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Michael Giberson

Renewable energy mandates are often popular state polices. According to the US Department of Energy, 24 states and the District of Columbia have "renewable portfolio standards" (RPS) which requires that a minimum percentage of power consumed in the state come from renewable resources. Four other states have non-binding goals. (Wikipedia on RPS for more information.)

Many of the policies were passed by state legislatures, but in Arizona the state utility regulator, the Arizona Corporation Commission, devised and implemented an RPS using its regulatory authority.

Whether the ACC actually had sufficient authority to require RPS is now the subject of a lawsuit by the Phoenix-based Goldwater Institute. In the lawsuit, Miller v. Arizona Corporation Commission, the Institute argues that "the rules exceed the Commission's limited constitutional authority, violate separation of powers, and impermissibly interfere with the relationship between APS and its customers." (In the words of the press release.)

As an aside, the American Wind Energy Association describes RPS in the following manner:

The Renewables Portfolio Standard (RPS) is a flexible, market-driven policy that can ensure that the public benefits of wind, solar, biomass, and geothermal energy continue to be recognized as electricity markets become more competitive. The policy ensures that a minimum amount of renewable energy is included in the portfolio of electricity resources serving a state or country, and -- by increasing the required amount over time -- the RPS can put the electricity industry on a path toward increasing sustainability. Because it is a market standard, the RPS relies almost entirely on the private market for its implementation. Market implementation will result in competition, efficiency and innovation that will deliver renewable energy at the lowest possible cost.

I would have to agree that, as a regulatory policy, RPS is relatively market-driven. But like, say, a city policy that dictated that at least 15 percent of the homes in town be painted pale pink and "let's the market decide" which houses and where to buy the paint, "market-driven policy" doesn't automatically translate into "obviously-good idea."

Michael Giberson

Arnold Kling has some interesting insights on what is sometimes pejoratively referred to as price gouging:

One of the issues that [Russ Robert's didactic novel, The Price of Everything] raises--the very first one, in fact--is the morality of raising prices when something becomes scarce, such as flashlights after a weather disaster. Russ makes the standard case for allowing the price to ration the scarce resource, but I don't think he will necessarily overcome people's moral intuition, and I think it is very important to understand why.

The basic moral intuition is, "Don't take advantage of somebody when they are in distress," and I think it has broad implications. It explains usury laws. It also may explain the way we approach health insurance....

Kling's conjectural history of the morality of usury seems to get it more or less right:

Back in Biblical times, when somebody came to you to borrow, it was not to build a steel mill or start a social networking site on the Web. Chances are, if somebody needed to borrow it was because of an illness, a famine, or other disaster. Since people in that situation were in distress, moral codes developed that prohibited charging interest for loans. Charging interest would have meant taking advantage of people in distress.

Jews and Christians overcame their aversion to usury when they saw money being lent to businesses and governments, rather than to people in distress. Even today, however, if a destitute person is sick or hungry, religious authorities would frown on your charging interest on a loan to that person. In that sense, the moral opposition to taking advantage of a person in distress persists.

So notice that while the moral intuition and the case of usury were initially bound together, in Kling's telling, some cultures developed distinctions between the concepts. We might view achieving this distinction as a kind of moral progress. Kling doesn't mention, perhaps because he sees the idea as too obvious to remark upon, that the business of borrowing and lending money has been an overwhelmingly positive development for humankind.

Kling continues:

I suspect that the moral opposition to raising the price of flashlights after a storm reflects that same intuition. It's one thing to charge what the market will bear in the normal course of business. It's quite another to profit from distress.

What changes in our moral concepts regarding price gouging would represent moral progress?

Many economists are of the view that "price gouging" is, as Lynne once put it, "a non-concept." Or, perhaps more exactly, a concept that actively makes people in distress worse off by interfering with the most efficient means of rationing limited supplies and motivating increased supplies of useful goods.

Kling advises economists "to justify confronting people in distress with market prices." Economists can do that, he says, but:

We have to persuade our fellow human beings ... that people in distress should receive support from charity or government, not from suppliers of loans or flashlights or medical care; and that there are reliable mechanisms to ensure that people in distress will receive support from those alternative sources, so that placing the burden on suppliers is as wrong-headed as we always allege it to be.

I once observed, "Few things drive economists crazy faster than a politician talking about price gouging."

Why? Because to economists, the economic lessons here are clear, commonsensical, and well settled, and politicians almost always advocate policies that appear to use the power of the state to make people worse off. In that post I also noted that while the fundamental economics appeared well settled, the policy debate remains as unsettled as ever. I suggested that economists needed new arguments.

Kling is on the right track.

RELATED POSTS:

• Price gouging laws: emotions, economics, and policy


• Price gouging: At the intersection of emotions, ethics, and economics

Michael Giberson

Usually, with annual Spring price increases, we hear the perennial allegations of gasoline price gouging from politicians. Despite all the talk about high gasoline prices, there hasn't been a lot of talk about price gouging this year.

The precise meaning of the term "price gouging" is sometimes hard to pin down, but a paper forthcoming in Business Ethics Quarterly tries to fix it enough that the meaning can be carefully examined. In "The Ethics of Price Gouging," Matt Zwolinski describes price gouging as "a practice in which prices on certain kinds of necessary items are raised in the wake of an emergency to what appear to be unfair or exploitatively high levels."

The definition includes three key elements that recur in most of the state laws against price gouging: an emergency period, necessary goods, and unfair price increases. Zwolinski surveys state laws to arrive at his definition, and while not every state law has all three elements, these three elements make up the core concept.

After defining price gouging, Zwolinski seeks to rebut three common beliefs about gouging: (1) that laws prohibiting price gouging are morally justified, (2) that price gouging is immoral, even if it is legal, and (3) that price gouging reflects poorly on the persons who engage in it, even if the act itself is not immoral. All three of these beliefs are wrong, or at least questionable, in Zwolinski's view.

His position emerges from a basic understanding of economics, and particularly the role of prices in society. Zwolinski argues that anti-price gouging laws work to prevent individuals already in a vulnerable position from entering into what would be a beneficial exchange. Further, drawing on Hayekian notions about prices as information and coordination devices, Zwolinski asserts that anti-price gouging laws discourage extraordinary (or perhaps even ordinary) efforts to aid persons in need, because the laws interfere with information about scarcity and reduce incentives to act.

All in all, I found myself generally in agreement with Zwolinski. But, since he starts with generally libertarian foundations and flavors his ethics and policy examination with a heavy dose of economics, what is not to like? I was sympathetic from the beginning.

Still, I think most proponents of anti-price gouging laws, even if they agreed point by point with Zwolinski's analysis, would still feel that price gouging was morally wrong, and would not oppose anti-price gouging laws. I'm increasingly convinced that morality is fundamentally a social manifestation of emotions.* Zwolinski's point-by-point rebuttal of anti-price gouging positions barely touches on the emotional component. I suspect opponents of Zwolinski's view would feel he just doesn't "get it."

So while Zwolinski is doing useful work - as are various economists who patiently explain the value of permitting "gouging" (or impatiently, and here, and here) - something more will need to be done before the anti-price gouging folks will finally "get it." To understand the feelings behind price gouging, economists need to delve into the broader mysteries of emotional reactions to prices and allocations. Most economists don't want to go there, and so they are left only to scratch the surface of the problem they want to resolve.

*NOTE: I'm slowly reading Jesse Prinz's book on the subject, The Emotional Construction of Morals. More on it later.

Michael Giberson

"Direct government subsidies are a particularly poor way to encourage innovation," writes Jonathan Adler in an article asserting that government-sponsored prizes would be better than subsidies at encouraging the development of low-carbon-emission energy technologies.

Government subsidies tend to be dispersed on political criteria, rewarding large, politically connected incumbent firms, rather than innovative upstarts. Failing industrial dinosaurs with lobbyists on the payroll are in much better position to snatch up government goodies than revolutionary thinkers toiling in garages or private labs.

Offering substantial financial rewards for those who develop particular innovations or solve specific problems is a far better way to spur technological innovation and practical scientific research. As the patent system demonstrates, the hope of a large financial windfall is a powerful inducement for innovation, and can encourage many different people with different strategies or insights to tackle a given problem.

I'm sympathetic to the position advanced -- government prizes are probably more consistent with individual liberty (of which I'm a fan) than government subsidies. But, as a technical complaint, this claim would be better assessed systematically rather than anecdotally. In particular, this claim troubles me:

Whereas direct government subsidies often yield a zero, if not negative, return, prizes tend to unleash research investment and returns far greater than the amount of the actual award.

I suspect the core audience for the article will snicker at the "zero, if not negative, return" claim, but we have had a hundred plus years of experience with government subsidies, so what is the yield? And how do we know that prizes are better?

One important structural difference is that subsidies usually pay for inputs, while prizes just pay for results. That is an attractive difference from the point of view of those folks paying the taxes to support research. But, from the narrow taxpayer point of view, paying for nothing is cheaper than paying for prizes. Advocate for prizes and you have to compare the costs and benefits of prizes over paying for nothing. But subsidies as an approach to funding research also have costs and benefits. The article raises the issue of the relative merits of prizes and subsidies, but doesn't answer the question.

Of course, Adler set out to write an article, not a treatise. He highlights several interesting examples of prizes being used to successfully motivate scientific discovery. There are a number of related developments among philanthropists seeking cures for disease or advancements in knowledge. There is a growing sub-field of economics trying to discover how best to support research. Adler does a useful task by drawing attention to some of the cases.

(HT to Jonathan Adler at The Volokh Conspiracy.)

Michael Giberson

EPSA, an industry trade association for independent power generators, has also posted comments in response to the Jerry Taylor and Peter Van Doren editorial on electric industry restructuring. Given that their members are non-utility generators, you can imagine that they wouldn't be too excited about the Taylor/Van Doren view that vertical integration is the way the industry should go.

While EPSA appreciates many points made by the authors in their piece, it says "the authors seem to misunderstand the benefits of ... regional transmission organizations (RTOs)," and posit a number of mistaken reasons why a vertically-integrated utility is preferable to a more competitive structure."

In the response EPSA counters three specific positions advanced in the editorial. I'm not too sure of the second claim, concerning the alleged success of RTOs in coordinating transmission expansions, but I think EPSA is right on points 1 and 3.

Michael Giberson

Jerry Taylor of the Cato Institute gives a thoughtful response to my criticisms of his editorial in the WSJ (with Peter Van Doren). He identifies two substantive arguments in my criticism and offers rebuttals, then he takes issue with my assertion that the editorial is little more than an implicit defense of the old status quo.

I'll provide a more in depth response after I finish my "homework." (I admit I hadn't read Bob Michael's Cato Policy Analysis on vertical restructuring, but now I guess it is time.)

In the meantime, I'll give Taylor the last word:

While we do criticize the regimes produced by “restructuring,” we do not defend the old regime. In fact we do not defend any particular substantive market outcome at all. Instead, we defend an idea – that business owners – not politicians – should decide how market enterprises are organized and operated. If there is a more libertarian argument, then I have not heard it.

Michael Giberson

Thursday’s Wall Street Journal carried an essay by the Cato Institute’s Jerry Taylor and Peter Van Doren, “Short-Circuited” (available free via Cato):

After a pretty good 30-year run, deregulation is on the political ropes. Although loosening the shackles on banking, trucking, and airlines delivered lower prices, robust competition and political applause, it hasn’t worked for electricity.…

So did free market reformers take deregulation too far? Yes and no.

Yes, because they promised rate reductions they had no business promising. No, because deregulation of some parts of the system was offset by more ambitious regulations elsewhere. The end result is even more economically artificial than the one we started with.

Our authors then launch into a rough and ready overview of markets and regulation over the last ten or so years. Among other things, they note that from 1990 to 2006 the average increase in rates in regulated retail power markets is about the same as the average increase in rates in deregulated markets. They do a reasonable job of explaining marginal cost pricing at the wholesale level, note that deregulated prices will be higher than average-cost-based regulated prices when fuel prices are rising (and lower when fuel prices are falling) and then they conclude, about 2/3rd of the way through their piece:

In sum, allowing markets to dictate electricity prices is a good thing for consumers, even if they are sometimes higher than under regulation.

Which would be a fine place to stop, but our authors are not just concerned about the effects on consumers, they apparently also have preferences over the structural arrangements within the electric power industry. They write:

Unfortunately – and here is the fly in the ointment – price deregulation has been accompanied by rules encouraging the legal separation of generation from transmission and the purchase of wholesale power through organized spot markets.

This approach is based on the belief that, while the generating sector is potentially quite competitive, the electricity transmission business is not. Thus, the argument goes, deregulation, in order to work properly, must sever the vertical integration of electricity generation, transmission, and distribution under a single corporate umbrella.

While this seems reasonable, there are good reasons why vertical integration makes sense in the electric power business. Unfortunately, none of those reasons have been given much of a hearing.

It isn’t clear from the article where Taylor and Van Doren were during the debates over unbundling, but delving into the voluminous public records of both federal and state regulators of the electric power industry would reveal that vertical integration has been among the matters discussed at length. Earlier in the article they quote MIT economist Paul Joskow, but if they were at all familiar with his work they would not make such “unfortunate” claims. But this is a side issue, not bearing on their core substantive point.

They explain, “First, vertical integration is an efficient response to the so-called ‘holdup’ problem,” and, “Second … efficient investment in [transmission and generation] may not be possible through decentralized arrangements (prices and contracts),” and, “Third, and finally, vertical integration minimizes risk in the real-time operation of the system.” Their second point is really just a variant of the first, but curious that Cato Institute writers are so skeptical about the ability of decentralized arrangements (like prices and contracts) to lead to efficient results.

These considerations largely explain why 10 of the 11 published studies on this issue conclude that vertical integration is the most efficient corporate organizational form for electricity providers. Unfortunately, the debate about utility restructuring has almost completely ignored those studies – assuming rather that vertical integration serves no useful purpose other than facilitating the market power of incumbent electricity providers.

Interestingly enough, the deregulators are trying to create a world that would probably never arise in a totally free electricity market.

The writers then speculate that consumers and producers would likely enter into contracts with each other in order to protect themselves against the problems of booms and busts. Apparently there is no “hold up” issue in these bilateral negotiations. But then couldn’t transmission companies and generation companies and retailers also solve their problems by contract rather than by vertical integration? They continue:

Accordingly, the equilibrium relationship between firms and consumers in a totally unregulated world might resemble that of the old regulatory regime, albeit an equilibrium achieved through contract. The only (unanswerable) question is how different the specifics of such hypothetical contracts would be from current regulatory practices.

This is it? This is the point of their analysis? A “totally unregulated world might resemble … the old regulatory regime”? That is it?

The article ends with a paragraph describing “true deregulation.”

And it dawns on me that through it all, the Cato authors don’t advocate anything at all, not even the “true deregulation” that they describe in the final paragraph. They discuss history, explain some economics, call the loss of vertical integration unfortunate, speculate on preferences for contracts, and suggest that a totally unregulated world might turn out to be like the old regulated world.

Often Cato is bold, or insightful, or both, and sometimes it is over-dramatic in asserting the costs of this-or-that government program or the benefits of some tax cut or another, but almost always Cato offers clear advocacy for liberty.

Taylor and Van Doren don’t give us that Cato in their rambling Wall Street Journal essay. Instead we get what amounts to an implicit defense of the old status quo.

This is not Cato the bold. This is Cato neutered.

UPDATE: Jerry Taylor responds on Cato @ Liberty, the Cato Institute blog.

Michael Giberson

Attorneys for the FTC inadvertently revealed Whole Food company trade secrets when they filed documents in court that had been incorrectly redacted. (The background behind the material intended to be redacted was set to black, making it impossible to read the black text, but not hard at all to search or copy and paste the text. Court officials noted the error and replaced the documents with secure versions, but not until after it had been downloaded by some in the public.)

An Associated Press story helps bring the trade secrets to light. Among the disclosures: Whole foods targeted a highly educated customer base, the company expected to close 30 or so Wild Oats stores if the merger goes through, and the opening of a Whole Foods store nearby can cut up to 30 percent out of the revenue of a Wild Oats store. I was most fascinated by the disclosure that Whole Foods negotiated with suppliers in an effort to drive up costs for Wal-Mart. According to the AP:

Whole Foods set "ground rules" barring suppliers from selling directly to Wal-Mart. "It wants Wal-Mart to have to go through distributors because that raises Wal-Mart's costs," the document said.

Holy smokes, Batman, did the FTC just inadvertently reveal that Whole Foods imagines it is competing in the same retail products universe as Wal-Mart? Well that certainly opens up the scope of the market just a bit. That clangorous racket you hear in the background is the sound of Herfindahl-Hirschman Index values crashing to the ground.

Michael Giberson

Ken Silverstein has a column about restructured retail electric power markets up at EnergyBiz Insider. He's collected a variety of viewpoints and generally provides an update on the current state of things. He saves the fun part until nearly the end, where he quote Andrea Morrison, regulatory affairs director of Strategic Energy:

With regard to the purchase of all goods and services we believe that customer choice is a fundamental right and that any abridgement of this right, even in emergency situations, is never to be taken lightly and should be remedied as soon as possible after the crisis has passed.

I believe she has out-libertarianed the Cato Institute on this issue. (But maybe that's too easy to do; I think a couple of state PUC's are more libertarian than Cato on electric restructuring.)

Michael Giberson

[PREAMBLE: This post is a follow-up to Lynne’s recent post, “Reconciling A Hayekian/Organic Approach With ‘Designing’ Markets.” If you haven’t already read it, I recommend reading it first. Otherwise, when I get to the part of my post where I say, “I liked D. F. Linton's question and I liked Lynne's answer, too,” you won’t know what I am talking about. So read it first.

Also, this post is probably only interesting to you if you think “Knowledge Problem” is a fine name for an economics blog.]

I liked D. F. Linton's question and I liked Lynne's answer, too. But in trying to answer the question, I took a somewhat different approach than Lynne.

At first glance, market design proposals may sound a bit un-Hayekian. Hayek was obviously a critic of “rationalist” approaches to social phenomena, and markets are clearly social phenomena, and design sounds like a rationalist effort. Hayek advocated a “spontaneous order” concept of human institutions, endorsing and often quoting Adam Ferguson’s view of social institutions as “the result of human action, but not of human design.” So how does one invoke Hayek while talking of market design?

Financial markets offer a good example. The NYSE began with an agreement among stockbrokers and merchants in 1792. These brokers and merchants didn’t invent the joint stock company or the idea of organized exchange. They certainly didn’t sit down in 1792 and sketch out anything like the NYSE of 2007. Somehow, however, the institution started one place and ended another place. The steps along the way – the “human action” in Ferguson’s description – are the product of design efforts.

I think of “market design,” as a field in economics – what Vernon Smith would call “economic systems design” or Al Roth would call “economic engineering” – as an effort to understand how markets work on a micro-level, and the testing of that understanding in practice. The questions are very practical: Why are some markets “posted price,” while others are auction based? Why are stock markets usually organized as continuous double auctions (i.e., the NYSE), and not periodic call auctions (i.e., the now defunct Arizona Stock Exchange)? Will financial markets work better with “circuit breakers,” or worse? Market design at this level has very Hayekian themes, it is all about incentives and the coordination of dispersed knowledge.

The design efforts Lynne discussed, the emissions markets and carbon futures market that caught the reader’s eye, are a bit grander than these market micro-structure issues. But emissions markets, too, seem to be Hayekian in fundamental ways. In the first case, emission markets were proposed as a response to “command and control” approaches to environmental regulation. I suggest that “command and control” is straight out of the constructivist/rationalist impulse that Hayek argued against, and that emission markets are Hayekian: Economists observed the emission markets would align incentives better than technology-based regulation, and especially would promote better coordination of dispersed knowledge (who has the cheapest method to reduce or avoid polluting? what alternative products can be substituted? how to integrate new technologies for pollution control into the market?)

In “The Errors of Constructivism,” Hayek wrote:

None of our ancestors could have known that the protection of property and contracts would lead to an extensive division of labour, specialisation and the establishment of markets….

All that a man could do was to try to improve bit by bit on a process of mutually adjusting individual activities, by reducing conflicts through modifications to some of the inherited rules. All that he could deliberately design, he could and did create only within a system of rules, which he had not invented …. In his efforts to improve the existing order, he was therefore never free arbitrarily to lay down any new rule he liked, but had always a definite problem to solve, raised by an imperfection of the existing order….

Hayek-aware market design acknowledges the existing system of rules within which the designer works, and acknowledges that we may not understand all the reasons why the existing system of rules works as well as it does. Hayek is absolutely clear that the market designer is “never free arbitrarily to lay down any new rule he liked,” but Hayek is just as clear that a market designer with “a definite problem to solve, raised by an imperfection of the existing order” can “try to improve bit by bit” the existing order.

I liked Linton's question, but a better one might be, "How can one speak of 'designing' a market in one breath, and not speak of Hayek in the next?" Market design is fundamentally Hayekian.

Michael Giberson

Last week, a Dutch "reality" show was announced in which three patients in need of a kidney transplant would compete to acquire a kidney to be given by a living donor. The proposal generated a storm of commentary, for and against, only to be revealed as a hoax of sorts, a publicity stunt intended to generate attention to the issue of organ donations.

Tim Worstall had some of the best comments. News reports indicated that many in the Dutch government saw the proposed program as unethical. Worstall responded:

What is unethical are the current arrangements for organizing (sorry) the whole process of garnering kidneys for transplant. You see, under the guise of "ethics", many thousands of people are condemned to lengthy and painful dialysis treatment, many of whom die before they receive a new kidney. And yet we know how to solve this....

He then cited an Economist story about Iran, which permits a payment of $2,000 to $4,000 to kidney donors and no longer has a waiting list. Worstall again:

What's worse is that this is not news to those who decide our policies on such matters. But they condemn those thousands to death rather than allowing icky things like markets to solve the problem.

But of course there is a market in kidney transplants. As I read Worstall's blog post, I couldn't help but notice the contextually-cued "Ads by Google." One said "Kidney Transplant at Penn: Among the Top 10 Programs in the US, High Volumes, Experienced Surgeons." Another: "Learn about our active programs at New York-Presbyterian Hospital."

In the kidney transplant business in the United States, the hospital can get paid. Apparently the business is profitable because otherwise it wouldn't pay to advertise.

And, by the way, the doctors can get paid and the nurses can get paid and the orderlies can get paid and the medical supply companies that supply the bandages can get paid and the food service personnel that work in the hospital kitchen can get paid ... everyone involved can be paid for their time and trouble except the person giving up a kidney.

NOTES: The publicity stunt worked: In addition to Tim Worstall's posting there was an Associated Press story in the Washington Post. Blogging at: Dynamist (and again), Marginal Revolution, Division of Labour, among others.

Michael Giberson

In response to a reader's question, Tyler Cowen declines to offer support for any of the current candidates for president in '08. Cowen offers these comments instead:

As biological creatures we are programmed to respond to faces, voices, names, and identities. We praise them, follow them, condemn them, figure out what side they are on, just like good ol' East African Plains Apes. Who is not excited to see a President of the United States attending a Wizards game in a nearby box? I know I was, and I didn't even vote for him. Chimps will give up bananas, just to be able to gaze at photos of high-status other chimps.

Cowen added that he hoped his blog would serve as "one small space where these necessary but ignoble human tendencies toward personalization are resisted and sometimes even criticized."

A laudable goal, though it strikes me as a regular consumer of Cowen's blogging that he certainly puts out a lot of personalization along with the ideas. (He reads Entertainment Weekly! He listens to all kinds of music! He played pretty good chess as a teenager in New Jersey!) Any regular reader will develop a mental model of him as a person, and then tend to associate the ideas with the (imagined) person, and may like or dislike the ideas because of the image of the person associated with the ideas.

...Interesting... I came here to praise the post, not bury it. I wonder if Cowen recognizes how his blog embodies this tension between reliance on personalization -- is it necessary to maintain readership? -- while professing to resist and even criticize personalization in the realm of ideas. Actually, I'm sure he does. (At least, my mental model of Cowen does, and almost by definition my mental model of Cowen is as smart as the actual Cowen, at least as I imagine him to be.)

Lynne Kiesling

I frequently argue that markets provide the most effective institution for coordination of individual economic activity to improve well-being and create growth and prosperity. Market processes aggregate and transmit information among decentralized, distributed agents, enabling them to make decisions in their own individual interest while still (inadvertently) communicating information about their decisions (and their underlying preferences and costs) that will enable other agents to make decisions in their own individual interests. This is the means through which the coordination of economic activity occurs.

If you argue that regularly in your work, as I do, you will come across people who hold a variety of beliefs about market processes. Often these beliefs are strongly held, yet incorrect. I spend a lot of time talking about market processes and correcting these misperceptions. Thus I find this paper from Tom Palmer incredibly useful. Tom lays out "twenty myths about markets" and explains in careful, clear language what the misperception is for each one. If you find yourself making these kinds of explanations regularly, this paper will be a good resource for you.

Hat tip to Marginal Revolution for the link.

Michael Giberson

On Sunday, the Washington Post published a short piece by S.R. Sidarth, the political volunteer who was the object of George Allen's "macaca" mocking. Allen's remarks probably would have passed unnoticed, relatively speaking, but for Sidarth's capturing them on video and the video later showing up on Youtube. That moment, more than any other in the campaign, is credited in turning the onetime presidential hopeful into a mere lame duck senator.

Welcome to America, Senator, and the real world of Virginia, where what you say and do can end up on Youtube.

And not just in America. This morning's Post reports the story of a 22-year old Malaysian woman whose humiliating treatment by police in June 2005 was captured on a cellphone camera and later widely circulated, eventually to be shown in the nation's Parliament and resulting in official inquiries directed by the Prime Minister's office.

Cameraphones and portable videocameras, just another way to bring power to the people.

Lynne Kiesling

The radio silence from yours truly has been due to the concatenation (one of my favorite words) of two events: a project deadline today and my participation as a faculty member in the Institute for Humane Studies seminar Freedom, Tolerance, and Civil Society (note the serial comma, so there, Tom!). I gave three lectures on basic concepts in economics that apply to living together in civil society: the dynamics of how markets work and of prohibition, unintended consequences, and how property rights and ownership induce personal responsibility and self-regulation.

As with most IHS seminars, I got better than I gave; I learned more from the students and my colleagues than I taught. This seminar in particular focused on civil liberties, so it engaged my brain on topics I had not examined critically in quite some time: the drug war, prostitution, gambling, assisted suicide, smoking bans, gun ownership, school choice, and occupational licensing.

The arguments for individual liberty and personal autonomy in these areas is both practical and moral, and I believe we discussed them all (which is why I'm so bloody tired at the end of the week!). The practice of state paternalism directly contravenes liberty and autonomy, and induces the individual capability for self-regulation to atrophy. It also deteriorates community ties.

But this is not my area of expertise, so I will defer to other more knowledgeable and eloquent parties on these topics, such as Radley Balko. For me, it was a great learning experience.

Michael Giberson

The Independent Institute has released it's Open Letter on Immigration. The press release explains:

As the House and Senate struggle toward compromise on an immigration bill, tensions and rhetoric are rising. The signers of the Open Letter on Immigration believe that this emotional debate taking place in Washington, D.C. and around the country could be elevated by a modest and non-partisan reminder of the value of immigration, and plea for a clear-eyed consideration of the principles at stake and the historic American goals that will be affected in any outcome.

Hmmm, the press release says that "rhetoric [is] rising" like it is a bad thing. Maybe they should check that usage with Deirdre McCloskey, an expert on rhetoric in economics and one of the 500+ signers of the Open Letter.

Lynne Kiesling

I had been aware of the Seattle Public School District's recent attempt to define "institutional racism" because of Eugene Volokh's post a couple of weeks ago, but I didn't broach the subject here because I didn't have anything to add other than to observe that it's disturbing to have some institutional imposition of the idea that "emphasizing individualism as opposed to a more collective ideology" is racist. Deeply disturbing. Others elsewhere are more articulate than I about how legal protection of individual liberty, and an ethos of individualism, are values that rest at the foundation of tolerance and acceptance of diversity (in addition to being at the foundation of economic growth and human well-being), but that's really what I find disturbing about this institutionalized effort.

But I found some of the follow-up discussion thought-provoking, including Andrew Coulson's op-ed in the Seattle Post-Intelligencer last Thursday on the matter. He draws the connection between school choice and tolerance.

The PI page has a "sound off" comment section, where I found this comment by "scorpio":

This universe is governed by natural laws. One of the most basic is: Everyone has the right to become wise...through self-effort. Ponder it. Then apply it.

Other posts on the subject at Cato-at-Liberty (Andrew Coulson elaborating on his PI argument), Natalie Solent, and Samizdata.

Michael Giberson

Via Virginia Postrel, I see Daniel Drezner is upset with the Bono-voiced World Cup ads running on ESPN. Drezner apparently believes, contrary to implications of the ad, that soccer can’t in fact stop war. I appreciate his sentiment, especially the point urged in his title: Will Bono Please Be Quiet, Please? (As a credentialed thinker, I too am outraged when entertainers blather endlessly about this or that feckless idea to save the world. After all, that’s what blogging is for.) Still, with his collection of anecdotes about soccer and war – and by soccer, of course, I mean football – Drezner’s post is entertaining enough for people interested in such things.

A far better read on war, peace, soccer and civil society comes from Baghdad Burning:

It’s fascinating to watch the world beyond Iraq prepare for the World Cup. I get pictures by email of people hanging flags and banners, in support of this team or that one. Oh we have flags and banners too- the hole-ridden black banners all over Baghdad, announcing deaths and wakes. The flags are all of one color, usually- black, green, red, or yellow- representing a certain religious party or political group.

A friend who owns a shop in Karrada had a little problem with a certain flag last week…

The posting continues with the story of a soccer fan who owns a shop in Baghdad, who posted a Brazil flag honoring that nation’s output of great players, and who thereby attracted the attention of a black-turbaned young cleric.

The flag “was up for nearly two whole days before the problems began.�? Read the story.

UPDATE: Drezner's blog post has grown up to be an essay in the Sunday Washington Post: "The Soccer Wars."

Michael Giberson

Alex Tabarrok is circulating an open letter to the President and Members of Congress reflecting the consensus opinion of economists on the costs and overall net benefits of immigration. In conjunction with the Independent Institute, Alex is seeking as many signatures as possible from economists and other social scientists.

For me, immigration has not been about costs and benefits, and how those costs and benefits may add up, and which way the balance might tip from the point of view of the people already �here.�

Our problem with �illegal aliens� or �undocumented workers� or _______ (fill in the blank with your choice of expression), seems to be like our problem with �illegitimate children� of a few years back. Up until maybe thirty or forty years ago, there was a social stigma associated with being an illegitimate child. Attitudes changed over time, and people increasingly understood that the child of unmarried parents was no less a child than any other. Whatever stigma should be attached to parents having children out of wedlock � and views here remain more divided � the consensus view has shifted to not blaming the child (who, obviously, was not responsible for the choices that brought about the issue).

In the case of migration we are primarily concerned with adults who should be seen as morally responsible for their choices. But these migrants cannot be held responsible for the social, political, and economic conditions of the nation of which they happened to be born a citizen, nor for the relative freedom and opportunity to achieve their personal and family goals that attracted them across political borders. I have crossed political borders in pursuit of personal and family goals, and now live and work thousands of miles from my birthplace. Lucky for me, I haven�t had to cross national political boundaries. But the place of my birth, and being born a U.S. citizen, was no more my doing than my parents� marital status at the time of my birth.

I grant, however, that not everyone approaches the issue from the same moral perspective as I do. We are talking about formation of public policy for a polity holding diverse moral views, and to make policy decisions for a diverse population it can help to point to the best evidence concerning the likely consequences of decisions. If you need evidence, then after reading Alex�s post at Marginal Revolution, click through to the letter at the Independent Institute site which has a list of references.

We should find a policy solution that readily accomodates the personal pursuit of freedom and opportunity, and which does not restricts the ability of persons to pursue freedom and opportunity based upon where on this planet they happened to have been born. Lucky for me, the consensus view of economists is that what I think of as the right thing to do for moral reasons is also likely to be, on net, a benefit to society overall. Actually, lucky for us that the right thing to do is the good thing. Lucky for all of us.

Michael Giberson

Catallarchy is hosting May Day 2006: A Day of Remembrance, to which Randall McElroy offers a commemoratory on the Berlin Wall. He quotes John F. Kennedy�s speech in Berlin:

Freedom has many difficulties, and democracy is not perfect. But we have never had to put a wall up to keep our people in�to prevent them from leaving us.

The comments put me in mind of one of the few governments left in the world that limit freedom in the name of Communism: Cuba.

In doing some background research on coffee markets a few months ago I came across the Thanksgiving Coffee Company, which offers coffees tied to environmental and economic development causes ranging from songbirds in Central and South America to gorilla habitat protection in Africa. Fair trade, organic, shade grown, all that.

Among Thanksgiving�s offerings, an �End the Embargo� coffee offered as a way to �raise public awareness about, and advocate the end of, the 44-year-long US embargo against Cuba.� I�m in favor of ending trade and travel restrictions between the United States and Cuba, both for Americans and Cubans.

But I can�t buy a coffee with the image of Che Guevara on the package, and it seems to me the height of irony to serve up this particular image as a symbol of freedom for the people of Cuba. Perhaps, instead, a May Day contribution to support the work of Reporters Without Borders.

Michael Giberson

Google�s relationship with China is much in the news and all over blogs. Applying the �a picture is worth a thousand words� school of rhetoric, Little Green Footballs offers �Two Versions of Google�:

tiananmen - Google Image Search.

tiananmen - Google Image Search in China

Found via Liberty Belles �Nothing Much Happened There�

Pretty dramatic, at least to American eyes that know little of Tiananmen Square beyond the June 4, 1989 massacre. As commenter Tanner points out in a comment on the Liberty Belles site, there is a great deal more Chinese history and culture associated with Tiananmen Square than just June 4, 1989. Tanner suggests it may be like expecting a google search for L.A. images to turn up only the Rodney King riots.

Another commenter, Mews, offered for comparison a Google search on �Kent State.� I wondered what a China Google Image search on �Kent State� would show: a single result, a listing of U.S. universities that had a small image next to the Kent State name. I thought that was odd enough, but the truly strange thing was that commenter Tanner tried the same thing and got completely different results.

A little exploration allowed me to find the source of the variation � my search, but not Tanner's, had a "&cr=countryCN" embedded in the string of characters, limiting my results to Kent State images on websites in China. Here are two image searches on the China Google site:

http://images.google.cn/images?hl=zh-CN&lr=&cr=countryCN&q=kent+state
China Google image search with cr=countryCN in search string.

http://images.google.cn/images?hl=zh-CN&lr=&q=kent+state

China Google image search withOUT cr=countryCN in search string.

Okay, let�s go back to the US Google image search, and limit the tiananmen search to results from websites in China:

http://images.google.com/images?q=tiananmen&cr=countryCN
US Google Tianamen search with cr=countryCN in search string.

So, a US Google image search restricted to sites in China roughly duplicates the China Google image search.

Or, to put the matter the other way around, Google has fixed the China Google site such that a search on �tianamen� is inherently limited to images on websites in China. The China Google site does not similarly limit searches on �Kent State.�

See also SearchEngineWatch's "A Picture Says 1000 Words About Google's Censorship In China", which mentions that misspelling tiananmen can get you uncensored results in China.

By the way, I lean in favor of Google's approach to engagement with China, thinking that in the long run it will do more good than harm.

Lynne Kiesling

At the new Austrian Economists blog, Pete Boettke has a very nice post on autonomy and how freedom and responsibility affect economic models. His discussion gives some insights into the ideas underpinning James Buchanan's work, as Pete learned it and teaches it in his courses. He reminds us of the extent to which liberty and responsibility are inextricably intertwined:

But this image of man as active chooser also requires that individuals willingly embrace the challenge of constructing their life and accept the responsibility for the consequences of their decisions. Liberty and responsibility are concepts at the core of Buchanan's reflections on the human predictament and thus in the proper domain of economic and political analysis. The political economist inspired by Buchanan's argument would whole heartedly [sic] agree because they find it unobjectionable that individuals want to be free to make their own choices. Autonomy is valued and cherished by individuals across the political spectrum even if they don't recognize the full impact of the concept in their political and economic philosophy.

But Buchanan has more recently argued that we may be losing this sense of ourselves in the modern age. Autonomy is losing its appeal. The learned helplessness we have acquired by living in a political culture of preferential treatment and protection from ourselves may have left the modern mind incable of accepting the responsibilities of freedom. We are instead afraid to be free. This shift in our human imagination is perhaps the most dangerous threat to economic and political freedom we have faced yet.

This is a disturbing thought, and unfortunately one that seems plausible to me. I see it a lot in electric power policy discussions. We find ourselves at a point where many people argue that affordable electric power service is a right, not a commercial transaction. The unfortunate cultural/mental consequence of that argument is a form of learned helplessness: customers feel no responsibility to engage with active decisiveness in their energy choices. We are told how we will consume power and how much we'll pay, so we just mentally check out, set the thermostat, leave the computers and lights on when we leave the office.

In electric power we don't have the freedom to choose, and we have consequently un-learned how to be responsible for our energy choices. Like Pete, and like Professor Buchanan, I worry that this mindset that accepts paternalism will erode freedom, as well as leading us to use more resources than needed to generate power, build transmission lines, and so on.

Market processes are an antidote to this self-destructive slide, because you have the freedom to act coupled with the responsibility to meet your obligations. Pete comments on this too:

We must remember that one of the 18th century arguments that Smith and his contemporaries made about the superiority of commercial society was the character development it engendered by making individuals responsible for their choices and accountable to others through the discipline of repeated dealings on the market.

Steve Horwitz has an interesting post based on Pete's post, looking at the extent to which parenting has created children who grow up with little experience of taking responsibility or taking risk, and how that contributes to the problem Pete notices.

Lynne Kiesling

I spent last weekend attending a Liberty Fund conference on themes of liberty and responsibility in the writings of Charles Darwin. We read selections from The Origin of Species, The Descent of Man, The Expression of Emotion in Man and Animals, and Darwin's autobiography. It was a fascinating opportunity to learn about Darwin's theories, models, methodology, and data on his own terms.

From an economics perspective, the value of the discussion was the opportunity to think more specifically about how we use metaphors of evolution and natural selection in our analyses of institutional, social, and technological change. The simple metaphor is pretty straightforward. Through a distributed, decentralized process (natural selection in Darwin's model), agents that behave in ways that are favored in their environment exhibit a higher degree of fitness, and thus have a higher probability of persisting. The traits or behaviors that lead to that fitness in that environment persist while others recede, leading to incremental changes in the characteristics of the agents as they adapt to the environment. When the environment changes, which happens almost constantly and imperceptibly, sufficiently dramatic changes will change the relative fitness value of different traits or behaviors, leading to further adaptation. This ongoing process creates the variation and complexity that we observe in the natural world. It also allows for rogue beneficial mutations to flourish, and for malevolent mutations to be crushed. In this way the process has some global stability properties, notwithstanding the constant change.

How good a metaphor is this for institutional, social and technological change? I like it and think it's a pretty good one, although clearly it's not a true 1:1 mapping from biological variation and changes in agents (individuals or "species") into the institutional sphere. One of the mechanisms of natural selection in biology is sexual selection, and I think it's a stretch to apply sexual selection processes to institutional change. But if you model technological change as either a process of adaptation or beneficial mutation (or both), you can get pretty far with the metaphor. Evolutionary economics and evolutionary game theory have done just that.

I think the metaphor for institutional change is less exact but still useful. I had been trying to model institutions and the process of institutional change in the way just described for technological change, but it has been ringing a little hollow to me. I like thinking about institutions as agents that change in adapting to their environment, because that gives me a theoretical foundation for using what I call "the evolutionary criterion" to evaluate policy changes: is the institution sufficiently flexible to adapt to unknown and changing conditions? This way of modeling the problem requires thinking about the environment as being the economic and technological environment, with policies as agents in the environment. I can also think of particular institutions as having different levels of fitness. It gets me what I want, but sounds a little contrived when I try to formalize it like this.

So what if I think instead about institutional change as changes in the environment, to which agents (individuals, firms, consumers, producers, regulators) adapt to varying degrees? Still interesting, but a different model, a different game, leading to different hypotheses and policy recommendations. And I think that's been done, and done well, by folks like Paul Rubin in his book Darwinian Politics. This way of structuring the problem also works well for answering public choice questions, rent seeking, etc.

But my primary question of interest is how we design institutions to maximize their fitness in a dynamic economic and technological environment. I think that means thinking of the institutions as agents interacting with their environment (and presumably with each other, to complicate the model).

Note that I used the D-word: design. Natural selection is a bottom-up process, in which variations in agents emerge in response to the requirements implied by the environment and its changes. But institutions are not natural. At the same time, though, can we think of and design institutions that are not entirely artificial? Can we design institutions that are more approximately natural than artificial? And can we do it in a way that has these good fitness/efficiency characteristics, as well as some global stability properties? That requires flexibility and adaptability, yet also at the same time transparency. That's the challenge.

Lynne Kiesling

This week marks the Electronic Frontier Foundation's 15th anniversary. EFF is a tireless warrior for preserving and enhancing freedom as communication and information technology evolves.

Cory Doctorow has a Boing Boing post discussing EFF's activities over the past 15 years:

This week marks the Electronic Frontier Foundation's 15th anniversary -- a decade and a half of changing bad laws, creating good court decisions, and building a technological civil liberties movement that now comprises dozens of organizations, activity all over the world, and millions of geeks with a burgeoning consciousness that the Internet isn't free because of its nature: it's been kept free by the struggles of activists and users who have fought back the forces of repression who would have tamed it and crimped it and rendered it little more than an AOL-1.0-style toy.

EFF is holding a commemorative blog-a-thon. Contribute your tales!

I have no activism story to tell, other than our continuing financial support of EFF. But as communication technology has evolved and become a more pervasive and valued dimension of my daily life, I treasure the freedom of online privacy, to blog, and to be free from government surveillance. These freedoms have brought about a flourishing of content, of substance, of culture, of community (and yeah, a flourishing of dreck, but that's what filters are for, and it's a small cost if it gets us all the other stuff).

For me, the freedoms that EFF fights to protect are a crucial set of rights in the fundamental property rights that allow free and responsible people to live together in civil society.

Blog-a-thon tag:
EFF15

Lynne Kiesling

I've enjoyed James's affair with Flossie for years, and am glad to see there's finally public photographic evidence.

Seriously, if you are interested in learning more about John Stuart Mill's harm principle, go read the post.

Lynne Kiesling

A good way to kick off the Independence Day holiday is to have a philosohper, Aeon Skoble, give an introductory talk on rights. So yes, geeky as it sounds, I'm liveblogging it.

What are rights? We talk about two categories of rights, positive and negative.

Positive rights: claims to some good or action, which imposes a corresponding duty on other people to provide or relinquish that good or action to you.

Negative rights: liberties, which impose a corresponding duty on other people not to infringe on or interfere with that right.

Where do they come from? In a Lockean natural law context, such as the context in which the Declaration of Independence was derived, rights are "endowed by their Creator"; they do not arise from mutual agreement between two individuals. In a sense, natural rights are pre-political.

Aeon draws the contrast between natural rights and artificial rights, where artificial rights are an artifice of human design and human interaction (for example, your right to see your personnel file as part of your employment contract; note that this is also a positive right). Artificial rights are granted through a political process. Historically, think of this process as coming from the king dispensing rights, because the king has divinely-given authority.

Locke argues that because we are all moral equals, it follows that no individual can naturally have authority over anyone else. So if rights are pre-political and natural, they cannot come from the king. Natural rights conceptually precede the authority of any political entity. Locke uses this natural/artificial distinction as a justification for authority. What backs this justification is the consent of the governed. Governments are institutions that are human artifices that justly exist to protect these natural rights, and when governments fail to protect those natural rights, then citizens have a right to rebel against that government.

The innovation that Locke provides is to argue that rights are natural and governments, as institutions of human design, are artificial. This is a break from arguments about the natural origins of government authority, as found in Hobbes.

Lynne Kiesling

The KP Spouse just very kindly dropped me at the airport to go to Bryn Mawr, Pennsylvania, to teach at the Foundations of Liberty workshop sponsored by the Institute for Humane Studies. I love doing this.

More news as it happens. In thinking about the upcoming week I am reminded of this excellent quote from Frederic Bastiat's Economic Harmonies:

But liberty can assume only one form. When we are certain that each one of the molecules composing a liquid has within it everything that is needed to determine the general level, we conclude that the simplest and surest way to obtain this level is not to interfere with the molecules. All those who accept as their starting point the thesis that men's interests are harmonious will agree that the practical solution to the social problem is simply not to thwart these interests or to try to redirect them.

Coercion, on the other hand, can assume countless forms in response to countless points of view. Therefore, those schools of thought that start with the assumption that men's interests are antagonistic to one another have never yet done anything to solve the problem except to eliminate liberty. They are still trying to ascertain which, out of all the infinite forms that coercion can assume, is the right one, or indeed if there is any right one. And, if they ever do reach any agreement as to which form of coercion they prefer, there will still remain the final difficulty of getting all men everywhere to accept it freely.

Lynne Kiesling

New, fresh voices rock, especially when they are saying good things in compelling and interesting ways. Such is the case with Liberty Belles, five classical liberal women with sharp wits and intellects.

One post to illustrate the eloquence, from Clara on gay marriage:

I favor allowing people to draw up these contracts, but I reserve the right to think they are hogwash. When the government starts doling them out � and broadening word definitions until language loses its meaning � the result is like that of most any government action: a vocal interest group gains at the expense of the majority.

Therein lies the beauty of anarchy: nothing prohibited, nothing endorsed.

The comments are also interesting reads. It's a good measure of a site that whether or not you agree with the author on a particular issue, you can appreciate the argument and its eloquence.

Are there really that few classical liberal women out here? Me, Virginia, Jane Galt, Courtney, Fey/Joanna. Does being a woman matter that much, or not? I don't really travel in ideological chest-thumping circles, so maybe I'm missing the point. But I guess that it is striking to me that of all the economists out here, let alone the classical liberal economists, I am the only woman.

Huh.