Payday Lending vs. CFPB

The Consumer Finance Protection Board, which I am sure you recall was formed in response to the 2008 financial crisis has turned its gaze towards payday lending.

Curious. Borrowers often have to take out new loans to cover interest payments on existing loans. Occasionally, a borrower's profligacy leads to what in other circumstances is called "unpleasant monetary arithmetic." This is when interest payments exceed tax receipts. When this happens to a government, someone has to get stiffed. Often, it's the taxpayer that takes the hit.

I remind you that the borrowing and the interest due is but a symptom. The underlying issue is that borrowers earn too little relative to their expenses. All the CFPB regulation they can muster won't do a thing to remedy the actual problem. All they can do is oblige would-be lenders to accept an otherwise unpleasant BATNA. Which for some people will include repossession, eviction, bankruptcy, or God forbid, turning to organized crime.

Eh, maybe that's the point. Perhaps the CFPB's telos is to punish those wicked citizens who have the temerity to be poor and desperate. If that's the case, this decision makes complete sense. And I'm sure they have all the backing they need from those constituents so blessed by Providence that they never need solicit the aid of strangers.

h/t M-Rizz

California Conflict

California SB-967, the Student Safety: Sexual Assault bill recently signed by the Governor of CA (full text here) withholds public funding for universities unless administrations develop comprehensive sexual assault policies that conform to the several conditions described in the bill. Much of the criticism of the bill I've seen involves clause (1):

An affirmative consent standard in the determination of whether consent was given by both parties to sexual activity. “Affirmative consent” means affirmative, conscious, and voluntary agreement to engage in sexual activity. It is the responsibility of each person involved in the sexual activity to ensure that he or she has the affirmative consent of the other or others to engage in the sexual activity. Lack of protest or resistance does not mean consent, nor does silence mean consent. Affirmative consent must be ongoing throughout a sexual activity and can be revoked at any time. The existence of a dating relationship between the persons involved, or the fact of past sexual relations between them, should never by itself be assumed to be an indicator of consent.

The trope invoked here is "if it ain't euvoluntary, it ain't voluntary." Sexual encounters that provoke ex post regret are not euvoluntary, hence the "affirmative consent" criterion. There's even an app for that.

"Get the government out of my uterus" this is not. But the purpose of this post is not to fret about the possible downsides of a database of sexual liaisons accessible by university personnel, law enforcement officials, or (given the frequency with which sensitive information is compromised by enterprising black hat crackers) pretty much anyone. Instead, I ask you whether or not SB-967 isn't just a natural consequence of zero-tolerance primary education.

Typical college students in 2014 have spent their entire school careers in a post-Columbine (1999, how tempus doth fugit) environment. Every hallway scuffle, every playground bout of fisticuffs, every swirlie, every noogie, every wedgie has been first subject to administrative oversight and then carefully excised. The very purpose of intolerant policy is to sanitize child development of the unfortunate ills of conflict, particularly violent conflict. It welds training wheels to the bicycle of social development. A natural consequence of this is that 19 year old adult children are (relatively) incapable of negotiating grown-up relationships. They're sent into the deep end still wearing their water wings. It should come as no surprise when the legislature mandates a new squadron of lifeguards.

Is there a Great Stagnation? Perhaps. But if SB-967 is a bellwether, then it seems likely that there may also be a Great Ossification. Amid the disruptions of the sharing economy, the public is also facing greater command and control from political elites. What a relief those elites are wise, beneficent, civic-minded servants of the public interest with no motives of their own other than to see the flower of humanity blossom.

Poverty is not Euvoluntary: Basic Income Edition

The latest Cato Unbound, led by (left-handed?) friend of EE Matt Z. turns an eye to the Basic Income Guarantee. From the lead essay [emphasis removed]:

No libertarian would wish for a BIG as an addition to the currently existing welfare state. But what about as a replacement for it? Such a revolutionary overhaul of the welfare state would almost certainly require a constitutional amendment, both to insulate debate somewhat from the pleas and protests of special interests, and to make it considerably more difficult to renege on the deal afterwards.

For a basic income program to be palatable to directional libertarians (I'm inclined to prefer the term "marginal" libertarians, but let's not quibble), the replacement requirement is imperative. For more, see the KPC version here.

Zwolinski offers justifications that should appeal to just about anyone, regardless of political preferences. Please indulge me a brief consideration of his four main selling points.

1. Less bureaucracy. I don't claim to know what the optimal level of bureaucracy is. It probably ain't zero, but it's probably also a whole heck of a lot less than what it is now. Zwolinski cites overhead costs, and while I agree that those are troublesome, it's probably still small potatoes compared to the full opportunity cost of taking quite competent workers out of the productive economy and setting them to work shuffling other people's resources around. I cheer even harder for this point than does the lead essay.
2. Cheaper. Getting more for less is good (for normal or superior goods). Cheapness comports with the classical virtue of prudence. Economists like prudence.
3. Less rent-seeking. I've studied public choice economics. This is my dog whistle. There are many like it, but this one is mine. Matt even cites Buchanan. Beautiful.
4. Less paternalistic. Unfortunately, Matt doesn't cite quite enough Buchanan. One of JB's later papers made an important markets-in-everything point. If you model paternalism as a market, with both supply and demand, you should be skeptical about claims that no-strings-attached transfer payments will long stay free of paternalism.

Buchanan's insight in Afraid to be Free isn't particularly controversial. Self-discipline, like anything else valuable, is costly. Ordinary economic reasoning says that any time there's a valuable resource and the appropriate technology to harness that resource, there may well be an opportunity for specialized production and exchange. In this case, voters can organize to petition the state to restrain them from making certain decisions.

In Zwolinski's essay, he cites Charles Murray's proposed Constitutional amendment that would forever and anon banish targeted programs in favor of some version of the BIG. This amendment cannot constrain the sovereign from imposing paternalism on other margins. And it cannot and will not address an underlying demand for social control. If constituents wish the behavior of themselves and their fellows to be constrained by the state, they will find a way.

So the empirical question is whether or not the tradeoff is economically efficient. We need to ask questions like whether or not the NYC soda ban would have been more likely to stick around in a BIG world and what the costs would have been of that. It's a different analytical task, complicated by an out-of-sample general equilibrium.

The counterfactual state of the world is (probably) not one of no paternalism, but rather one of paternalism unbound. The real trick for libertarians is how to move towards a world of both lower discrimination and lower dominion. I submit to you, my dear readers, that this task is complicated by a constituency that actively seeks more of both. Underestimate their wiles at your peril.

Poverty relief is not euvoluntary. And some sort of income guarantee, be it universal transfers or workfare or whatever, is probably better than the status quo. But please don't oversell it. The pig iron law of public policy is that there are no solutions, only tradeoffs. 

Open Borders vs The Divine Maxim of Plato

Reason hosted a debate on "Should America Open its Borders" recently. Presenting in favor were Bryan Caplan of George Mason University and Alex Nowrasteh of the Cato Institute. Against, and unfortunately outnumbered, was Mark Krikorian of the Center for Immigration Studies. Caplan, as is his wont, relied chiefly on appeals to common sense morality. Since he's done extensive work on voter opinion, this makes good sense. Voters tend to use far-mode, impressionistic thinking when discussing policy, and it seems eminently reasonable to ask folks to employ the same sorts of moral reasoning they use in their daily lives to issues of policy. Nowrasteh mostly confined his remarks to empirical questions: do immigrants actually assimilate (yes), do immigrants vote for the bad policies that ruined their home countries (no), do immigrants commit crime at higher rates (no), etc. Krikorian went another route. Here, lend him your ear:


Note the appeal to Aristotle. Aristotle wrote that the political life was the pinnacle of the human endeavor. I beg you to grant that this is an accurate reading of Aristotle and that the conflation of the Greek city-state with the modern nation-state is not at all fatal to Krikorian's point. Even if we grant that, does it follow that any policy in the core of the game is just and fair governance so long as it flows from the will of the constituency?

In a democracy, the role of the archon is played in equal measure by each voter. I find plausible theories of expressive voting, that voters feel at liberty to shirk the best practices of idealized philosopher kings thanks to the ordinary results described by political economists. But this positive result cannot support the normative claim that voters' intents needn't be consistent with the best practices of idealized philosopher kings.

Recall via Smith, Cicero's formulation of the Divine Maxim of Plato: the sovereign is "never to use violence to his country no more than to his parents." As long as we are making appeals to NE, it's worth considering what constitutes good governance. If you would sleep easy having trapped your parents in a third world country for having the misfortune of merely being born there, then you act in accord with Plato's Maxim. Contrarily, if you find the idea of your parents languishing in misery in the service of economic fallacies monstrous, then supporting heavy prior restraint immigration restrictions on Aristotelian grounds lacks phronesis. Which would it be for the median American voter? Would the typical registered voter be cool with packing up their folks' bags and sending them off to live in Bangladesh, having committed no crime?

Look, there may be valid reasons to oppose unlimited immigration. Appealing to a lean reading of Aristotle may not be the most robust approach.

P.S. Today's podcast will be with my good friend Robin Hanson. There's a bit of a technical delay, but it should be up before midnight. I hope you'll like it.

Smithian Sympathy, Cuddle House Edition

"No offense to men, but I don't know any man who wants to just snuggle."

When you make snuggling a crime, it's hard to see how snugglers won't fall prey to criminals.

I don't pretend to understand people who choose to keep up with celebrity gossip. I suppose that means I should round up my county SWAT team and execute some no-knock raids on anyone in my community I suspect of wearing a housecoat.

Jesus wept.

h/t Reason

The Limits of Epistemology: The Regret of a Life in the Now

"The lottery is a tax on stupidity"—an ever so glib canard gripped lightly between the dentures of anyone who's studied even a modicum of statistics. The expected value of a lottery ticket, once you run it through the probability calculator is a few fractions of a cent more than negative whatever you paid for it. Put this way, if Richard Pryor in Superman III tried getting rich off the other side of the lottery game, Lex Luthor would have laughed him off and teamed up with The Penguin, and I mean Danny DeVito Penguin, not Burgess Meredith Penguin.

So are people who buy lottery tickets just chronic, irredeemable buffoons? Think very carefully before you answer. Consider that you might not be able to adequately adopt a complete sympathetic perspective of the scratch ticket customer. Consider for a moment if you will that the great benefit axioms of rational behavior offer is to allow us to work through logical relationships between prices, institutions, and behavior rather than to yield synthetic propositions about how the world, she actually is.

What I beg of you is to apply something akin to the Lucas Critique to questions of individual behavior: "features which lead to success in short-term forecasting are unrelated to quantitative policy evaluation, that the major econometric models are (well) designed to perform the former task only, and that simulations using these models can, in principle, provide no useful information as to the actual consequences of alternative economic policies." In the case of private behavior, it's worse still, since the claims about individual "irrational" behavior is grounded in a synthetic version of an analytical construction of rationality!

The waterfront bar version of my critique is this: who the hell do you think you are, Mr. High & Mighty thinking you can tell me my business? Furthermore, the dependent variables in your econometric specifications are proxies. And you cannot know how much more imperfect they'll be after you change the treatment. But you know as well as I *hiccup* do that if you yield to the coercive hand of the state the authority to modify my personal, private behavior, they won't stop until the oceans are drained. Pick your Doma Castle poison: drugs, alcohol, currency exchange—prohibition ends in blood. And flying on the back of political promises to reform the behavior of low-status, politically voiceless constituents, experience suggests that the creep from suggestion to mandate to leading the world in incarceration rates is not a logical fallacy.

Ex post regret is possibly a problem for some people. But only possibly. Even if genuine, it's hard to verify. Furthermore, the prior restraint imposed on Jones for Smith's expectation of regret violates both the non-worseness and precautionary principles. Context-rich decisions about private behavior, whether it's retirement planning, nutrition decisions, child rearing habits, or intravenous drug use are epistemologically null outside Dunbar's Number. Pretending otherwise is the pretense not just of knowledge, but the hubris of control.

But we here at EE don't like to merely squat astride coercive society and grunt "nein". We support constructive alternatives. In this case, "externalizing internalities" means clearing the cobwebs that obstruct strong social networks. It means that we stop jailing fathers for petty drug offenses. It means we put the police back to work detecting crime rather than playing at highway bandit or Marine. It means we ease off on the civil planning thumbscrews, returning content control back over to teachers and parents, allowing creative destruction in sclerotic institutions. It means prudently discarding failed coercive enterprises. It means accountability.

It means a wider breadth of euvoluntary institutions and a narrower breadth of coercive institutions. Limiting ex post regret is tough work. Pretending otherwise by petitioning the state is a sure path to exploitation, tyranny, and moral decay.

An Apology to my Readers

I've been posting here at EE since January of last year, and in that time, I've been writing under the warrant that fully euvoluntary exchange is universally acceptable. That indeed, if all six conditions are met and the exchange itself isn't morally or aesthetically objectionable, then not only would the tails of the voting distribution shelve any pretense at meddling, but even the busybodies themselves would pass their eye over the exchange in search of more worthy prey.

I was under the impression that the Euvoluntary Exchange thesis had something important to say about the nature of third party interference in mutually beneficial voluntary exchanges. I thought that Munger had made some very compelling arguments that fit well with not only the conflict resolution literature but with my own reflections gathered from close to four decades of trundling my corpulence upon this weary earth. I truly believed that a careful analyst, perhaps backed by frameworks forwarded by leading philosophers and economists could comment meaningfully upon modern instances of state-sponsored coercion.

I was wrong, and for that, I sincerely apologize.

From CBS, through Reason, and handled by the Dub-MOE, we now have irrefutable evidence that the EE conditions are insufficient to explain state intervention into the act of eating a meal in your own home.

Take your time. Read the links, especially the CBS link with the original story.

Now pause for a moment and ask yourself what the difference is between a cholera epidemic and a salmonella outbreak. Ask yourself if there is a meaningful difference between harm and external harm. I used to think there was. I used to think that an airborne contagion that could infect others without their knowledge and consent was substantively different in kind if not merely in degree than a food-borne illness whose risk was already captured in market prices. The metastasis of public health organizations suggests to me that my distinctions were the benighted ravings of an academic crackpot. Public health officials (in this story, retired public health officials) have now conflated private, one-off (minor) health risks with effectively unavoidable airborne pathogenic diseases. I had it all wrong.

I mean, the alternative explanation is that the snout of the state has begun to push past the euvoluntary fold, and that? That's just crazy.

Uncertainty and Harm: Goat Milk and the Precautionary Principle

From Maine, a curious tale of a young mother and her tussle with state officials. Her baby didn't much cotton to store-bought formula, so she swapped in a goats' milk confection. Her doctor reports this to DHHS and wouldn't you know it, they threaten to take her child away.

I'm still a little fuzzy on the arguments behind raw milk bans and the like, so I'll try to see if I can reason my way to this reaction from more elementary principles. Let's assume that there's some risk of harm that travels with consuming dairy products. When you combine that with illness severity, you can estimate roughly what the uncovered cost of raw milk is. If you're a fan of unintentional hilarity, you can check the FDA's site here to discover that between 1993 and 2006, a thirteen year period, well, let's let them use their own words:

[B]etween 1993 and 2006 more than 1500 people in the United States became sick from drinking raw milk or eating cheese made from raw milk. In addition, CDC reported that unpasteurized milk is 150 times more likely to cause foodborne illness and results in 13 times more hospitalizations than illnesses involving pasteurized dairy products.

See the dodge? See how to lie with statistics? We've got 1500+ folks who "became ill", then they moved right on to talking about hospitalizations, hoping that you'll assume that all those roughly 100 folks a year ended up in the ICU rather than with a case of the hershey squirts or upended over a porcelain throne barking their groceries to the Great God Ralph. I especially love that last bit, as if the base rates associated for pasteurized milk is something to incite terror in the great masses of men. Thirteen times close to zero is still pretty close to zero, people.

And really, that's like 115 people a year. Even if these were fatalities, and they're not, the numbers are still too small to be reported by the CDC. Link.

So here we've got a known problem: the baby can't handle store-bought formula, and we've got an unknown solution: homemade goat milk formula (and recall that the risk priors for raw milk are for cow's milk), so how does the cost-benefit calculus employed here justify coercive correction? What's the moral intuition?

For this to really stick, we'd need some way of showing that the mother (and by extension, all mothers) are systematically biased when it comes to risk assessment, that state officials are more accurate when it comes to dispassionately assessing the relative risk-adjusted costs and benefits of different menu options. This either assumes supernatural knowledge on the part of these officials or it relies on the moral warrant that children are the responsibility not of those who whelped them, but to the whole of the democracy. If that's the case, it's a moral warrant that seems entirely at odds with the everyday practice of moral behavior. Should children be removed from homes with pools? From homes with antifreeze in the garage? From homes with dogs? The CDC link above has a list of causes of infant mortality, maybe the state has an interest at minimizing all those risks, consequences be damned.

If this idea of the precautionary principle is to really have any meaningful teeth to it, and if you agree with the notion of equality in the eyes of the law, no one is innocent. No home is safe. If, on the other hand, you hold that the purpose of commercial regulation is to safeguard against manifest risk and extant fraud, you'll probably agree that these Maine officials and those of their ilk are a clowder of tax-funded bullies picking on a teen mother.

But then again, there's very little that has to do with children that could be considered euvoluntary. That's reason #1 to be wary of political speech that ever once references the little tykes.

Coercion by Shame: Page 3 Edition

So-called "soft" or (worse yet) "libertarian" paternalism parts ways from more traditional forms in that the relative price changes wrought by policy are meant to be a bit more mild. Under a standard regime, marijuana is bad and under no circumstances can you buy, sell, transport, produce, or possess it without the risk of running afoul of statutes backed by force. In contrast, the new paternalism would have you opt into the market for marijuana use, perhaps requiring licensure or some other surmountable barrier to entry, just enough to deter marginal users, but relaxing the barriers enough to erode profits that arise from legislated risk. The point of the new paternalism is that program managers can design suitable defaults to alter behavior that results in better outcomes, however that might be measured.

Public choice scholars are skeptical of the project.

And from across the pond, we find a particularly fine example of how a gentle nudge can easily become a rough shove. Parliament wants to make online pornography opt-in.

But how is this any different from default settings for organ donation or 401(k) participation you ask? Easy. It's the relative prices, man. The psychic cost of summoning the courage to submit a form with your name and address on it that states in no uncertain terms that you wish to view pornographic materials at your leisure in the comfort of your own home, and probably with the shades drawn is non-negligible.

It's premature to criticize the entire Thaler/Sunstein project just because the House of Commons pulled the legislative equivalent of a big brother punching a younger brother with his own hand saying, "stop hitting yourself; stop hitting yourself," but it is worth asking what happens when well-intentioned social planners armed with a brand-new fleet of default option controls fail to see the sort of change they envision. How easy is it to point to a putatively available option, surrounded though it might be by ravenous crocodiles and irate celebrity chefs?

"Sure, you're free to opt in, you just have to sign this waiver in the public square affirming that you have every deliberate intention of abusing yourself Biblically. Signed this Date of Our Lord 30 July Two Thousand and Thirteen under the witness of The Lord High Exchecquer."

Paternalist please. Metastasis is real. Pretending otherwise insults the intelligence of even the very stupid.

Labor is not Euvoluntary: Orphanarium Edition

From Delfi.lt, a story I can't find an English translation for. And the online translator isn't working for me. My Lithuanian readers won't have any trouble, but the other two of you might. Here's the skinny: temporary Lithuanian workers in Norway are having their kids taken into state custody on the grounds that they're living in unacceptably poor conditions.

Never mind that they're there of their own free will or that they've made the express, rational decision to save on material comforts in exchange for a higher standard of living back home in the future or that they're making remittance payments to relatives living in squalor back home. No, it's important that everyone is equal, and if that's not the case, the Norweigan Barnevern (CPS) will relocate your children as one of the delightful public services they offer.

How enlightened.

Bastiat squirmed.

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. 

Education is not Euvoluntary: Provision vs. Subsidy Edition.

Robin Hanson asks: "What are the plausible market failures in education that might justify governments running schools, as opposed to perhaps subsidizing or regulating schooling?"

My off-the-cuff answer was Schelling-ish: there's a high enough probability of a separating equilibrium that clusters poverty and corruption together to justify government provision. Of course, this is a terribly weak answer, since the same forces that would corrupt private provision of education will also tend to corrupt public provision.

I think I'd add to the argument a couple of elements: education is important in a few impressionistic senses, and it's important to a median voter whose information set has changed drastically since prior to the rise of universal mandatory schooling. I think it's not entirely unfair to claim that most people credit a combination of labor regulation and universal education with the end of child labor. This suggests to me that (voting) folks will tend to be naturally sympathetic to the notion that the locus of praise center on the valiant political elite. Universal mandatory education was a victory against the non-euvoluntary exploitation of juvenile labor. To suggest the voting public cede control over education to private interests would be to repudiate this important, civilizing victory. With this in mind, in practical terms, the burden of proof to show that governments ought provide education is but goosedown.

Consider a case where 90% of the country is pretty well fed, and can provide adequate if not excellent education for its kids under any ol' regime. The remaining 10% is not so well off, and they might be tempted to keep their teenagers home to watch the toddlers (for example) while the mom is off working a double shift just to cover rent and diapers for the month. The well-meaning majority, having recently watched an investigative journalist's report on such a case sees an easy path to make things better. Here's the problem: mom is being exploited by cruel, profit-seeking employers who pay a pittance, and it's the kids who suffer by being trapped in a cycle of intergenerational poverty. The solution? Easy. Raise the minimum wage and make the kids go to school.

Now, let's ignore the unintended consequences for a moment and consider why the 10% folks might be more likely to see government provision rather than transfer payments. My best guess for this is that the distant 90%, seeing the "exploitation" that already occurs will be loath to subsidize yet another private firm that will prey on the poor.

Now then. In the US, we've got something like a century's worth of evidence to see how well this experiment has worked. And just like with problems in macro, empirical arguments of efficacy depend critically on which counterfactual you choose. I think for most people, they grab a counterfactual that goes something like this: private, for-profit schools will have a strong incentive to cut corners when serving low-income students, resulting in underpaid, underqualified teachers, poor occupational safety standards, and inadequate nutrition. If this is your counterfactual, the low-cost solution is state provision. If your counterfactual is that even low-income parents have a strong interest in the welfare of their kids and will insist on accountability, then the case for government provision weakens. I suppose it ends up pivoting on the vision folks have of their neighbors. Is the median voter closer to Friedman or closer to Sunstein?

Is there an actual market failure? That's not an easy question to answer. Is there a perceived market failure? Yep, and when it comes to the cheap talk inside a voting booth, that's good enough. It'd be nice to have betting markets adjudicate here, but I'm willing to bet that won't happen any time soon.

Slurm: It's Highly Addictive!

Op-ed in the NY Daily News by one Marion Nestle on how Bloomberg has yet to go far enough with his big-soda ban.

Here.

Please take your time and read it carefully, because it's not quite the Thaler/Sunstein position. There's some mention of consumer irrationality, but when it comes to soda bans it's old-timey prohibitionism. "If we want Americans to be healthy, we are going to have to take actions like this - and many more - and do so soon."

"If we want Americans to be healthy." Not, "if Americans want to be healthy."

As you might expect, the externality argument appears: "Poor health is expensive for both individuals and society." As any economist will tell you, the more that costs move from the individual to society, the more we should expect to see. Demand curves do indeed slope down. I wonder if Nestle is working hard to lobby for the repeal of medical subsidies.

Much of the rest of the op-ed is vitriol hurled at soda companies (though, amazingly, none at ADM or the US sugar lobby), accusing these large firms of drumming up demand for their product when none would have otherwise existed (puzzling why kohlrabi and pomegranate juice firms have been unable to reproduce this heroic feat). Underpinning this seems to be an old-school temperance movement mien. You'll regret being a [drunk/slob/junky/fatso] later, so it's my duty to save you from yourself. Even if you don't end up regretting it, you should end up regretting it, and by socializing your health care, you can be sure I'll make it my business.

People, "public health" is not synonymous with "the health of the public". A public health problem is one that can threaten individuals' health regardless of their willingness to participate in the causal activity. Scarlet fever is a public health problem. Typhoid is a public health problem. Tuberculosis is a public health problem. Until Munger starts cramming fistfuls of ham salad down my throat against my will, the diameter of my posterior is my responsibility. Even if there are millions of people like me who have to let out our belts a notch or two once in a while, it beggars belief that advertisements are somehow coercive.

But perhaps that's too uncharitable. Perhaps there really is a tyranny of soda [pop for you weirdos]. It's not immediately clear to me that swapping one tyrant for another is necessarily an ideal move. There's a nasty utilitarian calculus problem to solve, exacerbated by the cheap talk problem and imperfect or non-monotonic discount rates. We don't know, indeed we can't know what the ideal obesity rate is without market prices. Further distortions of price information sure aren't going to help matters. Granting political elites the kinds of diktat powers enumerated in Nestle's column ends where exactly?

It's one thing to show that a particular transaction is not euvoluntary (and I'm not convinced that's been done in the case of carbonated beverages laden with high fructose corn syrup), but it's another thing entirely to show that political elites possess the wisdom to remediate troubling outcomes. And what happens as efforts prove ineffectual? Are benevolent paternalists more likely to recant or to redouble?

The Paternatourist

I'm not what you'd call a great big ol' fan of fast food. I'll have a burger from Five Guys every now and again, but if I find myself faced with a choice between a taco truck and a Burger King, burrito beats Whopper just as surely as rock beats scissors.

I moved to Klaipeda in late 2000 and lived there for close to a year. This was just shy of a decade after the collapse of the Moscow putsch, and anyone insufficiently old enough to recall the slaughter at the TV tower in Vilnius was still in short pants. It sort of bowls me over when I realize that there are now university graduates going merrily about their business in Lithuania who have never lived under a Communist regime. Their only knowledge of the Soviet system comes secondhand from family stories or history books. These people have come of age with the Golden Arches as part of the background scenery, not all that differently than me.

There are a few reactions I might have to seeing familiar brand names as a visitor.

1. Typical day tourist.
1. Familiar is good, I know what to expect when I go inside a KFC.
2. But this is charmingly different, they serve beer here, and it's called a "Royale" with cheese.
2. Expat with cred.
1. Familiar is bad, these corporations are sapping the local culture.
2. Exploitation.
3. Economist
1. Familiar is irrelevant, I'm a guest here and I don't have much local knowledge.
2. Sneering (or worse) at voluntary transactions channels the worst sentiments of Victorian era colonialism: O alarum! These poor benighted savages don't know better than to resist the siren lure of a Big Mac, 'tis up to us civilized folk to stand up on their behalf. Expat please.

It's easy, oh so easy to fall in with the sophism of the (B) types. A desire for authenticity, for roughing it with local cultures underpins backpackery. To take this perfectly understandable urge to get out and experience something new and foreign and turn it into sentiments against the familiar is terribly selfish. Coca Cola isn't on grocer's shelves in Turkmenistan to cater to wayward Americans, it's there because there's a market for it. 

Turn the tables. Imagine how you'd feel if Japanese tourists started clucking their tongues at all the Toyotas they saw on the US Interstate highways and penned bestselling novels on the evils of exporting hegemonic Japanese culture to Yankees who aren't civilized enough to grasp that they're throwing away centuries of beautiful and precious national heritage by driving a Honda instead of a Buick. 

Is trade between foreign nationals and US businesses not euvoluntary? To what extent is the paternalistic sentiment of (B) types on American firms operating abroad rooted in genuine concern for the welfare of locals? Is it possible that there's an element of contempt in there towards the oblivious middle class American tour-bus day trippers? Are indigenous people incapable of rational economic calculus? I understand the tragedy that is modernity, we're all alienated from the soil and the bones of our ancestors, but this projected regret seems an awfully thin broth to feed the victims of cultural condescension. It's a pity to find a Taco Bell in Wenceslas Square, but it's also entirely possible that the world doesn't exist to cater to itinerant Americans seeking authentic travel experiences.

The Attrition of Regret Aversion in a Non-Ergodic and Paternalistic Environment

Continuing with my ongoing theme of puzzling over regret aversion by proxy, I'd like to try to compare counterfactual states of the world where:

a) regret aversion can either be generalized or not
b) paternalism acts as either a substitute or a complement for individual regret aversion
c) the world is either well-ordered or non-ergodic (by non-ergodic, I mean that surprising, unpredictable [as distinct from unpredicted] events happen)

What does it mean if a lesson can be generalized? This is one of the dilemmas of education: as educators, we want our students to be able to draw larger conclusions from our examples, to be able to apply the basic framework to a wide range of problems. This is the point of Sir Issac Newton getting bonked on the head by an apple while reading in the quad--he didn't develop a theory of the mutual attraction of apples and noggins, he described the Law of Universal Gravitation. Unfortunately, the literature suggests that most students aren't of Newton's caliber and they seem to have a hard time generalizing from word problems about trains leaving from St. Louis. Choo choo. That's for classroom instruction, however. Perhaps it's possible that by helping people make better decisions through force in the market for sex and drugs, they'll make the right decisions in the rock-and-roll market all on their own. I'm not sure what the literature says on this, so I'm obliged to consider that it's at least possible.

Does paternalism erode virtues like diligence, forbearance and prudence? Moral hazard arguments rest their analytical power on the answer being "yes". I can't think of any one of my friends, on the left or the right who would argue otherwise. The disagreement is rather over whether or not the marginal benefit of the particular intervention outweighs the marginal cost. For big stuff like giant bank bailouts, conservative economists will shout that the state has rewarded bad decisions made by politically well-connected elite entities. My libertarian economist friends will point out that these big bailouts will provide more implicit government guarantees for the next round of imprudent overexposure. My liberal pals snicker at this overwrought hand-wringing and point out that, hey, would you rather the entire banking system and global economy collapse? From their point of view, the conservative perspective is cruel and the libertarians (beyond being irrelevant) offer a red herring, since if what you want is to eliminate moral hazard, the system just needs more oversight and regulation. So for individuals, does paternalistic regulation help people who just need a leg up on making the right decisions, or does it act as a barrier for people who really do honestly and truly want to engage in transactions that offend the moral sensibilities of the paternalist? Can it be an admixture of both?

Consider alcohol prohibition. Without a doubt, there's an element of parentalism in there: some alcoholics have a hard time weaning themselves off the bottle without some external help. Other folks have no trouble going their whole lives drinking lightly in social settings only. Even ignoring the terrible social dysfunction associated with prohibition, the 18th Amendment cared for the first group at the expense of the second. Moreover, over a person's lifetime, they de facto abdicate the onus of having to carefully consider the costs and benefits of alcohol (or marijuana or prostitution or cigarettes or what-have-you) consumption. Instead of asking "do the discounted net lifetime benefits exceed my required threshold", they ask "is this illegal?"

Naturally, this isn't the entire story. There's this phenomenon sometimes called "time-inconsistent preference reversal" or something similar. Once you clear away the math, the idea is simple, clear and consistent with intuition. At one particular time in one particular context, a person may not be especially considerate of the future. Give that same person some time or change the context and hey-presto, the future state of affairs may all of a sudden be especially relevant. Think of having kids: one day you're the happy-go-lucky grasshopper, playing your fiddle, not giving much of a care for the coming winter, but when baby makes three, there's a Kafkaesque metamorphosis into a diligent ant. This effect is probably more common than we think. People's time preferences change with age, with lifecycle changes (distinct from strictly age, of course), with psychological health, with career health, with... well, with lots of stuff. People are dynamic, including their expectations for the future. This is hardly revelatory, but it does pose a bit of a problem for paternalism: how to distinguish between the grasshopper and the ant when they wear the same skin and hum the same tune.

To get the most bang for your buck (so to speak), you'd want people to be able to apply lessons learned from a minimally invasive paternalistic policy to other areas where they might otherwise make potentially regrettable decisions (this helps avoid the problem of throwing the baby out with the bath water). You'd also want either a well-ordered world ruled by Gaussian distributions and normally distributed error terms or people to retain (or develop) healthy, functional regret aversion mechanisms. The breadth, scope and growth of the regulatory state suggests that these conditions probably don't hold.

I think it's probably fair to say that we can safely discard the assumption about ergodicity. The systematic failure of soothsayers and forecasters is strong evidence in favor of non-ergodicity. If regret aversion could be generalized, then the only justifications for a large paternalism apparatus would be sinister: wealth appropriation or tyrannical social engineering: regulations are no longer in the interests of the citizen, but in the interests of the ruling elites. While I think this may happen in some dictatorships and totalitarian states, I am not prepared to claim it's a big part of the political motivation in social democracies. As far as complementarity is concerned, my prior belief is that moral hazard arguments are probably correct. Furthermore, if the world is non-ergodic and paternalistic regulation is a substitute for regret aversion and lessons are non-transferable, regulation is logically unable to accomplish its goal of protecting people from their own lousy decisions even within its own scope. Bans on drugs have not stopped people from getting high. Bans on toys sold with meals haven't stopped kids from eating hamburgers. There is relentless pressure to skirt the best laid plans of mice and men. Human ingenuity and non-ergodicity is why they oft go awry.

So where does this leave us in terms of moral obligation? If you'll indulge my unfortunate habit of beating the same drum yet again, I'd like folks to reconsider what the optimal regulatory zone is. I doubt it's the entire US for most stuff. I'd forward the proposition that the ideal regulatory zone for pharmaceutical products is probably no larger than the family and social circles. Even if consuming Schedule I drugs are non-euvoluntary for some folks, it strikes me as unethical to punish non-regretful users to prevent potential regret in others. Ditto for bacon-wrapped hot dogs and helmet-free bicycle riding and walking back and forth from the rec center to the athletic field or, heck, pick your poison from any of the nanny-state-of-the-month award winners. Moreover, to the extent that people aren't really all that indifferent between default options, the new paternalists will have to move from nudges to shoves to the inevitable truncheon of the state when voluntary choices fail to conform to the wishes of the nudger, which are, naturally, the simulated future agent of the patronized.

And perhaps more importantly, how willing are we to force others to conform to our own deontological preferences?

Payday Loans

Usury is a sin. Dante counted it as a sin of violence and put usurers in the 7th Circle of Hell, noting especially his revulsion with the craven moneylenders, which contrasts interestingly with some admiration he retains for sodomites a few rings over and compassion for some souls in the Wood of Suicides. Even set against murderers, harvesters of interest are portrayed in The Inferno as worthier of scorn. Usury is an act of violence against dignity and industry, according to Dante's interpretation and I have a hunch that his beliefs are still pretty widespread.

Don B. vs. A. Kling on the CFPB

For the posts in question, start with Arnold Kling's remarks here, Don Boudreaux's challenge here, and Kling's rejoinder here.

For those not interested in wading through the click-through, Kling gives a thumbs-up to the CFPB for shooting down some shady practices by Capital One. Boudreaux asks why it's okay to force taxpayers to protect people from their own stupidity. Kling responds with a proposal that might allow us to partition part of the [Euvoluntary]-[Merely Voluntary]-[Voluntary but Possibly Exploitative]-[Outright Fraudulent] spectrum, though

Kling:

So I think I have a test that would allow for some consumer protection without heading down a slippery slope toward paternalistic regulation. That test is, "Can you imagine a set of preferences that would make you want to buy this product?" If the answer is "no," then regulation is justified. However, if you can imagine a set of consumer preferences that would make you want the product, then regulation embodies paternalism and should be subject to libertarian opposition.

Is this a good test? For me, it certainly passes the giggle test with flying colors, but I'm at least a little skeptical when it comes to imagining the preferences of others, especially when you grant that authority to a bunch of career politicians or bureaucrats. The gentlefolk who work across the Potomac aren't especially well-known for being in touch with the rest of America. You're asking regulators to be a bunch of Deanna Trois, not what I'd call a recipe for success. As a thought exercise or a classroom example, this works very well. As a practical guideline for the limits of regulatory agency, I think I'd like to see a clearer set of rules.

The common law has decent (compared to civil law, anyway) guidelines to this sort of thing, but the thing about regulatory agencies is that they are very much civil law-type organizations. They're all often[ed.] about prior restraint rather than ex post compensation.

Edit: As Dr. Kling rightly notes, it's hyperbole to claim that regulatory agencies always act presciently. I thank him for the reminder. It also sort of makes me wonder about the EE and the economics of fraud detection and prevention. This is good, since good topics can be hard to come by.

Brother, can you spare a tissue?

Driving home from work yesterday, I caught a minute or two of an NPR piece on tissue donation. In case you're not completely familiar with the practice, it's much like organ donation, except that instead of whole organs like kidneys, hearts, corneas or lungs, donations are smaller bits and bobs, like heart valves, earlobes or, more commonly, skin.

Here's Part 1 of the series, and I apologize, but I have no idea what segment I caught yesterday. What struck me was the interviewee's remarks on his own participation as a donor. The gentleman being interviewed, a former tissue harvesting technician, had removed himself from the donor list. He acknowledged that deserving patients (I think the example was a father of four waiting for a heart valve or a four-year old burn victim or some other heartstrings-tugging thing) might run the risk of privation, but that he did not feel comfortable donating skin if it meant that it could end up as part of a penile enhancement procedure.

Chow Hall Blues

Great piece from Reason on school meals. Over the weekend, I read Jonathan Haidt's new book The Righteous Mind. Putting those two together and adding a splash of EE, it seems as if we've got an interesting moral conflict.

For Nothing Left to Lose

Nothing don't mean nothing honey if it ain't free. There's been some interesting commentary already on Esther Duflo's Tanner Lecture. All I have to go by is commentary, as I wasn't in attendance nor have I read a transcript, so if I make any factual errors here, I do hope you won't hold me in too much contempt.

According to the linked article, the crux of Duflo's argument is that paternalism is justified as part of a campaign towards greater liberty. People can't self-actualize (I do not know if she referenced Maslow or not, that reference is mine) if they're too busy dealing with dysentery or polio. Clean drinking water and vaccines are prerequisite to having the freedom to conduct business, raise your kids, fly a kite or what-have-you. Because of this, some forms of paternalism are entirely justifiable, perhaps even on libertarian grounds.

What it seems we've got here is BATNA disparity, and on a big scale. It's not euvoluntary for desperately poor people to have to decide to treat their own water because:
a) the opportunity cost for the individual is so high and
b) the opportunity cost for the state is so low
Likewise vaccines, likewise... well, like I said, I'd have to listen to the lecture to comment much further.

I think my question is whether or not these same arguments apply where the BATNA disparity is much lower. what if I get off the city water feed, tap a well in my backyard and hook up my own filtration system? The paternalist would say: "nope, you can't be trusted to change your filters annually so you have to stay on the city's cistern." Something tells me Duflo would find this kind of statement offensive.

As far as useful interventions go, maybe it's the case that some paternalism would increase the set of available euvoluntary transactions among the world's poor, but wouldn't it be great if the world's poor had access to good property rights, liquid credit markets and the rule of law so their BATNA wasn't so awful? It sometimes puzzles me why growth economists don't lecture more frequently on the benefits of liberalized immigration reform.