North, Wallis, and Weingast

Monday, May 18th, 2009

Arnold Kling has some more to say about North, Wallis, and Weingast and their book, Violence and Social Orders:

  • The libertarian view of the ideal of limited government is a fantasy. Instead, for NWW the best state is an open-access order. The law is administered impersonally. There is very broad access to the tools for creating and participating in both economic and political organizations. Political and economic organizations are expected to be able to outlive their individual leaders. In an open-access order, government is not small. However, the competitive environment does lead government to provide public goods, rather than serve as a mechanism for the dominant coalition to extract rents from the population at large. Some organizations can be economically important without wielding great political power, and conversely some organizations can be important in politics without have great economic power.

  • The alternative to an open-access order is a limited-access order–also called a natural state. In a limited-access order, there is a dominant ruling coalition. All of the groups with a potential for organized violence are part of the coalition. They partition economic and political power among themselves. They exclude others. For an organization to have economic power, it must have political power. The law is far from impartial, particularly with respect to conflicts between those within the dominant coalition and those outside the dominant coalition.

  • Most people start with the assumption that the state has a monopoly on the legitimate use of force. NWW point out that this monopoly should not be taken for granted. In natural states, there are multiple organizations with a capacity for violence. Equilibrium is maintained by agreements over privileges and rents. Outside reformers complain about corruption. However, there is no way to end the corruption without destroying the equilibrium and risking civil war. Think of Iraq. Or Pakistan. Or Mexico.

I enjoyed listening to Russ Roberts interview Weingast on Violence, Power and a Theory of Nearly Everything a while back. I recommend the podcast to anyone who isn’t already listening to EconTalk.

North, Wallis, and Weingast have formalized something I thought to myself back in high school — or maybe early college. If free-markets are so efficient, why do we see so many guilds (and other monopolies) in pre-modern economies?

It didn’t take me very long to come to a realization. The king has plenty of soldiers, but not necessarily a lot of cash. Granting monopolies is virtually free to him and probably easier than collecting taxes.

What intrigues me is the thought that kings and dictators could probably do better for themselves by sticking to a few efficient taxes (e.g. a land-value tax), rather than trying to fiddle with anything and everything, and they could hand out favors by handing out straightforward shares of tax revenue (or “profits” after government expenses), not monopolies on random segments of the economy.

Posted in Arnold Kling, Economics, Policy | No Comments »

The Mathematics of War

Monday, May 18th, 2009

When I saw that a recent TED Talk was on the mathematics of war, I got excited. I was expecting, perhaps, a brief tour of some old standbys, like Lanchester’s Laws, followed by some new and exciting analysis.

Instead, I got to see Sean Gourley state that casualties follow a power law:

This is not news. Physicist — and pacifist — Lewis Fry Richardson (1881–1953) discovered this relationship many decades ago.

Posted in Science, War | No Comments »

We ate them

Monday, May 18th, 2009

What happened to the Neanderthals? We ate them:

The controversial suggestion follows publication of a study in the Journal of Anthropological Sciences about a Neanderthal jawbone apparently butchered by modern humans. Now the leader of the research team says he believes the flesh had been eaten by humans, while its teeth may have been used to make a necklace.

Fernando Rozzi, of Paris’s Centre National de la Récherche Scientifique, said the jawbone had probably been cut into to remove flesh, including the tongue. Crucially, the butchery was similar to that used by humans to cut up deer carcass in the early Stone Age. “Neanderthals met a violent end at our hands and in some cases we ate them,” Rozzi said.

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Demography And Destiny

Sunday, May 17th, 2009

Ronald Brownstein examines demography and destiny:

To grasp how powerfully demographic change is reshaping the political landscape try this thought experiment about the 2008 election.

Start by considering the electorate’s six broadest demographic groups — white voters with at least a four-year college degree; white voters without a college degree; African-Americans; Hispanics; Asians; and other minorities.

Now posit that each of those groups voted for Barack Obama or John McCain in exactly the same proportions as it actually did. Then imagine that each group represented the share of the electorate that it did in 1992. If each of these groups voted as it did in 2008 but constituted the same share of the electorate as in 1992, McCain would have won. Comfortably.
[...]
These trends point toward trouble for the GOP if it cannot attract more minorities, especially Hispanics, and reverse the recent Democratic inroads among well-educated whites.

The best way to illustrate that prospect is to pitch the thought experiment forward 12 years. Imagine that the major demographic groups voted as they did in 2008, but cast a share of the vote equal to their expected share of the population in 2020. (For argument’s sake, let’s divide whites among college and noncollege voters in the same proportions as today.) In that scenario, Obama beats McCain by nearly 14 points — almost twice as much as in 2008. Demography will indeed be destiny if Republicans can’t broaden their reach.

Arnold Kling believes that the US is taking a giant step backwards toward what Nobel Laureate Douglass North, John J. Wallis, and Barry R. Weingast — in Violence and Social Orders — call a natural state, in which only the members of the governing coalition are fully free to do business and to participate in the political process, rather than an open-access order, in which both politics and economics are highly competitive:

Given this view, libertarians may have the basic economics right when it comes to open borders. Other things equal, more immigration is much better for the immigrants and somewhat better for the native population.

But other things are not equal. Taking into account the effect of immigration on the political equilibrium, Steve Sailer may have it right. We may have seen the last of America as a dynamic economy with a competitive political system. Instead, we may be headed toward a stagnant economy and a one-party political system.

Have a nice day.

Posted in Arnold Kling, Economics, Policy | No Comments »

The Epitome of Waste

Sunday, May 17th, 2009

The great thing about Chrysler being in bankruptcy court, Bill Waddell says, is that they have to put a lot of details into the public domain — details that reveal the epitome of waste:

According to the bankruptcy affidavit, Chrysler has 38,500 employees plus another 2,300 contract folks for a total of 40,800. The affidavit also states that 27,600 of those employees are members of a union — the UAW for the most part. I am going to make an assumption here — just about every manufacturing company with which I have worked shoots for a Direct to Indirect Ratio of 4:1, but actually operates at closer to 3:1. Let’s give Chrysler some greatly undeserved benefit of a whole lot of doubt and say that they are a 4:1 outfit, so 80% of those union workers are direct labor — 22,000 people.

So if Chrysler has 40,800 people and only 22,000 of them actually make cars, while the rest are involved in mostly non-value adding other things, that is a problem. But the really startling number in the filing is that Chrysler has 3,200 dealers which employee 140,000 people. 140,000 people working at dealerships and 22,000 people making cars? It takes more than 6 people to sell and service a Chrysler for every 1 needed to build a Chrysler.  How bad is a Chrysler if it takes that many people to convince people to buy one, then to keep it running?

Chrysler sold about 1.5 million cars in the US last year through these 3,200 dealers. The dealers are open 6 days a week, for the most part. That works out to better than 40 people at the average dealer to sell and take care of 1.5 cars sold per day. Plus another 3 or 4 people back at Chrysler to handle the paperwork.

By comparison, Toyota sold one and a half times as many cars in the USA as Chrysler last year through only 1,400 dealers.

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Quality Fade

Sunday, May 17th, 2009

Paul Midler’s Poorly Made in China explains the quality fade that often comes with offshored production:

Most of Mr Midler’s work is coping with what he calls “quality fade” as the Chinese factories transform what were, in fact, profitless contracts into lucrative relationships. The production cycle he sees is the opposite of the theoretical model of continuous improvement. After resolving teething problems and making products that match specifications, innovation inside the factory turns to cutting costs, often in ways that range from unsavoury to dangerous. Packaging is cheapened, chemical formulations altered, sanitary standards curtailed, and on and on, in a series of continual product debasements.

In a further effort to create a margin, clients from countries with strong intellectual-property protection and innovative products are given favourable pricing on manufacturing, but only because the factory can then directly sell knock-offs to buyers in other countries where patents and trademarks are ignored. It is, Mr Midler says, a kind of factory arbitrage.

The first line of defence against compromised products are the factory’s clients, the importers. The moment they begin suspecting a Chinese manufacturing “partner” and want to discover what might be unfolding is the moment they become particularly eager to find people in China like Mr Midler. That suggests they want information. But, as Mr Midler discovers, they are finicky about what is found. When suspicions turn out to be reality, all too often they become unhappy—miserable about resolving something costly and disruptive, yet terrified about being complicit in peddling a dangerous product. This is particularly true if the problems could go undetected by customers. Better, to some extent, not to know.

Aware of these dynamics, Western retailers increasingly use outside testing laboratories for Chinese products. But this too, Mr Midler writes, is more form than function, since the tests are by their very nature more limited than the ways to circumvent them. The process resembles the hunt for performance enhancements used by athletes, where a few get caught but the cleverer ones stay ahead by using products not yet on the prohibited list.

Posted in Business, Policy | No Comments »

Invisible hands

Sunday, May 17th, 2009

Oil is a $2 trillion international industry. Most oil is extracted from underneath undeveloped nations by companies from developed nations, who rely on the invisible hands of middlemen to get deals done:

As Dick Cheney put it when he was CEO of Halliburton, “The good Lord didn’t see fit to put oil and gas only where there are democratically elected regimes friendly to the United States.” Sometimes, a company will reach out to rulers of oil-rich states on its own, negotiating and striking deals with them through official emissaries. More often, though, a company will instead work through men like Calil and Eronat: independent fixers, whose job it is to know the leaders and other government officials for whom oil serves as both piggybank and “political weapon.” A fixer can open doors for his corporate clients, arranging introductions to the various potentates he knows. He can help companies navigate the local bureaucracy, or provide the lay of the land with political and economic intelligence, or point to important people or companies that should be courted or hired in order to curry favor. And, in some cases, the fixer can feed money to those in power, in payoffs that often would be illegal under the stringent American and European anti-bribery laws. Edward Chow, a former Chevron executive who spent more than three decades in the oil business, described to me the logic by which fixers thrive. With the U.S. anti-corruption laws, he explained, “There is no gray zone. The lines are drawn very strictly. On the other hand, executives of oil companies are sent overseas to make deals, and they are measured by performance: you either make the deal or you don’t. So you’re supposed to be clean but you’re also supposed to create business. That leads to a tension, and a temptation to use middlemen. Let him do whatever he needs to do; I’m not part of it and don’t want to know.”

Posted in Business, Policy | No Comments »

The Continuity between John Stuart Mill and Barack Obama

Sunday, May 17th, 2009

While the continuity between John Stuart Mill and Barack Obama may not be obvious, Mencius Moldbug says — considering as their preferred policies are almost opposite — it is there:

The policies changed. But the movement is one. 19th-century Radicalism and 20th-century progressivism are unified by a single force: the collective quest for power.

19th-century Radicals favored libertarian policies because they faced an ancien regime which still, to some extent, existed. This was the old regime of Throne and Altar, of mercantilism, Anglicanism and Anglo-Catholicism, imperialism and colonialism — in a word, Toryism.

When Toryism was a reality rather than a bugaboo, liberals could only seek power by destroying it. Thus they sought to cut off its air supply, destroying its sources of profit: protectionism, venal offices, chartered companies, and so forth. They favored rigorous economies of government, and other such ideals quite foreign to the modern liberal.

As they gained power through these aggressive measures, the liberals entered government itself. Thus their interests naturally shifted, toward enlarging and empowering the State. A State that had become “us,” rather than “them.” And thus, the Left went from libertarian to statist.

Thus when we look at policies, which as good democrats we should, we see a discontinuity. But when we look at power structures, which as good reactionaries we must, we see a continuity.

The key is to remember that the Left, at all times, is an adaptive phenomenon. If it were a conspiracy (organized by — the Jews) it would not be Left, but Right. Right is organized; Left is distributed.

The Left is the alliance of all those who seek power through the mind — intellectuals, basically. The Right is the factious and impotent collection of all those who seek to resist the Left, by any means — corruption, or violence, or propaganda, or (seldom, very seldom) the truth and nothing but the truth.

Thus, there was no one in 1900 who said “okay, guys, enough with the libertarianism, our work there is done. Now let’s bring on the statism.” At all times, the Darwinian dynamic of the Left has favored those ideas which brought their thinkers power.

In the 19th century (and before), that power was the power to destroy the ancien regime. Victory in this task naturally brought authority to the destroyers, who established a regime of their own. The ideas of power then became expansive ones, and liberalism pulled its 180.

Posted in Mencius Moldbug, Policy | No Comments »

The Curse of a New Building

Saturday, May 16th, 2009

Steve Blank (The Four Steps to the Epiphany) describes how his company suffered the Curse of a New Building:

The most obvious problem; the time we spent planning the building distracted the company from running the business. But there were three more insidious problems.
  1. While offices for everyone sound good on paper, moving everyone out of cubicles destroyed a culture of tight-knit interaction and communication. Individuals within departments were isolated, and the size and scale of the building isolated departments from each other.

  2. The new building telegraphed to our employees, “We’ve arrived. We’re no longer a small struggling startup. You can stop working like a startup and start working like a big company.” 

  3. We started to believe that the new building was a reflection of the company’s (and our own) success. We took our eye off the business. We thought that since we in such a fine building, we were geniuses, and the business would take care of itself.

While our competitors furiously worked on regaining market share, we were arguing about whether the carpets should be wool or nylon. The result was not pretty.

Posted in Business, Steve Blank | No Comments »

Heilbroner’s Law

Saturday, May 16th, 2009

Left-libertarian Michael Strong (Be the Solution) argues that liberal is neither Left nor Right and wishes that more Leftists would face up to illiberal Leftism’s failures. He cites lifelong-socialist Robert Heilbroner’s acknowledgment from near the end of his life:

Capitalism has been as unmistakable a success as socialism has been a failure. Here is the part that’s hard to swallow. It has been the Friedmans, Hayeks, and von Miseses who have maintained that capitalism would flourish and that socialism would develop incurable ailments. All three have regarded capitalism as the ‘natural’ system of free men; all have maintained that left to its own devices capitalism would achieve material growth more successfully than any other system. From [my samplings] I draw the following discomforting generalization: The farther to the right one looks, the more prescient has been the historical foresight; the farther to the left, the less so.

Mencius Moldbug had always seen this quote cut off after the first sentence. He dubs the last bit Heilbroner’s Law.

Posted in Mencius Moldbug, Policy | No Comments »

Why not Canada?

Saturday, May 16th, 2009

Various economic commentators, Steve Sailer notes, are scratching their heads over why Canada has not had a banking crisis like ours:

It must be some subtle technical difference in bank regulations!

Yet, you’ll notice that most of the losses on mortgage defaults in the U.S., which set off the American crisis, were concentrated in four states, none of which are anywhere near Canada: California, Arizona, Nevada, and Florida.

Daniel Patrick Moynihan used to note that the rate of social problems such as crime, illegitimacy, and dropping out of high school were lower in states closer to the Canadian border. He liked to recommend to policymakers that this data implied that they should attempt to move their states up closer to Canada, although he never, to the best of my knowledge, suggested how.

Posted in Economics, Policy | No Comments »

Seasteading is basically a crazy idea

Saturday, May 16th, 2009

Sadly, Mencius Moldbug says, reason compels him to believe that seasteading is basically a crazy idea:

I mean this in the good sense of the word as well as the bad. Of all things that the endeavor reminds me of, it reminds me most of Shaw’s epigram that all progress depends on the unreasonable man.

I’m glad that smart people are crazy enough to do crazy things like this, and I’m glad that billionaires are crazy enough to put their money where their mouth is. What will come of it? We’ll see. Or our children will, at least.

But in the cold light of reason, let’s take a couple of sharp and serious looks at the project.

First, we need to look a little more closely at this word freedom. From my perspective, which is of course both reactionary and correct, freedom is not an abstraction. The extent of your freedom is the extent of your own practical control over your own mind, body, and property.

For example, I don’t think the conversion of Southern slaves into Southern sharecroppers made anyone much freer, because it created few practical options for the people involved. Before, you were an agricultural laborer who worked on the same farm for your entire life; after, ditto.

Defined in these terms, when you move onto a floating pole somewhere in the ocean, the first effect on your freedom is a massive decline. You have sworn fealty to King Neptune. Neptune accepts your service, as he has accepted so many before you. His court is glorious, his riches are infinite, his territory is vast. But Neptune is a stern and capricious lord.

To live at sea, you need not just love liberty. You need to love the sea. Spend a little time with Moitessier, Slocum, and the like; read this fine collection, and possibly this (pretty much all of Jonathan Raban’s books are good); etc, etc. Yes, I’m aware that seasteading is not yachting. I’m aware that no one intends to take their floating poles around Cape Horn. But you are still at sea, and a subject of Neptune you remain.

For example, until they can form a large enough seastead colony to support regular seaplane service (let alone floating runways, etc), the subjects of Neptune are isolated, in an way that no one on Earth now is. Perhaps the closest equivalents are the small spots of humanity dotted across Alaska. Would you move to Alaska? (Why New Hampshire? Why not Alaska?) Life at sea is likely to be no freer than life in the Alaskan bush. If this is the lifestyle you want, it is as free as anything. If not, it might as well be a jail.

Posted in Mencius Moldbug, Peter Thiel, Policy | No Comments »

AmazonEncore

Saturday, May 16th, 2009

Amazon has just announced its new publishing program, AmazonEncore:

AmazonEncore is a new program whereby Amazon will use information such as customer reviews on Amazon.com to identify exceptional, overlooked books and authors with more potential than their sales may indicate. Amazon will then partner with the authors to re-introduce their books to readers through marketing support and distribution into multiple channels and formats, such as the Amazon.com Books Store, Amazon Kindle Store, Audible.com, and national and independent bookstores via third-party wholesalers.

Our premiere AmazonEncore title, Legacy, written by 14-year-old Cayla Kluver (now 16), had review titles such as “loved it, loved it,” “rich lyrical tapestry and story,” and “breath-taking in scope and execution!” In addition to raves from customers, Ms. Kluver has won several awards from literary groups. The new version of Legacy will be available in Fall 2009.

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It’s Not Who You Know, It’s Who You Are

Saturday, May 16th, 2009

Children resemble their parents, Bryan Caplan reminds us:

When the resemblance is physical, we usually think it’s funny or cute. But when the resemblance is financial, it’s an Issue.

Caplan summarizes the debate on the magnitude of the intergenerational income correlation as it has evolved over the years:

Stage 1 (1970s–1980s): The intergenerational income correlation is low, about .2. This shows that capitalism is pretty fair — while many people see a class society where rich people give their kids a massive edge in life, the reality is that people succeed largely on their merits.

Stage 2 (1980s–1990s): Previous researchers underestimated the intergenerational income correlation by failing to correct for year-to-year fluctuations. The true correlation is much higher, about .4, showing that we live in an unfair class society.

Stage 3 (late 1990s–today): The intergenerational income correlation is indeed quite high. But twin and adoption studies show that most or all of this correlation stems from heredity. The reason why kids from rich families do well isn’t that mom and dad buy their way through life. The reason, rather, is that rich families have genes that cause financial success, and pass these genes on to their kids. (Casual consumers of this literature often get confused by the fact that the effect of IQ is far too small to explain the intergenerational income correlation. The key thing to remember is that there is a lot more to genetics and success than IQ).

Notice the shift in normative subtext:

In Stage 1 and Stage 2 , the normative subtext was quite clear. Capitalism is pretty fair! No, it’s not! On my reading, though, most researchers have moved from Stage 2 to Stage 3 without noticing that their normative subtext is more pro-capitalist than Stage 1 even imagined.

Stage 1 was defensive: “Sure, life’s not fair. The children of the rich do better. But the unfairness is pretty small, and almost vanishes after two generations.” Stage 3, in contrast, is offensive: “Life is fair. The children of the rich do better because talent breeds talent, and under capitalism, the cream rises to the top.”

Posted in Economics | No Comments »

The real American Dream

Friday, May 15th, 2009

Steve Sailer discusses the real American Dream:

I don’t know why people speak so highly of dreams all the time: e.g., the American Dream, “I have a dream,” Dreams from My Father, etc.

If my dreams are representative, then the real American Dream is that you’re in the classroom for your final exam but you haven’t attended a class or opened the book all semester, and for some reason you’re wearing your pajamas, and you really have to go to the bathroom.

Posted in Policy | No Comments »

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