Thursday, November 30, 2006

A Tactic for Libertarians

I recently heard a campus talk that concerned the division of authority between administrative agencies and courts. I was struck by the degree to which the speaker's arguments took it for granted that both courts and agencies were doing their best to do good, hence that the important difference between them was their relative expertise at dealing with particular sorts of questions.

When the time came for questions, I pointed out the implicit assumption and went on to discuss the implications of the same assumption in a different context—the punishment of criminals. The police probably know more about crime, are more competent to determine who is or is not a criminal, than most judges and virtually all jurors. Hence, following out the logic of the speaker's argument, the obvious conclusion is that the decision of who is guilty should be made by the more competent police not the less competent courts. We could save quite a lot of time and trouble by simply having the police who arrest suspects go on to decide whether or not they are guilty and, if they are guilty, impose suitable punishments. If the speaker was not happy with that conclusion, I thought he might want to reconsider the assumptions from which it followed—in his context as well as mine.

It occurred to me that the exchange was worth mentioning here as an example of a tactic that other libertarians may find useful when arguing with people on the left. Most such people, at least in my experience, take an optimistic view of the competence of government to help the poor, regulate safety, set conditions of employment, and do many other things. But they are, I think correctly, sceptical of government law enforcement. Pointing out the implications of their optimistic assumption when applied to law enforcement may be one way of getting them to rethink those assumptions as applied in other contexts.

An analogous tactic ought to work when arguing with conservatives. They tend to take an optimistic view of the workings of the police and criminal (although not civil) courts, at least when arguing with liberals. But they are, I think correctly, sceptical of the competence of government in a wide variety of other contexts, such as the regulation of business or the control of land use. It should be possible to suggest to them that, if the government cannot be trusted to decide how best to preserve endangered species or prevent businesses from mistreating their customers and employees, one ought to be at least mildly sceptical of its competence to decide who deserves to be locked up or executed. The incompetence of government is an argument against the Occupational Safety and Health Act—but also against the death penalty.

To avoid making the same mistake I described at the beginning of this post, I should add that "incompetence" is a somewhat misleading term, since it assumes that the individuals in question have the correct objectives and merely make mistakes in how to achieve them. A large part of the reason to be sceptical of government as a way of organizing human affairs is that the particular individuals making decisions often have the wrong objectives, that the results that best serve their interest are not the same as those that best serve the objectives they are nominally supposed to be pursuing. That is true in the regulation of business, it is true in the control of land use, and it is equally true in the prosecution and punishment of criminals.

How to Eliminate the Publishing Industry

Publishers serve three important functions:

1. The physical production and distribution of books.

2. Assisting authors in writing books.

3. Filtering books, selecting from the very large number that potential authors wish to write a small number to actually be published.

The first function has been and is being eliminated by the web. An author can, by webbing his work, make it available to a very large audience at a cost close to zero. He can make it available to readers who prefer hardcopy at a modest cost via or one of its competitors.

The second function is important but does not require publishers. I got more editorial assistance on Hidden Order from my agent than from my editor, and there is no obvious reason why the useful part of what editors do could not be done by small firms providing editorial assistance to authors. Currently the job of copy editing seems to be mostly done by freelances anyway, although they are paid by the publisher rather than the author.

There remains the third function. To judge, at least, by horrified accounts of the contents of editorial slush piles, enormously more books are written than are worth reading. While publishers do an imperfect job of searching out the needle of literature in the haystack of slush—imperfect in both directions—they do a much better job than a reader faced with millions of webbed texts could do for himself. In order to eliminate publishers, we need an alternative filter, ideally a better one.

As it happens, there is a firm already in the business of finding small needles of worthwhile material in large haystacks of text. It is called Google. Google's core business consists of figuring out what pages users will want to read out of the much larger number of pages that might conceivably have something to do with their query. It performs, and performs very well, a different version of the same task performed by publishers as filters.

I therefor propose that Google ought to undertake the project of replacing publishers. To do so it needs to create mechanisms by which readers can find, not pages of information, but books—the particular books those readers will want to read, buried in an enormously larger number of webbed books that those readers will not want to read. I leave the details of the project to Google's very talented employees.

Thursday, November 23, 2006

Getting it Wrong

Following up links to a recent post of mine, I came across an article on my father in the Washington Post. It was an interesting piece not for what it got right but for what it got wrong.

The author starts with a simple and interesting puzzle. Most of the articles published on Milton Friedman after his death agree that he was a great economist. Many compare him to John Maynard Keynes, another great economist. But Friedman and Keynes held different, indeed inconsistent, views; an important part of Friedman’s accomplishment was to undo the effect of Keynes' accomplishment. If Keynes was right, how can Friedman be a great economist? If Friedman was right, how can Keynes be?

It is an interesting question, but the author gets the answer wrong. He concludes that both Keynes and Friedman were right. Keynes' version of economics was correct for the forties and fifties, Friedman’s for the seventies and eighties, when the Keynesian model "had played itself out."

That is a claim that neither Keynes nor Friedman would have taken seriously. Keynes titled his magnum opus “The General Theory of Employment, Interest and Money” not “The Theory of How Employment, Interest and Money Will Work from 1930 to 1960.” Part of the work that earned Friedman his Nobel was A Monetary History of the United States (coauthored with Anna Schwartz), in which he demonstrated that the Keynesian analysis of the Great Depression, the centerpiece of the Keynesian view of economics, was based on a historically mistaken account of what actually happened. It is an odd view of science in which the historical facts about the 1930’s changed between 1940 and 1970.

The author starts his discussion by claiming that economics is somehow less of a science than physics, hence its truths more temporary. Yet the history of physics offers precisely the same puzzle. Newton was a great physicist. Einstein was a great physicist. Part of Einstein’s accomplishment was to show that Newtonian physics was, in certain fundamental ways, wrong.

Newton was wrong, wrong not only now but then, but Newtonian physics provided the foundation of ideas on which later generations of physicists, including Einstein, built. Keynes was wrong, but his attempt to make sense of what he believed happened during the Great Depression provided a theoretical foundation on which later theorists, including Friedman, could build. Hence Friedman’s comment on Keynes: “In one sense, we are all Keynesians now; in another, no one is a Keynesian any longer"—misquoted by Time Magazine as “We are all Keynesians now.”

Stores as Art

It was a little before nine in the morning, the cab for the airport was at 10:30, and my daughter needed a new pair of headphones, the old ones having died. I called a local electronics chain; the recorded message said they opened at ten. I called Fry’s. The voice at the other end of the phone informed me that they had opened at eight that morning. She sounded mildly surprised that I would ask.

While trying to decide which of ninety-seven different models of headphone to buy, I was also contemplating the nature of Fry’s. My conclusion was that Fry’s is best understood as a work of art. It combines an elaborate variety of features, from the hours it keeps to the flashing lights that notify you that a checkout clerk is free to the junk food in the checkout aisle, from the selection of goods to the décor—my local Fry’s flaunts an ancient egyptian theme—all designed to convey a single consistent feel, appeal to a particular sort of customers.

In the case of Fry’s, an electronics supermarket, the target is geeks. The whole ensemble is designed to make geeks, technophiles, feel at home, feel that this is their place. To fully explain how they do it I would probably have to be an artist capable of creating a similar work myself, and I’m not. But I am enough of a geek to recognize what they are doing and admire their skill in doing it.

Fry’s is merely the example ready to hand, since I live in Silicon Valley. If this piece were being written by my friend Steve Landsberg he would probably cite Wegman’s, a supermarket chain limited, so far as I know, to northern New York state. Steve can go on at some length about the MegaWegman stores that are the stars of the chain; he has been known to argue that the existence of Wegman’s is itself a sufficient reason to live in that part of the country.

There are, of course, many other examples—Apple stores surely qualify. In each case someone with artistic abilities much superior to mine has figured out to create an ensemble, a combination of aesthetics, products, marketing, that sends a consistent message. Properly viewed, it is a new art form, and one of considerable depth and subtlety.

Monday, November 20, 2006

The Mont Pelerin Society, Milton Friedman, and the World

I spent most of a week recently in Guatamala at a meeting of the Mont Pelerin Society, an organization created by Friedrich Hayek after the Second World War. At the time it was created, supporters of free markets were rare, especially in the academic world. One reason to create the Society was to give people with classical liberal views the opportunity to spend at least a few days a year with other people who did not regard their beliefs as obvious nonsense, fit only for the wastebasket of history.

Some decades later, a number of people associated with the Society, including my father, suggested that perhaps it was time to dissolve it. Views that had been regarded as obviously obsolete in the late forties had become, if not always accepted, at least widely known and widely viewed as serious contenders in the marketplace of ideas. It was no longer necessary to go to some far corner of the world to find colleagues who shared a generally pro-market viewpoint; with luck there were at least one or two down the corridor.

The argument that ultimately persuaded him and others that the Mont Pelerin Society ought to be continued was that, although libertarian views were now widespread and respected in the U.S., the situation was very different elsewhere. Especially in the Third World countries of Asia, Africa and Latin America, and to a significant degree even in Europe, believers in free markets still found themselves in the situation that Hayek and others had faced when the Society was founded, isolated in a sea of left wing orthodoxy. For them, at least, the Society could continue to serve its original purpose.

I was reminded of this reading the comments on my memorial post for my father. What was striking was not the number but the geographical diversity. In addition to the U.S., condolences came from people who identified themselves as from:

Costa Rica
Hong Kong

Thursday, November 16, 2006


Cattle die, kindred die,
Every man is mortal:
But the good name never dies
Of one who has done well.

Wednesday, November 15, 2006

Darwin, Reproduction and Religion

I do not often link to other blogs, but I just came across a fascinating post in Future Pundit, arguing that Darwnian evolution will reverse both falling birth rates and declining religious belief—indeed is already reversing the latter.

The theoretical argument is simple and persuasive. Humans vary in, among other things, their taste for having children. It seems likely that some of that variation is genetic. We are now in an environment where reproductive success is limited mainly by parental choice, not by resource constraints; most people in developed societies could afford to rear many more children than they do. So people with more of a taste for having children, those who are more phyloprogenitive, will out-reproduce those who are less, increasing the share of their descendants in the population and, eventually, bringing average birth rates back up. While the author does not carry the argument all the way, the logical implication is that the process will continue until reproductive success is again constrained by resources—a Darwinian version of Malthus' old argument for why a society rich enough so that the cost of children was low could not be in long term equilibrium.

The second half of the argument, and the one the post centers on, is the relation between religion and fertility. FuturePundit quotes various authorites to the effect that, on a world wide basis, more religious people are also more fertile, not only across societies but within societies. By his account, while the decline in fertility has not yet reversed itself, the decline in religious belief has, due largely to the greater fertility of believers.

It is a persuasive argument, but I have one problem with it. Human generations are long, so human evolution is slow. I can well believe that if we maintained the world more or less as it is for five or ten generations, FuturePundit's predictions would come true; fertility rates would begin to rise and religious belief continue to become more common.

We are not going to maintain the world more or less as it is for that long. We live in a time of very rapid change, driven by technological progress. That makes all long term predictions highly uncertain—the main reason I am opposed to expensive precautions intended to prevent long term consequences of global warming.

Here is a short list of possible technological changes that might—or might not—reverse one element or another of the equation:

1. Artificial wombs, to convert the cost of childbearing from time and pain to money, thus giving a reproductive advantage to higher income couples and richer (and, on average, less religious) societies.

2. Uploading—the ability to reproduce oneself by copying the brain's software to a computer.

3. Advanced virtual reality or very good recreational drugs, providing the illusion of a heaven on earth to compete with religion's (I think illusory) promise of a future heaven, leaving the more active parts of life, including reproduction, to people with a strong preference for reality over fantasy.

Readers are invited to contribute more items for the list.

Monday, November 13, 2006

Academic Tabu

I have just been looking over a recent article by Roland Fryer and Steven Levitt in the American Law and Economics Review, "The Black-White Test Score Gap Through Third Grade." It is interesting for what it tells us about race, but more interesting for what it tells us about the state of academic discussion in present-day America.

The authors observe that, while black students enter the school system substantially behind white students as judged by tests of reading and mathematics, the difference vanishes if you control for a small number of environment variables such as socio-economic status of parents and number of books in the home (the authors are not entirely clear about which variables are used where, but those are two of the ones they mention). That result appears to support the conventional belief that racial differences in outcome are due to environment, not to innate differences.

As the children move through the first few grades of school, however, that situation changes. Black students fall behind white students at about a tenth of a standard deviation a year; that remains true even after controlling for the environmental variables that eliminated the initial difference.

The article is in large part about the authors' search for an explanation. In an earlier piece they had conjectured that the difference was in school quality; in this one, with more data, they are able to reject that explanation. The pattern exists for black and white students in the same school, even in the same classroom. It does not exist for hispanic and white students and it reverses for asian and white students. After exploring a variety of alternative explanations, the authors conclude that they cannot explain the data.

Having eliminated all of the possible environmental causes that they can think of, one might expect them to next consider the obvious alternative explanation: Innate differences between the races. That is not the only possibity, of course; I can think of a few more environmental explanations, such as different treatment of blacks and whites by schoolteachers and others or differences in peer group pressures. If, as I think likely, black students tend to socialize with black students and white students with white students, and if black youth culture is less friendly to education, or differs in other relevant ways, from white youth culture, that also might explain the observed pattern.

Nonetheless, insofar as the results are evidence in the controversy over racial differences, they are evidence in favor of such differences, since they are the results one would expect if blacks were on average innately worse, and east asians innately better, at certain things than whites. That explanation is not on the authors' list of conjectures to be tested. The authors try every environmental explanation they can think of a way to test, are unable to explain the data, and, instead of considering a non-environmental explanation, throw up their hands.

Their discussion of the omitted possibility is limited to a single footnote, which reads:

"This theory, if true, also re-introduces the possibility that genetics could play a role. Because we have little evidence on this either way, we choose to exclude it while noting that it is a possibility."

Including that footnote marks the authors, in my view, as more courageous than the typical academic. Nonetheless, it translates as "our results support a view not to be discussed in polite society, so we won't discuss it."

Which tells us something about to what degree the beliefs, at least the stated beliefs, of polite society are based on open enquiry into the evidence, and to what degree on prejudice.

I should probably add that the one discussion of the question of racial differences I have seen that actually provided real evidence against them was by Thomas Sowell in Ethnic America: A History. It was possible only because Sowell, being more courageous still, was willing to seriously consider the possibility that different racial outcomes might reflect genetic differences. He offered the economic performance of West Indian immigrants as evidence that the poor economic performance of American blacks is due to neither genetics not prejudice. West Indians are blacker than Afro-Americans, in terms of both genetics and appearance, yet their family income gets up to the U.S. average in a single generation. Readers curious about his explanation of the difference are invited to read his (very interesting, for many other reasons as well) book.

Saturday, November 11, 2006

Balance of Power

A few comments on the recent election and related matters:

1. Like some, but surely not all, libertarians, I was hoping that the Democrats would get control of at least one house, and so was glad that they did. Gridlock is your friend.

2. A single senate seat made the difference between a Democratic majority and a Republican majority. In Montana, the Democratic candidate got 49% of the vote, the Republican 48%, and the libertarian candidate 3%; while one cannot be sure what would have happened if there had been no LP candidate, that at least suggests that, absent the LP, the Republicans would still hold the Senate. I have not looked at the House races to see if there is a similar pattern there.

3. The Democrats' hair thin majority depends on two independents, Bernie Sanders and Joseph Lieberman. On the face of it, that ought to give each of them enormous leverage. My guess is that, in the current political situation, supporting the Republicans is not a practical option for either, however, so I’m not sure how that potential leverage will affect actual committee assignments and the like. It should be interesting.

4. A recent publication from the Cato Institute analyzes the libertarian role in American electoral politics, using a much broader category than LP voters. Defining a libertarian as someone who responds like a liberal to poll questions on social issues and like a conservative to poll questions on economic issues, the authors find that libertarians make up about ten to twenty percent of the electorate. That’s far from a majority, but still a big voting bloc—probably bigger, for instance, than the black vote.

Most interesting, they find that that bloc is shifting its vote. In 2000, Bush got 72% of the libertarian vote. In 2004, he was down to 59%, while the Democrats almost doubled their share. If they had done a little better, they would have won.

This supports the argument I made almost a year ago, suggesting that the Democrats ought to be trying to pull libertarians, broadly defined, out of the Republican coalition. I will take this opportunity to repeat the suggestion I made there, that the Democrats should come out in support of medical marijuana, either in the form of a change in federal law or of a policy of deference to state law. It would be a clear symbolic signal to libertarians, broadly defined, and I don’t think it would alienate much of the present Democratic base.

Thursday, November 09, 2006

Concerning Status

Apropos of my recent post on status ... .

I've recently spent some days at a fairly fancy hotel in a moderately poor part of the world. One thing that struck me was how many hotel employees there were hanging around ready to help the guests at any opportunity. In part, of course, this is a natural result of the low cost of labor. What's puzzling is that there are so many, mostly doing nothing, as to give the impression that the marginal product of the last few must be very close to zero.

It occurred to me that perhaps what they are really there for is not to do but only to be. Humans value status. Having lots of people around you who are visibly lower status than you is one way of giving you the feeling of high status, which you may well enjoy.

Along similar lines, I was thinking about the difference, in the U.S., between fancy hotels and nice but not fancy hotels—consider a Hampton Inn as an example of the latter. The space and comfort of the accomodations isn't very different, although the fancy ones have more polished marble in the bathrooms. I wonder if a good deal of what you are paying for, and what makes the difference in characteristics between the two sorts, is status, provided in part by surplus employees.

Apropose of which, my wife remarked during our most recent summer trip that she feels more comfortable in the kind of hotel or motel where it seems natural for her to hold open the door for the properietor or a worker who is going through it with an armful of laundry.

Private Schools for the Poor

I recently heard a talk, accompanied by a video, by James Tooley, who has been studying private schools in poor countries—not private schools for the rich but private schools for the poor.

The results sound extraordinary. In slum areas of countries such as Nigeria it appears that a majority of poor children are being educated in private schools, charging on the order of five dollars a month. Parents are willing to pay that because they believe they are getting, in various ways, a better education for their children than in the free public schools. Tooley tested a random sample of both private and public school children, and confirmed that opinion; the children going to the (inexpensive, slum) private schools consistently tested higher than the children going to the public schools.

His talk reminded me of E.G. West's fascinating book Education and the Industrial Revolution, where he describes a very similar pattern among the English working poor in the early 18th century—in that case with no free public schools available.

As a libertarian I found the talk, and the accompanying video, encouraging, not merely because it provides evidence to support my beliefs but because it suggests that, however difficult the push for libertarianism may be in the political arena, we have allies--billions of human beings applying their intelligence to living their lives as best they can, frequently below the radar of their governments.

One Cheer for China

Having just discussed China with a pleasant lady who fears that the Chinese are buying up all the world's resources, I thought it would be worth explaining why I regard the existence of China as a good thing.

I expect quite a lot of important technologies to develop over the next few decades. I also expect that there will be attempts to block some of those developments, whether under the rubric of the Precautionary Principle or other, and perhaps better, arguments. On the whole, I prefer that those attempts fail. While I recognize that there are potential dangers, even serious dangers, in some of the likely technologies, I think the dangers of blocking them are probably greater.

As a general rule, if you cannot block a technology everywhere, you cannot block it anywhere. Once nanotech, or artificial intelligence, or life extension, is developed somewhere in the world, it will be hard to prevent people elsewhere from using. Seen from this standpoint, China has two things going for it:

1. It is sufficiently powerful so that the U.S. cannot push it around.

2. It is sufficiently different from the U.S. so that it is likely to want to ban different things.

Hence there is a reasonable hope that the technological developments that are banned in the U.S. will be permitted in China, and vice versa.

As an earlier example of the same principle, consider the desirable effect of France's demonstration to the rest of the world that it really is possible to shift to nuclear power on a large scale.

I should probably add that China also has lots of smart energetic people, and there is at least some possibility, if present trends continue, that it will end up more capitalist than the U.S. And that what I have said about China also applies, with slightly less force, to India.

Monday, November 06, 2006

What’s Wrong With Steroids?

From time to time, I see a news story about some athlete who has been caught using steroids to improve his performance. Everyone seems to agree that this is a bad thing and should be punished, but it is not entirely clear why.

I can see three possible answers. The first is that, since steroid use is currently banned, the athlete who uses them is breaking the rules, cheating in a competitive game. That leaves unanswered an obvious question: Why are steroids banned? Absent the ban, using steroids is no more unfair competition than practicing on the weekend.

The second answer is paternalistic. Steroids can have undesirable long run effects on their users. If athletes, many of them young and inexperienced with the world outside their profession, are free to use them, they may do so even when they should not. That is especially likely in the competitive world of sports. A carpenter who performs ninety percent as well as a competitor can expect to receive about ninety percent of the competitor’s income. A professional football player who runs ninety percent as fast as his rivals is no longer a professional football player.

Given the paternalistic assumption, the argument seems plausible, but it is strikingly inconsistent with how we treat other competitive sports. Taking steroids may indeed reduce your life expectancy, but so does driving a car around a racetrack at something over 200 miles an hour. In that case too, a ten percent reduction means, not that your salary as a race driver goes down ten percent but that you are no longer a race car driver.

The third and most interesting answer is that competitive sports are special because what is being consumed is relative not absolute output. We reward a race car driver not for driving faster than 230 miles per hour but for driving faster than any other driver in the race. It is at least arguable that our pleasure from watching our favorite baseball team play depends not on how well it plays but on how much better it plays than the opposing team.

If that is true, then a change that makes one driver faster or one team better produces a benefit for that driver or that team, but a change that makes all drivers faster or all teams better produces no benefit for anyone. A change that makes all athletes faster and cuts three years off their life expectancy makes nobody better off and makes all athletes worse off. That sounds like a plausible reason for preventing such changes, insofar as we can.

Comments? Is that a plausible explanation? Is there a better one?

Eugenics and Libertarianism

I’ve just been reading Matt Ridley’s very interesting book Genome, which I highly recommend. It contains, among many other things, a brief history of the eugenics movement. Compulsory eugenics, in the form of sterilization of the “feeble-minded” and similar schemes, is sometimes blamed on Herbert Spencer and Social Darwinism, hence on laissez-faire beliefs, hence on libertarianism. Judging by Ridley’s account, that is almost precisely backwards.

Spencer was indeed concerned about human eugenics but, as a believer in laissez-faire, he did not propose using government to improve them. Compulsory eugenics originated with Galton and was rapidly taken up by the British left, with supporters including Shaw, Wells, Keynes, Laski and the Webbs. The idea spread across the political spectrum; Winston Churchill was one of many enthusiastic supporters. The result was an attempt, in 1912, to enact compulsory eugenics into law.

It was successfully opposed by Josiah Wedgewood, who Ridley describes as a radical libertarian. His central argument was not that it was bad science but that it was a striking violation of individual liberty. He made that argument sufficiently persuasive to force the government to withdraw the bill. Another opponent was G.K. Chesterton, best known today as a Catholic apologist and the author of some early mysteries. Chesterton was another radical libertarian, although a somewhat odd ones, to whom I devoted a chapter in the second edition of my Machinery of Freedom.

In addition to libertarian politicians such as Wedgewood and Cecil, compulsory eugenics had another important opponent: The Catholic church. Compulsory sterilization was implemented in a considerable number of countries, including the U.S. and Sweden, and almost implemented in Britain. It was not implemented in countries where the Catholic church was powerful. In that case, at least, the Church’s opposition to the latest findings of modern science put it where it belonged, on the side of the angels.

We were there too.

To be fair, I should add that there was a second push for compulsory eugenics in the early 1930’s, successful in some European countries but not in Britain. This time the failure was at least in part due to intellectual changes associated primarily with the left, the shift from belief in genetic determination of human beings to belief in social determination.

As Ridley points out, there is a different sort of eugenics that is alive and well in the modern world—decisions by parents related to the genes of their actual or potential offspring. He discusses two versions.

One is represented by the Committee for the Prevention of Jewish Genetic Disease, an organization that uses blood tests of school children to identify the carriers of genes for Tay-Sachs or cystic fibrosis. “When matchmakers are later considering a marriage between two young people, they can call a hotline and quote the anonymous numbers they were each assigned at the testing. If the are both carriers of the same mutation … the committee advises against the marriage.”

The other is the increasingly common practice of parents using amniocentesis to identify embryos carrying the extra chromosome that leads to Downs syndrome, and aborting them.

Friday, November 03, 2006

Obesity, Wireheads, and the case for and Against Paternalism

I'm currently working on a chapter of my book Future Imperfect dealing with mind drugs. It occurred to me, listening to a lunch talk by a colleague, that the issue I am raising there is central to the most recent of the World's Great Problems—obesity, which I discussed briefly in an earlier post.

Suppose we come up with really good pleasure drugs, drugs that give us lots of pleasure without negative side effects such as hangovers or cirhosis of the liver. If we accept the economist's model of the rational actor, their invention is clearly a good thing. It expands our choice set, provides us one more and possibly better way of getting what we want.

To people sceptical of the rational model, that conclusion is less clear. To see the problem, consider an extreme version. Larry Niven, in some of his stories, describes wireheads, people who have had a wire inserted into the pleasure center of their brain and stimulate it with a mild electric current. The intense pleasure that results dominates all other concern, making it possible for a wirehead to die of hunger and thirst because getting food or drink is simply more trouble than it is worth.

For a more homely example, consider a pleasure drug that many of us overdosed on a couple of days ago: Chocolate bars. If you have more elevated tastes, substitute dinner at a four star restaurant in Paris. While it is true that food is useful to keep us alive, sufficient food for that purpose--lentils, powdered milk, vitamin pills, rice or potatoes--does not cost very much or taste very good. Most of what we spend on food buys pleasure. In modern societies, calories, even moderately tasty calories, are cheap. People like to eat. Voila: An obesity "epidemic."

I would like to be thinner, but am not very good at getting that way. Considering the situation as an economist, I conclude that the benefit of lost weight must be less than the cost. Introspection provides a less complimentary picture of my role in the situation. It looks rather as though I am, like Niven's wireheads, irrationally willing to sacrifice my own long term welfare to my own short term pleasures.

For a different angle on the situation, consider a question I raised in another recent post: Does consumer sovereignty, the principle of accepting individual actions as proof of what we value, apply if we have good reason to regard the actions as due to evolutionary mistakes, adaptations to a past environment very different from the one we now live in? In most past environments, after all, eating when you had the chance, eating enough to get fat, was a sensible strategy, since next month might be famine. From an evolutionary standpoint, current obesity is simply one more case of humans being poorly adapted to their current environment.

Following out the logic of that argument, one would conclude that greater choice sometimes makes us worse off. If so, is that an adequate reason to abandon libertarian conclusions—to, for example, support government restrictions on fat in food, cheap junk food in restaurants and grocery stores, and the like. Is it a good argument, following out the line other economists have taken with regard to gasoline, to support high taxes on food, designed to force consumers to compensate for their irrational tastes?

If we had a government run by benevolent philosopher kings, that might make sense. The problem with it in the world we live in is that although I may sometimes be a bad judge of my own welfare, sometimes even a bad judge in predictable ways--arguably the central point of behavioral economics--I have one enormous advantage over any one else when it comes to making decisions about my own welfare. Unlike almost everyone else in the world, I can be trusted to put my own welfare very high in my priorities. Once we shift the decision to someone else, however rational, we can expect him to make decisions for me in his interest rather than mine.

Which brings us back to an old libertarian argument—for certifying doctors instead of licensing them. Patients, however rational, are imperfectly informed about the competence of doctors. Why not solve that problem by having some competent authority decide which physicians are allowed to practice? That is the theory of medical licensing as it now exists. The practice, as shown long ago, is that the medical profession uses licensing to hold down the number of physicians, sometimes in ways unrelated to their professional competence. That is why it would be better to allow the competent authority to certify doctors, telling patients whether that authority considers them competent, and then let the patients decide for themselves whether to accept the authority's judgement.

If you do not find that claim convincing, you might consider the wide range of other professions that also require licensing—yacht salesmen, egg graders, barbers and the like. It would be a curious coincidence if it turned out that medical licensing existed, and functioned, for wholly benevolent purposes—unlike every other example of professional licensing.

Wednesday, November 01, 2006

Why Bureaucrats don't Maximize their Budgets

William Niskanen, in a book published many years ago, proposed a simple model of government bureaucracy. The more money a bureaucrat controls, the more important he is, so bureaucrats want to maximize their budgets. The bureaucracy knows, and the legislature does not know, what a government bureau can do at what cost. The legislature knows how much any level of output from a bureau is worth to it. So the rational bureau misrepresents its production function in a way designed to trick the legislature into giving it the largest possible budget. It does so by finding the largest level of output that it can produce at a cost just barely below the value of that level of output to the legislature and then exaggerating the cost of any lower level of output by enough to make it higher than its value.

When I first read the argument it struck me that it contained a fundamental mistake. So far as I can remember, I never published that conclusion. I recently came across a version of Niskanen's argument in an online discussion, so thought I might as well take the opportunity to explain why it is wrong.

Consider two bureaucrats. Abe has a ten million dollar budget and is required to purchase $9,900,000 worth of paper to be sent to the IRS for printing tax forms on, leaving him $100,000 for himself, his secretary, and rent for his office. Bernie has a one million dollar budget and is required to do nothing at all. Which would you rather be?

Generalizing the example, I suggest that the size of the budget in Niskanen's model ought to be replaced with the surplus, defined as the difference between the size of the budget and the lowest cost at which the output the bureau has agreed to can be produced. That difference represents resources that bureaucrats can divert to their own purposes.

I'm curious. Niskanen's book was published a long time ago. Have other people proposed the same modification?

Score One for Richard Epstein


It Depends Whose Ox is Gored

California's Proposition 90, if enacted, would limit eminent domain seizures of property to property intended for a public use narrowly defined. It would also require government to compensate property owners if the value of their property is reduced by governmental actions such as new land use regulations. It thus enacts into law the position that Richard Epstein argued for in Takings and reverses, so far as California is concerned, the result of Kelo.

Santa Clara County's Measure A, if enacted, would impose a bundle of land use restrictions on property owners in Santa Clara County.

With an election coming up, I have been receiving the usual flood of electoral junk mail. The most interesting piece is a glossy flier arguing against Measure A—not on the grounds that the proposed land use restrictions are a bad thing but that:

"If Proposition 90 and Measure A, the land use initiative, both pass, there would likely be numerous claims for compensation filed by property owners who contend that their property has been substantially damaged as a result of the restrictions on property contained in Measure A."

Elsewhere in the flyer, the total cost to Santa Clara Country taxpayers is estimated at a billion dollars.

The economic argument for Epstein's position is straightforward. Government actions, like private actions, should only be taken if they make us on net better off, if their benefits, summed over everyone affected, are larger than their costs, similarly summed. If an actor is free to ignore some of the costs of his actions he may take them even if costs are larger than benefits. So government actors, like private actors, should be forced to bear the costs that their actions impose on others. It is the same argument used by economists to support tort law in general and environmental regulations such as emission fees—Pigou's solution to the problem of externalities implemented via the legal system.

Consider the application of the argument to Measure A. Its supporters argue that by keeping land in the county from being developed—the measure, among other things, imposes a minimum parcel size in hillside areas of 160 acres (a quarter of a square mile) and a minimum acreage per dwelling unit of 40 to 160 acres depending on slope—the measure makes the county a pleasanter place for its current residents to live in. If so, and if the benefit to current residents is greater than the cost to landowners of limiting their ability to use their land, then the residents should be willing to vote for the measure even if they have to compensate the landowners. If, as the authors of the flyer obviously assume, residents are unwilling to vote for it if they have to pay the cost, that is evidence that the measure on net makes people worse off, which is a reason why it ought not to be passed.

The flyer is presented as an argument against Measure A, written by people who sound as though they consider Proposition 90 a bad thing. It in fact is an argument for Proposition 90, a demonstration that shifting the costs of political acts to the people who expect to receive the benefits makes it less likely that governments will do things that ought not to be done.

Score one for Richard Epstein.