Archive for July 2005

More Free Market Environmentalism

My support for the Nature Conservancy and other land trusts who buy land for preservation rather than just expropriate the current holder through changed use regulations in this post garnered more comments than any of my other recent posts.  Presuming this is an indicator of interest in the topic, I point your attention to this article in the NY Times about environmentalists and grazing in southern Utah.  I no longer have much trust in the NY Times to portray such stories correctly, but from what they write, it looks like another great example of environmental activism using markets and consensual agreements rather than public coercion:

Mr. LeFevre wants the ranchers to win this range war against the lawyers and
politicians trying to restrict grazing on the plateau north of the Grand Canyon.
He fought unsuccessfully to stop the Clinton administration from declaring it
the Grand Staircase-Escalante National Monument because he knew the designation
would mean more regulations, more hikers and fewer cows....

But he is not bitter when he talks about the deal he made with an
environmentalist named Bill Hedden, the executive director of the Grand Canyon
Trust. Mr. Hedden's group doesn't use lobbyists or lawsuits (or guns) to drive
out ranchers. These environmentalists get land the old-fashioned way. They buy
it.

To reclaim the Escalante River canyon, Mr. Hedden bought the permits that
entitle Mr. LeFevre's cows to graze on the federal land near the river. He
figures it was a good deal for the environment because native shrubs and grasses
are reappearing, now that cows aren't eating and trampling the vegetation.

I love to see this.  The alternative Mr. LeFevre faced was steady expropriation of his grazing permits via creeping regulation and legal action:

Mr. LeFevre likes the deal because it enabled him to buy grazing permits for
higher ground that's easier for him and his cows to reach than the canyon. (He
was once almost killed there when his horse fell). He's also relieved to be on
land where hikers aren't pressuring the Bureau of Land Management to restrict
grazing, as they did for the canyon.

"I was afraid the B.L.M. would add so many restrictions that I wouldn't be
able to use the land anyway, and I'd be out the $100,000 I spent for the
permits," he said. "The B.L.M. just shuts you down. Bill said, 'Let's try to
resolve this peacefully and make you whole.' I respect that."

Ironically, this win-win environmentalism is being opposed by the Bush administration. 

The Interior Department has decided that environmentalists can no longer
simply buy grazing permits and retire them. Under its reading of the law - not
wholly shared by predecessors in the Clinton administration - land currently
being used by ranchers has already been determined to be "chiefly valuable for
grazing" and can be opened to herds at any time if the B.L.M.'s "land use
planning process" deems it necessary.

But why should a federal bureaucrat decide what's "chiefly valuable" about a
piece of land? Mr. Hedden and Mr. LeFevre have discovered a "land use planning
process" of their own: see who will pay the most for it. If an environmentalist
offers enough to induce a rancher to sell, that's the best indication the land
is more valuable for hiking than for grazing.

I have no idea why a grazing permit can't be retired - certainly that's legal and proper with emissions permits.  I never, ever thought I would find the NY Times writing something like "why should a federal bureaucrat decide what's "chiefly valuable" about a
piece of land", but I love it. And raspberries to the Bush Administration, who yet again are demonstrating that their lack of dedication to markets and private action.  Its time to admit that the republicans have returned to the bad old days of their 1970's support for big government crony capitalism.

The new policy may make short-term political sense for the Bush
administration by pleasing its Republican allies in Utah and lobbyists for the
ranching industry. But it's not good for individual ranchers, and it ensures
more bitter range wars in the future. If environmentalists can't spend their
money on land, they'll just spend it on lawyers.

Here is Mr. Hedden's site at the Grand Canyon Trust, which unfortunately seems to support lobbying for government coercion at least as much as market-based solutions.

Hat tip to Nature Noted, a great blog on land trusts.

Hey Southerners, Join Arizona on the "Dark" Side

Congress is probably going to extend Daylight Savings Time, despite complaints from airlines that their rescheduling and reprogramming costs will be exorbitant. Virginia Postrel points out that while a boon for the Northeast, southerners are not amused:

The source of this bright idea is, not surprisingly, the ever-meddlesome Ed Markey, who calls the bill
"a huge victory for sunshine lovers." As a certified sunshine lover, I'd say it
looks more like Massachusetts's revenge on Texas (and the rest of the Sunbelt)
for George Bush's victory over John Kerry. There are some places--and Dallas is
definitely one of them--that need just the opposite: shorter sunny evening
hours. Once the sun goes down and the temperature falls to the high 80s, you can
actually enjoy sitting outside.

The ostensible goal of the bill is energy saving, but the evidence
is weak
.... 

Oddly missed even in fairly
thorough
 accounts is
any consideration of the extension's most obvious cost: More demand for
energy-eating air conditioning in the fast-growing, very hot Sunbelt. A lot more
people live down here than did back during the Nixon administration.

Southerners, come join Arizona on the "dark" side of this issue.  Arizona decided long ago that it had plenty of daylight, did not need to save it, and therefore was not going to play with the other kids.  We sometimes catch some grief for being out of step, but you don't see any of us scrambling around the house twice a year looking for our VCR manual to figure out how to change the clock.

 

More "Government Coersion = Freedom" Arguments

The other day, I posted on a NY Times editorial that attempted to make the point that a coerced and conscripted army was more consistent with freedom and democratic values than an all-volunteer army.

This aggressively ridiculous position is none-the-less repeated by statists every day in many contexts.  Today I will focus on a post by David Sirota on the Huffington Blog.  Its premise is that government ownership of commercial assets is more conducive to freedom that private ownership.  I could probably have found a more serious writer to Fisk, but I am bored this afternoon and needed some fun.  Besides, its fun to see someone actively channeling some of the minor characters in Atlas Shrugged.

First, to be fair, I have to start with a strong point of agreement with Mr. Sirota:  Both of us are frustrated with the corporate welfare, subsidies, eminent domain land grabs, new stadiums, and incumbent protection laws handed by all levels of government to various corporations.  Mr. Sirota cites the stadium example in particular, which has always been a pet peeve of mine as well:

Usually, government is in the business of handing over huge amounts of
our taxpayer money to corporations, so that the corporations can just
take all the profits, and charge whatever they want to the customers.
That's been the backbone of the recent spate of high-profile stadium
deals, whereby city and state governments just fork over cash to private pro sports teams,
while getting no share of the massive profits in return, and letting
those teams charge higher and higher ticket prices to the fans whose
tax dollars are supporting them.

I feel fairly well protected on the price angle by the fact that I can just choose to not go to the games, but he is right that the government is handing over stadium money with little to show for it in return.

But this is where he and I diverge.  My answer is to stop crony capitalism, and to stop using government money and regulatory authority to support favored businesses.  Mr. Sirota goes the other direction, which one might call "in for a penny, in for a pound", of having the government continue investing in businesses but to do so on the government's own account.

ordinary Americans are realizing that there's an alternative path,
whereby community ownership of certain economic institutions and
businesses are a pretty good deal. Instead of allowing Corporate
America to reap the windfalls of everything, more and more communities
are trying to get a piece of the action "“ all while making sure the
public is adequately served, and not abused.

The highest profile example of this is in municipal broadband, where city governments are developing taxpayer-owned high speed Internet networks.
Instead of allowing Verizon or other corporations to control Internet
access and rake in all the profits from it, these communities are
making Internet access a public utility and sharing in the profits.
These communities can make some money at it, while doing the public a
service by keeping rates low.

I will accept his chosen example of broadband networks. I will also, for today, give the author a break and not challenge the bizarre notion that replacing a private company like Verizon who has a 5-10% profit margin with an inefficient government bureaucracy can yield substantial cost savings for customers AND fat profits for the municipal government.  In fact, I will leave the obvious efficiency arguments behind entirely and only discuss the morality, the right and wrong involved in his proposition.

Ownership and Capital Investment
Corporations like Verizon are owned by communities of millions of ordinary people through a mechanism we call "stocks".  Even the few large shareholders of Verizon tend to be investment funds, which are really just vehicles for aggregating ownership of many many ordinary people via mutual funds and/or the pension obligations they back.  Owners of Verizon provide capital to the company through their stock investment in an uncoreced transaction and of their own free will.  Their ownership is evidenced by actual paper shares, and is portable, such that they retain ownership anywhere they live, even overseas.  Investors at any time, if they don't like the company's performance or prospects, are able to cash out at the market price, and companies routinely return a portion of their surplus to them in the form of dividends.  Investors elect a board of directors to steward their investment in the company, and can throw these directors out any year with a 51% vote.  The company they have invested in must provide them clear reports quarterly using GAAP accounting rules about how their investment is fairing.

Contrast this to a municipal-owned broadband network.  In some sense, all members of the municipality have an ownership interest in the network, but they receive no documented evidence or guarantee of this ownership.  Local citizens are required by law to contribute capital to the enterprise via their taxes.  Their investment is mandated by the state, is not optional, and non-investment (via non-payment of taxes) is met with a prison sentence.  Once their money is invested, they may not sell their interest or in any way recover their investment.  History has shown that surpluses in municipal owned business seldom exist, but when they do, they are never returned to the citizens, but are spent in other government functions at the whim of the local authorities.  If the citizen moves, he loses any benefit of his investment.  Municipal authorities seldom produce financial statements for these enterprises, and, when they do, they would never pass GAAP muster.  Since the author mentions Enron, I will say that Enron had cleaner financial statements than most government entities.

The author clearly prefers the latter.  Does someone who chooses the latter over the former really care about freedom and individual rights?

Competition and Evolution

A private company, particularly in an industry like broadband with rapid technology change, is constantly subject to getting beaten by a competitor with better technology or a lower cost position.  In the absence of government intervention, the private company has to constantly match competitive technology changes and cost improvements, or die.  Its interesting that the author would choose broadband, because the corpses of literally hundreds of failed broadband companies litter the American landscape.  Broadband has historically been a brutal business, with most companies failing to repay their investment in their infrastructure.  I will confess that many of the major communications players have been slow to move in this area, but in large part it has been government incumbent protection, not market incentives, that have slowed progress.  Wireless broadband providers and equipment producers have to move rapidly -- they have already migrated from proprietary designs to A to B to G and now to N in just five years or so.  A private company without government protection in this environment is faced with two choices:  constantly upgrade, or die.

Now, lets look at municipally-owned broadband company.  Like the private company, it will have to make a large start-up investment to get the infrastructure in place.  Also like the private company, repaying this investment (and thereby avoiding hitting their taxpayers with new charges each month for operations, ala Amtrak) will require putting a lot of volume on the network.  Finally, also like the private company, it will be facing new technologies and new potential competitors almost before the network is complete.  So what does it do?  It could begin to reinvest in the infrastructure, earning the ire of local citizens because it goes back for yet more taxes for the development.  It could cut prices and drive for market share, lengthening the time before it breaks even and eliminates the tax subsidy it will require. 

Or, it has a third option that the private company does not have:  It can use its government authority to block new entrants.  I will tell you right now - the government will use this third option every single time.  Take another large government network business: The Post Office.  The USPS tried like hell to get the government to block Fedex, and almost succeeded.  The government continues to block competition to the USPS for first class local mail.  Heck, the USPS has tried at various times to argue that it should have authority over email and the Internet.  The government blocks new cigarette manufacturers to protect the settlement money it gets from the old-line tobacco companies and it blocks usage of Love Field in Dallas to protect D/FW airport.  Bureaucracies never, ever let themeselves die, and there is no way a municipal broadband business will ever let itself be killed by a competitor - that competitor will be blocked, even if that likely means that local broadband consumers have to stick with higher costs and outdated technologies.

Gee, that sounds great, huh?

Pricing
My sense is that this is what gets the socialists and community ownership guys excited.  You can see from the quotes above, the author sees the world of private enterprise as this enormous price gouging domain, with no accountability on prices.  Though he does not say it explicitly, I am sure if asked he would say that private corporations have no accountability to the public (ie consumers)on pricing, whereas the local municipal government would.  This pricing issue is I think at the heart of his support for public over private ownership:

People know corporations right now have far too much power
and far too much leeway to rip off ordinary citizens - but there is a
feeling that that's "just a fact of life." The Community Ownership
movement shows it doesn't have to be a fact of life, and that there is
an alternative

The obvious response is that private companies have a tremendous accountability on price, from two directions.  First, consumers, if prices are too high, can choose not to buy.  Second, if prices remain "too high" for long, then competitors emerge to undercut them.  Like most socialists or "progressives", the author doesn't understand or trust these mechanisms - he prefers top down rather than bottom-up accountability.

In this sense, he prefers the comfort of the municipal business where elected officials that the consumer votes for set prices, and trusts these elections to provide more accountability than the market  (how ). Even forgetting that government inefficiency will make price savings impossible in such a thin margin business, how can anyone look at Congress or this administration and believe that electoral accountability is stronger than the market.  Do you really feel that you can do more about to affect government set rates like local sales tax rates than you can in response to say rising cell phone rates?  If I don't like my cell phone rate, I can switch plans, switch companies, or switch to other technologies (land lines, VOIP, etc).  If I don't like the sales tax rate, the best I can do is move to New Hampshire.

Conclusion

Wow, this piece really went on for a long time, and certainly far longer than Mr. Sirota's article deserved.  As a final comment on the author's grasp of reality, note this quote, where he refers to:

the out-of-touch confines of the Beltway where free market extremism reigns supreme

LOL.  I would love to find even a little bit of free market extremism inside the Beltway.  And if by free-market extremism he means crony capitalism of the sort I described at the top of the post, well, he should be more careful with his word choice. 

For too long, our side has rolled over and died when it comes to
questions about how to manage the free market so that it works for
ordinary people.

Here is a hint - if you want to participate in the profits of the free market just like the fat cats, try this.

Two of My Favorite Topics

Tim Harford at Marginal Revolution touches on two of my favorite topics in one short post.  I have written a number of times about how frequant flyer mile holders seem to come out whole from airline bankrupcies when every other creditor has to take a major hair cut.  Even pensions are cut before frequant flyer mile obligations. Tim shares some ideas and a link to an Economist story with more on this topic.

What really caught my attention was when he discussed whether difficulties in getting any airline help in actually cashin in the miles was a stealthy way of repudiating the miles.  In his analysis, he has this nice restatement of Coyote's Law:

Never attribute to conspiracy that which is adequately explained by
incompetence.

I Am Abandoning the Term "Judicial Activism"

I had an interesting discussion with my father-in-law about the term "judicial activism" which has led me to eschew the term.  Here's the reason:  He made the observation, I think from a story on NPR, that though conservatives seem to complain the most about liberal activism from the bench, in fact majorities of conservative judges on the Supreme Court have struck down more laws than their liberal counterparts.  It was the striking down of laws they considered "activist".

After thinking about this for a moment, it made me realize that he, and I guess NPR, used the term judicial activism differently than I do.  As a fairly strong libertarian, when I have referred negatively to judicial activism, I generally am thinking about judicial decisions to create new powers for the government and/or, from the bench, to put new restrictions on individual behavior.  In that sense, I think of decisions like Raich to be activist, because they sustain expansions of federal and government power.  As I have listened to both liberals and conservatives now, I realize that my usage of judicial activism is, ahem, out of the mainstream, and therefore confusing.  My personal concern is how the courts have ignored the 9th amendment and thrown the commerce clause out the window. 
I have decided that, as most people use the term, I am neutral to positive on what the majority refer to as judicial activism.  I think a lot more laws should be thrown out as unconstitutional, and if
this is the accepted definition of activist, them I like activism.  For example, I wish they had been more active in striking down laws and government activities in Raich and Kelo

Until I come up with a better term, I now describe myself as being against judicial expansion of federal power.  Maybe I can coin the term "judicial expansionism"?

Question About Foreign Credit Cards

A woman in Nigeria wants to buy 10 of my wife's handbags.   Right now, we have paypal's foreign credit card option turned off, and of course the Nigeria angle sends off warning bells.  Are there any good ways to accept money from Nigeria with minimal risk of fraud?

Awsome Defense of Free Speech

Several times on this blog I have found myself defending "hate speech".  Not because I agreed with it, but because I am deeply concerned that the effort to label certain speech "hate speech" is part of a general campaign to limit first amendment rights.  If speech limiters are successful in establishing the principal that certain speech is so bad that it is not protected by the first amendment, then we are suddenly at the mercy of whoever is in charge of defining "bad" for our speech rights.  Universities, ironically at the forefront of the "free speech" movement of the 60's, have been at the forefront of "hostile environment" limitations on speech in this decade.

There are many such examples.  The group FIRE, which fights speech limitations on campus, has a blog and a university rating system that is a great resource.  One recent example from their files is of Mr. J. Daniel at William Patterson University in New Jersey.  A couple of facts first, and then a fantastic letter in his defense from Rutgers professor Norman Levitt.  The background:

Mr. Daniel was one addressee of a mass mailing from Prof. Scala publicizing a
film she was about to show, a documentary that presented a positive view of
lesbian relationships. Mr. Daniel, who espouses religious doctrines deploring
homosexuality, responded with a request not to be sent similar notices in the
future, along with a few brief sentences summarizing his general views. It is
notable that he did not threaten Prof. Scala directly or by implication, nor did
he deny her right to show the film. He did not publicize the exchange. He did
not use the incident to launch a campaign of ridicule or vilification against
homosexuals or anyone else. He merely counterposed his ideas to those she was
presumably promoting, in a purely private way and in response to an unsolicited
message directed to him.

What Prof. Scala actually did was engage her university president in a joint effort to censor and punish Mr. Daniel.  I have read Mr. Daniel's comments, which I don't happen to agree with.  However, the response he got to his very reasonable actions is very scary.  Prof. Levitt describes the rest:

Prof. Scala, however, seems to regard disagreement with her position as a
punishable offense. In this respect, she has embraced peculiar dogmas that have
become all too prevalent on campuses throughout the nation. These hold that
there are certain groups who, by reason of a presumed history of oppression, are
to be safeguarded from opinions that they find distressing or uncomfortable. The
rights of others to hold, or at least to express, such dissonant views are
supposedly nullified by the new-minted "right" of the protected groups to be
shielded from discomfort and distress. Both the ethic of free speech and the
constitutional guarantees that bolster it are supposedly trumped by the duty to
shield the tender sensibilities of the officially recognized victim class. If,
by chance, someone utters a sentence or two, even in the context of private
discussion, that affronts these sensibilities, terms like "harassment" and
"hostile environment" are immediately trotted out to justify retribution against
the offending speaker. In short, the assumption is that colleges and
universities have both the right and the positive duty to require students,
faculty, and employees to uphold official doctrine on these matters, if only by
silencing themselves if they happen to disagree.

Wow, I wish I could write like that.  There is much more, all on point and very well written here.

The NJ Attorney General has chimed in and said... wait for it ... that Ms. Scala is entirely in the right and that Mr. Daniel is probably guilty of harassment and discrimination under NJ law as well for expressing his opinions.

By the way, if you think that Professor Levitt was exaggerating for saying that speech is condemned merely if it hurts the feelings of someone in a protected group, here is a very typical quote from a college speech code (I just grabbed the first one I found on the FIRE site):

The Albertson College
Student Handbook
's harassment policy states that "[a]ny comments or conduct
relating to a person's race, gender, religion, disability, age or ethnic
background that fail to respect the dignity and feelings of the individual are
unacceptable." The Handbook also provides that "[a]ll inappropriate behaviors
may not be specifically covered in the misconduct definitions, and students will
be held accountable for behaviors considered inconsistent with the standards and
expectations described in this handbook."

Just to prove this is not an aberration, here is another:

The Rhodes College Policy on Discrimination and Harassment states
that "[f]reedom of expression does not include the right to intentionally and
maliciously aggravate, intimidate, ridicule or humiliate another person." Now,
we at FIRE know that all too many university administrators believe this
statement to be true; this is apparent from the way speech codes are enforced on
campuses across the country. However, few colleges and universities are bold
enough to make an explicit statement about free expression that directly
contradicts U.S. Supreme Court precedent. The administrators of Rhodes College
need to read the Supreme Court's decision in Hustler Magazine v. Falwell, in which the Court upheld
Hustler's right to publish a parody suggesting that Jerry Falwell's first sexual
experience was a drunken tryst in an outhouse with his own mother. Parody and
satire"”which often intentionally and maliciously ridicule and humiliate their
targets"”enjoy the strongest constitutional protection.

Update:  By the way, here is the whole text of the email in question.  Don't agree with him, but I have a hard time seeing anyone threatened and certainly can't fathom kicking the guy out of school and threatening him with prosecution for it.  More evidence that the promotors of diversity don't actually want diversity.

 

NY Times: Democracy Should Be Painful

A recent editorial in the NY Times by Stanford professor David Kennedy really has me flabbergasted. So much so that I have rewritten this post three times and still not been able to adequately communicate my horror of this editorial.   Mr. Kennedy argues that the all volunteer, non-drafted, non-coerced-service army is a huge threat to America.

But the modern military's disjunction from American society is even more
disturbing. Since the time of the ancient Greeks through the American
Revolutionary War and well into the 20th century, the obligation to bear arms
and the privileges of citizenship have been intimately linked. It was for the
sake of that link between service and a full place in society that the founders
were so invested in militias and so worried about standing armies, which Samuel
Adams warned were "always dangerous to the liberties of the people."

By the way, his words "disjunction from American society" are his coy way of saying a volunteer army is not somehow as representative of America as a draft army.  This
article, as far as I can tell, is totally and completely about the
benefits of
draft (without ever actually using the word).  He is arguing that
forced compulsory military service is somehow more democratic and more appropriate for a free society than voluntary
service.  Forgetting how stupid this is for a minute, why is the volunteer army so "disturbing" to him?   It is really hard to figure out.  He keeps saying things like "the danger is obvious" but I guess I am just stupid - I can't find a clear statement of the danger in his editorial.  The closest I get is this:

But thanks to something that policymakers and academic experts grandly call
the "revolution in military affairs," which has wedded the newest electronic and
information technologies to the destructive purposes of the second-oldest
profession, we now have an active-duty military establishment that is,
proportionate to population, about 4 percent of the size of the force that won
World War II. And today's military budget is about 4 percent of gross domestic
product, as opposed to nearly 40 percent during World War II.

The implications are deeply unsettling: history's most potent military force
can now be put into the field by a society that scarcely breaks a sweat when it
does so. We can now wage war while putting at risk very few of our sons and
daughters, none of whom is obliged to serve. Modern warfare lays no significant
burdens on the larger body of citizens in whose name war is being waged.

This is not a healthy situation. It is, among other things, a standing
invitation to the kind of military adventurism that the founders correctly
feared was the greatest danger of standing armies - a danger made manifest in
their day by the career of Napoleon Bonaparte, whom Jefferson described as
having "transferred the destinies of the republic from the civil to the military
arm."

So in other words, its bad that wars are much less costly in lives and property.  If wars are less costly, and the combatants volunteers rather than conscripts, then we as a nation are more susceptible to military adventurism.  His bio says he is a historian, but what possible historical evidence does he bring forward for this?  None.   

In fact, there is no evidence that the government is any less likely to send a non-volunteer army (e.g. Korea, Vietnam) into harms way than a volunteer army (e.g. Afghanistan, Iraq).  In fact, we may actually be starting to see, via reenlistment rates, that the volunteer army provides a useful check against unpopular wars.  The author wants to imply that we would fight fewer bad wars with a draft, non-volunteer army.  But does anyone think we could have fought the increasingly unpopular Vietnam War with a volunteer army?  Only the draft made continuation of that war possible.  So where is his argument now?

Beyond the fact that his logic does not hold together, how morally bankrupt is it to long for the day when wars were much more costly in terms of lives and property?  Oh for the good old days of the 1960's when we could watch those much higher draft army body counts on the nightly news.  My guess is that he is not actually arguing that we should go back to higher body counts, but that the bodies we do have should represent a broader cross section of America.  In other words, he wants more elite rich white bodies (but not elite rich white Stanford bodies, since he and the Stanford faculty actively oppose all sorts of military recruiting and ROTC programs on campus). 

I have zero tolerance for this kind of forced-to-be-free fascism.  I have no idea what the author's politics are, but his argument reeks of collectivism and totalitarianism.  Think I am exaggerating?  Here is how he concludes:

The life of a robust democratic society should be strenuous; it should make
demands on its citizens when they are asked to engage with issues of life and
death. The "revolution in military affairs" has made obsolete the kind of huge
army that fought World War II, but a universal duty to service - perhaps in the
form of a lottery, or of compulsory national service with military duty as one
option among several

Sorry, but in a free society, there is not universal duty to service.   There is not "link between service and a full place in society."  When someone starts arguing that you have a "duty to service" and that government should "make demands on its citizens" rather than the other way around, run the other way because they are selling totalitarianism.

Update:  This is a pretty compelling article about a volunteer army at work.  Would they really be better off with a draft?

The south gate of Muthanna army barracks in Baghdad is one of the most
frequently bombed sites in Iraq.

Suicide bombers have killed 198 people here since last year.
Almost all were potential recruits to the country's fledgling armed forces.
Another 465 have been wounded.

Body parts that had been hurled by an explosion over the 30ft
high concrete wall a week earlier were still being picked up when the second
suicide bomber struck last week.

But, in an extraordinary display of optimism, the youngsters
hopeful of being recruited into the forces still come to queue....

The young men and handful of women in the queues say they are as
keen for the private's salary of $400 a month as they are to serve their country
to rid it off insurgents.

There are others who have had friends and relatives among the
estimated 25,000 civilians killed over the past two years. Some also believe
that the only way to get an American withdrawal from Iraq is to build a secure
and substantial security force.

But all have an air of defiance, and in some of the fresh
recruits there is a hint of gratitude for just making it through the queue at
the murderous south gate, on Zawraa Road.

Postscript:  I'm not really into the patriotism finger-pointing exercises so many people are into nowadays, but if you want some of that, try conservative blogger Captains Quarters writing on this same editorial.

Hello, Congress, Anybody Home?

As a libertarian, I am generally quite content to have Congress go on a 364 day a year vacation.  Maybe they can get together once a year and declare a national asparagus day or a national DVD rental day or whatever.

However, I will say that the debate about rules for military prisoner interrogations and detentions at Gitmo have caused me to make an exception to my general Lassaiz Faire approach.  One of the reasons we struggle with these issues is that, because we are facing the relatively new situation of having our military battle with non-uniformed insurgents not associated with any particular government or military force, the rules to be applied are fuzzy or non-existent.  Without rules, the administration has been making up its own, which activists of various stripes have been challenging in court.

And what is Congress doing?  Most of Congress has spent its time shouting out support or criticism (as the case may be) of the administration, and arguing about which judges should be selected to make sure that the administrations rules are or are not struck down.   I could have sworn that Congress has the primary responsibility for creating rules for these situations, to be enforced and interpreted by the Administration and courts.  Why is it, when there are no clear rules, Congress is the only branch of the government doing nothing?

Isn't it about time that Congress stop shouting encouragement or criticism from the shore and actually wade in with some legislation on these issues?  While I certainly have never been one to accept the Gitmo torture hysteria, its certainly a reasonable role for Congress to set standards for treatment of the type of non-military prisoners we are collecting.  For example, while the rules of Habeus Corpus for such a detainee are not necessarily the same as for a prisoner in the US, there certainly need to be some rules beyond the Administration's current ridiculous position that amounts to "we can hold them at our pleasure for as long as we want".

Update:  OK, I am obviously not keeping up.  I just got emailed a couple of links to some action on this front.  Reason has this:

A handful of Republican senators would like to determine:

(i) What is the definition of an "enemy combatant" who may be
detained by the military outside the ordinary civil justice system?; (ii) What
procedural rules should be employed by military tribunals?; and (iii) Which
interrogation techniques should be authorized, and which
prohibited?

Since these are questions the Supreme Court declined
to answer
in its rulings on prisoner detention, it's nice to see that other
branch of government assuming a slightly less supine position--almost as if the
Constitution established it as a counterweight against the executive and the
judiciary.

Apparently the Bush administration, which could not manage to find the veto pen when the huge expansion of the already bankrupt Medicare system was in front of them, is announcing itself ready to veto anything:

that would restrict the President's authority to
protect Americans effectively from terrorist attack and bring terrorists to
justice, the President's senior advisers would recommend that he veto the bill.

Marty Lederman has much more analysis here.  His observation:

Heaven forbid Congress should have the nerve to actually exercise its
authorities under Article I, section 8, clauses 10, 11 and 14 of the
Constitution"”which empower Congress to define and punish Offences against the
Law of Nations, to make Rules concerning Captures on Land and Water, and to make
Rules for the Government and Regulation of the land and naval Forces. For to do
so will invariably hamper the Executive's ability to keep the Nation safe from
terror.

Isn't this just a tad too much arrogation of power, even for this President?

Ad Hominem Science

I thought this quote, via Reason, from anti-smoking advocate Michael Siegel is representative of how many pseudo-scientific advocacy groups work today:

In the 20 years that I was a member of the tobacco control movement,
I was led to believe that there were only two sides to any anti-smoking issue:
our side and the tobacco industry side. Therefore, anyone who disagreed with our
position had to be, in some way, affiliated with the tobacco industry. I was
also taught to respond to their arguments not on any scientific grounds or on
the merit of their arguments, but by simply discrediting the person by attacking
their affiliation with the tobacco companies.

As I have found out over the past two decades, there are a lot of
individuals who disagree with a number of positions that the anti-smoking
movement has taken (interestingly, now I find myself to be one of them). And not
all of these individuals are affiliated with, or working for the tobacco
industry. As individuals who are not part of a tobacco industry campaign, these
people are entitled to express their opinions and their arguments really deserve
to be addressed on their merits. At very least, anti-smoking organizations and
advocates should not attack these individuals. Attacking their arguments is
legitimate, but attacking the individuals, in these cases, is not.

Take this statement, substitute global warming for anti-smoking and oil industry for tobacco industry and the statement still works just as well.

Update:  For another example, see the debate over child seat efficacy at the Freakonomics Blog.  A couple of researchers studied data on injury rates of kids in car seats vs. kids in seat belts, and found little incremental benefits of seat belts.  Note their desire to find the truth under the numbers:

What is more puzzling to me is why my results and Heaton's both suggest very
little injury benefit of car seats, but the medical literature often finds 70%
(!!) reductions of injuries with car seats relative to seat belts. We find
reductions that are an order of magnitude smaller. They use very different
methods -- surveying people in the weeks after crashes for instance -- but still
it is really a puzzle. Which is why, when you read my paper, I am extremely
cautious in interpreting the injury findings.

I hope that the medical researchers, Heaton, and I can all work together to
try to make some sense of the conflicting results being generated by these
different methodologies to resolve this important question.

Seems like a reasonable scientific attitude.  Now (via Marginal Revolution) here is the response of a child seat "activist" to their findings:

Their [Levitt and Dubner] conclusions stand in stark contrast to the existing
body of scientific data that support current child restraint recommendations,
and are, in our opinion, irresponsible and dangerous....We hope that this
misleading article does not cost a child his life.

In other words:  Open scientific debat = killing children.  Levitt and Dubner must work for Haliburton.  Levitt has an update to the whole debate here.

Bureaucrats of the Week: Mono County, California

I got a call today from Mono County, California.  They require us to charge our visitors a 12% lodging tax on campground stays in any of the 11 campgrounds we operate in our county, which we report on a single quarterly filing.  Today, the County has suddenly decided that they need a separate sales tax report filed each period for each campground, so instead of 1 we need to file 11.  If every taxing authority tried to pull a Mono County on us, we would
have to file at least 250 separate sales tax reports each month.

In case you miss the implication of this, consider if the state of California did this for sales tax.  It would mean, say, that Unocal would have to file a separate sales tax report for every single gas station in the state - ie thousands of them each month  Of course, even California does not have the guts to require something so absurd.  We, like Unocal, register all of our separate locations with California but report all their sales and sales taxes in one unified report. 

So why can't Mono County be satisfied with the same approach?  Well, apparently a couple of their auditors had to spend some extra time trying to figure out which campgrounds belonged with which permits in a recent audit.  In order to save their auditors a few minutes of time in the future, they want to require me and others to spend many extra hours with these additional filings.  This is typical of government bureaucracies, which in doing cost-benefit analysis put enormous value on their own time but value taxpayers time at $0 an hour.  If all the reports I file had to be justified while valuing taxpayer's time at even $50 an hour, I would have a lot less feeding of the government to do.  More on my efforts to feed Vol (gratuitous Star Trek reference) here.

The Power of Metrics and Expectations

This is my first and probably last baseball post - read this blog if you want more baseball.

I am fascinated with the psychology of the closer position.  Some background:  The best baseball pitchers start games, and on average get through about 6 innings of 9.  The baseball manager's job is to stitch together a number of less talented pitchers to cover the 7th, 8th and 9th innings.  One would expect that the manager would flexibly match pitcher skills against the lineup he is facing.  For example, if the most dangerous batters for the opposing team are scheduled up in the 8th inning, he might send in his best relief pitcher in that inning.  One would not expect to see any particular emphasis on one inning or another:  after all, a game lost in the 7th counts the same as a game lost in the 9th.

This, however, is not how most managers operate.  Most managers have one very highly paid and more talented relief pitcher they call the "closer" that they pitch solely in the 9th inning.  Why?  Why is the 9th more important and deserving of a valuable player than the 8th?

The answer is part baseball conventional wisdom, which is as strong as in any old-line industry.  However, the other part of the explanation must lie in metrics.  If a manager loses a game in the 7th, it is just a loss.  If a manager loses a game in the 9th, the game was "blown".  Newspapers and talk shows keep and publish stats on games blown in the 9th, but not games lost in the 7th and 8th.  Games lost in the 9th are in a sense portrayed as more of a management failure than games lost in the 7th, and this is made worse by the fact that a game lost in the 9th is somehow more psychologically devastating for fans and media.  Managers are not dumb - recognizing that they get dinged on their performance rating more for a game lost in the 9th than the 8th, they have invented the closer role.  General managers take a disproportionately large part of their salary budget for relief pitching and dedicate it to this closer role.

A guy named Theo Epstein a couple of years ago, as a general manager, challenged this conventional wisdom.  He observed that more games were lost in the 7th and the 8th than the 9th, so hypothesized that relief pitching emphasis and salary dollars should be spread more evenly across the three innings.  One of his consultants was the famous Bill James, who has challenged baseball conventional wisdom with facts for years.  Epstein was roundly criticized by media and local fans alike for his "Closer by Committee" approach.  Eventually he was forgiven, when in the following year he brought his town its first world championship in 86 years.

For more on this and similar baseball topics, the book Moneyball is fabulous, and tells this story of the clash of fact-based analysis and baseball conventional wisdom, in a way that might be familiar to change agents in any number of Fortune 500 companies.

A Distasteful Task

Today, I am filling out my EEO-1 form, which I always find a mildly distasteful task.  For those who don't know, the EEO-1 is an annual report the government requires of all but very small corporations.  It requires me to list numbers on how many of my workers are black females or Native American males or Asian or whatever.  I have to ask all my managers to stare at the skin color of their employees and tell me what flavor everyone is so I can report it.  The government is careful to tell us that it is bad form to actually ask people what race or ethnicity they are, so it is up to us to apply whatever racial stereotypes we carry to the task of identification.  So much for a color-blind society.

In Case Your Are REALLY Lost

If you are so lost that you find yourself passing strange four-legged structures covered in gold foil and surrounded by scientific experiments, try this new Google mapping tool.  Oh, and make sure you don't miss the Easter egg you get from zooming all the way in to the highest zoom setting.

Lunarlander

Gerry Thomas, RIP

Gerry Thomas, inventor of the TV dinner, died here in Phoenix at the age of 83.  Though decried by the intelligentsia of this country, the TV dinner opened the door for a huge influx of products aimed at letting people who don't want to or can't cook create a decent meal.  As a kid, it never ceased to be a treat to get one of these for our evening meal, and looking back, Mr. Thomas and his successors probably cooked for me more than my mom.  Mr. Thomas is a member of the Frozen Food Hall of Fame (I kid you not) in Orlando.  This strikes me as a story that James Lileks should be all over.

Tvdinner


Update:
  According to CNN, James Doohan, recently diagnosed with Alzheimer's, has died as well.  How many times have you asked this guy to get you out of a tough spot?  Beam me up, Scotty.

Scotty

More on Wealth and Poverty

A few days ago, I spilled a lot of electrons discussing the sources of wealth and poverty. This week, Arnold Kling has a great article applying many of the same concepts to give advice to Live8 and others who want to eliminate poverty.  While I droned on for about 30 inches of computer monitor space, Robert Lucas's quote in Kling's article gets to the heart of the issue in just a few lines:

"of the vast increase in the well-being of hundreds
of millions of people that has occurred in the 200-year course of the industrial
revolution to date, virtually none of it can be attributed to the direct
redistribution of resources from rich to poor. The potential for improving the
lives of poor people by finding different ways of distributing current
production is nothing compared to the apparently limitless potential of
increasing production."

He concludes with some advice for protestors:

1. The world is a complex place. The farther you are
removed from a situation, the less likely that your intervention there will do
good and the greater risk that it will cause harm. No matter how thoughtfully it
is administered, long-distance aid will tend to be
ineffective.

 

2. The easiest poverty to prevent is poverty that is
close by. By developing useful skills and remaining employed, you can help keep
yourself and your family out of poverty. That makes you less of a burden on the
world than if you fly half way around the world to stage
confrontations
.

 

3. Learn to distinguish motives from consequences. A
well-meaning policy can backfire. The seemingly cold-hearted impersonal market
is enormously beneficial.

 

4. Poverty is not a simple problem. See What Causes
Prosperity?

 

5. Remember that unlike the Folk Song Army of Tom
Lehrer's song, you have no monopoly on good intentions. A morality play in which
those who care crusade against those who are square makes for great theater.
However, it is not a realistic basis for economic policy.

 

As a parting shot, I noted previously the odd contradiction that is inherent in many G8 and similar protestors who purport to want to eliminate poverty:

In a nutshell, they want to fix poverty in the third world by
disavowing everything -- private property rights, individual
enterprise, free commerce, entrepreneurship, individual freedoms, etc.
-- that made the G8 not impoverished.  Rich nations, you have to help
the poor nations, but whatever you do, don't allow they to emulate what
you did to get rich. 

This is so nutty its unbelievable.  If they were camping outside of
the G8's door and saying that we want you to drop trade barriers on our
goods and help us foster entrepreneurship and we want your help
promoting private investment in our economy and infrastructure, I could
understand perfectly.  This is like activists camping outside of Jack
Welch's door looking for him to help the poor by funding programs to
teach children to drop out of school and avoid getting a jobs.

I'm Confused About this Interstate Commerce Thing

In Raich, the Supreme Court determined that marijuana grown, harvested, and consumed at the same house in California constituted interstate commerce and therefore was subject to federal rather than state regulation (via the Consitution's commerce clause).

However, apparently cigarettes purchased over the Internet from an Indian Nation within the boundaries of NY state and consumed in Washington state are not interstate commerce and are therefore subject to Washington State sales tax:

On Thursday, a federal judge ordered tribal Internet
cigarette vendor Scott Maybee to turn over his list of Washington
customers who purchased cigarettes through his Web site,
SmartSmoker.com between November 7, 2004 and April 1, 2005, writes the Buffalo News.
The Washington Department of Revenue is sending letters to those
appearing on Maybee's list asking for full payment of uncollected taxes
from their purchases.

Actually, it is probably not sales tax involved but "use tax", the cutesy way most states get around limitations on taxing interstate commerce.  Basically, they invented a thing called use tax that applies only on goods that you use in state and on which no sale tax was paid to any state.  While the use tax legal evasion is common to most states,  I have written before about other such cute evasions Washington State uses to collect taxes where they are not supposed to.

Let Some Airlines Die

I missed it last week, but apparently the CEO's of a number of major US airlines took the PR offensive last week to beg for more government subsidies and pension bailouts.  Reason's Hit and Run has the roundup.  They observe that the Senate was open to their pleas:

But luckily for the money-squandering dullards, there are enough members of
the Senate Commerce Committee who apparently believe certain businesses are too
colossally incompetent to fail:

The Commerce Committee's ranking Democrat, Sen. Daniel Inouye of
Hawaii, agreed: "If we do not begin to solve the problems plaguing the air
carriers, we will see more failures in coming months and certainly more jobs
cut."

Because what is the federal government if not a
guarantor of full employment at lousy companies?... If Inouye and his fellow
hacks were serious, they could start by privatizing airports, allowing vigorous foreign
competitors
to own more than 50 percent of U.S.-based airlines, and letting
the failures actually fail, for starters. But that would take a belief in free
airline markets we haven't really seen since the Carter Administration.

It has always been hard to get airlines to just go away.  Pan Am hung around forever, as did TWA, through bankruptcy after bankruptcy.  My guess is that politician's unwillingness to let airlines fail has only increased with the advent of frequent flyer miles - no congressman wants all of his well-healed constituents calling the office and complaining about the 300,000 United miles they just lost.  By the way, have you ever noticed that frequent flyer mile holders are the only creditor of airlines who consistently come out of bankruptcies whole?  Even the worker's defined benefit pension plans get a haircut before frequent flyer mile holders.

Legacy airlines are really backwards in their practices - for example, many of their supply chain processes are reminiscent of the auto industry in the 60's and 70's, in part because airlines are sheltered from foreign competition while auto makers for the most part aren't.  I used to work in the aviation industry, and the opportunities there are tremendous, but no one in the industry will even listen.  The "not invented here" attitude was invented in the airline industry.

And while the management of these firms is backwards, you also have to deal unions a share of the blame.  Union supporters often accuse companies of "union-busting".  I have never heard the term, but in the case of airlines, one might be able to accuse the unions of "company-busting".  Unions hold out and strike for outrageous salaries and benefits and work rules that far outstrip what similarly skilled people make in other industries.  By the way, unlike conservatives, I don't have some deep seated hatred of unions.  In a free society, workers can try to organize to increase their bargaining power.  I do have problems with the way the US government, through legislation, tilted the bargaining table in the unions' favor, but that is a different story. 

For some of these reasons, and others, I was flabbergasted that local company America West would purchase USAir.  When there are so many planes and gates for sale on the market, and cities are begging for new competitors to enter their airline market, why would you buy yourself a load of trouble in the form of legacy union contracts and frequent flyer obligations?  It is noteworthy that Southwest has never bought another airline, and prefers instead just to buy assets out of bankruptcy.

Great Economic Analysis of Kelo and Takings

I am weeks late finding this article, but Todd Zywicki at Volokh posts what may be the definitive economic analysis of Kelo.  He talks about not only the issue of subjective value that leaves homeowners undercompensated for the taking, but about the deceitful game local governments are playing:

Second, focusing on the holdout problem in the Kelo context is to focus on
the wrong issue. The scenario here is different from when a government wants to
build a school or post office, traditional public use purposes. Schools and post
offices have to go in a particular geographic area (that's why they are being
built), and thus strategic bargaining may be plausible because it is similar to
a bilateral monopoly situation. The small group of landowners in the relevant
area can act strategically and try to extract a high price for its sale.

In Kelo, however, there is no obvious holdout power because Pfizer could put
its building in any city in America. So its not like a neighborhood school,
road, or post office. In Kelo, the holdout power is created artificially
by the city's desire to give Pfizer a sweetheart deal to bring it to town.

So ex ante, there is no viable holdout power in this situation because
there are an infinite number of close substitute sites for the building. The
building is going to be built somewhere, the only question is what city--New
London, Hartford, Bridgeport, Boston, New York, Chicago, etc. The artificial
scarcity that says the building has to be built in New London was created by the
city's other subsidies to attract Pfizer to town (the obscenely low rent,
etc.).

So if one is truly concerned about the holdout power problem, then the
correct solution is to require the city to eliminate the artificial scarcity
that "requires" the building to be built in New London rather than some other
city, the same way that a new school would have to be built in New London. If we
allow both the subsidies and the Taking for the benefit of the private party, we
are allowing the distribution tail of what city the Pfizer headquarters will be
built to wag the efficiency dog of whether the homeowner is holding out versus
having subjective value. Instead, we want to have the parties bargain ex ante
before they finally select the city--i.e., choose the city and the plot of
land at the same time--not bargain ex post after the city is selected.
Forcing an ex ante bargain when there are still many substitutes for the
proposed site would eliminate the holdout problem and allow us to determine the
extent of parties' subjective value, because the negotiations would be conducted
against the backdrop of a competitive market, rather than a bilateral monopoly.
The bilateral monopoly is thrust upon the city in the road or post office
scenario; it is freely-chosen in the Kelo situation.

Instead, the ruling in Kelo enables the worst possible economic
outcome--it permits cities to create artificial scarcity just to get a larger
piece of a stable-sized pie (getting Pfizer to New London rather than Hartford),
while then permitting cities on the back end to take land from private
landowners who may or may not be losing subjective value and being
undercompensated in the process.

And the incentive effect of Kelo is obvious--it now enables corporations to
extract both subsidies and takings as the price for locating in city A rather
than city B.

I have written about my frustrations with local governments subsidizing business relocations here and here.

My Harry Potter Review

I just finished Harry Potter and the Half-Blood Prince.

The first question my wife asked me was "how did it rank with the other books?"  This is very hard to answer, because it is very different from the first five.  Each of the first five was fairly self-contained.  There was a dominant story cycle that came to closure at the end.  Yes, there was still Valdemort running around out there, but that was kind of just like knowing that Blofeld and SPECTRE would still be a villain in the next Bond movie.  The best comparison I can make, for people of my generation who saw the original Star Wars movies as they came out, was that the first 5 Potter books were like the New Hope, while this book is Empire Strikes Back.  The only problem was that Empire Strikes Back stands out as perhaps the best Star Wars movie, and this definitely is not the best Harry Potter book.  In a real sense, book six is really part 1 of a two-part finale that presumably ends with book 7.  I was left with the same thought as at the end of the LOTR Two Towers movie:  OK, so when does the last one come out?

I found a couple of things about the book unsatisfying.  The mystery of who is the half-blood prince does not really drive the story as well as other mysteries, like say how the Sirius Black mystery or Chamber of Secrets mystery or the Tri-Wizard tournament drove other books.  This book is driven more by revelations about Harry and Valdemort, and by the time these play out the identity of the Half Blood Prince is kind of a letdown, or more precisely, irrelevant.  More unsatisfying to me was that this book is mostly about Harry.  While stuff is happening to all the traditional suspects, the mysteries are being solved by Harry alone, not by the traditional Harry-Ron-Hermione team.  Harry has always had to stand alone at the end of each book, but Ron and Hermione contributed to his getting there in the middle, and there is less of that here (Ron and Hermione, as well as everyone in the book seem distracted by their hormones). 

I guess I would say that a number of the traditional Harry Potter story elements were kind of half-hearted, even the Quiddich.  Rowling is obviously trapped by the need to get a lot of exposition done to bring the 7 book series to a close, and as a result the book never really gets moving until the final few chapters, and then all-too-much occurs in a few pages. 

This will never be considered the best book of the series, but the best spin I can put on it is that it was probably essential to start driving the series to a conclusion.

Update: Several folks have argued that I am missing the point, that quiddich and friends and school stuff are fading in the background as part of the wizarding world going to war and Harry coming of age to face his destiny.  This hypothesis about the ending is very interesting but only if you have read the book, it is FULL of spoilers.  If he is right, then it may be possible to look back and find this book more interesting in light of what we learn in book 7.  We'll see.  I still stand by my statement that the first 3/4 of the book is much less satisfying than the previous books.

2nd Update:  I guess predictably, various groups on opposite sides of the political spectrum and the Iraq war are claiming that Rowling is supporting them with this book.  Jeez, can we politicize everything?  Here is what are two clear tenants of the book:

  1. There are times you have to actually fight evil, rather than just hope it goes away or is not really there
  2. Governments can't really be trusted to do #1 responsibly

If my reading is correct, you can see why there is a bit in it for everyone.

Yes, Thats Me

Several people emailed me this morning.  Yes, that is me on Instapundit this morning.

Physics, Wealth Creation, and Zero Sum Economics

You will have to forgive this post if it gets a little long or theoretical.  Yesterday I made the mistake of going jogging when it was still 114 degrees outside, and I guess I discovered why biblical prophets seem to always get their visions out in the desert.

One of the worst ideas that affect public policy around the world is that wealth is somehow zero sum - that it can be stolen or taken or moved or looted but not created.  G8 protesters who claim that poor nations are poor because wealthy nations have made them that way;  the NY Times, which for a number of weeks actively flogged the idea that the fact of the rich getting richer in this country somehow is a threat to the rest of us; Paul Krugman, who fears that economic advances in China will make the US poorer:  All of these positions rest on the notion that wealth is fixed, so that increases in one area must be accompanied by decreases in others.  Mercantilism, Marxism, protectionism, and many other destructive -isms have all rested on zero sum economic thinking.

My guess is that this zero-sum thinking comes from our training and intuition about the physical world.  As we all learned back in high school, nature generally works in zero sums.  For example, in any bounded environment, no matter what goes on inside (short of nuclear fission) mass and energy are both conserved, as outlined by the first law of thermodynamics.  Energy may change form, like the potential energy from chemical bonds in gasoline being converted to heat and work via combustion, but its all still there somewhere. 

In fact, given the second law of thermodynamics, the only change that will occur is that elements will end in a more disorganized, less useful form than when they started.  This notion of entropic decay also has a strong effect on economic thinking, as you will hear many of the same zero sum economics folks using the language of decay on human society.  Take folks like Paul Ehrlich (please).  All of there work is about decay:  Pollution getting worse, raw materials getting scarce, prices going up, economies crashing.  They see human society driven by entropic decline.

So are they wrong?  Are economics and society driven by something similar to the first and second laws of thermodynamics?  I will answer this in a couple of ways.

First, lets ask the related question:  Is wealth zero sum and is society, or at least the material portions of society, always in decline?  The answer is so obviously no to both that it is hard to believe that these concepts are still believed by anyone, much less a large number of people.  However, since so many people do cling to it, we will spend a moment or two with it.

The following analysis relies on data gathered by Julian Simon and Stephen Moore in Its Getting Better all the Time:  100 Greatest Trends of the Last 100 Years.  In fact, there is probably little in this post that Julian Simon has not said more articulately, but if all we bloggers waited for a new and fresh idea before we blogged, well, there would not be much blogging going on. 

Lets compare the life of an average American in 1900 and today.  On every dimension you can think of, we all are orders of magnitude wealthier today (by wealth, I mean the term broadly.  I mean not just cash, like Scrooge McDuck's big vault, but also lifespan, healthiness, leisure time, quality of life, etc).

  • Life expectancy has increase from 47 to 77 years
  • Infant mortality rates have fallen from one in ten to one in 150.
  • Average income - in real dollars - has risen from $4,748 to $32,444

In 1900, the average person started their working life at 13, worked 10 hours a day, six days a week with no real vacation right up to the day they died in their mid-forties.  Today, the average person works 8 hours a day for five days a week and gets 2-3 weeks of vacation.  They work from the age of 18, and sometimes start work as late as 25, and typically take at least 10 years of retirement before they die. 

But what about the poor?  Well, the poor are certainly wealthier today than the poor were in 1900.  But in many ways, the poor are wealthier even than the "robber barons" of the 19th century.  Today, even people below the poverty line have a good chance to live past 70.  99% of those below the poverty line in the US have electricity, running water, flush toilets, and a refrigerator.  95% have a TV, 88% have a phone, 71% have a car, and 70% have air conditioning.  Cornelius Vanderbilt had none of these, and his children only got running water and electricity later in life.

To anticipate the zero-summer's response, I presume they would argue that the US somehow did this by "exploiting" other countries.  Its hard to imagine the mechanism for this, especially since the US did not have a colonial empire like France or Britain, and in fact the US net gave away more wealth to other nations in the last century (in the form of outright grants as well as money and lives spent in their defense) than every other nation on earth combined.  I won't go into the detailed proof here, but you can do the same analysis we did for the US for every country in the world:  Virtually no one has gotten worse, and 99.9% of the people of the world are at least as wealthy (again in the broad sense) or wealthier than in 1900.  Yes, some have slipped in relative terms vs. the richest nations, but everyone is up on an absolute basis.

Which leads to the obvious conclusion, that I shouldn't have had to take so much time to prove:  The world, as a whole and in most of its individual parts, is wealthier than in was in 1900.  Vastly more wealthy.  Which I recognize can be disturbing to our intuition honed on the physical world.  I mean, where did the wealth come from?  Out of thin air?  How can that be?

Interestingly, in the 19th century, scientists faced a similar problem in the physical world in dating the age of the Earth.  There was evidence all around them (from fossils, rocks, etc) that the earth had to be hundreds of millions, perhaps billions of years old.  The processes of evolution Darwin described had to occur over untold millions of years.  Yet no one could accept an age over a few million for the solar system, because they couldn't figure out what could fuel the Sun for longer than that.  Every calculation they made showed that by any form of combustion they understood, the sun would burn out in, at most, a few tens of millions of years.  If the sun and earth was so old, where was all that energy coming from?  Out of thin air?

It was Einstein that solved the problem.  E=mc2 meant that there were new processes (e.g. fusion) where very tiny amounts of mass were converted to unreasonably large amounts of energy.  Amounts of energy so large that it tends to defy human intuition.  Here was an enormous, really huge source of potential energy that no one before even suspected.

Which gets me back to wealth.  To balance the wealth equation, there must be a huge reservoir out there of potential energy, or I guess you would call it potential wealth.  This source is the human mind.  All wealth flows from the human mind, and that source of energy is also unreasonably large, much larger than most people imagine.

But you might say - that can't be right.  What about gold, that's wealth isn't it, and it just comes out of the ground.  Yes, it comes out of the ground, but how?  And where?   If you have ever traveled around the western US, say in Colorado, you will have seen certain hills covered in old mines.  It always fascinated me, how those hills riddled with shafts looked, to me, exactly the same as the 20 other hills around it that were untouched.  How did they know to look in that one hill?  Don Boudroux at Cafe Hayek expounded on this theme:

I seldom use the term "natural resource." With the possible
exception of water, no resource is natural. Usefulness is not an
objective and timeless feature ordained by nature for those scarce
things that we regard as resources. That is, all things that are
resources become resources only after individual human beings
creatively figure out how these things can be used in worthwhile ways
for human betterment.

Consider, for example, crude oil. A natural resource? Not at all. I
suspect that to the pre-Columbian peoples who lived in what is now
Pennsylvania, the inky, smelly, black matter that oozed into creeks and
streams was a nuisance. To them, oil certainly was no resource.

Petroleum's usefulness to humans "“ hence, its value to humans "“ is
built upon a series of countless creative human insights about how oil
can be used and how it can be cost-effectively extracted from the
earth. Without this human creativity, oil would objectively exist but
it would be either useless or a nuisance.

A while back, I published this anecdote which I think applies here:

Hanging out at
the beach one day with a distant family member, we got into a
discussion about capitalism and socialism.  In particular, we were
arguing about whether brute labor, as socialism teaches, is the source
of all wealth (which, socialism further argues, is in turn stolen by
the capitalist masters).  The young woman, as were most people her age,
was taught mainly by the socialists who dominate college academia
nowadays.  I was trying to find a way to connect with her, to get her
to question her assumptions, but was struggling because she really had
not been taught many of the fundamental building blocks of either
philosophy or economics, but rather a mish-mash of politically correct
points of view that seem to substitute nowadays for both.

I
picked up a handful of sand, and said "this is almost pure silicon,
virtually identical to what powers a computer.  Take as much labor as
you want, and build me a computer with it -- the only limitation is you
can only have true manual laborers - no engineers or managers or other
capitalist lackeys".

She
replied that my request was BS, that it took a lot of money to build an
electronics plant, and her group of laborers didn't have any and
bankers would never lend them any.

I
told her - assume for our discussion that I have tons of money, and I
will give you and your laborers as much as you need.  The only
restriction I put on it is that you may only buy raw materials - steel,
land, silicon - in their crudest forms.  It is up to you to assemble
these raw materials, with your laborers, to build the factory and make
me my computer.

She thought for a few seconds, and responded "but I can't - I don't know how.  I need someone to tell me how to do it"

The only real difference between beach sand, worth $0, and a microchip, worth thousands of dollars a gram, is what the human mind has added.

The economist Julian Simon is famous for his rebuttals of the zero summers and the pessimists and doom sayers, arguing that the human mind has unlimited ability to bring plenty our of scarcity.

"The ultimate resource is people - especially skilled, spirited, and hopeful young people endowed with liberty- who will exert their wills and imaginations for their own benefit, and so inevitably benefit not only themselves but

the rest of us as well."

As a final note, it is worth mentioning that the world still has only harnessed a fraction of this potential.  To understand this, it is useful to look back at history.

From the year 1000 to the year 1700, the world's wealth, measured as GDP per capita, was virtually unchanged.
Since 1700, the GDP per capita in places like the US has risen, in real
terms, over 40 fold.  This is a real increase in total wealth, created by the human mind.  And it was unleashed because the world began to change in some fundamental ways around 1700 that allowed the human mind to truly flourish.  Among these changes, I will focus on two:

  1. There was a philosophical and intellectual
    change where questioning established beliefs and social patterns went
    from being heresy and unthinkable to being acceptable, and even in
    vogue.  In other words, men, at first just the elite but soon everyone,
    were urged to use their mind rather than just relying on established
    beliefs
  2. There were social and political changes that greatly increased
    the number of people capable of entrepreneurship.  Before this time,
    the vast vast majority of people were locked into social positions that
    allowed them no flexibility to act on a good idea, even if they had
    one.  By starting to create a large and free middle class, first in the
    Netherlands and England and then in the US, more people had the ability
    to use their mind to create new wealth.  Whereas before, perhaps 1% or
    less of any population really had the freedom to truly act on their
    ideas, after 1700 many more people began to have this freedom. 

So today's wealth, and everything that goes with it (from shorter
work hours to longer life spans) is the result of more people using
their minds more freely.

The problem (and the ultimate potential) comes from the fact that in many, many nations of the world, these two changes have not yet been allowed to occur.  Look around the world - for any country, ask yourself if the average
person in that country has the open intellectual climate that
encourages people to think for themselves, and the open political and
economic climate that allows people to act on the insights their minds
provide and to keep the fruits of their effort.  Where you can answer
yes to both, you will find wealth and growth.  Where you answer no to
both, you will find poverty and misery.

Even in the US, regulation and the inherent conservatism of the bureaucracy slow our potential improvement.  Republicans block stem cell research, Democrats block genetically modified foods, protectionists block free trade, the FDA slows drug innovation, regulatory bodies of all stripes try to block new business models.

All over the world, governments shackle the human mind and limit the potnetial of humanity.

Waiting on Harry

Yesterday I read in Reason that apparently the new Pope has in the past shown support for the anti-Harry Potter crowd, which is gearing itself up in anticipation of the new Harry Potter book release tomorrow.  He apparently wrote:

It is good, that you enlighten people about Harry Potter, because those are
subtle seductions, which act unnoticed and by this deeply distort Christianity
in the soul, before it can grow properly.

Here is my whole take on the anti-Harry crowd:  Get a life.  From a values point of view, what is it about Harry that you wouldn't want your child to emulate?  And as for the magic stuff - OK, get ready for this - its...made up.  Yes, it is a fantasy, it is not real.  There is no danger of your child suddenly running off and casting spells.

And here is my take on the Potter books as a whole:  Awesome.  Forget that I personally have enjoyed reading every one of them.  Consider that my 11-year-old boy has been waiting for weeks, not for a computer game or movie to come out, but for a book.  Likely a loooonnnggg book.  And this weekend, no matter what the weather or what is on TV, he will be glued to a couch from dawn to dusk reading.  Do you remember being so excited about reading anything at 11, other than the new issue of Spiderman?

By the way, its your last chance to place a bet on which major character buys it in this book, though Dumbledore is the runaway favorite (the logic being that in the story archetype that Rowling seems to be following, the young hero must face the final battle without his mentor - so Dumbledore needs to go before the 7th and last book).

Update:  At noon, Boston time my son crossed over page 310.  I am not sure I read that fast.

Update #2:  OK, its about 4:00 Eastern on Saturday and he is done.  You can tell that we struggle to keep this kid in books (this week he has read Harry Potter, the DaVinci Code, and a Clive Cussler book).  I will try to get him to write a review for the blog.  I threatened that I would tie him up naked in the middle of his school's cafeteria if he gave me any spoilers, but I will say that he was very, very depressed at the end.

Why Aren't We Seeing Long Gas Lines

An email from a friend recently got me thinking about why, despite rising prices and tight worldwide demand, we aren't seeing gas station lines this year, like we did during oil shocks of the early and late 70's.  I remember both well, but the later shocks resonate with me more because as a newly minted 16-year-old driver, I was given the family job of driving around town hunting for gas for the family cars.

My first thought was that it was related to the speed and sharpness of the supply discontinuity.  Certainly the 1972 embargo represented a sharp supply change which took the world market a while to absorb, and what we have seen of late has been more gradual.  This is certainly part of the explanation, but incomplete, as the gas lines of the late 1970's were not accompanied by a similar discontinuity.  I might add that many economists at the time might have said that the speed should not matter that much, since it was accepted at the time that energy demand was inelastic, that it did not change much with price.  Therefore, the speed would not matter, since the market's corrective mechanism of price would not work well anyway.  Since then, we have learned that energy demand is very elastic, and that usage will adjust itself based on price.

My second thought was that regulation has a role in the explanantion.  Usually, when you see people queing up for a product or service, it means that prices or supply or both have been artificially limited.  Certainly last year's gas lines we got in Phoenix were almost entirely due to regulation.  Here in Phoenix, the government requires a blend of gas used no where else in the country.  The gas comes in from another state via a single pipeline.  Mobil tried for years to build a small refinery here to produce this blend closer to the market, but were never allowed by state regulators.  So, last year when the pipeline broke, we had shortages.  Our intrepid governor, as most politicians love to do in an oil shortage, blamed greedy gas station operators and oil companies for the problem.  However, when it came time to issuing her plan for dealing with the crisis, here were the first three steps:

  • Temporarily repeal regulations setting the unique gas blend for Phoenix
  • Temporarily repeal regulations on truckers to allow them to better take up the transportation slack
  • Reevaluate regulations that have restricted the construction of a refinery in Arizona

LOL, so it is all the oil companies' faults but the solution was to repeal three sets of government regulations.  Much the same situation occured in the early 70's.  Richard Nixon was probably one of the worst presidents from an economics standpoint that we have had in the last half century.  Few people remember just how close we got to a government program of gas rationing and how loud the calls were for nationalisatoin of oil companies.  Fortunately this never happened, but other bad stuff did.  For example, the markets ability to close the supply-demand gap were limited by a number of pricing controls on oil and other energy subsitutes, regulations that were not repealed until nearly a decade later.  Even weirder, the US government put in place distribution rules that said that oil companies had to send each market (I think it was done county by county) the same proportion of supply as in the year before the embargo.  I am not sure what fear drove this rule, but the result was chaotic.  For example, the previous summer lots of people drove cross-country for vacation, filling up out on the interstate in the countryside.  With shortages, no one wanted to drive long distance.  As a result, rural areas typically had plenty of gas, and cities were running out.  Demand patterns shifted (duh) but the government would not allow supply distribution to shift to match.

The final, and perhaps most important reason, though, that we have not had long gas lines is because people are not expecting them.  Fear of gas lines is a self-fulfilling prophacy, for the following reason:

Take the example of 1972, and we will use typical numbers of that era.  Lets say there were 100 million cars each with an average 20 gallon tank.  Lets
say normally, people refill their tank when it is ¼ full, so on
average their tank is 5/8 full.  Doing the math, there are 5/8 times 20 times 100
million gallons actually in cars or about 1,250 million gallons.  That's right - one of the largest single inventories of gas in this country is in people's tanks.

Now, lets say
due to supply panic, everyone suddenly refills at ¾ full. No one wants to be caught short (I remember in the 1970's, people would wait in line to put a gallon or two in their tanks -- it was nuts).  In this case, on average they
are 7/8 full or there are a total of 1750 Million gallons in cars' tanks.  So, in the space of
what might be two or three days, people suddenly demand 500 million gallons above and
beyond their normal usage to increase their tank's inventory.  Boom, stations are
out of gas, which causes people to feel even less secure without a full tank, so
they inventory more (many in spare gas cans) and the problem gets
worse.

One of the conspiracy theories of the 1970's was that we had gas lines because oil companies were holding tankers offshore waiting for prices to rise (the early 1970's were the point in time where the leadership banner for conspiracy theory nuts was handed off from the right wing to the left).  The irony is that the answer to the "mystery" of where all the gasoline inventory went was right under people's noses.  If an average tanker of the time carried 500,000 barrels of oil, and each barrel of crude oil produces about 20 gallons of gasoline (in addition to all of the other fuels) then then the act of gassing up cars faster caused 50 tanker loads of oil to disapear into people's gas tanks.  The "missing oil" was right in their garage!

Bureaucracies Never Die

A while back, I lamented all the work it takes in some states to get a liquor license.  Most liquor license laws stem back to the emergence from prohibition, when states wanted to purge organized crime from the liquor business.  What the heck, then, are they trying to do today, other than limit competition for incumbents, which is the typical role of licensing?  Before I go on, I can't help quoting Milton Friedman again about liscencing of all sorts:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Anyway, here in Arizona, it takes a load of paperwork even to change the manager of a licensed facility (even regulation-happy California does not require this).  For each manager, a multi-page application, personal history, proof of training, and fingerprint cards (yes, really) have to be submitted, and an FBI background check has to be completed (to make sure they never worked for Al Capone, I guess).

Today, I got my new managers application back from the license bureaucracy a second time for corrections.  This time, here are the two errors they found:

  • For the year when the manager was full time RVing (that means living the nomadic life with no permanent home, roaming the country in his RV) he didn't show a permanent address.  Yes, we explained his lifestyle then, but the form requires a permanent address for the last five years and can't be processed without it
  • For a period of time when the manager was unemployed, he did not fill in his own home address where it asked for his employer's address

That's it - after sitting in their hands for weeks. After already returning the application to me before with another flaw, and never mentioning these flaws.  No phone call to get the information, just rejected out of hand, requiring the whole process start over again. 

After dealing with these folks for years, it is absolutely clear to me that they have totally lost sight of what the original mission of their organization might have been, and have substituted the mission "uncompromisingly ensure the rigorous compliance with all forms and processes adopted by this organization in the past".