Isegoria

Most people tolerate the unpleasant ramifications of the status quo because they’re used to them, Bryan Caplan notes:

“What if a poor person gets sick, doesn’t have insurance, and can’t get friends, family, or charity to pay for treatment?”

“What if an elderly person gets defrauded out of his entire retirement and the perpetrator vanishes into thin air?”

“What if a child is starving on the street, and no one voluntarily feeds him?”

“What if someone just can’t find a job?”

If you’re a libertarian, you face what-ifs like this all the time.  The point, normally, is to make you say, “Tough luck” and look like a monster.  What puzzles me, though, is why libertarians rarely ask analogous questions.  Like:

“What if Congress passes an unjust law, the President signs it, and the Supreme Court upholds it?”

“What if the government conscripts you to fight in an unjust war, and you die a horrible death?”

“What if a poor person drinks and gambles away his welfare check?”

“What if the government denies you permission to legally work?”

“What if the President decides your ethnicity is a national security risk and puts you in a concentration camp, and the Supreme Court declares his action constitutional?”

“What if a person lives an extremely unhealthy lifestyle, so by the time they’re retired, they’re in constant pain no matter how generous their Medicare coverage is?”

“What happens if a President lies to start a war, and voters don’t particularly care?”

Once you start the what-if game, it’s hard to stop.  Name any political system.  I can generate endless hypotheticals to aggravate its supporters.  The right lesson to draw: Every political perspective eventually has to say “Tough luck” when confronted with well-crafted what-ifs.  There’s nothing uniquely hard-hearted or cruel about libertarianism.  Defenders of democracy, nationalism, liberalism, conservatism, the American Constitution, and social democracy all eventually sigh, “Life’s not fair,” or “Well, what do you want me to do about it?”

The Venetians had a somewhat tedious way of combining voting and randomness, Nick Szabo explains, that reduced blackmail and pay-to-play political donations:

If would-be purchasers of political favors cannot predict who will win, or even who might win with substantial probability, they cannot purchase any favors prior to an election. A perfectly unpredictable election would be bribe-free.

We can’t make elections perfectly unpredictable, but we can get pretty close. There are historical and even contemporary precedents. For example, we choose jurors by lot from a pool much larger than the twelve jurors selected. This prevents wealthy plaintiffs, defendants, or governments from buying jurors through the selection process. (After selection, there are a number of legal and physical sequestering mechanisms that can be used to isolate a jury from contact with favor purchasers. As for political office, this article deals only with bribery during the selection process).

In ancient Athens, not only juries but many office-holders were selected by lot. But the most intriguing unpredictable election process was probably that of the medieval Venetian Republic. This republic helped turn a secure island into Europe’s wealthiest trading empire. In Venice, many political offices were selected by a repeated cycle of lottery, vote, …. lottery, vote. The final lottery and vote, at least, were held one after the other in the same room, giving favor purchasers no time or privacy to do their business.

I’ve mentioned unpredictable elections before, but sortition came up recently.

Tyler Cowen suggests that smart classical liberals and libertarians have, as if guided by an invisible hand, evolved into State Capacity Libertarians, which he defines via these propositions:

1. Markets and capitalism are very powerful, give them their due.

2. Earlier in history, a strong state was necessary to back the formation of capitalism and also to protect individual rights (do read Koyama and Johnson on state capacity). Strong states remain necessary to maintain and extend capitalism and markets.

[...]

3. A strong state is distinct from a very large or tyrannical state. A good strong state should see the maintenance and extension of capitalism as one of its primary duties, in many cases its #1 duty.

4. Rapid increases in state capacity can be very dangerous (earlier Japan, Germany), but high levels of state capacity are not inherently tyrannical. Denmark should in fact have a smaller government, but it is still one of the freer and more secure places in the world, at least for Danish citizens albeit not for everybody.

5. Many of the failures of today’s America are failures of excess regulation, but many others are failures of state capacity. Our governments cannot address climate change, much improve K-12 education, fix traffic congestion, or improve the quality of their discretionary spending.

[...]

6. I will cite again the philosophical framework of my book Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals.

7. The fundamental growth experience of recent decades has been the rise of capitalism, markets, and high living standards in East Asia, and State Capacity Libertarianism has no problem or embarrassment in endorsing those developments.

[...]

8. The major problem areas of our time have been Africa and South Asia. They are both lacking in markets and also in state capacity.

9. State Capacity Libertarians are more likely to have positive views of infrastructure, science subsidies, nuclear power (requires state support!), and space programs than are mainstream libertarians or modern Democrats.

[...]

10. State Capacity Libertarianism has no problem endorsing higher quality government and governance, whereas traditional libertarianism is more likely to embrace or at least be wishy-washy toward small, corrupt regimes, due to some of the residual liberties they leave behind.

11. State Capacity Libertarianism is not non-interventionist in foreign policy, as it believes in strong alliances with other relatively free nations, when feasible. That said, the usual libertarian “problems of intervention because government makes a lot of mistakes” bar still should be applied to specific military actions. But the alliances can be hugely beneficial, as illustrated by much of 20th century foreign policy and today much of Asia — which still relies on Pax Americana.

In Liberalism at Large Alexander Zevin explores the world according to the Economist:

He shows how its editors and contributors pioneered the revolving doors that link media, politics, business, and finance—alumni have gone on to such jobs as deputy governor of the Bank of England, Prime Minister of Britain, and President of Italy—and how such people have defined, at crucial moments in history, liberalism’s ever-changing relationship with capitalism, imperialism, democracy, and war.

A capsule version of this thesis can be found in the career of James Wilson, The Economist’s founder and first editor. Wilson, who was born in Scotland and became the owner of a struggling hatmaking business, intended his journal to develop and disseminate the doctrine of laissez-faire—“nothing but pure principles,” as he put it. He was particularly vociferous in his opposition to the Corn Laws, agricultural tariffs that were unpopular with merchants. The Corn Laws were repealed in 1846, three years after the magazine first appeared, and Wilson began to proselytize more energetically for free trade and the increasingly prominent discipline of economics. He became a Member of Parliament and held several positions in the British government. He also founded a pan-Asian bank, now known as Standard Chartered, which expanded fast on the back of the opium trade with China. In 1859, Wilson became Chancellor of the Indian Exchequer. He died in India the following year, trying to reconfigure the country’s financial system.

During his short career as a journalist-cum-crusader, Wilson briskly clarified what he meant by “pure principles.” He opposed a ban on trading with slaveholding countries on the ground that it would punish slaves as well as British consumers. In the eighteen-forties, when Ireland was struck with famine, which was largely caused by free trade—the British insisted on exporting Irish food, despite catastrophic crop failure—Wilson called for a homeopathic remedy: more free trade. With Irish intransigence becoming a nuisance, he advised the British to respond with “powerful, resolute, but just repression.” Wilson was equally stern with those suffering from rising inequality at home. In his view, the government was wrong to oblige rail companies to provide better service for working-class passengers, who were hitherto forced to travel in exposed freight cars: “Where the most profit is made, the public is best served. Limit the profit, and you limit the exertion of ingenuity in a thousand ways.” A factory bill limiting women to a twelve-hour workday was deemed equally pernicious. As for public schooling, common people should be “left to provide education as they provide food for themselves.”

Michael Munger explains Gordon Tullock’s joyfully contrarianism thoughts on corruption:

Corruption may or may not be illegal, but it’s always a bad thing. Isn’t it?

Some think of corruption — the misuse of public trust in the powers of political office for private gain — as comparing (a) the honest services and choices of a public official with (b) actions “corrupted” by considerations that are not legitimate. Harvard law professor Lawrence Lessig has claimed that a decision is corrupt if the official is improperly, even if only subtly, influenced by the anticipation of some sort of economic gain or loss. Fordham University law professor Zephyr Teachout has claimed that if a public official acts in consideration of a private benefit outside of the standard compensation for his or her office, the action is automatically corrupt.

Suppose, though, you are an entrepreneur in a developing nation and you have a good idea for a new company. It normally takes six months to have a telephone or internet line set up, because the state monopoly utility company is notoriously inefficient. But if you pay lagay (“speed money” in Tagalog), or if you khilana para (“feed him” in Hindi), a happily willing, competent work crew will be there tomorrow. Who will actually cough up the cash? Whoever values the service most. Which means that the most economically productive firms and the best new ideas will get to jump the queue.

In a system with bad rules or limited state capacity, tacit endorsement of corruption improves the working of the system. The more inefficient the system, the greater the efficiency increase in the near term, as scarce resources are directed first to higher-value uses.

But as Tullock asks, “And then what?” In this case, two things happen. First, because the scarcity of the resources is artificial and discretionary, the state actors who formally and informally control those resources will adjust access strategically so as to increase the quantity of “rents” (i.e., undeserved benefits) they receive. In my example, the phone company might announce a mandatory two-year waiting period, increasing the value of access to the “informal” workaround of bribes. Second, those with control over the resources and thus access to the rents will start competing — very likely by offering bribes of their own — to maintain their lucrative positions.

Tullock noticed this phenomenon for himself at several points during his career. When he was briefly in private practice as an attorney in Chicago, his job as a junior associate involved paying bribes to minor officials in the Kelly-Nash political machine to ensure that his firm had fast access to records that might otherwise take weeks to secure through normal channels. Later, while working for the U.S. Foreign Service in Tientsin, China, he had the experience of being there on the ground during the Communist takeover of 1948–49.

Tullock was struck by a presentation from an academic who decried the corrupt practices of the Chiang Kai-shek regime in Taiwan but lauded the new Communist regime on the mainland. In particular, the academic pooh-poohed the supposedly “restrictive” travel policies of the Communists, noting that it was easy to bribe officials to obtain passes.

To Tullock, both regimes seemed corrupt. But he also realized that corruption, far from being an immediate problem, was the only thing that made the cumbersome Rube Goldberg governing mechanisms work at all. “While corruption usually meets with disapproval,” he wrote in Contemporary Economic Policy in 1996, “it may have some redeeming features. It may make possible smaller or no salary payments to officials who, if carefully supervised, will still carry out their functions on a fee-for-service basis. The purchase of government jobs usually is thought to be corrupt, but in some cases, it has worked out quite well.”

He filed this lesson away in the late 1940s and often came back to puzzle over it for the next 65 years. If corruption is actually a benefit — at least in countries with bad institutions or sharply limited state capacity — then what is the problem? All we need to do is suggest that developing nations cultivate corrupt systems and voilà! Problem solved.

Of course, that’s not right, and this realization is what led Tullock to his signature contribution to the study of public policy: the problem of “rent-seeking.” In China, he said, officials write laws with the explicit expectation of selling “permits” that would exempt the “customers” from having to obey the regulation. In addition, officials may purposely limit the total number of exemptions so they can auction them off to the highest bidder. In the short term, corruption is a workaround for bad government, but in the long run corruption locks in bad government and encourages abuses of state power.

Tullock used the example of an official in Fukien (now Fujian), a province from which many citizens illegally traveled to Indonesia to work, returning with substantial sums of cash and goods. Local officials set up elaborate programs under which going abroad to work was technically not allowed but in fact actively encouraged for those who could expect to earn good wages. Officials charged licensing fees that were high enough to substantially enrich the “sellers,” but they made sure the cost was not so high that it would deter workers from traveling abroad in the first place.

The problem is that the system became firmly entrenched, and the bribes came to be capitalized in the “prices” for getting a job as a local official in Fukien. In fact, the “salaries” of government officials could be rendered as negative numbers. The opportunity to collect bribes was so lucrative that the positions were essentially sold as franchises, with officials paying their superiors, who paid their superiors, and so on.

This system, once in place, is nearly impossible to root out. In open, noncorrupt systems, parents might save or borrow to pay for law school or some other training for their children. But in a corrupt system, people save or borrow to pay the bribes necessary to get the kinds of jobs where bribes from citizens provide a good living. If a new, reform-oriented government comes into office, the reaction from government officials is likely to be fierce, possibly violent. After all, they paid for their corrupt jobs fair and square, and they expect to be able to collect.

“Evidence suggests that officials tended to draw a large part of their personal income from bribes,” Tullock wrote in his 1996 paper. “Indeed, it is almost certain that once a government structure has been set up so various people make profits, changing the structure in such a way to shrink the profits will be extremely hard, regardless of whether the profits are legal or not. Firing civil servants may be even harder than firing college professors.”

A passage from a recent New York Times article on illegal “sand-mining” in India puts the situation in stark relief: “Construction is the business where criminals have the best opportunities to launder the most money, [one real estate agent] explained, and a cascade of bribes go ‘to the topmost levels in the government.’…You pay 6 percent in bribes up front. Then, after the first payment, you pay another 7 percent, half of which goes to the state’s top politicians. The development authority’s junior engineer gets 3 percent. The associate engineer gets 1.5 percent. The senior manager gets 3 percent, and so on — until the total reached an astonishing 30 percent.”

For Tullock, the really interesting question is not why so many governments are corrupt. Instead, the puzzle is how any government manages to solve this problem and avoid corruption. The benefits, to those in power, of creating arbitrary restrictions and then selling indulgences to exempt the wealthy and powerful seem irresistible. The U.S. Internal Revenue Code is replete with relatively high income tax rates, at least on paper. But as each industry or investment group pays its “bribe” to Congress by organizing voting support, making campaign contributions, and the like, the actual rates to which it is subject are reduced, often sharply, via esoteric subsidies, tax credits, or deductions.

In the early 16th century, Martin Luther recognized this kind of corruption in the Catholic Church. In his “Thesis 27,” Luther complained of priests “who say that as soon as the coin jingles into the money box, the soul flies out of purgatory.” He was referring to an actual jingle, dating to long before Mad Men — perhaps the first ever used in advertising. A little rhyme, attributed to a German monk named Johann Tetzel (1465–1519), translates to: “As soon as the money in the chest rings, a soul from purgatory to heaven springs.” The very idea of judgment had been hijacked by some members of the Church as a way to increase their revenue, selling “Get out of purgatory” cards.

A lot of work has been done since Tullock first wrote about this problem. Our understanding of the temptations of corruption, especially in developing nations — he called it “the transitional gains trap” in a famous article in 1975 — is now standard economics. But Tullock saw the problem clearly in the 1950s.

Zach Weinersmith‘s Saturday Morning Breakfast Cereal comic doesn’t normally cover political topics, but his new Open Borders graphic novel — which is certainly graphic, but doesn’t appear to be a novel — with Bryan Caplan has just come out, and it does deal with a contentious topic.

“Thanks to the power of Zach Weinersmith, it’s fun to read for all ages.”

They discuss the book here:

Michael Munger looks back at the joyful contrarianism of Gordon Tullock, starting with his insights into safety regulations:

Should governments mandate more safety in products? The usual terms of debate weigh reduced injuries — the “human toll” — against increased cost, with only heartless “rational choice” trolls actually worrying much about costs. The idea that perfect safety is morally undesirable, because such policies have enormous opportunity costs, is obviously, annoyingly important — and a big part of the reason economists often end up standing alone at parties, studying the wallpaper pattern.

Safety is valuable, of course. But economists pitch their arguments “at the margin,” meaning for the last increment. The first improvements in safety are cheap and uncontroversial: reliable brakes, turn signals, seat belts, safety glass in windshields. The next increment — airbags, anti-lock braking systems — comes at much greater cost and with a smaller associated reduction in injuries. Ultimately, the only way to make cars completely safe is to park them and throw away the keys. Driving is dangerous.

Tullock’s contribution was to ask, “And then what?” The problem is worse, actually much worse, than the increasing marginal cost of safety improvements. The safety of the car, after all, is just one factor; drivers and their attitudes toward danger are the key missing variable. The state can only mandate the safety of the car. Ultimately, the driver’s behavior determines the risk of driving.

This observation is now sometimes called the “Peltzman Effect,” after the University of Chicago economist Sam Peltzman, but Tullock had argued some versions of it for decades. As the University of California, Irvine economist Richard McKenzie recalls it, Tullock noticed that safer cars reduced the costs of accidents for drivers. If the government “subsidizes” accidents by mandating airbags, there will be more accidents. Worse, because of increased automobile speed and recklessness, there will be more pedestrian injuries and deaths. Safer cars mean more injuries.

Tullock’s famous counterproposal was to place a long, sharp dagger firmly in the center of the steering column. His earliest notion of this was to have the tip pointing back and locked one inch from the driver’s chest. By the time I talked to him about it, in the 1990s, the idea had evolved to work more like an airbag, so that the dagger would be hidden but would deploy with explosive force in the event of an accident.

Calling this conclusion counterintuitive is an understatement — but there is an important insight underlying Tullock’s drollery. The risk of injury is jointly determined by the behavior of all the people who are driving in a particular area. If I’m aggressive and cause a wreck, I’ve imposed additional risk on you. If safety “improvements” subsidize risk-taking, and some — not all, necessarily, just some — people drive more aggressively, then the observed reductions in injuries from safer cars will be much less than regulators expect. Worse, no individual driver can, by behaving safely, escape these bad effects. Safety regulations have negative externalities.

The most annoying thing about Tullock was that he was usually right. He was even right about car safety regulation (though maybe not about the dagger!): According to the American Automobile Association, there have been substantial increases in driver aggressiveness since 2000, with eight out of 10 drivers admitting to having intentionally tailgated another car and nearly half saying they have bumped, rammed, or gotten out of their cars to threaten the occupants of another vehicle. While the direct causal mechanism is complex, this increase in aggressiveness tracks the imposition of universal requirements for airbags and anti-lock brake systems in 1998.

This problem is borne out in the real “national sport” of America, NASCAR. Starting in 1988, the racing entity imposed “restrictor plates” as a safety measure, limiting the airflow into an engine (and therefore the horsepower, and speed, of cars). Restrictors were required in response to the horrific “going airborne” May 1987 accident of Bobby Allison at Talladega, where the car flew into the upper restraining fence and disintegrated, injuring five spectators, including one who lost his eye. But two refereed journal articles, one in the Southern Economic Journal in 2004 by J.B. O’Roark and W.C. Wood, and one in 2010 in Public Choice by A.T. Pope and R.D. Tollison, concluded that safety improvements had increased the number of crashes and multi-car pileups in the sport (though they had not affected the total number of deaths).

That is what you would expect. If speeds are suppressed and safety equipment is improved, the risks of death and serious injury are lowered. The result should be increases in risky behavior by drivers, including close drafting and “trading paint,” the euphemism NASCAR uses for high-speed bumping.

In February 2018, NASCAR switched from restrictor plates to the more precise and consistent “tapered spacers,” which have the same effect and the same “safety” rationale. The 2018 NASCAR “Cup Series” champion, Joey Logano, was clear about the likely outcome: “I totally expect to crash more cars,” the Associated Press quoted him saying. “As cars are closer and drivers are more aggressive, a mistake will create a bigger crash. We can’t get away from it.”

Of course, Tullock would ask, “And then what?” NASCAR is not stupid; it may not be an accident (sorry) that there are more crashes with the same level of driver safety. That may very well be the point: NASCAR fans come for the racin’, but they stay for the wreckin’. Using a “safety” rationale — particularly one that really does reduce injuries slightly — as a means of increasing the number of wrecks makes a lot of economic sense. If the authorities really wanted to prevent accidents, NASCAR would put big daggers in steering columns, not little tapered spacers in carburetors.

Everyone, regardless of their income and wealth level, would take a hit from the Democrats’ proposed wealth tax:

That’s because, contrary to what American progressives believe, most wealth isn’t devoted to extravagant consumption. Instead, it’s invested in companies; it’s used to fund research and development that will create better goods and services for consumers; it serves as the capital that innovators and producers borrow from banks to grow their businesses. In other words, most wealth is used to fuel other wealth-producing activities that improve well-being.

So whether a wealth tax will create a real disincentive to accumulate capital or force rich taxpayers to send a larger share of their money to the IRS, less capital will be available for everyone in the economy to use for their own businesses and training. That means that many Americans beyond the super wealthy will get burned by the tax.

This negative consequence is a reason why so many countries that had wealth taxes in the 1990s have since abandoned them. The cost of implementing a wealth tax and annually assessing assets often costs more than the tax actually raises in revenue. In France, for instance, the administration cost was double the revenue raised. As such, it’s not surprising that the country dropped its wealth tax in 2018.

Coal-burning China’s embrace of electric vehicles may also be more about money than the environment:

China produces less than 5% of the world’s oil — used in combustion engines — but about 45% of the globe’s coal, used in electricity production for EVs. In much the way that the U.S. is the world’s largest user of homegrown crops for motor fuel despite widespread criticism of ethanol subsidies as costly and environmentally damaging, China will spend money and endure a dirty industry to be energy independent as well.

More than that, though, Beijing wants to dominate tomorrow’s car industry. China’s opening to the West came too late for it to be a major exporter of internal combustion engine vehicles, but it has made aggressive moves to dominate battery production, including securing sources of key metals. Through lavish subsidies it already has by far the world’s largest domestic EV market.

The March of History pits Mises vs. Marx in a Hamilton-esque rap battle:

Workers of the world — ASSEMBLE!
It’s time for the ruling classes to tremble.
I’m the people’s hero, the MVP:
M – A – R – X! Yeah, you know me!

Let’s go back to when men were free.
We hunted and gathered communally.
But get ready, ’cause here comes the twist,
A villain appears, called a “capitalist”.

He puts the proletariat — that’s US — in chains,
exploits our labor, and pockets the gains.
Though slick ads he trick lads and ladies in kind,
selling fake needs he poisons our hearts and minds.

He rots our soul through alienation
pursuing limitless accumulation.
He works us into an early grave,
through debt, steals back the money we save.

Greed is the gospel! Profit? GOD.
The rich get richer through graft and fraud.
The poor get poorer, but YOU don’t care.
Doesn’t that sound laissez unfair?

200 years I’ve been singing this song,
Now my chorus is 99% strong.
The revolution’s here. It’s time to repent.
Your moment is over — your capital’s SPENT!