Kling on Trade

Arnold Kling gives his overview of the "Central Principle of Economics." See how many of the sidebar EE conditions you can recognize.

Can Exchange with a Robot Be Euvoluntary?

Can it?

Work is the price we pay to get the things we want. If that price drops to near zero, isn't that cause for celebration? Or is dignity irreversibly tied to labor? So much of human history (especially the written parts) are bound up in the things people do to produce goods and services, it strains the imagination to picture the alternatives.

Even if we could more accurately imagine what a post-labor world would resemble, what influence do we have here and now in shaping its institutions? Is it even our duty to do so? Does the knowledge problem vanish when contemplating future events?

From the point of view of the post-robot revolution, we're behind a Rawlsian veil. Be a help and not a burden.

h/t Other Sam

The Wisdom of The Munger

Had lunch with Mungo. Delicious Pho. Told him I didn't have a pithy way of saying why EE is important.

"Philosophers talk about justice in outcomes. Economists talk about justice in processes. EE lets you talk about both at the same time."

Did I mention the Pho was wonderful? Pho Deluxe: 9675 Fairfax Blvd. Yum.

The Why of EE

I'm hesitant to speak for others who work with the EE concept (particularly its creator). So I won't. I shall speak (write, actually) instead for myself. And speaking (writing) for myself, I can say that every now and again I peer back at what attracted me to this project in the first place. In the peering, I like what I see.

I see an adjunct to economics, philosophy, and public policy alike, severally. I see a bridge between academic disciplines, jointly. I see a set of easy-to-understand conditions as easily available to the professorate as to the pedestrian. I see a safe zone, where regardless of politics, all can agree on elementary considerations of justice, peace, and cooperation. 

Euvoluntary exchange analysis replaces none of the existing analytical tools of economics, political science, epistemology, or ethical philosophy. Rather, it encourages folks to think about these disciplines ecologically, how they interact and reinforce each other. It's a suture appending limbs and lights to the desolate simulacrum that is homo economicus, binding the muscle of practical commonplace morality to the skeleton of rational individual behavior in an ecosystem of relative prices and institutions.

And as Shughart and Thomas have shown, it's a light that can be shone on the institutions themselves. If "islands of conscious power in this ocean of unconscious co-operation like lumps of butter coagulating in a pail of buttermilk" (D.H. Robertson, via Coase) describe organizations, and if the seeds around which institutions cluster are indeed moral intuitions, it strikes me as eminently reasonable to scrutinize basic moral intuitions and their impact on the rich, creamy, farm-fresh butter folks lube themselves up with to conduct their everyday affairs.

Why EE? Because people act. "Methodological individualism" isn't just a tongue twister for toddlers, it's the foundation of contract theory. EE combs the hair that stick up on the back of people's necks when economists gawp at ordinary folks' resistance to markets, markets everywhere. EE is the woolen mouse on the end of a string that coaxes the kitty-cat of Exploitation and Workers' Rights from its comfy windowsill perch into the Washbasin of Meaningful Consequences. Weird metaphors aside, the EE conditions are a handy, easy-to-use guide that allows us (well, me anyway, I hope you too) to move from the close, private world of moral heuristics all the way up to the many perplexing rules that govern the hedgerow humanity has hewn from Hobbes's Jungle.

Maybe that's useful, maybe it isn't. I like the idea, and I'm grateful to be able to share some of my thoughts on it with you, warts and all.

Cheers.



Robertson, D.H. (1923) The Control of Industry. Hitchin, Herts: Nisbet

Munger on Euvoluntary Exchange.

This was posted at BHL, but something tells me that it's not inappropriate to post here.



If you're a regular reader, nothing here should surprise you. But it's still worth watching for Mungo's dulcet tones.

Please enjoy.

The Choosening

Tuesday's post invited some commentary from The Cowboy Economist (ecownonmist? No, that's terrible). His challenge:

Is the use of earbuds really euvoluntary? While they lower negative externalities, my putting them in my ears is irrespective of whether you like them or not. Indeed, my action is even irrespective of you actually being in my vicinity. I just want to tune out the rest of the ambient noise, which may be caused by birds or hungry mountain lions. Doesn't it take two to do the EE dance?

 I didn't have a great off-the-cuff answer. I mentioned the initial exchange, where the customer buys the iPod or whatever, but that still doesn't really get at Tony's criticism. To be more accurate, I'd refer to Buchanan's timeless classic Cost and Choice. Here is its heart:

Cost is that which the decision-taker sacrifices or gives up when he makes a choice. It consists in his own evaluation of the enjoyment or utility that he anticipates having to forego as a result of selection among alternative courses of action. The following specific implications emerge from this choice-bound conception of cost:

1. Most importantly, cost must be borne exclusively by the decision-maker; it is not possible for cost to be shifted to or imposed on others.
2. Cost is subjective; it exists in the mind of the decision-maker and nowhere else.
3. Cost is based on anticipations; it is necessarily a forward-looking or ex ante concept.
4. Cost can never be realized because of the fact of choice itself: that which is given up cannot be enjoyed.
5. Cost cannot be measured by someone other than the decision-maker because there is no way that subjective experience can be directly observed.
6. Finally, cost can be dated at the moment of decision or choice.

When I first read this before I started grad school, it blew my mind. I had spent all this time fretting that value was subjective without even considering for a moment that cost was also subjective. And here was James Buchanan saying precisely that--all costs are opportunity costs. And that cost and choice were inextricably bound. If there's any idea that I'd want to impart to someone seriously considering studying economics, this would probably be it.

But what does that have to do with being a jerkface on the bus? I'm glad you asked. If you take Buchanan's reading of Robbins & Hayek seriously, you'll be able to model the iPod as a series of choices. There's the big ex ante initial purchase (and if you want to chase it down the rabbit hole, the web of production decisions that got it to the shelves in the first place) and then there are a series of unilateral choices along the way of "should I listen to Doctor P's Flying Spaghetti Monster on the way to the gym?" You might think of it as the buyer and the seller collapsing into the same person, so BATNA disparity considerations aren't part of the deal, though BATNA desperation certainly could be. Mind you, just because I've never seen a claim that a person could exploit herself doesn't mean that some enterprising academic might not make the effort.

Most of the time when we talk about euvoluntary exchange, it's a matter of a one-off bilateral trade, but there's no reason I can see not to use the six conditions to adjudge unilateral economic choice decisions.

And now for your bass-dropping pleasure.


Seriously you guys, running around Steelport like Neo in The Matrix while this is playing represents the pinnacle of gaming in the modern era. Saints Row y'all.

Morality without Romance

James Buchanan famously described the public choice project as "politics without romance." What he meant by this is that to correctly understand decision making in the absence of prices, the cautious analyst must apply the same logical rigor she uses to understand and explain the market to loosen the joints of non-market decisions. Upon hearing this for the first time, you might be tempted to make a rude gesture and say "duh", but I urge you to reconsider. Think for a moment that not only for much of the intersection of formalized, modern economics and policy recommendation has government been implicitly modeled as deus ex machina, a benevolent despot that can correct instances of market failure, but that this unreflective intuition still survives to this day in a fairly wide swath of the literature.

And unfortunately, in the popular opinion too.

I don't know if Mungo holds the same opinion, but I think of the EE project as an adjunct, an extension to the public choice programme, extending the same logic that works well to describe the exchange of goods and services to the exchange of ideas, of hunches, of morality. It's a project that reconsiders the maxim that de gustibus non est disputandum.

Why is this important? I think there's value in encouraging folks to pause and examine the hodge-podge collection of moral intuitions they've carried since early childhood. By drawing attention to commonly-held beliefs and reasoning from bedrock moral principles rather than just bedrock economic principles, I believe it might be easier to have a clear conversation about the intersection of politics, (pedestrian) philosophy, and economics. EE adds to the specimen box that we peer into with the microscope of economic analysis the blobulus that constitutes the smoky moral lens that ordinary folks use to peek out of the cave.

Is this overreaching? Do not these topics belong to other disciplines? Could be, but Buchanan didn't let that stop him. I'm no Buchanan, not by a country mile, but you have to first plow the field if you ever want your orchard to bear fruit.

The Base of the Pyramid

It's pretty easy to live day to day in the heady atmosphere of the commanding heights with not so much as a second thought to what lies beneath. All the vigorous machinery of commerce and history that delivers commonplace treasures onto our desks, across our shoulders, into our bellies, these are the vasty artifacts that slumber unseen but for the tiny bit of elephant we actually graze blindly in our daily labors. Leonard Read's classic essay stands as a fine example of what it might look like if we took the blinkers off for a short moment to gaze unprotected into the fiery heart of the web of production, to ponder the deceptively simple power of something as mundane as a number preceded by a printers' mark for currency. And even then, prices are still but a proxy for what is, distilled, a gossamer global phlogiston of minds in their capacity as thinking, agreeing, calculating, and yes, even loving meat machines.

It is valiant, necessary, worthwhile to judge the outcomes seen in the commanding heights and decry profound unfairness, intolerable injustice, to rail against outrageous fortunes. Circumspection serves us best when we consider that policy tends to affect the stones at the base of the pyramid, meddling directly with vital price signals, clutching to the unaccountable hope that the intervention will eradicate the despair witnessed on the capstone.

Circumspection isn't sexy. It doesn't make the news, it doesn't get pageviews. Bombast, pulpit-pounding, fire, brimstone, confrontation, these are the elements of attention. Caution, prudence, restraint, these are the elements of being on the receiving end of a trifling yawn. 

It's compelling to say, "that ain't euvoluntary pool, let's fix it." It's drab as dishwater to say, "that might not be such a great idea." Thinking deeply about problems and having a light touch never put anyone in the history books. More's the pity.

Post-Treatment Euvoluntarity Evaluation

An easy trap for a novice applied econometrician to fall into (and take it from me, I'm one myself) is to include variables that capture post-treatment effects in a regression. If you're interested in the effects of X on Y and you want to control for variance introduced by A, B, and C, you should pause for a moment and ask whether X itself influences A, B, and C. For example, if you want to know what influence a bit of crude oil tax policy has on prices at the pump, including reserve stock as a control variable can skew your results since the tax policy is likely to influence how much crude the firm warehouses.

Well, that might be a silly example. Ask Giberson or Kiesling if you want to know more about the actual econometrics of the oil industry. It's not exactly in my wheelhouse.

But euvoluntary exchange is and similar arguments apply to evaluating euvoluntarity apply. Take illicit drugs for example. If you want to discover whether or not a market in marijuana is euvoluntary, you must make your point of analysis free of the confounding influence of existing legislation. Feel free to include whatever other institutional factors you like, but the treatment is the legislation. You can't just say drugs are bad because they're illegal and they're illegal because they're bad. Even small children can recognize that such arguments beg the question.

And this problem is massively widespread when discussing a wide range of topics. Worried about the effect of immigration on public schooling? The way public schools are administered is the treatment, people. Ditto medicine, ditto deposit insurance, ditto lending markets. Ditto, well, take a quick peek at the volume of the Federal Register and make your own list.

Be very cautious about what actually counts in your EE calculus. I think you'll probably find that things aren't always as they might seem and there's quite a lot of exchanges that could be more easily categorized as euvoluntary but for the scritch-scratching of legislators' pens.

Ergodic Catastrophe and Moral Intuition: EE and Genetic Tinkering.

My man Adam G., longtime EE booster and all-around great guy wades hip deep into a tussle over the role of genetic modifications (a weird term, don't you think?). He pits the always-excellent Virginia Postrel against the irascible Nassim Taleb. The OP on The Umlaut (sorry Eli, Adam, and Angie, I can't be bothered to open my character map) can be found here: The Risks and Rewards of Genetically Modified Organisms [Edit]: Postrel's Time opening salvo article here.

Since it was a Postrel tweet that prompted Adam's musings, it should come as no surprise that the subsequent discussion unfolded there. Here's what he posted later, following a discussion with both Postrel and Taleb (and some minor side commentary from a few spectators): GMOs Rehashed with Virginia Postrel and Nassim Taleb. If you're confused after trying to wind your way through that Storify thread, you're not alone. The threading is kind of ragged, but as I read it, here's the gist of the dialog:

Postrel: Kickstarter is a cabal of Luddites. GMOs are the future. Standing athwart history impoverishes people yet born. Opposing them is monstrous.

Gurri: Hang on a tic. You're right about the potential upsides, but isn't there a corresponding downside risk? Taleb warns us that long-tail events are catastrophic and that the tails are thick.

Taleb: Yes Adam, and when Mother Nature shakes off her fleas, "catastrophic" is gently understated.

Dr. Phil: Not risk, ergodicity.

Taleb: Exactly. Not only are the potential downside outcomes unknown, but they're unknowable. Furthermore, they're irreversible AND they're tightly wound. A rogue GMO could wipe out all agriculture dudes. A perfectly reasonable application of the Precautionary Principle insists on some prophylactic prohibition.

Postrel: Ridiculous. By your logic, all of the great social changes we've had from ending slavery to the liberation of women to the gay rights revolution we're seeing right now should have been prohibited. They're all tightly wound, irreversible, and unknowable. Will you argue that ex ante, they were ill-advised?

[Several People]: B-but, that's not the same thing.

Postrel: Apply your principles consistently, people. Postrel out. *drops mic*

Gurri: Well that was certainly enlightening. I have more to think about.

It's that last line from Adam I want you to pay close attention to. For those of you who don't know him, Adam is one of the most thoughtful, circumspect people it is my privilege to know in real life. He routinely engages thorny topics like this with a toothy grin and joy most people reserve for, I don't know, puppies and caviar or whatever. And he's left with food for thought.

So here's my question: if this dude's ambivalent after talking with luminaries like Virginia Postrel and Nassim Taleb, how do you suppose it might be that ordinary folks are to form their attenuated policy positions grounded in common-sense moral intuition? How do people approach non-ergodic catastrophe? What does that imply for the Median Voter Theorem? For expected policy?

Look, we already know about cognitive biases that magnify rare, visible risks and ignore common, boring risks. That's why we see kids in homes with swimming pools alongside school bus terrorist drills. But it also may be empirically true that a substantial political upheaval can result in the untimely deaths of tens of millions of people and interminable oppression for generations. Not all ex post regret is equal, dudes.

My point isn't so much to ask if GMOs are euvoluntary or not, but to ask whether the casual voter, after mulling arguments for and against would think that they are. We know that there are a lot of crunchy granola types that oppose gene swapping for reasons that may not always be purely instrumental, but how closely do the opinion margins hew to the Taleb objections? And how much could we be giving up by yielding rein leather to puckerishness?

As Adam says, it's a lot to think about.

Is Deirdre McCloskey a Euvoluntary Exchanger?

Many apologies to longtime readers, but I have decided to scuttle the assonant "euvoluntaryist" for purely aesthetic reasons. Invoking McCloskey is therefore particularly apropos, as I struggle to develop a list of economists who are within even a standard deviation of writing as elegantly as her.

After all, part of the euvoluntary project is a quest for that beautiful common ground that suffuses much of McCloskey's recent work. The plea from bourgeois virtue and the plea from euvoluntary exchange is similar in that they both urge readers to consider, if even briefly, the possibility that it is peaceful exchange, undergirded by a gentility of spirit demanded by an open marketplace free from coercion that lifts people out of desperate misery. To the extent that we share a set of common ideals like mercy, love, temperance, justice, trustworthiness, humility & al., it is through the civilizing and pacifying forces brought by bourgeois euvoluntary commerce that the flower of humanity blossoms.

And perhaps more to the point, it is through these civilizing institutions that the atavistic vices are dulled, subordinated, attenuated. He who clings to malice, wrath, obduracy, to picayune churlishness, to insolent parochialism or arrogant nationalism suffers disproportionately under a system that disproportionately rewards compassion, rejects coercion, and resists the dominion of man over man.

And how much more beautiful can you hope for a collection of conclusions? Those institutions that broaden the scope of euvoluntary exchange just happen to be the very ones that rely on the bourgeois virtues. Is Deirdre McCloskey a Euvoluntary Exchanger? It would be churlish of me to deny it.

Euvoluntary Exchange

To avoid being excessively tendentious, this post offers an overview and a review of the EE project. What is euvoluntary exchange? Why should we care about it? How do we use its insights to make greater sense of the world?

What is the euvoluntary exchange project? I see its purpose as an attempt to skitter past many of the orthogonality problems ordinary folks have when they discuss oddities in the marketplace. By identifying clear boundaries around a set of trades that pretty much everyone can agree upon, all us frogs can sit on the same lily pad before jumping off into the pond to talk about exploitation or coercion or paternalism or irrationality or what-have-ye. Good discussion, good pedestrian philosophy, good common-sense economics, good armchair political science starts out with everyone on the same footing, using the same clear language with the same clear definitions. The six sidebar conditions fence in some of the wilderness and let us explore the frontier together. This is an important contribution to the exchange of ideas, particularly when cheap information permits the ready formation of insularity.

What is the euvoluntary exchange idea? Folks approach the world with a set of values and a set of beliefs. Values arise from moral warrants and are perhaps less subject to change than beliefs, which reside in the halls of reason and are therefore relatively more prone to argumentation than values. The euvoluntary exchange idea casts a wide net for a set of commonly-held values. Economists, particularly those of a free-market bent, have a peculiar habit of elevating the public role of a relatively small set of moral principles and relegating the remainder to the realm of private activity. Almost any economist will admit that love, admiration, envy, and pride are part of the human experience, but few are as willing to incorporate these considerations into policy prescriptions compared to a typical voter in a democracy. This leads these economist types to sanction (what a funny word, it means its opposite) an uncomfortably large range of trades. The EE idea defines a narrow bit of pasture to what is pretty likely to be trades that don't offend the values of ordinary folks.

What are the euvoluntary exchange conditions? The role of the conditions in the sidebar are to lend a rough and ready guide to common intuitions: trade in stolen goods, the writing of contracts not allowed by common or international merchant law, the sale of hazardous or addictive substances, the use of venal force to fix terms of trade, and most importantly exchange with folks in desperate or highly unequal situations can all, jointly and severally cross ordinary folks' moral boundaries. The six conditions of euvoluntary exchange wrap crime scene tape around the investigation scene. I see the purpose of this blog as a team of detectives examining the evidence. We're the Hardly Boys and we just want to ask you a few questions.

When I started thinking of things in terms of euvoluntary exchange, it helped ease a sense of frustration. I didn't understand why decades of cruel and unusual public policy saw otherwise innocent marijuana users chucked in penitentiaries with violent criminals to placate the peccadilloes of paternalists. Now that I have an EE toolkit, I still think America's drug policy is wrong, but I'm better able to engage the moral reasoning that underpins the policy and adjust my arguments accordingly. It's my hope that folks who might disagree with me on other topics might do the same: start from an EE position, see where violations happen, then reason from there. This approach makes it easier to spot differences in values as well as analytical blind spots. We still may disagree on issues, but at least we'll stop talking past each other.

Or that's the hope anyway.

Henderson on Zwolinski Asks Our Favorite Question.

Matt Zwolinski made a great little Learn Liberty video on sweatshops. David Henderson comments at Econlog. Key question:

I basically like the video, although I have one question and one disagreement. My question is about something he said at the 2:00 point. He says:

So long as sweatshop labor is voluntary, even in the weak sense of being free from physical coercion...

That suggests that there is a stronger sense of "voluntary." I don't know what that sense is. Does anyone reading this post know what that strong sense is? Matt?

That sense is euvoluntary, Professor Henderson. Sweatshop labor is not euvoluntary because of a disparity in BATNA. The alternatives to light manufacturing labor in small economies are truly dismal: subsistence farming (particularly when scrabbling to deal with food aid from abroad), begging, or prostitution just to name a few. There needs be no threat of violence by these employers, just the implicit threat to let them carry on with their otherwise unpleasant circumstances.

As a reminder, here are the conditions needed for an exchange to be euvoluntary:

Conditions for Exchange to be "Euvoluntary"
(1) conventional ownership
(2) conventional capacity to buy/sell
(3) absence of regret
(4) no uncompensated externalities
(5) neither party coerced by human agency
(6) neither party coerced by circumstance; the disparity in BATNAs is not "too large"

I hope this helps to answer your question.

Re-examining los repartimientos

The historiography of the repartimiento system in 18th-century Oaxaca has been controversial. The interpretation of its significance is ripe for the ideologically-inclined, but the debate would be made clearer with a clearer definition in terms.

Briefly, the repartimiento system saw the Spanish crown sending elites to their colonial territory of Oaxaca to govern the native populations there, without any more extensive imperial presence. These elites wanted to make a little on the side, and the local populations (poor by European standards to begin with, and significantly impoverished since the arrival of those Europeans) were desperate for credit. The Spanish elites fronted them cash or expensive livestock at high interest rates; these debts were to be repaid with cash crops that the elites could take back to Spain for large profits.

The dominant view is that this enterprise was coercive, and in the context of overall Spanish-Indian interaction, it strikes me as naive to assume that the repartimiento system was not characterized by racism, violence and underhanded dealings. Jeremy Baskes, though, emphasizes that the reach of the Spanish Crown was not very strong in this region, and that the individual Spanish elites would have been best served through market exchange, since they didn't have the force to fully dominate the population.

The final sentence of the piece: "Indians accepted repartimientos voluntarily."

Now, it clearly wasn't a euvoluntary exchange. The elites had the power to imprison debtors at will and the Indians were much, much poorer. Given those constraints, though, the Indians weren't actively coerced/enslaved, and were in many cases made better off through access to this foreign capital.

Some Love From Okapian

Interesting blog, often writes on incentives / ethics / liberty problems.