Despotism in America

Count Alexis de Tocqueville on the (17th c.) Connecticut code of laws (Democracy in America vol. 1 ch. 2) [translation errors mostly mine]:

Among these memorials, we will particularly single out, as particularly characteristic, the code of laws given the little State of Connecticut in 1650.

The legislators of Connecticut begin with penal laws, and, for their composition, they conceive of the strange idea to borrow provisions from sacred texts:

“Whosoever shall worship any other God than the Lord,” says the preamble, “shall surely be put to death.”

This is followed by ten or twelve enactments of the same kind, copied verbatim from Deuteronomy, Exodus, and Leviticus.

Blasphemy, sorcery, adultery, and rape were punished with death; an outrage offered by a son to his parents was to be punished similarly. The legislation of a rude and half-civilized people was thus transferred to an enlightened and morally mild community; the consequence was that the punishment of death was never more frequently prescribed by the statute, and never more rarely applied to the guilty.

Side note: I'm aware of the physical condition of many of the original pages, but Tocqueville is an eminently clear, vigorous writer. It is indeed a shame that so many English translations of DiA are prone to burdening his prose with extra baggage. If the original author writes clearly, a good translation should reflect that propensity, n'est ce pas?

Tocqueville was contrasting the character of the sons of the Puritans in New England with the more commercially-minded settlers in Virginia. His claim was that the character of the nation was as the character of a man: one might observe the traits of the adult in the behavior of the child. A nation forged by commerce is one likely to retain commercial virtues; a nation of browbeating harridans is likely to cling to petty despotism. The wonder of America, claims ol' Lexy, is that she is a land of both.

So there is, should you believe de Tocqueville, a curious bundle of predispositions in the United States. On the one hand, there is a deep and abiding appreciation for hard work, honesty, integrity, trust, professionalism, honor, and prudence. On the other hand, there is a deep skepticism about profligacy, ostentation, inequality, and aristocracy. We Americans appreciate the life of an honest yeoman, and revile the pomp of inherited privilege. Or so goes the predisposition anyway. The American mythology seems mostly consistent with that story, even if the actual experience says otherwise.

What, I wonder, might this tell us about the odd moral intuitions about commerce in America? The Connecticut anti-fops described above would doubtless appreciate Elizabethan sumptuary laws, and might find kinship with the petit paternalism flogged in the academy and on the campaign trail. The tight-buckled Capotain-doffing burgher might even see in this round's crop of insufferable presidential candidates something to love: here an authoritarian who promises to scour the land of undesirables, there another authoritarian who promises to purge ostentatious displays of illicit wealth.

I do wonder though. I wonder to what extent these national predispositions color our individual moral intuitions about the nature and extent of the market. Euvoluntary exchange is great, at least until it enriches someone enough that they start behaving boorishly? Exchange can't be euvoluntary if it violates the ancient legislation of a rude and half-civilized people? This presents a curious puzzle for those few of us not instinctively bound by the mores of either the Plymouth rockers or the Richmond rollers. How can you possibly argue convincingly against the crushing weight of four hundred years of national opinion? Reason is slave to the passions, nowhere so much as in the unexamined tabernacle of the poll.

Also, I had totally forgotten that de Tocqueville was nobility. I wonder why we don't include that little tidbit more often in class.

Nail Salon Exploitation Hoax

Wow.

The New York Times has pretty much just starting phoning it in.

People want to believe that these "exposes" are a way to help the poor.

But in fact these stories are just attempts by poorly educated humanities majors from expensive colleges, working in a deservedly dying industry, to lash out at the rich.

Even reading the original "story" on its merits, the chief outrage seems to be more about the wealth of the customers than the bad conditions of the workers.  Just having a job is "exploitative," in the view of the New York Times folks who have never had one. And that makes sense, in a way:  If you were a Social Work-Lit double major at Brown, the idea of actually creating value in a real job is pretty disgusting.

And Dignity For All.

Rev. Dr. Martin Luther King Jr. Day always raises my melancholy. I'm melancholy for the rubbish Whig history of race relations I was taught in my public school. I'm melancholy thanks to the public opinion surveys and FBI crime data I've worked with. I'm melancholy because there is easily-picked low-hanging fruit right there rotting on the branch: end the thrice-damned drug war once and for all.

I think I'm mostly melancholy because of an ongoing, resolute refusal of folks to grant commonplace dignity to all. Some of us refuse to grant dignity because of profession choice, others because of what folks choose to pursue a hobbies, or with whom they wish to have sex, or to which gods they pray. Some folks withhold dignity on the grounds of income or spending habits. Others withhold dignity related to military service or the lack thereof.

I'm a dishwater-dull, American, white, suburban dad. I've got it better than almost everyone on earth. I count myself extremely lucky that I can afford the luxury of merely indulging melancholy rather than suffering impotent rage over easily-corrected injustices. Everyone on earth should have a presumption of dignity, not just people like me. I suppose it's my ordinary human frailty that the best I can do is to teach my children and the few who heed me here at EE (& elsewhere) to respect the autonomy of strangers, to lend them dignity regardless of race, of social status, of profession, of gender, of age, of nationality.

Dignity is much like trade: it is mutually beneficial. By delimiting what others are allowed to do with their time and talent, the universe of exchange opportunities available to me quite naturally expands. Will some of the choices folks make be non-euvoluntary? Perhaps. But when people are denied the dignity to discover for themselves what is best in life, they necessarily suffer the often-grim alternatives. Build euvoluntarity. Build dignity.

Marriage: Private Good, Public Institution

Two friends recently wed. When I first met Pamela, her surname was the same as mine. She was kind enough to grant me the rare luxury of shortening her name to "Pam" for the sake of the rhyming scheme. As of earlier this week, she and BH have merged to form the Voltron we now call #TeamByrmela.

Okay, maybe it's just me that does that.

At any rate, congratulations you guys. And a well-timed one, as Justin Wolfers has been getting some really good press over his latest (impeccable, as always) empirical work on the role of the divorce regime as it relates to marriage stability. The tl;dr version: divorce rates have tanked. People who choose to marry these days tend to stay married. Of course, people have been delaying marriage and having kids out of wedlock and all that stuff. But for those folks who do tie the knot, they seem to be better at forward induction. There are fewer social pressures to wed hastily, therefore the rate of euvoluntary marriage is greater. That's fantastic news, so long as you're in a euvoluntary marriage.

Consider the following distribution:

The right tail has always been good to go. They marry, they stay married, they have decent jobs, live in good neighborhoods, obtain good educations, contribute plentifully to their retirement accounts, get regular checkups, and eat kale. The left tail has always been doomed, and the evidence for that is in the dismal failure of longstanding New Deal and Great Society programs to eradicate measured poverty. Life in the left tail is characterized by periodic joblessness, substance abuse, negative savings rates, unplanned reproduction, you know—pretty much most of the chronic gripes you hear from social conservatives.

But the grey area is what's contentious here. Wolfers is picking up a tendency for these folks to (marginally) postpone marriage until they've found a better match. No hasty marriage at 19 means no messy divorce at 35. My hunch is that the reasons for this are some admixture of both cultural and regime reform. There's less social stigma to being unwed, and that's related, probably by both cause and effect, to the advent of no-fault divorce.

The benefits of a good, stable marriage are unquestionable. The folks in the right tail have better lifetime earnings, more satisfaction, and usually a legacy they take pride in (see some of Double-D's posts on end of life regret for counterexamples). If the folks in the middle of the distribution would simply be more prudent and diligent about participating earnestly in the marriage market, they would find that the discounted present value of a successful marriage far outweigh the costs of obtaining one.

The empirical question is this: how receptive to treatment is that "if"? As Wolfers and Stevenson have noted in other research, the costs of at-fault regimes include higher rates of domestic violence and spousal suicide. Yikes. Restoring the old regime would hit the left side of the gray zone pretty hard.

There are maybe some tax incentives that could encourage the grey zone to shrink, at least a little, and probably only on the right side. But having one mortgage instead of two is already a pretty strong financial incentive, ne c'est pas?

So what remains? The institution of marriage is a public good: it has all the characteristics of a non-rival, non-excludable good. Individual marriages, contrarily, are precious private goods. Typically, when we want to encourage good behavior without the downsides of relying on coercion, we default to rhetoric, to persuasion. In the misty days of my youth, we watched felicitous families on television like The Waltons, or the Cunninghams, or the Ingalls clan out there in that little house on the... I dunno what to call it... savanna I suppose... veldt maybe. As I grew older, Ward Cleaver gave way to Al Bundy. TV families stopped being aspirational and became more cynical. Long time readers might accurately predict that I prefer cynicism in my own entertainment fare, given my cruel and unforgiving temperament, but if Deirdre McCloskey and Virginia Postrel are right, we get more of what we respect, we get more of what we glamourize. Perhaps we'd see more stable marriages out there if viewers would consume more content that raised the relative status of durable marriage.

A public service, if you will, in support of a euvoluntary institution.

Just watch out for hammy tropes though. Audiences know when they're being preached to, and they don't much like it.

The IPO is not Dead Yet: a Rejoinder

Via TC, Timothy B. Lee (@binarybits on le Twitter) interviews Marc Andreessen (@pmarca). ATSRTWT.

I don't mean this to sound as obnoxious as I know it will, but it's hard to find an economically literate venture capitalist. Let me explain.

Economic literacy is not the same thing as financial literacy, not by a long shot. Economists pierce the illusion of money to study the underlying phenomenon of the exchange of value. If you've taken a graduate course in microeconomics or game theory, you'll recognize this habit in all those equations that use derived utility in lieu of cash. Even in undergraduate courses, you'll very often hear philosophical musings on what money is, how money differs from currency, how income differs from wealth, and even more fundamentally, that the beans you use to reckon accounts are nothing more than social agreements: implicit claims on one half of a (eu)voluntary exchange. Economics is a philosophical discipline. Yes, it's more practical than metaphysics, more earthy than epistemology, more stubborn and piggish than aesthetics. Despite that, it's still devoted chiefly to answering not-obvious questions about the hidden treasures of human existence.

Financial literacy, contrarily, is a matter of arithmetic. The two are related in that the topic of study is relative prices, institutions, and exchange, but finance studies the metrics exclusively, without fussing about with all the underlying utility arguments. And well that it doesn't. The philosophical underpinnings of trade, how true (not merely measured by bank account balances) wealth is generated, and how it is that people can be richer (happier, more fulfilled if you prefer) merely by reshuffling ownership over an existing stock of physical stuff—distracts the financier from the important business of probabilistic bean counting (the important difference between accounting and finance is timing: accounting is what you do after the fact, finance is what you do before the fact). Venture capitalists have an advantage in thinking carefully about the details of their business, the regulatory landscape, and the sorts of stuff people are likely to want to buy in the near future. However, they earn no beta, no additional returns, for thinking like a philosopher or an economist (and thank goodness for that).

So bear in mind that when Andreessen kvetches about Sarbanes-Oxley, the practical outcomes he identifies are financially literate. The econo-philosophical side would be keen to point out that stock market investment at its finest is democracy in action, where anyone with a little gumption and a few bucks in their pocket can signal that they believe in a firm's ability and willingness to serve customers. Investment is a way for anyone (of sound mind and majority age) to participate in the grand ballet of mutual benefit and service. Andreessen's worries about business volatility, quick-cycle rumor mongering, and dogfights between short and long sellers are symptoms of interference, but the cause is ultimately ideological and cultural. Constituents have ceded their sovereignty over trade in financial instruments to what Adam Smith called "men of system." The stock market is scary, so the median voter is comforted by the phantasm of stability brought on by the SEC, FTC, BCP, etc, etc. Lee extracts from Andreessen Bastiat's knell: the unseen results of this severe meddling is wretched de-democratization of the process of supporting new ventures.

On the bright side, Kickstarter and similar services have re-introduced little-d democracy back into the world of innovation. One of the great things that's happened in my lifetime is that creative people now have the ability to directly petition fans and potential customers for support. To me, that's precisely what the old-timey clickety-clack stock market is for. The noticeable difference is that instead of full-page IPO spreads in the WSJ, kids with cool ideas now make heartfelt (if formulaic) videos and publish to the Web. This I like. A lot. It's the new IPO.

Heh. The IPO is dying. Long live the IPO.

Distinguishing Risk, Uncertainty, and Non-Ergodicity

In response to yesterday's post, LK asks: "non-e[rgodicity] is a subset within uncertainty, right?"

A good heuristic I keep handy to avoid looking like a fool is to be cautious when answering what seems like an obvious question when posed by someone clearly smarter than me. Here, we've got a few minor semantic issues and at least one problem of application. As I attempt to clarify, please bear in mind that I'm combining a brief survey of what others have done with what I think is useful. Out of an abundance of caution, I'll use a bit of technical jargon from statistics, but I'll do my best to illustrate what I mean with metaphors. If you're a casual reader, please don't let mentions of probability density functions throw you.

For the difference between risk and uncertainty, I turn to Frank Knight (who was the professor of James Buchanan, sort of making him my intellectual great-grandfather). In chapter VII of Risk, Uncertainty, and Profit (alas, I can find no electronic copy worth a pig's knuckle—even my paper copy is a photocopied, semi-legible disaster), Knight distinguishes risk arising from a defined, known probability distribution from uncertainty arising from an inscrutable, unknown probability distribution. Importantly, he takes a Cartesian, empirical approach to the question. Since he's an economist looking at real world phenomena—he mentions life and fire hazard insurance—he's leery of a priori probability reckoning. From p.225:

It must be emphasized that any high degree of confidence that the proportions found in the past will hold in the future is still based on an a priori judgment of indeterminateness. Two complications are to be kept separate: first, the impossibility of eliminating all factors not really indeterminate; and, second, the impossibility of enumerating the equally probable alternatives involved determining their mode of combination so as to evaluate the probability by a priori calculation.

Knight is saying here that careful analysis must not ignore what Nassim Taleb calls "fat-tail" events, or "black swans", to be alert for the financial profession's maxim "past performance does not guarantee future returns." The rapid summary is found in the opening sentence to the next chapter (p.233): "[t]o preserve the distinction which has been drawn in the last chapter between the measurable uncertainty and an unmeasurable one we may use the term "risk" to designate the former and the term "uncertainty" for the latter." That's more than 140 characters, but it's about as pithy as one might hope. Risk is governed by a defined, known probability distribution. Uncertainty is not.

For ergodicity (and the lack thereof), I turn to Douglass North. In Understanding the Process of Economic Change, Chapter 2, Section II (p.19) opens with a dictionary definition of ergocity:

"involving or relating to the probability that any state will recur, especially having zero probability that any state will never recur." Therefore, "an ergodic stochastic process simply means that averages calculated from past observations cannot be persistently different from the time average of future outcomes." For Samuelson the ergodic hypothesis was essential for a scientific economics.

Obviously, Knight disagreed with Samuelson. For Knight, the challenge faced by firms was to deal with uncertainty and the role of the economist was to catalog and observe rather than to predict and manage. For more on these (and more) intellectual traditions in economics, I strongly recommend Pete Boettke's Living Economics. At any rate, North continues:

To an economic historian surveying the ten millennia of human history from the onset of the Neolithic revolution, however, the ergodic hypothesis is a-historical. Further, the extraordinary changes in every facet of present-day society are evident all around us; and it is evident that we have been and are creating societies that are unique in comparison to anything in the past.

Non-ergodicity concerns novelty. Adding North to the Schumpeter-Knight-Kirzner synthesis isn't a matter of managing shocks within industries, it's how institutions (and to sprinkle a dash of McCloskey on top, rhetoric and moral sentiment as well) respond to system-wide disruptions. The commercial viability of the steam engine sounded the death knell of the stagecoach industry. Ditto the reversion of the purse strings to parliament in the Orange Revolution, ditto the moldboard plough, cooking meat over a fire, or fore-and-aft rigging on sailboats. Some developments kill entire industries, entire ways of life. These are not problems of the firm, but of society.

So to answer Lynne's question: both Northian non-ergodicity and Knightian uncertainty deal with inscrutable outcomes that arise from processes that we can only roughly and imprecisely model using historical evidence. But the way I understand uncertainty from Knight is that outcomes are still basically in the same ballpark as before: we've still got the same basic rule of law, the same basic patterns of production and exchange, the same bourgeois rhetoric, and the same types of relationships. The way I understand non-ergodicity from North is that when something big hits, all bets are off. Whole social orders, entire nation-states, entrenched ways of life, broad political coalitions are threatened by non-ergodic developments. The two are related in type, but not in scale.

To close, picture three urns, labeled "risk", "uncertainty", and "non-ergodicity".

In the risk urn, there are 50 white balls and 50 black balls. You know a priori the odds of what you're going to draw.

In the uncertainty urn, there are 50 white balls and some other balls. You know a priori that you could draw a white ball, but you can't calculate the odds beyond what you've seen other people do in the past.

In the non-ergodicity urn, there are 50 white balls and some other things. They could be balls, but as far as you know, they could be snapping turtles or vinyl copies of Fleetwood Mac's classic album Rumours. You can't calculate the odds, and you might not even have a very good idea of what the downside risks could be.

To recap, this is simply my understanding of the differences. Much like the "political kayfabe" meme, distinguishing the three is a little personal pet project. As you might imagine, the boundaries between risk, uncertainty, and non-ergodicity are hazy. And the implications for ensuring an environment where peaceful, mutually-beneficial voluntary exchange aren't always perfectly clear. But I am of the opinion that distinguishing these three helps clarify how and why some societies seem to be robust against minor change and major upheaval while others collapse. I hope this helps.

Insider Trading is More than a Feeling

Insider trading, making stock market exchanges on information that has yet to be made public, violates US statute law (15 U.S.C. § 77a, 15 U.S.C. § 78a, SEC Rule 10b-5, & al), but more importantly, sanctions against jumping the queue, so to speak, have a common law pedigree. Nearly any statute that can be traced to English common law antecedent is likely to appeal to the inherited common sense of the median Anglophone.

Insider trading offends the sensibilities of even folks who otherwise have no direct interest in the goings-on of the finance industry. Poll your (non-economist) friends. Ask them to give one-word summations of insider trading. Don't be too shocked to hear words like "slimy" or "thieving" or "fraudulent" come up pretty regularly. We've got an idea of insider trading that well predates the Oliver Stone version of a greasy Gordon Gekko, and it's in the cigar smoke swirling round the head of the Mr. Moneybags plutocrat popularized by the should-be-banned-by-the-Geneva-Convention board game Monopoly. Insider trading is unfair, it's a breach of trust, it's greedy, profiteering. It's vile.

It's also information. If a firm is in trouble for whatever reason, active insider trading lets the market know ahead of time if the time is right to divest, maybe even convert the physical assets to a higher-valued use. But we block (and I can't stress this enough) through common law moral intuitions this information from being used. The Samuelsonian economist in me is aghast at the inefficiency.

But I'm bathed in the milk of euvoluntary exchange: I believe in the importance of examining morality without romance. Here, as in most instances of financial instrument exchange, folks' far-mode musings lead them to think of one and only one side of the exchange. Consider that for everyone who sells stock, there must also be someone to buy. If you're claiming that in an insider trading situation that the other side of the exchange is taken advantage of, you might consider asking how that happens.

Look, a contract is struck when there's offer and acceptance. If the GTM is offering to sell me his riding lawnmower from last year for five bucks, I might begin to suspect that something's up. If I investigate and find out that making the trade is still in my best interest, in what sense is he exploiting me? It's the same in the stock market. If Chrysler's management knows that production forecasts from last quarter were too optimistic and they attempt to take out a short position, who's being exploited? Production is weak one way or the other, it's got nothing to do with the paper claims against the firm. Nothing at all. the paper just lets management tell the market a little earlier. Prices, or in this case the offer of a price is information. No one says you have to actually buy the dang offer. Right?

My suspicion is that there's a confusion between intentions and incentives. The profit motive is icky, no matter how useful it might otherwise be. (Partially) overcoming this aversion was one of the finer upshots to emerge from the coffeehouses of London. Each time this hardy weed springs up it endeavors to choke the garden of prosperity. Keep your Roundup handy.

From Coruscant To Tatooine in Less Than 12 Parsecs

I met a stranger from a distant land. He told me of grand spaceports, shining plinths, vertiginous superscrapers, and a furious economic bustle that lifted my mercenary heart. His was a spacefaring race, you see. Deep in the hearts of the Galactic Barquentines his folk used to ply the starscape nestled the key to space travel: a core of refined phlebotinum.

Alas, the stranger's heart was heavy. In his land, the stellar vessels were lovingly crafted in his home country of Mungertopia, but every dry dram of raw phlebotinum was to be found in one place and one place only: the neighboring nation of Spivonostan. The Mungertopians were brilliant, productive engineers and scientists, notable for their grace, courage, and professionalism. Contrarily, the Spivonostanis were dour, dull, and poor. Phlebotinum mining had crowded out their traditional way of life and thanks to the conversion of (nearly) all of their physical capital, they were entirely dependent on trade with the Mungertopians to maintain their national income. This, the stranger said, weighed on his conscience. Commerce with his people had the effect, even if unintentional, of sowing dependency in the Spivonostani culture. It was exploitation, so he claimed.

"Hold on a minute," I rejoined. "Isn't there a decent case that they're the ones exploiting you?"

"Huh?" He sounded puzzled and a little amused, as if he was caught between two possibilities: I was either trying to make a dumb joke or our meeting had turned my thoughts to jelly. Either way, there was patient pity in his reply. "We're rich, they're poor. We have an advanced economy, they produce just one thing. They're, in your own words of euvoluntary exchange, desperate to trade."

"But you can't make your spacecraft fly without what they have. Consider yourselves enlightened. Where I come from, our political leaders have installed puppet governments just so we could put cheap bananas on our cereal in the morning." I reminded myself of the embarrassing news coverage I watched as a boy of Operation Just Cause and the terrible rout of Noriega. "Look, your economy is just as dependent on theirs as theirs is on yours." I was warming to the topic. "The trade may not be fully euvoluntary, but it's at least voluntary, right? You said it yourself, the alternatives would be to return to their traditional ways, making both your lands worse off." I wanted to insert a pregnant pause, but he mistook my silence for an invitation to rebut.

"But all that wealth ends up in the hands of the oligarchs that own the mines." I could almost feel the indignation spill from his clenched hands. "They own the mining equipment, they keep wages low, they buy up any patch of land that has even a remote chance of having a vein of phlebotinum underneath it. Trading with these people empowers these oligarchs. It's immoral."

"So you're worried about the inequality in Spivonostan?" I was careful to be a little vague here, intentionally not specifying exactly what sort of inequality he found worrisome.

"That's one part of it, yes. The average Spivonostani earns but a tiny share of the massive gains from trade generated by the phlebotinum economy." I could tell that he was on the cusp of making a common error: comparing his own situation with that of the target of his pity. Luckily, he caught his mistake and proceeded, "I'll grant that they're better off mining phlebotinum on the evidence that they've chosen to do so without being coerced beyond the promise of what we Mungertopians can offer in trade, but Justice demands that gains from trade be proportional. Isn't that what your Aristotle said?"

"It is. Where I come from, prudent, thrifty foreigners save and borrow in the hopes of migrating to my prosperous country to create a better life for themselves and their family. Can't the Spivonostanis do the same?" My pride and prejudice have a hard time passing up an opportunity to flog open borders, after all. "Wouldn't free migration at least mitigate some of the exploitation problems you cite?" I hoped that some elementary economics was part of his education. "Good outside options should help increase the reserve wages of the workers in Spivonostan."

"Would that this were true, young man." I was a little taken aback at being called young by this dude who looked barely out of his twenties. Maybe they've solved the aging problem in Mungertopia. I shrugged it off. "Our land is poisonous to the Spivonostanis. They can't survive here." He sounded forlorn, as if this were old, painful news. "This is a technological problem, not economic, not political, not even philosophical."

At this, he bid me a brief farewell and got back inside his wee spaceship. I watched the "my other ship is a Corellian Corvette" bumper sticker dwindle in the distance as he flew off. And I pondered.

You see, we here in the affluent West are awfully accustomed to being the Mungertopians. We're in the "first world", we're comfortable, we're rich, and we can afford the luxury of indulging condescension towards the rest of the world. But if the Singularity folks are right, we'll sooner or later find ourselves in the shoes of the Spivonostanis and it will be our brain emulation (or maybe AI) descendants who'll be trading asymmetrically with us. And it's worth considering if we want ourselves or our flesh-and-blood descendants to end up the butt of condescending paternalism of the sort we find in the new imperialism.

Why is it worth considering? Because one of the answers to Andrea's Question is that ideas, particularly given weight and time to germinate, can influence attitudes. A revival of bourgeois dignity can help not only boost human flourishing here and now, but it can underpin the approach our mechanical descendants have towards our meatier progeny. The only downside might be to stick a thumb in the eye of our contemporaries who so greatly enjoy fancying themselves to be better judges of our behavior than we are.

Of course, given the right temperament, that might be a virtue rather than a vice.

Markets in Nothing: Is Virtue Inalienable?

"What kind of a woman do you take me for, sir?"
"We've already established that, now we're just haggling over the price."
- NOT Winston Churchill

Is virtue for sale? Should it be? Consider Aristotle's example of the man throwing down arms and fleeing the field of battle. If that's the end of the story, he's (presumably) guilty of cowardice: a lapse in the virtue of courage. But what if he were paid to throw down arms and flee the field of battle? I think almost everyone would agree that paid desertion is a far worse offense. It's no longer cowardice, it's betrayal. Judas Iscariot's woeful tale put him at the very nape of The Beast in Dante's Inferno because of his treachery. Thirty pieces of silver are the wages of the worst eternal torment.

The curious thing is that it's tough for even me to be objective about this. I'm trained to be very sensitive to act consequentialism (that is, it's the outcomes of human action that warrant analytical consideration), but I cannot for the life of me shake the moral intuition that the incentives behind an act are morally relevant.

Taking a bribe to look the other way is ignoble. Taking a bribe to look the other way to pay for your kid's cancer treatment is not quite so ignoble. Unfortunate? Yes. Risky? Sure. Ignoble? Maybe not.

Incentives matter, but so does context. Virtue is local. Arete is personal, eudaimonia sees to the end of the block, and if phronesis isn't kept on a leash, it'll poop in the neighbor's flower bed. Pretending otherwise saps and impurifies autonomy and community responsibility. If you're skeptical of national-scale politicians who promise you otherwise, rest assured that your skepticism is probably well-founded.

And if you must sell your virtue, make sure the terms of the trade are as euvoluntary as possible.

Differential Non-Euvoluntarity in Schelling Decisions

I have to confess to what I gather is called "privilege". I'm a boring suburban white dad. I have a desk job I enjoy. I commute. I have a mortgage, a pretty good education, a lovely wife, a cute-as-a-button daughter, and a modest collection of threadbare socks. I haven't been in a fistfight since 6th grade, I've only been mugged once, and the only time I've been on the receiving end of purposeful gunfire was in (believe it or not) Florida two decades ago. Being a married, middle-aged white male in the modern secular West means I totally won the historical lottery.

Winning this lottery means that I'm vulnerable to charges of arrogance when I try my hand at Smithian sympathy applied to topics outside my ken. I've never been arrested on possession charges, so who am I to discuss the plight of the casualties in the War on American Minorities? Well, at the risk of taking off my boots to reveal feet of clay, I'd like to consider BATNA disparity applied to the Schelling Effect. I'm pretty much guaranteed to never be subjected to routine street harassment, so is the higher opportunity cost faced by my female reader(s?) cause for moral grievance?

Let's ask PJS.

@amelapay: "headphones are the utilitarian solution to street harassment. they get to have their uncivilized outbursts, but you don't hear a thing."

See these? Ram Jam cranked to 11 right now. More Than A Feeling is up next. Jay-Z later.

Hey baby, how bout you and me head back to Mos Eisley for some blue milk? I got a metal bikini that would look great on you.

@adamgurri: You know, princess, "Tasers are the deontological solution." If Kant taught us anything, there's a categorical imperative to enforce social norms. Escaping the Hobbesian concrete jungle where dreams are made of means being a bit of a scoundrel from time to time.

Artoo, you know what I'm talking about, right?

@DrPhilofEconomi: "An intimidating dog is the eudaimonic solution."

Maybe it's time to swap your pocket pooches for a Rottweiler. The Big Apple surely has a rescue shelter or two with burly dogs in need of some kindly foster care. Arete means that you can care for a critter in need of love while you help make the NYC streets a more civilized place to walk. Everyone wins and you don't have to commit assault to get there.


If these comments weren't in jest, I think this'd count as "mansplaining". The economist would be quick to point out that the costs of street harassment are sunk in the initial calculus. Pamela is no dummy. She knows right well that catcalling and rubbernecking is part of the New York life and she decided to live there anyway.

But the economic efficiency argument falls flat, even to me. There's an unjust transfer of PJS's peace of mind to satisfy... well, I don't claim to understand the motivations of hooting, braying, honking, juvenile males. Smithian sympathy goes only so far. Catcalls aren't about picking up chicks (apologies, Robin H.). Point is, there's an uncompensated exchange in there. The benefit roguish men get from hollering noxious, unwanted sentiments at passersby surely counts as psychic pollution. Right?

But the thing that got me thinking was this. This speaks to my insularity, but I hadn't even heard of "male gaze" until relatively recently. To me, there's a pretty significant difference between a man appreciating a beautiful woman on the one hand and catcalling on the other. But that's to me. I'm willing to entertain the idea that I'm wrong about that. Leering and ogling is neither frotteurism nor lewd remarks, but the wispy boundaries of aggression here are at least plausibly contentious. Can staring be psychic pollution?

The Coasean solution strikes me as eminently sensible. Manners are as good as gold. You don't have to be a blue-blood aristocrat to afford everyone else a de minimus parcel of respect and to handle offenses with tact and dignity. If you find yourself compelled to check an attractive woman out, I assure you it's not difficult to do so with discretion. Appreciating beauty need not cause distress. And for the other side of the exchange, I'm afraid I'm at a loss there. Mrs. Wilson is exceptionally good at deflecting unwanted attention, but I never get to see her razor wit at work. No one catcalls her in my presence. Sorry. But not really, since if you came to EE looking for tips on how to handle street harassment, you've got more serious problems than I can help with.

Anyway, in a static sense, there's a gender asymmetry in where to settle. In a dynamic sense, narrowing the BATNA disparity will take strength of character and a bit of creativity. The institutions that support street harassment are not euvoluntary, so finding and securing a better, emergent equilibrium can't be hand-waved (or gavel-banged) away easily.

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.

EE Goes to the Movies Ep. 3: Seven Samurai

Is it possible to have spoilers for a film that came out in 1954? Well, in case you haven't already seen what is probably in the top 5 most influential films of all time, spoilers ahead.

Like every other Kurosawa flick from the end of the war through maybe Yojimbo (and I'd be willing to consider an exception there too), Seven Samurai was foremost an allegory about the dysfunction in Japanese society that produced the Pyrrhic loss in 1945. Think of the last scene where Shimura looks over the village, half his fellows dead (including the brilliantly grotesque Toshiro Mifune) and remarks about how the miserly, miserable farmers were the victors in the conflict.

Now, this film was set prior to the establishment of the Tokugawa shogunate (and I think it was even before Nobunaga's campaigns), which means that in the film's universe, regional warlords kept their territories locked down pretty tightly. Stuck in a grim manorial autarky, everyone in the lower feudal ranks enjoyed a lousy menu of alternatives. No voice, no exit. In the film, the titular samurai were scrabbling for work that just wasn't available. You get the sense that they were on the verge of eating their own shoes (a pretty common theme in a lot of Japanese period drama, even in those films made after the economy had recovered), but even they weren't as bad off as the villagers, who in one memorable scene, set to picking individual grains of millet off the dirt floor to avoid starvation. There's no sense that the choice to contract unemployed swords-for-hire is anything but a last resort for the desperate villagers. The poverty of the samurai suggests that what we see is desperate bargaining, not disparate bargaining.

Seen as cinematic penance for 13 Dec, 1937 (and yes, I agree that Rashomon is the better vehicle for this particular apologia), the film encourages a viewer sensitive in EE matters to question if honor, duty, or some bowdlerized version of bushido is a tacit term of any contract proposal. I've mentioned before what Adam Smith had to say about the common duties of a morally complete human towards preventing the suffering of others. This sort of moral impetus is tough to capture in quantifiable measurements. But it sure exists. Tithing is a thing that people do.

So does this mechanism expand or contract the sphere of euvoluntary exchange? Or is it more contextual than that? Does honor or duty make it more or less challenging to adjudge ex post regret from afar? Watch this clip to refresh your memory and tell me if Shimura's character regrets helping the village.



Watch the clip and tell me if Japanese conscripts regretted serving under Hideki Tojo.

It ain't that easy, is it? Now strip the context from a supposedly regrettable exchange and make a big ol' ex ante claim about the regrettability [sic] of terms of trade when non-pecuniary motives are lumpy and heterogeneous. Practical rational choice theory gets a whole lot tougher, especially when filtered through the curious incentives faced by career bureaucrats.

Two by Four: Round 2

Last time, I questioned folks who invoke pedestrian notions of cost when discussing the encorpulentation of Americans. Today, I want to ponder the ecological rationality of gluttony and its partial role in body weight outcomes.

Our good pals Von Neumann and Morgenstern lend us four axioms against which to adjudge blackboard rationality:

1. Completeness: preferences can be weakly rank-ordered. I either prefer apples to oranges, oranges to apples, or I'm indifferent between the two. I cannot both prefer apples to oranges and oranges to apples. I think of the completeness condition as the anti-schizophrenic axiom. 
2. Transitivity: preference rank order preservation. If I prefer apples to oranges and oranges to bananas, I prefer apples to bananas. No rock-paper-scissors when it comes to preferences. This one is where it gets tricky when we include extra dimensions.
3. Continuity: there's some exchange rate at which I'll swap apples for bananas. Yes, I like one apple more than one banana, but all else equal, I'll give up a slice of apple for a bunch of bananas. And then it'll get awkward because I'm always tempted to call a bunch of bananas a "group" of bananas, much in the same way I'll call a bunch of grapes a "cluster" of grapes just for pure contrary cussedness. 
4. Independence: irrelevant choices shouldn't affect my rank ordering. If I prefer one apple to one banana, I should prefer one apple and one orange to one banana and one orange. This one is the most obviously difficult to sustain in an ecological setting. Suppose I prefer milk to apples. Add oranges to each. With apples and oranges, I can make fruit salad (yum!). With milk and oranges, all I can make is sadness and disappointment. Independence is violated (sort of).

These are nice axioms to use when we create those cute utility models with which to derive demand curves. The problem is, as with the GDP stuff I keep grousing about, is when our model shifts from being a tool to describe the world to being Procrustes' bed upon which to rack and hew mankind. Nutritional do-goodniks wage bright campaigns against sellers of chow balanced upon the thin reed of probable regret. No raw milk, no imported cheese, no big-ass sodas, no bundling of toys with fast food, no trans-fats, no bacon-wrapped frankfurters, no this, no that. You can't control your appetite, so it's up to us to control it for you. Don't worry, you'll thank us later.

This is the world of ex post regret. Would you like to super-size that?

Funny thing though, there's a lot to the argument. Ignore the shallow reasoning based on fiscal externalities and assume that we've got a world undistorted by farm bills and "health" policy (the scare quotes are there because we subsidize medicine and insurance and then pretend that we're subsidizing health). Even in a world where all costs are borne by the consumer, discounting is such that many folks will overeat. Gluttons will regret all the face-stuffing. Gorging yourself isn't euvoluntary.

There's a now-ridiculed old-timey virtue called temperance which unfortunately got all muddled up in the anti-alcohol campaigns of the late 19th and early 20th centuries. Temperance and a fair dose of table manners may have helped keep appetites in check. As with most other virtues, the path that leadeth there cannot be trod by political elites on the behalf of constituents. Forced virtue is no virtue at all. Duh. So if I prefer more food to less food today and I prefer being svelte to being obese tomorrow, I've got a challenge that confounds my Max-U rationalist. Maybe it's a fine time to recall that this problem is far from intractable. It's just that the particular traction happens to be out of the hands of politics but rather impaled on the forks of diners.

So yes, people are getting fatter. The solution isn't more and thicker bans. People are too hungry and too clever for that. At a minimum, it's directionally euvoluntary to stop doing harm. 

Euvoluntary Self-Actualization

The classic Isaac Watts poem about the virtues of diligence and prudence should resonate well with euvoluntary exchangers.

How doth the little busy bee
Improve each shining hour,
And gather honey all the day
From every opening flower!

Observe the pointed absence of avarice. The bee labors not to pad a bloated bank account or to afford a new Ferrari, but rather for the satisfaction of the job itself (ignore the error; bees gather nectar, not honey). Or so we might be led to conclude. The poet makes no mention of profit or opportunity in the opening stanza, no hint of self-serving gain. The bee toils and in her toil, improves each shining hour. This could be lifted straight from Smith: It is not from the benevolence of the tulip, the honeysuckle, or the violet that she expects her honey, but from their regard to their own interest. The trade between the flower and the bee is euvoluntary, and moreover, generates massive spillover benefits. This bit of the parable is particularly easy to overlook, given as one might be to forget that the riches in a free, open society benefit everyone.

How skilfully she builds her cell!
How neat she spreads the wax!
And labors hard to store it well
With the sweet food she makes.

Even after studying economics for as long as I have, I confess I still don't quite grasp the logic behind the so-called paradox of thrift. I've an old gripe about "teaching to the test", which is what happens when an analyst elevates a metric to a goal. GDP is an instrument used to gauge the vitality of an economy that is composed of people in the ordinary business of living. The economy serves the people. GDP targeting reverses this notion, perverts it, lashing individuals to the pillory of an accounting fiction. Miss Bee (a eusocial insect, I might point out) saves for her colony, alert to the specific knowledge she has of her particular time and space. She is a Hayekian bee.

 In works of labor or of skill,
I would be busy too;
For Satan finds some mischief still
For idle hands to do.

I wonder if anyone else besides me saw that 1999 Seth Green movie. Anyway, this is an interesting sentiment. There's a lot to parse in the "idle hands" narrative. Is idleness a vice because it breeds dissatisfaction and a penchant for vandalism? Does it sap the social benefits of production? Is there a proto-Randian anti-looter mentality buried in there? Is a moocher is a moocher whether she's supping at the trough of her family or by the generosity of the taxpayer? I don't want to take this too far out of its context, but I think there's a sort of general lingering contempt against people who are genuinely capable of working but who voluntarily elect to take public funds and sit on the couch all day surrounded by a cloud of Cheeto dust, watching talk shows in fluffy bunny slippers. There's probably something in there to offend every moral axis: dishonesty is universally reviled.

In books, or work, or healthful play,
Let my first years be passed,
That I may give for every day
Some good account at last.

Here's where it's really interesting. Here, we drop the parable and go straight for Maslow. Production for the sake of spiritual elevation, participation in the market to the end of a sweet and tender bourgeois satisfaction is truly a remarkable thing to find in a piece of poetry. It rejects the notions of what Deirdre McCloskey calls the "clerisy", those intellectual elite hidebound in their disdain for the common virtues of entrepreneurship. The very notion that work can elevate the soul? Heaven forfend! Of course, that might be a bit of a strawman. I think it's reasonable to assert that even an ink-stained ivory tower professor or a towncar Manhattan socialite can agree that there's a spiritual satisfaction in the adroit performance of a challenging task. It might be that they think the "trade" part of production and trade is sordid after a fashion, but I think almost everyone can appreciate the laudable pride earned by a task well and truly mastered. I just happen by the light of my own working-man experience to subscribe to the proposition that this pride is more ubiquitous than the clerisy may be willing to admit.

At any rate, contrast the Watts poem with Carroll's rejoinder from Alice's Adventures in Wonderland:

How doth the little crocodile
Improve his shining tail,
And pour the waters of the Nile
On every golden scale!

How cheerfully he seems to grin,
How neatly spreads his claws,
And welcomes little fishes in
With gently smiling jaws!

Watts celebrates the virtues of bourgeois production, Dodgson lampoons the craven avarice wrought by the collusion of the second and third estates. It's another Smithian argument, this one on the propensity of guildsmen to seek ye rents while ye may.

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.

EE and the Precautionary Principle

The Precautionary Principle is a regulatory doctrine that assumes new products to be harmful (and therefore unfit for sale to the public) until proven otherwise. The Precautionary Principle noses its head above water fairly frequently. The EU invokes it when scorning GMO crops, the FDA relies on a very strict interpretation (requiring both safety and efficacy before new drugs can be sold), and any gated industry stamps licensing requirements for new entrants with the de jure seal of the PP, even when the de facto motivation for licensing is to artificially restrict the supply of labor to raise its price.

What does EE have to say about PP? Good question. BATNA disparity is always interesting in the case of de novo products. Drugs are a good example. Suppose I've got late-stage pancreatic cancer (knock on wood) and unbeknownst to me, Merck recently developed a drug that stands a pretty good chance of putting the cancer into remission, but it's being held up in trials by the FDA. Yeah, sure my BATNA is desperate in an absolute sense, but should this new product really be included in my expectations calculus? Is it consonant with decent moral intuitions that I should be able to expect the right to make a potentially life-saving transaction, even if there is a non-negligible probability of some ex post regret?

Or is it possible that the FDA's efficacy requirement is a bulwark against the peddling of snake oil? People in desperate situations have inelastic demand curves for life-saving products (think of the desert taco truck), so our regulatory authority invokes the PP to ensure that hapless customers with lousy or asymmetric information aren't fleeced by the avarice of corporate elites? Is the sale of false hope sufficiently noxious that from behind the veil of ignorance we crucify mankind on a cross of Type II errors?

Ultimately, the Precautionary Principle forces constituents to swallow their BATNA until new products emerge from quarantine. Is this meta-euvoluntary? What effect does this policy have on innovation? On bourgeois dignity? On trust and prudence? Under what conditions is the PP sensible? When should it avoided?