Wednesday, February 11, 2015

Why I Love Your Freedom

This is my critique of the best critique of libertarianism... Why I Hate Your Freedom.  If you know of a better critique of libertarianism then please share it in a comment.

If this is your first visit to my blog, then I should probably mention that I'm not a libertarian.  I used to be a libertarian but then I accepted the fact that libertarianism is logically absurd.  Around the same time I also realized that pragmatarianism is better than anarcho-capitalism.  Pragmatarianism (tax choice) is basically the belief that taxpayers should be free to choose where their taxes go.  To learn more, check out the FAQ and the key concepts (work in progress).

So why am I critiquing a critique of libertarianism?  Well... I'm not critiquing the entire critique... just the parts that are really wrong.  Plus, I'm a sucker for structured critiques.  Even a little structure does it for me... Mr's Critique of Pragmatarianism.  This means that "Why I Hate Your Freedom" is virtually irresistible.  Part of the attraction for me is that most of my posts lack structure.  By responding to a structured critique I can mooch some structure.  I'm a structure mooch.

For magic's sake I'm going to refer to the author of "Why I Hate Your Freedom" as "Hot Chip".

Hot Chip is one of my favorite bands.  My favorite song of theirs is "Let Me Be Him".  The song sounds wonderful but the lyrics in the beginning are not my cup of tea... "All this freedom we get, oh / it's not all its cracked up to be".   As I love to sing along... every time I listen to it I'm presented with a dilemma.  Should I sing something that I fundamentally disagree with?  I usually do end up singing along and feeling a little guilty about it.  As if I'm kinda betraying my cause.

It's fun to pretend that Hot Chip wrote "Why I Hate Your Freedom".  So that's exactly what I'm going to do.

Oh Hot Chip, your music is wonderful but your grasp of economics not so much.  Where would I be without your freedom?   Let's see if I can improve your economics as much as you've improved my ears.

1. Externalities
2. Coordination Problems
3. Irrational Choices
4. Lack of Information
5. Just Desserts and Social Mobility
6. Taxation
7. Competence of Government

1. Externalities

Hot Chip is correct that externalities do exist... but he offers no plausible way to accurately measure their benefit or harm.  How can resources be efficiently allocated without this information?

We can think of the efficient allocation of resources as an arrow hitting the bullseye.  If somebody argues that resources are being inefficiently allocated then they are saying that the arrow is not hitting the bullseye.  But in order for them to know that this is true they obviously have to know where the target is.  

In economics, the target is the preferences of consumers and the arrow is the supply of goods and services.  The closer the supply is to the preferences of consumers... the more efficient the allocation of resources.  Whenever you buy something you essentially say to the producer, "hey man nice shot!"  When you buy a watermelon you let the farmer know that he's efficiently allocating resources.  When you bought the Harry Potter books and watched the movies you let J.K. Rowling know that she's efficiently allocating resources.  Producers try and guess where the target is and consumers reward the producers with the best guesses.  Better guesses mean more rewards and those with more rewards logically have more influence over how society's limited resources are allocated.

With command economies (aka socialism aka our public sector)... producers also try and guess where the target is.  The fundamental and deal breaking difference is that consumers are not given the opportunity to reward the best guesses.  If Hot Chip believes that this feedback mechanism is overrated... then how can this be true for pollution but not true for watermelons?  How can government planners know where the target is for pollution but not know where the target is for watermelons?   This idea of partial omniscience is the same exact logical absurdity that libertarianism suffers from.

When the government tackles pollution... it doesn't do so in vacuum.  It's the most basic law of economics that any resources that are used to try and correct pollution have to be taken from other uses.  The only way that the government can possibly ensure that this new allocation of resources will maximize society's benefit is by knowing 1. how much benefit is gained from this new allocation and 2. how much benefit is lost by shifting these resources away from all their previous uses.  If the government is going to shift the arrow then it should shift it closer to, rather than further from, the target.  

For example...if the government starts to pay Terence Tao a lot of money to tackle pollution, then any time he spends tackling pollution can't also be spent tackling rocket science or whatever.  This is absolutely fine if, and only if, society derives more value from having Tao's intelligence applied to pollution rather than to rocket science.  

In other words... if, as a result of government intervention, more people would reach into their pockets and say, "Hey Terence Tao nice shot man!" ... then the government intervention was justified.  Reallocating Terence Tao helped move the arrow closer to the target.  As a society we gained more from applying his intelligence to pollution than we would have gained if his intelligence had continued to be applied to rocket science.  But if consumers aren't given the opportunity to reach into their own pockets, then how in the world can we possibly know whether government intervention is ever truly justified?  In the absence of actual consumer verification government success is simply a theory.  

If I was a libertarian, then I'd say that, based on the track record of command economies... a bird in the hand is worth far more than two in the bush.  The actual preferences of consumers really should not be subordinate to the unverified guesses of a small group of impersonal shoppers.  We shouldn't sacrifice market success for government "success".  But I'm not a libertarian... I'm a pragmatarian.  I'm willing to accept that it's entirely possible that more people truly would say "Hey Terence Tao nice shot man!" as a result of government intervention.  It's easy enough to test this theory... all we have to do is allow taxpayers to choose where their taxes go.  This will allow us to see whether the guesses of government producers are as good as Hot Chip thinks they are.  

2. Coordination Problems

Let's imagine that Rothbard pushed a button that instantly eliminated every single government.  Well... wouldn't there be a coordination problem providing defense?  It's only a problem if you assume that there wouldn't be a coordination problem providing offense.  If you want to make this assumption then what's your theory?  That offensive people are better than peaceful people at overcoming coordination problems?  

It's weird to imagine that the US would have a coordination problem in terms of defense but Canada wouldn't have a coordination problem in terms of offense.  "Those darn coordinated Canadians!  How in the world did they overcome their coordination problem!??  What?  They started a Meetup group to plan their invasion?  How come we didn't think to start a Meetup group for national defense!??"  Would it be more or less weird if the situation was reversed?

What group of people would you consider to be the most offensive?

History is littered with examples of situations where it would have been immensely better if some government hadn't solved a coordination "problem".  In fact, if we're going to err, it should be painfully obvious that it's considerably safer to err on the side of less, rather than more, government coordination.  As far as government coordination is concerned, humanity's gain has been dwarfed by its loss.  Doubting this requires being entirely ignorant of the fact that human variety and diversity is by far our greatest resource... it's the source of all progress.  If I was a libertarian then this is what I would argue.  But again, I'm not a libertarian.

As a pragmatarian, my argument regarding externalities is just as applicable to government efforts to solve coordination problems.  Just imagine what the Egyptians taxpayers would have said.  Maybe something like, "Hey Pharaoh, nice shot man!  Thanks for solving this coordination problem!  Now we'll be able to eat the pyramids when there's a famine.  Oh wait.  But at least we'll be able to trade the pyramids for food during a famine.  Oh wait."

Progress depends on difference.  Coordination that reduces difference will invariably hinder progress.

For a real life example of a coordination problem and the pragmatarian solution please see... Rescuing Robin Hanson From Unmet Demand.

2.5: How do coordination problems justify labor unions and other labor regulation?

Hot Chip argues that we need labor unions and labor regulations in order for workers and owners to have equal bargaining power.  

But why is their bargaining power unequal in the first place?  According to Hot Chip, it's because the owner can easily replace a worker but a worker can't easily replace his job.  

It really doesn't sound like there's a shortage of workers.  In fact, it sounds like workers are a dime a dozen.  Isn't it kinda strange that there's always a surplus of labor?   How could there be a chronic surplus of labor?  It's pretty simple economics that surpluses drive down prices and lower prices increase demand.  

If labor is so cheap then why aren't there droves of greedy capitalists opening factories in order to exploit this profit-making opportunity?  Oh wait... Builderism.  

For sure let's improve the bargaining position of workers... but let's do so in a way that benefits everybody.  This involves identifying exactly why there isn't a surplus of jobs.  Maybe in the process we'll learn that it isn't necessarily the easiest thing to start a company.  Because if it was, then rather than suffering from a chronic shortage of jobs, workers would "suffer" from a chronic surplus of awesome options.  That's actually a pretty decent goal to aim for.  If anybody is truly interested in reaching it then it would behoove them to study where better options come from.  

3. Irrational Choices

Let's consult my go to poet...

In the Desert
by Stephen Crane
In the desert
I saw a creature, naked, bestial,
Who, squatting upon the ground,
Held his heart in his hands,
And ate of it.
I said, “Is it good, friend?”
“It is bitter—bitter,” he answered;
“But I like it
“Because it is bitter,
“And because it is my heart.”

We can stretch a bit and say that the creature is being productive... for sure it's doing something... but its productivity really isn't relevant to my preferences.  Is its productivity relevant to your preferences?  Are you going to say, "Hey creature, nice shot man!" and give it a lot of your hard-earned money?  Probably... not.  As a result, this limits how much influence/power/control this irrational creature has to mold society.

Markets work because we all have the freedom to doubt the business model.  It's the epitome of inclusive valuation... which, for lack of a better term, I refer to as "earner valuation".  Earner valuation, which functions as a fail safe device, stands in stark contrast to our government's system of extremely exclusive valuation.  The logical consequence of earner valuation is that it prevents too many resources from ending up in irrational hands.  The people who earned the money have the strongest possible incentive to try and ensure that the reward for their labor isn't flushed down the toilet.  Minimizing the amount of resources that are wasted maximizes the amount of value that's created.

If Hot Chip wants to argue... "irrationality... therefore government"... then how does he get around the problem with giving Mr. Creature a vote on who we elect to decide whether we go to war?  The majority's irrational... therefore democracy?

That's a problem...
As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market.  A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. - Geoffrey Brennan, Loren Lomasky, Democracy and Decision
The solution is simple...
The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. The seasons during which the ability of private people to accumulate was somewhat impaired would occur more rarely, and be of shorter continuance. Those, on the contrary, during which the ability was in the highest vigour would be of much longer duration than they can well be under the system of funding. - Adam Smith, Wealth of Nations
We don't have to get rid of democracy... we just have to give people the opportunity to put their money where their votes are.  This will shift influence back to the people who earned it.  How did they earn it?  By putting society's limited resources to their most "rational" uses.  Their use of society's limited resources made so much sense that other people were willing to bet on it with their own money.

Right now our current system is completely irrational.  In the private sector we shop around in order to give more influence to the most rationally productive people... but then we immediately turn around and use our votes to severely slash the influence that we just gave to them.  "Hey man nice shot!  I really benefited from your use of society's limited resources!  Haha, just kidding, your shot wasn't that great!  I clearly overestimated the amount of benefit that I derive from your use of society's limited resources!"  If anybody is seriously interested in rationality... then they have to sit down and figure out whether or not they truly want people's influence over society's limited resources to accurately reflect their productivity's rationality.

To learn more...

4. Lack of Information

How many volumes could be filled with what Hot Chip doesn't know?  How many volumes could be filled with what he does know?

As I've already explained, when it comes to the efficient allocation of resources... the most fundamentally important information is where the target is.  Our public sector is a command economy and like all command economies... it lacks this essential information.  Without this essential information, whatever information the government does have is of unknown relevance.  It might be relevant... it might not be.  If it's not relevant then it's not a problem if citizens lack it.

Imagine if there was a button that was kinda like Rothbard's button.  But, rather than eliminating all governments in one fell swoop, it would transform them into pragmatarian governments.  Personally, I wouldn't push this button.  Why not?  It's because I really appreciate that the persuasion process is priceless.  Let's say though that somebody did push it.  If there wasn't a single person that spent any of their taxes on defense... then it would reveal that none of the massive amount of information that governments currently have regarding defense is truly relevant.  The reason they had all this irrelevant information was because they lacked the most fundamentally relevant information.... the location of the target.

Hopefully it should be clear that I'm not saying that defense information is superfluous.  My point is that, in the absence of earner valuation, there's no way to know whether its relevant.  This means that it's an epic absurdity to cite a lack of information to justify government intervention.

Say you're driving your grandpa to the store and he cites your failure to use your turn signal as justification for letting him drive.  Is your grandfather being absurd?  Not unless you somehow forget the fact that last week he plowed his car into a crowd of people.

The lack of information as a justification for one system rather than the other is so far on the side of markets that it's not even funny.

Markets win this round hands down.  But why stop with winning?

If you read, or even looked at, Hot Chip's critique of libertarianism then perhaps you might agree with me that the irony is lost on him.  In other words, he sure shared a heck of a lot of information.  He thinks that libertarians are making a mistake so he spent a lot of time endeavoring to share his information with them and anybody else who read his critique.  I think Hot Chip is mistakenly sharing some wrong information so I'm spending a lot of time endeavoring to share my information with him and anybody else who reads this.

Information follows from our freedom to make mistakes.  Take away our freedom and the logical consequence is rational ignorance.  If we want to make it worthwhile for people to seek and share information... then they must have the freedom to choose the wrong thing.  The possibility of choosing the wrong thing provides a strong incentive to be informed.  Incentives truly matter.  It really has to pay, in some way, to inform yourself and others.

Even though I think that Hot Chip has some faulty information... it's the epitome of throwing the baby out with the bath water to use this as the basis for narrowing the scope of his freedom.  Markets aren't wonderful because everybody has perfect knowledge... they are wonderful because they integrate all the knowledge that people do have.  Before we make any spending decision we reflexively tap into the immense amount of information that we've acquired over time.  Because this is what we've always done, and we really have nothing to compare it to, it's a given that we take this process, and the amount of information that's considered, for granted.

Hot Chip ends up concluding that rational ignorance justifies government intervention.  The reality is that government intervention is the cause of rational ignorance.  If voters could feel the complete burden of the regulations that they were willing to vote for... then this would encourage them to seriously consider the opportunity costs.  It's this serious consideration/calculation that facilitates the flow of information.

Let me try and summarize the key points.  If information isn't relevant to the preferences of consumers then it's superfluous.  Because the government lacks information regarding the location of the target, there's no way to know whether any of its information is truly relevant.  Even if some of the government's information does happen to be relevant... in the absence of choice there's little incentive for consumers to make the effort to acquire it.

5. Just Desserts and Social Mobility

Again... Builderism.

6. Taxation

Well...clearly I don't think that taxes are the root of the problem.

7. Competence of Government

7.1: Government never does anything right.

His counter argument is a picture of an astronaut dancing on the moon.  To use his term... this is the epitome of a "naive" economist.  If he doesn't know where the target is, then how in the world can he say that any shot is good?  In the absence of consumer feedback then anything that the government does... no matter how wasteful or heinous... could count as a theoretical success.

7.1.1: Okay, fine. But that's a special case where, given an infinite budget, they were able to accomplish something that private industry had no incentive to try. And to their credit, they did pull it off, but do you have any examples of government succeeding at anything more practical?

Eradicating smallpox and polio globally, and cholera and malaria from their endemic areas in the US. Inventing the computer, mouse, digital camera, and email. Building the information superhighway and the regular superhighway. Delivering clean, practically-free water and cheap on-the-grid electricity across an entire continent. Forcing integration and leading the struggle for civil rights. Setting up the Global Positioning System. Ensuring accurate disaster forecasts for hurricanes, volcanos, and tidal waves. Zero life-savings-destroying bank runs in eighty years. Inventing nuclear power and the game theory necessary to avoid destroying the world with it.

More of the same.  If Hot Chip knows with freedom restricting certainty exactly where the target is... then he should nominate himself to be the ultimate arbitrator of government shots and private shots.  This would make consumer choice entirely redundant.

Liberal economists have not, as yet, been able to refute my argument.  In fact, they choose to bravely run away rather than stand their ground and publicly debate me...

Here's my challenge to John Quiggin... The Inadequacy of the Opportunity Cost Concept... and here's my challenge to Miles Kimball... The Truth About Infrastructure Projects?

Well... Hot Chip's critique goes on but my main argument applies to the rest that's relevant.

Now, if Hot Chip reads this then, if he's like most people, he's going to struggle to understand how he would benefit from giving people freedom in the public sector.  But if he doesn't understand how he would benefit from people's freedom in the public sector... then it also follows that he doesn't understand how he does benefit from people's freedom in the private sector.  Essentially, if he's like most people, then he doesn't understand how he benefits from other people's freedom.

As a pragmatarian... what drives my fervor for freedom?  Is it just so that I can give all my taxes to the EPA?  That would certainly be nice.  But the primary compulsion here really isn't the immediate gain in benefit that would follow from my freedom to reward the EPA for "theoretically" doing something that really matches my preferences.  And I say "theoretically" because I've spent more time studying economics than I've spent studying the efficacy of the EPA.  No matter how informed I become on the EPA's efficacy... I don't have the freedom to allocate my taxes accordingly.   More importantly... neither do you.  This nearly eliminates the possible return on my investment in knowledge.  Clearly the overall system is a much bigger fish to fry.

My fervor for freedom isn't driven by the benefit that I'd gain from my own freedom... it's driven by the benefit that I'd gain from other people's freedom.

Throughout this entry I've compared the efficient allocation of resources to an arrow that hits the bullseye.  It's a useful heuristic but in reality there's always room for improvement.  If we created a market in the public sector then millions of consumers would have an incentive to shop around for better shots and producers would have an incentive to make better shots.  The logical consequence is that shots would improve at a much faster rate.  How could they not?  

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