The Alchemy of Intentions

Reads a sign on the patio of my local grocer's:

Retail Alcoholic Beverages Not To Be Consumed on the Premises 

Naturally, alcohol by-the-glass is quite available. You can have a slice of pizza and some on-tap beer to wash it down with, but if you dare unplug the spigot of that box of Chablis you bought inside, you flaunt the good laws of the Commonwealth.

Statutes against public drunkenness dabble in the gray area between what Hayek referred to as "law" (the spontaneous ordering of society's rules, emerging over time through trial and error) and "legislation" (mandates from a legislature, seldom subjected to the rigorous review of time and experience). Surely there have been the equivalent of drunk tanks for time immemorial—you absolutely must let someone three sheets to the wind sleep it off lest he become a danger to his own person and the safety of those around him. That's not particularly controversial.

However, using common sense, common law proscriptions against public intoxication as justification for treating beer differently if it comes from a tap compared to coming from a bottle smells a little skunky. Does the alcohol content rise during the bottling process? Perhaps my experience with home brewing has misled me, but my before-and-after specific gravity readings have never so indicated. Perhaps it's a monitoring issue. If the customer has to approach the counter every time he wishes to refresh his tasty beverage, the vendor has a chance to gauge whether or not to cut him off: a chance that does not exist if he bought all his liquor beforehand in the grocery store.

This argument is not entirely without merit, so the next question is whether or not the marginal risk-weighted costs of drunk and disorderly conduct for the consumption of retail-purchased alcohol (net of on-tap service) are high enough to justify the direct costs plus all the hidden opportunity costs of having an alcoholic beverage control department.

Perhaps I was out sick the day they issued the philosophers' stone that allows for the transmutation of good intentions into desirable outcomes, but I can't for the life of me divine the alchemy by which the political rents generated by the VA ABC result in cheerful temperance at the Fair Lakes Whole Foods. Instances of drunken buffoonery are everywhere and always a purely local phenomenon. The grocers, not an alcohol control board, know best the specific circumstances of their business and are far better equipped to handle the particular, idiosyncratic desires of their customers than a gang of state employees.

And I don't even drink. Sheesh.

Euvoluntary Monopoly?

John McManus wrote a memorable (if too-infrequently cited) article in the 1975 Canadian Journal of Economics titled "The Costs of Alternative Economic Organizations." In it, he describes a team of laborers hauling boats along a stretch of the Yangtze overseen by a whip-lashing taskmaster. The wrinkle? The coolies themselves had hired the supervisor. The fellow with the whip was the employee of the team. Mind-blowing stuff, eh?

It's a curious puzzle, perhaps governed partly by timing, partly by the behavior of competitors and customers, partly by luck that determines the optimal organizational form of firms. Questions like, "should I buy out the competition", "should I divest this part of my supply chain", "should I be listening to more Curtis Mayfield" are all necessarily contextual. It depends on the relative scarcity of all the production factors and what's right for GM in 1968 might be very wrong for Ford in 2014. It's a tough business to scry from afar, harder still to second-guess.

And far harder yet when faced with the intransigent laws of public choice. Consider the curious position of the FTC. Nominally tasked (in part) with:

Under this Act, the Commission is empowered, among other things, to (a) prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; (c) prescribe trade regulation rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (d) conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (e) make reports and legislative recommendations to Congress.

Note that the Commission reports to Congress. Which means by the transitive property of politics, that the Commission reports to a melange of special interests, irrational voters, elite technocrats, and the press. It's pretty easy to imagine a case where the meet and proper organization of a firm within an industry is entirely euvoluntary draws the attention of FTC pettifoggers buoyed by legislators out to tend the interests of their constituents.

Anti-trust is a cudgel. Sometimes you want to give a cudgel to officers of the peace because you want delinquents trammeled. But when it comes to firm organization, as opposed to deceptive practices, the prima facie case for anti-trust legislation may be considerably weaker than folks might imagine. It could very well be that one or two large, dominant firms is precisely the best way to deliver the lowest-cost bundle of goods to the consumer. And it could be that anti-trust browbeatings contribute more to the re-election prospects of a Senator or two rather than the greater public interest.

Edi(o)t: in my haste, I misattributed the source of the riverboat worker claim. The original source was Steven Cheung. I apologize for the sloppy scholarship.

Steven N.S. Cheung, The Contractual Nature of the Firm,@ Journal of Law and Economics 26
(Apr. 1983),1-21 at 8

There is no Arizona.

It's a searing July afternoon on a stretch of New Mexican Route 66, dry and brittle as the birds' bones that litter the fuming sands. Andy lies sprawled in the back seat, flatulent and green, prone, victim of an unkind dalliance with a questionable mayonnaise jar full of sloppy joe mix. The one working window is down, and it helps to purge the rancid butter miasma wafting over the Buick's bench seats, but my eyes still sting, my foot still just a little too heavy, my ears lanced through by Winona's endless, chirping delivery of what is surely the World's Worst Shaggy Dog story. I can feel my sanity sneaking to the fridge for a snack that isn't there. I don't even notice that the engine temperature gauge is buried behind the faux wood paneling, pegged right. In fact, I only scarcely take note of the final death screech of the crankshaft as the journal bearing seizes and the splendid 425-CID V8 huffing under the hood selects the "initiate inferno" option from its limited menu.

It's hard to find parts for a '65 Buick this far from Albuquerque. It's hard to find parts for a '65 Buick anywhere. But my situation is desperate. My traveling companion in the back is making every possible effort to adopt a hue not unlike that of the many iguanas we see molesting the prickly pears just off the shoulder and my traveling companion in the front seems content gnawing the enamel from her own teeth. We are ensorcelled in this barbecue pit, victims of an indifferent sun, mischievous botulism, and the fickle tickle of progress as delivered by the invisible hand of euvoluntary exchange.

Industries come and go. But it can be hard to witness the death throes of a beloved firm, to hear the rattle as a business breathes its last. The sunk cost fallacy, though fallacious, exists and holds sway in men's minds. Is it wise to pickle the desiccated remains of an industry whose customers have flown? How do subsidies for dying industries compare to subsidies for infant industries? Does the economic analysis track well with the moral intuition? Look at the metaphor: infant industries, dying firms. These are biological lifecycle terms. There's natural pity for small children and the elderly, but does that map, should that map to businesses?

Subsidizing antiquated car parts is great for me when I'm zooming across the desert in a car that should have been junked decades ago, but it diverts resources from higher-valued use and it encourages me to continue driving a lumbering, petrol-gormandizing land hulk long past the fade of the market signals. The same goes for SEC barriers to firm liquidation backed by, among other pieces of legislation, the Williams Act. The harder it is to wind down rusty rattletrap firms, the more shambling zombie corporations will dot the land.

Is it euvoluntary to truck, barter, or exchange with the walking dead? Probably on individual terms. Less so when you enter a voting booth. State regulation means rent-seeking just as surely as spoiled sloppy joe mix means food poisoning.

Machine Wash Warm, Tumble Dry

Politicians' favorite Bobo doll for the past decade or so has been China. Before that, it was Japan. Every election season, America's woes are laid at the feet of the Oriental nation du jour. It's an embarrassing spectacle for onlookers familiar with the principles of economics, but whatever other failings they might have, politicians are pretty adept at gauging public opinion. This suggests to me that the median voter clings tightly to their anti-foreigner bias, which is a pity because I think all of us want to know what love is.

I'm curious to how much of this bias is tied to non-euvoluntary exchange sentiment. I think there's some paternalism over sweatshop labor, which we've covered here before, but these arguments seldom seem to form the crux of the arguments against China. It's usually "currency manipulation" (whatever that means in an era of widespread central banking) or "shipping jobs overseas". Mercantilist ledger-rattling demands a "level playing field" or some such nonsense (hint: when Congress doles out heavy subsidies to US industries, maybe elites should worry about taking the needle from their own eye first) and "fair trade", a term I suspect was written to make George Orwell do a spit take.

Anyway, the bluff and bluster against trade with China is a good challenge to some claims I've made before. I've written that euvoluntary exchange is, among other things, economically efficient and morally acceptable to the great bulk of folks (certainly, the median voter). International trade is quite obviously efficient, but if there is this moral opposition, can it be euvoluntary under my interpretation of EE? If it's not euvoluntary, which condition is violated?

This could just be my pride talking, but I have a hunch that the intuition is either in a conventional capacity to exchange feeling or, probably more accurately, an uncompensated externality argument. The conventional capacity to trade angle might be atavistic tribalism waving its banner in the form of parochial nationalism. More to the point, the "shipping jobs overseas" charge could plausibly be an externality argument. International trade includes some costs and some transfers on some Americans (ignore for the moment that automation in manufacturing has resulted in far more job destruction than international trade), and even if we assume no xenophobic sentiments among voters, these claims of job losses may be sufficient for voters unfamiliar with concepts like creative destruction and comparative advantage to support politicians who pledge to "get tough" with a nation that has the unabashed temerity to contain within it peaceful humans who wish to (taco) truck, barter and trade with peaceful humans who call the 54 states, districts and territories home.

The above paragraph feels a little weaselly to me. Students of economics (like me) would probably be a lot more likely to describe international trade as euvoluntary. Think of the Pepsi challenge: you're an economic nationalist in a store buying a TV with the  product information redacted. You like the TV and it's not stolen property or anything. There are plenty of other sets to choose from and nobody's holding a gun to your head. Only after you bring it home do you notice a little sticker saying "Made in China" and all of a sudden you feel cheated. Is this new bit of information the result of careful analysis of the costs, benefits and transfers of international trade or is it knee-jerking against an imagined foe, honed by years of exposure to sloppy economic arguments? I think I'd like to get into this question in more detail in a future post. For now, I'll just ask if there's a difference between the formation and the maintenance or moral intuitions about the role of, broadly, trade and more specifically, international trade. How did this bugbear heave itself from dust and how does it continue to shuffle its woolly feet around public discourse?