Discourse of Free Cities

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.

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How the Entrepreneur Creates and is Created

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

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 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!

 

Black Crow Events

 

Featured image is the End of the World, by John Martin

Fellow sweet talker Sam has pointed out the surface similarity between the case for space exploration and the case for anti-globalisation.

That is, earth, being our only planet, is vulnerable to certain extinction level events, thermonuclear war, environmental degradation , super-AIDS and the always popular death from the skies, and given that it would be nice for the species to continue existing we should seek out an alternate planet to live on to double the chances of at least some humans surviving. Similarly, given that there is increasingly only one, global economy on which we all depend for meaning and sustenance, it might perhaps make sense to erect some barriers, so that, to give a hypothetical, dodgy securitisation practices in the United States doesn’t obliterate the seemingly unrelated economy of a small island nation. However these risks interact with the rest of the world in fundamentally different ways, and need to be managed differently.

While in school I did an internship at a local electrical utility. Most major urban networks at that time were radial, isolated, and manually redundant, that is power comes from a central distribution transformer and is distributed outwards like spokes on a wheel. Under normal operation there is no active connection between these different islands, however the infrastructure exists and is in place to connect them with the throw of a switch by the operator or command centre.

The advantage of linking the networks together is that when something goes wrong in one network, the other networks can pick up the slack. If a tree hits a major line, and causes a blackout the operator can flip a few switches and get power restored to many of the affected houses in a short period of time. Power to critical infrastructure, like telephones, will be connected to batteries so that if primary power is lost, the batteries will automatically kick in and the system as a whole still works. Telecoms even started installing battery packs at the customer locations, as fibre has overtaken copper as the technology of telecommunications and it was no longer possible to use the telephone wire to power the telephone if your house loses power. This is redundancy, and it is the primary tool we use to keep networks resilient to failures.

The increasing linkages that come with globalisation often operate in the same manner. If there a drought in Florida, oranges can be imported from a different area of the globe. If a major flood destroys the garment industry in Bangladesh other workshops in Africa and Indonesia can be found. Further, since expertise and equipment can be deployed globally, if a disaster destroys a major or sole supplier of a particular good the nexus can be reconstituted elsewhere. It also allows a greater variety of substitution goods, so that if a blight destroys most of a year’s cotton crop, even in all areas, we can substitute linen, or silk, or synthetics and still produce a workable garment.

So given the advantages of linking these networks together, why didn’t we make the links in our power network? There are two good reasons. The first is that when you want to take a particular area down you only need to throw one switch to do it, so that an operator wouldn’t throw a switch and assume that the network was down, only for power from another source to come back in without their knowledge, potentially fatally. The second is that it limits the damage done by any individual fault. If a crow lands on your transformer, only the transformer, and the things downstream of the transformer will be taken down, the rest of the network is oblivious. (The crow is also oblivious, as his internal organs are plasma. RIP crow, I didn’t want to save that report anyway).

It’s the second point that is most relevant here. Near the beginning of my term at the utility we had planned for one of the transformers to go down while we did maintenance on it. The linesmen closed the relevant switches, linking the two networks together, and then got in the truck to open the switches that isolated the transformer to be taken out of service. While they were driving, a tree hit a major line, blowing protective devices on both transformers and melting the wire. What would have been an isolated fault taking out about a third of the city now took out the entire city for the better part of a half a day.

The increasing interlinkage of the global economy leaves it vulnerable to these kinds of events. A problem that wipes out the banking sector will affect the global banking sector instead of being contained in a national banking sector. A pest that destroys a particular tree will spread across the globe, destroying trees all over the globe instead of just on one continent. So why not maintain the same barriers that other networks do for their safety?

First, the networks had certain barriers, but were never actually islands. The linkages between the networks were all in place, waiting for the right moment to be activated. But the global system is closer to a biological than a mechanical system. Linkages have to be grown, and having grown be used to be strengthened. There isn’t a standby export infrastructure waiting for the command centre to throw the switch, there are actual exporters and actual ports and actual longshoremen and truckers and roads that need to be maintained trained and built, and can only be built by being used. Movies need distribution channels and rightsholders working in concert which takes time and skill. The redundancy required for resilience needs to already be in place and operational.

Second, it is easier to cut a connection than to make a new one. The vast majority of systemic faults don’t begin as systemic faults. They begin as relatively minor, localised faults which, when not handled appropriately, escalate into larger faults and sometimes spread, what engineers would call failure cascades, but in finance is usually called contagions. Handling these problems properly means acting quickly to contain them to as small an area as possible while they are still small, or limiting their ability to grow. This doesn’t mean the creation of barriers, but retaining the ability to create barriers quickly. Figuring out how to detect small problems and handle them before they become big problems, and making sure the disease is worse than the cure, is the majority of modern engineering work, and an essential part of any regulatory apparatus. When done well it can be accomplished in a way that the remaining equipment doesn’t even notice, and with minimal downtime for the affected equipment.

Finally there are some kinds of problems that simply can’t be dealt with internally. A well designed, fully parallel battery back-up won’t save you when the operator comes in drunk and runs over it with a forklift, or when a rattle snake decides to make its home inside and the groundskeeper, being a good west Texas boy decides this is a problem that should be solved with a shotgun. (The snake was reportedly delicious).

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Or when nearby equipment explodes

The only way to deal with this is reduce, as far as possible, the number of systems that will act as single points of failure, by creating parallel systems as far away as practicable. It is these sorts of cases that earth 2 is designed to protect against, and in which the logic of anti-globalisation is strongest. There is one major difference. Earth 2, by its distance, can’t help you when something goes wrong. The species survives, you’re still screwed. By contrast access to rice grown in Thailand can help you, and cutting yourself off from it can decrease global systemic risk only by increasing the chances that a local survivable risk is turned into a local catastrophic one.

The Spirit of Economy

“One must go further, one must go further.” This impulse to go further is an ancient thing in the world. Heraclitus the obscure, who deposited his thoughts in his writings and his writings in the Temple of Diana (for his thoughts had been his armor during his life, and therefore he hung them up in the temple of the goddess), Heraclitus the obscure said, “One cannot pass twice through the same stream.” [Plato’s Cratyllus, § 402.] Heraclitus the obscure had a disciple who did not stop with that, he went further and added, “One cannot do it even once.” [Cf. Tennemann, Geschichte der Philosophie, I, p. 220.] Poor Heraclitus, to have such a disciple! By this amendment the thesis of Heraclitus was so improved that it became an Eleatic thesis which denies movement, and yet that disciple desired only to be a disciple of Heraclitus … and to go further– not back to the position Heraclitus had abandoned.

-Søren Kierkegaard, Fear and Trembling

Featured image is Market Scene, by Aertsen.

The spirit of social science is technocratic. Economics is especially so. Economists seek to understand commerce in terms of its moving parts. Everything recognizably human is stripped away as prejudicing; left behind are algorithms of choice to be studied in terms of how they interact within different systems of rules. And this method has proved quite useful in identifying the strengths and fault lines of such systems.

But they are rarely happy to leave it at that. After failing to find an all encompassing theory of human nature, they relegate what cannot be explained by their methods to a black box. Thus, spirit becomes ranked preferences, the content of which is considered out of the economist’s purview. In as much as this rule is violated, it is because some aspect of human nature has turned out to be tractable to economic mechanics. Thus Robert Frank and the economics of envy—sorry, of status competitions. Frank echoes Thorstein Veblen here, but Veblen was not nearly so mechanistic—though he suffered from other sins.

As economics continues to move in the direction of Frank and those like him, spirit is increasingly being eliminated entirely, rather than kept in a black box. And so economics has moved from inhuman models to becoming actively dehumanizing.

Albert Hirschman believed that this flight from humanity began with the idea that wild, destructive passions must be offset by interests, with successive generations of philosophers narrowing what counts as a person’s interests. Martin Heidegger believed that the problem began with the classical philosophical tradition as a whole, once it lost the original context in which Plato and Aristotle posed their questions.

In any case, the inhuman models, even before they became aggressive in their dehumanizing, rested on a narrow notion of reason that is severed from spirit. The business world is full of rules, choices made under conditions of scarcity, transaction and exchange—these sorts of things make for a great beginning in describing commerce. But they are a bad place to end.

A complete discussion of commerce needs to speak to its spirit, the spirit of business at some place and time. This spirit varies not only across nations or periods of history, but across industries and companies. See Joseph Heath on the criminality that characterizes specific industries.

Whether or not business can be characterized as exploiting the less fortunate or participating in their flourishing, myopically opportunistic or directed towards the common good, may be more a matter of the spirit of the enterprise than of its formal characteristics.

The great apologists for commerce in 18th century Scotland may have done more for the world by developing an ethos of public virtue through prudent dealings, than they did by midwifing the birth of economics as a discipline.

How unfortunate, then, to live in an age characterized largely by the eradication of what spirit we have—in business, in civil society, in government—without a corresponding drive to foster its replacement.

Keynesianism in Democracy

Two years ago, semiconservative pundit Josh Barro declared that “Conservatives Have No Idea What to Do About Recessions.” The eminent progressive economist Paul Krugman agreed, then tweaked crotchety Josh by saying this idea-less condition afflicts not only “anti-intellectual and doctrinaire” Republican policymakers but also “prestigious conservative economists” such as, um, Barro’s father Robert.

Conservative intellectuals like Robert Barro, Krugman suggested, have rejected the economists’ notion of aggregate demand, and in so doing they have rejected not only Keynesian economics but also the wrong-yet-acceptable monetarist alternative and its very great avatar Milton Friedman. Why? Because politics: Krugman sees Barro père as having “the sense that acknowledging that markets fail, ever, would be the thin edge of the wedge for liberal policies.”

With apologies to Alex Pareene’s version of Malcolm Gladwell: Say that Krugman is right about Robert Barro’s motivations. Could Barro still be right in rejecting Keynesian economics? What if Keynesian economics contains a lot of truth, though? Surely then Barro would be wrong in refusing to advance those true Keynesian ideas.

Or would he?

In 1977, the classical liberal economists James Buchanan and Richard E. Wagner argued that the advancement of Keynesian economic ideas is counterproductive in a mass democracy. Buchanan and Wagner allowed that there could be some ‘truth’ in Keynesianism but said that intellectual economists—few in number and limited in influence—can no longer assert the consistent level of control over economic policy that would be necessary to deliver results. Why not?

John Maynard Keynes, as evidenced in material cited by Buchanan and Wagner, tended to think of policy in his Britain as being handed down by an intellectual aristocracy that would not soon be displaced. Keynes believed that sway over the economic levers could and would be maintained by smart folks, whatever else may transpire. But in America now, as Paul Krugman and Josh Barro both know, that ain’t so. The columns and tweets of today’s smarties, whoever they are, are just an input into the roiling democratic processes that determine policy.

So what should that input be? Krugman’s answer is twofold: Keynesian economics and Democratic Party politics. We are fortunately blessed to have with us a party of politicians who take their cues from sensible people. The Democrats are smartly Keynesian, and so if they remain in power then countercyclical policy is guaranteed. Stimulate the economy when it busts, then use boom times to control inflation and reduce debts.

But Buchanan and Wagner pointed out that since the boom-time Keynesian policies of tighter money, lower spending, and higher taxes are never popular with voters, it doesn’t make a lot of sense to bet on continuous Democratic victories. An opportunistic opposition party could put forward pseudo-Keynesian ideas designed to win elections: Say, if tax cuts are stimulating during recessions, then shouldn’t they be stimulating all the time? A voter who really understands Keynesianism, who learned what she was taught in intermediate macro, wouldn’t be suckered by such an opposition. But in a mass polity dominated by noneconomists, vague notions about the benefits of ever-lower taxes can sink in. Sometimes the Republicans win, and who knows what they end up doing.

So Buchanan and Wagner’s answer was this: Mass democracy requires a wiser brand of economist, one who understands Keynesian economics but refrains from offering the Keynesian policy prescription. Economics professors shouldn’t, in their classrooms, push their smart kids to advocate for strongly countercyclical budgeting. Teach them about the idea, yes, but teach them too about the politics that are likely to frustrate its successful implementation, and remind Timmy in the front row that he’ll never chair Ways and Means.

Buchanan and Wagner thought a better result would obtain if the economists and their sharp students hold that politicians should consider the government to be broadly constrained by its budget. Then less nuttiness gets around. The idea of ever-lower taxes, dumb on its face, is affirmed as dumb. And some of the less defensible Gladwellism in politics is stymied. A crotchety man or two might be happy about that much.

They would be, right?

On Bullshit in Economics Textbooks

“This is important to Wittgenstein because, whether justifiably or not, he takes what she says seriously, as a statement purporting to give an informative description of the way she feels. He construes her as engaged in an activity to which the distinction between what is true and what is false is crucial, and yet as taking no interest in whether what she says is true or false. …

“Bullshit is unavoidable whenever circumstances require someone to talk without knowing what he is talking about. Thus the production of bullshit is stimulated whenever a person’s obligations or opportunities to speak about some topic are more excessive than his knowledge of the facts that are relevant to that topic.”

—Harry Frankfurt

Imagine an economist sitting down to write a textbook. The task requires the economist to write about many matters on which he is not expert. If the economist drafted the entire book in an initial sitting, we who have been edified by Harry Frankfurt would imagine that the chapters on matters outside the economist’s expertise will be relatively suffused with bullshit. With effort—research, correspondence with colleagues, and so forth—the author should in subsequent drafts be able to reduce the proportion of bullshit in those chapters. But it could hardly ever be possible to eliminate the bullshit. Often it may be the case that no one is sufficiently expert in the matters at hand to give an authoritative account. The author may be in the position of a politician who must address a difficult issue and has only the input of divided experts and a divided electorate to go on, and so bullshit ensues.

Presuming this model of authoring to be correct, what does it tell us when we come across big amounts of bullshit in a textbook chapter? It might be that economists at large have no experts on the matters discussed. It might be that the textbook author did not exert much effort in writing the chapter. It might be that the matters at hand are controversial.

Econ 101 has in some quarters a reputation for consisting of dry theoretical propositions. But the opening chapter of an introductory economics textbook is really a prime place to find bullshit. This could be the case because economic science itself does not tell us exactly how to begin speaking about economics. Adam Smith gave us an exemplar when he started The Wealth of Nations with a discussion “Of the Division of Labor,” but there is no definitive reason to follow Smith in this regard and in the succeeding centuries economists have gone about the task in various ways.

One principles text I had the chance to use in recent years doesn’t even contain the phrase “division of labor,” let alone near its outset. The first two words of its Chapter 1 are in fact “Barack Obama.” Its third sentence describes Obama as “the Economist in Chief.” In the sixth paragraph it emphasizes that “President Obama has to decide how best to use the nation’s limited resources.” The second paragraph reports that prior to his inauguration Obama “asked [his economic advisers] whether the economy would recover from recession without further government intervention.” Come on, man. That conversation did not happen.

That there’s this bullshit doesn’t make the textbook’s introduction to economics unworthy. Pointing up shared American identity to connect with students might be okay. The overall impressions students take from the chapter may be useful and correct in the main. But you’d be right to say the author doesn’t care a lot whether every sentence written is true or not. And you have to think bright students notice that. I suspect a number find it alienating.

If bullshit in textbooks is a problem, it’d be good to measure its volume. Possibly one could take the first 50 sentences from several textbooks, mix them up, then present them to economics graduate students as a 50-question test a la Politifact: “Rate each sentence True, Mostly True, Half True, Mostly False, False, or Pants on Fire.” And is our bullshit skewed? The subjects could also rate each sentence in terms of whether it conjures a centralized or decentralized view of economic affairs, a command or market economy, a national or world system. I doubt any will be surprised if economists’ prior commitments primarily manifest themselves amidst bullshit.