Eli,
In your "The Limits of Libertarianism," you say "voluntary transactions between equals in the marketplace are a wonderful ideal, but often a fantasy." I would say they are the norm. When I purchased my newspaper at the train station I had a high degree of confidence it would be there and how much it would cost. When I could get my newspaper on my iPad instead I arranged other equal transparent transactions with the NY Times and the Wall Street Journal. The three or four breakfast places I frequent have a quality and price I find acceptable and our transaction is open and transparent. I purchased an app from the Apple Store the other day and I knew going in to the transaction there was a risk of it not working, but I paid the $4.99 because I found the risk acceptable. Turns out the app doesn't work, but because Optimum blocks router ports, not because the app maker created a bad set of code. What I found in my app purchase was another reason to not like my cable company. If I could convince the rest of my family, we would stop buying cable TV video service and only buy Internet connectivity and maybe phone. Until then I reluctantly enter into a transparent and voluntary transaction with Cablevision. For dinner we had the food prepared from the grocery store, one of the three or four we frequent, and we engaged in transactions where we knew mostly what we would get and the prices were clearly marked. If I happen to McDonald's today I know what quality of food I'll get at what price. Like I said, I would argue most of the transactions in our life are transparent and voluntary.
As far as not all transactions being equivalent, you are referring to your "Health Care is Not a New Car or a New Coat." Why not? What makes it different? Because people need it? People need food. People need shelter. On Maslow's hierarchy of needs the most basic needs are breathing, food, water, sex, sleep, homeostasis and excretion. But you aren't arguing for public toilets. (Yes, that is a joke).
There are market failures. Clearly, there are market failures. And often-times there are failures that are blamed on the market but I would call policy failures. For instance, deposit insurance and bank regulation. I'm not going to argue deposit insurance and bank regulation are bad ideas or good ideas. Let's just look at the consequences. To protect depositors from bank failures deposit insurance was created as well as restrictions on what banks could do. Regulation Q restricted the amount of interest that could be paid on checking and savings accounts. As interest rates rose with inflation in the '70's savings and loans (remember those) were squeezed because the rate they could pay for deposits were capped, so depositors moved their cash somewhere else. The policy response to this failed policy was to loosen up the type of deposits S&L's could take, resulting in a rush of cash used for real estate development, financed by S&L's in the states that seem to breed real-estate fraud: Texas, Arizona and Florida. Were there bad actors? You bet. Was there a market failure? Well in the economic sense, no, but for our purposes, yes. But was much of this driven by a policy that failed, replaced by another bad policy? Absolutely.
Look are our recent experience. Were there bad actors? Of course. Was there a market failure? I would argue yes, there was a run on the banking system, which was scary. Was some of this a result of bad policy? Absolutely yes. Deposit insurance gave banks a ready source of no-risk capital. There was an implicit guarantee of bail-outs of the banks and an almost explicit guarantee of bail-outs for Fannie and Freddie. There were market distortions from the Community Reinvestment Act. There was political meddling like Barney Frank's advice to roll the dice a bit, see here, and here. Throw in an excessively easy Fed policy replaced by an excessively tight Fed policy, driven by the hubris, that we can fine tune the economy. Add to it, a bunch of smart guys figuring out how to make money within the rules set by the Feds. Mix throughly, bake at 350.
So if we create a law, to fix the failure of a prior law, that fixes the failure of a prior law, without ever stepping back and recognizing maybe the laws themselves had a role, a large role, in creating the negative events, then we are just spinning our wheels and we'll be having this conversation again in five, ten or twenty years.
Bill
Showing posts with label Libertarianism. Show all posts
Showing posts with label Libertarianism. Show all posts
Saturday, February 18, 2012
Friday, February 17, 2012
The Limits of Libertarianism
Bill
When my kids were young we had a housekeeper named Mathilde Bosun. She was the second oldest of nine from a dirt poor family in Montserrat , and she left school at the age of 12 to help her mother care for the seven behind her. She made her way to Roxbury in middle age on a temporary visa and after her island home began exploding continuously an immigration judge granted her permanent residency status. She took care of my two like they were her own and she bought a 2 Decker in Dorchester from her earnings.
Then came one of those voluntary marketplace exchanges you honor so. In 2006 a couple of parasites called mortgage brokers convinced her trade her perfectly good 30 year fixed rate mortgage for an adjustable sub prime deal. I’m sure I don’t have tell you what happened next. The house is gone. She is gone.
So I’m not quite a libertarian yet. Perfectly transparent, voluntary transactions between equals in the marketplace are a wonderful ideal, but often a fantasy. Knaves, like the vermin who brought us the subprime crisis that nearly destroyed the country are always out there. You can include Fannie and Freddie among the damned but they are a small part of what happened. So I say huzzah too. Huzzah for Dodd Frank with all its inevitable flaws. Huzzah for Richard Cordray. Huzzah for a government that cares about protecting our soldiers from the swindlers and cheats. Huzzah for balancing private and public interest .
And finally, as I have argued previously, all transactions are not equivalent. You can do without an Ipad , like the vast majority of folks who don’t have 500 bucks to spare do. Some things you can’t do without. That never makes for a free an equal transaction.
BTW you’re pretty good at setting up those straw men yourself. Dennis Kucinich? Talk about a guy who doesn’t have a clue about the way the world works. If we let idiots like him run the show we’d have an economy that runs like this:
Eli
Thursday, February 16, 2012
Knabeism for Dummies
Eli,
This is a less flippant response to your "Take Me To School."
When two parties freely and without fraud, enter into a trade, both are better off. It's a very powerful concept. When I bought my iPhone I was very happy. I really didn't care it made Steve Jobs a gazillionaire. It didn't matter to me where it was made. It didn't matter that Apple's margins were higher than what might be set by a Reasonable Profits Board. Apple was happy to sell that iPhone to me and I was happy to part with several hundred dollars. We were both better off.
Think about it. How can we make everyone happier? By letting them buy and sell goods and services freely amongst each other is the answer. If the trade isn't fraudulent, and if the trade is entered into freely, both are better off, society is better off. Isn't that what we are trying to do, make a better society? And when I look at the long arc of history I notice societies that are organized more towards this philosophy have the tendency to do much better than those societies that are organized less along this philosophy. Think Hong Kong versus Cuba. Think the US versus the Soviet Union. Think Houston versus Detroit. And when I say better, I say better for everyone, rich and poor alike.
One general objection is around asymmetric information. When I sell a house I have much better information than the buyer of a house. That gives me an advantage over the buyer. Because of that it's a pretty good idea to have a third party inspect the house. It's a pretty good idea to have the contract explicity guarantee the seller is not withholding material information. I wouldn't object to contracts without those items, but one would expect such a deal would be consumated at a lower price to compensate the buyer for the increased risk.
Another objection is one party is going to get a better deal, however that might be measured. Did Apple get a better deal when I bought the iPhone? I have no idea, nor do I care. I was happy. If I wasn't happy I wouldn't have purchased the iPhone. Does it matter that one party got the better deal?
A third objection is the transaction can impose costs on others not party to the transaction. I may own a coal-fired power plant that emits pollution into the air. I am imposing a cost on you when I freely engage in my trade. There is a robust literature on externalities but maybe the most powerful analysis comes from Ronald Coase who examines externalities within the context of transaction costs, and overall societal efficiency. I'll avoid an exegesis since I'm not up to the task, but in sum, externalities are costs that need to be addressed, and should be addressed so as to minimize the societal costs. Much of the smarter objections to carbon emissions and coal-fired power plants focuses on externalities.
Where does the government fit in? Protecting against fraud is one function. Helping adjudicate property rights particularly with respect to externalities is another. And I know this is inconsistent of me, but helping those who need help. Yes, it is contradictory of me to say I should force the well off in society to help those in need. Guilty. But I do think we should help those in need from a moral standpoint. However, the best way to help those is growth, not redistribution. And growth comes with free trade.
That's mainly the filter I use to look at life. So tell me you want a Reasonable Profits Board or a limit on MLR (medical loss ratio) I object since that is limiting the ability of us to enter into freely negotiated transactions. And then it leads to resource misallocation. If you say to an insurance company you can only earn a 10% profit insurance companies will potentially exit the market, reducing supply. Potentially you will encourage consumers to buy more, since you've capped prices, again, misdirecting resources and distorting efficiency. But it's not just about efficiency, it's about growth.
Growth is what makes us better year-to-year. When we talk about our children having better lives than us we are talking about growth. That is, we can have more for less. Our lives are easier, more pleasant, longer-lived. Growth is electricity and cars and the telephone and microwave ovens and the jet plane. Growth is allowing one industry to fail and be supplanted by another. Schumpeter called this creative destrucution and it is something we see all the time. For instance, we are lucky enough to have witnessed the birth of the PC and we are now witnessing its death. And that's good. My life is better with my iPhone and iPad. My life is better because the iPhone and iPad increases my freedom of movement and my connection to my loved ones. I use the PC much less because of cell phones and tablets and I am much better off. One day, someone will come up with something that replaces cell phones and tablets and our kids will be better off than us. That is, if we let everyone freely enter into transcations that allow this to happen.
If Obama had been smart, and knew even a bit of economics, he would have let the market determine GM and Chrysler's fate. Resources would have been taken from organizations that were bad at satisfying the market's needs and given to those good at satisfying our needs. That's growth. That's improvement. That's people getting what they want. That's both parties walking away from a trade, happier than when they started.
Almost all of my objections to Republicans and Democrat are to actions that impinge on my abilty to enter into transactions that make me, and my counterparty, better off. How can you possible object to that?
Too long. Too boring. Too pedantic.
Bill.
This is a less flippant response to your "Take Me To School."
When two parties freely and without fraud, enter into a trade, both are better off. It's a very powerful concept. When I bought my iPhone I was very happy. I really didn't care it made Steve Jobs a gazillionaire. It didn't matter to me where it was made. It didn't matter that Apple's margins were higher than what might be set by a Reasonable Profits Board. Apple was happy to sell that iPhone to me and I was happy to part with several hundred dollars. We were both better off.
Think about it. How can we make everyone happier? By letting them buy and sell goods and services freely amongst each other is the answer. If the trade isn't fraudulent, and if the trade is entered into freely, both are better off, society is better off. Isn't that what we are trying to do, make a better society? And when I look at the long arc of history I notice societies that are organized more towards this philosophy have the tendency to do much better than those societies that are organized less along this philosophy. Think Hong Kong versus Cuba. Think the US versus the Soviet Union. Think Houston versus Detroit. And when I say better, I say better for everyone, rich and poor alike.
One general objection is around asymmetric information. When I sell a house I have much better information than the buyer of a house. That gives me an advantage over the buyer. Because of that it's a pretty good idea to have a third party inspect the house. It's a pretty good idea to have the contract explicity guarantee the seller is not withholding material information. I wouldn't object to contracts without those items, but one would expect such a deal would be consumated at a lower price to compensate the buyer for the increased risk.
Another objection is one party is going to get a better deal, however that might be measured. Did Apple get a better deal when I bought the iPhone? I have no idea, nor do I care. I was happy. If I wasn't happy I wouldn't have purchased the iPhone. Does it matter that one party got the better deal?
A third objection is the transaction can impose costs on others not party to the transaction. I may own a coal-fired power plant that emits pollution into the air. I am imposing a cost on you when I freely engage in my trade. There is a robust literature on externalities but maybe the most powerful analysis comes from Ronald Coase who examines externalities within the context of transaction costs, and overall societal efficiency. I'll avoid an exegesis since I'm not up to the task, but in sum, externalities are costs that need to be addressed, and should be addressed so as to minimize the societal costs. Much of the smarter objections to carbon emissions and coal-fired power plants focuses on externalities.
Where does the government fit in? Protecting against fraud is one function. Helping adjudicate property rights particularly with respect to externalities is another. And I know this is inconsistent of me, but helping those who need help. Yes, it is contradictory of me to say I should force the well off in society to help those in need. Guilty. But I do think we should help those in need from a moral standpoint. However, the best way to help those is growth, not redistribution. And growth comes with free trade.
That's mainly the filter I use to look at life. So tell me you want a Reasonable Profits Board or a limit on MLR (medical loss ratio) I object since that is limiting the ability of us to enter into freely negotiated transactions. And then it leads to resource misallocation. If you say to an insurance company you can only earn a 10% profit insurance companies will potentially exit the market, reducing supply. Potentially you will encourage consumers to buy more, since you've capped prices, again, misdirecting resources and distorting efficiency. But it's not just about efficiency, it's about growth.
Growth is what makes us better year-to-year. When we talk about our children having better lives than us we are talking about growth. That is, we can have more for less. Our lives are easier, more pleasant, longer-lived. Growth is electricity and cars and the telephone and microwave ovens and the jet plane. Growth is allowing one industry to fail and be supplanted by another. Schumpeter called this creative destrucution and it is something we see all the time. For instance, we are lucky enough to have witnessed the birth of the PC and we are now witnessing its death. And that's good. My life is better with my iPhone and iPad. My life is better because the iPhone and iPad increases my freedom of movement and my connection to my loved ones. I use the PC much less because of cell phones and tablets and I am much better off. One day, someone will come up with something that replaces cell phones and tablets and our kids will be better off than us. That is, if we let everyone freely enter into transcations that allow this to happen.
If Obama had been smart, and knew even a bit of economics, he would have let the market determine GM and Chrysler's fate. Resources would have been taken from organizations that were bad at satisfying the market's needs and given to those good at satisfying our needs. That's growth. That's improvement. That's people getting what they want. That's both parties walking away from a trade, happier than when they started.
Almost all of my objections to Republicans and Democrat are to actions that impinge on my abilty to enter into transactions that make me, and my counterparty, better off. How can you possible object to that?
Too long. Too boring. Too pedantic.
Bill.
Ayn Rand is Dull, and other lessons for nascent libertarians
Eli,
Thank you for your interest in Libertarianism. Unfortunately I'm the wrong person to ask about it. I'm much too inconsistent and erratic to espouse any specific ism. But here's what I do know.
Ayn Rand is dull. Oh my god, she is so dull. Please do not waste your money on any of her books. Forget about the ideas and whether you agree with them or not. She's just such a bad writer, that fatigue sets in shortly after you begin reading. Whenever someone says their favorite book is Atlas Shrugged or The Fountainhead or The Virtue of Selfishness, I'm shocked that 1) they were able to get through it and 2) they actually enjoyed them.
Much better are Hayek's, "The Road to Serfdom," and Friedman's "Capitalism and Freedom." Friedman is an easier read. I've read "Free to Choose," but think it lacked the power of "Capitalism and Freedom."
Many libertarians take their thinking to an extreme and it becomes anarchy. You like to set up that anarchy straw man when you and I discuss politics and economics. But I'm not an anarchist, and I do feel there is an important role for government, as I've said several times (but am too lazy to find the links).
Some libertarians are libertarians until the subsidies are handed out. Like the old saying, "There are no atheists in foxholes and no Republicans when the subsidies are being handed out." Also, many libertarians are libertarians until you start talking about civil rights. For instance, some will suddenly find an objection to legalized drug use or gay marriage. As for me, I'm generally far to the left of the right when it comes to social issues, but I'm not as far as Ron Paul who does want to legalize drug use. I'm not sure I'm there.
So what are we left with? A nuanced, read inconsistent, philosophy not that much different than how Democrats and Republicans and Catholics seem to espouse positions from a menu of issues. I know that doesn't help, because it doesn't pin me down, but consistency is the hobgoblin of small minds. Actually I never remember what the real saying is so don't correct me, I'll misuse it frequently. I also never remember what the Red and Blue states represent. That whole red/blue thing is very annoying to me.
Bill.
Thank you for your interest in Libertarianism. Unfortunately I'm the wrong person to ask about it. I'm much too inconsistent and erratic to espouse any specific ism. But here's what I do know.
Ayn Rand is dull. Oh my god, she is so dull. Please do not waste your money on any of her books. Forget about the ideas and whether you agree with them or not. She's just such a bad writer, that fatigue sets in shortly after you begin reading. Whenever someone says their favorite book is Atlas Shrugged or The Fountainhead or The Virtue of Selfishness, I'm shocked that 1) they were able to get through it and 2) they actually enjoyed them.
Much better are Hayek's, "The Road to Serfdom," and Friedman's "Capitalism and Freedom." Friedman is an easier read. I've read "Free to Choose," but think it lacked the power of "Capitalism and Freedom."
Many libertarians take their thinking to an extreme and it becomes anarchy. You like to set up that anarchy straw man when you and I discuss politics and economics. But I'm not an anarchist, and I do feel there is an important role for government, as I've said several times (but am too lazy to find the links).
Some libertarians are libertarians until the subsidies are handed out. Like the old saying, "There are no atheists in foxholes and no Republicans when the subsidies are being handed out." Also, many libertarians are libertarians until you start talking about civil rights. For instance, some will suddenly find an objection to legalized drug use or gay marriage. As for me, I'm generally far to the left of the right when it comes to social issues, but I'm not as far as Ron Paul who does want to legalize drug use. I'm not sure I'm there.
So what are we left with? A nuanced, read inconsistent, philosophy not that much different than how Democrats and Republicans and Catholics seem to espouse positions from a menu of issues. I know that doesn't help, because it doesn't pin me down, but consistency is the hobgoblin of small minds. Actually I never remember what the real saying is so don't correct me, I'll misuse it frequently. I also never remember what the Red and Blue states represent. That whole red/blue thing is very annoying to me.
Bill.
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