, as pollution is harmful trespass regardless of climate change, and the shift promotes greater economic freedom along with productivity.

If the 2015 Global Climate Treaty is based on pollution levies, it will succeed. If instead the Treaty calls for “command and control,” it will doom the planet to yet another failure of central planning, and the result will be both a worsening global economy and a backlash against the tyranny of regulation strangulation.

Le Contrôle des armes aux Etats-Unis ; l’essort économique français

Jacques Delacroix Current Events, Economics , ,

Un membre de la legislature de l’état de Californie est accusé par le FBI de traffic d’armes massif, des fusils d’assaut militaires, pour être précis. C’est un élu de San Francisco, ville notoirement de gauche. Il est bien connu pour ses campagnes bruyantes en faveur de la restriction du port d’arme (garanti par le Second Amendement à la Constitution des Etats-Unis adopté en 1789). Il va être mis en garde à vue incessamment. Il y a des brebis galeuses partout, après tout. En tous cas, a contrario, aucun élu notoirement favorable a ce droit constitutionel n’a jamais été accusée de quoi que ce soit sur ce plan-là.

Le slogan principal de ceux qui, come moi, désirent un population armée:

“Quand les armes sont hors-la-loi, seuls les hors-la-loi sont armés.”

L’évidence même!

Economie française: Selon l’administration américaine spécialisée*, le désert campagnard francais renferme 4 milliards de mètres cube de gas de schiste. Milliards! Ils sont tous fermés à l’exploitation à cause de l’influence des écologistes (dont le parti arrive rarement à percer aux élections). Il n’y a pas de travail pour les Français; c’est donc exactement le bon moment de garder bien enfermé à clef  un outil de travail essentiel! L’élite politique française agit comme si elle vivait en 1978 avec, devant elle, des possibilités infinies d’essort économique.

Et puis, il ne faut pas chagriner Poutine!

*US Energy Information Administration

Polystate: Book 2

Rick Weber Books, Economics, Law , , , , , , , , ,

This is my third entry on Polystate and will cover book 2 (entries one and two covered book 1). This section covers a thought experiment in polystates and begins immediately with the flattering implication that macroeconomists can make speculative predictions about complex systems. This is typically where an Austrian would say “the world is too complex to make speculative predictions which is why  we need a flexible system.”

Quick reminder: a polystate is a state that contains non-geographical anthrostates. Anthrostates have rules relevant to their members, while polystates have rules relevant to the interaction of anthrostates and their members.

My first qualm with ZW’s conception of anthrostates is that there are local spillovers in governance, culture, etc. that would likely lead to enclaves. ZW addresses this now with rule number one of polystates being that no anthrostate may claim territory. My general feeling on federalism is that the higher units will have rules that are more universally accepted, so that a nation will have prohibitions on murder, while regions of states/provinces may have fairly uniform rules on abortion, drug use, etc., individual states have their own traffic laws, and cities have their own rules on neighborly conduct. Polystates are a radical form of federalism, but in order for them to work adequately, they must start with fairly uniform basic rules on property rights over land.

Rule two is that individuals choose their anthrostate annually (by birthday). The specific interval is fairly arbitrary but it seems obvious that it should be neither too long (in which case anthrostates gain monopoly power) or too short (in which case they can’t credibly commit to govern in difficult situations such as collecting taxes or enforcing punishments). The alternative to a time-based restriction would be a social-stigma based restriction which has pros and cons of its own but I’m tempted to think would be more effective (though with some very important caveats that warrant further discussion!). The birthday rule is interesting as it staggers political change leading to greater stability than having “global revolution” at each shift; we face a similar problem in today’s world of election days.

Rule three is where things get tricky: anthrostates that take territory lose their government status under the polystate order. This creates a collective action problem among other anthrostates as enforcing this rule won’t be free and won’t have uniform benefits to others. ZW recognizes this, but the problem still stands. This is essentially the same as the national defense problem. This is really the big one: are geostates unnecessary but inevitable? Essentially this book is considering a special form of anarchy and so belongs in the same category of other classic thought experiments.

It obviously isn’t statelessness, and so it isn’t quite anarchy, but I’m not so sure anarchy is quite anarchy either. Even the sort of state imagined by David Friedman has coercion, it’s just decentralized. Likewise, polystates specifically allow anthrostates to act coercively, but it subjects them to competition. In essence, the polystate proposal is to increase competition among governance structures by allowing them to be geographically diffuse.

An interesting institutional feature of polystates is that anthrostates are no longer bound to seek something like an end state. Where as the USA tries to set up a system for the median voter who is expected to be there for life, an anthrostate could specialize in particular stages of individuals’ lives. There could be a state for students and one for seniors (… I wonder what a world with AARP running an anthrostate would look like…).

ZW doesn’t mention this, but if individuals can be members of more than one anthrostate (of course, based on the rules and enforcement of those rules by the relevant anthrostates) then it is conceivable that government services not be so horizontally integrated. This raises an interesting line of inquiry: is a polycentric polystate possible?

A big problem is the “inherent goodness” of imposing rules on people who don’t want them. It’s easy for libertarians to say that drug laws are dumb (because they are), but as Ryan Murphy surely writes somewhere, where people see value/justification in imposing their views on others we run into problems. We’re pretty much all cool with prohibiting murder, but what about less clear cut issues? If I saw veganism as having the same moral weight as murder (“I don’t think humans should be treated like that.”) then I would be morally justified in striking down with great vengeance and furious anger those who attempt to poison and destroy my brothers with icky lentils. The best solution would be for me to stay the hell away from Berkeley. Again, we’ve got local spillovers in governance. We also have tribalistic barriers to the sort of integration economists want to see for the good of everyone.

In the final section on war ZW raises an interesting point regarding the possibility of war-mongers self-selecting into aggressive anthrostates. This is a troubling notion, but such behavior is expensive. North Korea is aggressive, but manageable because Kim Jong Un isn’t wealthy enough to pose a more drastic threat to NATO. With self-sorting, a North Korean anthrostate would lose many of its productive people and be even less of a threat. But ZW doesn’t raise the question of nuclear weapons…

The example of Kidnappocracy drives home the point that ultimately coercion underlies any system of governance. Rights are as rights are enforced. Political structures are created to resolve rights disputes in an amicable (sort of) fashion, and polystates will still need means of resolving these disputes. Even in a geostate, some people are willing to fight and die for their views, but the institutional change to a polystate seems somewhat orthogonal to such issues. Anthrostates will serve as focal points, and having more disparate focal points may increase the possibility for conflict. But mostly it would just be a different sort of federalism; if we don’t see violence between people from different states, and if effective institutions emerge quickly enough, this problem may be small and quickly swamped by other benefits.

Ultimately the resolution of problems between members of different anthrostates would require that 1) their disputes are matters of honest disagreement that can be resolved with arbitration, 2) interactions that may lead to such disputes are minimized by a general refusal to interact, or 3) there is a strong and near universal support for (this sort of) federalism such that people are willing to resolve differences to support the overarching system. The second seems most likely, supporting the hypothesis that geostates will typically be more successful even if they will be less prosperous.

I come away increasingly convinced that perhaps the most fundamental aspect of governance is geographical sorting. I don’t like geostates (I don’t think many people truly do), but I think geographically localized governance is effective because it reduces interaction by people with contradictory conceptions about good behavior and so reduces conflict while supporting order. I think ZW’s ideas are largely influenced by a sort of a sci-fi view (that I’m highly sympathetic to) which reflects the sort of governance we see on the Internet. 4chan is a very different place from Facebook and every subreddit has it’s own unique culture. In such a world, “geography” is a different matter; it takes a different form, but it’s still there.

A thought on competition

Rick Weber Economics

“Start-ups, or market entries lead to new business development, whereas incumbent firms might be forced to dissolve by the increased competition of the new firms. More indirectly, the new businesses and the removal of older, perhaps less efficient businesses, might lead to improved competitiveness and economic growth.”

From van Praag and Versloot (2007).

The above quote is from a paper on entrepreneurship. Pretty much anyone who studies entrepreneurship has at least passing familiarity with some aspects of Austrian economics. The above quote struck me for showing the difference between the mainstream view of competition and the Austrian view. For Austrians competition is a process; you compete with rivals by offering better terms to potential trading partners. For mainstream economists competition is a state; when there are lots of market actors there is competition.

The first use of competition is Austrian: new firms out-compete old firms. The second is mainstream: getting rid of inefficient firms leads to “improved competitiveness.” They don’t write “entry of new firms force old firms to be more competitive,” but “a change in the makeup of the market results in more competition.”

I think a lot of mainstream, equilibrium based economics is really just short-hand for the complex processes Austrians think about. But I think people forget that it’s shorthand and that leads to thinking about the economy statically, like some thing with a certain arrangement that can probably be rearranged. The difference between the two concepts of competition is a reflection of this. A market with lots of different firms is probably competitive, but that’s no guarantee. We need to think about how long those firms have been doing what they’re doing, and that leads us to see how industries with few (or even one) firm may still face competition.

Are small businesses entrepreneurial?

Rick Weber Economics, History, Liberty, Politics

Between 1958 and 1980 the number of businesses in the U.S. economy increased from 10.7 million to 16.8 million. But the relative economic importance of small business in the overall economy declined over this period. Between 1958 and 1977 the share of employment accounted for by firms with fewer than 500 employees decreased from 55.5 percent to 52.5 percent. Between 1958 and 1979 the share of business receipts obtained by companies with less than $5 million in receipts declined from 51.5 percent to 28.7 percent. Between 158 and 1977 the share of value added contributed by firms with 500 or fewer employees decreased from 57 percent to 52 percent. (Zoltán J. Ács, Bo Carlsson, and Charlie Karlsson 1999, 7)

That’s an enormous relative increase in the importance of big businesses. Consider that change in light of macroeconomic conditions and political thought at the time. It seems almost like the dark ages. I think it also shows an apparent correlation between business, government, and ideology. Since the mid ’70s, small businesses have gained importance in the U.S. economy while also leaving the dark ages of mid-20th century illiberalism.

Constitutional Political Economy and Jeopardy

Rick Weber Current Events, Economics, Law

Arthur Chu, the “mad genius” of Jeopardy has continued his streak with the power of game theory! But apparently many viewers are upset. Chu is playing within the rules of the game, but he’s been accused of being unsportsman like. He responded:

‘Being unsportsmanlike is calling your opponents names or refusing to shake their hands. It shouldn’t apply to playing the game as hard as you can and trying to win as hard as you can, within the confines of the rules.

‘Not giving my opponents a chance to answer’, to me, is just like not giving your opponents the chance to shoot in basketball or not letting them get within range of the goal in soccer. It’s not ‘unsportsmanlike’, it’s playing defense,’

We know that rules affect how people compete and that in spectator sports that affects how fun it is to watch. So Chu’s success might mean that Alex Trebeck has to change the rules to give viewers what they want. If he does, this is what I would have to say:

 

Could there be a college bubble?

Rick Weber Current Events, Economics , , , ,

The essence of a bubble is that you can flip an asset one more time before the bubble bursts. Most people know it will burst, but as long as prices are still rising, we might be able to fleece one more sucker. But we have to get the timing right or we might be that sucker.

But what about college? I can’t sell my degree (and there are other things that Jon Lajoie can’t do with it, but that’s neither here nor there), so I can’t flip it. But I can get rents on it. I give up $100,000 to get a degree with a present value of $300,000, and I feel peachy-keen. That’s a recipe for increased demand leading to higher tuition, sure, but could there be a bubble?

Let’s start with equilibrium so we have a counterfactual. Basic supply and demand here: higher incomes for college grads increase demand, and increased demand increases prices. In equilibrium the marginal student’s value of the degree will be equal to or greater than the opportunity cost of getting the degree.The student’s value is the benefit of cool college parties, mind/horizon expansion, reduced expected unemployment in the future, and higher expected income. Their opportunity cost is tuition, loan interest, stress from doing homework, and time not spent working. The question of going to school is different for different students; some will enjoy college more, will get more out of it, will have an easier time of it, etc. And the financial return isn’t the only relevant variable. At this point I’m thinking that maybe the current market is actually pretty sensible… we can ask questions about the sustainability of subsidies, but given everything, it’s likely that the students going to school are making the right choice, as are the ones who don’t go. Mistakes will be made, but it isn’t necessarily the case that there are systemic, wide-spread mistakes.

Now let’s think about what it might mean for the bubble to burst. First off, there would have to be a bubble: too many people paying too much to be in school; too little incentive for any individual to change their behavior. Then all at once, there is a flood away from the market, and recent grads are left holding the bag. During the bubble, I can get financing for my degree and I can reasonably expect (even if I see that there’s a bubble) that I will come out ahead, as long as I jump ship soon enough. Let’s say that during the bubble, I pay $10k to get a degree and I earn an extra $1k per year (and lets also assume, for simplicity’s sake, that we don’t have to worry about discounted values… a bird in the hand is worth one in the bush). My behavior is rational as long as I expect to keep getting that extra grand for the next 10+ years. So our bubble has a weirder time dimension than, for example, a beanie baby bubble where I can buy and sell rapidly.

Also, our bubble requires that my income is inflated compared to it’s post-bubble level. That would certainly be the case for me as an academic; if that bubble bursts, my income will drop. Will that be true of someone getting a business degree? American employers are keen to hire people with degrees, and so there’s a de facto licensure system. The assumption is that if you don’t have a degree there must be something wrong with you. As long as everyone holds this assumption then all would/could-be students will have to get a degree. But if no degree means ‘idiot’, that doesn’t mean that degree means ‘genius.’ Employers could well figure out a better vetting procedure, and students could get sick of undergoing the opportunity cost of attending school. But if this is a gradual change, then ‘bubble’ doesn’t seem like the right word. Even if the change in hiring practices is instant, the change in the labor market won’t be. If every 30 year old has a degree and suddenly degrees become unimportant, companies won’t rush out to replace them with 20 year-olds. The supply of lightly-experienced, qualified workers won’t change in the short run unless there’s a reserve army of qualified but un-credentialed labor currently in limbo as baristas.

So is there a bubble? It certainly seems like enrollments don’t reflect underlying realities. It also seems like there are profit opportunities for entrepreneurs able to improve hiring procedures; placement services could vouch for a candidate’s abilities, employers could accept non-college interns and hire from that pool, would-be students could become self-employed. I think the market is far away from equilibrium. But I’m doubtful that re-equilibration will happen rapidly. There isn’t room to “burst” a bubble, so much as there is room to avoid wasting a lot of 18-24 year-olds’ time.

People: neither blithering idiots nor towering geniuses

Rick Weber Economics, Liberty , , , ,

Or is it that they’re both?

As a young libertarian first exposed to economics (actually it was my third exposure where it took) I was struck with an exciting proposition: people don’t need the government to look after them because (we’ve assumed that) they’re rational! In that case, government can almost only ever do harm. Add in some public choice and Austrian insights and you’ve got a water tight defense of liberty.

But actually you don’t. Because as it turns out, people might actually be complete morons. I’ll bet if you marketed a brand of bottled water as having never been warm–cleaned with pre-chilled filters made in iceland, and never poured into room temperature bottles–it would sell. But if that’s the case, the world should be a scary place. People would be doing ridiculous things and electing ridiculous politicians to help them act even more absurdly.

I’m an economist and I still do plenty of irrational things. But it turns out that first taste of economics was econ of a particular variety: the study of what is rational. Not the study of how people rationally act. That’s not to say it’s worthless. David Friedman put it well in Hidden Order: if people are rational some times and act randomly other times, then we can still make useful predictions about their behavior. But I don’t think that economics is some sort of half-science that assumes away randomness in order to study some portion of people’s actions.

Mostly, I think the study of rationality lays a foundation, and offers a puzzle, to allow further study of ecological rationality. The world is orderly and roughly follows the predictions we make when we assume individuals are rational. And yet people seem far from rational. What gives?!

It turns out we have to pay attention to institutions. These often hidden rules of the game direct our actions and embed our learning in social rules. Those crazy (probably imaginary) sociologists might have been on to something when they said that individuals’ actions are shaped by social forces. It’s not that people don’t have autonomy, it’s that people don’t exist in a vacuum.


Yes they are.

What’s my point? Learning a little bit of economics goes a long way to making good arguments for liberty, but it doesn’t go far enough. We live in an a much more interesting world than the one we learn about in econ 101.

Thoughts on climate change

Rick Weber Current Events, Economics, Politics , , , , , , , , , ,

Last week I heard a sermon on climate change (no, it was an actual sermon). I’m roughly agnostic on the existence and degree of climate change, but I err on the side of assuming it is a large problem of externalities with no obvious property rights solution and will have costs. And I think that under those assumptions there is an important moral element to it. With that in mind, below are some of my thoughts on the weak points of the sermon:

1) Authority is only a starting point; we cannot defer ultimate responsibility to authority. If an expert or someone I trust tells me something about X, and I don’t have any prior knowledge about X, then I believe them. In the case of global warming there are two basic sorts of information you will get from information: a) diagnosis (temperatures could rise X degrees in the coming century), and b) prescription.

The climatology involved in a) is well above my pay grade, and so rather than undergo the costs of informing myself on the existence or importance of climate change, I just figure the truth is somewhere in the middle of what reasonably informed people say and instead focus my effort on my areas of comparative advantage. Now the actions in b) are typically about reducing waste and that’s well within the realm of economic thinking, so I’ll comment on that!

1b) Blindly deferring to authority to assuage your guilt is wrong and bad. Someone says you should drive an electric care to save the environment? Don’t do it before thinking through the matter, this is a big decision for most people. Where’s the energy coming from to power that car? (Coal. That is burned hundreds of miles away from your car… that’s like having a car with a hundred mile long drive shaft.) How much energy and material does it take to make the car? (Hint: look at prices.)

2) It’s called climate change, not climate universal and uniform worsening. If climate change means a warmer climate for Canada and Russia, that will come with extended growing seasons and savings on winter heating costs. Burma? It’s probably going to suffer a lot. Climate change will surely have the biggest impact on the poorest people in the world, and this is where I see the real moral issue because…

3) We can respond to climate change in a way to reduce suffering. Specifically, we can open borders. First off, that would increase human well being, with an enormous benefit to the world’s poorest people. Second, the effects of climate change won’t harm the poor as much as they could. Is climate change still a bad thing if we do this? Sure, but if a building is burning, why not help people get out?

Loose ends:

Should I recycle everything? Only if it will actually help. Recycled aluminum is chemically identical to virgin aluminum and uses fewer resources to produce (which is why it’s cheaper!). Recycling paper creates a lower quality product, uses a lot of energy and creates pollution.

Paper bags are brown, that’s good, right? Plastic bags are almost ethereal; they use a fraction of the material per unit of carrying capacity resulting in big savings. Yes, there are offsetting costs to using plastic, but it isn’t as simple as “this brown, it must be natural and therefore good!” And while we’re on the topic, brown M&Ms are stupid. There’s a layer of white sugar between that brown outer layer and the actually brown chocolate. Brown M&Ms are as unnatural as any of the other colors.

Should I buy local? Maybe if you live in California, but not if you live in Massachusetts. The biggest environmental impact of food is growing it; plowing fields, planting, watering (outside where the water could just evaporate!), and harvesting use a lot more energy than transportation. So if you live in a place with poor growing conditions, then buying local only does more harm. That said, fresh food tastes better, so by all means pay the cost if you value the flavor, just don’t delude yourself into thinking you’re reducing energy usage by doing so.

Consider opportunity cost and present value! So you’ve got a solar panel and now electricity is free for the next 20-30 years! Or you’ve installed new modern insulation for your home. Or you bought a car that costs less to run (and you’ve promised not to increase your usage). But at what cost? If your solar panel used 40 years worth of energy to build and install, then you’ve done more harm than good. And you’ve done that harm upfront. Even if one of these investments has a positive return (it saves more resources than it uses), you should still consider whether it’s a good investment. We don’t have unlimited resources, and that means that if you spend $10,000 on insulation that will give you a 0.4% ROI then you’ve given up the chance to invest that money into something that will generate more good.

Another example of double-speak: This is what happens when Time Warner Cable is forced to compete

Adam Magoon Current Events, Economics, Law, Liberty , , , , , , , , ,

This is what happens when Time Warner Cable is forced to compete

Such a laughable headline when government regulations are what caused the cable/telecom monopolies in the first place.

“This report admits that in the days when cable was challenging airwave broadcasters, regulators “did not hesitate to grant exclusive franchises to cable operators”4. It speaks specifically of a long history of successful regulatory lobbying by the cable industry. This report claims that lobbying of regulators resulted in a variety of tactics to deter competition (p. 35). It claims that regulators protected and favored cable incumbents for years. Licensing policies have directly or effectively barred competition in many local markets (p. 44). Such practices are no longer official, but cable companies still succeed in enlisting the help of regulators to bar direct competition (p. 44). Incumbent cable companies have also gotten regulators to use “level playing field laws” to increase the costs of entering the cable market (p. 45). Cable companies have also saddled new competitors with disproportionate shares of subsidies for public education and government programming (p. 45). The cable industry has also succeeded in getting the FCC to quash new competitors with prices for leased access no competitor “could pay and remain commercially viable” (p. 47).”

Much like the drug law argument I talked about last week this is another example of people lauding governments for solving problems that the government itself is responsible for.  We need to look beyond the double-speak and identify the underlying issues at hand.  In this case government privilege granted to favored corporations.