Category: Economics

The Horrible Truth About Virtue Signaling

On By spivonomistIn Altfic, Economics1 Comment

Lloyd von Eblerhiem, last scion of House Eblerheim, rightful heir to the Stolen Fortune, vengeful servant of the One True God, and second stage initiate into the Holy Order of The Redeemer shoveled cold mud onto a a damp makeshift rampart together with his fellow captive Oswald Juventas, pirate of the Nine Coasts. The squalid primitives in custody of them insisted on erecting crude defenses at every filthy nomad camp they set. It had taken months of gestured pleading to convince the illiterate savages to take the sharpened battlement stakes with them from camp to camp to save on materials and labor. Whittling the damp deadfall in the fens along the river was wasteful by any measure.

“How long do you reckon they’ve been making these ridiculous defenses, Lloyd? How many years?”

“Not sure,” Lloyd grunted as he slung another gob of muck atop the mound. “From what I gather, the curse that blots out the sun and turns the wolves vicious has stood for the better part of five centuries.”

Oz whistled, low and long. “I’ve heard tell of whole civilizations rising and falling in less time.”

“Likewise. Kings and Emperors, great nations alike may coal or less and yet collapse all the while these stone-faced brutes blow their mud o’er the land.”

“You sure you got that quote right, Lloyd?” Oz asked.

“What quote?”

“Never mind.” Oz looked out over the cold moor, trying to see if anything stirred among the dense fog. He couldn’t see so much as a foraging raccoon. “You know, if they really wanted to slow down attackers, they’d give us our weapons back.”

“They might be worried that we would slaughter them to make our escape.” Oz moved around to the front of the rampart to install the final row of spikes.

With a disdainful wiggle of his mustache, Lloyd scoffed at the suggestion. “These rough mud-folk might lack for honor, but I am a loyal Servant of God. I would never stoop so low.”

“Yeah, yeah, Lloyd. I know, man. You’ve got your honor. You don’t need to virtue signal to me: it’s them that don’t understand you and your vows.”

Lloyd stuck the wooden blade of his shovel into the peaty mud. “What is ‘virtue signaling’, Oz?”

“You’ve never heard of virtue signaling? It’s when someone says something to let others around you know that you’re one of the good guys. You know, posturing.”

“If you wish to accuse me of posturing, Oz, simply accuse me of posturing. There’s no need to bastardize a perfectly good concept from the discipline of game theory.”

Oz froze in place to gawp at Lloyd, cypress stake halfway into the mud. “You and I have been prisoners of these tribesmen for the better part of a year now. This is the first I’ve ever heard you talk of academic theory.”

“Sir Selten taught courses on game theory. He insisted that in our roles as advisers to court, we needed to have a proper appreciation for the theoretical under paintings of intrigue, of coalition politics, of practical theories of war. That sort of stuff.”

“Did you just say ‘under paintings’?”

“Yes, the paintings that go under the text in the books.” Lloyd cocked his head at the irrelevant question. “The thing about signaling is that it has to be deliberate, targeted, and most importantly, expensive.”

“Go on.” Oz had turned his back on the ghastly fog to pay closer attention to Lloyd.

“Tell me, Oz: do you know what a shibboleth is?”

“I’ve heard the word, but now that you ask, I have to admit that I don’t know exactly what it means.”

“Commerce requires trust, does it not, Oz?”

Being a pirate, Oz had a keen interest in matters of trade. After all, without flourishing shipping traffic, he would be obliged to take to the sea in search of fish. “Trust, aye. Reciprocity too I’d wager.”

“So how do you get trust? Where does it come from?”

Oz thought on this for a moment as he drove the rampart spikes into the mud. “Repeat business, I suppose. Reputation.”

“Reputation works well when you know the players in the marketplace. You’re a sailor. You know anyone when you set foot in a new port?”

“You mean apart from my crew?” Oz grinned. “No, I reckon not.”

“So you can maybe ask around about who to trust for your next contract, but how do you know you can trust those people? It’s a nested dilemma, agreed?”

“Agreed, but you eventually have to trust someone, right? A little diligence can go a long way.”

Lloyd nodded, “that’s certainly true. Diligence in this case is extremely valuable, not just for the individual merchant, but for the integrity of the traders as a group, yes?”

“Yes. So what?”

“So what is that it’s valuable enough for specialists to do your diligence for you.”

Oz raised a skeptical eyebrow. “How does that work?”

“The trouble is that it’s very tempting to renege on one-time contracts, but far less tempting for repeat business. So if there were some way to mimic the long-term incentive structure for spot markets, you wouldn’t have to spend all that time and effort finding out who’ll stab you in the back while you’re not looking.”

The idea was intriguing, Oz admitted to himself. “I’m listening.”

“The temple provided proxy reputation services.”

“The temple? What temple?”

“The Hebrew temple. Temple elders would blacklist unscrupulous traders…” Lloyd paused for a moment to recall the old lessons, “or maybe they whitelisted the good ones, I forget. Either way, there was an implicit threat that if you cheated other Hebrews, things would go poorly for you.”

“That’s it? Seems pretty easy to lie your way around.”

Lloyd shrugged. “You might be right, but add to that other pressures, like an appreciation for group identity, stories of escaping persecution together, proper high holidays, and a bunch of other little things that cemented group identity, and you’ve got a pretty good system for keeping most potential defectors in line. Besides,” Lloyd added, “the point is more to prevent outsiders from cheating than insiders.”

“It is?”

“Think about it: you’ve got a ready-made stable of potentially gullible rubes ready to trust anyone who they think is one of their own. Disguise yourself as one of them, and make off with their cargo at virtually no risk. Sounds pretty good doesn’t it?”

“Sure, but it sounds just as good if you’re one of them than if you aren’t.”

“Don’t underestimate the power of a group identity, Oz.” He jerked a thumb towards their captors. “You think these savages want to eat turtle heads and drink frog water? They do it because the rest of them do it. They do it because that what their people do. Their system would collapse otherwise.” Lloyd smoothed the earth down in the space behind the rampart. “People are fond of their systems.”

“So that’s it? ‘People are fond of their systems’ sounds like what someone would say if they’ve never met a pirate.”

“Aw, come on. Pirates have their systems too. Just because you’ve never thought about it doesn’t mean it isn’t there, Oz.”

Oz shrugged again. “Maybe you’re right. But I thought you were going to tell me what a shibboleth is.”

“Right! Yes, thank you. The shibboleth was the word the Hebrew traders would speak to each other to check for impostors. Haircuts and clothes can be easily imitated, but the native Hebrew accent was nearly impossible to replicate for someone who hadn’t learned the tongue from the cradle. It was the keys tone holding the group identities distinct.”

Oz decided then and there that Lloyd’s penchant for Mondegreens provided more entertainment than confusion, so he promised himself that he’d stop mentioning them. “Okay, so they had a good way to check strangers for group membership, and this allowed the whole arrangement to work. What of it?”

“Well, the shibboleth was the signal: it was hard to reproduce, extremely valuable, and quite costly.”

“Costly? It’s just a word.”

“Yes, but to utter it properly, you have to be raised speaking Hebrew. You must forgo all other options. You have to actually be a member of the tribe. That’s what cost is, after all: the value of the next most attractive opportunity.”

“Sounds pretty subjective, Lloyd.”

“Cost and choice are always subjective, Oz.”

“So what you said about being a loyal servant of God…”

“Mere platitude. Any fool can utter platitudes. Platitudes do not a signal make. Visible commitment to the cause of HOLY RETRIBUTION is a signal. My Divine Sense would be a signal of His Favor, but only if you can see the way my eyes light up when I beg Providence.”

“Your eyes light up, Lloyd?”

“They can. You haven’t seen me do that before?” Lloyd activated his Divine Sense, opening himself up to witnessing unseen threats in the distance. “See? Silvery-pearlescent…” He scowled at something in the distance. “Alert the Indo. There’s something in the fog.” He gripped his shovel as if it were a longsword and looked around for a makeshift shield.

Oz sprinted towards the girl he had secretly taken a bit of a fancy to.

Moments later, the werewolves were upon them.

Duplicity and the Ordinary Work of the Politician

On By Jason BriggemanIn Economics, PoliticsLeave a comment

Consider the butcher. He spends a lot of time killing animals. Do those who find this morally questionable tend to call butchers personally to account? I’ve not heard of that—though it may happen—but I do know that many direct their energy to education of those who demand meat.

Consider, say, a fireman on an old train. His job involved setting fire to a bunch of coal, thus soiling the skies. Did people blame him for this air pollution? Or did they think: “Hey, that’s just his job. It’s the result of the choices of many people that we have trains.”

In these examples and others I can think of, we tend to hold individuals less accountable for actions that are inextricably bound up with the successful completion of job-related tasks. A classic example is that of the soldier following orders; yes, we often tend to think a soldier should listen to his conscience, but we also often leave way for the explanation that the soldier accepts the moral authority of his superiors.

Sometimes, commentators inveigh against politicians—against practically all of them, as a class—on moral grounds, as in this example from several years back:

I challenge anyone to argue that the behavior of any of the major candidates…is admirable. Everyone knows that each serious candidate trims, waffles, is duplicitous, has his or her finger in the winds blown by polls, and wants to be President not because of any burning itch to help fellow human beings but because the job comes with all the trappings, and much of the power, of royalty.

I see two distinct complaints there: that politicians play games with words, and that politicians act from self-interest. Economists and wise liberals in general should dismiss the latter complaint out of hand; there’s often nothing wrong with acting largely out of self-interest. That would leave us with the first complaint, that politicians are tricksters.

What if it’s the case that we live in a world where there are some serious interpersonal conflicts that cannot be resolved via honest back-and-forth discussion to mutual agreement? For the means to bring about the necessary resolutions, then, we would have second-best choices such as violence and duplicity. I venture to guess that many of us would choose duplicity over violence as a means of resolving a dispute.

If those sorts of conflicts sometimes crop up, and if “politician” is the occupation of one who resolves such conflicts under a division of labor, then, well, it’s just a job, not a mark of moral inferiority. Can a commentator rightly challenge politicians to avoid duplicity when it seems needless or counterproductive? Sure, without a doubt. But one should also recognize that it’s intrinsic to much of their work.

Restoring Humanity to the Human Sciences

On By Adam GurriIn Economics, Hermeneutics3 Comments

Featured image is A Hopeless Dawn, by Frank Bramley.

With rare exceptions, 20th century social scientists from B. F. Skinner through Paul Samuelson adopted methodologies which eliminated meaning and the mind from the study of human beings. The former believed that nothing existed beyond our external behavior, whereas the latter treated the mind like something that could be boiled down to an optimization formula.

A number of heterodox schools of social science have reacted to this. The Austrian school of economics, for example, has always been critical of the heavily mathematical models of mainstream economics, as well as the information lost in macroeconomic aggregation.

However, the Austrian school is not innocent here, either. In its crudest incarnations, it simply collapses into a formalism. This is not much better than mathematical optimization.

Its best incarnation, which I think is embodied in the subset of GMU economics under the stewardship of Pete Boettke, is much more sophisticated and open to other schools of thought. His students draw heavily on public choice, institutional economics, and philosophy.

Nevertheless, it is missing something essential. Thirty years ago, Don Lavoie attempted to fill in that gap by marrying GMU-style Austrian economics with hermeneutics. This would have brought human meaning into the social sciences in an unprecedented way. Sadly, he was rebuffed, and then he died tragically young.

As a result, even the most sophisticated treatments of meaning and mental content by members of this school are empty in important and systematic ways. Vlad Tarko’s paper “The Role of Ideas in Political Economy” is an example of this approach at its highest caliber. To understand its strengths and weaknesses, and how it could be humanized, I will evaluate this paper below.

Before we begin, I want to emphasize that I have picked this paper because it is very good. It offers a sophisticated framework that is of great value. In criticizing its treatment of meaning and mind, I do not want that fact to be lost.

Continue reading “Restoring Humanity to the Human Sciences” →

Simple Greed

On By stationarywavesIn Economics, Philosophy, PoliticsLeave a comment

As I’m certainly the least-popular and least-educated Sweet Talker, my ideas aren’t formed from a deep dive into the academic literature, they’re based on experience and observation. I won’t deny having read my fair share academic tomes, and like any good nerd I do read journal articles for pleasure. But that’s just my evening gig; by day, I’m a regular old beer-chugging Joe Sixpack who finds himself caught up in a volatile world, and who has occasionally been known to articulate his thoughts well. For my money, one won’t find real explanatory pay-dirt shoveling through the literature. Instead, we’ll find it in a person’s ability to fuse a workable and ever-updating narrative out of the details of his or her life. The more consistently one’s narrative anticipates and produces good real-world results, the more accurate it is.

Continue reading “Simple Greed” →

Take Note of the Value of Your Vote

On By Jason BriggemanIn Economics, Politics5 Comments

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The irrationally vocal proponents of the notion that ‘voting is instrumentally irrational’ have become perceptibly more vocal as it has become sure that there is a large difference between the two major-party nominees for President this year—which is unfortunate, since a large candidate differential weakens their claim.

What’s the basis for the notion that voting is an ‘instrumentally irrational’ activity? It’s that the expected benefit of a single vote to the voter herself is not substantial. That conclusion comes about from studying this equation:

Expected social benefit of a vote = (Probability of casting deciding vote)(Candidate differential)

There is no definitive method for estimating either of the values on the right-hand side, but the size of the probability value is less in doubt. Andrew Gelman, Nate Silver, and Aaron Edlin (2012) review the credible literature and persuasively peg the probability of deciding a contemporary U.S. Presidential election at one in 60 million for the typical voter.

How to estimate the candidate differential? Form your own. Do you think, say, that U.S. GDP would be one tenth of one percentage point higher, each year under a Clinton administration, than under a Trump administration? Well, U.S. GDP is $18 trillion a year, so over four years that difference amounts to over 70 billion dollars. GDP is far from everything that matters, but in a quantitative exercise, it gives one a starting point, from which one can make whatever adjustments one likes. Take your own estimate of candidate differential and divide it by 60 million to get the expected social benefit of a vote. Seventy billion divided by 60 million, for example, is over one thousand dollars.

The tension comes in with the recognition that the social benefit of a single vote is not paid directly to the individual voter. The voter bears the cost of making the decision and taking an hour to cast a ballot, but the benefits of each single vote are spread over the nation and world. One thousand dollars divided by 320 million persons is a quarter of an eighth of a hundredth of a cent, and so if the voter ‘acts alone,’ uncoordinated to others, she personally gains almost nothing. But all this is to say only that the voters face an ordinary free-rider problem—little different from any problem of providing public goods—and so voters can benefit personally from the overcoming of the problem.

Imagine that 20 million persons who had planned not to vote become otherwise coordinated, perhaps by a compelling meme that convinces them to vote for Clinton. The election swings from, say, roughly a tossup, to a sure Clinton victory, at the cost of, say, an hour for each of the 20 million voters. Counting that as a $50 cost for each voter, that’s a total social cost of $1 billion—but the increased certainty of Clinton’s election equates to an increase in expected GDP over four years of $35 billion, using the GDP-based hypothetical above. If the sixteenth part of that gain accrues evenly to the 20 million marginal voters, they will each eventually have about $100 in extra income—twice the $50 cost incurred in one’s casting a vote. In other words, 20 million fractions of a cent do add up.

I don’t much endorse this Downsian framework for purposes of understanding why 125 million Americans vote, but it is a worthy exercise in service of one’s own decisionmaking process. The kind of person who is enough engaged in political talk to be reading this blog post should be aware of the size of the expected social gain that one declines to confer, in return for an opportunity to ‘express’ one’s idealism through an also-ran candidate, or alternately for an hour of free time.

Conversation in Commerce: Intimate, Impersonal, and Indirect

On By Adam GurriIn Economics1 Comment

Featured Image is The Moneylender and His Wife, by Quentin Massys.

The offering of a schilling, which to us appears to have so plain and simple a meaning, is in reality offering an argument to persuade one to do so and so as it is for his interest.

-Adam Smith, Lectures on Jurisprudence

In a post two years ago, Nathan distinguished transaction and exchange based on the impersonal quality of the former and the conversational quality of the latter. He gave grocery stores as an example of the transactional, and farmer’s markets for the conversational.

In many grocery stores the shopper can select, check, bag, and pay for the groceries without ever having to speak to another person. Where is the catallaxy in that? You do not make friends with your celery and dog food. Grocery shopping is about cost primarily, because your choices have already been laid out for you. We may trade off a store with a better selection for one with lower prices, but in that context we have already made our choice in choosing where to shop, and all that is left is cost. The transactional context contains risk that can be managed, but is devoid of uncertainty.

At the less structured farmer’s market, however:

In exchange there is possibility of alteration of preferences. You go to the farmer’s market for the experience, and fresh tomatoes. But you never know what else might show up at the farmer’s market. It is fraught with uncertainty. It is also steeped in conversation. The very context suggests that one approaches it wanting to have her preferences shaped by the experience. Sellers get intimately involved in each sale, talking with every customer and potential customer. Advice is given and recipes are shared.

I think Nathan is onto something here, but I also think that both settings are conversational, in an important sense.

It might be better to say that the wider context for each is conversational, in a variety of ways.

At a grocery store, the manner in which choices are laid out for shoppers is neither random nor entirely about cost saving. These strategically designed layouts create what Michel Anteby calls vocal silence; though no explicit direction is given, specific choices suggest themselves.

It’s true that at the grocery store these suggestions often emphasize cost saving, as with the placards indicating discounts or stands emphasizing some particular bargain. But the basic arrangement of items in aisle suggests a relationship among them. When I go to get ketchup, I might see mustard and suddenly remember we’re running low on it. Little things like that.

Providers and retailers spend a lot of time attempting to anticipate their customers. Sometimes this is simple cost saving, again—if things are organized in an intuitive way, it’ll take me less time to find them. But an important part of it is figuring out what innovations (however small) customers would be amenable to.

Adam Smith’s point about the shilling at the top of this post should be kept in view; money talks. But money talks very indirectly.  It doesn’t tell providers much more than that people were willing to pay a certain price for something. Market research isn’t as intimate as chatting with someone you see every week at a farmer’s market, but it is more direct than simply watching sales figures. We might call this style of conversation impersonal. Tens of billions of dollars are spent on it each year.

The conversational styles are continuously generated through transactions and exchange by establishing what Charles Taylor has called “footings” for the participants on each side.

 In the way we exchange, talk to one another, treat one another, we establish and then continue or alter the terms of our relationship, what we might call the “footing” on which we stand to each other. We do this through our rhetoric, our tone of voice, the kind of remark I permit myself and you don’t challenge, and on through an infinity of nuances.

Let’s say we are friends, but I am older than you. I can respond to this by treating you as an ingénue, offering avuncular advice on frequent occasions, sometimes intervening in a bossy fashion, dismissing peremptorily some of your ideas, and so on. You for your part don’t challenge this; you may even like it. The upshot is that what I call a certain “footing” gets set up, call it an uncle-nephew footing, in which we each have certain expectations of the other, in which certain moves are normal and expected, and others are surprising, even shocking, and in which certain obligations are implied on each of our parts, and the like.

The footings in the conversation between market researchers and their subject are that of detached analysts on the one hand and subjects of study on the other. Though the latter are there voluntarily, the authority of the former is established from the outset. Researchers control the structure of the engagement. The degree of freedom subjects are allowed is limited, and determined in advance by researchers.

At Nathan’s farmer’s market, the representatives of the farm establish the footing of experts and salesmen, but also something like an acquaintance. The tone of the conversation is more casual.

The grocery store strives to make conversation as indirect as possible. They may conduct market research, and the providers of the goods they sell certainly do, but once in the store all they want to hear from their customers is the sound of their wallets emptying. In as much as there is a footing here, it is established through vocal silence. And customers respond primarily through their buying patterns.

This has been given its ultimate expression in our day through online retail. Amazon sets itself up as the website of choice for ordering what you want as quickly, cheaply, and painlessly as possible. There seems to be no human element at all. But of course, there is. Amazon is constantly listening to their customers. Vocal silence is created algorithmically, on the fly, and those algorithms are constantly being evaluated by people. New business prospects are experimented with on a smaller scale before being deployed to the general customer base or abandoned.

Even at its most indirect and impersonal, commerce is a series of ongoing conversations, establishing, challenging, and altering various footings on each side along the way.

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Evaluating the Creative Powers of a Free Civilization

On By Adam GurriIn Economics, Hermeneutics, Philosophy24 Comments

Featured image is Novgorod Marketplace, by Appolinary Vasnetsov.

Few phrases capture F. A. Hayek’s vision of emergent order more concisely than “The Creative Powers of a Free Civilization,” the second chapter of The Constitution of Liberty. Free societies, in this vision, are perpetual discovery processes. One may wonder, however, how we evaluate what it is that these processes discover. Inspired by Hayek, James Buchanan appeared to believe that the evaluation itself emerges from the very same process. Hayek is harder to pin down on this question, but in The Constitution of Liberty appears to be a simple rule consequentialist.

Hayek and Buchanan’s view of social becoming as a discovery process is immensely valuable, but the frameworks by which they defend or evaluate this process leave much to be desired.

Continue reading “Evaluating the Creative Powers of a Free Civilization” →

Discourse of Free Cities

On By marklutterIn Economics, Rhetoric, Social Science1 Comment

Every political change must be accepted by the populace, either tacitly or explicitly. On a more granular level, different types of political change require different levels of acceptance from different networks of people. Therefore, types of political change can be categorized by the intensity with which they affect networks of people. Given my interest in free cities, cities with a degree of legal autonomy, I thought I would take Adam Gurri’s kind invitation to discuss the discourse on free cities.

My interest in free cities stems largely from my understanding of political change. Politics is highly path dependent. Free cities offer a way to break that, potentially accelerating institutional improvements. However, there remains a great deal of hostility to free cities.

First, there are three groups with interest in free cities, libertarians, Silicon Valley, and developers. Libertarians largely have the ideas right. Some focus on outlandish Rothbardian ideas of property rights unlikely to work. However, a strand of libertarians has focused on best practices for institutions and how to recreate them in the developing world. Paul Romer largely fits this description, though I expect he would deny the association with libertarians. Unfortunately, while libertarians have the ideas, they lack the influence and money to build free cities. Hopefully Honduras can break this generalization.

The second group is Silicon Valley. They have some overlap with libertarians, but are distinct enough to justify a second category. Initially led by Peter Thiel and Patri Friedman, Silicon Valley focuses more on achieving the best institutions, rather than improving those in the developing world. Y Combinator is a welcome recent addition to Silicon Valley discussions about cities. Silicon Valley largely has the ideas, as well as some of the money, but lacks the influence to implement free cities.

Much of the difficulty that libertarians and Silicon Valley have faced in their quest to build free cities is their aversion to politics. A free city is seen as opting out of politics, rather than an inherently political act. They want a blank slate on which to build a city, but don’t fully understand how to achieve the autonomy required for a blank slate. Luckily, they have also been realizing this over the past several years, and will hopefully have more luck in the future.

The third group is international developers, a group which should be interested in free cities, but isn’t yet. The New Cities Foundation has an annual forum, Cityquest, which brings together developers building new cities. These are multi-billion dollar projects, but they, by and large, conceive of cities as construction projects, not realizing the value of legal institutions. Luckily, again, based on conversations with development groups, they are slowly realizing the value of legal institutions.

The last relevant question is, what prevents the emergence of free cities? Of course, countries are still reluctant to allow such high levels of autonomy, but what are the particulars? My current understanding is that the primary barriers are McKinsey and World Bank types. They are often presidential advisors in countries that could host free cities. However, they are unimaginative and risk averse. When presented with free cities, their response is to suggest a special economic zone with slightly lower taxes.

Building free cities means changing the mind of McKinsey and World Bank types. Free cities have to be normalized. As such they can no longer be fevered dreams to create a libertarian utopia or a techno-futurist city. Instead, free cities must be seen as adopting the best practices of governance, as an addition to the existing world order, not an attempt to opt out from it. Institutional change requires the ruling elite. Advocates of free cities should heed that lesson.

How the Entrepreneur Creates and is Created

On By Adam GurriIn Economics, HermeneuticsLeave a comment

Featured image is Sir Francis Baring, by Sir Thomas Lawrence.

Entrepreneurs are not as free or powerful as we like to imagine, nor can they be entirely subsumed into the larger forces of history.

In Knowledge and Coordination, Dan Klein points to “The Verger,” a short story by W. Somerset Maugham, as a great telling of entrepreneurship in practice. The titular character goes in search of a cigarette and realizes that there is nowhere he can buy one in the vicinity.

“That’s strange,” said Albert Edward.

To make sure he walked right up the street again. No, there was no doubt about it. He stopped and looked reflectively up and down.

“I can’t be the only man as walks along this street and wants a fag,” he said. “I shouldn’t wonder but what a fellow might do very well with a little shop here. Tobacco and sweets, you know.”

He gave a sudden start.

“That’s an idea,” he said. “Strange ‘ow things come to you when you least expect it.”

Klein uses this as an example of entrepreneurship on the model of his mentor, Israel Kirzner. Kirzner is an economist in the Austrian school, who emphasizes the role of alertness and frameworks in entrepreneurship. The Austrian school more broadly defends entrepreneurship as a creative act.

For neoclassical economics, however, this sort of arbitrage is more a feature of the situation than the individual. The shop that the protagonist sets up is like one of the corner stores that is very common in New York City. A lower density neighborhood may have relatively few of them, but then see an influx of people and suddenly gain a few more. The situation creates the arbitrage opportunity, not the entrepreneur.

Continue reading “How the Entrepreneur Creates and is Created” →

Vote “Yes” on the MEFTA

On By stationarywavesIn Economics, UncategorizedLeave a comment

I think every thought experiment should conducted n times, where n is the number of unique moral agents contained in the experiment. Doing so might help mitigate the risk of our inborn proclivities toward The Fatal Conceit.

(Finally – finally – I have been given an excuse to invoke Hayek on these pages, a rarity for the pulpit-pounding Misesian of the group. But that is just what impact Samuel’s recent argument against free trade had on me.)

Re-conducting the thought experiment n times will hopefully provide us with a certain moral weight.

Let n = k + s, where k is the number of kings, gods, aristocrats, wonks, and watchmakers in the world and s is the number of serfs, plebes, average joes, peons, and Trump voters. Let us further note that in every system across the totality of human history, including the present system, s > k. And not just “>,” but “much >.”

Let us further acknowledge that, at the time of this writing, the only person who stands to profit in the near term from terra-forming Mars is the most vocal proponent of doing so:

Humanity could colonize Mars with a few key technological advances, Elon Musk said. Chief among them are fully and rapidly reusable rockets, and the ability to produce rocket propellant from local materials on the Red Planet….

For example, SpaceX’s Falcon 9 rocket costs about $16 million to build, but the fuel for each of the booster’s liftoffs costs just $200,000, Musk said Tuesday. So finding a way to fly rockets again and again has the potential to slash the cost of spaceflight by a factor of 100, he added.

Musk hopes to be a key player in the spread of humanity to another planet, but he doesn’t expect to be around to see the full fruits of his labor.

Emphasis mine. $16 million (plus margin) is a lot of cheddar. You can bet that’s going to show up in the marginal tax rates and rates of inflation borne by s. To be sure, k will also bear some of this cost… but then again, it was their choice to do so. (They’re the k‘s, remember?)

And while I’m banging away at libertarian hobby-horses, let’s briefly tackle “what is unseen.” The chief cost of terra-forming Mars is the opportunity cost of spending hundreds of billions of dollars and countless human lives mitigating against a risk that never comes to pass. (Yes, Elon, such as superintelligent killer robots.) There is a whole other trajectory of human progress that may unfold if we choose to do pretty much anything other than protecting ourselves from non-existent killer robots. That trajectory will impact the quality of life for both the k‘s and the s‘s, but it will make the best and most important impact on the s‘s.

Okay, now go ahead and re-run the thought experiment n times. Run through the billions of poor people who will continue to die in the streets for lack of improved economic development. Run through the billions of dollars that could have been spent on increasing the number of cancer screenings in the world, or on reducing the cost of insulin analogues, or on increasing the wage rates of the desperate, or etc., etc. Do this s times, for every s alive in today’s world, and for every s that will ever live over the course of the development of Musk’s Mars plan. Then do it again for every s living on both Earth and Mars, who could easily trade with each other and improve their lots in life, but for the k‘s who just happen to “know” that the hypothetical risk of an imaginary killer robot or et cetera is too great to justify raising the total amount of calories consumed by an abandoned Bangladeshi child.

Then, when you’re done with all that, go ahead and run through the k‘s. They probably won’t save themselves (no matter how rich they get) because they’ll be long dead before the plan ever comes to fruition. But they do get a substantial utility boost, after all. It’s not just the money, it’s the knowledge they have that they’re saving humanity – perhaps not today’s starving child, but some child who never would have existed otherwise! Just think of how many lives are saved or created by this process! And since “humanity” is infinite (especially if “we” save it), and “starving child” is finite, that’s a whole lot of salvation the k‘s get for their money.

Still, after all this, I have a difficult time believing that anyone who went through the thought experiment n times would walk away concluding that, yep, we gotta break a few eggs and cook ourselves an omelet. That is likely why Samuel ended with the Tyler Cowen quote that he did: when our growth plan involves redirecting calories from the mouths of today’s starving to the future of humanity many generations from now, the decision just doesn’t make sense.

This, too, is part of the “neoreactionary” ethos – an important part. We can deride them for being “populists” or “anti-elite” (sometimes called “anti-intellectual”), but when our thought experiments place us in the position of k‘s, while they can only ever be s‘s, their criticism sticks. It’s not as if it’s irrational to think that the elites might cook up a plan that comes at a terrible cost to the rest of us. It’s happened before. If we are to take neoreactionism seriously, we’ll have to acknowledge this.

Now, I’m not an unreasonable man. If a few eccentric k‘s want to spend their own money, combined with voluntary donations, on interplanetary colonialism, I say more power to them! Fair is fair: I spend my disposable income on too many guitars and too much cognac, they spend theirs on space ships. But that’s a choice any n can make, be she a k or an s.

But if we succeed in colonizing Mars, then I’m already in favor of MEFTA. Free trade is fair trade. No moat!