market regulation

(Monday’s) comic book edition

Michalis Trepas Books, Culture, History, Liberty , , , , , , , , ,

The Code is dead, to begin with. Watchmen (DC) is awesome, a near-Orwell experience. On comics historical curios and intellectual drifts. Here goes.

Vol. 1 – That other 50s scare and all

Somewhere somehow I picked up the Comics Code Authority story. It goes like this: The rise of mass-media in early 50s saw a creeping moral panic against the more “graphic” content of comic books (think horror, violence and the like). In 1954, the Senate Subcommittee on Juvenile Delinquency investigated the supposedly detrimental influence of comic books, taking into account speculative, biased evidence. The emerging threat of government regulation prompted the creation of the Code by the comic publishers, so that they could check content themselves. The self-censoring initiative could use some tuning: It was overly strict, shaking-up and aggressively downsizing the industry. Thus, a government “nudge” led to a private sector (over)reaction, with ill effects. The sector, however, adapted and continued, underground or otherwise.

*The* seal – source

Ironically, it was another government nod that galvanized a Code overhaul in 1971, as the Nixon administration asked Stan Lee of Marvel to incorporate an anti-drugs storyline in Amazing Spiderman. The arc proceeded without CCA approval in mid-1971 (funnily, just before the international monetary system entered turmoil). And it was in 1973 (say hello to the first oil crisis) that the depiction of murder in a popular comic book (Amazing Spiderman, again) marked the passage from the campy superheroes of the Silver Age (c. 1956 – 1970) to a more diverse and socially attuned bunch in the Bronze Age (c. 1970 – 1985). As the disillusionment of the 70s gave its place to cynicism in the 80s, so did the comic heroes matured, with works like Watchmen and The Dark Knight Returns. The archetypes formed in the period (Dark Age, typically 1985-1996), grim and complex, redefined the genre and are still here today.

The Code was updated again in 1989, but failed to stay relevant in the face of increasing bypassing/ sidelining via new distribution methods (all hail the market in action). Just 20 years ago, Marvel abandoned it. 10 years later, in 2011, the last adherents, DC and Archie, finally desisted, too.

Vol. 2 – Randian Quests & Answers

Α couple of (relatively) fresh articles flashed from The Comics Journal:

Mysterious Travelers: Steve Ditko and the Search for a New Liberal Identity

How Ayn Rand Influenced Comic Books

Not an exactly nuanced analysis, the second one (it contains a few useful links though), but still, both presented things to consider. As it turns out, the co-creator (along with aforementioned Stan Lee) of f – Spiderman, Steve Ditko, endorsed objectivist ideals in early 60s (he even contributed a piece to Reason back in 1969). Here is another scholarly short paper on his impact:

“A Is A”: Spider-Man, Ayn Rand, and What Man Ought to Be (PS: Political Science & Politics)

If mid-60s Peter Parker, “[c]old, arrogant, detached from the lives of others, but driven to follow his purpose and pursue higher ends”, seems objectivist enough, then the Question and Mr. A., Ditko’s creations in late 60s, are the real thing. These two were featured in smaller publications, and later provided the inspiration for Rorschach (Watchmen).

Fists will fly – source

The character was intended not only as a tribute to Ditko, but also as a stark criticism for randian convictions, meant to make a bad example of them. However, the controversial fictional zealot resonated (a bit too well perhaps) with the audience. Indeed, the character delivers some of the most memorable quotes ever, his unflinching crusade against the morally bankrupt (political class included) is iconic, and his damaged humanity invites some sympathy.

Depending on priors and inclinations, one can certainly discern smatterings of Rand’s ideas in Rorschach (“no gray”, believing in “a day’s work for a day’s pay”, among others). But I think that his trope could be assigned to other venues, too. For example, a fantasy aficionado will see a Paladin gone (very) wrong, maybe, or a casual will stick to the apparent right-wing leanings per se, and so on.

The other route of Rand influence is traced to Frank Miller and his Dark Knight take on Batman. The arc of a lone (capitalist) hero versus media-induced apathy and the corrupted establishment (and said establishment’s lapdog, Superman) has a libertarian facet, yes. I will get it (next week probably), read it and, then, return.

Some Monday Links

Michalis Trepas Links , , , , , , , , , ,

The Hidden Link Between “Genetic Nurture” and Educational Achievement (Nautilus)

South Korea: Picking Winners and Losers in the Information Age (The Diplomat)

When Interstates Paved the Way (FED Richmond)

For their efforts to safeguard freedom of expression (Nobel Prize)

Is Your Teenager Secretly A Libertarian? 9 Warning Signs To Look For (Babylon Bee)

Davies’ “Extreme Economies” – Part 1: Survival

Joakim Book Books, Economics, Liberty , , , , , ,

Late to the party, I relied on the quality-control of the masses before I plunged into Richard Davies’ much-hyped book Extreme Economies: Survival, Failure and Future – Lessons from the World’s Limits (see reviews by Diane Coyle and Philip Aldrick). I first heard about it on some Summer Reading List – or perhaps Financial Times’ shortlist for best books of 2019. What really prompted me to read it, however, was an unlikely source: The Guardian’s long-read in late-August. Davies adopted his Louisiana Prison chapter and described the intricate ways prisoners and guards in maximum-security prison Louisiana State Penitentiary (“Angola”) exchange value using the top-up debit card Green Dot and single-use MoneyPak cards. I was hooked.

Davies’ captivating and personal writing in that 4000-word piece made me want to read the full thing. Once I got around to it, I couldn’t put it down – which is the best compliment an author can get. At little over 400 pages of easy non-jargon prose, it doesn’t take too long to get through – and the nine case-study chapters can easily be read on their own. Further attesting to the brilliance of the book are the many questions it raised with me, insights to investigate further.

The book’s structure is simple to follow: three themes ‘Survival’ (“The Economics of Resilience”), ‘Failure’ (“The Economics of Lost Potential”) and ‘Future’ (“The Economics of Tomorrow”), each containing three fascinating places, wrapped between an introductory and a concluding chapter.

The motivation for the book is a mixture of John Maynard Keynes and a Scottish 19th century civil engineer named David Kirkaldy. The latter’s big idea was studying “why materials buckled and bent under pressure” (p. 31); to fully grasp the potential for something, we need to examine why they fall apart. From Keynes Davies took the idea that the future is already partly here:

“We can get a glimpse of the future today, if we know where to look. The trick was to identify a sustained trend – a path most people are following – and look at the lives of those experiencing the extremes of that trend. […] to zoom forward in time, he said, we need to find those whose lives are like this already.” (p. 31)

Davies ventures to nine places of the world, all extreme in some aspect, and investigates the everyday economic challenges that people face and the ingenious ways in which they do – or do not – solve them. By carefully looking at the present, he posits to gauge something about the future.

In this first part – ‘Survival’ – I look at Davies’ three selections (Aceh, Indonesia; Zaatari, Jordan; and Louisiana, U.S.). The next part contains the case studies of ‘Failure’ (Darien, Panama; Kinshasa, DRC; Glasgow, Scotland) and the concluding part looks at ‘Future’ (Akita, Japan; Tallinn, Estonia; and Santiago, Chile). As I have personal experience of living in two of these places while knowing virtually nothing about many of the others, I reserve some complementary reflections on Glasgow and Santiago when appropriate.

Aceh, Indonesia

On Dec 26, 2004, an Indian Ocean earthquake created a tsunami that devastated coastlines from Thailand to Madagascar. Two-thirds of the 230,000 human lives lost were in Indonesia, mostly in the Aceh province on the northern tip of Sumatra, closest to the earthquake’s epicentre. Pictures taken before and after show how complete the destruction was; except for a few sturdy mosques, nothing was left standing.

A few years later, the busy streets and crowded beaches were pretty much back to normal. How?

Davies’ story does not emphasise aid flows or new investment by outsiders, but “informal systems of trade, exchange and even currency” (p. 49), an aspect that generally “goes unmeasured an unassessed” (p. 65). Aceh’s catastrophe is a story of human resilience and of intangibles.

The people Davies interviewed told him how the ancient Aceh practice of keeping savings in wearable and portable gold – necklace, rings, bangles – provided survivors who had lost everything with a source of funds to draw on. Importantly, a gold dealer told him, as the market price of gold is set internationally, the massive sell orders coming in simultaneously did not affect prices very much. Additionally, the dealer’s knowledge of market prices and contacts in Jakarta allowed him to quickly set up his business again. Buying Acehnese’s gold during those crucial months, way before foreign aid or government could effectively respond, provided people with funds to rebuild their lives. Traditional practices “insulated Aceh and provided its entrepreneurs with rapid access to cash” (p. 49).

Another insightful observation is the role played by intangibles – the knowledge of how and where and when that most of our economies depend on. Sanusi, 52-year-old coffee trader, lost everything: his shop, his equipment, his family. Amid his devastation he realized that one thing that the tsunami had not destroyed was his knowledge of the coffee business – where to source the best beans, how to make it, where and when to sell the coffee. He patched together some spare planks, used his business contacts to provide him with trade credit and had his rudimentary coffee business set-up in time for the arrival of coffee-drinking construction and aid-agency workers.

Davies also gives us a very balanced GDP discussion here, as the years after the December 2004 disaster saw huge GDP growth. Most economists would reflexively object and invoke Bastiat’s Broken Window Fallacy. Yes, Davies is well aware, but he’s getting at something more subtle:

“GDP aims to capture what a country’s residents are doing now, rather than what they have done previously. [It is] all about current human activities – spending, wages, income, producing goods – rather than the value embodied in physical assets such as building and factories. Far from being a mean or cold measure, economists’ favourite yardstick is a fundamentally human one.” (p. 53, 65)

To GDP, what you produced in the past is of no consequence. Clearly, when the tsunami devastated the coastline of Aceh, killing hundreds of thousands of people in the process and wiping away houses, factories and equipment, that made everyone poorer – their assets and savings and capital were literally washed away. Considering the massive construction boom that followed, only partly financed by outside aid and government money, it is not incorrect to say that GDP boomed; it is only incorrect to believe that people were made better off because of the disaster. Bastiat teaches us that they were not.

I think of this as the difference between your total savings (in cash, stocks, bank accounts, houses, jewelry) and your monthly income, a difference between “stock” and “flow”. If, like many Acehnese that Davies interviewed, your earnings-potential depend on your knowledge of your industry, your most valuable assets remain untouched even after a complete disaster. Your savings – your capital, your stuff – are completely eradicated, but the basis for your future income remains intact. With some minor equipment – a trade credit, some furniture, a shop patched together with flotsam – you can quickly approach the production and income you had before. GDP attempts to measure that income – not the current value of total assets.

“The people here,” Davies concludes, “lost every physical asset but the tsunami survivors retained skills and knowledge from before the disaster, and rebuilt quickly as a result.” (p. 66).

Zaatari, Jordan

Following the Syrian civil war and its exodus of refugees, camps were set up in many neighbouring countries. Often run by the UN, these camps ensure minimum survivability and life-support for refugees and are rather centrally-planned; the UNHCR hands out blankets, assigns tents and provides in-kind goods and services (food, medicine etc).

In April 2013, the Zaatari camp in the northern Jordan desert had grown to over 200,000 inhabitants, with daily inflows of up to 4,000 refugees. It was too much – and the UNHCR “ran out of manpower” (p. 70). They rationalised operations, focused on their core tasks – and left individuals alone to trade, construct and flourish on their own. It became a lesson in anarchic cooperation and of the essentiality of markets – and, like the Louisiana prison economy below, an ingenious monetary system.  It “did not happen by design, but by accident”, Davies writes, and constitutes “an economic puzzle worth unpicking” (p. 72) only if you doubt the beneficial consequences of markets and free people. If you don’t, the result is predictable.

Every month, the Zaatari camp administrators load up payment cards for the refugees with 20 dinars (£23) per person, spendable only in the two camp supermarkets. Designed to be a cashless economy, the money flowed directly from donors to the supermarkets: “refugees cannot transfer cash between wallets, so aid money designated for food cannot be spent on clothes, and the winter clothing allowance cannot be spent on food” (p. 79).

This extreme and artificial economy teaches us something universal about markets; imposed orders, out of touch with market participants’ demands, malfunctions and create huge wastes. Complete monetary control by outsiders, Davies writes, “fails the basic test of any well-functioning market – to be a place where demand meets supply” (pp. 80-81). Supermarkets lacked the things refugees wanted, and they stocked up on things that reflected kickbacks to donor countries (Italian spaghetti or Brazilian coffee), entirely out of sync with Syrian cuisine and preferences. And the unorganic, artificially-set prices were entirely detached from the outside world.

Yet, the refugee city of Zaatari is a flourishing economy where people build, make and trade all kinds of things. How did this happen? Innovative Syrians found a way around their monetary restrictions: the economy of Zaatari “rests on the conversion of homes to business and flipping aid credit, via smuggling, into hard cash” (p. 88). Informal and free markets, at their best.

Along most of the camp’s boundaries, there are no fences, only roads – and the huge number of children playing ball games on the concrete roads or running in and out of the camp, makes identifying who’s a refugee and who’s a teenage smuggler next to impossible. What the refugees did was:

  • buy some item in the supermarket using the e-card credits provided by UNHCR
  • sell it to smugglers for less than their outside market value and obtain hard cash in return
  • smugglers slip out of the camp and sell the goods to Jordanians and other driving past, taking a cut for themselves.

Bottom line: refugees turned 20 dinars of illiquid and restricted e-credit into hard cash, spendable on anything anywhere in the camp. The productive powers of 200,000 refugees was unleashed. In Zaatari, the presence of smugglers allowed large-scale interactions with the outside world – and so the artificially-created closed-loop payment system did not remain closed. Instead, it was connected to the outside Jordanian economy through smuggling!

The take-away point is to cherish market activities, even informal ones, since they “matter to everyone and are fundamentally human” (p. 102). Governments plan and creates problems; markets solve them.

Louisiana State Prison

Analogous to the Zaatari refugees, prisoners in Louisiana’s maximum-security prison (“Angola”) find themselves in a similar economic squeeze: unsatisfied demand and large shortage of goods, artificial constraints on what prisoners can and cannot own. Prisons are places where official prices don’t work: paltry “incomes” through mandatory work stand in no relation to the officially-mandated prices of goods that prisoners can buy at commissary. Accusations of modern slavery comes to mind. The “official price system,” Davies writes, “has been intentionally broken” (p. 119).

To escape their formal and restricted economy, prisoners have long relied on smuggling. Radford’s famous article about cigarettes becoming money in a WWII Prisoners-of-War camp applied – until Angola officials decided to ban tobacco from the premises. Cash too risky to hold; age-old money banned. What now? Fintech to the rescue!

Louisiana prisons “have a remarkable new currency innovation, something far better than tobacco or cans of mackerel”. Physical dollar bills are not handled, bank accounts that leave digital traces are not linked to individuals: “people pay each other with dots”, says an ex-convict that Davies interviewed (p. 132).

Contrary to the belief that smuggling into prisons happen through corrupt prison guards only, prisoners have some power; they can stage riots or make guards’ everyday-life very hard by misbehaving in every imaginable way. That power gives prisoners and guards alike incentives to trade with another – but prisoners don’t have anything to offer, apart from occasional or indivisible services like car repairs or (like Andy Dufresne in the movie Shawshank Redemption) accounting services. And paying guards in commissary products is not gonna cut it.

Here’s how Angola prisoners solved their monetary constraints, obtaining means of payment to smuggle in items their economy’s participants demanded:

  • set up an account with Green Dot, providing a pre-paid debit card without requirements of ID or proof of address.
  • buy a second card, a single-use scratch card called MoneyPak, used to load the first card with anywhere between $20 and $500. These cards are usable anywhere that accepts VISA and Mastercards, and easily bought/cashed out at Walmarts or pharmacies.
  • Scratch away MoneyPak’s 14-digit number (“the dots”), and transfer those digits to somebody else, be it another prisoner or guard.
  • that person goes online, logs into their Green Dot account, enters the combination and credit is added to their debit card.

The dots, Davies describes, “are a currency close to cash: an instant, simple and safe transfer of value over long distance” (p. 134). Even prison economies, argues Davies, “show that the human urge to trade and exchange information is impossible to repress” (p. 136).

The Economics of Resilience

The power of informal economies are great – and essential to people cut off from regular economic processes. Through natural disasters, in refugee camps or in prisons, innovative people find ways around their imposed-upon constraints and “establish a trading system if theirs is damaged, destroyed or limited in some way”. (p. 135)

Aceh, Zaatari and the Angola prison show “three places where markets, currencies, trade and exchange exist despite all odds.” (p. 139).

Be Our Guest: “How to make Brexit Really Worthwhile – Example: Financial Regulation”

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

Be Our Guest is an open invitation to NOL‘s readers to participate with us. Pretty much anything is on the table. The latest article comes from the Freeconomist, who is following up on his earlier piece about making Brexit worthwhile via information asymmetries. His new piece is on financial regulation through the prism of Brexit. Check out this excerpt:

I do not want to write a lengthy discussion on the question of which alternative is the least costly in dealing with the incentive problems arising from the implicit subsidy by the taxpayer. There are good reasons to believe an incremental, decentralized and evolutionary system of market-based regulation to be superior to centrally designed government regulation. (4)

But even if this is the case, private regulation arising as a response to the incentive problems resulting from explicit and/or implicit government guarantees is still costly. Indeed, the evolved system of private regulation in the UK banking industry was giving the appearance of a restrictive cartel. If my analysis is correct, this “cartel” served a useful social function, namely to deal with the incentive problems created by the implicit government guarantee. Nevertheless, it also involved costs.

At the root of the problem are the taxpayer guarantees.

Please, read the rest. It’s another excellent piece of work.

And don’t be afraid to submit your thoughts to us.

Be Our Guest: “How to make Brexit Really Worthwhile – Example: Regulation dealing with Information Asymmetries”

Brandon Christensen Economics , , , , ,

Here is the latest installment of NOL‘s new “Be Our Guest” series, this one by the pseudonymous Freeconomist. An excerpt:

Third-party certification provides assurance to consumers that a product or a supplier of professional services meets certain quality standards.

Private suppliers of third-party certification include organisations such as Consumer Reports, the American Automobile Association (AAA), which rates motels, or A.M. Best, rating insurance companies. Examples of third-party certification provided by the government are product safety regulation, food standards regulation or occupational licensure.

Private suppliers of third-party certification can only exist because the product they offer is valued enough by market participants to justify the cost of providing it. And their profits are determined by their credibility.

The same cannot be said for third-party certification provided by the government.

Please, read the rest and do keep submitting your thoughts to us.

Nightcap

Brandon Christensen Links , , ,
  1. TV’s third “Golden Age” BK Marcus, FEE
  2. The life and death of North Africa’s first superstar Chris Silver, History Today
  3. The Pope that came from the South Avedis Hadjian, FOX News
  4. Globalization and Marxism JN Nielsen, Grand Strategy: The View from Oregon

The Political is about to disrupt the crypto-currency scene -or at least they say so.

Federico Sosa Valle Current Events , , , , , ,

According to this Financial Times report, Bitcoin is at the verge of a critical decision.

The implications of the chosen terms (“existential crisis,” “decisive leadership,” “political flaw”) are not casual. It looks like the market that crypto-currency had carried from the beginning contain the germ of its own destruction. As in an Escher’s drawing, Bitcoin has unraveled its political strand and its whole existence is, now, dependent upon a moment of decision of the sovereign: the assembly of miners. The decisionist narrative would be fulfilled if the political decision had to be taken by acclamatio instead of voting.

Nevertheless, the decision by acclamation would be still possible: the ones who want “Bitcoin Core” might follow one direction and the other ones, who choose “Bitcoin Unlimited,” might follow their own way. After all, no existential crisis can be solved by voting.

So, which is inside of which? Is the market framed in a system depending upon a political decision of the sovereign? Or does every decision need to be taken inside a spontaneous framework of rules?

We are used to praising Bitcoin for its independence from any political factor: Bitcoin supply depends on a set of rules which allows the public to form expectations about its value with a high degree of probability of proving to be correct.

Taken in isolation, Bitcoin emulates the market. Nevertheless, being independent of political institutions is not enough for being “the market.” The attractiveness of Bitcoin is that it operates in an open system of competition of currencies. In this system, there are many other crypto-currencies, and there might be several variances of Bitcoins as well –in esse or in posse.

Imagine, for example, that Bitcoin effectively splits into Bitcoin Core and Bitcoin Unlimited. Which of the two will prevail over the other? It does not matter. What really matters is that there will be several variances of currencies in competition. The factors that determine the selection of the prevailing currency depends upon a higher level of abstraction that impose an absolute limit to our knowledge.

So, is Bitcoin in an existential crisis? Does a political decision need to be made? Maybe.

But that does not imply that “The Political” will take over the reins of the crypto-currency market. Moreover, opposite political decisions are the linkages which the spontaneous selection process -in this case, of currencies- is made of. In this sense, “Bitcoin Core” and “Bitcoin Unlimited” are attributes of a competitive system and the final prevalence of one variance among other alternatives will not be the result of a deliberate decision but of an abstract process of evolution.

Public choice and market failure: Jeffrey Friedman on Nancy MacLean

Nick Cowen Economics, Liberty, Politics , , , ,

Screen Shot 2017-08-09 at 23.25.50

Jeffrey Friedman has a well-argued piece on interpreting public choice in the wake of Nancy MacLean’s conspiratorial critique of one of its founding theorists, James Buchanan. While agreeing that MacLean is implausibly uncharitable in her interpretation of Buchanan, Friedman suggests that many of Buchanan’s defenders are themselves in an untenable position. This is because public choice allows theorists to make uncharitable assumptions about political actors that they have never met or observed. In this sense, MacLean is simply imputing her preferred own set of bad motives onto her political opponents. What is sauce for the goose is good for the gander.

I think Friedman’s arguments are a valid critique of the way that public choice is sometimes deployed in popular discourse. A lot of libertarian commentary assumes that those seeking political power are uniquely bad people, always having self-interest and self-aggrandisement as their true aim. Given that this anti-politics message is associated with getting worse political leaders who are becoming progressively less friendly to individual liberty, this approach to characterising politicians seems counterproductive. However, I don’t think Friedman’s position is such a good fit for Buchanan himself or most of those working in the scholarly public choice tradition.

Continue reading →

Hayek’s Choice In Currency: A Way To Stop Inflation

Chhay Lin Lim Economics , , , ,

I have just finished reading Friedrich Hayek’s short essay entitled ‘Choice in Currency’ (1976). I believe that this essay is highly relevant in our current time as we have become witnesses of the emergence of crypto-currencies. In the essay, Hayek argues for market competition in currencies as a way to stop inflation and its dire consequences. He does not contend that the governments’ right to issue money should be done away with. Instead, he argues that what should be abolished is their “exclusive right to do so and their power to force people to use it and to accept it at a particular price” (p. 16). Hayek concludes that

“the best the state can do with respect to money is to provide a framework of legal rules within which the people can develop the monetary institutions that best suit them… if we could prevent governments from meddling with money, we would do more good than any government has ever done in this regard. And private enterprise would probably have done better than the best they have ever done.” (p. 22)

Hayek starts the essay with a critique on John Maynard Keynes and his idea that governments or central banks should increase the aggregate of money expenditure in order to ensure prosperity and full employment. According to Hayek, an increase in money expenditure would stimulate the economy in the short run, but it would make unemployment worse on the long run. For a more detailed explanation of the Austrian Business Cycle Theory that Hayek has supported, you can read this article of mine – you have to be able to read Dutch though.

What I find most interesting about Hayek in the essay, next to his great arguments why we should allow currency competition on the market place, is that he seems to have become more embittered with politics and the common people at the point of writing in 1976. Just as my opinion of governments and the public have worsened over the years, so too has Hayek’s opinion over the course of his lifetime. He writes:

“I never had much illusion in this respect, but I must confess that in the course of a long life my opinion of governments has steadily worsened: the more intelligently they try to act (as distinguished from simply following an established rule), the more harm they seem to do – because once they are known to aim at particular goals (rather than merely maintaining a self-correcting spontaneous order) the less they can avoid serving sectional interests.” (p. 14)

“No worse traps could have been set for a democratic system in which the government is forced to act on the beliefs that the people think to be true. Our only hope for a stable money is indeed now to find a way to protect money from politics.” (p. 16)

What is Hayek’s proposal for the world in 1976? He writes:

“At this moment it seems that the best thing we could wish governments to do is for, say, all the members of the European Economic Community, or, better still, all the governments of the Atlantic Community, to bind themselves mutually not to place any restrictions on the free use within their territories of one another’s – or any other – currencies, including their purchase and sale at any price the parties decide upon, or on their use as accounting unites in which to keep books. This, and not a utopian European Monetary Unit, seems to me now both the practicable and the desirable arrangement to aim at. To make the scheme effective it would be important, for reasons I state later, also to provide that banks in one country be free to establish branches in any of the others.” (p. 17)

Fortunately, our technologies have rapidly changed since then. We are now able to create crypto-currencies that are in direct competition with governments’ or central banks’ issued currencies. I hope that such alternative currencies like Bitcoins will eventually weed out federal currencies and will stop the erosion of our money’s value. A currency that cannot be printed out of thin air would lead to a much safer world as governments cannot finance their wars through inflation anymore. Nor can they secretly usurp ‘taxes’ on seigniorage.

Reference
Hayek, F.A. (1976). Choice In Currency: A Way To Stop Inflation. Institute Of Economic Affairs

Don’t Let Me Design Your Retaining Wall!

Warren Gibson Links

The State of California says I’m qualified to practice civil engineering. That means you can trust me to design structures that achieve a high degree of safety, economy, reliability, and maintainability. I even have an official rubber stamp that I can apply to drawings or calculations. It is supposed to guarantee that I know what I’m doing and that I follow generally accepted best practices.

But I haven’t practiced engineering in decades. I used my license perhaps half a dozen times in the 1970s. My rubber stamp has sat idle ever since.   More …

Garbage could be beautiful

Rick Weber Economics , , , , , ,

And I don’t mean in the artistic sense, though that’s an option and one that sheds light on the larger question of what to do with garbage. I recently heard a podcast on garbage incineration; how it’s widespread in Europe as a way to generate electricity and reduce the need for landfills. The discussants were wondering why America doesn’t do more of that and concluded that progress was barred by a combination of NIMBYism and the fervor of recycling enthusiasts. Whether you agree with the producer of that segment or not, they are certainly correct that this industry is stagnant, and this rigidity results in plenty of unnecessary inefficiencies. But I think the real low hanging fruit is in waste collection.

The other day I saw a garbage truck and it struck me that the institution of “garbage day” is just a hold-over from the days before apps and algorithms were available to efficiently route garbage trucks to where they’re needed. For that matter, the trucks could be different; the service level could be different, and surely resources could be saved.

There are plenty of ways garbage could be picked up, and they could all coexist next to one another. Different towns and different neighborhoods

This sort of competition would be beautiful. The results would be better service, less room for corruption, clean trucks taking away your garbage when it’s necessary and saving resources* in the process. Rich neighborhoods would have sleek electric wagons grabbing their trash cans from the side of the garage in the middle of the night. In poor and rural neighborhoods something more like Uber would give the out-of-work construction worker a  way to pay for his truck.

The problems are surely due to regulations that limit innovation and competition. So, how could we open up this market? Debate and committees is the correct response, but it’s not the only one. “If I were a Silicon Valley millionaire,” I thought while driving past that truck, “I could change this, and probably make a buck doing it.”

So here’s the exciting part: A wealthy libertarian-type benefactor (or even a non-profit funded through a Kickstarter campaign (don’t forget to comment on this article!) could make a bet with the mayor of some city (which would need certain features to be a viable first candidate) that privatization would work. The bet goes like this:

  1. Pass legislation that opens up genuine competition in trash collection in one year.
  2. Private garbage companies spring into existence and do a better job at a better price (as determined by a study we will pay for by a consultant you will pick).
  3. If (2) does not happen, we will pick up the tab at your current provider for one year.

Obviously, our first hurdle is structuring the bet property to avoid problems like Waste Management from abusing their position. And that’s probably a big problem. But here’s the thing: if someone can figure this out, and motivate the right people to contribute, it will:

  1. Make it easier for an electorate/politicians to face the risk that something will go horribly wrong, and
  2. Create a profit opportunity for the (probably) tech billionaire backing this.

Opening up waste collection to competition allows for the possibility of the next Uber or AirBnB being in the garbage business. And for that matter, this betting approach might be used for other industries. For Uber to use this approach would be even easier. They would have to pay for a study on transportation in some city, and could offer to bet some lump sum to the city if competition doesn’t work.

*”Saving resources” has practically become a verbal tic with me. I use it as a synonym for the much less evocative “reducing costs.”

The Dalai Lama on Inequality

Fred Foldvary Economics, Liberty, Philosophy , , , , , , , , ,

There are many people who blame “capitalism” for the world’s economic problems, such as poverty, unemployment, inequality, and environmental destruction. This common belief is based on a confusion of meaning, and a lack of analysis. It is neither surprising nor noteworthy that many people fail to apply consecutive thought to economic issues, but it is sad that the Dalai Lama, as an influential religious leader, has not fully applied his compassionate thought to examine the causes and effective remedies of social problems.

The Dalai Lama, leader of Tibetan Buddhists, has identified himself as a Marxist socialist. He blames “capitalism” for economic inequality, and sees the Marxist alternative as the alternative that would increase equality. He advocates a more “human approach,” which implies less “capitalism” and more socialism. The Dalai Lama adds that he is not a Leninist, meaning that his Marxist views do not imply a desire for a totalitarian state.

The Dalai Lama believes that Marxism is founded on moral principles, such as economic equality, while “capitalism” is founded only on the pursuit of profit. His social and economic views were published in the 1996 book Beyond Dogma: Dialogues and Discourses. He said there that Marxism is concerned with the poor and with exploited minorities. Therefore, he said, “I think of myself as half-Marxist, half-Buddhist.” The Dalai Lama had studied Marxist ideology in China during the 1950s, and became attracted to it.

The essential problem with the word “capitalism” is that it is used both as a label for current economies, which are a mixture of markets and governmental interventions, and for the concept of private enterprise and free markets. Its use as a label for mixed economies makes it meaningless to blame “capitalism” for economic problems.

This confusion is similar to blaming diets for ill health. The diet of most people is a mixture of healthy foods such as vegetables and unhealthy stuff such as excessive sugar. The proposition that “diets” cause illness may be true, but it tells us nothing about which elements of our diets are causing the problem.

Likewise, to blame “capitalism,” meaning the mixed economy, for economic inequality, is meaningless, as this does not tell us which elements of the economy are causing the problem, whether it is markets or interventions. Blaming “capitalism” is worse than useless; it fogs the mind, because the label for mixed economies gets confused with the other meaning, private enterprise, so that, in a sly tacit shift of meanings, markets get blamed for economic woes.

It is meaningless to accuse “capitalism,” as a label, as only caring about profit and ignoring the poor, because the actual “mixed economy” cannot have any thoughts or feelings. Moreover, the concept of a pure market economy does have an ethical basis. The pure market is an economy in which all activity is voluntary. The concept of voluntary human action implies the existence of a universal ethic, or natural moral law, that designates acts as good, evil, or neutral, with voluntary action being good or neutral, and involuntary action consisting in coercive harm, which is evil.

One of the premises from which natural moral law is derived is the concept of human equality, that human beings have an equal moral worth, and should therefore be equal in the application of law. Human equality does not imply that all persons should have an equal income or wealth, because moral equality implies an equal self-ownership (or ownership of one’s body) of all persons. Therefore, each person properly owns his wage and the goods and investments bought from his wage. Income, however unequal, that comes from labor, including entrepreneurship, is not an evil outcome.

The mixed economy does create poverty, but not from private entrepreneurship. The poverty comes from government’s taxing the poor and subsidizing the rich. A study by the Institute on Taxation and Economic Policy and the Pew Research Center recently concluded that the poorest fifth of households pay more than twice the state and local tax rate (11 percent) as the richest one percent. Also, although the rich pay a much higher tax rate on their income, many of the rich get their money back implicitly in the form of the higher rent and land value generated by government spending, paid for by taxes on wages, goods, and enterprise profits. The taxes on the poor are even higher than that found in the study, as there are federal excise taxes included in goods, and also, federal taxes and restrictions on labor and self-employment add to the interventionist burden of the poor.

The economist Henry George wrote that “There is in nature no reason for poverty.” Poverty and excessive inequality are caused by human institutions. If Marxism implies income redistribution or government ownership of industry, this treats, and mistreats, the symptoms, not the causes. The main causes are the stifling of labor and enterprise from taxation and imposed barriers. The ultimate remedy is a completely free market, with voluntary, contractual, decentralized governance. Given today’s states and taxes, government interventions can be minimized with a constitutional prohibition of restrictions and imposed costs on peaceful and honest enterprise, thus with taxes only on bad effects – pollution – and on the ground rent generated by government’s public goods.

If he understood the ethics and economics of liberty, then the Dalai Lama would become a much greater global leader in promoting effective reforms that would not only promote liberty but also greater prosperity and social peace.

California Times Six

Fred Foldvary Current Events, Politics , , , , , , , , , ,

I live in California. It’s a great state. Too great.

A proposition to split California into six states may be on the ballot in 2016. “Six Californias” has announced that it has collected sufficient signatures. Why six? California’s population of over 38 million is six times lager than the US state average. The ruling powers may find a way to block the proposal, as some opponents claim that the signature gathering was unlawful. If “Six Californias” does get on the 2016 ballot, in my judgment, this will be a rare chance for fundamental reforms.

Many Californians have said that the state is too big to govern effectively. But the governance problem is not size, but structure. After the property-tax limiting Proposition 13 was adopted in 1978, taxes and political power shifted from the counties and cities to the state government. California could be governed well if decentralized, but the concentration of fiscal power to the state has made the state among the highest taxed and worst regulated in the USA.

There have been many attempts to reform the lengthy California constitution, but they have all failed. Attempts to replace the Proposition 13 have gone nowhere. The best option is to start over. Creating new states would provide six fresh starts.

Critics of the six-state plan say that the wealth of the new Californias would be unequal. The Silicon Valley state would include the high-tech wealthy counties of San Francisco, San Mateo, and Santa Clara, among others. The promoter of this initiative, Timothy Drapers, happens to be a Silicon Valley entrepreneur.

But the current 50 US states are also unequal in wealth. The income inequality problem is a national and global problem. Income can become more equal without hurting production by collecting the land rent and distributing it equally among the population. Since the critics of Six Californias are not proposing or even discussing this most effective way to equalize income, their complaints should be dismissed as irrelevant, immaterial, and incompetent.

US states have been split in the past. Maine was split off from Massachusetts in 1820, and West Virginia was carved out of Virginia in 1863.

If the initiative passes, a board of commissioners would draw up a plan to divide the state’s assets and liabilities among the six new states. A good way to do this would be to divide the value of the assets by population, but to divide the liabilities (including both the official debt and the unfunded liabilities such as promised pensions) by the wealth of each state. That would go a ways to deal with the inequality problem.

California’s complex water rights could be simplified by eliminating subsidies, instead charging all users the market price of water. There could continue to be a unified water system with a water commission with representatives from the six state.

If this measure is approved by the voters and by Congress, each state will design a constitution. The new constitutions should be brief, like the US Constitution, in contrast to the lengthy current California constitution that contains many provisions best left to statute law.

The new constitutions should retain the declaration of rights in the current state constitution, including Article I, Section 24: “This declaration of rights may not be construed to impair or deny others retained by the people.” This wording, similar to the US 9th Amendment, recognizes the existence of natural and common-law rights. This text should be strengthened with something like this: “These rights of the people include the natural right to do anything which does not coercively invade the properties and bodies of others, notwithstanding any state interest or police power.”

These new constitutions will be an opportunity to replace California’s market-hampering tax system with economy-enhancing levies on pollution and land value. There should be a parallel initiative stating that if Six Californias passes, the states will collect all the land rent within their jurisdictions and distribute the rent to all six states based on their populations. A tax on land value is by itself market enhancing, better than neutral, because it promotes an efficient use of land, it reduces housing costs for lower-income folks, and eliminates real-estate bubbles. Combined with the elimination of taxes on wages, business profits, and goods, the prosperity tax shift would raise wages and make California the best place in the world for labor and business.

This is all a dream, but the past dreams of abolishing slavery, having equal rights for women, and eliminating forced segregation all came true. This proposition will at least provide a platform for discussing such fundamental reforms.
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This article was first published at http://www.progress.org/views/editorials/california-times-six/

Increased/Deadly Potency in Heroin Markets due to Fentanyl

Audrey Redford Current Events, Economics , , , , , , , , ,

The Boston Globe put out a piece yesterday entitled “DEA details path of deadly heroin blend to N.E.: Potent painkiller fentanyl believed added in Mexico.”

This headline could not be more representative of the problems Dr. Mark Thornton mentions in his book The Economics of Prohibition. To summarize Thornton:

“Prohibition statutes generally consist of three parts. First, to be illegal, products must contain a minimum amount of a certain drug… Second, penalties are generally levied on the basis of weight… Finally, penalties are established for production, distribution, and possession. The prohibition statutes consistently define the product in terms of minimum potency (without constraining the maximum). Also, the heavier the shipment, the more severe the penalty.” (Thornton, 1991, p. 96).

Therefore distributors and traffickers (the Mexican drug cartels moving the heroin that originated in Colombia to the U.S.) have every incentive, in order to avoid detection but keep revenue high, to increase the potency of the drugs they are moving such that they can move the same value of heroin but in a smaller quantity. This is what we see currently happening with Mexican cartels mixing heroin with fentanyl.

From the Boston Globe article, “Ruthless drug organizations are including fentanyl, an opioid 30 times more powerful than heroin, to provide a new, extreme high for addicts who often are unaware the synthetic painkiller has been added.” The final point of this quote is critical. There is a huge information asymmetry between traffickers and the end consumer. Because drugs often change many hands before they reach the final user, quality standards are hard to track and verify. Furthermore, end users have minimal recourse to deal with issues of product contamination or inferior quality. They cannot sue their dealer. They cannot take anyone to court. Therefore, as a direct result of the illegal status of heroin trade, consumers have very few rights and outlets to verify that their product contains what they were expecting. While many people want to point out the Mexican cartels as the villains (and they may very well be on other margins like the relentless killing that is going on as we speak) in this scenario, these cartels are only responding to the incentives set in front of them. If we want to take issue with anyone, we need to look at the laws that have been in place since 1924, and even back to 1914. Since then, these laws have only gotten more restrictive and deadlier to everyone involved in illicit drug trade.

Growing Weed in Humboldt County (and the Economics of Prohibition)

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

And yet California, long the marijuana movement’s pacesetter, and a haven for high-capacity growers, finds itself in the perhaps-unwelcome position of losing outlaws like Ethan. Should the state follow Colorado’s and Washington’s leads in legalizing recreational use, as is expected, already-fragile economies in the north—specifically in the “Emerald Triangle” of Mendocino, Humboldt, and Trinity counties, home to some quarter of a million people—could be crippled. The “prohibition premium” that keeps marijuana prices, and those economies, aloft would fall, possibly so precipitously that many growers would lose their incentive and (perhaps ironically) leave for more-punitive regions. In recent years, many growers have reportedly left California for places like Wisconsin and North Carolina—markets where a pound of marijuana might fetch double what it does in the Golden State. Legalization helps keep growers out of jail, but regulation slashes their profit margins.

This is from Lee Ellis in The Believer. Read the whole thing, it’s a great piece of journalism, although I don’t link to this because I think it’ll teach readers anything new. I just like it because it reports on one of my old stomping grounds. I don’t smoke much pot anymore, but there is nothing quite like smoking weed from Humboldt County.