Tuesday, April 22, 2014

Offer and Acceptance

One of the things I miss about living in the Pacific Northwest is that most august publication, The Stranger. In its pulpy folds can be found some of the finest examples of what appears to seamlessly transition between performance art, human perversion, and Old Media trolling. And the locus for all this hilarity? The personals section. Specifically, the "Other" sub-section.

The best example I recall is from ca. 1994, and it ran a little something like this:
Tired of the same old B&D and S&M? I want you to feed me like a baby pelican. I provide the adult diaper and raw herring, you provide the strap-on beak. Serious inquiries only please. No weirdos.
Of course, anything that dead tree media can do, Craigslist can supercharge and strap on some booster rockets. Witness:


Assume this contract was legitimate and that it was struck. Could this be euvoluntary? And if not, who would be exploiting whom? Economics tells us de gustibus non est disputandum, so as long as $175 is worth more to the person accepting this offer, she'll be better off...

So many questions. Are we talking dollar-store ramen here, or some quality noodles? And is it proper ramen, which is actually a highly refined piece of Japanese cuisine? "Seasoning the sauce" isn't an accurate description of how ramen is traditionally made. And is the tub all the way full? How does one person dispose of a tub full of noodles? How does this guy cook all of them? By the kettleful?

The moral dimension engaged here is a way toned-down version of the same one we looked at in the Armin Meiwes case: disgust. This is kinda gross, but in a juvenile way rather than a horrifying way. Idle perversions may sort of shock the sensibilities of the puritanical among us, but I think the natural reaction here is to snicker rather than to outlaw. But I urge my readers to be sensitive about and take seriously Stigler and Becker. Second-guessing folks' peculiar tastes, no matter how alien or outre is besieged by Pareto-destructive risk. It is indeed hard to make folks better off by denying them alternatives.

Even if those alternatives are to whip up a fresh batch of human-flavored ramen.

Monday, April 21, 2014

The APEEmath vol 2: the (Wo)man of System, Vachris on Austen's Emma

Dig, O brethren. And always open with Smith.

TMS VI.II.41:
The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force; but will religiously observe what, by Cicero, is justly called the divine maxim of Plato, never to use violence to his country no more than to his parents. He will accommodate, as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniencies which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the right, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear.
Ah, statecraft. Aristotle's highest calling (esp NE Bk I where he also speaks highly of Solon). Smith cautiously advances what we might recognize as a precautionary principle of governance: "never to use violence to his country no more than to his parents." To accommodate (read: tolerate) the habits and prejudices of a constituency would strike the ear of a classical thinker as the virtue of temperance as she is applied to statesmanship. Right on. Nothing our readers here at EE haven't already heard a thousand times before. But your median Smith reader will probably be more familiar with the following passage, and your median armchair libertarian will probably be more familiar with it as filtered through Hayek (not that there's anything wrong with that).

TMS VI.II.42:
The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.
 Mind you, mind you, mind you, these paragraphs appear right in order, one smack dab after the other. So it was with some pain that I wrestled with APEE 2014 Session M2.5, in which a paper by Michelle Vachris argued that Jane Austen's character Emma Woodhouse was an avatar for Smith's Man of System.

So I says to myself, I says: "Man of System? Get outta here. Emma might be a meddler, she might have the conceit of social engineer, but it's all small-scale stuff and nonsense. Why, she's even held to account for her excesses of planning in the text of the novel. Weren't Smith and Hayek (and, yes, even Aristotle on a careful reading) warning against the intemperance of unaccountable political chicanery?"

Those of you who know me in person may be astonished to discover that I held my tongue. I really had to mull my objections. To me, the "great society" phrase there in the second graf is essential to interpreting Smith. Emma was clearly not arranging the chess-pieces of a great society, but rather fiddling with the tender sentiments of her close social network. Her actions may have been intemperate and unconsidered, even worthy of censure, but if you want to level a Public Choice critique at her, what's missing is feedback.

Politicians are vaguely accountable to an ersatz constituent cobbled from opinion polls and loud-voiced, well-organized members who lobby for this policy or that. Emma, contrariwise, is directly accountable to the other characters, face-to-face, so to speak. She is obliged to defend herself to the very objects she wishes to manipulate. And in this sense, I overcame my objections. For it is here that I found my strongest affection for Vachris's interpretation. The Man of System as an aspirational ideal is contained in the person of Emma. Indeed, in the course of the novel, she is roundly upbraided for her meddlesomeness. And how delightful would it be to sit the numb nudgers, prideful paternalists, and solipsistic social shepherds in the academy down and deliver to them a rich tongue-lashing for the conceit they have arrogated themselves in their own ideal plans of government. As escapist fantasy, this should appeal to many of my friends and colleagues.

But there's a larger question squirreled away in there: how euvoluntary is matchmaking? It seems to have some quasi-coercive elements (on occasion, depending on the culture, quite directly coercive), but is it possible that there is such a thing as economically efficient matchmaking institutions? What coordination failures might exist in an unregulated marriage market? What are the costs, benefits, and transfers of, say, the Shidduch? Fodder for a future post. For now, consider it a bug in your ear, something to think about. Over a nice cup of tea.

Thursday, April 17, 2014

Text Message for Papers, APEE 2015 (Cancun)

Well ahead of next year's call for papers, I'd like to put a flea in my readers' ears. Specifically, if you're interested in joining me on a panel discussing euvoluntary exchange, please e-mail me at spivonomist@gmail.com.

I plan to do a piece on euvoluntary exchange and the regulatory principle known as the "precautionary principle", a theme I've chased here on the blog from time to time.

Any subtheme would be most welcome though. What I'd look for in the solid core of EE are themes of the conflict between commonplace moral intuition and economic consequences. Price gouging, sweatshops, sex trafficking, prohibition, and wage restrictions are all good topics. I'd even love to see someone write about how EE might be a wedge to introduce an aretaic turn to economics. But do not be afraid to push the envelope. If you're a regular reader, you'll know that I don't confine myself to one particular type of exchange, so neither should you.

Remember, people: EE is a PPE topic: philosophy, politics, and economics. Not just economics. Think interdisciplinary. Think broadly.

And next year's conference is in Cancun. You can hang out with me (or not, at your discretion) on a sunny Mexican beach. Think about it.

The APEEmath vol 1: Giberson and Kiesling Unbundle the Grid

The Association of Private Enterprise Education concluded its annual meeting this past Tuesday. I attended a generous abundance of fine panels, rubbed elbows with a generous abundance of fine scholars, and enjoyed a generous abundance of excruciating back pain. My back has largely recovered, so I find my mental satchel full of puzzles, questions, conundrums, pleas for clarification, and challenges to much of what I witnessed in (relative) peace and quiet. So for the next few days, I'll be sifting through the aftermath of APEE 2014. The APEEmath, if you will forgive me some bad dad humor.

And since it is often advised to start at the beginning, let's start with Session M1. The session I attended featured Michael Giberson and Lynne Kiesling, our friends at Knowledge Problem. Combined, their presentations told a story that I think we've all felt shimmering in the air since the 70s: decentralized energy production is a matter of when, not if. However, it is far less sure that energy distribution faces a similar threat, or if it does, it's certainly not clear that the grid will share the same time schedule as the power plants.

Please indulge me a brief digression here. My firsthand experience is in Naval nuclear propulsion. There are three and a half distinct divisions in the nuclear side of a submarine's engineering department (the Sailors charged with monitoring and maintenance of primary plant chemistry are, strictly speaking, part of Machinery Division, but they boast specialized skills and training that set them apart from the ordinary knuckle-draggers; they are the half division, but the ones I know personally also count among some of the finest men it has been my honor to have ever met, so don't let this imply that I think any less of them). We, the gaunt twidgets, the reactor operators, pasty from lack of sunlight, fine-and-brittle-boned from the many months spent hunched over Byzantine mazes of electronic components, yapping discontentedly in our odd tongue of resistance, capacitance, induction, and reduction—our eyes filled with cascading arcs of ionizing radiation detection, our ears stuffed with the harsh syllables of a routine critical checkoff, our sinuses subverted by the penetrating aroma of the loved-and-hated chemical that unceremoniously replaces the roiling breath and fart of 160 of our fellow shipmates into something vaguely resembling a breathable atmosphere, it is we who wrangle, harness, command the broken soul wrought from the enraged heart of uranium-23X, bending its fury to the diligent task of whispering life and vigor into the cold, coiled copper snaking arterial ardor up and down the stubborn corpse of the underwater pig, grunting and snuffling beneath the dismissive swell of an indifferent father ocean. The Electrical Division is responsible for shipboard load distribution and maintenance of generators, batteries, and the interface of the AC and DC portions of the network. Why do I mention this? Well, in the mind of a Sailor serving in an engineering department (again, many apologies to A-gang for not including you in my reindeer games), there is a perfectly natural cleavage between the generation and distribution functions in the quest to turn fuel and fire into warmth and comfort.

So here's the thing: rooftop solar is becoming not only more technologically efficient, but more economically efficient. This implies that legacy utility plants are rapidly advancing towards obsolescence. They are soon to be the twinkling phylacteries in which dwell the souls of the dear departed wizards of Thomas Edison's coven. But the grid? The grid is a thing alive, pulsing with the lifeblood of shared electricity. When its vitality can be sustained by bough and twig alone, the Big Capital power plants (with all the attendant costs) will end up clinging, vestigial, to the undercarriage of a sprightly distribution network. They are and shall be an unseemly legacy cost that threaten to burden a critically important component of ye moderne Ĺ“conomy.

So why not split the utilities along their production and distribution seams? Might we get a jump on the inevitable transitional gains trap by half a league onward? Sure, there might be some negotiation costs for the intermediate bits, but determining who gets the line item for a decoupling station seems a lot more tractable (from the point of view of the end customer) than worrying about how to resolve the inevitable problem of how to keep rooftop solar providers from getting sucked under the waves when the pod of power rorquals go belly up and burst under the unforgiving gaze of the sun.

Power generation is not euvoluntary. Neither is power distribution. Keeping them bundled multiplies the risk without providing much extra reward. It's time to cut the cord, people.

Friday, April 11, 2014

Euvoluntary Extortion?

The great nation of Mungertopia offers residents fertile plains, majestic mountains, rivers brimming with fish, and golden sands ready to invite frolicking maidens to dance under a generous sun. Beautiful though Mungertopia might be, those who dwell there tend to toil modestly, an honest day's work for an honest day's pay.

But one day, in a far-flung fiefdom, a largely-ignored and mostly-forgotten clan discovered a hidden magic. No ordinary magic this, it was a magic that grew more powerful the more people used it. And so they shared it. Most Mungertopians rejoiced as their lives grew richer under the spells woven by this magic. But all was not well. In the far-flung fiefdom, the largely-ignored and mostly-forgotten clan shared land with a crew of local toughs who were well-poised to inconvenience clan members in their daily routine. And the local gendarmerie were not particularly inclined to stop them, thanks in part to the twofold propensity for the largely-ignored and mostly-forgotten clan members to be a) a bit obnoxious and b) rich. And not just rich, but callow rich, nouveau riche, possessed of wealth but not of class, dripping with earnings, but barren of taste, restraint, or noblesse oblige.

And so one fine day, the local toughs girdled their loins, sauntered up to the largely-ignored and mostly-forgotten clan, and issued an ultimatum: "hand us a portion of your wealth and we'll leave you in peace. We will use it to feed the hungry, clothe the naked, and house the indigent. Our vision of a more perfect Mungertopia is not all that different from yours, though our means be different. Trust us."

The subtext is, of course, a veiled threat. The local toughs could indeed harass, delay, inconvenience, bully, and spite the largely-ignored and mostly-forgotten clan with relative impunity. That is to say that the opportunity costs for the local toughs to indulge their taste for thuggery is considerably lower than the avoidance costs for the largely-ignored and mostly-forgotten clan members. And the clan really likes the fiefdom they've settled in: it's beautiful, the weather is clement, the food excellent, and the land aromatic. Could the toughs' attempt at extortion be considered somehow euvoluntary?

What if instead of Mungertopia, this occurred in the Bay Area? From KR, anarchists attempt to shake down Google. Thanks Kyle. Thyle.

Legally, this may not be precisely extortion, but come on. With ordinary citizens already getting all puffy about Google running buses out to the compound, it's easy to imagine an anti-gentrification groundswell leading to full-fledged riots, complete with arson and looting. Forking over $3B to buy civil rest (even if it's through more conventional channels) might well be worth the price tag. Right?

When a mugger holds a gun to my head and demands my money or my life, my BATNA is pretty darn unattractive. When a gang of anarchists holds a riot to the head of my multi-billion dollar tech enterprise, the same moral intuition may not apply so readily.

Agree? Disagree? Is this, or something like it, approaching euvoluntary? Why or why not?

Thursday, April 10, 2014

Little Pink Houses

Wal-Mart's FY 2013 SEC 10-K filing.

Excerpts

Total Properties:                                                             11091
Total shares repurchased [avg price per share, USD]:     42,288,364 [69.60]

Total Revenue (millions of USD):                                    476,294
Cost of Sales:                                                                 358,069
Net Income:                                                                     16,695
Comprehensive Income:                                                   13,613

Total Assets:                                                                  204,751
Current Liabilities:                                                            69,345
Total Equity:                                                                    81,339

Accrued Wages and Benefits:                                            4,652
Retirement Liabilities:                                                         1,062

and from the Wal-Mart homepage,
Number of Employees:                                               2,200,000

Accounting works differently than economics. In economics, we're quick to point out that interventions have consequences. Third party interference with bilateral contracts may produce unintended consequences. Let's ignore that for a moment and simply straight-up assert that if Congress decides that Wal-Mart must pay workers more, there will be no disemployment effects, no rent capture, no substitution, not even a perceptible shift in the labor supply curve. Instead, we'll just shift cash flows from one bin into another.

But which bin?

Living wage proponents seem to assume that it'll come straight from the "Net Income" bin. R. Reich for example likes to talk about stock buybacks and $16B (for 2012), suggesting that he doesn't consider Consolidated Income to be particularly important.
Your typical employee is now earning $8.25 to $8.80 an hour. Most are adults, responsible for bringing in half their family's income. You can easily afford to pay them $15 an hour without causing layoffs or requiring price hikes. Your shareholders and executives are doing spectacularly well.
I'm not sure what he means by "typical" employee in this passage, so let's go with "median". Let's also restrict it so that the median is de minimis, that of the 2,200,000 employees working for WMT, 1,100,001 of them make at the top of the his low-wage band, the $8.80/hr. Let's also assume that the "typical" employee cares more about take-home pay than about a nominal hourly wage, so this employee both now works, and will continue to work, a standard 40-hour workweek, with 2 weeks off per year for vacation.

A little grade-school arithmetic shows (15-8.8)*(1,100,001)*(40)*(50) = 13,640,012,400

Ignoring incentive effects, Reich's proposed raise would have a minimum price tag of $13.6B. It would eat every penny of the most recent SEC 10-K filing Comprehensive Income. And even if you think Net Income is the proper line item (it isn't), it would mean cutting dividends. As a reminder, the lion's share of blue chip dividends go to big time institutional investors like pension funds, so it's not so much robbing plutocrats as it is transferring wealth from prudent retirees to current workers. If that's your idea of sensible redistribution, I'm not sure I can talk you out of it. But do please consider what that implies for your own retirement.

But yanking cash flows from the CI line is but one possible bin. Even dullard versions of capital pricing models insist that costs will be spread around. Will some of the cost come straight out of the bottom line? Sure, but some of it will also come out of the retirement liabilities, some of it from Total Assets (which includes, among other things, property/plant/equipment aka new stores, trucks, and the operating capital that makes employees productive in the first place). Winching down on this line item means giving up de novo employment opportunities for the many involuntarily unemployed people currently drawing UI across the nation. Again, if your model is that it's better to have no job at all than to have a low-paying job, that's another matter, but you might consider explaining your reasoning to the people who actively seek jobs at Wal-Mart at the prevailing rate.

Another possible bin to pilfer is Gross Revenue. Maybe customers could eat the increased labor costs. Of course, prices are information, and there's no reason whatsoever to ditch the first law of demand in consumer goods, particularly the sorts of goods sold at WMT. Holding all else constant, price is inversely proportional to quantity demanded. Consumers are likely to respond to higher prices with ordinary abstention.

There ain't no such thing as a free lunch. And while it's great to acknowledge that there are no solutions, but only tradeoffs, I implore anyone who reads this to please carefully consider whether or not you're being realistic when you imagine what the actual tradeoffs might be and whether you're willing to foist them on others without so much as a jot or tittle of accountability on your part.

Labor is not euvoluntary, especially for marginal workers. Temper your enthusiasm for intervention accordingly.

Wednesday, April 9, 2014

Episode 4: Anthony Gill

Welcome to a very special episode of the Euvoluntary Exchange podcast. Joining me today is Anthony Gill of the University of Washington's Political Science department, and host of his own podcast, Research on Religion. Tony was recently in the DC area, and since we share research interests, we thought it would be enlightening to discuss the relationship of euvoluntary exchange and religion. Here are our thoughts.


download

This episode will be simulcast this Sunday on Research on Religion. Well, I suppose that's not exactly a simulcast, but I guess it's probably close enough that I needn't bother coining a new word for the occasion.

Anthony Gill on Religion (Econtalk)

As a reminder, if you would like to suggest a topic (or if you'd like to appear as a guest), please feel free to contact me at spivonomist@gmail.com. I look forward to hearing from you.