Saturday, October 27, 2012

Everyday Economics

Several times I have written that one of our greatest problems is that people do not understand the basic principles of economics. And I am not talking here about the technical issues, such as supply and demand curves and the like, I mean simple factors, such as the concepts of cost-benefit analysis, the principles of subjective valuation, and other simple rules which govern all human decisions. I saw it myself when I tried to write about the importance of subjective value theory and was pilloried by many as some sort of ethical relativist, when all I said was, if we pretend that some goals are "absolute" that "no price is too great", we end up with pretty disastrous results1. And that was with a nominally conservative audience, and one which is relatively well educated in political matters. So you can imagine how little the general public understands.

Fortunately, today, while watching television, I was given a perfect example. It was an advertisement for an auto insurance company promising "accident forgiveness." Hearing this plan, it struck me that such a concept, while sounding great on paper, at least to those who don't give such matters much thought, actually illustrated quite well how economic ignorance can have real world consequences2.

As I understand it, accident forgiveness basically works as follows: If you have a single accident, your premium will not increase. I do not know if there is a time limit on this, or if it is in your entire lifetime. I assume it is the former, along the lines of being allowed one free accident every three or five years. I also do not know if, should you have a second accident then it would be counted, that is, your premium would jump to the two accident premium, rather than the single accident premium, but I would think that likely the case. But, since both are possible, we shall look at each in our upcoming discussion.

We should probably start with the obvious. Car insurers do not raise your rates because they are mean, or greedy3, or evil. The reason rates rise when you file a claim is relatively simple. In the case of accidents, statistical analysis of all accidents reported shows those who have one accident are more likely to have a second. And thus, the insurance company raises premiums to reflect the greater estimated risk. And why must they do that? Why can't they just say "Well, you had a bad day, forget about it"? Because insurance premiums are very precisely calculated. Insurance works by a very simple process, the insurer estimates the likelihood of a claim, and the probable size of that claim, they then try to predict the market returns on their particular mix of investments, and seek a premium which will provide enough money to pay anticipated claims, as well as cover overhead and provide enough profits to keep the investors satisfied. If they fail to predict properly, then either they will lack the money to pay claims, or they will see their investors leave, which may eventually cause them to shut their doors.

And this principle is why I think accident forgiveness is such a bad idea4. As insurance companies need to have revenue sufficient to pay for claims, they have two options. They engage in "price discrimination", that is charging each individual based on a fine tuned calculation of his individual risk, or they can created a weighted average risk for all customers. (Of course, there are steps in between where they allow for larger or smaller groups, providing more of less fine tuned risk assessment.) So, normally, insurers would charge rate X for those who never had an accident, and rate Y for those who did. However, if they allow accident forgiveness, they have to estimate that, of their N customers N1 will have one accident, and then charge an average rate of (N1*Y+(N-N1)X)/N . For those who don't like to follow calculations, that simply means, for those having one accident, they will see their rates fall slightly, but, for those who will have no accident, they will pay more, basically subsidizing those having a single accident.

Of course, this sounds good if you plan on having an accident, but it isn't really. You see, you don't know when you will have that accident. And so, until you had the accident, you would be paying the lower rate. Which means, even if you are partly subsidized after the accident, before the accident you are subsidizing those who are already in the one accident group, which may still be a losing proposition for you. At the very least, it is quite a gamble to bet that you will gain more than you will lose. And, if you are accident prone enough that you think you might come out ahead, you had been be certain you won't then have a second accident, as at that point, your benefit is lost, and you may end up having lost more than you gained on the subsidy for single accident drivers5.

I must admit, there are two circumstances which might give lie to my analysis, and, unlikely as they might be, I feel I should point them out. First, it is possible that the company has decided, or rather its actuaries have decided, that a single accident is a poor indicator of future accidents, and so accident forgiveness makes economic sense. Second, they could be agreeing to forgo some profits in order to attract customers. Both are possible, though I believe both are unlikely.

First, if a single accident were a poor predictor of future claims, then it seems this would have been identified by other firms as well, and it would have been incorporated into pricing long before now. It is very unlikely in a field as conservative as generating actuarial tables that there would be such a startling shift in numbers, suddenly and only in the tables of a single insurer.

Second, it is possible they are taking a small loss to bring in customers, but it seems this would be a bad way to go about it. First, those having a single accident represent one of, if not the, largest group with higher premiums, which means forgiving that first accident will have the most significant impact on overall revenue. Second, given how bad the market has been, it seems the wrong time to risk losses and operate on an even more narrow margin, when market income is relatively small and fewer miscalculations than normal can lead to disaster. I understand that some may imagine that would be offset by the number of new customers, but that is still speculative, while the losses are real, meaning this would be a very risky strategy, and insurers have never been notorious for their risk tolerance.

No, it seems to me that accident forgiveness will rest on the same principles as medical insurers who cover preexisting conditions, those without the higher risk will help subsidize those in the riskier groups. Of course, in medical insurance, those with preexisting conditions know they have them, and know they are being subsidized and ending up winners. Car accidents are unexpected, and so it is impossible to know in advance whether you will have one accident, and end up a winner, or have no accidents, or more than one, and end up losing.

I admit, though I said at first this is a losing proposition, there will be a handful of winners, those who have a single accident soon after getting insurance, who end up paying subsidies for others for a short time, and receiving them for a long one. However, the winners will be far outnumbered by the losers, and, as one cannot predict in advance to which group he will belong, it still seems the much better plan to pay a risk adjusted premium rather than rely on accident forgiveness. Though it sounds counterintuitive, it makes more sense to pay the higher rate once one has an accident in order to get a lower rate for the remaining periods.

Which is why I say that we often get in trouble by failing to understand even basic economics. It is why we fall for schemes promising us a free lunch, offering benefit without loss, or otherwise making claims which fail to hold up under scrutiny. Of course, economic knowledge is not enough on its own, one must also be skeptical. After all, economists bought into the claim that the Federal Reserve system would create perpetual growth without recession or depression, and (though I know it is popular among some conservatives) economists have bought into the pie in the sky promises of the FairTax6, which apparently will do everything short of balancing your checkbook for you.

So, though I believe economic education is a necessary element in protecting ourselves against such nonsense, it is not a sufficient one. We must also learn to be wary of absurd claims. Then again, in the past, even those with no education at all were notorious for their skepticism. It seems only recently, having bought into claims that the state will find a way to solve all our problems, we have lost that skepticism. And what a disaster that has proven to be.

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1. See "Absolute Values", and my discussion of the reactions in "A Point I Thought Clear" and "Why Republicans Lose, We Eat Our Own".

2. I don't mean to be critical of insurers. In this case, it is a pretty good advertising strategy, making it sound as if the insurer is looking out for the little guy and the like. However, from an economic perspective, I think the scheme is a bad deal. Unless, that is, two other conditions apply, as I shall discuss in the essay proper. My point being, I am not trying to criticize insurers in general, or the specific insurer. They have all, at one time or another, tried similar schemes, and in every case I have thought to myself what a bad idea it is for consumers.

3. I suppose we could consider them "greedy" in that they seek to arrange exchanges to their own advantage. However, as I pointed out in "Big Box Stores and "The Climate of Greed"", "Oven Mitts and Safety Regulation", "How to Blame the Free Market, part II", "Competition", "Moral For Me, But Not For Thee", "Symmetry and Greed", and "Greed Versus Evil", the same is true of all of us, so the term "greedy' should hardly be a pejorative term. We all seek our advantage in one way or another, and it is common sense to do so. So why do we decry actions when taken by companies that we consider morally neutral when we undertake them ourselves?


4. A similar principle is involved in my post "Preexisting Conditions".

5. This assumes that accident forgiveness is lost when you have a second accident, meaning at two accidents you pay the premium for someone having two accidents, not the premium for one accident. And that only makes sense, as allowing one accident to simply be forgotten would mean everyone would pay far too low a premium and the company would rapidly go bankrupt.

6. Since many seem to accept the claims about the FairTax being a panacea, I will direct readers to my earlier writing, which can be found in "The Failings of Sales Taxes", "The FairTax's Liberal Assumptions", "An Interesting Analogy, "Why I Dislike the FairTax ", "The Best Argument Against the FairTax ", "Truths About Taxation", "A Partial Reply to yt_knight", "The VAT Versus The FairTax", "What we need", "Making Taxes Hurt" and "Inequitable Taxation".

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POSTSCRIPT

My calculation for the weighted rate is actually too simple. As I said in the essay, accidents occur at various times, so one accident drivers could be expected to pay the no accident rate for part of their driving lifetime. And, if accidents age off after a period of time, they might pay it again later. And so, rather than the simple mean I proposed, the formula would be much more involved, estimating how many at any given time will be paying the higher rate, and then producing a mean of that number and the no accident number. However, for my purposes, the simple calculation was adequate.

POSTSCRIPT II

By the way, if I have overlooked a reason that accident forgiveness might work without raising the rates of those without accidents, please let me know. In addition, if I am wrong as to any particulars, I would be happy to correct my errors. All I can say is, from the point of view of an outsider who knows a modest amount about insurance, I cannot see any way accident forgiveness is a good deal for the majority of drivers. As I said, the analogous situation, covering preexisting conditions under medical insurance, is clearly a losing proposition for most of the insured, and I don't see how this differs much, except that we cannot tell in advance who will be winners and who will be losers.

Friday, October 26, 2012

The Written Law

Let us start with a simple question: Why were there voting rights activists in the 1960's? Or, to be more precise, why was it still an issue that black voters were being excluded from the polls in the 1950's and 1960's, when they had been granted freedom and franchise in the earliest stages of Reconstruction? Or, on a related note, why were there so few successful prosecutions of Klan related violence in southern states, despite the fact that laws against their actions (that is assault, murder, arson and the like) had existed since the founding of those states?

The answer to this is obvious, or at least it should be. Black citizens may have been granted the vote, but the other citizens in those states, for the most part, desired to prevent them from exercising that right. In some cases this was done legally, or quasi-legally, through new laws or regulations requiring poll taxes, literacy tests and the like. But in many others, it was simply done by one way or another illegally preventing blacks from registering and voting. And the actions taken were never stopped, never prosecuted, often never even investigated, because for the most part the public supported such measures1.

Likewise, Klan violence in the south (and the actions of kindred groups in some northern states as well), was largely uninvestigated, and certainly rarely prosecuted, for the same reasons. The public, by and large, had no objections to the actions, as did those charged with investigating, and so nothing was done.

I mention all of these historical examples for a very simple reason. They provide a very clear example of a principle we often forget, that laws are only as effective as those charged with enforcing them. Or, to be more precise, laws will only have force to the degree the public cares about them, it is easy for public officials to ignore laws when the public is apathetic2.

The reason this is worth repeating is because of our tendency -- and by "us" I mean humans in general, as it is a failing of both the right and left -- to seek a "magic bullet", a monolithic solution which will bring about all our most cherished goals in one fell swoop. We often admit that there is no such simple solution, and yet, even as we make that statement, we still seem to attach far too much hope to simplistic answers we imagine will resolve all life's problems.

Perhaps the best recent example is the FairTax, which has been promoted as capable of doing everything from balancing the budget to reducing the size of government to increasing employment to making your children listen to your advice to giving you a whiter than white wash. If ever there were a perfect example of a political solution overselling itself as the answer to all life's problems, the FairTax is it. (It even displays the other hallmark of such simplistic solutions, no down side. Whenever an objection is raised, or a question asked, the response is offered "read the book", and all is right with the world once more. Apparently, even more than the FairTax itself, "the book" is the answer to all of life's questions.)

But I am not here today to criticize the FairTax -- regular readers know I have spent enough ink on that subject already3 -- instead I am here to look at a slightly older, and somewhat more respectable, singular solution proposed by the right, the strict constructionist judge.

Ever since the right began to criticize -- with more than some justification4 -- the actions of the activist judges of the left (and a few in the center and right), it has been proposed that the obvious answer is appoint judges who take the constitution seriously, who interpret it with an eye to its literal meaning, and refuse to expand upon it to suit their own agenda. It is not a proposition without its problems5, but for the purposes of this essay, we will ignore the majority of those, and look instead at one single question, that being, how much does a law matter when the people no longer accept it?

I suppose this is easiest to illustrate by looking at one of those shortcomings I said we would ignore, but only because it is related to our topic. The problem in question is that those proposing strict interpretation are overlooking a very important difference. The actions of destroying an edifice, and maintaining it, are not necessarily exact opposites. Destruction can be a single act, even an accident, maintenance is an ongoing, intentional activity. And the same with law. It is easy for judicial activists to tear down the laws, or expand them into irrelevance, all they need is a public momentarily opposed to the status quo, or just apathetic. To maintain laws, we need a public which is interested in their preservation, and knowledgeable enough to know why maintaining them matters. As should be obvious, though preserving and destroying are shown as opposites, they are not a perfect pair6.

And that is the problem with putting forth strict constructionist judges as the solution to our problems. For a time, perhaps they will halt the growth of government, but even the most ardent of justices can do only so much. If the public favors expansive, omnipotent government, the courts have a limited scope to overcome that public sentiment. First, they need test cases to overturn laws, which may not come their way if the public is truly happy with the way things are. Second, even if there is a vocal minority willing to bring them the test cases they need, their decisions must be enforced. One need only recall Andrew Jackson's defiance of the courts to see how easy it could be for a popular leader, supporting a popular position to defy the courts.

Let us just imagine what could happen were the courts to adopt a strict construction position, while the public at large favored larger, powerful government. Suppose, for example, the Supreme Court were to strike down some provisions of ObamaCare, while the public, government and lower courts were determined to see those provisions enforced. While it would be unusual, there is nothing to stop the government from simply ignoring the ruling, and continuing as if the laws had never been overturned. Nor is there any reason the lower courts could not simply ignore the ruling, either by explaining it away through legal sophistry, or simply paying it no heed7. If they were to do so, what could the Supreme Court do? It may be powerful on paper, but its power, as with much of government's power, rests upon the other branches paying attention to its rulings, if the other branches choose to ignore the Supreme Court, it is effectively impotent8.

Thus, rather than placing all our hope in winning over the courts, perhaps we would be better served by reaching out to the general public and trying to educate them as to the significance of limited government and constitutional controls. If we were to do so, and do so successfully, the public would press for strict construction themselves, and we would no longer need to engage in that struggle.

On the other hand, we can continue as we are, fighting to win the courts, while ignoring the public, and, even if we win, we will likely end up losing. For what will we gain if we manage to install a handful of judges who favor limited government, if the public has no idea why such a thing should matter? If we manage to briefly force limited government upon a public which thinks the state is like a Swiss Army knife, capable of solving every problem? In the long run, that is a recipe for disaster.


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1. I do not mean to imply every last southerner supported such measures, but clearly a sufficiently large number did or there would have been an outcry before the voting rights movement and the later more general civil rights movement. If the south did not have a majority either endorsing, or quietly acquiescing in, such positions, things would have been quite different.

2. I discussed this in another context in my post "The Problem With Tort Reform", where I wrote:
Many years ago I had some friends who were interested in animal rights, specifically in anti-cruelty laws. Some were rather activist sorts, who wanted to pass crusading laws radically extending the scope of what constituted cruelty. Whenever I spoke with them, I had to point out to them a fact that many people seem to forget, lynching was illegal in south from the beginning of the US. What I meant by that was that laws are in themselves meaningless if everyone in the community disagrees with them. When vigilantes or Klansmen murdered someone, if their action enjoyed the support of the community, for good or ill, it was all but impossible to jail them, regardless of the law. Similarly, if these animal rights activists managed to expand cruelty's definition beyond the point most people support, then most likely the laws would simply never be enforced, or if enforced, the trials would result in acquittals.
Obviously, this is a rather different context, but the principle is much the same.

3. For those interested in my long running criticism of this particular idea, see "The Failings of Sales Taxes", "The FairTax's Liberal Assumptions", "An Interesting Analogy, "Why I Dislike the FairTax ", "The Best Argument Against the FairTax ", "Truths About Taxation", "A Partial Reply to yt_knight", "The VAT Versus The FairTax", "What we need", "Making Taxes Hurt" and "Inequitable Taxation".

4. Actually, judges had been reshaping the law, and in directions quite similar to contemporary activist judges, long before it became an explicit complaint. Some of the earliest efforts at expanding torts and undermining contracts, which were sold with a "social insurance" justification, came in the 1950's, and a few forerunners came even earlier. While these judges largely avoided the social legislation that tended to catch the eyes of conservatives, and eschewed most explicitly liberal and socialist verbiage, their actions were no less activist for it. However, as they operated "under the radar" and during an era which was not seen as being particularly plagued by a far left agenda, not only were they not criticized in their own times, but even now they are rarely included among those labelled judicial activists.

5. To mention the most obvious, the "literal" meaning of words is not always obvious, or at least well meaning men may disagree about it, especially when it comes to technical terminology of law. In addition, there is a need for some novelty in law, if only to apply the current laws to previously unknown circumstances. (Eg. Telephones, autos and airplanes were unimagined in the 18th century, how laws applied to questions peculiar to them requires some expansion of the law. We cannot remain completely static as some more simplistic constitutional arguments seemed to suggest.)

6. Creation and destruction are much better matched, as each is a discrete brief act, while preservation is an ongoing activity.

7. We have seen this even with rulings which were not as unpopular as our hypothetical example. The 9th Circuit, for example, s rather well known for simply ignoring precedents it finds unacceptable. Of course, the 9th has not yet chosen to completely ignore the Supreme Court. It may ignore precedent, but it still must pay attention when its decisions are explicitly overturned. But were the public to come to support the 9th's positions much more strongly, there would be no reason for it to do even that.

8. The opposite is true as well. The Boumedine ruling, for example, ignored legislative language explicitly excluding specific matters from judicial review. (Cf "Be Careful What You Wish For", "Somehow The Media Missed This", "More Relevant Than I Thought") But as there was insufficient support for excluding the courts, the Court's defiance of Congress stood. Which illustrates well how explicit laws can be rendered impotent if the public desires to see a certain outcome strongly enough.

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POSTSCRIPT

There is one issue which makes it difficult for us to do what needs to be done in this case. As I described in "Life Without Villains", "Enemies Into Villains", "Rethinking My Earlier Position", "Three Versions of Evil and the Confusion They Cause" and "The Demand for Villains", many of us have come to see those who hold opposing ideas, not as those who honestly hold a different opinion, but instead as villains, who either have hidden agendas, or who simply endorse the ideas they do out of malice. As soon as we accept such ideas, it becomes difficult to think about trying to win over the public, given that we imagine half of them, more or less, are evil. Which means, before we begin to try to win over the public, we need to change our own attitudes, and recognize that, while there may be some people with hidden agendas, the vast majority of those with whom we disagree are sincere in their beliefs. They may seem illogical to us, they may seem inconsistent, contradictory and foolish, but then again, from time to time I am sure every one of us has also held ideas which contradicted one another as well. Thus, we should recognize that no matter how hard it is for us to understand how people can believe in certain philosophies, the fact is most who espouse a given idea truly believe it, mistaken as they may seem to us, and we are better off treating them as confused individuals open to argument, then dismissing them as villains who will never be reformed.

Another issue worth mentioning is how much the argument of this essay reproduces my argument against "top down" libertarian solutions. In "Why I Am Not A Libertarian" (and more recently "A Simple Solution"), I argued that a federalist solution, reforming government on a small scale in many different states, or even in individual counties, would be much more robust than a liberty imposed from the top, perhaps by a simple 5-4 court majority. I describe it in more detail in the essay itself, but it is quite similar to the argument I make here.

UPDATE (Later the same day): I am surprised I forgot to cite "The Single Greatest Weakness", the essay which inspired this entire post. As that essay laid down essentially the same argument in somewhat lesser detail, I am surprised I forgot to even mention it in passing.

Wednesday, October 24, 2012

Upcoming Posts

I last posted a list of upcoming posts on my old site "Random Notes". But, since I have moved my current blog to this site, I figure it would be beneficial to post something similar here, if only to give readers an idea of what to expect. And so, I will first reproduce the list from "Remaining Future Posts", and then add a few comments concerning those posts and some additional ones I plan to write.
1. The Arrogance of Psychological Explanations - A look at the modern habit of using psychological, or pseudo-psychological explanations as a substitute for explanations based on motive, volition and choice. Also, a short digression on the flip side of the same issue, the use of psychological "insights" to eliminate culpability.
2. Government Investment - An examination of the argument that government spending, even if wasteful, still serves a beneficial purpose by employing individuals and sometimes even "keeping alive" entire towns. (I will also look back at similar arguments in the past, such as the arguments for the steel tariffs of a decade ago.)
3. Untitled - A look at how government financing has changed academia. As I said in an earlier post: " I want to look at how funding of academia has changed the character of the academic world. Actually, there are three related topics, all of which I addressed in less detail before. First, the ways research grants have changed academia. Second, how student loans and other aids, as well as the growth of public universities and community colleges, changed our views of education. And, finally, how funding of the arts has changed both academia and the world of arts and letters."
4. Liberalism - I will finally write the last few sections of my series "Liberalism, Its Origins and Consequences".
That list has been appearing on my site, in one form or another, for a few weeks now, and, though I did actually complete and remove two or three items, it seems these have remained for quite a while. However, I do not think it is because they are difficult to complete, or essays which I find unappealing, I simply have lacked the time.

Still, given my limited time, I think I will slightly edit this list. Though I have completed almost half of the first essay, I am moving it to the bottom of the list, as it is proving slower going than anticipated. Instead, I shall concentrate on completing numbers 2 and 3, as well as working my way through the concluding chapters of my serial essay on liberalism. (Which will be posted, once it is complete, on my other site "The Serial Bowl" as well.)

In addition, I have two posts I hope to complete sometime this week. First, I have for a long time wanted to examine in some detail the UN Declaration of Human Rights, comparing it to a proper libertarian/federalist understanding of rights and government (See "Minimal Reforms", "Why I Am Not A Libertarian", "The Benefits of Federalism",  "My Vision of Government", "My Vision of Government Part II ", "An Analogy For Government", "Man's Nature and Government", "Misunderstanding Democracy", "Power and Disorder", "Symmetry and Asymmetry in Government", "Consolidation and Diffusion", "Negative and Positive Rights", "In Praise of Contracts", "Prelude" and "A True Conservative Platform".) Second, as I mentioned a few times, I want to take a longer look at the "Occupy the Vote" site, especially with the election coming up, and take a critical look at its claims.

Beyond that, I have few plans. I have long planned to examine the proposed FairTax legislation line by line, examining the many implications of that law, but I do not expect to get to it for some time. In addition, in my last few posts I also mentioned a few other topics, such as the environmentalist fascination with old trees versus new, but that will probably wait as well. And then there are projects I have discussed for some time, such as writing comprehensive examinations of bureaucratic management, inflation and protectionism, combining all of my older works into one, thorough examination, and those too I do hope to write in the near future. But for now, I can promise only to complete those mentioned above, these comprehensive essays are something to look for in the more distant future.



UPDATE (Later the same day): I forgot to mention one other essay. While reading a book about the Scottish-English border in the 16th century, I ran across mention of the many laws against commerce and marriage between the two sides of the border, and how they were routinely ignored. It reminded me of my essay "The Single Greatest Weakness", and my argument, which bears repeating, that the constitution alone is not enough, nor are strict interpretation judges. What we truly need is a public which understands the importance of following the constitution and requires the government to do so. I have numerous examples, such as laws against adultery still on the books but routinely ignored, or even laws against miscegenation which still remain in some states. All point to the fact that a law is not enough, laws need to be supported by the public, or else they will be routinely ignored, especially under a system of popular government, where holding office depends upon one's popularity. But, rather than write my entire essay here, I will wait and write it properly in a few days. (Addendum: Just to be completely clear, my examples of adultery and miscegenation laws are not meant to imply those laws should be enforced, but only to point out these laws are on the books, but as there is presently no support for enforcing them, they remain impotent. Anyone who has read my writing should know neither is a law I would endorse, but since caricatures of the right as racist theocrats are so common, I fear new readers may read those statements in the wrong way.)


UPDATE (Still later the same day): There is one more follow up to "The Single Greatest Weakness" I wish to write, and will undertake soon. In that essay I wrote:
While socialist systems are always sold on the goodies one will receive, or sometimes on the revenge the envious will enjoy, in reality, the cut-off between haves and have-nots is often lower than supporters imagine and they find themselves in the dispossessed rather than the beneficiaries. 
At the time, I did not intend to write more on this topic, but it strikes me, between this insight, and those in my essay "The Inherent Disappointment of Authoritarianism", as well as "The Irrationality of Government Redistribution", there are strong practical arguments against any sort of wealth redistribution. Between debunking the selfish motives for any but the most destitute, and showing that even one's altruistic motives are likely to be ignored, there is little to appeal to anyone in adopting any sort of socialist scheme. Of course, I will need to elaborate upon this, but it should make an interesting essay.

Proving Me Right

It appears my essay "REPOST: How Times Have Changed" was closer to the Romney agenda than I thought. Judging from his generally upbeat, optimistic position, contrasted well with Obama's rather snarky, negative tone, it appears Romney also recognizes how important optimism and a positive message can be, especially when the public is unhappy with current circumstances. Sadly, I doubt Romney will prove to be another Reagan, but he has at least learned Reagan's campaign technique to some degree. And we can always hope some more rubs off between now and January.

Strange how much Obama has changed though. In 2008 he won on almost nothing but optimism. It certainly wasn't on his cogent message, or his platform, as his message was made up of the words "hope" and "change" and his platform was nonexistent. He won solely on being optimistic while McCain seemed embittered and confused. But now, Obama seems to have let his position go to his head, rankles at every criticism and seems generally to be the negative, angry figure he defeated in 2008.

Well, here's hoping he doesn't recognize this and change course before November.

UPDATE (later that same morning): In replying to a comment, I described Obama as Alexander II, and I think that may be a very apt comparison, though perhaps Nicholas I is better, as Obama seems to be popular among certain world leaders, but an autocratic, unpopular mess at home. (Though Nicholas was much more fond of a large military than Obama.) And, to be fair, both Obama and Nicholas seemed to be recognized as a bit of a joke by the foreign public, no matter how much either charmed their representatives and monarchs.

Tuesday, October 23, 2012

How to Blame the Free Market, Part II

As I pointed out in "How To Blame the Free Market" (as well as "Government Quackery", "Government Efficiency", "A New Look At Intervention", "In Praise of Contracts", "Bad Economics Part 10", "Cutting "Costs"", "Misunderstanding Profits",  "Two Examples of "Inefficiency" in Capitalism", "The Threat of Perfection", "Utopianism and Disaster", "The Inevitability of Bureaucratic Management in Government Enterprises", "People Prove My Point"and "The Secret of Success, or, Why Government Fails"), the government, and those advocating greater government involvement in the economy, tend to support their arguments not just by exaggerating, or even imagining, failings of the free market, such is to be expected, but they have a very strong tendency to blame the free market for failings that are the result of the very intervention they demand.  The best example, partly because it has been wrongly accepted as true by so many, is the "boom-bust" cycle, which is supposedly inherent in the free market, while actually being an outcome of the "managed currency" systems proposed to correct it. Or, if we move outside of economics, one need only look at the myriad failings of public schools, which are somehow then blamed on too much reliance on parents (that is individual solutions), and more of the same failing public education is proposed as the only solution1. And then there is government flood insurance, which encourages building in flood plains by reducing the cost and risk, resulting in greater damage whenever flooding occurs. And yet, rather than admit the insurance itself creates greater damages, the increasing flood damages are blame don the free market, which is "unwilling" to provide flood insurance2, and the government program which caused the problem is proposed as the solution.

Obviously, the list could be extended indefinitely, but today I have one specific topic in mind, and that is the supposed environmental failings of the free market, practices which, if they existed as often described, would make so little sense they would not even be suitable as a Captain Planet plot, and yet, because these behaviors exist, they are routinely blamed on the free market, and apparently on businessmen with some sort of suicidal mania, rather than on the proper culprit, foolish government policies.

Let us start with the basics. I do agree with the environmentalists on one thing, businessmen want to make money, that is their sole concern3, and when looking at business we really can put out of our minds anything other than the profit motive. Granted, some businessmen allow other considerations to color their behavior, but they are exceptions, and generally in sole proprietorships, when it comes to public corporations, or partnerships with multiple owners, almost invariably, the bottom line trumps all.

Where I differ with the environmentalists is... well, everywhere else. Specifically, I disagree with their peculiar view of what the desire for profits means, and how ti is expressed. For example, environmentalists seem to imagine most businessmen would go for a "quick killing" of, say, $10 million immediately, even if it meant cutting off a perpetual revenue stream of, say, $2 a year. I, on the other hand, believe businessmen are hard-headed and practical, and will take the long or short view depending upon their understanding of which provides the best present value. In some cases, this means the environmentalists are right, and he will not think long term, but in others, he will quite sensibly look to future revenue, rather than a quick present profit4.

Maybe this would be easier were I to provide an example.

One of the great rallying cries of the environmental movement in the late 1980's and throughout the 1990's, was its war against "clear cutting", and lumbering in general. Lumber companies were portrayed as going out into the woods, selecting a hill of thousand year old trees, and then cutting them all down, leaving a blasted waste behind. According to the environmentalist story of the day, as repeated by the media and entertainment outlets as well, the lumber industry was engaged in a suicidal destruction of every forest in the US and Canada.

Nor was that the sole story. We heard similar stories about over grazing in the west and plains, over fishing of fisheries, the destruction of the Brazilian rain forest and so on. And yet, in each case save one, when the tales were accurate, or when there was some grain of truth in them, it was found that the state was largely, or entirely, to blame.

Let us look at clear cutting for example.

If you owned a lot of land, and wanted to grow timber, what would you do? Well, when you first started, and all the land was forested, you would probably behave as did our earlier settlers, and those who forested back when population and demand was low. You would cut down trees, expecting the natural processes to replace them. Basically, you would repeat the processes by which hunter-gatherers feed themselves. With a relatively low demand, and an abundant supply, you could reply on natural processes to replenish the stock. (This one applies especially well to the fisheries question we will discuss later.)

Once your demand rose to a high enough degree that the woods began to become depleted, you would probably follow the pattern of hunter-gatherers and turn to agriculture, using your own efforts at planting and husbanding crops, to ensure that there will be future harvests. Or, in the case of lumber, you will reforest the land you clear, so as to ensure that you do not end up with a lot of worthless barren hillsides, but instead have a perpetual supply of raw materials. And, by and large, that was what happened in the US, mostly without government involvement5.

However, the environmental caricature ignores all this. They imagine lumbermen simply continue to clear cut land, selling off the denuded lots, I suppose, and buying new ones, moving like locust across the US. However, both common sense and facts argue against this. First, a wooded lot is worth much more than a denuded one, meaning the cost of buying new wooded lots, even after selling the treeless ones, would likely eat up huge amounts of profit, while planting would be much less costly, be much more predictable and secure, and would, in the end, be much more appealing to those concerned solely with profit6. Second, the fact is that forest land in the US has been increasing since the 1920's. Partly this is because modern farming techniques have allowed some marginal farms to fall into disuse, but much more of it is because the demand for wood, and a continual demand it is, requires lumber companies to maintain enough woodland to allow them to continue harvesting while waiting for the growth cycle, which can last decades for some trees, to run its course. If we were clear cutting and not planting, then there would be a net loss, not the growth we have seen7.

But, some will object, there is clear cutting. And not just clear cutting prior to planting. Many forests are cut to the ground and left that way. If the lumber industry would rationally plant to replace lost trees, how does this happen?

And that brings me to the point where I started. The government makes it happen.

Clear cutting may happen from time to time on leased private lands, but it is not that common, as anyone leasing his land out to be forested is doing so either because he needs funds quickly, or because he intends to use the land for something other than forest. In either case, it is unlikely to be repeated. And it makes sense. For rented land to work for both parties, the owner has to earn enough to make up for the loss of trees, and the lumber company has to get enough trees to make up for the cost of rental. Given that trees have a set market value, it is pretty unlikely both of these could be satisfied with enough spread between them to make the transaction appealing to both parties.

But there is a seller who does not care about profit, who often runs at a loss, and makes deals which make little economic sense. And that is the government. Many times, the government, for various reasons, will allow a private firm to cut lumber on government lands. And, in such a case, it makes complete sense for the lessee to do precisely what environmentalists decry, that is, cut everything tot he ground, as quickly as possible, leaving as little behind as possible, without a thought about replanting, or even a concern over harm done to the land in the process. After all, it is not that likely the firm will get another such lease. And, even if they do have a shot at another lease, it is unlikely their past behavior will have any effect on their chances. In short, the government, because it is unconcerned with profit, creates situations which favor these sort of behaviors.

The same is the case with "overgrazing". As with lumber, cattlemen have an interest in keeping their pastures usable. It is only when they graze on leased government land, as happened at various times in the west and southwest, they have no interest in maintaining government land, and, so, rather than moving frequently to keep damage to a minimum, they move only when necessary. Again, it makes economic sense, thanks to the government's lack of concern for either profit or the usability of their assets.

I gave other examples, such as the Brazilian rain forest (a problem caused, in part and at one time, by subsidies for new farms driving to slash and burn farm creation), and I could go through and show how each fits this pattern, but, instead, allow me to discuss the one which is slightly different, however which has many aspects in common, and that is overfishing.

Fisheries, as you can see, fit this pattern pretty well. Early on, when demand was low, the natural processes replenished them. However, when demand rose, they were slowly exhausted. And, as with trees, farms were the next logical step. But there problems arose.

You see, water is hard to fit into the free market, as we do not recognize ownership of parts of the ocean. Even when we ignore international issues when waterways outside of territorial waters are involved,  we do not allow people to own parts of our coastal waters. And, even if we did, fish and even many shellfish, are migratory, so it would be difficult to effectively farm, or to manage one's own waterway. In part, this lack of property rights at sea was solved by creating land based fish farms, but the lack of property rights made  a free market solution more difficult.

Second, and equally significant, the state many times stepped in and thwarted what solutions the free market was trying to impose. For example,as the effort of catching a given species rose, many fishermen would likely change to harvesting other, more abundant species. But many state and even national governments interfered with this process, by attempting to seed fish, by limiting catches, and then granting licenses, which, because they were potentially so valuable, often kept fishermen chasing species they would otherwise have abandoned. And then there were the various subsidies, loans and other efforts, even if often decried as inadequate, which made it somewhat easier to continue fishing in dying fisheries.

In other words, the state did not create this one problem, it was the result of a combination of two factors, the lack of any property rights at sea and the difficulty of keeping fish and shellfish in a specific place even if there were such rights. However, by trying to help, the state often exacerbated the problem, or at least prevented market forces from trying to make it better.

It is tempting to keep going, explaining ever more problems, providing more examples, but I think I have made my argument as well as I can tonight. I may end up revisiting, especially if comments convince me I was not clear on some points, but for now, I will leave it at what I have written and hope it is clear enough.


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1. I suppose, technically, this is not a "free market" solution, nor is the market being blamed. On the other hand, if we understand free market to mean any solution which rests upon entirely private plans and agreements, outside of government regulation, then parental involvement and choice is close enough to free market to include this example as well.

2. The private insurance industry is quite sensible in this, as the risk of flooding in flood prone areas is almost 100%, meaning that one would pay premiums close to actual annual cost of repairs. As I described when discussing "insuring" for routine medical costs, insurance cannot work with events which are frequent, as the cost will make insurance a very inefficient means to handle such payments. (Likewise, retirement "insurance", is a fraud when we are certain almost every buyer will become a recipient.) We only see such "insurance" in areas where government has mandated it. (See "Redefining Insurance... To Actually BE Insurance", "The Insurance Sham", "Preexisting Conditions", "The Absurdity of Mandatory Insurance", "Of Wheat and Doctors", "Social Security is Not Insurance", "Stupid Quotes of the Day (January 2, 2012)" and "Welfare for Malibu Residents".)

3. To be accurate, individual businessmen, CEOs, managers and other have a full panoply of concerns, as do all humans. However, when it comes to their firm, especially if there are shareholders to whom they answer, they must limit themselves to financial concerns. Even if they have sole control, and have desires beyond the monetary, the free market demands one think of financial matters first. Were one to forget income and costs, that is how well one's behaviors matches public desires, he will lose his assets, and the firm will not be long for the world ("Competition", "Third Best Economy", "The Case for Small Government", "The Triumph of Good", "Planning For Imperfection", "Greed Versus Evil", "In Praise of Contracts"), so even in sole proprietorships, reality insists on giving the lion's share of one's attention to monetary matters.

4.  Obviously, there are other concerns than simple financial calculations of NPV. Sometimes there is an immediate need for liquidity which drives decisions toward quick income, sometimes tax concerns or other legal matters drive one to hold more or less cash, or to maximize or minimize stock or capital assets. There is probably a nearly infinite list of possible reasons for preferring specific combinations of present or future income. My point is simply that the environmentalist caricature tends to postulate businessmen, who have built up massive corporations, having foresight and impulse control that would embarrass my seven year old, and that I find simply absurd.

5. Actually, the US had a brief period, especially during the building of railways in the late 19th century, where consumption did race ahead of planting, but that was righted fairly quickly by market forces and foresight on the part of land owners. Europe, on the other hand, involved the state in a lot of these question. But Europe also had a history of state involvement in land ownership, collective use of various properties and lots of other traditions which made a purely private solution more difficult in some European nations. Or, as in England, concerns over wood needed for fleets demanded government involvement, even if a private solution would have likely arisen on its own.

6. This is one of the problems with many environmentalist fears, a failing they share with the Sinclair Lewis style of scare stories about abuse of labor. If businessmen are really driven by nothing but greed, then often it would be cheaper to provide safe workplaces or engage in certain good environmental practices. Doing the opposite would be more costly, and so could only be explained if they were simply trying to do evil. ("Greed Versus Evil", "Who Is Safer?", "Worker Safety", "Oven Mitts and Safety Regulation")

7. I am not going to discuss the other issue of old vs new growth. I will only say that old forests, by which I mean forests made up largely of very old trees, are rare even without man. Forest fires, floods, tree diseases and insect infestations tend to wipe out trees on a regular basis, and trees, like all living things, grow less robust with age. As a tree gets older, its growth slows, and it also grows larger, and thus an easier target for any of these problems, as well as less able to weather droughts, or resist high winds, heavy snows and other outside forces -- not to mention the accumulated minor injuries of all its past problems and ailments. Thus, while many forests might contains some old trees, forest entirely made up of old growth would not be commonplace with or without man. But, I am over simplifying, and some of my statements need to be heavily qualified, so I will have to discuss this properly in another essay.


Freedom of Conscience, Under Certain Conditions...

I am often puzzled at the way people interpret freedom in our country. And having just seen an NBC article about a lawsuit filed by a lesbian couple denied access to a wedding venue, I am even more confused.

Before we begin, I suppose I need to post the standard disclaimer, the one everyone adds to show they are right thinking and tolerant, the "not that there's anything wrong with that" verbiage. Or, in the alternative, I suppose I could post the social conservative variation, proclaiming my indignation at society's tolerance of homosexuality. It seems one cannot discuss homosexuality without offering up one or the other. Oddly enough, I seem to be one of the few who has not, and, as a result of discussing these issues as if they were simply issues, and not some sort of moral crusade, I have been criticized quite thoroughly by certain gay sites (cf "A Sign I Have Made It", "Update", "The Thin Lavender Line") even though I actually endorsed several positions supported by many gay rights groups. (See "Solving the Gay Marriage Debate", "Updating an Old Post", "Revisiting Gay Marriage" and "Some Additional Thoughts on Gay Marriage".) So, I suppose society demands we must proclaim our stand or else be damned for our silence, as no one has the time to actually read and think things through. (The positions for which I was criticized do go against the orthodoxy of many gay rights groups, but they are no more critical of homosexuality than, say, "A Few Questions on Abortion", "An Implausible Argument" and "Legal Schizophrenia" are of the pro-life and pro-choice positions, yet, oddly I have not been criticized for those essays.)

Well, since I have always been a bit defiant, often much to my own detriment, I think I will simply press onward, and let readers decide where I stand.

The article in question is, in itself, nothing terribly unusual. A lesbian couple, planning their wedding, booked a place in New York, but, when the romantic getaway discovered they were lesbians, they cancelled the reservations, and the lesbian couple sued. Even the follow up is nothing new. The lesbians decried the cancellation as a violation of both their rights and the law, while the resort stated they were a family oriented location, and hosting lesbian weddings would be both harmful to their reputation and business and a violation of their beliefs. All the usual arguments, and arguments familiar not just in issues of gay marriage, but almost anywhere that the government intervenes into questions of freedom of association, or, if you prefer, questions of discrimination in public accomodations*.

What made this interesting is that the law actually did not paint with as broad a brush as most such antidiscrimination statutes normally do. Where it is ordinary for such statutes to simply lay a blanket policy for all public accommodations, in this case an exemption was allowed. Religious groups were allowed to retain their beliefs about homosexuality and, more importantly, to act upon them.

And this raises a question in my mind. Why are beliefs protected only if they are sanctioned by religion? If I believe that homosexuality is a sin, I can act upon that belief, but, if I simply believe it is bad, then I cannot. Or, more precisely, I can act on those beliefs only if I both think it a sin AND have some sort of religious sanction.

Am I the only one who finds that odd?

To my mind, the freedom of association, the right to not just associate with, but to do business or refuse the same, with anyone we wish, is sacrosanct, as inviolable as our rights of life, liberty and property. To allow the right only when one has religious approval is a peculiar approach. Are any other rights treated in such a way?

Of course, many will object that the right of association is not applicable here, as it is a public accommodation. However, I have objected tot that distinction before, as it is simply absurd. For example, what is and is not public? If I own a restaurant, is it public? But what about a private club? How about a private party for friends? But what about a private party where I charge for admission? And if that party allows friends to bring others? At what point does public become private?

The point is, the question is irrelevant. If I am free, I am free. I have the right to trade or not trade with whom I wish, whenever I wish. To declare otherwise is effectively to force me to act, to enslave me. Yes,this means I can discriminate in my business against various races, sexes, religions or any other group. However that is the price of freedom. One has the right to be as stupid, idiotic and unpopular as he wishes. On the other hand, it also means, when public opinion proves to be wrong, one also has the option of holding the correct belief.

And that is the most important point in this whole issue. To deny someone the right to be in error, even if it is only one specific error, is also to deny him the possibility of being right. Yes, we all agree racism is a bad thing. Many believe opposing gay marriage is a bad thing. However, if we ban the opposite belief, and denying someone the right to act on their belief is equivalent to banning those beliefs**, then we have introduced an orthodoxy. And,though in these cases we may be certain we are right, there have been many times in the past others were certain they were right and later proved wrong. And that is why we must allow individuals not just to believe, but to act on their own beliefs, whether we like it or not, whether ti is a public accommodation or not. To do otherwise is to begin to force one set of beliefs on everyone, and thus remove both the possibility of error and of truth.

Sadly, this law seems to recognize that, but only when it comes to religion. It seems they are saying "religious beliefs vary, so we won't force you to behave as if you hold one set of religious beliefs", but they then proceed to ignore every other kind of belief imaginable***. And that is absurd.

Beliefs are important to the individual holding them, whether religious or not.  To say that you can hold whatever belief you want, but not act on it, is equivalent to saying that belief is prohibited. Even dictators do not try to arrest people for the content of their thoughts. It is the right to act on beliefs that matters, and so, to limit permissible beliefs is to impose an orthodoxy on the public, even if you allow for a tiny exception based on religion. And that is a recipe for perpetuating errors.

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* I mention freedom of association because it is so rarely mentioned any more. Sadly, because of the civil rights movement, public accommodation arguments not only rose to preeminence, but were granted the moral high ground to such a degree, no one would think of arguing against them. Unfortunately, because we rightly see racial discrimination as a pernicious belief, we wrongly refuse to recognize that individuals have the right to hold and act upon pernicious beliefs. Only the state must maintain impartiality, individuals are free to be as stupid and unpleasant as they wish. (See  "In Defense of Discrimination", "A Statute of Limitations for Race", "How to Handle Idiots", "Back Again", "Best of the Web gets It Very, Very Wrong", "Private Versus Public Racism", "The Costs of Understanding", "Musings on Discrimination" and  "The Danger Inherent in Banning "Bad Ideas"".)

** Before someone raises an objection, or makes some sort of straw man argument, freedom to act upon one's beliefs is limited by the requirement to not violate the rights of another. And, to anticipate the opposite straw man argument, that somehow discrimination by private individuals violates rights, only the state must be impartial in treatment of individuals. You have no right to not be offended by my beliefs and behaviors.

*** I am not sure whether they argue this way because they feel religion is of paramount importance, and thus must be free, or because they believe it is so unimportant they can't be bothered. Of course, in truth it is probably because, traditionally, religious beliefs have been treated differently than other ideas in the US. I understand the historical reasons that freedom of religion was separated from other forms of freedom of conscience and freedom of beliefs, but in practice, they should all be treated the same, with all beliefs treated as sacrosanct, religious or secular.

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POSTSCRIPT

I believe the best summary comes from my, admittedly provocatively titled, essay "The Thin Lavender Line":
And yet, because they are gay, we are prohibited [from] saying a word about it. And that is the greatest disservice of all. After all, to place anything off limits, to disallow any debate, is to enshrine error. Whether the immunity is based on race or sex or orientation or religion or wealth does not matter. The moment inquiry is closed, error is inevitable.
For those interested in more discussion of the importance of error in finding the truth, I suggest my essay "The Importance of Error", as well as "The Case for Small Government". Finally, though not specifically related to discrimination, it is useful to recall how government involvement, even the most benevolent, tends to pervert relations, as described in the essays "How the Government Corrupts Relationships", "In Praise of Contracts", "The Threat of Perfection", "Utopianism and Disaster", "The End of Private Action", "Volunteer Fireman, Barn Raisings and Government", "Collective Action and Government" and ""...Then Who Would Do it?"".


Friday, October 19, 2012

He's A President, Not a Pair of Jeans!

Hope.

Change.

Forward.

Is anyone else sick of the one-word, trendy Obama slogans? They create those nice, simple single word captions advertisers love, but, to me at least, they look like they are advertising the next smart phone, not a president. I may be alone in this, but advertisements that look like failed campaigns for Zima just don't seem presidential. They seem too hip, too trendy, too lacking in gravitas, in seriousness.

In short, they make me feel that he isn't taking this seriously, that he thinks he can win a presidency the same way Benetton once took over the sweater market. And, sadly, we proved him right in 2008, which makes me worry about the rest of us as well. Do we really select presidents the same way we select cosmetics? Many have pointed out that we handed the presidency over to a rank amateur, and that is worrying, but I am more disturbed by the fact that he is a rank amateur who doesn't even seem to take it seriously. Much has been written about his celebrity version of the presidency, spending more time with well known musicians and actors, fund raising and appearing on talk shows, than attending to his duties. But that was true of the Clintons as well, though we seem to forget that. (Or maybe just want to forget it.)

No, what troubles me is that EVERYTHING about him suggests he is more concerned with his image, with frivolities, and very little with the job itself. Yes, that sounds like a lot to get from a one word slogan, or even a series of them, but I would argue, when the president gives you nothing but one word slogans, it is impossible to draw any other conclusion.

Thursday, October 18, 2012

Rewarding Failure

I recently saw an advertisement on television for "Occupy the Vote", and was immediately convinced I must visit their site. After all, hearing words such as "disenfranchised" led me to expect some rpetty amusingly heated rhetoric.

And their site did not disappoint. It has enough material to keep me going for weeks, if not months. Granted, most is your bog standard left wing rhetoric, Marx via the faculty lounge, usual academe meets red diaper baby stuff, with a hint of aging hippie thrown into the mix, all diluted with heaps of the ill-focused, nonspecific Occupy Wall Street angst. (Or, as I like to call it "Rage Against the... What was that thing, again?")

However, much as I would love to spend all day analyzing the nonsense they are selling, from some ill-defined efforts to disenfranchise voters, to the prolonged wails against corporate welfare and "the 1%", I am working at the moment and so have but a few minutes for a comment. And so, while I promise to plumb the depths of the site for its many treasures of absurd, overblown political rhetoric, at the moment I want to look at one particular paragraph drawn from the economic screed which appears on its main page. To wit:
We are now nearing endgame and its a game that the common man is about to lose.  The wealthiest 1 percent of this country have gone from receiving 9 percent of the nation’s income to 23 percent in just one generation.  They owned 40 percent of the nation’s wealth even before the crooks among them knowingly brought the sky falling down in ’08.  The 1 percent’s slice of the economic pie will continue to grow until the American people take their blinders off and do something about it.  Like it or not, we are in a class war in which our only effective ammunition is our votes.  We are living in a country that is run by people with no moral compass — who write their own rules and live in their own world — who will do anything to maintain the status quo of untethered greed…
Yes, I admit it, it is not anything we haven't heard before. If I had included preceding paragraphs about "the 1%" and all the other generic Occupy-speak rants, it would have sounded even more mundane. However, commonplace or not, this one paragraph struck me, caught my attention.

Allow me to explain why.

How often have we heard that "the rich get richer and the poor get poorer"? And how long has that cry been the rallying point of all the economic interventionists of the left? Well, there is one problem with that claim, and one that should be obvious to them, so obvious it should undermine all their conclusions and beliefs. However, it is the one thing they somehow fail to notice, and, sadly, the one point we often overlook as well, denying us the best rebuttal we could ever find.

That point is simply this. Since at least 1932, we have had tremendous government involvement in the economy. Even during supposedly conservative eras, such as the Reagan years, the class of 1994, or (though no conservative calls them such) the supposedly conservative Bush years, the economy was still more regulated than not. Yes, conservatives may have rolled back some regulations, but by and large, since at least FDR, if not since Wilson or the first Roosevelt, maybe even since Grover Cleveland left office as the last of the old school Democrats, the economy has been progressively regulated, falling even more fully under government oversight. For every law that is rolled back, there have been hundreds, if not thousands, added. I don't know of anyone, in either party, who can seriously say we are less regulated in 2012 than we were in, say, 1970, and certainly not than we were in 1920, or 1890. We have grown more and more regulated, more and more controlled. With a very few exceptions, the government has continually increased its power over us, especially in all things economic.

So, if the economy is failing to satisfy, if the rich are getting more and more of the nation's wealth, in an era of increasing regulation, does that not suggest that regulation, if it is not the problem itself, is at least not the answer? As I suggested in my essay on the war on poverty ("We Have Won the "War on Poverty""), if the situation degenerates while we apply a particular solution, then perhaps we should consider that the solution proposed may be wrong. And, in this case, maybe we should look back through history, and realize that, if things get worse with regulation, then perhaps regulation is no longer a viable solution. (See "The Case for Small Government", "Competition", "The Other 99%",  "Anti-Business Businesses")

Of course, as always the response will be that we had too little regulation, or the wrong people were in charge ("Government Quackery", "Grow or Die, The Inevitable Expansion of Everything", "The Endless Cycle of Intervention", "The Right People, The Wrong People and "Just Plain Folks""), but that makes little sense. During the times of our least regulation, say the 1830's and the 1880's, yes we had some very wealthy individuals, but we also had tremendous growth in the wealth owned by the middle and lower classes. ("Mistaken Perceptions of the Industrial Age", "Child Labor and the Industrial Revolution") But, instead of learning this lesson, and returning to a free market, which has a proven track record, instead we find the market unfairly maligned, and the only calls we hear are for more regulation, more government.

It makes me wonder if those making such calls are deluded, intentionally blind, or just dishonest. I have tried to avoid the final choice in the past, give everyone the benefit of the doubt ("Tyranny Without Tyrants", "The Nature of Evil", "With Good Intentions", "Paved With Good Intentions", "A Most Dishonest Debate"), but when I see people ignoring such a wealth of evidence, it makes me wonder if those who see deceit in such claims might not be right after all.

UPDATE (2012/10/24): I just realized this essay makes it sound as if I agree equality of income, or of wealth, is a good thing, and that is far form true. I am simply conceding the point to make my argument. My point is, if you think equality of income or wealth is good, and intervention has failed to produce it, then maybe you should give up on intervention. In truth, I believe inequalities of wealth are both unavoidable, and beneficial ("The Benefits of Inequalities of Wealth") and that fighting against them produces many harmful situations. However, I also argue that the free market, by increasing overall wealth, increasing the opportunities for advancement, increasing demand for even the most obscure skills, increasing overall demand for labor and otherwise generally harnessing the abilities of everyone willing to put in an effort, does improve the lots of all, and is beneficial in that way, and also does tend to level out inequalities of wealth to some degree, by preventing those barriers to wealth building government intervention creates. (See "Anti-Business Businesses", "Competition" and "In Praise of Contracts".)

Wednesday, October 17, 2012

A Most Dishonest Debate

Maryland has a long history of absurd and dishonest arguments when it comes to gambling. Which is hard to understand as we had legal casinos within living memory, as well as slot machines, meaning the ban did not have a long history. In addition, being a very strongly one party state, it is unusual for any issue to develop into a serious debate. Oh, from time to time, divisions within the Democrats allow a question to remain unsettled for a time, or a disgruntled minority in the Democrats may join with our minority Republicans to keep an issue alive, but, before too long, such questions tend to be settled by the upper echelons of the party, and whatever is decreed on high becomes official policy for the state as a whole1.

It all started when gambling was first proposed, in the form of slot machines at our race tracks. This led to the absurd argument that the plan was immoral as it would bring gambling to the tracks, where one can bet daily on 9 local races, not to mention broadcast races from round the country. How slot machines would introduce betting to an industry which exists to encourage wagers was beyond me at the time, and still is. Of course, given that at the time the state of Maryland licensed firms to run three and four digit lottery drawings twice a day along with twice a week multimillion dollar lottos, participated with other states in the "Mega Millions" lottery, and ran a Keno game with drawings every five minutes, I didn't understand how we could seriously say gambling was illegal. Or, that adding slot machines would somehow introduce a particularly immoral sort of gaming to the state2.

As more states around us began to allow slot machines at race tracks, or even purpose built casinos, and it began to seek possible some neighboring state might even introduce full blown casino gambling, the push for local slot machines grew, mostly motivated by the practical consideration that, so long as gambling was illegal, all of that potential tax revenue was flowing into other states. And, in all likelihood, the success of slots in West Virginia and Delaware would have brought us slot machines sometime in 2004 or 2005, had not the impossible happened and in 2003 Maryland elected a Republican governor.

Suddenly, all those who had pragmatically supported slot machines, or even full blown casinos, found they had ethical concerns, second thoughts, and grave worries over the details of implementing such a plan, all of which, may not have made them completely give up on gambling, but it certainly made them think the question should be put on hold, at least until the next election. And it was. And, fortunately for the gaming industry, a Democrat won3, who supported gambling, and, miraculously, all those qualms vanished in an instant, and gambling was back on track.

Which brings us to today, with slot machines in Maryland, and gambling revenues flowing. And yet, once again the stupid arguments are being trotted out, and mind boggling debates are beginning, which must mean one thing, a gambling bill is in the offing. And, sure enough, Maryland is being asked to vote on Question 7, which would expand the number of authorized gambling sites, among other things, leading to a host of dishonest and downright stupid statements.

Let us start with the basics. Maryland allowed gambling, but, as with most such bills allowing "immoral" acts4, they did it by creating a small cartel of authorized providers, and to offset the tremendous benefit of such a cartel, as well as placate those with ethical concerns about gambling, the state imposed considerable tax burdens on these firms. So, when the bill came up increasing the number of casinos, and presumably increasing the number of firms permitted to run them, the state planned to reduce the taxes.

This, more than anything else, inspired foolish arguments5, filled with envy over "tax cuts for casinos", entirely ignoring the fact that, were the casinos not allowed to open, the higher tax rate would bring in a higher percentage of nothing. But, as we shall see, I doubt such arguments are honest, in any case, just taking convenient, and hopefully emotionally appealing, arguments and using them to try to win over the public.

You see, while I do not have numbers to back this up, I am pretty certain, from my knowledge of human nature, that the two groups most strongly involved in this debate are not made up of concerned citizens. It is not a debate between those worried about the ethics of gambling, or tax rates, or education or anything outside of the casinos themselves. My thought is, considering the huge number of expensive commercials I have seen, the two most interested parties are those who own existing casinos, masquerading as the moral crowd, worried about expanding gambling, and those hoping to open new casinos, masquerading as fiscally responsible citizens hoping to balance the budget. Considering the sums involved, and the professionalism of the campaigns, there really is no other possibility.

And that is what makes this so amusing. The casino cartel is denouncing gambling and whining about tax breaks that shall benefit them. The other side is equally dishonest, but not quite so openly hypocritical in their arguments. But, nonetheless, it does show something I have long argued. Once we give the government too much power, it leads us to engage in dishonest activities, it encourages corruption and it warps the ways in which we interact.

No, I am not saying all dishonesty is to blamed on the state, nor is it the state which makes man pursue his own benefit. What I am saying is, by twisting incentives by placing unlimited power up for sale, the state encourages us to behave in immoral and dishonest ways. Without the state involved, these casinos would open their doors, hang out shingles saying "games of chance" and run their business. Once the state gets involved, with the power to exclude or permit entry, to set taxes, to control licenses and fees and profits, not only do the casinos need to appease regulators, they also can use the state as a weapon against one another, and, because they cannot say what they mean, they often must engage in deceptions such as we see above.

I certainly could say much more than this. In fact I have in my essays ("Transparency, Corruption and Reform", "The Other 99%",  "Anti-Business Businesses", "Tyranny Without Tyrants", "How the Government Corrupts Relationships", "In Praise of Contracts", "Competition",  "A Short Follow Up on Monopolies", "Bureaucracy and Arbitrary Power", "The Right People, The Wrong People and "Just Plain Folks"", "The Inherent Disappointment of Authoritarianism", "Employment A to Z" and "Perverting Self Interest". But it is a topic I shall probably end up visiting again, as it is one that is rarely addressed. Just as we frequently overlook the ability of the state to force us all into error, or the tendency toward bureaucratic managements and the dangerous rigidity it encourages in state run enterprises, the twisting of incentives and our perceptions of one another is rarely examined. So, though I have said little enough tonight, I plan to return to it again in the near future, so please check back.

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1. This is a bit of an exaggeration. The Democrats are not quite as united as this suggests, especially as in recent times strife between the DC suburbs and Baltimore has split the party into relatively well defined blocks. Nor are the Republicans as impotent as they once were. Yes, there is still a 9 to 1 advantage for the Democrats in registered voters, and the one fairly safe Republican seat once occupied by Helen Bentley is not as secure as it once was. (Though the failed gerrymander joining Anne Arundel to the eastern shore actually created a more secure Republican seat, rather than the Democrat coup the redistricting plan assumed.) And obviously there is conflict within the Democrats, especially around primary time. But, for the most part, the Democrats do run things, and, for the most part, once issues are settled within the party, they are decided for the state as a whole.

2. I have never understood the argument that gambling leads to immorality in any case. Yes, it attracts the criminal element when illegal, and even when legal sometimes draws criminal investment, but garbage collection does as well, probably to a greater degree, and no one calls that immoral. And, to be honest, from what I have seen of the slot parlors here and in nearby states, the average "degenerate gambler" is middle aged or older, usually lower-middle to middle class, and ordinarily more interested in getting comped trips and free buffets than crime. Yes, I understand some people claim gambling is immoral in itself, and that is a different topic. But as I do not believe the purpose of the state is to prevent us from doing things that will endanger our souls (unless they violate the rights of others), I cannot see banning gambling on those grounds alone. (See "A Right Is A Right", "My Vision of Government", "My Vision of Government Part II", "The Single Greatest Weakness", "Free Speech, Absolute Rights and the Absurdity of "Balancing Tests"", "Volunteer Fireman, Barn Raisings and Government" and "Minimal Reforms".) And, as far as leading to societal decay, I just have not seen it outside of those states where gambling is illegal and strongly linked to organized crime.

3. This is not just Republican sour grapes. Gambling was not the only way in which the Democrats tried their best to sabotage Ehrlich. Of course, as is normal in all states, they blamed their chronic overspending and inability to balance budgets on him, the nixed any efforts -- including gambling -- to raise revenues or reduce spending, and so on. However, Maryland went one better, and, thanks to a friendly media, managed to tar him with the fallout resulting from a failed Democrat pseudo-deregulation of the electric industry. (See "How Did The Press Miss This?" and "Coincidence is not Causation".)

4. Some Baltimore neighborhoods have created similar cartels by limiting the number of liquor licenses, meaning anyone hoping to open a bar must either buy out an existing bar, or wait for one to close. It is interesting how politicians denounce monopoly and cartels, claiming they are one of the inherent flaws of the free market, yet turn around and create their own without a thought. (See "The Difference Between Public and Private, Or, The Real Monopolies and Cartels", "Saving Us From Lower Prices", "Third Best Economy", "Cutting "Costs"", "Misunderstanding Profits",  "Two Examples of "Inefficiency" in Capitalism", "Fairness and the Free Market", "Planning For Imperfection", "Child Labor and the Industrial Revolution", "Mistaken Perceptions of the Industrial Age", "Government Quackery" and "The Case for Small Government".)

5. There was also debate over the promise of gambling revenues being earmarked for education, but that has always struck me as a pointless debate. All the money from the existing lotteries is also supposedly earmarked for education, as are certain other taxes. However, so long as such earmarks are less than the total education budget, it makes no difference. For, with every dollar earmarked from specific funds, a dollar of the general fund is freed for other uses, making earmarking a pointless gesture meant to appease the public and nothing more.