The Angry Economist

Knights

Back in the Y1K, a knight was invincible. A knight mounted on horseback could not be defeated by the peasantry. A suit of armor was very expensive, but it afforded the wearer the ability to do what he wanted, when he wanted. A knight could go into a village and demand tribute, and the villagers could do nothing. It was, in essence, a license to steal.

Technology created the knight, and technology ruined the knight. The steel and iron armor of the day could deflect sword and lance blows. That lasted until the invention of the Welsh longbow, and later handheld firearms. Anybody could become a knight, however a knight's steed and armor were very expensive.

Politics couldn't bring much violence to bear on knights. Only another knight could defeat a knight. The church did its best to keep knights from being the horseback equivalent of the motorcycle gang by its chivalric code.

Patents

The US patent system has become amenable to a protection racket. First, you start a patent holding company. Then you get a patent. It should be something broadly written so that everything plausibly infringes it. Then you go to a small company and say "You infringe this patent. We will sue you, or you can settle for $1000." Obviously the small company settles; it would be insane to do anything else. You keep going to more and more companies, increasing the settlement offer; but always keeping it below their cost of winning a lawsuit.

How does a patent racket differ from a protection racket? The threat differs. In a protection racket, the criminal offers harm to the victim while taking on a risk that they will get caught inflicting that harm. In a patent racket, the criminal offers harm to the victim and themselves at the same time (the cost of bringing and defending a lawsuit). The government typically opposes protection rackets (modulo bribing of police) but tolerates patent rackets.

One of these days some Attorney General planning to run for Governor will wise up to this scam, and go after these firms for criminal extortion. A patent system which allows this kind of activity is clearly unconstitutional since it doesn't "promote the progress of science and useful arts".

J.D. Von Pischke writes to The Quaker Economist (not yet published there):

"The first step of emancipation is to learn to recognize when your emotions are being manipulated for profit. --Loren Cobb" Gain would be a better term than profit, which usually refers to money. Profit is a subset of gain, and gain conveys power. We should be concerned about the creation of power, its distribution, its uses and responses to it. Non-profit organizations exist to obtain power, just like profit-making enterprises. Each has governance problems, and the outcomes achieved by each are complex and hotly disputed.

Lots of people are concerned about the greed of big corporations, seeking larger and larger profits. Of much more interest to me are concentrations of power rather than profit.

Everyone has of course heard of offshoring: moving jobs which do not need to be performed in-person off shore, presuambly to someplace with a lower cost of living. That boat goes both ways, though. I've spent the last week working (on-site in Mumbai) for Rediff.com. No doubt there are people in India who cry "Oh! You're shifting jobs to foreigners!". Sound familiar? Sure; it's the usual protectionist nonsense heard in the US.

No links to examples; there are too many of them to pick just one.

I think that the society that I would prefer to live in would have the most voluntary cooperation possible. I greatly value freedom, but if you look at some other cultures, you can see that they have even more freedom than ours. Look at a comment on a CafeHayek article by Camilo about Mexican society.

Camilo points out:

Mexicans don't stop for red lights. Mexicans don't stop for anything. Mexicans are raised to do everything and anything they want. Hegel defined true freedom as adherence to the law and caprice as its opposite: the very worst of all oppressions. I tend to agree. There are few things more oppressive than the knowledge that you are one of the few paying taxes and stopping at red lights when it's every man for himself all around.

You can easily say that Mexicans have more freedom, since they do what they want when they want where they want. Camilo points out that while that's freedom, it's not a valuable freedom. The freedom to run through red lights is not voluntary cooperation.

That would sound like an argument for a strong state, but it isn't. A government does not create voluntary cooperation. A government coerces obedience and calls it cooperation. The government has created a monopoly on local roads. If you wish to travel, you must do it on a government road, observing monopoly government rules. Objecting to this may sound stupid on the face of it, but we all know that monopolies become complacent. They don't innovate, they don't create new efficiencies, they tend to solve problems slowly if at all. "We don't care. We don't have to. We're the phone company." --Lily Tomlin as Ernestine.

There is no reason why a government monopoly should be any different kind of monopoly than a corporate one.

Thus you have my call, not for greater freedom from the constraints imposed by living around other people, but a call for greater voluntariness coupled with a call for greater cooperation. Not the kind forced on us by government, but the kind of cooperation that comes from the love of our fellow man. The peaceful kind. The joyful kind. The silent night kind.

Merry Christmas!

Austrian economics reasons out economics by starting from assumptions, and expanding upon them. If the assumption generates conclusions that are not observed in the real world, then the assumption is not correct. It's very useful to know which people prefer: work or leisure. One way you can figure this out is to keep everything else the same, and then see which people choose. That's hard to do since everything else is never the same. Another way to figure it out is to assume that people prefer one to the other and see if it makes sense. Jim Thompson claims to prefer work to leisure. Let's decide if he's right or just confused.

What would someone do if they really did prefer work to leisure (again, keeping everything the same)? The difference between work and leisure is that you get paid to do things other people choose, whereas nobody pays you for leisure of your own choice. Clearly everything is not the same, so let's assume that you get paid for your leisure. If anybody preferred to work under those conditions, then they would prefer to NOT do what they wanted, but instead to do things that other people chose. Does anybody actually act that way? No, of course not. This assumption generates ridiculous conclusions like "employees will never quit no matter how little you pay them, because under identical conditions they choose work over leisure."

Clearly Jim isn't used to this kind of thinking. Why should he bother to learn it? Well, if he thinks economics is boring, he wouldn't. But if he wants to say things about economics which are coherent, then he needs to understand good economics, and where it comes from.

What does this kind of thinking tell us about the real world? Because surely some people work (do what other people want) instead of enjoying leisure (doing what they want). It tells us that everything is NOT the same (because if it were, people would seek leisure). People don't ordinarily get paid for leisure. Further, it tells us that even if people are doing work of their own choice, they prefer to get paid to doing the same thing for free. Similarly, it tells us that if you pay someone incrementally less, some times the person will choose leisure.

A preference for leisure over work is a special case of another principle: that everyone wants to minimize the value (to them) of the things they give away when they trade. People are naturally cheapskates. Again, look at the counterexample: What if somebody didn't want to minimize the value they traded away? Do you ever see people arguing that they should pay a higher price? No, of course not.

Another way of saying this is that everyone is lazy. Racists claim that blacks are lazy, and I've tried to explain why in a posting of that title. Jim claims that my thesis is wrong, but he fails to restate it correctly, so I can't tell if he's claiming that I'm wrong, or if he's disagreeing with his restatement (which surely both of us agree is wrong).

I think that everyone has a built-in tendency to be racist and sexist and ageist and every other attribute with which you can lump people together. Let's call that Xist thought. People are vociferous pattern-matching machines, and we have a natural tendency to find meaningless patterns. With every signal comes some noise. Typesetters try to avoid "rivers", which are places where the spaces in words line up vertically. It's meaningless, but distracting to the reader. It's very easy to create a pattern out of random data, like "blacks are lazy", or "italians are gangsters", or "jews are greedy". Surely some blacks are lazy, some italians are gangsters and some jews are greedy--people will be people--get enough of them together and you'll find any kind of behavior.

Xists are the people who don't understand that they're seeing a false pattern. The rest of us understand that sometimes we will see patterns that aren't real. We all need to struggle against those spurious pattern matches. Blacks aren't lazy -- just that one you saw leaning on his shovel. Whites aren't racist -- just the one that treated you unfairly because of your skin. Jews aren't greedy -- just that one who profited from the letter of the agreement.

Of course, Xism isn't limited to negative attributes. It's Xist to say that blacks jump higher than whites. I could out-jump my brother-in-law any day even if he started on a footstool. It's Xist to say that Jews are smarter than everybody else. On average, they test higher on IQ tests, but you can't say anything about the average Jew because NOBODY is average. NOBODY is normal. Normal doesn't exist; everybody is an individual.

Treating individuals as exemplars of each group they belong to is intellectual error. Let the dummies (oops!) make that mistake--don't you.

Startupboy points out an interesting idea: Securitize Citizenship. In other words, give every US citizen a blank passport, and let them do whatever they want with it. This is a great idea! It solves several problems. First, it allows people who don't like immigrants to buy up passports and destroy them. Second, because there will certainly be a market for purchasing these passports, it lets all US citizens benefit from their hard work in making the US a nice place to live. Third, because the price will change, it will give citizens a personal reason to increase the quality of their government as seen by the rest of the world.

New scientific evidence shows that 40% of all sick days are taken on Mondays and Fridays! That's nearly half of all sick days!

That would seem to be evidence of employees cheating their employers, wouldn't it? If so, it would make sense to clamp down on employee laxness by restricting the number of Mondays or Fridays that an employee could take off.

The trouble is that the other 60% of sick days are taken on Tuesdays, Wednesdays and Thursdays, thus it makes more sense to restrict mid-week sick days.

And the trouble with both of these conclusions is that 40% is 2/5th and 60% is 3/5ths of the whole, exactly what one would expect of a random sample of events spread over five days. Hat tip: Liberal Order.

You see this all the time. An expert stands up and says "Through my expertise, I see a problem that nobody else sees." If you listen a little more closely, you find out that the reason the expert concludes that nobody else sees the problem is that they're not paying him money to solve it. That may seem excessively cynical. I don't think so. Being experts, they overestimate the importance of their field of study (no blame: this is the human condition).

The general public lives in a sea of risk. You know what they say: "Life is short and then you die." For some people life is shorter than others, if only because humans are fragile. People perceive some risks irrationally, particularly when you get into very small risks of very bad things. I think that that is simply because people cannot make the proper mental trade-off. Which risk is worse: the risk of dying in a coal-related accident or the risk of dying in a nuclear accident? Mathematically, coal is a bigger killer, and yet people are opposed to replacing coal with nuclear power.

Nonetheless, people who mis-estimate risks under their control are likelier to die. In this way do trees serve to eliminate the imprudent from the pool of automobile drivers. It's reasonable to assume that people are correctly evaluating the risks in their life. So when an expert says "I know better than you", they're technically correct in their field of expertise, but their recommendations do not automatically make for good policy.

In the world of computer programmers, we have a phrase: "It's a feature, not a bug!" We use that phrase when somebody doesn't understand the subtleties of how something should work. They apply a naive analysis to it and conclude that it was a mistake, and needs to be fixed.

Many people do not understand the structure of the US government. Sadly, they are as likely to be Americans as not (the blame for which I lay at the feet of Social Studies as taught in government schools.) Because they fail to understand the subtleties, they call for the government to be fixed. Usually this entails centralization of power.

This morning on our local NPR customer I heard a news report about the dangers of chemical plants. The main thesis of the story was that mere citizens don't understand the risks of chemical plants, because if they knew what the experts knew, they would call for federal laws regulating these plants. There are two problems with this idea. I'll tackle the problem with expert analysis of risk in another post. The other problem is the call for federalization. The NPR reporter whined at the end of her report "Without a federal law, when one state restricts chemical plants, that only transfers the problem to other states."

The structure of the US government is designed to handle error. Part of being human is making mistakes. Part of being a god is being omnipotent. So did The Christ know he was making a mistake as he was doing it? If that never happened, then he was either not human or not a god. But I digress. Complete knowledge is not available to us. What we know, we know because we have experimented.

The US government is one vast, continuous experiment, or so it's supposed to be. Unfortunately, we have greatly reduced the amount of experimentation in space, and turned it into experimentation in time. That's just plain stupid. Everybody knows that "many hands make light work." That just says that work goes faster if you have lots of people doing it. The same effect works in government.

The original structure was designed to be an parallel experiment in space. The federal government was strictly limited in the laws it could pass. All other laws were to be passed by states. Of course, not all states would pass the same laws. Thus, some states would make mistakes that others would not make. That's how science works: you have a control and you have a test. You keep one thing constant and you change the other.

We have destroyed all this experimentation by allowing federalization. We no longer restrict the federal government, and in doing so we have given up science. We no longer have a control. Everyone is a test subject, so we never really know what are the effects of laws. Without having US citizens who are not subject to those laws, we can't tell if they had good results or bad. Also, instead of running multiple experiments, we can only run one experiment across the entire country. If that experiment fails, as some people have said the Telecommunications Act of 1996 has failed, all of that time has been lost. With a more distributed set of laws, other states could have been trying something different.

The other problem with federalization can be seen by flying over the US. The many regions of the US are radically different. We have mountains and streams and lakes and deserts and plains and cities and forests. How can anyone think that one law could fit everywhere? Take, for example, telecommunications. The way you address "tele"communications depends on how far is your "tele". Telephone service in an apartment building is vastly different than telephone service out west where it's not unusual to have miles between customers. Beehive Telephone serves rural Utah and Nevada. They own an airplane to fly between their central offices. I can't imagine any eastern telephone company needing an airplane.

I'm not opposed to the use of governmental power. Many problems are easier to solve by forcing everyone to solve a problem the same way (e.g. water and sewer systems). I'm opposed to the use of governmental power in inappropriate situations. But how do we, as fallible humans, to discover which solutions are inappropriate without experimentation? If you agree with me that federalization is a philosophical mistake, please contact your state representatives and tell them to take back the power that is rightfully theirs.

UPDATE 11/16: Roy asks "How exactly are they supposed to do that?" Roy, you're trying to solve problem #2 before you solve problem #1. Problem #1 is to get the state legislators to realize that the federales have stolen their power. Each individual citizen is relatively powerless. In order to magnify their power, they need to convince the powerful to do their bidding. Since power seeks more power, the most effective path is to get the slightly less powerful to attack the more powerful. Right now, the most powerful single entity on the planet sits on Capitol Hill. Collectively, the state legislatures approach them in power, but first they must be convinced to exercise their power. Exactly how they do that is problem #2. First things first.

UPDATE 11/16: Scott contributes two examples:

Flush toilets - Al Gore (and many others) thought it was great idea to limit flush toilets to 1.6 gallons per flush. The unintended consequence is that many people flush *twice*!. However, while the dry western states might very well have thought such a law was a good idea and passed it on their own, does someplace like New Orleans, literally drowning in water even when not flooded, really need to suffer through such a restriction? I was in New Orleans back in 1991, and I saw city employees clean the streets with firehoses!

911 service - I live in Israel and got a Packet8 VOIP service earlier this year. One reason I chose this service was the cost, which didn't include the overhead of 911 service. Packet8 was going to eventually offer 911 as an option. But no, that wasn't good enough for the Feds. They completely overreact to a few people who obviously didn't read the not-so-fine print that their VOIP service 911wasn't the same as standard 911, and instead of merely requiring more visible notice or disclaimer, they required all VOIP services to provide 911, whether the user wanted it or not. I live in Israel. I want an American phone line for various reasons. I don't want or need 911 service and I don't want to pay for it. I had a choice before. Now I don't.

I've been corresponding with someone who has a Master's degree in Economics (he doesn't say where from; I'm sure it's because they won't admit that they gave it to him), and calls himself "The Real Economist". He says this about workers and capitalists:

There has been and there still remains a simple fundamental fact in any capitalist economy; the capitalist who has to hire at least one worker, by definition, needs that worker to help operate the business; but, the worker, if and when organized and united with other workers, don't need the capitalist employer. The workers collectively can, if they want, form and operate their own government and economy. In other words, in the macro sense, the capitalists need the workers in order to operate and grow their businesses in any major way (workers aka 80% of consumers), but the workers don't need the capitalists in order to grow and exercise their power in any major way.

That's an admirable sentiment. "Bah! Who needs capitalists anyway?" Strictly speaking, it's true. Workers don't need capitalists. They can fore-go spending, accumulate their own capital, and form a worker-owned business. It's done all the time.

But there's something invisible going on here. He's trying to claim that "Capitalists" describes a set of individuals who have it in for workers. He's further claiming that once workers have capital, they'll remain workers and won't become capitalists. The problem with these ideas is that "Capitalists" describes many people. They didn't come into that role with a predisposition to screw workers. People who have capital behave a certain way. They have to, in order to remain capitalists. If they don't behave that way, they become "Philanthropists", who have an entirely different set of goals.

Workers who have capital are no longer just Workers. They are now Worker-Capitalists, who have the interests of both classes, at the same time. If they want to keep their job and their capital at the same time, they will cheerfully cut costs by firing workers (who lose their jobs but keep their capital). The alternative is for all of the workers to lose their jobs and their capital (aka life savings).

Real Economists are trained to see the invisible.

From time to time you'll hear people say "I'm an X economist", where X might be labor, historical, Marxist, behavioral, Hayekian, Chicagoan, or Austrian. It is generally a mistake to say that. I don't mean that all schools of economics have produced equally valid results. I mean that the quality of economics is independent of the school that produced it.

There are no X economics. There are only good economics, and bad economics. Limiting yourself to only one school of economics is adopting an ideology. I have found much of value in Austrian economics, but I don't think of myself as an Austrian economist. I want to be open to useful economic results no matter the source. Perhaps someday a Marxist economist might produce something of value?

I was conversing with someone recently, and they said that they wanted to pay higher taxes.

No, they didn't.

The proper response to that statement is to ask them "So what's stopping you?" Nothing is stopping them from paying higher taxes. All you have to do is send in the check. Every taxing department is perfectly happy to have you pay higher taxes.

No, what they really want is the political power to force other people to pay higher taxes. If you can get them to admit that, then you should ask them whether they think other people's money would be spent more wisely by a government employee or by the person who traded his life energy for the money.

Several people have remarked on Jim Crow laws lately: Don Boudreaux at CafeHayek, Thomas Sowell, and myself. Edwin writes to me saying that he thought Thomas Sowell got to the point better, which is that free markets don't tolerate discrimination. He is quite right.

Any kind of interference in the free market which does not favor one party over another will never be favored by businessmen for two reasons. First, because it's always possible that a competitor will cheat on the sly. Regulations only regulate the honest businessman. Second, because any regulation which requires modified behavior imposes a cost, and only rarely is this cost compensated-for. Perhaps the cost is a one-time cost in the form of retraining staff members. More likely the cost will be ongoing.

A non-economist might say "but everyone has that cost imposed on them, so it's perfectly fair." No, it's not. Everything has a substitute. Before we had FedEx, time-critical packages were hand-carried on airplanes. When I was a chip designer at HP, an engineer would fly down to the Bay Area to pick up her masks. People can still do that, and if FedEx and/or UPS stopped selling overnight services, the practice of hand-carrying would resume.

The bus companies in the south discovered to their chagrin that the black people didn't HAVE to ride their busses. During the bus boycott in 60's, blacks didn't ride any busses for an entire year. They walked, bicycled, and organized jitneys (private automobiles used for pay carriage; similar to taxis).

Jay Warran insists, in a letter to the Daily Courier-Observer published 10/29, that we should "Remember, with drugs comes violence. Period." I'm sure that the manager of the local P&C would be surprised, since he has an entire aisle-full of drugs, and sells them daily with nary a hint of violence. The pharmacist in the nearly Eckerd's would be equally surprised, since he sells drugs non-violently all day long.

Clearly, Jay means "With illegal drugs comes violence" even though he didn't say so. And yet I have to question this too. Which came first, the drugs or the violence? If one person is peacefully selling drugs to another, and society pulls a gun on both of them to force them to stop, it seems to me that society has created violence out of peace. So yes, I agree that illegal drugs are associated with violence, but that violence has been created by the laws that made the drugs illegal.

You may think that drugs are inherently bad, and this causes the violence, but you might be wrong. Imagine if use of the number five was absurdly made illegal. Everyone can see from their life experience that they can use the number five successfully without violence. If, after the start of the War on Fives, they needed to use a five every day, they would continue to do so in spite of the ban. Any violence used to stop the use of five would clearly be caused by the law, not by the five itself. If there were profits to be had from the use of five, they would have to be distributed without recourse to the law. Any conflicts would be escalated into outright violence.

What can we do about it here in St. Lawrence County? We can't make drugs legal on our own. We can, however, instruct the county sheriff to tolerate the use of drugs in certain socially-acceptable contexts. The drugs would still be illegal, and the state troopers might cause trouble, but at least we wouldn't be wasting tax dollars creating violence where none exists naturally.

Update 11/21: Richard Gadsden points out that a drug may very well be associated with violence, e.g. some people get aggressive when they get drunk. Clearly a designer drug formulated to enrage someone would be likely to come with violence. I think that Jay Warran was referring to drug sales, so I restricted my discussion similarly.

Is Rosa Parks really a lone hero, riding away on her bus into the sunset? Certainly she is on the fast track to sainthood. Everyone who is anyone is currently lionizing her as the hero of the battle for civil rights for blacks. Only a few, however, have mentioned that earlier in her famous summer, a pair of unnamed black women had also gotten arrested. And for many years prior to Rosa's last stand, now-anonymous blacks fought and struggled for their right to be treated equally under the law.

So what makes Rosa Parks special? I say nothing much. She was not the first black hero, nor will she be the last one. Rosa Parks the person was clearly a brave person, but Rosa Parks is not just a person at this point. She has become a symbol, standing for many unnamed brave black people, each of them unwilling to accept being unfree in the Land of the Free and The Home of the Brave [black person]. People have a tendancy to personalize groups and movements, turning real people with foibles and faults into symbols. This is, I think, the flip side of our tendency towards bigotry. Just as we praise individuals (Rosa Parks) for the attributes of the group (the many blacks who struggled to be free), we also damn individuals for the (perceived) attributes of the group.

So why were the Jim Crow laws that mandated discrimination necessary? Because the nature of bigotry in a marketplace is a commons. Bigotry can be seen as an expense to a business. No business is well-served by treating potential (black) customers badly. No business is well-served by refusing to hire hard workers simply because of their color. The more any one business indulges itself in bigotry, the less profitable it is, and the more likely a non-bigoted business will be able to out-compete them. Thus, there is a limited amount of bigotry available to anyone.

A Jim Crow law serves to increase the available pool of bigotry by mandating that everyone be bigoted. It would be in a business's interest to cheat on Jim Crow laws and thus earn some extra profit, but such cheating would be highly visible. You can't not notice a black counterman serving white folks.

What finally broke the back of Jim Crow laws was black people refusing to put up with them. They attacked the backbone of businesses, so that businesses were hurt more by Jim Crow laws than they benefitted from idulging their bigotry. In the fourty years since the civil rights struggle was won, bigotry, although still present in American culture, has become unacceptable in polite company. Thus, I don't think that Jim Crow laws could get passed anywhere now.

And that's a good thing.

Probably the biggest argument against government action is the relationship between risk and reward. Whenever any government agency or private enterprise is directed to take action by a bureaucrat or entrepreneur respectively, there are risks and rewards. These are not apportioned equally in the two groups.

When a bureaucrat directs his agency to take action, he is taking the risk that the action will be wrong. The action may very well not pan out. If that happens, because he took the initiative, he will be blamed. Consider the case of Gary Miles, candidate for St. Lawrence County District Attorney. He received evidence that Dr. Latimer was prescribing large amounts of painkillers (opiates). Rather than charge Dr. Latimer, he hounded the doctor out of office through a trial by press release. For this he is being criticized and will probably lose his election to Nichole Duvé.

Let's say, though, that the action that the bureaucrat took was correct. He will receive scant reward for his efforts. The public will not remember his good deeds later, at election time. Doing well is only his job; people don't consider him worthy of reward simply for doing a good job.

Contrast this with the risk and reward available to entrepreneurs directing private enterprise. The risk is still there. Just look at HP (fired its CEO and laid off 10,000 employees). The reward, however, is substantially greater.

You can predict, then, that given scant reward and substantial risk, that bureaucrats will underperform their equivalents in private enterprise when in control of the same resources.

UPDATE: he did lose to Nichole.

I was having a conversation with a fellow over the morality of a living wage. His point was simply that a Christian could not morally pay less than a living wage. The thing about morals is that anything can be said to be moral or immoral, depending on the principle you are applying. His principle is that Jesus instructed us to take care of the least among us. From this principle he derives the moral judgement that if an employer pays less than a living wage, they are immoral.

This is economic nonsense. Just as a bridge is supported on two ends, so is every economic action. When somebody is paid, it must be for something they have done. If people are to be paid a living wage, they must accomplish a living wage's worth of work. Everyone is fundamentally lazy (a negative description) in that they seek to accomplish their goal efficiently with an economy of effort (a positive description of the same action.) Thus, in order to gain that living wage, people will work no harder than necessary. Similarly, an employer will pay no more than necessary to gain that amount of work. The amount of pay that anybody receives for their job is a function of the pay required to hire the last employee needed. If you can hire ten people at $1/hour, but you need eleven, and the eleventh can only be hired for $2/hour, then you will end up paying all of them $2/hour. What will happen is that the $1/hour people will inevitably find out about the $2/hour person, and either ask for a raise or quit. Since the last person hired had to have an offer of $2/hour, so will the next person hired. In time, everyone will be paid the same amount as the last person hired.

The intent of affirmative action is to correct for past prejudice. The intent of equal opportunity is to correct current prejudice. You often hear about employers advertising themselves as "Equal Opportunity / Affirmative Action" employers. The trouble with these two goals is that they are in conflict with each other. The goal of equal opportunity is to have a society with no prejudice: where all individuals are evaluated on their own merits. Affirmative action (AA, henceforth), on the other hand, requires employers and educators to treat the harmed individuals specially.

Logically, they are incompatible. There is only one way this situation can be saved: if AA is strictly limited in time. AA is a law that must eventually go away once the harm has been substantially addressed. Or the addressed groups must be limited as one group's harm is compensated but another group's remains (e.g. blacks have been under AA since the beginning, but the disabled were added later.)

It's really important that AA have a goal in sight. Prejudice is generally regarded as counter-factual. Let's say that you are prejudiced against blacks; you think that blacks make worse accountants. You would prefer to hire a white accountant. Prior to AA, it's likely that a black accountant would have had to work harder in school, in order to overcome the racism of those who think blacks would make bad accountants. So the racist's prejudice would be exactly backwards.

If AA is goes on longer than it should, then you end up with the opposite situation. Rather than blacks being given a hand up to the level of whites, blacks are effectively told "Our expectations of you are lower," "You can't do as well as whites, so we have AA for you," and "You don't have to work for success." Since a black can get into a degree-granting program with lower credentials, graduate with lower grades, and be hired by an accounting firm under AA, the racist has a concrete reason for preferring white accountants to blacks.

As reparation, AA is perfectly fine. "We harmed you in the past; this makes up for it." But reparation beyond the extent of the damage becomes a crutch. The question at hand is not "should we have AA?" but instead "has AA done its job; if so we must abolish it to avoid creating harm."

Nancy Cauthen, deputy director of the National Center for Children in Poverty, has a poverty of understanding. She is so clear on this issue that she has taken to writing about it. Unfortunately, I have to wonder what would she do if there were no children in poverty? I don't mean to be excessively cynical, but I think that when people's words are directly aligned with the source of their income, a reasonable person should take them with a grain of salt. For example, she says:

But research indicates that it takes an income of anywhere between one and a half to three times the current poverty level to meet basic family needs.

And yet somehow people manage to live. What does that tell you? It suggests two things to me:

• That "basic family needs" are exaggerated. Poor people do not need to be told that they're poor and need to be helped. My middle-class sensibilities are meaningless to someone without my income. Sure, I value having an outlet every eight feet of linear wall space (or whatever is the exact requirement of the UBC -- Uniform Building Code), but that's probably not a concern of someone without anything to plug in. Requirements like these make houses more expensive for everyone, but relatively less for the rich and relatively more for the poor, and infinitely more for the homeless.

• Or that people are lying about their income. It's well-known that people lie about what they throw out. You can go to their door and ask them what they threw out, and then go look in their garbage and ... well, they lied. So if people are willing to lie about their garbage, why wouldn't they lie about their income? Remember what I said above: if people's words are aligned with the source of their income, be suspicious. Because of means-based poverty assistance, and income taxes, everyone has an interest in understating their actual income.

Then she asks "So what can be done?" and answers her own question with "... it's time to talk also about the obligations of government to its citizens." Ahhhhh, now we get to the prescription: more subsidies. I'm sorry, but leftist strategies are the cause of our current problems, not the solution to them. We need to be clear: government spending does not create charity; government spending *displaces* private charity. The question is not whether people will help; the question is how they will help. The decision is not between government help and no help but instead between government help and private help. Remember: a government with enough power to tax to help the poor is a government with the ability to wage a permanent floating war.

I think that everyone is aware of the battle currently being waged over the distribution of music in digital form. This is currently being done by P2P (Peer to Peer) file sharing. People can share their digital music collection at the same time that they download other people's music files. Clearly this is a violation of copyright law.

Copyright law has two expressions, however: the state's law (the written-down law backed up by the power of the state) and the natural law (the way things work in the absence of state law). Many people don't understand natural law. They think that law can exist in only one fashion: through the action of the legislature in enacting a law, the action of the executive in enforcing the law, and the action of the judiciary in interpreting the law.

Natural law exists, however, and those who break it, do so at their own peril. For example, there are the three natural laws of thermodynamics, or the speed limit of sound in air, or light in transparent media. I hear people objecting to these as mere physical facts of the universe. And yet is not human nature not also a physical fact of the universe? The typical person wants to live and will do nearly anything short of killing themselves to do so. Thus there is a natural law against murder. People will take steps to ensure that they are not murdered, or if they are, then their murderer will be killed. State law has nothing to do with these natural laws, although it is one possible way of expressing natural laws.

State law cannot change natural laws.

The RIAA as breaking the the natural copyright law. They've managed to ensure that copyright never expires. The natural copyright law is a bargain between the publishers of copyrighted works and the recipients of copyrighted works. The publishers promise to eventually put the work into the public domain, and the recipients promise not to copy. Clearly, the RIAA has violated the law, and is suffering the consequences of doing so.

Whenever state law doesn't match natural law, you see massive disrespect for state law. Can you think of some examples of this?

Affirmative action must go. It is a crutch, and any healthy person who relies on a crutch will become dependant upon it.

Why are there so few economists and libertarians in elected office?

Economics: I think that if somebody thinks they can decide things for other people, they do not understand economics. If you understand economics, then you are humble and modest. Of course, that would explain why there are so few economists in elected office. You have to have a large amount of confidence that you can help people by forcing them to do things they wouldn't otherwise do.

Libertarianism has a philosophical problem in that the better a libertarian you are, the less likely it is that you will seek to control other people. The Libertarian Party is at best an effort to do the least bad possible, and who would vote for that? You're more likely to be successful in preventing the most bad by voting for the least bad major party candidate.

I asked a few friends why a significant number of people feel that it's not enough for your actions to help people; you have to have intended to help people. Also why some people think that actions intended to help people is sufficient regardless of whether the actions help or hurt them.

I got a reply from J.D. Von Pischke which I will explain in my own way below. Credit for the idea goes to J.D.; blame for a poor explanation of it goes to me.

There is a simple explanation for this: humans do not easily comprehend indirect effects. In Biblical times (which is to say the Jewish, Christian, and Muslim tradition), institutions were much simpler. Actions and results were linked more directly, and chains of actions were fewer. If you wanted to make yourself better off, you did more of the same thing. A carpenter would build more chairs or cabinets; a shoemaker more shoes; a baker more loaves. Indirect action was rare. If you wanted to help someone, you gave them help directly.

Slowly, over time, institutions became more sophisticated. People's interactions with each other and with groups became more complicated. If you want to help someone, you can still help them directly, but there are now groups and people whose life work is helping others. Your help is probably more effective when it is indirect: helping the helper.

Look at today's situation: you could drive down to the Gulf Coast to help people, but without good logistical support, it's quite possible that you could become a victim in need of aid yourself. This certainly happened a bit more than a hundred years ago at the Johnstown Flood, where the first people on the scene brought no food or water and needed to be fed alongside the victims later. Your aid is better done indirectly, by donating to the many groups who are helping. Are you helping? Surely. But because of the indirection, nobody is in a position to comprehend everything that's being done.

Just as aid organizations have become more sophisticated and effective, so have institutions which improve welfare and create wealth. They're harder to understand because they operate indirectly. Because of this, people look for simpler explanations. These may be based on scripture, such as the Biblical suspicion of material wealth -- a view was based on the creation and use of wealth in those simpler times. Other simple explanations have been used to obtain political power, as Marx's followers so devastatingly demonstrated in the past century.

Look at how Wal-Mart prepared for the storm. They knew from past experience that some of their stores would need extra supplies, so even before the storm hit landfall, they had many trucks loaded with relief supplies. They did this to make money, but indirectly they were helping people. They have also given millions of dollars in donations.

Today wealth is much more widely spread than in antiquity, as represented by modern liberal societies' great institutions, including education, health, commerce, justice, government, etc. These are also more difficult to explain and comprehend. A challenge for economists and many others is to sort out the dimensions of simplicity. This is an exceedingly complex task in an exceedingly complex world in which indirect leverage, i.e., complexity, has increasingly greater effects than direct action.

Why is it, that the first thing a politician does when under any kind of political pressure, is to do something which is economically moronic, bereft of good sense, stupid, and out and out damfool? They're no more sensible than a chicken with its head cut off.

Consider two politicians, Elliot Spitzer, and Darryl Aubertine (who is so lame that he doesn't even have a website). Elliot Spitzer proposes to thwart the free market's efforts to conserve precious gasoline. He proposes to deal sharply with people gouging drivers by charging high gas prices. He must have been studying the gasoline supply chain in his copious spare time, because he has suddenly become an expert on gasoline pricing. At least, he proposes to be able to distinguish "who is price gouging and who is raising prices to survive."

Sorry, Elliot, but you're not that smart. I'm not that smart either. No one person is that smart. It takes a village to set the price of gasoline properly. Only by individuals deciding how badly they need gasoline can markets properly adjust the price of gasoline to match the supply of gasoline. If the price goes way up, then that is what the individuals have decided should happen. If gasoline retailers, distributors, refiners, see that there is lots of money to be made by coming up with more gasoline, then that is what they will do.

Now on to ream Darryl a new one for suggesting in the 8/28 Advance*News that New York State should lower the its gas tax. Hey, Darryl, remember studying economics in college (assuming that you did, which is probably a stretch, but if you didn't, how is it that you get to interfere in the economy when you don't understand anything about economics)? Remember the law of supply and demand? If the demand is higher than the supply, the price goes up. If the demand is lower than the supply, the price goes down. Pretty simple, eh? So where do taxes come into this? If the supply shrinks because of a hurricane in the Gulf of Mexico, and demand doesn't shrink, the price will go up. Why do you think that, by lowering the New York State gas tax, either the supply will go up or the demand will go down?

Darryl, you don't have a magic wand. Lowering the NYS gas tax will only result in an unfair windfall to the gasoline retailers, distributors and refiners. Don't fiddle with things you don't understand.

Political control and free market control are inevitably at odds with each other. John Trever, Albequerque Journal, makes this obvious in this cartoon:

155 and one reasons why the government should stay out of disaster recovery. Update 9/4: Donald Boudreaux agrees

A fellow brought to my attention an article by Joseph E. Stiglitz, Nobel laureate in economics. He was shocked and horrified that Stiglitz would say:

The growth of the 'Open Source' movement on the Internet shows that not just the most basic ideas, but even products of enormous immediate commercial value can be produced without intellectual property protection.

I asked why he was so upset, and he explained that he was afraid that naive people would think that "Open Source = Public Domain". He suggested that this statement is false. He's right, the statement is false (not completely true). It's false in that only a vanishingly small amount of open source is actually in the public domain (without copyright). The statement is mostly true, though: Open Source is a success because it gives up most intellectual property protection. In context, it's true enough and for the audience Stiglitz was writing for, it wasn't worth explaining the difference.

Everyone who thinks government is a good thing and more government is a better thing should read The Law, by Frederic Bastiat. Amazon has it. Or listen to the free audio book recording of it. Or read it online.

It's hard to learn what good economics entails -- because you have to give up a comfortable ignorance to do it. Once you learn and understand economics, then you'll become a misfit among your Friends. You'll realize how many of them are pursing actions which are at odds with their goals. They want peace but support a powerful government even though it should be completely obvious that the bulk of society (who are not pacifists) will support the use of that government to wage war.

On the one hand, I don't like being at odds with my Friends. On the other hand, I wouldn't have my ignorance back.

I notice that the Burning Man art festival has an awful lot of rules. Some of these rules are imposed upon it by external authority. Other rules, however, are necessary to keep people from coming to harm. The Burning Man organizers have created their own police, their own hospital, property rights, noise abatement laws, and a planned community.

Some people would say that this is evidence of a need for government. I don't think so. What is happening instead is a very large community is created from nothing in a very short period of time, and then is disbanded. If a community grows slowly on its own, or else is a permanent community, it will create its own spontaneous order. Burning Man has neither of those. The organizers end up being the source and repository of the spontaneous order. They started with no rules, and over time, having made mistakes and learned from them, they have put rules in place.

Dikalosunh writes:

My hunch is that, if low food production is a chronic but cyclical problem, the government should (and should be encourage to) put in place a system for subsidizing grain purchases in lean times - the temporary subsidization would not distort the market too much overall, I suspect.

Alas, it would completely distort the market. You see what happens is that farmers need to sell their grain every year, because they need to get cash out to purchase resources to plant new grain. The price that farmers will get changes from year to year depending on the amount of grain grown and brought to market. And yet customers don't want to have to pay huge amounts of money for grain products one year, and small amounts the next year. You end up with a situation where rich people pay the farmers a smaller total, and charge the customers of grain products a larger total, and smooth out the difference.

I suggest that many people have a problem with this because you have rich people getting richer on the backs of farmers and consumers. The only thing that can make it fair and just is when you have the competition that only free markets can create.

Trying to reproduce this process through government action cannot possibly work, because government players 1) don't have the freedom to risk taxpayer's money (and that is as it should be), 2) don't have the information that the prices produced by free market competition, and 3) government employees have zero incentive to succeed and all the incentive to not fail. "Success" and "not failing" are completely different things.

I want to be clear here: I don't worship free markets, just as I don't worship my automobile engine. I am confident that my automobile engine will get me to the places I need to go. That's not worship, that's just confidence. I feel the same way about free markets, because ultimately, the engine that drives free markets are individual's decisions, backed up by their expectations of success or failure. I don't trust systems, I don't trust magic wands, but I do trust people.

Some people think that big money has too much influence in the US political system. I disagree. As long as the government does things, and as long as it's democratic, the public will rightly seek to influence what the government does. This public includes non-profit and for-profit corporations.

The problem is that people expect government to do too much for them. People need to understand that they can and should do things for themselves. They do a better job for themselves because they care more about themselves than anyone else can. Providing for themselves is better for their character. Good character leads to good morality.

A strong government has the effect of infantizing adults. This cannot be a good thing.

Hopefully everyone is familiar with the Tragedy of the Commons. In a sentence, the tragedy works like this: if you have a depletable resource in demand, and no person or institution can control its use, it will be entirely consumed. This principle applies to many things beyond the village grazing commons from which it was originally derived. Fish, clean water, clean air, and park benches suitable for homeless to sleep are all subject to the tragedy. A characteristic of a commons being depleted is an overinvestment in extractive resources, e.g. fishing boats.

The tragedy can also be applied to bad commons. That is, resources with a negative value, e.g. ignorance, greed, or excess profit margins. Just as we need to be careful to set property rights so that there are no unmanaged positive commons, we also need to make sure not to set property rights in such a way that we eliminate negative commons.

For example, the (typically) Nigerian 419 scammer relies on people's ignorance. In this scam, the scammer claims to have control over millions of dollars which they cannot receive themselves. Instead, they offer the victim a percentage in return for making the exchange seem to be an honest business deal. Once the victim realizes that it is a scam, no other version of the same scam will work. The ignorance is depleted. And gauging from the feverish activity of 419 spammers sending me offers, they are overinvesting in their scam.

Or for another example, free markets create a commons out of high profits. If someone invents a new way to make money (and no patent applies), anyone is free to enter the market and deplete the high profits. The purpose of the patent system is to create a manager for this commons.

Many people think that the role of government is to protect "the little guy" from corporations. Free-market economists disagree. It is the role of competition to protect the little guy from corporations. The problem is one of information. How do you discern the proper amount of protection? After all, you can completely protect consumers by preventing corporations from selling anything, and workers by preventing corporations from employing anyone. Set the protection level high enough, and that's what you get even if that's not what you meant.

Free-market economists believe that government cannot ever set the protection level correctly. The information cannot flow to the government quickly enough to adapt to changing workers, economic conditions, technology, procedures, and the market for safety. People's desire for protection also changes over time and their life circumstances. There is no one correct level &emdash; any one level set by the government will be wrong for some people.

Does that leave "the little guy" screwed?

No. You see, it is corporations themselves that have the information necessary to set the protection level correctly for their market. They won't volunteer that information. Instead, they will reflect it in their prices. If they are not protecting the consumer, competition will force them to charge lower prices. If they protect the consumer more, competition will allow them to charge higher prices.

Does that mean that consumers have to have perfect information in Libertopia?

No. Probably only 10% of consumers take the time to compare prices, quality, etc. These people are admired, though, and less diligent consumers listen to them. Over time, their information distributes itself among the less concerned shoppers. If a company is charging too much for too little protection, it will have lowered sales.

Free-market economists aren't in favor of less consumer protection. They're in favor of a different kind of consumer protection -- one which they believe generates a greater diversity of results which better matches the needs of individuals.

It seems clear to me that many people interpret differences between economists as evidence that economics is solely in the realm of opinion. I disagree with this conclusion. Economists disagree on the things which are not yet decided. Economics is very much a live discipline at this time. The person who brought transaction costs (Ronald Coase) to our attention is still alive! The founders of the public choice school of thought are still alive.

Unfortunately, economists do not do a good job informing people of the things which are well decided, about which differing opinions are not valid. It's not news when a controversy is resolved. People don't read the news for agreement; they read it to find out about controversy.

A fellow local to me, Jason Rohrer, is setting up North Country Notes (NCN), a private currency. He means for it to be an exchangable currency which can only be spent locally. This is a poorly-thought-out idea. It's tied up in the mistaken idea of trade deficits. Worrying about America's trade deficit with China is as silly as worrying about your trade deficit with your local grocery store. Do they ever buy anything from you? Is this a cause for concern? Of course not.

Here's my explanation of how money and private currencies relate. Money is simply that thing which everyone will accept in trade. A private currency can serve as money. Here's how:

In a free market, a currency naturally deflates (becomes more valuable) over time. This is because each trade increases the value. Thus the natural tendency is for prices to fall. This is somewhat disconcerting to people, because wages fall, too. Thus, a good currency manager will keep prices constant (of course, the price of everything is changing over time, so this is at best a general guideline). He will print up new bills and spend them first. That is how the manager makes money. The incentives align here, because a good manager will make sure that as many things as possible are tradable for the currency. This increases the value of the currency for those who hold it.

Some people, called gold bugs, believe that a currency has to be backed up by gold. There are a number of reasons why gold makes a good backing for a currency, but, really, gold is not necessary. What is necessary is that a currency remain as money. If the currency manager makes a mistake, and does not ensure that the currency serves as money, then the value of the currency will decline.

One way (but only one way) a currency manager can keep the value of the currency stable is to offer to trade the currency for something else of value. Gold bugs want that value to be gold. Some economists say that a basket of commodities can be used. Rohrer is going to back his currency with US treasury notes; that is, for every dollar of his in circulation, he will trade it for a one dollar treasury note.

So if one NCN is always worth one dollar, what is the point? Well, Rohrer wants to discourage people from trading. Yes, he wants to make people worse off, only he doesn't see it that way. He claims (as do many others) that local trade is better. I don't want to address local trade here. Local trade is an idea which seems to be poorly thought out, but upon closer examination, it proves to be deeply stupid. By establishing a private currency, Rohrer means to make global trade harder than local trade. You see, global traders will have no use for the local currency except to spend it among people who will accept it.

Someone running a private currency doesn't want to restrict trade. They want trade using their currency to be as widely spread as possible. The more people trading, the more value available, and the more value the notes have. The more value in the notes, the more money the currency manager will make. Rohrer isn't in the business of making money, though. But look at it this way: If local trade really is a good thing, then why not more of it? Why not expand the region where the local trade occurs? If it's good for Potsdam, let's bring Canton in, and Morley, and Gouveneur, and Watertown and Plattsburgh, Syracuse and Albany, New York City and Boston, Miami, Denver, and Los Angeles, the entire globe, galaxy, and universe. There is no point at which the benefits of local trading diminish.

Tip O'Neill famously declared "All politics is local". Similarly, all trade is local.

People don't get paid what they deserve. Nobody does. People get paid an amount of money equal to or less than the value they create for other people. If that value is less than the minimum wage, then that person is not legally employable. I know that you want to raise the minimum wage, but how many livelihoods do you want to destroy at the same time?

As a mental exercise, let's raise the minimum wage to $100/hour. What about all the people who cannot supply that much value? They will either 1) starve, 2) go on public assistance, or 3) work illegally. Starving is obviously a problem. Working illegally is also a problem because a worker has no recourse under the law for anything. Let's wipe out all the gains produced by workman's compensation, workplace discrimination, health and safety laws. So they'll go on public assistance, but who is paying the taxes? Those very few people who are allowed under the law to be productive.

Now, let's go the other way and get rid of those pernicious effects. In order to get rid of all of them, we have to reduce the minimum wage below the value producible by any person. That is probably zero.

The effect of the minimum wage law is to destroy some people's jobs, and take their pay and distribute it to the remaining workers. Don't kid yourself into thinking that workers deserve a minimum wage. Nobody deserves to have their job destroyed.

There is this widely-held theory that big companies can use their size to out-compete small companies by engaging in predatory pricing. They use size and profitability in other (usually monopolized) markets to outlast a smaller, specialized competitor in a niche market by writing off the losses in this small market which the competitor cannot afford to.

Back in reality, it turns out that companies that try to maintain a monopoly in this manner (predatory pricing) have a hard time making money using this tactic. It costs them more to maintain their monopoly than they can ever recoup through higher prices. Let's say that they lower their prices by ten cents for a year, and drive somebody out of the business. In order to make back that money, they need to raise their prices by ten cents over their original monopoly price. But the party that they put out of business went into business precisely because they saw a way to suck off excess profits by competing with the monopoly. Now the market price is ten cents higher, and the profits are even more attractive to a new entrant. So somebody else goes into the business, and the monopoly can't even go back to their old price. They have to go back to the old "lose ten cents per" price, because that's what's necessary to drive the competition out of business.

Predatory pricing doesn't work according to the standard theory.

Update 5/17: Adam writes to point out another problem with the theory. When the price gets lowered by the "predator", that increases demand, so the company has to sell more. When they raise prices again, that reduces the demand and makes it harder to recoup their loss.

Update 8/7: Cathal writes to say that predatory pricing can work under certain market conditions if you also know something your competitor does not (asymmetric information).

Only a black PhD economist could get away with saying that there is such a thing as a Black Redneck.

This morning I heard on NCPR (the local NPR affiliate) a story about military base closings. The story ended with the note "[These bases] generate more than $2 billion of economic activity."

This short note is economically wrong in three ways. First, taxation does not generate anything. In fact taxation replaces private spending with public spending. Thus, a more accurate note would be "[These bases] spend more than $2B in New York State."

Second, taxation only transfers money from being spent on one thing to being spent on another[1]. Thus, when the public taxes money away from private entities, it also destroys the thing that the public would have spent the money on. Taxation also costs money: directly in the expenses of the operation of coercing taxes, and indirectly in the actions taken by citizens to reduce their taxes. Thus, an even more accurate note would be "[These bases] spend more than $2B in New York State, and destroy even more spending all over America."

Third, the whole point of trade in a free-market economy is to create value, not just activity. Economic activity includes digging a hole, and filling it in again. Unless some value was created by that activity, it was a complete and utter waste of money. Economic ignoramuses may say "ahhhh, but the workers got paid!" I say "ahhhh, but they would have been paid to do something else, productively." For one particular set of workers, that's not necessarily true. If you make the economy inefficient enough because you concentrate on activity and not value, it becomes so highly probable that it becomes truth.

So, the most accurate note would be "If the military doesn't need the bases, they wasted more than $2B spent in New York State, and destroyed a greater amount of spending all over America."

[1] Even if the money is just put in the bank, the bank will loan the money to someone, who will then spend it. Even if the money is put in a mattress, the economy will notice that that money isn't circulating anymore and will adjust the value of the remaining money higher.

You will very often hear leftists (by which I mean non-economists; leftists who understand economics become libertarians) complain about growth. Growth is bad for the environment, they say. This is not necessarily true. There are two different types of growth. Extensive growth is simply more of the same. A lumber company that cuts down twice as many trees would be growing extensively.

Intensive growth is different. With intensive growth, you have companies doing more with less. Lumber companies used to just cut down trees, then slice the trees up into lumber. They have grown intensively by using more of the same tree. The limbs get chipped and turned into chipboard. The parts of the tree which are too twisted to become lumber get turned into flakeboard. The sawdust is reused rather than treated as a waste product. The sawblades are thinner so less wood is turned into sawdust. The saw is computer-controlled so the sawyer uses his judgement to grade the cuts, then the sawmill automatically cuts the boards. More products are being made from the same amount of trees.

So when you hear somebody complain "Oh, growth is bad for Mother Earth", ask them "What kind of growth?"

I think that we should add a little bit of cynicism to everything we write. Whenever we mention an incontrovertible fact, like 2 times 5 is ten, add to it "or thirteen if Congress passes a special law." The point, expressed humorously and repetitively, is that some laws are discovered rather than legislated. These laws can be found in the area of economics as well, e.g. if you pay your employees more than you can afford, you'll go out of business, unless Congress passes a special law.

Donald J. Boudreaux is the editor of The Freeman, and also blogs at Cafe Hayek. His article in the current issue, unfortunately only available in PDF form, not HTML, deals with Price Gouging. It's very well written, but he misses a point about the justice of higher profits for producers and distributors of in-demand goods. He says that those profits could be donated to a relief effort. I say not.

When a shop-keeper in an area in emergency conditions raises his prices, he profits more. This seems to be a side effect of the more important aspect of higher prices signalling higher demand. It isn't. Emergency conditions are predictable. Where I live, the typical emergency is an ice storm. The kinds of goods that are needed to survive an ice storm are predictable: generators, fuel, food, and bottled water. Those shop-keepers who stock extra of these items during times of higher risk of ice storms will profit more. That's not unfair, that's just the reward for good speculation.

We should set the rules of a market society so that rationality is rewarded, and the seven deadly sins are punished. When a shop-keeper plans ahead wisely, if an emergency hits, he will make higher profits. This serves as an incentive to be wise. It is exactly this attribute which makes free market societies function so well. The prudent are rewarded. That is how it should be.

You will often hear the left say "The rich get richer and the poor get poorer". They believe this both as a fact and as an ethical judgement. They think that the poor really do get poorer in a market economy. This goes back to the usual "fixed pie" theory of economics. "If you get something, you must have gotten it to my disadvantage." It takes very little examination to see that the "poor" in more-free market societies are much better-off than the poor in societies with less-free markets. Unfortunately leftists are never willing to open their eyes.

The left also mean the first part ("The rich get richer") as an ethical judgement. Even if the poor got richer as well, the left would still believe it wrong that the rich get richer. While you can make any ethical judgement you want, you should be aware of the effects of your judgement. Ethical judgements (for the worse) are intended to reduce the amount of the thing judged. That is, the left believe the world would be better if the rich didn't get richer.

But the rich should get richer in a free market society. There is no way to get rich in a free market society except by convincing people that you have something they want. Thus, people who have learned to be helpful should be encouraged to continue to be helpful. There's plenty of evidence that, having created valuable goods once, they will do so again in the future. Thus, the rich ought to get richer.

Note for the unwary: the USA is not a terribly free market society in an absolute sense. It is merely much more free than most. Thus, if you want to look for examples of non-freeness in which private parties gain from political manipulation, you will find many of them in the USA. Some people are rich not because they were helpful, but because they were skillful at manipulating politics. That doesn't invalidate the idea of free markets. Rather, it endorses the idea of reducing the centralization of power. Power can be used for good or evil, but it's usually used for evil. Better not to concentrate it.

I've been having a conversation with Robert Pirillo, who runs Roberts Honing & Gundrilling. He has, alas, fallen prey to a purveyor of junkware which searches for webpages containing the search terms, locates any email addresses on the page (or in the whois for the domain, or whatever), and sends advertising email. He doesn't view this as spamming, unfortunately. I fully suspect that most providers will, though, because it's unsolicited, it's bulk, and it's email.

So he thinks that this would get attention to his business, saying "Isn't that what's great about the Internet?" Well, yeah, but it's also what's horrible about it. There's at least 60,000 small businesses in the US, and what if ten of them sent you one email a day? 6,000 days later, you'd have gotten a steady stream of ten spams a day. But that's only 16 years.

No, the way to sell your business over the Internet is to give away information to your potential customers that shows that you know your business. Don't just list your services. Instead, explain how hydraulic cylinders work (or don't work), tell people how to evaluate the health of their hydraulic cylinders, and say how to fix them. Don't pay for someone to write a fancy website. Instead, give your readers a tutorial which contains pure information neutrally presented, and at the bottom says "Copyright 2005, Roberts Honing & Gundrilling". It doesn't matter if it has a few speling erorrs, or if the graphics look hokey. The important part is to make it clear that you know your shit better than anybody else. Your competition isn't going to steal your website (because you can sue them for actual damages, or triple damages if it's a registered copyright), and your customers will know exactly where to get reliable expert service.

Sign onto a mailing list of people who are likely to have the problems your company solves. When they have questions, answer them. They'll see that you're an expert, and when they want a job done right, they'll know to come to you.

That is what's great about the Internet. Not the ability to force yourself on unwilling listeners, but to participate in a conversation with potential customers.

Wow! I've been aiming at having very readable articles. I've succeeded! The Gunning Fog Index is 7.63, which makes it easier than Reader's Digest. The Flesch Reading Ease is 71.70 (out of 100, where 100 is easiest). The Flesch-Kincaid Grade is 4.69. As in "fifth grade".

Let's say that you want to create a new job. Where are you going to get the employee to fill it? There are basically four ways: grow a new one (but that takes 20 years), import one from another country, buy an employee who already has a job, or export the job to another country.

I'm sure that by this time (only three sentences) any labor unionist is seething under the collar. Union organizers maintain that there are never enough jobs to go around (yes, people have actually said that; 8 times, if you believe Google). This is utter and complete nonsense, which you can immediately understand by asking this question: "If you could hire as many people you wanted for a penny a day, how many would you hire?" Clearly, then, the problem is not a lack of jobs. The capitalist system ensures that there are always enough jobs to go around, even if the government acts to make the market-clearing wage illegal.

The only reason unemployment exists in a free market is because information takes time to propagate, and because of human nature. People are reasonably cautious at accepting the first offer for anything. We like to compare offers before we decide.

So, when you create a new job, you have to buy an employee who already has a job, or persuade an employee who has no job that yours is the best job for them. But what if somebody else has out-competed you, and bought that employee away from you? The job doesn't cease to exist. Somebody needs to do it. You have to go back to the list in the first paragraph to try to find an employee to fill the job. No one of these methods harms employees in this country! If you could find an employee at the wage you're willing to pay, you would have.

It's inevitable that a growing economy needs more workers. Nobody is harmed when employers pierce country boundaries to find workers. From the point of view of the workers, the more growth, the more employers seeking employees, the better the wages.

UPDATE: I thought of another reason why unemployment exists in a free market: rising expectations. Most people get better at doing stuff as they get older. Most people expect higher pay for more value. When they switch jobs (whether by quitting or being fired), they'll be looking for more pay rather than less. Also, free markets are always creating new value, so the same job can, over time, earn more and more money. This leads an employee to want more pay rather than settling for the first job they find and lower pay.

Attention leftists, socialists, communists, communitarians, and anarchists of all anti-property stripes! Do you want to destroy capitalism (and throw yourself and everyone else back into the poverty that is usual for mankind)? It's simple: extend the notion of liability for harm in a very small way. If I burn down your store, I am liable for the harm, of course. If I out-compete you and destroy your store that way, I am not liable. If you want to destroy capitalism, simply extend liability to the harm caused by competition. In short order, everyone who is better at anything will have to pay compensation to anybody who is worse at it. Soon, nobody will bother to become better at anything, 90% of the people in the world will die off, we'll be back to only 600 million people, we won't be putting pressure on the bugs and bunnies anymore, there will be plenty of resources for everyone, and Malthus will come back to life to direct us all in this Nirvana.

Does HTML have a <sarcasm> tag?

I saw someone write this on a mailing list:

As a self-described left-libertarian (which means that I see human liberty and human cooperation as compatible, which the right-libertarians do not),"

There is no such thing as a left-libertarian OR a right-libertarian. Whoever wrote this is confused about libertarianism. Of course so-called right-libertarians believe that human liberty and voluntary human cooperation are compatible. If you believe in voluntary cooperation, then you are a libertarian, whether left, right, middle, top, or bottom. If you believe in any use of violence other than to prevent greater violence, then you aren't a libertarian. So-called left-libertarians believe in coercing desired behavior from peaceful people.

I think there's a larger issue here. "Liberal" used to mean the philosophy which is called in the US "libertarian", and which is still called "liberal" in some other countries. Since this philosophy generally promotes happiness and distributes power, people who seek power object to it. Since the philosophy is hard to understand and is counter-intuitive, it only takes a little bit of effort to undermine it. For example, you can introduce only beneficial coercion, bringing the philosophy leftwards. Thus, the "Liberal" is now applied in the US to the leftist trade-union high-taxes consumer-protection philosophy. By using the term left-libertarian, these people seek to convince people that libertarians believe in coercion. Left-libertarians are just ordinary leftists and socialists looking for cover. You can see this in the Wikipedia article on libertarian socialism. Fortunately, real libertarians are loudly objecting to their usurption of the term.

The standard "wisdom" is that Americans have not gotten wealthier in the past twenty-five years. Lots of people believe this, even extremely intelligent people like Richard Stallman. And yet, I must believe the converse when I look at the parking situation at the local colleges. Clarkson University built a new parking lot in front of Cubley-Reynolds(1) and expanded the Hamlin-Powers(6) parking lot. SUNY Potsdam built a whole new lot out behind Bowman South(not even on the map yet).

The demographics are such that student population is down from when I attended Clarkson. At the time, we had involuntary triples, and single occupancy dorm rooms were only available to seniors in the New Dorms (which, by the way, they still call the New Dorms). Potsdam State still requires freshmen and sophomores to live on campus in order to keep the dorms at full occupancy. They didn't when I was in college. So, there are no more students, and substantially more cars. The kind of students who attend Clarkson and SUNY Potsdam have not changed as far as I can tell.

The only explanation is that Americans have indeed gotten wealthier, and that is reflected in more students who can afford cars. Cars have not exactly gotten cheaper either. They have more safety equipment, and more luxury equipment. When I was a child, only a Cadillac had window washers and electric windows. Now all cars have them, or very nearly.

Some people want corporations to be socially responsible. That is, they want corporations to have to be responsible not just to the owners of the business, but to "stakeholders". A stakeholder is anybody too cheap to buy a portion of the business, but who wants to be able to benefit from, and participate in, the operation of the business.

A union is organized as a corporation, no?

Thus, I claim that I am a stakeholder of the Communications Workers of America (just to pick on one of them), and the next time they vote on a union contract, I get to vote on it too.

You can compel schooling, but you cannot compel learning. You can compel attendance at church, but you cannot compel belief. We are risking our eternal souls by separating religion and state. Nonetheless, America is one of the most religious countries in the world. By analogy, separating school and state would result in America being one of the most educated countries in the world. school

Warren Meyer blogs on the effects of the minimum wage on his campground business at Coyote Blog. I have my own opinion about minimum wages.

Howard L. Hunt said "If this country is worth saving, it's worth saving at a profit." It seems like a somewhat cynical thing to say. It seems to put profit before people; a usual complaint of the humane leftists. The more hopeful thing to say might be "If this country is worth saving, people will donate their time to save it."

Profit is important. Profit is the measure that you are succeeding at doing something. You can created something that people want to buy. Profit simply means that your revenues exceed your expenses. You are producing more than you are costing. There is nothing intrinsically worthwhile about a non-profit (non-taxable) or not-for-profit (taxable) entity. Any entity can eliminate its profits simply by donating all of its profits to charity. This would not be sufficient to make the enterprise worthwhile in many people's eyes.

Profit has two pleasant characteristics. First is that profit attracts capital investment. If a company is making money, then more people are going to enter into the business. If the business of the company is saving the world, then the world will be saved all the faster. Second, profit tells you that you are actually helping people. Take, for example, the case of Christian missionaries who teach people how to read....the Bible. While the ability to read is surely a good thing, it's not clear that the people who now know how to read the Bible are better off. A primary tenet of profits in a free market is that everyone who trades is better off. Somebody who runs around a third world country teaching people how to use contraception because their country is overpopulated is not clearly doing them a favor.

Charity surely has its place, but profits are better than charity, always.

Our own Russell Roberts was just on NPR's Morning Edition, posed against Barry Schwartz, on the topic, more or less, of whether people should be allowed to choose how their retirement is invested, or whether the federal government should choose it by spending social security taxes in their name.

Barry, predictably, came out against choice. I say "predictably" because of his book The Paradox of Choice, which he has been trotting out whenever possible. The point that (unfortunately) Russell didn't push very hard, and which Barry cannot defend against, is that the choices that Barry dislikes all exist as possibilities. If the spectrum of choices is to be narrowed for the sake of people's mental health, who is to choose which possibilities will go and which will remain?

If we are to have fewer choices, those possibilities will have to not exist. Somebody will have to choose which possibilities don't exist. Who will that be? Barry Schwartz, Master Chooser? What makes him so smart? What makes him so mentally stable, so able to resist the pressure of all those choices, that he will be able to choose when I cannot? I agree with Barry that choices are hard to make, but I learned this very early on in life: if you find a choice hard, then you don't know enough to distinguish between the choices. You should either learn more about the choices, or else decide that the cost of learning exceeds the value of the choice, pick one of the choices that all appear the same, and move on. Regrets? They're foolish, silly, and immature. Move on. Mistakes? Inevitable; you're a human; that's what we do. Move on.

In essence, Barry is arguing for the infantilization of American society. We protect our children from many choices because they lack the knowledge necessary to choose. That's foolish. Teach your children to choose! That's why you exist, as a parent, and your goal should be to stop being a parent as soon as reasonable. We don't want a society of children, we want a society of clear-thinking, responsible adults.

A note for the unwary: the following post is sarcasm. No, really, it is.

Economists Don Boudreaux and Russell Roberts just don't get it, do they? They think that when the government pays for something, people "overconsume". What they don't understand is that it's not people like you or I who pay most taxes. It's the rich people. Providing all these services by government expenditures is just a way to "even up the score". To create some justice. To make sure that the rich people "give back".

Doc Searls has a deep understanding of economics:

Chill, folks. Markets are public places where makers and vendors offer users and customers lots of choice. Not coliseums where gladiators kick and stab each other to death while the rest of us cheer over bruises and blood.

Markets are not games, and game theory has limited applicability to economics.

Cross-posted between my old Angry-Economist blog and my new Russ Nelson blog.

James Maxwell did a lot of work on thermodynamics. One of the things he proposed was a violation of the second law of thermodynamics by a kind of entity with the finite ability to separate energetic molecules from less energetic ones. This entity is called Maxwell's Demon. There are lots of reasons why it fails in the real world; for example sensation requires sampling, and sampling requires destruction of a portion of what is sampled.

You could also posit a kind of Political Demon, which would serve to ensure that good laws are passed and bad laws are not passed. The trouble with this idea is that we already have one such: the president. His function, with his veto power, is to require that Congress only send him good laws, as he will veto the bad laws. You can see how well that has worked in reality. Just like there is a second law of thermodynamics, which dictates the behavior of physical entities, so there is a nature of political action, which dictates the behavior of political entities.

You can see various people attempt to create a Political Demon. You see inveterate attempts to reform government schools. The idea is that without changing the fundamentally coercive nature of government schools, you can have a Political Demon which sorts amongst the characteristics of government schools, eliminating the bad ones and keeping the good ones. Similarly you see attempts at campaign finance reform, or health care reform. I'm starting to see a common characteristic here. Whenever a futile attempt at change is made, it's called "reform", as if the thing under consideration was formed perfectly at one time, has been ruined by the political system, and will now be reformed back into its perfect nature.

[nelson@desk nelson]$ grep -i steroids Constitution 
[nelson@desk nelson]$ 

Whenever you create something, it requires a mix of inputs. Perhaps you're just whittling a stick into a shape. You'll need a stick and a knife, but you'll also need a person's time. Some combination of sticks, knives, and time will generate the most shaped sticks. That's obvious for something simple. Try creating a pencil. There are hundreds of steps involved requiring at least seven inputs: brass and rubber for the eraser, wood, graphite, glue, and paint for the pencil, plus varying amounts of labor.

These inputs do not come in infinitely varying quantities. Labor only comes in one-person chunks. You can hire people part-time of course, but they need to be trained. Wood comes in some definite length, width, and height related to the size tree it came from. Glue and paint come in pots. Graphite is malleable and is shaped to fit the size pencil being made. It would seem to be an exception, but no doubt you have to buy graphite in certain discrete amounts, e.g. a ton at a time.

Everyone is familiar with the fact that hot dogs come ten to a package, but hot dog buns come just eight to a package. These are the inputs to a hot dog. You can make yourself one hot dog, but you'll end up with nine dogs and seven buns. Another one gets you eight dogs and six buns. Keep going and you'll have two dogs left over. Optimal mix is forty hot dogs: four packages of dogs, and five packages of buns.

This implies that the larger the enterprise, the easier time it will have balancing its inputs. The larger the enterprise, however, the larger its communication and coordination costs. Bigness has its advantages pushing companies larger and its disadvantages pushing them smaller.

Right now, if you attempt to purchase labor for a price lower than the minimum wage, that is illegal. Interestingly, though, if you attempt to sell labor for a price lower than the minimum wage, that is not illegal. Contrast this with drugs, where both buyer and seller are at risk.

There is another comment on that blog page that points out that the minimum wage is racist. The jobs that the minimum wage eliminates are disproportionately minority jobs. Why? Well, given the fact of racist employers, the minimum wage makes it possible for them to hire their preferred white employees with no penalty. Absent the minimum wage, another employer could pay blacks a lower wage. This would let them out-compete the racist employers. While one can regret the fact that racism incents even non-racists to pay blacks less, the mechanism which naturally causes harm to racists is broken by the minimum wage law.

I always thought that the quip "Marxism is dead everywhere but on the American college campus" was a cheap shot, but apparently not.

Imagine if mathematicians were taught to understand mathematics in terms of the history of math. In order to discern that 1+2 is 3 and that 2+1 is equally 3, you would have to look at the history of it. Has this relation been true in the past? If so, the historical mathematician thusly concludes that it is a relation that will continue in the future.

Sounds like nonsense, doesn't it? It is. Now imagine a branch of economics that does the same thing, called historical economics. It would be nonsense, and since it actually exists, it is nonsense.

Tradestation is a service which allows individuals to trade stocks on the market by entering orders under the control of a program. The program has access to all the prices of the stock sampled at five minute intervals going back years, and daily intervals before that. Using an appropriate program, you may create a theory about the market. You can test your theory against the historical prices by running your program in test mode, to see how it would have traded.

This, too, is nonsense. Prices on the market are determined by a large number of factors. These factors will not be the same in the future as they were in the past. People's opinions change, their trading method changes, companies change, industries change, and economies change. When you're writing a Tradestation program for the past, that is all that it will reliably succeed at.

This does not mean that Tradestation is useless, or harmful. It can be used to test theories about the market, but those theories must be tested using new data, not past data. Otherwise you're just fitting your theory to the shape of the curve-that-used-to-be.

So how do you trade using Tradestation successfully? You trade on the fundamentals of a stock. You build on what previous traders learned; for example Ben Graham, or Warren Buffett. You look for special situations: a stock that is undervalued by the market.

This is also what the successful economist does: creates a theory about some economic principle based on what other economists have learned; for example Ludwig von Mises, Freidrick Hayek, Ronald Coase, etc. Then she looks to see what people actually do. If she is right, then the theory is a good one. If she is wrong, she goes back to square one with a new theory.

While I intend to continue blogging on the subject of economics, I find that single focus too limiting. As I'm now the President of the Open Source Initiative, I want to blog on opensource as well. And on railroads. And on bicycling. And on mapping. And on rowing. So I've established a general interest blog at blog.russnelson.com. Everything in the economics topic of that blog will also appear on angry-economist.russnelson.com.

In case you're wondering how I'm doing this, it's very simple. I moved the angry-economist pyblosxom directory into the blog/economics directory, edited the config.py file, and told apache about the new document root.

I expect that everyone has heard the "Blacks are lazy" slander. I think a single economic principle has two aspects that may explain its genesis: if everything else is the same, people will prefer leisure to work. In other words, everyone is lazy. So why do blacks get picked on? Two reasons: First, racism rewards blacks less for work, giving them less incentive to work hard. Second, that the difference between the work output of a slave versus the same person as a freedman could be perceived as laziness. Even the smallest effect would be picked up by a racist looking for reasons to hate blacks.

It is a fact that blacks are paid less for the same work as whites. Black unemployment is also higher than white unemployment. Racists no doubt think there is one and only one explanation: that blacks work less hard, create less value, and their continued employment can only be justified by less pay. It's much more likely that racism is the cause of "blacks are lazy".

Anecdotal evidence is always suspect, but it can be useful for what it does not show. I, myself, know of no blacks who could remotely be called lazy. A 60-hour work week, a house on the North Shore, and daughters in Princeton and Williams is not evidence of laziness.

I cannot recall where I read this, but freed slaves worked less hard upon receiving their freedom. This is predictable since a slave owner puts the highest value on the work output of a slave, whereas the slave values leisure highest (if all else is the same). Of course, all else was not the same. The slave-holder was free to use violence and imprisonment against the slave, whereas the slave only had underwork and escape.

Note that I'm not saying that blacks actually are lazy. I'm saying that people pre-disposed to find differences between themselves and others based on race (that is, racists) are comforted by the perception that blacks are lazy. It would take very little evidence to convince them of anything bad about blacks, and very large evidence to convince them of anything good. For example, a racist will generalize from a single black person resting on his shovel to thinking that all blacks are lazy. And once a racist starts believing bad of blacks, those blacks get paid less, those blacks want to work less, and you have a vicious cycle. Even if the effect is small in time, space, or magnitude, a racist will pick it up and continue to believe that blacks are lazy.

Rather than end on that depressing note, I'll end on an even more depressing note: I don't think there's anything to be done about it other than to wait for racists to die out.

Power corrupts; absolute power corrupts absolutely -- Lord Acton.

Trying to overwhelm the concentrated power of a corporation by concentrating power in government is wrong. When a large company misuses its power, your action should be to make it smaller by buying from its competition. Even monopolies (e.g. Microsoft) have competition (e.g. Macintosh and Linux). I happen to believe that no government function is necessary, but I recognize that that is not a mainstream view. Most people support the idea of governments. How do you get away from having a monopoly government, though? How can you have competitive governments?

I believe that the United States was set up to be a collection of competitive governments: the states. If you read the Constitution with that in mind, you see that the federal government was strictly limited in what it could do. Everything else was left to the states to decide. Some things are obviously better if the states cooperate, and cooperate they do. There is no Federal Department of Driving, which ensures that driver's licenses have identical requirements, or that laws relating to driving are identical. The competition between states causes the states to end up having nearly identical laws. A state that differed wildly from its neighbors would have fewer people able to enter into it.

Why don't we have that situation anymore? I think that some time shortly after the Civil War, people became convinced of the advantages of bigness; of centralization. This was the period of the first really large companies: railroads. The centralization of a business, however, is not the same as the centralization of a government. A business has to earn money. That is its ultimate test for efficiency. If it cannot do that, it cannot survive. A government, however, does not need to make money. It can be wasteful with taxpayer dollars without suffering. Even if it does suffer, the suffering is used as a justification for spending more taxpayer dollars. "Oh, we're educating our children badly; we need smaller classes and more teachers."

So, companies that have grown too large get cut back in size. AT&T sold off NCR; it was a mistake to ever get that large. How can we cut back the federal government in size? That's what George Bush is trying to do. Whether his method will be successful or not can only be answered by the historians.

Everybody who seeks to make a profit has a mixture of inputs to their operation. You need a mix of skills, tools, and materials. The exact mix chosen depends on the price and value of those things. A radical change in the price of any one component will make the current mix double-plus ungood (thank you, Don Lancaster). The proportions of the mix will change, with more of the cheaper input being used.

In other words, free software means that the efficiency of the IT industry has greatly increased. IT products have become cheaper. This will result in MORE total IT spending. More programmers will be needed in the future, not less. RMS got the economics completely wrong in his manifesto. We recently had a discussion about economics that ended up in me purchasing him a copy of Economics in One Lesson.

I think that with widespread Internet access, we're seeing a chanage in the nature of companies. It used to go like this: someone would: have an idea for something people would want to buy, find some capitalists, hire some people with their money, make the product, sell the product hopefully at a profit, pay back the capitalists, and start over again. You have producers selling to consumers.

Notice the long feedback loop there? That's the risk, you see. Companies profits are partially earned for taking risk. Consumers don't necessarily want to purchase the goods that were made. If they don't, and the company cannot cover the cost of that risk, then it goes out of business. The company's goods get liquidated and the capitalists suffer a loss (notice, though, that the workers are not at risk of losing their earnings -- so much for Marx's exploitation of workers).

Also notice that the feedback loop consists solely of consumers buying the products of producers? In essence, the consumers play zero role in the creation of the product. I think that this is what is changing. I notice it specifically in The Lego Group (TLG). They have been producing high-quality plastic toys for almost the entire duration of the plastic age. Their core product, the Lego(tm) brick, has remained unchanged for my entire lifetime. The bricks from my childhood still merge with brand-new bricks.

Up until the creation of their Robotics Invention System, and its RCX microcontroller, TLG operated in the mode I've described above. TLG was very insular and didn't take much feedback from its consumers other than sales figures. At the time the RIS was created, it was far and away the most expensive Lego kit ever created. I'm confident that they were doubtful of its success, but they were wrong. It was successful beyond their wildest dreams, and it opened their eyes. They discovered the Adult Fans Of Lego (AFOL) community. They thought they were selling mostly to children, and that only a few mutant freak adults played with children's toys. Fully half their sales of the RIS were to adults.

TLG gingerly put out some feelers into the community. They found out that these AFOLs were creating models equally as ambitious as Lego's Master Builders, and that they were buying thousands of dollars worth of Lego products. They have now added a fan-created kit to their lineup. They've added bulk bricks to their online store. They are slowly learning to work with their consumers. As they do so, they turn consumers into customers. This tightens the feedback loop and reduces the business risk.

Fast forward to the present. Steve Hassenplug with a few cohorts, have in essence created a whole new genre of Lego designs: The Great Ball Contraption. It's a very simple and sublime idea: define a standard for interconnecting Lego constructions so that a module accepts Lego soccer balls into an input bin, and then transports them into the next module's input bin. It's a great theme for an existing Lego club to pursue, or around which to start a new one.

TLG could use this idea to tighten the feedback loop further. Right now, the only way to accumulate a significant number of Lego soccer balls is to purchase many soccer games. TLG could put together a GBC club kit. This kit would consist of the GBC standard, and several hundred soccer balls. Somebody who wanted to start a GBC club would purchase the kit, split up the balls, copy the GBC spec and get their friends together.

Consumers just buy things. Customers help design products, and help sell them. This is radical.

Many well-intentioned people think that it's possible to remove the influence of money from politics. A coin has two faces: on one face you have the influence of money on politics, and on the other face you have the influence of politics on money. What would a coin with only one side look like? How can politics possibly control companies without companies wanting to control politics?

As long as the people give politicians the power to control companies, companies are going to try to control politicians. If the people don't give politicians that power, politicians have no influence to peddle. Without influence to peddle, companies have two choices: waste money buying politicians who can't help them, or spend the money competing harder with other companies.

There is one and only one way to successfully take money out of politics: to take politics out of money. As long as corrupt politicians have influence to sell, there will be corrupt businessmen to buy it. The problem here is not corrupt politicians or corrupt businessmen. The problem is that the people have chosen to give up their market power over corporations. They have turned that power into political power and concentrated it in politicians. This is wrong. Until this is fixed, no other change will help matters. If you have a screen door on your submarine, running your pump faster or slower, or diving higher or lower will not help you.

In order to take the politics out of money, you need a general agreement in society that market regulation of companies is sufficient. We don't have that now. Many people think that corporations are evil and need to be controlled. They do, but the profit motive is sufficient. Let's take an example from the initial URL. He lays the blame for obese americans on cheap high-calorie food, and says that corporations sell this food because it's profitable. This is all true. It's only profitable because people want to buy it. He doesn't say so, but I think that he is convinced that people are willing to put up with obesity to get cheap food. This seems like a ridiculous notion given the number of people seeking to lose weight. Instead of railing against corporations, he needs to start his own corporation to sell food that tastes good, and uses the more expensive ingredients that won't make you fat.

Only in America could you find a market for low-fat cheese.

"Public" (that is, publicly-funded, not open to the public) schools generate large amounts of angst. It is obvious that our method of schooling our children is not particularly effective. There's a lot of ignorant smart people out there. Where were they in public school? How do we solve this problem? Democrats are influenced by the left when they call for more public control of schools. Republicans are influenced by the right when they call for school vouchers.

The problem, it seems to me, is the public education is "free". That's what socialists want: for everything to be free of market considerations. If something has no price, it cannot be controlled by the market. According to socialist arguments, market control is the problem; replacing it by political control solves the problem. But not everybody is propelled by socialist arguments. Many want public schooling for two reasons: first, because it's injust for a child to have parents who don't value schooling, and second, because educated citizens create an externality. If people around you are better able to run their lives, they'll create benefits that fall on other people.

The first argument is easily disposed of. If public schools exist to save children from bad parents, then why does public schooling start at age five? Why not start immediately after birth? A child's basic personality is set by age three. If public funding of schooling is to achieve the goal, then public funding of parenting should start as soon as a child is born. Children should be taught to walk, talk, and use a toilet by trained educators. Reductio ad absurdum -- at least I hope that everyone agrees that that is absurd!

The second argument -- that externalities justify public funding of education -- is more interesting. I see two problems with it.

First, the existance of positive externalities of an action is not evidence that the action needs to be publicly funded. If political priorities were set rationally (which they are not -- for all that behavioral economists claim that people do not make rational decisions, their alternative is not particularly rational either), then something would be publicly funded ONLY if the public gain exceeded the public cost AND if the private cost exceeded the private gain. If individuals gain a benefit from educating themselves, then they'll be willing to pay for it.

Secondly, look at the incentives. If taxpayers fund public education because of externalities, then funding it beyond the value of the externalities is irrational. If you happen to have children in school at the time, then you'll be willing to pay more. These two effects guarantee that public schooling will never have sufficient money.

We will never have the best schools, much less adequate schools, until we separate school and state.

If you talk to people who are opposed to solving problems via the market, some of them will bring up an odd objection. They'll say that you only get optimum resource allocation in a completely free market, with so many buyers and sellers that no one could influence the market, and with "perfect information". Two examples: David C. Korten, and John E. Ikerd.

If those conditions do not exist -- if there is not perfect competition -- then these people think the case for government intervention is proven. This is foolish. When choosing between two possibilities, you do not compare one against perfection and if it's found lacking, choose the other. You compare the two choices against each other.

Many people think that government control of monopolies eliminates the problem of monopolies. This is foolish. They compare how monopolies would behave without government control against how monopolies would behave when controlled perfectly by government. They're making a very simple logical error. Government is itself a monopoly! All that they're doing is substituting the need to control multiple monopolies with the need to control one monopoly.

Many businesses are regulated by one agency or another. For example, the Bureau of Alcohol, Tobacco, and Firearms. Or another, the Federal Communications Commission. Or another, the Food & Drug Administration.

The trouble with any of these regulatory agencies is that they have two basic choices: regulate from a position of ignorance, or regulate using experts (or any point between). If they choose ignorance, then the business may well get away with things it shouldn't, or be prevented from doing things that cause no harm. If they choose experts, well, where do those experts come from? They come from the industry, in which case you have to wonder if they'll be willing to regulate their former employer. Or, they come from academia. The trouble is that, once hired by the regulatory agency, there is a huge incentive for the regulated company to bribe the employee with the offer of a higher-paying job once they've influenced legislation in the company's favor.

Obviously, regulation is still possible, and goes on every day. I suggest that that regulation is not as successful as the creators of the regulation promised it would be.

The Chenango Canal connected Utica and Binghampton in New York State from 1837 to 1878. The Canal was first seriously proposed in 1826. It was thought even then that a role of government was to help businesses, so the promoters of the Canal introduced a bill in the New York State legislature for seven years, until in 1833 the amount of $1,000,000 was authorized for the building of the canal.

The frequent reader of this blog will not be surprised to find that the canal cost over $2,500,000 to complete. Moreover, counting the cost of operation, interest on the bonds, plus a failed bid to extend the canal by 33 miles, the total cost of the Canal was $6,871,209. The total amount returned in tolls? $744,021. The difference of $6,127,188 had to be made up by state revenues from the Erie Canal.

The Canal lost money. It lost a lot of money. Were it run by a private company, everyone would of course say that this was a disaster. Because it was run by the State of New York, some people try to dismiss any need for profit. They will tell you "governments are not supposed to make a profit." or "It's the government's job to invest in things that won't turn a profit." This is foolishness, though.

Resources are limited; even and especially government resources. So what should a government spend its citizens money on? Why, those things that create the most benefit, of course. And how do you measure that benefit? Why, by profit, of course. The trouble is that governments forget this. They listen to the promoters of projects, and they believe the wild-eyed description of the potential benefits. For the Chenango Canal, it was all the businesses that would spring up along the route of the canal, exploiting the resources of the region, bringing coal from the hills into the city.

This is not a history lesson, of course. Governments still work the same way, foolishly believing the inflated benefits of this project or that project. In my own part of New York State, there is no four-lane limited access highway. This, we are promised, is what is holding back development of the North Country. "Build it and they will come" I actually heard the Jefferson County economic developer say. Listen to the story for yourself.

What keeps them making these mistakes is support from citizens who think these unproductive investments are good. When your government wants to spend money, say "No thanks! I know better how to spend my own money."

Edward Hasbrouck (left, above) is an outspoken leftist. Perry Metzger (right, above) is a propertarian anarchist. Yet in a posting to Dave Farber's Interesting People list, Hasbrouck defends private property while Metzger explains how and why ownership of intellectual property in time reverts to "the people".

Stunning, absolutely stunning. I never fail to be amazed by the universe at least once every day.

When you write a piece of software, you always have in mind a certain set of assumptions. You are thinking about a certain speed of CPU, a certain amount of memory, and a certain amount of storage. Those assumptions condition the structure of the program. For example, I wrote (with Patrick Naughton) Painter's Apprentice back in 1983. The program was written to be a clone of MacPaint. In order to make it work as well as MacPaint, I assumed monochrome graphics from the beginning. That assumption worked its way into every bit of the code of that program. The algorithms chosen, the amount of memory consumed, and the file formats for storing the images, were all a part and parcel of the program. It would not have been possible to write the program to the same effect without making those assumptions. In fact, assuming that I didn't have to make those assumptions is itself an assumption. No magic wand.

Similarly, our public schooling system has an assumption built into it: that every child will go through the school system. I've written about the failure of this system of compulsion one, two, and three times before. Vouchers will not work to improve the school system as long as school is compulsory. There is no magic wand.

Lots of people have proposed the idea that spam is simply an economic problem: If people have to pay to send each spam, they would send less. This is not a correct idea. I say this so flatly because people can already ask strangers to send them email with a monetary attachment. When they get email from a stranger, they autorespond to it with a message that says "Hi. Thanks for sending me email. I've never gotten email from you before, so I want you to pay me $1.17 to read your email. All you have to do is sign up for paypal, and send me $1.17 via paypal. When I get it, I'll know which email to read." The $1.17 is a key that points them to the specific email that was sent.

Nobody does this. Why? Because it doesn't work. Do you think I'm wrong? No problem! Just send $1.17 to my paypal address and include your message in Paypal's comment field. If you have too much to say, end with "to be continued...", and send the continuation to my main address.

Politicians usually brag about how they created X jobs during their rein. I wonder how many New York politicians are going to brag about having destroyed jobs? That is, after all, what they did by signing the minimum wage bill into law. Nobody knows exactly how many people will be thrown out of work by this bill. And yet we economists can say without any doubt that some people will be thrown out of work.

I've blogged about this before:

Public Choice economics is a theory that says that people in government operate from the same selfish incentives as anybody else. Surprisingly that theory has not convinced all economists yet. That must be interpreted as proof that some economists are dunderheads, because the following pair of cartoons written by Wiley Miller make it completely obviously true.

A week ago, Elliot Spitzer, New York State's current Attorney General and Governor-elect (in his dreams), put out a press release explaining how he was saving New Yorkers from being able to borrow money. He didn't put it that way, but I do. He thinks that he's saving New Yorkers from high interest rate (payday) loans.

I don't think Elliot understands interest. There is a competitive market for loaning money to people with no capital. It is a very competitive market, because the product being rented is absolutely identical. You don't have to take the money to the shop to have a mechanic examine it for defects. You know that $500 at 150% interest is cheaper than $500 at 200%.

In a competitive market, holders of capital wish to earn a fair rate of interest on it. Ahhhh, but what is "fair"? Consumers decide what is fair. A business makes an offer, another business makes another offer, and yet another another. The consumer chooses the offer that is best for them. This keeps the businesses honest and fair. Businesses that aren't honest and fair are competed out of business.

Or, rather, there would be a competitive market, except that New York State chooses to interfere in it. New York State caps the interest rate for payday loans to 16% per annum. This doesn't make the market go away, it just sends the market over to the Mafia. No doubt Elliot Spitzer thinks that he's fighting organized crime. So odd, then, that he takes actions which create new profits for the Mafia!

The nature of interest is such that you cannot dictate the value of it. If you try to cap interest rates, you can only have two effects: people who need money won't get it, or they'll get it illegally. Either way, no positive effect is created from this law. If Elliot Spitzer were an honest man (but alas, he is a politician), he would refuse to enforce this law. Certainly there are more than enough laws that he can pick and choose among the ones he wishes to enforce. Too bad for the citizens of New York State that he has chosen to enforce this one.

UPDATE: TM Lutas points out that people are desirous of usury laws, and that consequently we need to pander to that desire. Nope. People also desire to commit suicide. Does that mean we should hand them a gun? Of course not. People need to learn that interest is a characteristic of the world, just like 32ft/sec/sec. If you step off a cliff, you're going to get hurt. If you want to borrow money and you have no or worse credit, you're going to have to pay a lot of money. Would I that it were otherwise? Of course, but neither do I think that everyone should have to walk around covered with foam rubber so they don't get hurt from falling. If we did that to children, they would never learn to avoid falling, because falling wouldn't hurt. They would be handicapped relative to a normal adult. We shouldn't treat adults like children.

I fear that I may have misled some people in my earlier posting on Political vs. Economic power. I got a response from someone suggesting that political power derives from the use of physical force. Not true! What about, say, the Knights of Columbus, or the Rotary, or the Shriners, or any other voluntary organization? They change the world by cooperating with each other towards a goal. This is political power.

Governments use political power, but they do not create it.

A government is unique among organizations because it has, or at least tries to have, a monopoly on force in a certain physical area. The United States Government is different than most governments because its citizens reserve the right to keep and bear arms, and because it is comprised of states, each of which maintains its own National Guard troops. The U.S. Government is a well regulated monopoly, controlled by a well regulated militia. Or, at least, it was designed to be a well regulated monopoly. Lately, the regulators have been falling down on the job.

A lot of people don't appreciate this. I suspect that you, gentle reader do.

My correspondent further deponeth that consumers don't regulate, because that would require the use of political power, or the legal right to use force. That's also not true. A voltage regulator controls the level of voltage in your computer. No law gives it the power to regulate, and yet regulate it does.

I'm not a big believer in the concept of "deregulation". First, because most of what is called "deregulation" is actually just a different kind of government regulations. Second, because the real way to deregulate something is to give it monopoly status with no government oversight. That is, you have to remove consumer choice, because consumer choice regulates corporate actions.

Let's look at some monopolies to see if they're truly deregulated:

Gas, Water, Electric, Sewage, Cable TV

These are often supplied by a government entity, or else under a franchise agreement. While the actual people runnning the service may not be elected, ultimately they are answerable to someone who is.

Telephone

Every state has a Public Utility Commission, which controls telephone service.

Copyright

Copyright expires eventually, in theory. In practice, nothing owned by a corporation has gone into the public domain since WWI, and nothing owned by an individual since WWII. So, my theory predicts that copyrights are effectively unregulated, with copyright owners taking advantage of purchasers. Doesn't quite work out that way, because while company FOO has a monopoly on artist BAR's work, they're competing against all other companies in the market for the fan's dollars. Consumers still have some regulating power here.

Patents

Patents expire after 20 years, so you should expect to see a decreasing amount of abuse as a patent nears the end of its life, and consumers gain the power to regulate.

Political power comes from a willingness of one person to cooperate with another simply because they agree on a goal. Economic power comes from someone having a sufficient quantity of resources that they can trade with other people to achieve a goal they may not agree on. These two types of power are fundamentally different. Economic power can be consumed. Political power cannot. Economic power is created by the slow process of wealth creation. Political power can be created in a moment by the action of a mob.

A wealthy person does not automatically have economic power. Simply buying something is not expressing one's economic power. You have to buy something whose value others do not agree with. For example, if you build an ordinary house in an ordinary location, you are simply buying a house. If you hire Frank Lloyd Wright to create Fallingwater, you are using your economic power to create something that perhaps nobody values but you.

If you believe, as I do, that the best society is created when power (of all stripes) is widely distributed, then you'll prefer economic power to political power. The process of exercizing economic power acts to redistribute it. Political power, however, tends to become concentrated. Look at the USA. Its Constitution was designed to specifically prevent the federal government from becoming a concentration of power, and yet it happened anyway.

There seems to be only one way to disperse political power: splitting up.

One reason why some people don't like free markets is because of the waste that they engender. People are allowed to create products that nobody will buy. People are allowed to put huge amounts of resources into creating a product that isn't as good as an existing product. If you had a really smart person in charge of the economy, they could get rid of that waste, and only make the good stuff that people want to buy.

Apart from the difficulty, nay, impossibility of finding anybody that smart, and the pressure that person would face to pick his friends' products, you also have the fallibility of humans. If you have a single entity in charge, which has the ability to coerce everyone into following their plan, then you have a problem. You see, ninety-nine out of a hundred times their decision will be correct, or at least better than a free market. That hundredth time, though, they'll be so wrong as to completely destroy the economy.

A free market does many things that are wrong, but it never does just one thing. Because it never does just one thing, and often does many things, it's extremely unlikely that everyone will do the wrong thing at the same time. Because of this, free markets are robust. They are not subject to a system-wide failure.

Earlier I wrote about Fair Trade. Don Boudreaux expands on the idea I suggest in my first two paragraphs -- that Fair Trade is not particularly fair -- and adds that it's probably not economically efficient either. You'd think that would make him angry, but since he ends with "Oh well...." he seems more resigned than angry.

Are poor people stupid? Obviously a lot of people think so. They mean to protect the poor by denying them the ability to work for a low wage (minimum wage laws), or to live in a frugally-built house (building codes), or to force them to educate their children (compulsory schooling), and to compel everyone to pay for the education of the poor (school taxes).

If poor people really are stupid, then a different set of policies is needed than if poor people were merely poor for the moment. If poor people are stupid, then you would expect them to remain poor because of their stupidity. This could be discovered by tracking a sample of poor people, to see if they stay poor. That's been done, though, and only a small minority of poor people are poor from year to year.

The majority of poor people drift in and out of poverty. Sometimes they're young people just getting started. Can't afford a house, maybe can't even afford a car. Don't have much work experience, so they have to work at "starter" jobs. Other people might be able to earn a higher income, but are prevented by their life situation. Perhaps they're single parents, perhaps they're on probation and tied to a location with a poor job market. Perhaps they're divorced and sharing custody? Other people might have lost their old job and are temporarily poor while retraining themselves for a new career.

Policies which assume that these people are poor because they're stupid are not just philosophically wrong, they're actively harmful. A person of ordinary intelligence must be presumed to be able to make the best of their choices. If we remove choices because we don't want them to make stupid choices, we make it harder for them to pick the best choices. For example, if we force all new houses to be of a fixed minimum quality (building codes), then we force these people to live in older housing not covered by building codes. It's very presumptious to say that that's best for them. We should allow everyone the most freedom to choose, even the minority of poor people who are actually stupid. Controlling the actions of adults degrades their judgement and turns them into moral infants.

A friend comments on "Are poor people stupid?":

Housing codes don't belong in the list. Substandard houses are a public bad, like drunk drivers and clogged sewers. It makes sense to prohibit them, rather than letting a fire in the substandard house burn down your house as well, while the judgement-proof owner walks away. (Several people were killed a year or two ago in my neighborhood thanks to collapsing buildings.)

The trouble here is that he's not being a good economist. He's saying "bad things happen, let's prohibit the cause." That's fine enough, but what else happens when you do that? He also doesn't ask what happens when you don't enact laws. So let's go down those roads that my friend didn't.

Once you've established a principle that something should be regulated, the next question becomes: exactly how? The theory here is that everyone sits down and decides how to mitigate the harm. What must be prohibited so that the harm does not occur. Let's say that you want to make a building more resistant to electrical fires. Perhaps some fires are caused by overloaded extension cords. Well, you can require that there be an outlet every 8 feet along the wall, you can specify a minimum wire size, you can specify a maximum number of outlets per circuit breaker, etc.

The problem here is that the regulators have been given discretionary power that they didn't have before. They could greatly benefit a copper wire manufacturer by requiring one gauge thicker wire. They could benefit outlet manufacturers by requiring more outlets per foot of wall. Perhaps that power relationship gets expressed through out-and-out bribery, when a manufacturer pays money to a legislator. Perhaps it's expressed at re-election time, when a manufacturer donates to the legislator's re-election fund. Perhaps it's expressed through the legislator of a district with a big copper wire manufacturer saying "I'll vote for a bill that you want if you add in a requirement for thicker wire."

There are many ways in which this power relationship can be expressed. It's naive to think that legislators won't use that power. Assume that a legislator does not have a corrupt bone in their body. They were elected into office by making promises to the citizens of their district. From their perspective, they have been asked to make good on those promises. Other legislators have the same problem to solve, so they each trade on fulfilling promises. From their non-corrupt point of view, nobody is hurt (much) by being protected a little more than necessary.

The trouble here is that even with perfect people in office, you still have legislators doing unnecessary things for people. Even with no corruption, you still get waste. Where does the trouble come from? By citizens asking their legislators to do too much.

What happens if citizens start with the principle that laws exist to stop people from doing violence to each other, and that all other relationships between people must be voluntary? In other words, what if the people agree that there will be no building codes?

You have the usual problem that people have when spending lots of money on something they cannot necessarily evaluate themselves. How do you find out what gauge wire was used when it's hidden behind the walls? The answer is through the use of certification marks, and careful purchasing. Right now, you can purchase any old kind of extension cord with any gauge wire, and plug it in. Perfectly legal. Nobody makes unsafe ones, though. Why? Because they can't get UL to certify their extension cord unless it uses a reasonable gauge wire for its length and current capacity. UL is a private party which sells access to its certification mark. A building can come with a certification mark that it meets certain requirements.

That handles the case where people need to worry about their own building. What about the case where people need to worry about their neighbor's building burning down? Very simply, they can ask to see their neighbor's building's certification. And their neighbor's and so on. You would have a meta-certification for a building which stated that not only was it certified, but all buildings within reach of fire were also certified.

What if somebody's building lost its certification? You would think that their building would lose all its value, so that keeping up the certification would be identical to having power, water, or sewer. What if somebody built a new building without certification? Again, who would be willing to occupy such a building? A lot on a block where all the other buildings would be expensive, simply because of the value of all the other certified buildings. It wouldn't make sense to build a building without certification. Surely the rents would be that much lower.

I've made several hand-waving assertions here about the costs of things, and creating new companies from nothing. It takes money to do those, money that is not obviously spent with our existing building code regulations. What you must recognize, as a good economist, is that these regulations are costing us money right now. They're costing us money in the form of deadweight: all the little trade-offs that our theoretically incorruptible legislators have made to get the laws their citizens want. They also cost money because of the cost of complying with the law. It's the same idea as the transaction cost of purchasing the certification for the building.

I believe that it's poor economics to ignore those costs and say "Well, we must have regulations because a free market solution costs money." A free market solution is not impossible, but is instead simply more or less expensive than the regulated solution if all costs are tallied up. From my perspective as a pacifist, the expense of using the violence of the state to coerce peaceful people into creating a purported societal benefit is too high a price to pay. Since all evil has fraud or force at its root, I think that the shortest path to good is taken by avoiding the use of violence or lying, even when done to create something good.

If you travel to India, one of the first things you see are women sweeping the streets. They use a little "corn" broom which is about three inches in diameter, and two feet long. It's about as inefficient as you can get short of sweeping with your bare hands.

No doubt the reason they don't use more efficient brooms (e.g. put it on a stick and weave the broom wider) is because that would put some sweepers out of work. There is, after all, only a certain amount of street to sweep. I think that India is, in general, under the thrall of an economic misconception. It's not just India, of course, but world-wide. It's not an old misconception, like the flat earth theory. It's a current misconception.

It's the idea that there is a fixed amount of work.

I believe that Ashutosh Sheshabalaya in his book Rising Elephant is falling prey to the same misconception. He somehow thinks that there is a fixed amount of work, a fixed amount of jobs, a fixed amount of wealth, and if India becomes wealthy, that the US must suffer. Even if a job disappears in the US, and an equivalent job appears in India, that does not mean that the US economy is harmed in any way. First, we're getting the same job done for less money. Second, we've freed up someone to do a new job, a better job, a more highly-paid job.

You want our jobs, India? You can have them. We have plenty to share. We'll just make more.

Update, 11/3: Got a reply from Tosh Sheshabalaya. This is very good, because it shows that he's not just interested in throwing an opinion out there. He's seeking to close the loop between reader and writer. Rather than a lecture, he's looking for a conversation. Good job, Tosh!

He repudiates the idea of a fixed amount of work, and attributes that to the reviews. His main point seems to be that India is doing very well, and stands to do much better. He's right! But that doesn't mean that we'll do poorly just because India is doing well.

Various people, David Isenberg among them, seem to think that a monopoly has market power. It uses that power to dominate its market. By dominating its market, it is able to restrict its output and raise prices, creating profit margins that are only accessible to monopolies.

That would seem to be obvious, wouldn't it? No, as I've written before. In a free market, you will sometimes have market conditions that allow a single firm to out-compete everyone else. Perhaps the firm is incredibly flexible, has some really smart employees, has a first-mover advantage, or was simply surrounded by morons. They have managed to put everyone else out of business. By the definition, they have a monopoly.

They have gotten their monopoly by being successful. We want to reward success, so we should not get in the way of monopoly formation. "But won't they create monopoly pricing?", you ask. Not necessarily. Perhaps they have achieved their monopoly by lowering their prices so low that nobody else could compete. They are a monopoly, they are dominating the market, and they have the market power to exclude competitors. Yet none of these have any negative consequences. It is monopoly prices that are the negative consequences. I must mention here that nobody tries to do this anymore, because these days a monopoly is presumed to have the power to charge monopoly prices.

What matters more than anything else is whether a monopoly has the ability to restrict entrants. Clearly any business has the ability to *offer* monopoly pricing to their customers. If they can restrict competitors while offering monopoly pricing, then market intervention can be justified. In no other case does it make sense.

On the other hand, perhaps you have a market which is already being interfered with. Let's say that some infrastructure was created under one set of laws which benefits an existing company. Now the laws have been changed to make that infrastructure harder to create. This may have the side effect of restricting entry into the market, giving the company a monopoly and the ability to charge monopoly profits. In that case, either more or less market intervention is necessary. Either the company should have its prices set by a government board, or else the increased cost in building the new infrastructure should be subsidized, or the company should be forced to share the infrastructure with competitors.

I hope that you can see here that regulations do not lead to freedom. Regulations lead to more regulations. Perhaps a better solution is to go back and look at the reason the infrastructure was made more expensive. Maybe the problem wasn't as bad as to warrant all those regulations? Perhaps that law would be best repealed? That would require that legislators would have to admit to making mistakes. This would give their opponents ammunition in the next election cycle. That's probably why politicians only admit to mistakes when they plan to retire anyway. That's why I don't hold out too much hope for reform.

Dear Dictator,
      So, you want to be a wealthy dictator, eh? You've got a bit of a personal problem, then. Most dictators become such because they love having power over people. The trouble is that when you control people, you eliminate their ability to create wealth. The more control you retain, the poorer your people will be. You cannot have both wealth and power. You must choose between them.

You're still reading, eh? Okay, then obviously you've chosen wealth over power. I have more bad news for you. You must also allow your people to become wealthy as well. You do this for three reasons. First, if you let them become wealthy, they will have an incentive to work hard, be creative, and take risks. Second, if they are wealthy, they will be happy under your thumb, and won't try to revolt. Third, when they become wealthy, you will be able to take a portion of their wealth.

Incentives matter. People have to have an incentive to work hard. You could beat them, but that's expensive and unproductive. It creates not an incentive to work hard, but an incentive to avoid the beatings, which is not at all the same thing. You get the same effect when you put criminals in jail for committing crimes. Their goal then becomes not not committing the crimes, but instead avoiding getting caught.

When people get to keep most of the results of their efforts, they'll work hard. Being a dictator, that means that they'll be working hard to make you wealthy. The wealth flows directly from the hard work, and the hard work from the reward. So, your own wealth is contingent upon them keeping as much of their wealth as you can manage. The more wealth they have, the more wealth they'll be able to invest in creating more wealth. This process has no end, and there are no limits to the wealth you can accumulate in this manner.

Wealth does not itself bring happiness, but misery surely brings unhappiness. I don't refer to poverty. Poor people can be happy if they accept their poverty. The people who do not accept their povery, but instead struggle against it, are miserable. When you are over-controlling people, keeping them from improving their station in life, you are creating misery. Unless you are a cruel dictator, you don't want to create misery. Miserable people are desperate people. They will do risky things, like attempt to overthrow your rule. The prime risk of any dictator is being overthrown. You can reduce that risk by spending lots of money on an armed force, but that's an expensive way to earn money. So, to protect your position, you must eliminate as much misery as possible.

If you take a fixed amount of wealth from everyone, you will get more from the wealthy people. Therefore, to be as prosperous as you can, you should encourage people to become wealthy by taking only a fixed percentage of their wealth. If, instead, you punish the wealthy by taking more and more of their money as they get more, you will decrease their interest in being wealthy.

So, to sum up, allow your people to have private property rights, do what they're best at and trade without restriction for everything else. Tax consumption, not income, because you want to encourage them to create more capital. Use your power only to protect their (and your!) property. This will maximize your wealth, and minimize the risk of any nasty attacks by miserable people. As you raise your family in splendor, be sure to educate your children as to the source of their comfort. Teach them how to run a prosperous country, and you will be able to pass your dictatorship on to them.

Remember that political control and economic control are completely different things. If you want to see how wealth is truly rewarded, look at the reign of Alan Greenspan over the U.S. Federal Reserve. He has merely banished the scourge of inflation. For this, he has been rewarded with lifetime employment, power and prestige. No one in their right mind would think of overthrowing him. You, too, can live that kind of a life: wealthy, powerful, and free of the risk of losing your position.

If you think I'm talking about or to dictators, you'd be wrong.

Brad Templeton points out that by-mail absentee ballots are subject to vote selling. Our secret ballots keep the secret from the vote counters, yes, but they also keep your vote secret from everyone else. That means that nobody can verify how you voted. That means that nobody would reasonably buy your vote because you have no way to prove the vote that you sold. Unless, that is, you voted using an absentee ballot by mail.

The presumption here is that selling your vote is a bad thing. Let's look at it from the other direction. A vote in favor of their candidate is worth money to them. They could buy your vote if they could trust you to the vote you sold. We have worked hard to make that impossible, and yet the desire to buy a vote is still there. They will seek to buy your vote in other ways. They will blanket you with appeals to vote their way. They will have the candidate promise to vote for things you want (do you remember what he promised last time? Did he deliver?)

Vote-buying has two good effects. One, it recognizes the reality that commercial interests stand to benefit from your vote, and why shouldn't you share in the gain? Two, it forces the party buying the votes to actually expend money. Once that money is spent, it's gone. So, they have to think very hard about the value of your vote to them. Perhaps they would do better to spend that money on something else.

UPDATE 11/7: TM Lutas points out that if vote buying were legal, then the cheapest way to take over a country would be to simply buy the votes needed. No war or coup needed. Of course, politicians are currently legally buying our votes using OUR OWN TAX DOLLARS. "Vote for me and I'll do X, Y, and Z for you!" Yeah, right, you and what bank?

I would argue that our government has already been taken over by a hostile power in exactly the manner TM Lutas fears, and worse, they used our own money to do it.

Russ Roberts caught some nutjob attempting to explain the shortage of flu vaccines on the basis that "no one's in charge". Good call, Russ! No one is in charge of blogs and yet there's no shortage of readers or writers.

I got my teeth cleaned last Thursday. The dental hygenist is new in the office. She used their nifty-snifty mouth camera system to get a picture of a shadow which seemed to be a cavity. I guess that that camera is not free to use, because when Dr. Carville looked at the tooth, he also gave her a mild rebuke, saying "Who told you to use the camera?"

I really like Dr. Carville. Like most small businessmen, he realizes that there is no magic pool of money used to pay health care costs. He understands that ultimately, individuals pay for their own health care. The more he regulates his costs, the better his bottom line. The better his bottom line, the less he can afford to charge, and the more customers he will have.

Well, DANC is at it again. Their fiber loop is now installed and built. They're crowing about having seven customers, so "there must have been unmet demand." That's simply a ridiculous notion. If I take $19 million dollars from the taxpayers of New York, and redistribute it to poor unfortunate companies in the form of subsidized (below-market) telecommunications facilities, of course I would have customers.

In addition to the crowing, Tom continues to push his fantasy that there was no fiber optic cable in St. Lawrence County (SLC). Thanks To DANC, SLC will see a huge economic boom due to all the new fiber optic cable. Similar claims were made for railroads when they were built, even though some of them ended up as utter busts.

Back in the railroad boom days of the second half of the 1800's, citizens could see if there was a railroad or not. It was rather obvious. It was also obvious if they were getting a railroad, because prior to a railroad being built, local investors were courted with offers to sell stock. Back then, public infrastructure had to be sold to the public through voluntary purchases. These days, DANC is funded through tax dollars taken involuntarily, and it's much easier to fool people about infrastructure.

Take a look at this picture (click on it to make it bigger. Note that I edited the color of the two lower orange sleeves because they have faded in the sunlight. They were the depicted color when they were new.):

That picture was taken on Rt. 56 a little south of Norwood. The location is not particularly special, I just chose it because I could take a nice photograph. What you're seeing is from top to bottom, the DANC fiber, the Time-Warner fiber, and the Verizon fiber. So much for the idea that there was no fiber in St. Lawrence County.

David Sommerstein of NCPR interviewed Tom Sauter. David points out that Verizon and Time-Warner have fiber networks. He asks Tom what's different. Sauter replies " This is an open access network. The other two are proprietary networks there to serve solely the business interests of the company that owns them. This network is developed to benefit the north country region as a piece of public infrastructure. So there's really a different operating basis. It will support multiple service providers who will compete with each other over the same platform."

What Tom is implying is that Time-Warner and Verizon are a duopoly. Neither one has an incentive to lower their rates unless the other one does, because the two cooperate to keep prices up rather than compete for the largest amount of business. The trouble with this theory is the practice that DANC has just demonstrated. All it takes to compete with Time-Warner and Verizon is money. The maximum profit that either one of them can take is limited to the risk that anyone is willing to accept by installing fiber in the north country.

Tom is essentially expressing his ignorance of economics, or else hoping to persuade others to be ignorant to advance his own cause. Yes, Verizon and Time-Warner have proprietary networks that they hope to make a profit from. Nobody who owns capital voluntarily gives it away. They will spend it in the hopes of being able to make money on it, or sell it at a profit. Everyone who has money that they're not currently spending quickly figures this out. There is nothing wrong with trying to make a profit, and Tom is trying to personally profit from the DANC fiber by creating a need for his continued employment. Nothing wrong with that, except that Tom is doing this by extorting money from taxpayers. Worse, he's painting his efforts as being better for the public than the profit-seeking behavior of Verizon and Time-Warner.

That is essentially an anti-market idea, and one that I think is bad for the interests of the public that Tom claims to uphold.

Fiber optic cable has a lot in common with railroads.

• They are both very expensive to install.
• Both are sunk costs (once installed, the capital costs cannot be recovered except through sales.)
• Both are expensive to access. For a railroad, you need to build a siding. For fiber, you need to splice into the cable.
• Switching is expensive.

Railroads were replaced, for all those reasons, by the personal automobile. What will fiber be replaced by?

Well, if Walter Williams can talk about secession, so can I. While there is much to love about America, there is much to dislike about its government. It surely seems as if the intent of the founders of this country intended to create a system of competing governments. The federal government has a strictly limited set of things it can do. All else is relegated to the states.

To hear people, America will live or die based on the results of the Presidential election later this fall. That's wrong, that's just wrong. The federal government is not supposed to be a concentration of power. While some people are worried about the power of corporations, they seem to be neglecting the power of the federal government. Corporate monopolies use the monopoly power of a government to force themselves on you. The trouble with federal government power is that it is the ultimate monopoly. It's the one with the guns that makes all the other monopolies work. If you live in the United States, you have no choice but to abide by federal government decisions.

The only way to escape a bad federal government decision is to emigrate from the United States. There are many reasons why that is difficult to do. If you look at the Constitution, there are many features designed to make it easy to escape a bad state government decision.

Everyone reading this can think of a round dozen really bad things that the federal government does. I don't intend to present my personal list here, because that would distract from the subject. My point here is that if you had the option of staying in the United States, and moving to a different state to escape those bad things, then you would be happier. More likely what would happen is that the states wouldn't do those bad things because it's predictable that people would vote "with their feet" to change those policies.

What to do

Of course you already know that I'm going to suggest secession. A lot of people think that secession was decided by the Civil War to be out of the question. You can go read Walter Williams article, linked from above. Without relying on the legality of unilateral secession, I would shoot for bilateral secession. A region like New York State's North Country (draw a line from Watertown to Plattsburgh; everything north of that is the North Country) is a net receiver of tax dollars from both New York State and the federal government. I would start with the idea that "you are paying us to remain in the United States. There is no sign that those payments will ever cease. We would like to leave and save you that money."

The key to this secession working is to re-create the intended conditions of the Constitution: competing governments keeping down the bad policies proposed by politicians. So, free immigration from the US, and free emigration back to the US. No tariffs with the US, no tolls, no travel restrictions. Stick with the dollar as the currency as long as the US doesn't inflate it. Stick with 120V power. Stick with driving on the right-hand side. Stick with all the things that people are used to, only make it so that the new country will thrive if it improves on USA policies.

Unrealistic, perhaps, to suggest that a region with no cohesive identity, no existing government, could secede. Maybe it would be better, then, to move to New Hampshire and join the Free State Project?

TMLutas still thinks I should be kinder to schools than I have been, if only so as not to offend people whose cooperation is necessary to move to a kinder, gentler school system. The trouble here is that most everybody thinks that schools can be reformed. They see problems with public schools, but they're fixable by doing more schooling. They suggest full-day schooling, or schooling at an earlier age, or year-round schooling. Or maybe they think they're fixable by introducing a tiny bit of markets, so that children attending a measurably worse school can be bussed to a school which is less bad.

I want to be very, very clear here. Our system of public schooling is broken on the most fundamental basic level. The foundation has a really big crack in it, and no glue, bondo, cement, or toothpaste will fix it. The crack in the foundation is the very essence of public schooling: that everyone is required to be there. First, there is no justification for destroying the freedom of children in this way. None whatsoever. Children are people too, and love freedom as much as adults. Second, the people who really don't want to be there will do their best to make life miserable for everyone else. Why not? They have nothing better to do, from their perspective. Third, even the people who want to be there will have a harder time learning things simply because they are being forced to. Learning is an intensely intellectual practice, and caging the beast doesn't make it more rational.

Saying anything less leaves space for tinkering. The schools cannot be fixed by changing them in small ways. They can't even be fixed by changing them in large ways. They have to be changed at the lowest level, by making them optional. Only in this way will they live up to their potential, up to the children's potential, up to the teacher's potential, up to the administrator's potential.

TMLutas thinks I should be kinder to schools. Sorry, no can do. Schools are heartless and barbaric and should be treated as such.

He does make the good point, not incompatible with my point, that the infrastructure we have created for schools can be reused. Sure! Keep the buildings, keep the bus runs, keep the classrooms. You can even pay for them with tax dollars if you simply must. Let the teachers and administrators teach individual classes, or form their own competing schools, or even just provide baby-sitting services if that's what parents want.

While it may look as if I think the people in schools are the problem, I don't. The vast majority of teachers could be very good. The teachers are not our enemies. They're as frustrated with the system as anybody. Just ask them what makes them the most unhappy and they'll tell you: the bureaucracy. Teachers would love to work in a private enterprise system which possibly paid them less but provided for much more job satisfaction and more .... education and less schooling.

UPDATE: continued

Charity must be voluntary. Very simply, you get what you subsidize. If you give money to people who have certain characteristics, you will find more people trying to achive those characteristics. Rather than government aid working to eliminate poverty, it functions to create more poor people.

If, on the other hand, charity is voluntary, and human judgement is applied to the decision to help someone, then that human can evaluate each need on its own merits. Sometimes some people are helped most by the kick in the butt that poverty provides. Other people are not, and no blanket rule (as governments have to apply) will get it as right.

I am a Quaker. Most (all?) branches of Quakerism have a testimony against (that is, a objection to) gambling. None of them have a testimony against insurance or investments. Some Quakers are confused on this point, and object to insurance as if it was betting. For example, one recently said this:

And it violates Quaker principles as it is gambling. You have a very complex array of options, and you have to gamble as to which one will work best for you in the coming year. This year I made a very bad bet! But why should I have to bet?

There is a difference between gambling, and other forms of risk. Life is full of risk. You could stumble as you get out of bed and crack your head open on the corner of your nightstand. Or you could stay in bed all day, and have your ceiling fall on you in an earthquake.

There is absolutely no way to escape all risks in life. Gambling is purely invented risk. You can escape the risks involved in gambling simply by not gambling.

Not everyone values risk the same way. Most people are happy to turn a small chance of a very bad thing happening into a certainty of a slightly bad thing happening. This is called insurance. You can buy different amounts of insurance, which let you take on more or less of the risk of the very bad thing in return for paying a little less.

This is not gambling. This is simply an examination of your life circumstances followed by a decision about the amount of risk you're willing to accept. It is not a bet. You can choose not to gamble. You cannot choose not to get sick. You cannot register a preference for one illness over another.

The Quaker quoted above went on to say:

The interests of private insurance companies are to deny or limit coverage whenever they can get away with it, and the health insurance industry (in fact, the whole health care system in America) is one of the least [honest?] industries that exist. We have to take it out of their hands and make it controlled by the public interest.

Unfortunately, it seems that many non-economists think that the solution to all business problems is to turn them into government problems. Curiously, these same people will happily relate problems that they have had in getting the government to do a good job. Particularly in this case, the market for insurance is not very free. For the most part, insurance companies don't have to compete for your dollar. You must buy automobile insurance if you own a car. If you work for an employer larger than some size, your employer will purchase health insurance, and you have no say in the matter other than to switch jobs.

Okay, so we've settled that this problem is not a market problem, it is a problem of regulation. The status quo is poor regulation. How do we fix it? Given the history of poor regulation, it would be insane to suggest that more poor regulation is likely to fix the problem. Before I could support a call for more regulation, I'd like to see the advocates of regulation fix the regulations we currently have. If that can't be done, then I'd like to see the poor regulations repealed, so that people can purchase insurance through some voluntary organization of which you are a member.

Ever notice that icons of Jesus never look like a jew-boy? Jesus was a hebe, no question about it, only you'd never get that idea from the pictures of Him. He oughtta have a fucking big jewish nose. Instead he's always drawn with a dainty little european nose. In fact, Jesus should look more like your average Palestinian terrorist than anybody else. If you're a Christian, and you claim to not like Jews, you're a walking contradiction in terms. The founder of your religion, the object of your love, was a Jew. Deal with it!

Actually, the various anti-economic things that are ascribed to Jesus really bother me. On the one hand, as a person he can certainly be forgiven for not knowing things that have only been discovered in the last couple of hundred years. On the other hand, as the Son of God, he's held up by some people as the perfect model of human behavior, without flaw, without error, every word divinely inspired by God. Okay, so did Jesus never stub His toe? Did He say "shit" and hop around on one foot? He was human, fully human. Did He get sick? Did He up-chuck? Did He have diarrhea? All human babies spit up, all babies have diaper accidents. Okay, so you have to assume that Jesus shit on Mother Mary. It's likely anyway. He surely puked on her; no mother escapes baby vomit, not even Baby Jesus vomit. So if Jesus was human, did He make human errors? If He didn't, then how can He be said to be human? And if He made mistakes, were His anti-economic sayings mistakes? What else might be mistakes?

Hehe. And some people adopt Christianity because it provides a model for human behavior which is certain. I got news for 'em! Ain't none! Lotta questions, no answers!

I've been reading John Taylor Gatto's The Underground History of American Education. As one of the most socialist institutions in America, compulsion schooling must go. There are, however, so many people whose livelihoods are involved in schooling, that closing the schools will take many, many years. The process has already started. Home-schooling is legal in all 50 states. It's an extremely rewarding activity on its own basis, no matter the fact that your droplet is helping to turn the mill wheel of school destruction.

For we must make no bones about it. The system of compulsory schooling cannot be reformed, because it is at its heart broken. You cannot simultaneously compulsorily school and voluntarily educate children.

UPDATE: continued

Some Greens don't understand economics. Consider this quote from Sen and the Art of Market-Cycle Maintenance by Molly Scott Cato:

Traditional economists see the economic system as being like the peach in the Roald Dahl story James and the Giant Peach: it will simply expand for ever, while we sit on its ever-fattening skin, enjoying the sunshine, and munching to our hearts' content. Greens, on the other hand, are opposed to growth because they recognise that planet Earth is a closed system. Growth must face the limits imposed by that system, whether they become apparent via resource depletion or the overloading of the natural environment with waste products. And, since the resources of planet Earth are finite, if there are five peaches and I eat four, that only leaves one for you. Or if we eat five between us and then our friend Bettina comes along, she will have to do without.

Wiser perspectives are available from Lester Thurow and Philip Sutton.

Abortion is a problem here and everywhere, now and forever, because it interferes with the creation of new life. Libertarians believe fiercely that individuals have rights. Before a woman gets pregnant, she is an individual. Shortly after she gives birth, there are two individuals. Somehow, a new individual was created. This individual's rights must be respected, without initiating coercion against the mother in whose womb the baby was created.

A standard principle of libertarianism is that the best solutions are discovered when people have the most control over their own lives. Given private property and free markets, people will negotiate and trade to improve their circumstances. A difficulty with applying this principle to abortion is that neither a zygote, a fetus, nor a baby are particularly at will to enter into these negotiations. There are enough people who have an interest in protecting a baby's rights that they can act as a reasonable proxy for the baby's interests.

The libertarian problem here is that the baby has, without any intention on its own part, found itself at risk of loss of life without cooperation from the owner of the womb it needs for its nurture. The baby has done nothing wrong. The mother may or may not have done anything "wrong". The mother may have been reckless and taken undue risks of accidental impregnation. The mother may have taken reasonable precautions. Or the mother may have been raped. What is clear is that the mother does not wish to cooperate, and history has proven that cooperation cannot be easily coerced.

Pregnancy is similar to other legal quandries. Let's say that a person needs to use the resources of another to save their life, and cannot negotiate the use of those resources. A reasonable law will let them use those resources, as long as they "make the owner whole". That is, they must restore the owner's property to its original condition, and compensate them for the use of their property.

I think, then, that a libertarian solution to abortion is to allow a mother to rent her uterus to the baby. On a practical basis, that is what many parents do. Parents expect that their children will take care of them in their old age, just as they took care of the children when they were helpless and feeble. The trouble comes when a mother doesn't want the baby. Of course, there are these days any number of parents who are unable to have their own child and are willing to expect resources to adopt a baby.

So, you have a willing buyer, and a willing seller. Why not sell babies? There are obvious moral implications, in that it's akin to slavery. Purchasing a baby is nothing like slavery, though. The slave purchaser expects to get a return on their money without much further investment. Purchasing a baby is more like buying a car that needs repairing. You know that you'll have to spend more before you'll get any value.

Or, rather than buy and sell babies, perhaps anti-abortion groups could act as baby brokers. They could take a payment from someone who wanted a baby, be responsible for the actions of that person, and use the payment to compensate someone who didn't want their baby and wanted to give it up.

This would work just fine if there were no unwilling sellers. That is, if every woman had a price for which she would allow her womb to be used, then it just becomes a matter of finding enough money to clear the market. Doubtless, some women would be unwilling to allow their womb to be used for someone else's nurturing. In this case, the whole problem comes down to eminent domain. Would it be possible to "take" a woman's womb for use by a baby (that is, for public purposes). Clearly, if there were enough willing sellers of "womb services", it would be possible to establish a fair market value, and compensate women for the use of their womb.

Basically, then, the failure of current and past abortion laws to make enough people happy comes down to the confiscation of private property for public purposes without due compensation. I believe that if abortion was illegal beyond a certain date in the pregnancy, AND a woman was fairly compensated, then you would see more people cooperating with such a law.

I needed to rewrite this posting, and couldn't think of any way to do it and still have the name of the URL still make sense. Basically, the new posting needs to point out that neither Republicans nor Democrats are the root of all evil. If I were going to write it, it would probably go like this:

If a black gay person votes Republican, or a wealthy white person votes Democrat they probably are doing so for a good reason. If the Republicans appear corrupt and venal, it's probably because they're currently in power. I don't recall thinking too much of Bill Clinton a few years ago. The main problem with politicians is that they're the kind of people who want to have control over other people. Such people are never nice people. So if you find yourself holding your nose when you vote, it's probably because you're voting for a politician.