23 February 2010

Casey on Spooner

I published here a brief notice of Gerard Casey's recent provocative article, "Constitution of No Authority: Spoonerian Reflections."

Nudging and the Great Mind Fallacy

As I mentioned in an earlier post, my paper "Adam Smith and the Great Mind Fallacy" was recently published in the journal Social Philosophy and Policy. In it I argue that one of Smith's arguments for limiting the scope of government authority is that such authority founders on two formidable obstacles: the "Herding Cats Problem" that humans often do not do what a political theorist or social engineer wants or expects them to do; and the "Gathering Information Problem" that theorists, legislators, or regulators cannot gather and process the information that would be necessary to devise successful and useful regulations. I argue moreover that Smith identifies what I call the "Great Mind Fallacy," which is the false yet strangely persistent assumption that someone, somewhere can overcome both the HCP and the GIP.

Although Friedrich Hayek is usually regarded as the standard-bearer for such arguments, I show that he builds on arguments Smith made in the eighteenth century. I also show how Smith's arguments would seem to undermine recent arguments defending paternalism of government experts, like those found in Sunstein and Thaler's Nudge and Peter Ubel's Free Market Madness.

I discovered today the recent publication of another paper that draws conclusions similar to mine, and even relies on some arguments that are similar, though does so with a heavier emphasis on economic analysis than, as in my paper, on philosophical and exegetical analysis. It is "The Knowledge Problem of New Paternalism," by Mario J. Rizzo and Douglas Glenn Whitman, published in Brigham Young University Law Review (vol. 2009, no. 4: 905-968; text available here). I highly recommend Rizzo's and Whitman's article.

16 February 2010

Choice and Not-Choice

So "Silent Bob" got kicked off a Southwest Airlines flight for not fitting properly into their seats--and he's not happy about it. I can understand: It must be embarrassing for him, although he is the one who is bringing so much attention to it.

Still, it should be pointed out that he does have choices. There are other airlines one could select if one chose to fly.

On the other hand, the absurd "security" protocols of the TSA are mandatory and beyond appeal for all who choose to fly, regardless of what airline or what airport. Pat-downs, "random" "enhanced screenings," virtual strip-searches, special punishments for people who dare to speak up, confiscation of toothpaste and hair gel, etc., are now all part of the daily American routine for suspected terrorists and law-abiding citizens alike. (Fourth Amendment? Oh, we long ago stopped paying attention to that.)

And do not--I repeat, do not--question anyone at any time about any aspect of the process. Questions are prima facie evidence of, well, of something, and they will all be punished. "This is America now," as one airport official told me once, who proceeded to threaten not to allow me on my flight if I kept asking questions. Just do as we say, head down, eyes lowered, in strict obedience and compliance, and maybe, just maybe, we'll leave you alone.

To me, the TSA's virtually unlimited discretion and the submissive obedience in which they are training Americans is far greater cause for worry about the future of our republic than Southwest's seat policies. They're not even in the same league.

15 February 2010

The Pope is Catholic

And in other breaking news, it turns out that people might respond to incentives. As reported in the Wall Street Journal, a study from Boston College's Center on Wealth and Philanthropy finds that as New Jersey has significantly raised income taxes over the last five years, people have left the state. More precisely, wealthy people left the state, leaving it with enormous budget deficits and less charitable giving among its citizens.

This finding is consistent with the recent claims of Adam Smith in his 1776 An Inquiry into the Nature and Causes of the Wealth of Nations that political and economic institutions might have some effect on people's economic activities. Whether Smith was right or not, it is too soon to tell.

14 February 2010

Risks and Responsibility

The Boston Herald thinks the "IOC owes athletes a safe Olympics," pointing to the tragic death of luger Nodar Kumaritashvili on Friday as evidence it is not living up to its moral obligation. An Australian luger, Hannah Campbell-Pegg, is quoted as saying, "I think they are pushing a little too much. To what extent are we just little lemmings that they just throw down a track and we're crash-test dummies? I mean, this is our lives."

I think this is nonsense. No one is throwing Campbell-Pegg, or anyone else, down the tracks. She is not a lemming: she is a free moral agent, fully able to take responsibility for her decisions. If she deems it too dangerous, then she should quit--period. If she instead continues, then it is she who bears responsibility, not any mysterious "they" on whom she would apparently like to put responsibility for her actions.

Luging, like most sports in the Olympics, contains inherent dangers. That is part of the thrill, part of the reason people watch it and part of the reason athletes compete in it. In luging there is a tradeoff between safety and speed; reasonable people might differ about how much speed to sacrifice for safety. Unless you ban the sport altogether, however, it will never be entirely "safe."

The Wall Street Journal is reporting that the father of the tragically killed Georgian luger had told him that he was scared of the track. Some will no doubt take this as further evidence that the IOC, or perhaps someone at the site in Vancouver, was at fault and should be blamed or punished for his death. But he was not a boy: he was twenty-one years old, a legal adult in this country, in Canada, and, I suspect, in Georgia as well. That means that he was responsibile for his actions.

There can, moreover, be no single threshold of "acceptable" risk that holds for all people. I would not go down any luge track, because the risks are, for me, too great. Clearly lugers have higher thresholds for "unacceptable" risk in this regard than I do. In both cases, however, we are making free decisions and should therefore be held accountable for them.

That does not lessen the tragedy of what happened on Friday. I do think, however, that crediting Kumaritashvili as a responsible agent shows him respect: He died doing what he wanted to be doing, in full knowledge of the risks, which he accepted. To blame anyone else is to consider him to have been less than a full moral agent, as someone incapable of fully understanding or properly assessing risks. For reasons that are her own, Campbell-Pegg is pretending that she is not a full moral agent; but she is. Regardless, to pretend now that Kumaritashvili was not responsible for his fateful decision to take the track last Friday is to deny him the dignity I believe he deserves.

10 February 2010

Respect for Woman

The disgusting words (to which I will not link) that the contemptible Andrew Sullivan recently had for Sarah Palin, especially printed in such a prominent place, shows that there are still those who seek to discredit strong women by reducing them to mere sexual objects. Palin may be a Republican, but she is still a human being, and it is, or ought to be, beneath us to speak of other human beings as Sullivan does of Palin.

This is not the first time that people have said disgusting things about Palin. Why, on earth? If her ideas are false, correct them; if her arguments are weak, refute them; if she has her politics or economics or religion wrong, then by all means prove them false. But the ad hominem fallacy is still a fallacy, even when directed at a Republican or at a woman.

Reading the discreditable things Sullivan, among others, has written about Palin reminded me, by way of contrast, of the redoubtable Miles Standish of Longfellow's great poem "The Courtship of Miles Standish." (If you have not read it recently, you can do so here.)

Captain Standish's wife has long passed, and he finally reveals to his friend and "stripling" John Alden that he has love in his heart for a good Puritan maid named Priscilla. Would Alden kindly, out of his friendship for the Captain, make the case to Maid Priscilla to marry the Captain? Alden--whose own secret love for Priscilla now plunges him into a fit of confused duties--gently asks why the Captain, whose many military campaigns have demonstrated his fearlessness, does not make the proposal to the Maid himself. Is this not the same Captain Standish, after all, who has said, "Serve yourself, would you be well served, is an excellent adage"?

Alas, the Captain confesses that he is "a maker of war, and not a maker of phrases." Yet the Captain then confesses an even deeper secret: the prospect of addressing a woman--this woman, on this topic--terrifies him:

Now, as I said before, I was never a maker of phrases.
I can march up to a fortress and summon the place to surrender,
But march up to a woman with such a proposal, I dare not.
I'm not afraid of bullets, nor shot from the mouth of a cannon,
But of a thundering 'No!' point-blank from the mouth of a woman,
That I confess I'm afraid of, nor am I ashamed to confess it!

The maid Priscilla is a remarkable woman. "Modest and simple and sweet," Alden tells us, yet powerful enough to make a grizzled war veteran tremble and to render Alden, the "elegant scholar / Having the graces of speech, and skill in the turning of phrases," able only to stammer "like a school-boy" when he addresses her.

I will not reveal the rest of Longfellow's story, but one contrast with our contemporary culture is particularly striking. The proper comportment of a gentleman before a lady was, clearly, one comprised of deference and deep, sincere respect. She could command him with the lightest touch--when Alden assists Priscilla's spinning, she occasionally brushes his hand with hers, "Sending electrical thrills through every nerve in his body"--and her virtue was at once an inspiration and a warning to him.

My how things have changed. It is difficult to say who, precisely, is at fault for the evaporation of the respect men once had for women; I suspect both men and women are at fault. Perhaps there are some today who will not lament the change, but it is hard to take the coarseness of contemporary manners as anything but a decline.

Reading Longfellow today stirs longings for a bygone era, perhaps permanently behind us. And of course the Victorian world of Longfellow, and the Puritan world he describes in "The Courtship of Miles Standish," had their vices and foibles as well. But the world of the gentleman and the lady still had a dignity and nobility that one cannot help but wish more people today knew of, and indeed, perhaps, even appreciated.

03 February 2010

De Jasay, Bastiat, and Smith

Across my desk has just come an interesting essay from Anthony de Jasay entitled "Weeding Out the 'Socially Not Useful'" (available here). As with most of de Jasay's work, it is well worth reading.

I have one small correction to make, however, regarding this claim de Jasay makes: "It is probably fair to credit [French nineteenth-century economist Frederic] Bastiat with the discovery of the concept of opportunity cost."
De Jasay is right to call Bastiat "shamefully underrated and neglected," he is right to point out that Bastiat brilliantly demonstrated the concept of opportunity cost (among many other things), and he is also right that this concept is as widely underrated and neglected as Bastiat himself is. Yet Bastiat was not the first person to discover the concept of opportunity cost. It goes back at least to Adam Smith.

In his 1776 Wealth of Nations, Smith argued that "The annual produce of the land and labour of any nation can be increased in its value by no other means, but by increasing either the number of its productive labourers, or the productive powers of those labourers who had before been employed" (WN II.iii.32). By way of illustration, he goes on to discuss several historical examples of nations' wealth being dissipated or decreased, concluding:

In each of those periods, however, there was, not only much private and publick profusion, many expensive and unnecessary wars, great perversion of the annual produce from maintaining productive to maintain unproductive hands; but sometimes, in the confusion of civil discord, such absolute waste and destruction of stock, as might be supposed, not only to retard, as it certainly did, the natural accumulation of riches, but to have left the country, at the end of the period, poorer than at the beginning. (WN II.iii.35)

Note that Smith here is making a claim quite similar to the one Bastiat would make, and with far greater eloquence and rhetorical power, nearly a century later with his example of the "
broken window." What is now known as the "broken window fallacy"--the idea, which never seems to go away no matter how many times it is exploded, that destroying goods or property actually leads to an increase in wealth--is usually credited to Bastiat. And Bastiat is the first, so far as I know, to use the striking visual example specifically of a broken window. In the passage quoted from Smith, he addresses another way of destroying wealth, namely war--which many continue to think amounts to a net increase in wealth. War is a net loss; see Robert Higgs's Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity for a recent demonstration. Smith's unassuming notice of this in 1776 is one underappreciated aspect of the Wealth of Nations.

But Smith elaborates on why distortions of the "natural" flow of capital, like wars, leads to losses, even if those losses are difficult to see:

More houses would have been built, more lands would have been improved, and those which had been improved before would have been better cultivated, more manufactures would have been established, and those which had been established before would have been more extended; and to what height the real wealth and revenue of the country might, by this time, have been raised, it is not perhaps very easy even to imagine. (WN II.iii.35)

This is very close to another of Bastiat's famous contributions to the history of economic thought, namely the distinction between "what is seen" and "what is unseen." Bastiat argues that the good economist notes not only the former but also the latter, because counting
all costs, along with all benefits, is necessary to make an accurate reckoning of any economic proposal. Bastiat is justly hailed for having these insights and, especially, for expounding on them in rhetorically powerful ways. And, as I say, de Jasay is right to lament that too few people appreciate or apply these simple but true--and exceedingly timely--insights into politics and economics.

But Smith saw them first.

02 February 2010

My Updated Curriculum Vitae

cv Feb 10
[Trying a new software program. Thanks, NG!]

Incentives, Bankers, and Bailouts

One of the most important truths about human nature that one must always keep in mind is: people respond to incentives. If one forgets that, one is bound to be frustrated by all the otherwise inexplicable things people do.

For example, bankers paying themselves large bonuses. People are on their moral high horses about how bad it is that executives from banks that received bailout money are now going to pay themselves big bonuses. It is "shameful," "the height of irresponsibility" says President Obama. The standard story is that these bankers engaged in irresponsibily high-risk investments and then lost their shirts. The federal government then had to come in and bail them out, at taxpayer expense, to stabilize the economy; and now, since the banks have recovered, they're once again being totally irresponsible in paying themselves huge bonuses, even while the rest of America has not yet recovered.

President Obama has made this one of his new causes, suggesting caps on executive compensation, various new taxes or fees, etc. I think all this misses the boat.

In a free country, people should be allowed to take any risk with their money that they want. Who is to say that the risk someone takes is unreasonable? Some people are more risk-averse than others; entrepreneurs, gamblers, and skydivers take greater risks than most others. But there is no objective criterion determining when a risk becomes too risky. It all depends on one's schedule of values, one's available resources, one's obligations to other projects or other people, etc. Even knowing those variables in a given case does not tell one whether another person ought to take a particular risk, because there are no external grounds on which to base that "ought."

So bankers should be able to take any risk with their money that they want. Ah, but there's the rub: it's not their own money, the critics charge, that they're risking--it's ours. But whose fault is that? Put yourself in the bankers' shoes for a moment, and ask yourself how you would behave. If you knew that any losses you incur from your investments would be paid for by someone else, but any profits you incur would go only to you, what would you do? Would you be cautious and conservative in your investments, or would you be aggressive and take high-risk/high-reward shots?

Imagine you were going to spend a week in Las Vegas, and I told you that, although you have to gamble with your own money, I will pay for any losses you suffer, any at all--and yet you get to keep whatever winnings you get. Would that alter your behavior? Would you limit yourself to the low-risk games, or would you play with reckless abandon? Exactly. Now suppose that you did this once, lost a lot of money, and I duly paid for all your losses; but then I said to you that you shouldn't have done that and don't do it again, but if you do, I'll pay for your losses again, though I won't be happy about it. Well, you go to Vegas again; what's your behavior this time?

The federal government bailed out bankers for their risky investments the first time around, and it would do so again--and the bankers know it. To be shocked, shocked that bankers would continue their riskiness, or pay themselves huge bonuses when the big risks pay off, strikes me as either naive or disingenuous. Of course that's what they're going to do.

The only way to make sure that taxpayers are not left holding the bag for bankers' risky investments (or anyone else's bad decisions) is by making sure taxpayers are not required to bail them out when they lose. There is no other way. Say to them, "You're free to do what you want with your money, but if you lose it all, don't come crying to us. It's your responsibility. Now invest wisely." That instantly links decision-makers with the consequences of their decisions, introducing a natural discipline that no rearguard brow-beating or finger-wagging could ever accomplish.

So I say, cut them loose. Give them the freedom to decide how to spend or invest their resources, but also the responsibility of having to live with the results--good or bad. Such a policy would have not only the benefit of not obligating taxpayers to pay for others' foolish decisions, but it also treats everyone concerned with a dignity befitting truly moral agents who are both free and accountable.