Of Windows and Bricks

One time, I brought home the wrong brand of diapers. Though displeased at my error, my wife expressed no desire to hurl a brick through a window of the Pampers factory.

Not everyone shares her temperament.

Maintaining analytic composure in the face of infidelity is probably challenging. Seeking to ruin the lives of others over it compounds tragedy with injustice. Temperance is a virtue.

Spouses are indeed affected third parties to prostitution transactions. Think carefully upon what precisely this entails.

Perfect Cooperation

If you can get through this without raking your fingernails across your face and screaming into the futile night, I congratulate you. I can't do it. I'd rather listen to Henry Kissinger botching ABBA karaoke in a sequined thong (I'll leave it as an exercise for the reader to imagine who exactly is wearing the glittery underpants). The startling thing is that the piece has no protagonist. Both Krauthammer and Klein commit egregious errors of a priori reasoning and ex post evaluation of empirical evidence. Ordinarily, I'm quite fond of stories that contain nothing but villains: I count Herzog and Von Trier among my favorite auteurs, but what I adore in cinema I abhor in attempts at serious analysis. If you've better sense than to click on the link, here's the giveaway graf:

By way of background, during the minimum wage segment, Krauthammer correctly noted that raising the minimum wage would result in some job losses because "it's an axiom of economics: If you raise the price of everything, you are going to lower demand."

If you need me, I'll be over here, shaking my damn head, palming my damn face.

Economics is a funny ol' discipline. It's extremely important out in the wide wide world, and most undergraduates take at least an intro course. Certainly folks who end up in a b-school or poli sci or whatever have done the principles series. But something (obviously) gets lost in time, translation, and under the pressures of special interests. Like Bryan Caplan observes, there's a telephone game of dread import happening, one subject to not only innocent mistakes, but to active sabotage.

And the curious language of economics lends itself quite easily to misinterpretation. Consider something that's in pretty much every intro textbook: (except the only one you should be using) a model for "perfect competition", shorthand for a market with many sellers, each with a small proportional share of the market. This is used as a pedagogical tool to teach students the role of prices in the production process. Importantly, it's the economist's version of a frictionless environment, a blackboard fiction intentionally stripped of context to teach the mannequin articulation of applied price theory. The "competition" bit means competition between firms, but lazy op-ed writers latch on to the linguistic shorthand and claim that competitive markets imply that the competition is between firms and customers or firms and their employees.

This is not the message of the discipline of economics.

Markets are first and foremost about cooperation. The simple, common, everyday act of offer and acceptance in an environment that respects both the prior and post allocations after an exchange is a cooperative act embedded in a suite of institutions that holds all participants sovereign. The mundane activity of going grocery shopping is a marvel of commonplace human dignity. Trying to justify coercive intervention into this by claiming that firms are competitive perverts not only the lessons of economics, but robs ordinary people of the ability to say "no". In a livery market, if I don't like the surge pricing, I can say "no". In a market for after a hurricane, if I don't like the price for ice or gas, I can say "no". And that's as true for a buyer as a seller. Markets may be less cooperative under situational duress, but their fundamental character is still cooperative. I for one plan to change how I talk about this. I encourage you to at least consider doing the same.

If even bright people like Krauthammer and Klein can botch something as simple as the First Law of Demand, some small tweaks to the jargon might be worth considering.

Is Ronald Coase a Euvoluntary Exchanger? (Deadmaus Edition)

We get abstracts! From Mungo:

Morals and Markets
Armin Falk & Nora Szech Science, 10 May 2013, Pages 707-711

Abstract: The possibility that market interaction may erode moral values is a long-standing, but controversial, hypothesis in the social sciences, ethics, and philosophy. To date, empirical evidence on decay of moral values through market interaction has been scarce. We present controlled experimental evidence on how market interaction changes how human subjects value harm and damage done to third parties. In the experiment, subjects decide between either saving the life of a mouse or receiving money. We compare individual decisions to those made in a bilateral and a multilateral market. In both markets, the willingness to kill the mouse is substantially higher than in individual decisions. Furthermore, in the multilateral market, prices for life deteriorate tremendously. In contrast, for morally neutral consumption choices, differences between institutions are small.

The experimental design is straightforward: 3 treatments, one unilateral, one bilateral, one multi-lateral. Participants have a choice between cash (expected value 10 pounds sterling) and saving the life of a surplus testing mouse that would have otherwise been destroyed since it's unfit for use in the lab. Long story short, folks in the unilateral (i.e. you can have £10 and we kill this mouse, or you take no money and the mouse lives out its remaining natural life in comfort) treatment decided to save at a much higher rate than in the bilateral (i.e. two folks negotiate a trade if they wish. If a deal is struck, the parties receive the terms of trade [they have £20 to split] and the mouse dies, otherwise no deal and the mouse lives). There was no statistically significant difference between the bilateral and the multilateral markets, except in the equilibrium price (see Vernon Smith's work for a critique of this part of the experiment).

Now, this piece was in Science, which for those of you who aren't familiar with the publication is a multi-disciplinary journal, somewhere between a popular magazine and a general interest academic journal. Articles have strict length requirements, and the pieces have to be written sans disciplinary jargon. So I can forgive quite a bit of elision when it comes to the details of the experiment. What I find troubling is the interpretation the authors present. They pirouette out of the bounds of their sample to conclude that markets are immoralizing. The act of exchange in the bilateral and the multilateral results in more rodent deaths, therefore there's something about market trade that strangles other-regard and generates negative externalities (and I'll generously refrain from critiquing the erroneous depiction of what constitutes an externality in their opening remarks). That's one way to look at it. Another way to look at it is that wealth exposes compassion.

Consider what an alternative control group might look like. For most of human history (and all of human prehistory), the probability that anyone would have forgone the equivalent of £10 of wealth to save the life of vermin would have been close to zero. It is only because of the spectacular opulence offered by the modern economy that we gentle souls can even begin to consider the lives of mere brute animals with anything approaching tenderness.

Which brings me to the Coase (Demsetz too) point that what the researchers have exposed isn't so much some moral failure of markets, but a property rights gap. The mice have no agency. To me, this is the intriguing result. You see, we here from our lofty vantage point in history look back on our dreadful ancestry and pity them their benighted morals. They did indeed indulge in some godawful behavior: human chattelry, forced marriage, savage public execution, racking, breaking on the wheel, crucifixion, on and on and on. With the nightmarish examples of Stalin's purges, Mao's Great Leap Forward, and Hitler's Holocaust excepted, these modern times bear the hallmark of a sharp decline in violence, most notably venal, but there's a case to be made for institutional as well. I can imagine a future where our descendants would look on us with sad disdain at our lust for bacon. If you're willing to grant some agency to livestock, a particular progression of morality would be to grant beasts property rights over their own life. Yes, this may seem a bit silly to many folks, but who would have predicted in 1600 that people 400 years hence would be so tender as to grant reprieve to mice of all things? How much more gentle will doux commerce make our descendants?

Tough to say of course, but it is encouraging that so vastly much more exchange can be counted as euvoluntary these days. It really is quite remarkable.

For Whom The School Bell Tolls

Arnold Kling has a great article at the Library of Economics and Liberty on a common epistemic blind spot that conflates school with education. He drops a great line in the fourth paragraph that neatly hooks a codfish circling the tidal basin of Misapplied Scope in the Sea of Almost Euvoluntary Exchange.

[T]he watchword for many conservatives and Republicans is "accountability," which in practice appears to mean top-down control over schools using test scores as a metric.

"Compared to what" is the verbal round economists have chambered at all times, with the hammer cocked and the safety off. "To whom" ought to sit ready in the holdout pistol, particularly when the discussion is about responsibility and accountability. To whom is a vendor accountable? Who bears responsibility for so-called externalitites?

In the case of education, it strikes me as likely that "to whom" educators ought be accountable is parents and students. It's kind of peculiar that the political elite is unwilling to allow people who are empowered to participate in the process of electing them the simple sovereignty of determining appropriate educational standards for their kids. If they're so incompetent at this important task that is so near and dear, why trust them with electoral franchise?

Equal protection under the 14th Amendment unless you're poor, I suppose.

But this idea extends way past mere education. We've got a Uniform Commercial Code and an ADA and OSHA and an EEOC and many more agencies that usurp the accountability implicit in a euvoluntary exchange and put it on a fast train to Union Station ( that's in DC, for those of you who don't live in the area). Thanks to the ubiquity and universality of these government agencies, should we assume that in expectation, no commercial transaction is euvoluntary? Or have we fireless smoke in this instance? Do government agencies provide some other important function other than to shift the burden of accountability from firsthand bargaining parties to third parties with no stake in the outcome of the trade and a set of incentives that may or may not be well-aligned with the outcomes of the transaction.

Is there any reason, pardon my French, to assume that anyone in the National Education Association gives two furry craps about Fort Wayne, Indiana second-grader Kimmy P. Chizzle's progress with spelling, particularly after adjusting for her innate ability, and exceptionally so when compared to the people that actually know and care about her! Education is no more about aggregate test scores than economic performance is about GDP per capita.

Ditto for all these other things. Economics tells us to do stuff where the marginal benefit exceeds the marginal cost. You can type this with six keystrokes (assuming you hold the shift key down the whole time) on a standard QWERTY keyboard. Actually performing the calculus of decision is hard without local knowledge and impossible without relative prices. Heads of DC agencies have neither. It seems dreadfully irresponsible to assume the appropriate scope of accountability is national, especially in a country whose contiguous landspace spans four time zones and hosts more than 300 million people.

Accountability is a vital element in protecting the euvoluntarity of exchanges. It assuages ex post regret, promotes prudence in contract, and cements the socially beneficial bonds of trust and reciprocity. Blithely reassigning accountability without extremely judicious use of the precautionary principle is reckless.

Reihan Salam on Euvoluntary Exchange

Interesting NRO piece by Reihan Salam on Euvoluntary Exchange. Nice examples. And the question at the end is the right one. I just don't know the answer.

What are the sources of the disparities we care, or rather that we should care, about?