Wednesday, April 08, 2009

Ways of Changing the World

My son Patri has an interesting essay up on Cato Unbound, dealing with the question of how to change the world in a libertarian direction. He views most of the standard approaches, such as persuasion and policy studies, as tactics that worked for changing policy in the hunter-gatherer bands where humans spent most of their evolutionary history, since the numbers were small enough for one individual to affect outcomes, but that are ineffective in modern, large population societies. He concludes that we have to somehow change the dynamics of the system, the incentives that generate political outcomes, if we want different and better results. He discusses a variety of approaches, in particular his own project to develop a technology of floating housing—seasteading—in order to create something closer to a competitive market in governments. It's an interesting and persuasive essay and to a considerable extent correct, but I think he is missing one important alternative.

I see democracy as equipped, like a microscope, with a coarse control and a fine control. The fine control is special interest lobbying, the coarse control is majority voting. It is coarse because of rational ignorance. Voters know their vote has a negligible effect on outcomes and so have no incentive to acquire the information they would need in order to do a good job of making sure that governments do good things instead of bad things. The result is that how they vote and the outcome of their voting are largely driven by free information—what everyone knows, whether or not it is true.

Consider a few examples. At the moment, "everyone knows" that recent financial troubles threaten economic catastrophe on the scale of the Great Depression. It probably isn't true—my guess is that the current cure is considerably more likely to create economic catastrophe than the disease it is supposed to be curing—but, true or false, a lot of people believe it. The result is that it has been politically possible for Obama and the Democratic majority in Congress, with some help from the Republican minority, to engage in a program of vastly expanded government spending financed mostly by an enormous increase in the national debt—a program that would not have been politically viable five or ten years ago.

Or consider the longstanding issue of free trade vs protectionism. All economists know that tariffs, as a general rule with perhaps some exceptions, injure the country that imposes them as well as its trading partners. Everyone who isn't an economist "knows" that tariffs help the country that imposes them by protecting its industries from the threat of foreign competition and are bad only because other countries are likely to retaliate with tariffs of their own.

Part of the reason people believe that may be the same hard-wired hunter/gatherer mindset that Patri discusses in a different context, this time taking the form of a view of almost all issues as us against them. But another and perhaps more important part is that the wrong analysis of foreign trade is easy to understand, the right analysis is hard to understand, which is why the right analysis was not discovered until the early 19th century when David Ricardo worked out the theory of comparative advantage. One result of the mistaken popular understanding is to lower the political cost of passing tariffs and so to lower the cost to industries of buying such legislation.

Since political outcomes are in part driven by the free information that affects the political cost of alternative policies, one way of influencing outcomes is by influencing that free information. Patri's grandfather provides a striking example. His writing, speaking, and television programs had a substantial effect on what very large numbers of people believed, and so affected political outcomes. Other examples, working in the opposite direction, would be George Bernard Shaw and John Kenneth Galbraith. A still more important example, two centuries earlier, is Adam Smith.

Coming back to the case of tariffs, I suspect that one of the most important things I ever accomplished for public policy was to come up with a simple, intuitive explanation of the principle of comparative advantage—and thus of why tariffs hurt us. To find it and see some evidence of how widely it gets quoted, google on "growing Hondas."

As a contribution to economic theory what I did was worthless, since it added nothing to what Ricardo worked out almost two hundred years earlier. But putting the argument in an easily understood, easily repeated, quotable form changes the content of the free information available to voters. It means that more of them will see support for an auto tariff as a reason to vote against a politician, fewer as a reason to vote for him. Which will make it (a little) harder for the auto industry and their allies to get auto tariffs passed.

My conclusion is that while something like seasteading or crypto anarchy may indeed be the most hopeful path to a freer future, those are not the only sorts of approach worth attempting. An alternative, for academics, authors, newspaper columnists, anyone able to produce ideas and information and put them into circulation, is to try to alter the mix of free information that drives the coarse control mechanism of democracy.

20 Comments:

At 12:48 PM, April 08, 2009, Anonymous RL said...

Your assumption, David, is that voters are (merely) rationally ignorant. What do you think of Bryan Caplan's argument that they are actually rationally irrational?

 
At 2:14 PM, April 08, 2009, Anonymous Art said...

I am also very curious to see David's response to Bryan Caplan's argument.

 
At 3:50 PM, April 08, 2009, Anonymous Anonymous said...

You exaggerate the importance of the masses (voters). Elite opinion is vastly more important. Democracy doesn't mean that the masses control the government, not even in a coarse way.

 
At 3:52 AM, April 09, 2009, Anonymous Paul Birch said...

You have to Google "growing Hondas Friedman" to get anything interesting. It's an amusing way of putting it, but I doubt if would convince anyone who wasn't already convinced; sending the wheat across the Pacific might mean the Japanese get all the profits, where sending it to Detroit might mean that Americans keep all the profits.

The standard Riocardian analysis of comparative advantage makes the assumption that both trading partners have free market economies internally (or at least that any restrictions, taxes or subsidies are the same in both). In the real world of mixed or socialistic economies, the internal regulatory and tax regimes differ markedly. I don't think I've seen any general proof that free trade is still always optimal under those conditions. (For a variety of reasons I think free trade is probably still the best policy, as a rule, but rigorous proof seems lacking).

 
At 10:12 AM, April 09, 2009, Blogger Patri Friedman said...

Doesn't Bryan's argument support David's? Bryan says that voters get the policies they want. Which supports the idea that influencing voters is a way to influence policy.

Sure, voters are irrational (have stupid ideas about economics, aka "folk economics", as David even mentions in his piece!), but that doesn't mean you can't influence them towards better economic knowledge. Irrational does not mean untrainable, as any spouse can tell you :).

 
At 3:46 PM, April 09, 2009, Anonymous Roger Collins said...

This is one of my favorite posts because I've said many times to my friends that all charities should just stop what they are doing and instead start educating the population about economics. Nothing else would improve our standard of living faster.

We blindly vote for socialism one piece of legislation at a time from ignorance.

Our population learns other less complex ideas quite well: The solar system, how a bill becomes law, long division, simple algebra, etc. "Everybody would know" that tarrifs are stupid if there wasn't so much to be gained by special interests (in the short run) perpetuating the ignorance.

You have identified well what I call The Ultimate Cause.

 
At 6:43 PM, April 09, 2009, Blogger Troy Camplin said...

My approach is to see the world as a complex system. Thus, changing the culture is what is important, not changing the minds of politicians (which is why I started The Emerson Institute for Freedom and Culture). It also means that your son is also wrong about the influence of one person. There are butterfly effects in complex systems. However, you cannot know what the outcome of any of your actions may be -- and you're not the only butterfly.

 
At 7:22 PM, April 09, 2009, Anonymous Anonymous said...

Hi,

I want to comment on your discussion, because no matter what way the world changes, I am in it.

I agree with R Collins, education on 'economics' to the mass of people is the most productive way to improve the economy, for real, and keep it going, no matter what olitical sistem governs a society.

But charities may be the economics of the time that is accesible to certain part of the population. Perhaps is used as a marketing tool. They seem to fill more of a diplomatic role from people to people.

P Friedman: I believe that democracy is extinct or changing conceptually. Because of that of 'influencing voters', so that information clear, concise and influence-free is best on what concerns to the common good. That would be an important change in the world, if democrary is to survive.

A different anonymous.

 
At 7:43 PM, April 09, 2009, Anonymous RL said...

Patri,

Looking forward to reading your essay.

I tried to read Bryan's book with some care, because I reviewed it (in Liberty). I did NOT get the impression a fair summary of his thesis is: "Voters get the policies they want". More like voters get the policies they want but not the results they want, but will not reform because of the free rider problem associated with learning that very fact.

I think Bryan's fairly explicit discussion of how economics teachers since Adam Smith have been complaining their students fail to grasp the same basic facts (anti-immigrant bias; pro-job bias, etc.) over a 200 year span, and it never seems to improve, speaks AGAINST your point about training not being incompatible with irrationality. Forgive me for stressing the obvious, but unlike the husband, the voter gets no immediate gain for renouncing his "irrationality". I thought that was Bryan's major point.

 
At 9:11 PM, April 09, 2009, Blogger David Tomlin said...

DF does (implicitly) allude to voter irrationality.

Part of the reason people believe that may be the same hard-wired hunter/gatherer mindset that Patri discusses in a different context, this time taking the form of a view of almost all issues as us against them.

His argument does not depend on the assumption that irrationality is unimportant, or even that ignorance is more important than irrationality. It only requires that ignorance be important enough for marginal increases in accurate 'free information' to be marginally beneficial.

 
At 5:11 AM, April 10, 2009, Anonymous Xinhua said...

It probably isn't true—my guess is that the current cure is considerably more likely to create economic catastrophe than the disease it is supposed to be curing—but, true or false, a lot of people believe it.

I am following your blog and I notice that you avoid commenting on this unfolding economic crisis. Why is that? I know your subspecialty is economics & law but you're also a smart guy overall and a competent economist. I think I am not your only reader who would like to hear your thoughts about the crisis (origins, state, cures) in somwhat longer form (how about a blog post?) and not just mentioned in passing.

 
At 8:50 AM, April 10, 2009, Blogger Patri Friedman said...

RL - But even if voters aren't getting the results that they want, if voters ask for better policy, they will get better results. (Even if still tainted because the implementation gets butchered by special interests). Butchered free trade is better than butchered protectionism.

I totally agree with both your points about the difficulty of training - that people don't have incentive to learn economics, and that bad economics seems to be hard-wired and is thus very hard to fight. I was merely saying that some learning is possible despite irrationality - look at the difference in perception of communism now vs. 50 year sago.

But I think that "some" is very limited, and combining the limits of teaching good economics to the masses with the limits of converting the masses to libertarianism makes me deeply skeptical about the potential for reform through spreading ideas.

 
At 10:00 AM, April 10, 2009, Anonymous Anonymous said...

Patri,

I disagree, good economics is hard-wired.

As an example, look at the early development of agriculture in the primitive society. It evolved as to insure better survival of the associated individuals of a group.

And that is also economics without high tech, that is pure sheer humanity. Or not?

Same second anonymous from last night. And I have an accent.

 
At 10:33 AM, April 10, 2009, Blogger David Tomlin said...

The long run (very long run) trend of human history has been toward greater liberty.

In five or ten thousand years, if the human race still exists, I expect most people will be living in anarchist or minarchist societies, and other societies will be considered backward, as dictatorships are today.

 
At 3:58 PM, April 10, 2009, Anonymous Openworld said...

David,

Michael Strong of FLOW has posted a response to Patri's Seasteading proposal, highlighting the opportunity for free zones to fast-track reforms http://tinyurl.com/dxw3ct .

It's quite likely, in Alvin Rabushka's words, that rent-seeking politicians will choose to "pork barrel" many free zone concessions in coming years as statist systems break down.

Free zone concessions -- exemptions from predation in designated areas -- can generate rapid uplift in land values.

If land grants for free zones include stakeholdings for good causes (e.g. voucher funds and microfinance ventures), they can broadly share the benefits from concentrated liberalization.

Background on this success-sharing approach to spreading free zones is at www.openworld.com and www.entrepreneurialschools.com .

Best,

Mark Frazier
Openworld
"Awakening assets for good"
@openworld (twitter)

 
At 5:56 PM, April 11, 2009, Blogger montestruc said...

Patri has some interesting ideas.

However, their are large practical problems that he is glossing over. You know that I work a marine engineer, I see no insurmountable technical challenges at all.

As other in the talk point out, governments will stick their noses into your business as soon as they see you as a threat, which they will. Any nation of significant means like say Honduras for example that has a significant coast guard will give you a very hard time.

Yes you can put distance between yourself and a government, but if the government sees you as a long term threat, (which I think they will) they will track you down and get other governments to help them.

To stay within the current legal framework offshore, your vessel needs a flag of convenience (Panama, Liberia, etc)for which you can shop. Such governments do compete for business by making their law. That will tend to get you out of some hot water, but by doing so you need to conform to their laws, but you choose which set of laws to buy into.

That does not mean an individual seastead cannot have its own laws, but they need to fall withing the framework of the laws of the flag state.

 
At 3:40 AM, April 12, 2009, Blogger David Tomlin said...

David Friedman:

At the moment, "everyone knows" that recent financial troubles threaten economic catastrophe on the scale of the Great Depression. It probably isn't true . . .

The Great Depression got its name because it was an extraordinary event. It was actually two business cycle contractions, separated by an aborted recovery, and altogether probably the longest period of depressed economic activity in U.S. history, as well as one of the deepest.

I agree that the present contraction is unlikely to last as long as the Great Depression, just because they almost never do. But, given the over-leveraging of the American and global economies, a contraction as deep as the GD or nearly so doesn't seem so unlikely.

 
At 7:14 AM, April 13, 2009, Blogger Beastin said...

David,

I too would be very interested in hearing what, if anything, you think ought to be done about the current financial mess.

With regard to protectionism, I think that popular opposition to free trade is largely due to the fact that the benefits are much more subtle than the harm. Overall the economy improves, but there's always the spectacle of somebody losing their job.

Bryan Eastin

 
At 2:20 AM, April 15, 2009, Anonymous Tony Holick said...

This comment has been removed by a blog administrator.

 
At 7:30 AM, April 15, 2009, Anonymous Anonymous said...

Tony Hollick,

The only thing I'll remember from your post is this:

Pilots for 911 Truth
(www.Pilotsfor911Truth.org)

Of course, this is really all we need to know about you...

Cheers.

Don Kenner

 

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