Better feedback mechanism, better incentives, not better people.

This is a strong argument against effective government, in general.

Often, I hear from my 'left-leaning' friends that government would work quite well if only there were better people running it. This is obviously true to a degree, but it misses the point: you don't want to have a system that in anyway depends on having the right person in charge. You want a system that provides the best incentives and feedback mechanisms.

Memo to OWS: here are some things free-marketeers actually think

Memo to OWS: Ten things that free marketeers actually think

HT: Carpe Diem.

A sample.

1. Free-marketeers resent the bank bailouts
2. What has happened since 2008 is not capitalism.
AM: I would add, the forces leading up to 2008 were not particularly 'capitalist' either.
3. If you want the rich to pay more, create a flatter and simpler tax system.
4. Those of us who believe in small government are not motivated by the desire to make the rich richer.
5. We are not against equality. We generally recognise the benefits in Scandinavian-style homogeneity.
6. Nor, by the way, does state intervention seem to be an effective way to promote equality.
7. We're not on the side of vested interests or elites.
8. Capitalism, with all its imperfections, is the fairest scheme yet tried.


AM: Excellent points. OWS protesters do a good job of bashing strawmen, but rarely engage with what libertarians and pro=market people actually think.

Against Supply Management

My old prof, Michael Hart rightly eviscerates the practice of supply management.

Why should consumers benefit only from stable dairy prices when there are so many other sectors that could benefit from sup-ply management?

How about the Auto Assemblers of Ontario? Premier Dalton McGuinty might like the concept, as would the Canadian Autoworkers. Each assembler would get an annual quota, divided among one or two models. (The number of choices available today confuses consumers and is wholly unnecessary.) Imports would be strictly limited and quotas to import would be provided to the assemblers. Prices and quotas would be set by a Canadian Auto Com-mission. There are so many possibilities with this particular economic model that should provide broad appeal.

International trade as we know it would have to come to an end, and Canada would need to with-draw from the WTO, but the Dairy Lobby has long told us the WTO is a nuisance. We would rely on supply managed Canadian production for most of life's needs, as organized by a wise government and a series of commissions dedicated to determining the right size of the market and the appropriate price to ensure a fair return. Not only would prices be more stable, but so would supply and employment.

AM: Why does supply management continue in dairy? The same reason that protectionism continues: a powerful lobby group. The cows moo en francais. Consumers are not sufficiently aware, nor are the sufficiently mobilized to act as an effective counterweight to these special interests. Luckily, the Harper government is turning against supply management. Finally, a little bit of that free market ideology that they purport to espouse.

On Bias...

I’ve been thinking a little bit about social science, bias, and ideology. I’ve come to be of the opinion that there is no firm ground in the social and economic sciences. Ideology, cognitive bias, and social and intellectual investments pollute the thinking of all well-intentioned truth seekers. Worldviews are not easily changed.

This question is raised by Russ Roberts at econtalk/café hayek: here, here, and here. It’s particularly acute in macroeconomics; but also, as Taubes discusses in this podcast, in things like nutritional science and epidemiology.

Here are three of my ideologies: Atheism; Libertarianism; Vegetarianism

I’m pretty good at shooting down arguments against these beliefs, and I’m relatively adept at marshaling supporting evidence. But really, I probably fall prey to all sorts of cognitive biases. I’m certainly harder on opposing worldviews than I am on my own. I tend to follow thinkers of like mind. And while I try to follow opposing views as well, I do so to a lesser extent. I also know lots of like-minded people. They know me as a person who espouses these ideas. My worldview is part of my identity. I am, in a sense, invested. This is not to say that I’m wrong, but only to say I’m biased, and I’m invested in my worldviews. If I were wrong about any of them I might not realize it. I imagine that It’s harder for scientists and others who are professionally invested in a pet hypothesis or theory.

And, gentle reader, we are the same. I'm not some extreme ideologue. If you’re reading this, it’s likely that you have a worldview. You’re invested in your opinions on certain things. You suffer from cognitive biases. You probably dismiss evidence against your worldview and actively seek out evidence supporting it. Don’t lie. Be honest.

I’d like to know, for anyone who is invested in a worldview of some sort, what type of evidence would it take to convince you that you are wrong? If you are an atheist, a devout Christian, a vegan abolitionist, a socialist, a libertarian, an anarchist, or whatever your outlook: what evidence would persuade you to abandon your opinion?

Deficit Reduction, Canada edition: How did we do it?

Canada's basket case moment:

But to win its budget wars, Canada first had to realize how dire its situation was and then dramatically shrink the size of government rather than just limit the pace of spending growth

AM: How did we do it? 7:1 spending cut/tax hike. And: "the next minister to ask for funding gets his budget cut by 20 percent." I guess that's the benefit of having a benign dictatorship. Still, the lesson is that the U.S. needs austerity, not growth-killing tax hikes.

From the Globe and Mail,

Canada should remain committed to publicly funded health care, and not open the door to two-tier medicine, says a new report by a top economist.

Governments can improve efficiencies in the system, including changing the way doctors are compensated, without allowing patients to pay for some services, Don Drummond, former chief economist at Toronto-Dominion Bank said in the report released on Thursday.

I love this type of argument. We know that public health care is extremely inefficient. But rather than privatize, we can just fix the inefficiencies. Of course. So easy. I love that technocrats think they can just fix it from the top down. There is a huge gap between what they think they know, and what they actually know. The reason that private markets work is that efficiency comes from the bottom up: through trial and error, through adaptation and innovation. Central planning is, by definition, incapable of replicating this.

The lesson for healthcare reform is: we should trying to design the 'best system', rather, we should aim for a system with the best feedback mechanisms. That's bottom up, not 'top down.'

Optimism: Vol 1 Inequality

I’ve just finished reading Matt Ridley’s excellent book, “The Rational Optimist.” Ridley evaluates technological progress, human history, and many current socioeconomic problems in a hardnosed, analytical manner, but comes to rather cheery conclusions. Ridley is even optimistic about the hardest problems, like poverty in Africa and climate change. Now, he’s not saying "everything is fine". He does not deny the severity of our socio-economic problems. His point, rather, is that there is cause for optimism because there are improvements on the horizon.

I’m an optimist too, although not about everything. That got me thinking: what socioeconomic trends am I optimistic about, and why? One issue that people seem to be down about, lately, is economic inequality. I see why, but I'd like to explain why i'm an optimist on this issue.

The OWS people are very pessimistic about inequality. They cite some pretty harrowing statistics about middle class stagnation, the gains made by the “richest 1 percent” over the last 30 years, and the higher costs certain goods such as health and education.

I can’t share this pessimism. One reason is that I’m not so convinced about the middle class stagnation thesis. Don’t get me wrong, I’ve seen some of the numbers. But I also know a little bit about the way that they are calculated, and the difficulties there; and I’ve seen some alternative estimates. For example, once you include benefits from taxation, non-monetary benefits (like employer provided healthcare), the inequality picture changes quite a bit.

Second, some people argue (convincingly, IMO) that the CPI overstates inflation. There are some reasons for this, but basically, when you look at a basket of goods now and compare it to one gathered in 1970, price doesn’t capture quality. So, if inflation is lower and the quality of goods available is higher, the overall standard of living picture improves for the middle class.

Third, there are some statistical artefacts in inequality calculations based on “households.” For example, as households break up due to divorce rates, this affects the picture just because the size of the household shrinks. But if you take into consideration the size of households, the picture changes and looks a little better.

Fourth, some of the observed inequality in the American political system is due to demographics. A lot depends on whether you're married, in the prime of your working life, and educated. This type of inequality is far more innocuous than the systemic inequality that the OWS people are protesting.

Finally, inequality stats that you see are snapshots. They do not tell us anything about mobility. It doesn’t mean that the same people are in the same categories. Studies that track people over time (called panel data) show that there is significant movement between classes.

So, while there is clearly inequality, I do think that everyone, in general is better off than they were 30 years ago. I think proper readings of evidence show this to be true. (I’m not an expert, but the experts certainly don’t agree, so I’m going with what I understand) As a very last point, I also have no problem that Sidney Crosby, Bill Gates, or the founders of Google make a lot of money. There is a market for what they do. Some rich people deserve to be rich. Others don’t. Here I’m thinking of the guys in finance who shoudl be out of business but continue to get huge bonuses because of government bail outs, tax exemptions and subsidies etc…

One final thought about the language of the issue. People often complain about the “distribution of wealth” or that one group has too large a “share of the wealth.” But this language doesn't make much sense. Wealth isn’t shared to begin with. It is not distributed by anyone (except when the government taxes people). It is created. It does not make logical sense to complain that the founders of MS have too large a “share of the wealth” because there was no “shared wealth” to begin with. That wealth was created by the innovation and the subsequent commerce and trade.

Instead of inequality, societies should be more concerned with the condition of the poor, the bottom 10 percent. And once again, while there is much room for improvement, I find reason for optimism in the fact that over time, both globally and within the developed West, the poor are getting richer.

The Worst Policy

Peter Singer makes the case for banning tobacco.

Cigarettes, not guns or bombs, are the deadliest artifacts in the history of civilization. If we want to save lives and improve health, nothing else that is readily achievable would be as effective as an international ban on the sale of cigarettes. (Eliminating extreme poverty worldwide is about the only strategy that might save more lives, but it would be far more difficult to accomplish.)

AM: Really, Singer?

First, the war on drugs has been an astounding failure. Drug prohibition is probably the worst policy initiative of the 20th century in terms of cost, ineffectiveness, and unintended side effects. So lets keep that in mind before we up the ante.

You seem to have anticipated this response, but can you so easily write-off the war on drugs comparison? Prohibition has actually made drugs stronger and more dangerous: this was a black market innovation that directly resulted from illegality. Making tobacco illegal would do nothing to diminish the demand for tobacco, and everything to encourage the growth of a parallel economy. I mean, even high tax rates produce contraband. You can't keep a banned drug down. Your utilitarian calculation of costs and benefits drastically underestimates the harm caused by prohibition; and overestimates the benefits (effectiveness) of the policy.

Second, even if this could work, do you really think that the utilitarian notion of harm reduction overrides the basic principle of free choice? Granted, addiction and second hand smoke complicate the issue, but this remains, ultimately, a question of liberty. Don't ignore that.

Third, the negative externalities of smoking are better reduced through less coercive policies. In Canada, education, restrictions, and taxation have been pretty effective in cutting smoking rates and protecting the public. Smokers pay taxes; they can't smoke in most public places; and everyone is aware of the dangers. Tobacco companies can't advertise to children; and kids are educated on the risks of smoking, at an early age. This works. But we're not going to eliminate it entirely. Why go further and risk repeating a massive mistake like prohibition?

The good ol' days

David Warren is a true conservative. Unlike your typical weekend conservative who looks back on upon the 1950s with some nostalgia, Warren wants a return to the Middle Ages! Booya.

We need a revolution in our attitude toward work. This is because the notion that we must "work to live" is only suitable to animals. The proposed Christian alternative is "live to work" - in the image of the creator, which is to say, creatively, "for the sake of doing well what is well worth doing."

AM: Remember the good ol' days? Back when peons, legally tied to the land, worked 12 hour days doing manual labor in subsistance conditions in service of some fuedal Lord in exchange for protection from bandits and foreign invaders. That was honest work. The peasants weren't doing it for the money, or "to live," but rather for the after life! Indeed, a more noble reason: the knowledge that they were being watched over and judged by God; and that they would have a place in heaven if they only knew their place on earth. This had to be true. After all, the priest told them. It was in the bible. Ok, they couldn't actually read the bible, but the priest could read; and he wouldn't lie, right? Mental and physical slavery, exploitation and fear. But at least they had values and feared God. In other words, "they lived to work."

Some Thoughts on Protecting Kids from Parents... and liberty.

The Real Johnson writes:

In short, smoking in a car with a kid = bad.

And yet, there are people who would say it is not the government's business to tell me what I can and cannot do in my own car with my own kids.

I wonder then (but didn't bother asking), what these people's idea is for the role of government? If it's not there to enact laws that attempt to protect and improve the lives of its citizens, what is the government for?

This is one of those issues of moral consistency. Can you really be pro choice (which I am), for example, and support smoking-in-the car bans? While in utero, the child is nothing. You can drink, smoke, or kill him if you feel like it. Totally up to you. Right to choose is paramount. But then he pops out and becomes a ward of the state. All of a sudden, you don't know what's best and your behavior is regulated for their protection. Strange.

Ok, to be fair. I don't know if this is entirely a contradiction. Progressives will likely scramble to make distinctions. Maybe they are right, but I doubt the ground will be solid. As a libertarian, 'children' occupy an ambiguous status. They are not fully formed adults yet, and so at what age to 'free to choose' principles apply. After all, a 5 year old is not exactly free to choose leave the car when his parents start smoking. He is, in other words, coerced to some degree by the structure of the family. Customarily, we assume that part of individual freedom is the 'right to raise ones children' on the assumption that parents sort of know what is best ,and that the family unit is something to be respected.

This is a flawed assumption: and kids suffer for the choices that others make. Is there a role for the state in the protection of children? Sure. Is this consistent with libertarianism? I think so. But there will always be a tension between the top-down and the bottom-up. After some meandering, I find myself in agreement with Johnson, on this one.

Quote of the Day

"We should not try to design a better world. We should make better feedback loops."

Owen Barder (Quoted in Tim Hardford's Adapt: How Failure Breeds Success)

More on Regulations, Health, and Infallible Human Stupidity

The Real Johnson responds to my earlier post on food regulation:

AM, as he is often wont to do, used the columnist's argument as a case for smaller government and less regulation. Given that in Canada we have universal healthcare, the argument often goes that protecting the health of the nation's citizens is a matter of government interest since it will effect the shared cost of caring for an unhealthy populace. AM, and the NP columnist, instead argue that our love of fatty foods and our rejection of government bodies' attempts to legislate same is actually an argument against universal healthcare.

It is an interesting idea, and one that I thought got to the root of why I so often find myself arguing with things AM posts, despite the fact that we both generally agree in our shared enthusiasm for belittling the stupid. What I realized was that I tend to think that the government ought to attempt to help its citizens as much as possible and I realized that my point of view presupposes that people are essentially stupid. That is, to me, in a world where people are stupid enough to attempt to eat KFC Double-Downs for dinner every night, maybe someone should step up and say, hey, idiot, your heart is going to explode.

I'll respond to this in a little more detail, but I think Johnson basically gets my point right. He differs with me on how we, as a society, should respond to human stupidity. Is the right answer more 'bottom up' or more 'top down'?

It's a very relevant question, well captured in Keynes v. Hayek round 2. To quote Hayek: "I don't want to do nothing, there's plenty to do, the question I ponder is who plans for whom. Do I plan for myself, or leave it to you? I want plans by the many, not by the few."