Detailed Abstractions

Over @ Concuring Opinions, Nate Oman has an interesting post about the defenses of a free market (whole thing here):

Broadly speaking, I think that there are three families of arguments that can be made in defense of markets. Most commonly within the legal academy markets are defended on the basis of efficiency….

The second defense of markets is libertarian. This looks a lot of like the efficiency argument but is actually quite different, notwithstanding the fact that libertarians frequently confuse the two. In the libertarian argument what matters is not welfare but freedom. Freedom is taken as a good in and of itself, even if choices might result in reductions of welfare for the chooser….

The third argument is a defense of markets as markets.

Both the efficiency and the libertarian defenses of markets are reductionist in the sense that they see the good of markets in a unitary way. Markets are good because — properly constructed — they move resources around to maximize welfare….

Markets are good because they provide cooperation in the face of disagreement over the definition of the good and “social stability.”…

It’s a very decent article, though as a non-card carrying libertarian, I need to disagree with some of his minor points.  Namely, that libertarians are by group interested in freedom alone.  In fact, libertarians, just like other demographic groups get to the same answers through different paths and all three paths are prevalent in the current party.

For some libertarians, it is an…. intellectual/efficiency argument alone.  They believe markets aren’t necessarily moral or perfect at rationing, but they firmly believe that a free market leads to the best possible solution for the most people.

For me, I take the freedom approach.  To maximize individual welfare means one must maximize individual choices.  This might seem as too moralistic or philosophical for some as to be practical or useful, but it seems logical that reducing one mans’ freedom is antithetical to maximizing welfare.

& to be thoroughish, lots of libertarians are just tired of all the other parties and joined that cool one with that goofy, “Who is Ron Paul” stuff.  In reality, like most organizations, libertarians are not absolutists either way using a combination of thoughts to form their basis for their beliefs, but I digress.

The author continues about the third way:

On this view, traders are not cowardly, greedy, souless parasites (see, e.g., Shylock) constantly tempting the virtuous away from the path of justice with filthy lucre. Rather, commerce encourages courage, honesty, and fidelity. It encourages cooperation rather than predation. It allows people with widely disparate views of the ultimate ends and purposes of life to peacefully cooperate with one another. Commerce rewards the frugal and the farsighted, while punishing the wastrel and the spendthrift…..

But he tells us….

The third, pluralist view of the good of markets gets scant attention…

While this maybe a true statement, but the reality is that all three defenses coexist to form both a cohesive political and philosophical framework (though I do have issues with libertarians on foreign policy).

If we can start with the idea that maximizing welfare includes maximizing freedom, efficiency, freedom, & moral markets work together.

When starting with the paramount of freedom in economics, one also gets into the land of (un)intended consequences and perverted incentives.  Hayek talked about this a great deal – the fact that due to the shear size and complexity of the market, any attempted centralized interference will change incentives and unlikely for the better.  Unlikely, because the “status quo” we all question exists through millions and millions of individual transactions.

For lack of a better term, a collective wisdom emerges, order out of chaos.  An answer, that we might not like, but something for which a centralized system is (highly) unlikely to do better than free individuals.  The result is the most efficient use of resources we can hope to achieve while maintaining the most individual freedoms we can.

What about the morals? Well….it’s not as if we don’t have recent examples to help us out.  Leaving out the current mess of a tax code, take the recent financial crisis.

Predatory lenders?  Sure.  Fraudulent and speculative borrowers? Sure.  The reason why it worked so well?  Government incentives pushed quasi-government agencies to purchase loans without much oversight.

Why no oversight?  No skin in the game.  They couldn’t fail.  The market believed it & they believed it.  & in the end, the government proved them right.  Do the wrong thing, over and over and over and over again until it finally collapses and someone else ends up paying the bill….

So while the author is probably correct that we don’t use a moral market argument much, especially in an atmosphere of language such as “fat-cats”, he’s incorrect that this moral option is a “third” argument.  It is indeed part and parcel of the framework that markets are more efficient, better at maximizing freedom, and yes, even better at incenting moral behavior as well.

More on market morals here

9 charged with bullying Mass. teen who killed self via the AP (here):

NORTHAMPTON, Mass. — Insults and threats followed 15-year-old Phoebe Prince almost from her first day at South Hadley High School, targeting the Irish immigrant in the halls, library and in vicious cell phone text messages.

Phoebe, ostracized for having a brief relationship with a popular boy, reached her breaking point and hanged herself after one particularly hellish day in January — a day that, according to officials, included being hounded with slurs and pelted with a beverage container as she walked home from school.

Now, nine teenagers face charges in what a prosecutor called “unrelenting” bullying, including two teen boys charged with statutory rape and a clique of girls charged with stalking, criminal harassment and violating Phoebe’s civil rights….

Assuming the facts, this was criminal behavior with or without the heinous result:

…Northwestern District Attorney Elizabeth Scheibel, who announced the charges Monday, said the events before Phoebe’s death on Jan. 14 were “the culmination of a nearly three-month campaign of verbally assaultive behavior and threats of physical harm” widely known among the student body.

…At least four students and two faculty members intervened to try to stop it or report it to administrators, she said….

So far we seem to be good – charge those directly responsible.  Now what about those administrators who did nothing?

…School officials won’t be charged, even though authorities say they knew about the bullying and that Phoebe’s mother brought her concerns to at least two of them….

& here is the unspoken problem:  government imposed monopoly on schools for which no one is responsible.  Thanks to a strong union and forced funding of these failing institutions we end where the adults charged to protect her are not responsible at all.

Maybe it’s just me, but criminal charges seem consistent with the law.   Sure, a civil suit will likely exist and be successful.  But the end result is the taxpayers who have to support the idiots who allowed this to continue will have to pay for their mistakes.

I’m just saying – it’s possible a justice system which can’t or won’t hold these people accountable combined with a civil system that will punish taxpayers, not the administrators, doesn’t incent future administrators to do better next time.

Maybe there’s a reason they weren’t charged?

…No school officials are being charged because they had “a lack of understanding of harassment associated with teen dating relationships,” and the school’s code of conduct was interpreted and enforced in an “inconsistent” way, Scheibel said…

Oh…. now I get it.  They’re not responsible because they’re too stupid to understand kids their jobs.

It seems at least 4 children, 2 teachers and 1 parent knew enough to try to get help to intervene, but since the administrators just don’t understand kids these days – it’s not really criminal.

What would’ve been criminal would be for Phoebe’s parents to keep her home from school, without proving they were educating her consistent with state guidelines.

But what’s not criminal is doing nothing to prevent this little girl from being criminally harassed daily.

*Side note:  Bravo to the children that stood up against this behavior.  They should be celebrated for doing the right thing and will hopefully be secure in the knowledge that they at least tried.  While the adults did nothing, they tried.

In an email discussion with a very interesting new friend, an idea I’ve heard before came up:  Libertarianism is sort-of childish; a Utopian dream that’s nice in theory, but not practical in reality.

It might be trivial to write at this point, but I of course disagreed.  To be fair, I believe this is completely true on foreign policy.  Libertarianism seems like a domestic political philosophy only, but more on that in the future.

On the childish part – in some ways I can see why that perception exists as well.  I’ve jokingly said before the reason libertarianism has a bad name, is because of libertarians.  The cultural norm in libertarian thinkers who draw large numbers of readers seems to be to take one basic principle and stretch it to infinity.

For instance – it’s your property, you can do with as you please.  So you can put a brothel next door to an elementary school and the only recourse should be neighbors buying the lot to out price the brothel.

To many, including me, this is stupid.  The point in giving as many freedom to others as possible, simply can not include a dissolution of society itself by subjecting populations to things they don’t want.  Also, I think they already have this type of vision in local government using SOME zoning laws.

Additionally though, libertarians do believe in contracts.  So if a bunch of people bought tons of land, they could sell those plots with any caveat they want – even religious requirement.  By buying the lot, you are signing the contract and therefore willingly entering into that agreement with those constraints.

While I firmly believe this is possible, legal, and potentially preferable, it seems like that’s a community/town.  Their issue however with government control is one of the use of force, but I think that’s due to too much centralization.  Studies have shown, more decentralization, IE – more local control, leads to better outcomes (here).  What this would mean, if we were to ever take it seriously, is that while New York might maintain 18 million people for the economic possibilities that provides, government spending and programs should be on a much smaller level.

Please note – this doesn’t mean that no federal government should exist or that taxes should only exist on a very local level, just to say that smaller communities providing for their own fire, police, education, etc, etc, etc works better than 3 million people trying the same thing.  The idea is a state tax or federal tax would be required for things such as national defense, but the majority of expenditures should be directed more locally by a mayor or city manager at a much smaller level.

So it’s not that I believe the community should completely dissipate, it’s that I firmly believe that when the government gets involved, it actually distorts the system to the point where people simply don’t take care of themselves…. or their neighbors.   I think this is backed up by basic human behaviors and thinking as well as all of our uniquely “urban” problems.

One of the human conditions which helps this continue is that of group think.  By safely removing yourself far away from the negative results the government produces with its Wars on poverty, terrorism, obesity…. kids?  People can insulate themselves in larger communities due to increased anonymity by blaming society at large, instead of assuming any direct responsibility.

Listen carefully when people argue about police abuse, or crappy government inefficiencies with social spending, or politician’s lack of values…. they place blame it lots of places, but never on themselves and usually, oddly enough, never on the voters either.

Going further, the government exploits our fears with the media willing accomplices (Politics of Fear) into giving up more control to the government and thereby reinforcing the notion that the government is the answer, when it fact it’s people.

For instance.. violent crime is down a great deal since 1990 (uptick recently, but very small and declining again), but the reporting of crime has increased on average around 500%.  Thanks to multiple 24 hour news shows, combined with a finite amount of news, sensational stories about very rare events influences people’s fears about those events.

We humans aren’t that good at evaluating risk as it is, without doing so in a very methodical way, but with the government’s various wars on everything: AIDs, H1N1, Poverty, Terrorism, Obesity, Smoking, Drugs, Cancer…. kids?  All with the media willingly pushing these sensationalized news stories, people have exaggerated fears towards rare events and minimal fears towards much more likely catastrophic events (great video here ~20 minutes).

Add to this, a general lack of skepticism and critical thinking, most people never take the time to see if their fears, concerns, or core set of understanding of the world is accurate.  I believe this is due to a lack of appropriate priorities for most people, but more on that later.*

Looking at society, you can see the fear we have in our neighbors.  For example, in lots of neighborhoods in lots of places, people will more quickly call the cops on a loud neighbor than just walk over and ask politely.  We go to court when cutting down a tree that crosses property lines, we call the cops when we think the neighbor has too many dogs, we…. we just call the cops because people are scared of their neighbors.  & not because they know about the bunker with a year’s worth of rations and ammunition, but because we continue to allow our human frailty in risk assessment to be exploited by those only seeking more power.

Additionally, we willingly take away rights from others.  The most consistent comment from friends, colleagues, strangers who accidentally started a conversation with me…. but for those I did talk to around carry conceal laws during a vote in MO had, by definition of a binary question, one of two answers. Yes or No

The interesting part of the nos was almost all used the same basic reasoning when talking to me:  “You’re fine. It wouldn’t bother me a bit if you carried a gun, you were in the military and trained.  I just don’t know about everyone else.”  Other than showing a lack of knowledge of how little an electronic technician trains on weapons, I think it shows our general distrust of others.

Not surprisingly, even when confronted with the stats that prove FL, TX, and other states did not turn into the Wild West (not that the West was truly all that “wild”) where horn honks during rush hour turned into shootouts between soccer moms & insurance salesmen, were all safely ignored.

I guess the cognitive dissonance was too much to handle because stats like those in FL & TX demonstrate that our 99.9% of our neighbors who might get a carry conceal permit are not planning to emulate Rambo on the morning commute did nothing to waver the opponents.

With all that being said – I’m proffering the idea that in an odd, perverse, but easily understandable way, government involvement, even in very charitable actions, can actually reduce our incentive to live together peacefully and take responsibility for our communities.

*On the lack of priorities, I don’t believe all people should run out and research everything I know because I think everyone should read what I read.  I think the very first rule in critical thinking that all trying to be honest analysts have to understand is that like all other humans, even those trained and educated in analysis, will still have the same frailties in their thinking process.  Potentially less pronounced, but never completely mitigated.

Therefore, when writing that peoples’ priorities seem to be off, I think our failure isn’t with not reading what I read – but in being a well rounded person by honestly reflecting and actively deciding their core values.

As a corollary to that – I believe society is teaching people right now that this is a good thing. Valueless employees ask fewer questions and do more as their told without contemplating reality and what the decision’s effects most likely are. & Even if they do contemplate and know it’s wrong, they do it anyway. Therefore people who don’t make waves, get promoted. Those who ask pertinent questions, even if necessary and correct, get ostracized.

This is not only true of our business leaders, Bernie Madoff, Enron, MCI, but our politicians as well.  Unethical leaders leading secret lives, even the corrupt politicians among us, seem to get a reprieve from the voters… so long as you’re on their side and they’re not mean.

Additionally the leadership selection process seems perverted for the same reasons the leaders aren’t what we should expect.  Someone who is arbitrary, but polite and educated, is someone a lot of people like.   In a deep seeded wish to reduce not only any discomfort we might experience, but for civility’s sake try to prevent others’ discomfort, society has conflated the ideas of social skills with leadership to the detriment of society as a whole.

On the whole, it seems our desire for civility has the unintended consequence of making us less civil and more prone to failure.

Showing that only civilized intellectuals are needed to really screw things up, food pantries in New York are actively throwing away food donations:

When a small church comes to the Bowery Mission bearing fried chicken with trans fat, unwittingly breaking the law, they’re told “thank you.” Then workers quietly chuck the food, mission director Tom Bastile said….

Some in good conscience are ignoring the law, but they know it applies to them:

…The city’s law banishing trans fat took effect in July 2008 and touched everyone with Health Department food licenses — including emergency food providers….

The whole irritatingly stupid, but so not surprising thing here.

As should’ve been expected and according to all recent news, having a Treasury Department position of paymaster isn’t working out so well for the free market.

Earlier this year, against all basic free market principles the Obama Administration through the Treasury Department started setting up compensation boards (CNN):

WASHINGTON (CNN) — An amendment in the $787 billion economic stimulus package passed by Congress Friday would severely restrict bonuses and other forms of compensation for top executives at companies receiving federal bailout money….

Due to all the negative publicity surrounding the government’s handing over billions of dollars in tax payer dollars to corporations which deserved to fell, Senator Dodd explains:

…”The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence in efforts to stabilize the economy. American taxpayers deserve better,” Dodd said….

Now it might just be me, but I’m not sure Wall Street executives are allowed to vote on appropriations bills and then force the treasury to distribute the funds as they see fit.  It seems Mr. Dodd is blaming Wall Street for the government’s failure to handle the crisis correctly.

With all logic aside though, they went forward.  Not only did they seek to limit overall compensation of the highest paid, but asked for refunds from bonuses already given – one provision in the bill:

…The secretary of the Treasury must review past compensation paid to the top 25 employees of TARP recipients and seek reimbursements “if those payments were contrary to the public interest or inconsistent with the purposes of the [stimulus package] or the TARP,” according to Dodd’s statement….

& People everywhere rejoiced…. I mean complained.  In what was an obviously anti-capitalist move sure to do more damage than any political good it might bring about, people everywhere spoke up (examples here, here, & here), including NBER (abstract here – paper costs $5):

…Important facts about compensation are that: the compensation distribution is highly skewed; each year, a sizeable fraction of chief executives lose money; the use of equity grants has increased; the income accruing to CEOs from the sale of stock has increased; regardless of the measure we adopt, compensation responds strongly to innovations in shareholder wealth; measured as dollar changes in compensation, incentives have strengthened over time, measured as percentage changes in wealth, they have not changed in any appreciable way….

Even little ole me could see this as a negative and wrote about this here just a month or so ago (here):

…Even without bothering with the fact that the government is not in any position to understand what kind of compensation any single employee should have, this is still a radical and arbitrary move that if continued can work to destabilize the economy.

…this decision is an anathema to a free society breaking not only the contract rights of ordinary citizens, but also violating all individuals by pushing a blatant ex  post facto punishment….

& now we have exactly what was shown through economic analysis and basic logic to be true (@Bloomberg):

Nov. 23 (Bloomberg) — Bank of America Corp.’s board may extend its search for a permanent new chief executive officer into 2010 if directors can’t settle on a candidate in the next three days, according to people familiar with the matter….

…At least four external candidates, including Citigroup Inc. director Michael O’Neill, rebuffed approaches….

…That’s narrowing the field and giving the board “an incredibly tough job,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. “For people who have choices, it’s hard to figure out why someone would take this job.”…

Is it now time to stop calling obvious results  (Un)?intended Consequences…

Unintended consequences.  An often used phrase for almost every piece of legislation pushed our politicians.  Whether it’s McCain-Feingold’s chilling effect on free political speech or whether bailing out banks which are “too big to fail” has actually decreased our long term viability instead of supporting it; the term seems to connote any consequence which wasn’t expressly mentioned by proponents of the bill.

Technically, that’s correct.  The definition of unintended consequences does not require the consequences to be unforeseen, though in common language we generally use the base meaning of “intention”.   Therefore the phrase has come to mean those consequences which were neither  intended nor unforeseen.

I submit however, that we should start changing our language and call known consequences intended consequences, because like the citizens in the face of the law our politicians should be held to the same standard: ignorance is not a defense.

Regardless of the human failing that pushes people to believe they, or their elected leaders, can ultimately control behavior which is already constrained by the marketplace, acting as if the results weren’t readily understood is disingenuous.

Looking more closely @ McCain-Feingold effects, we see the chilling of free-speech (here), where citizens can’t create a documentary on their beliefs about Hillary Clinton without it being subject to regulation:

…The case before the court, Citizens United v. Federal Election Commission, originated over whether a 2008 feature-length movie critical of then-presidential candidate Hillary Rodham Clinton could be classified as an “electioneering communication” subject to regulation.

The FEC contended it was, and that its sponsor, a conservative advocacy group called Citizens United, was barred from promoting the film. While nonprofits can be exempt from campaign-finance regulations if they limit their fund-raising to donations from individuals, Citizens United fell under McCain-Feingold because it accepts business contributions….

Now.  I haven’t seen the movie nor do I care to, but when individuals get together to use their own money, their own resources, to produce their own political speech, the government has absolutely no right to be involved.  In the marketplace of political ideas, that whole “congress shall make no law” thingy, seemed pretty straight forward.

Regardless of your reading of the 1st Amendment, some will contend this is an unintended consequence.  I contend it was a known consequence and therefore must have been intended.

I will even go further and say this was like a consequence well enough known by politicians who voted for the bill, that they had incentive to pass restrictions on others as this would help them secure the current balance of power.

Using banks too big to fail (here):

…Increased concentration is vexing for regulators. Because systemically important firms can borrow more cheaply thanks to implicit state backing, small and medium-sized banks struggle to compete. A recent Fed study put big banks’ funding advantage at more than 30 basis points. That leads to another possible problem: indiscipline. Private firms with a low cost of funds and the taxpayer behind them are prone to recklessness: just look at Fannie Mae and Freddie Mac. America’s leading banks were too big to fail before the crisis. Now they are bigger still….

This was not only easy to foresee, but libertarians, conservatives, small business groups, think tanks, economists, literally, tens of thousands of people wrote and discussed that this is exactly what would happen.

Once you’ve effectively told the market that they will not be responsible for their failures, you’ve written them a blank check to become much more reckless than they would have otherwise.

Not only this, but that action, more reckless businesses, will have it’s own well understood consequence.  The banks will continue to make stupid decisions due to a perceived lack of risk.  As long as people allow it, the government will continue to bail them out until it becomes just too expensive.  Then during that emergency, we will see much greater regulation and control of the financial industry which might include a government takeover.

As Hayek stated and history has shown:

‘Emergencies’ have always been the pretext on which the safeguards of individual liberty have been eroded.

Maybe it’s time to start holding our politicians & leaders accountable for the known consequences & not just the stated ones.