Whip Conflation Now!

Roderick Long’s essay on the differences between free-markets and corporatists markets in this month’s Cato Unbound should be required reading for: leftists and liberals who think libertarians are corporate shills; conservatives with Adam Smith ties who love corporations; libertarians who love Wal-Mart a little too much. 

I’m surely in the latter category. Let me say that I totally agree with Rod about the fact that Wal-Mart and its consumers enjoy a lot of direct and indirect subsidies, which I am against. However, when the primary subsidy is the national and local automobile-centric transportation infrastucture, I can’t really see the point in picking on a company that makes consumers better off by making the most of the tax-funded infrastructure everyone uses. They would not be a more beneficial and admirable firm if they used dirigibles instead of trucks, or were less expert at insterstate logistics. 

But this hints at a thicket of trickier issues. We want a system in which profit-seeking behavior creates the greatest net positive externalities (like continuously increasing the consumer’s share of the cooperative surplus from mundane purchases). But positive spillover maximization within the constraints of a sub-optimal overall system is really desirable, despite the less-than-best incentive structure. Those who do this well deserve admiration and praise. Maybe the American state university system is sub-optimal. But I feel fine about having taken a scholarship at the University of Northern Iowa, since that’s the best I could have done for myself given my actual constraints. If I go on to cure cancer or something (rather likely, actually), I don’t think the advance in human welfare will have been tainted by the fact that taxpayers subsidized my education. But, at the same time, I don’t want to let a corporation of the hook for its rent-seeking, even if that’s the economically rational thing to do, and it had nothing to do with creating the incentives it faces. I don’t yet have a principled way of articulating the difference between OK maximizing (e.g., Wal-Mart using publicly-financed roads) and not-OK maximizing (e.g., attempts at regulatory capture) within suboptimal institutions. But if we want to do something more relevant than libertarian ideal theory, which I do, we ought to be able to say more about the difference.

And here’s a nit. I’m a bit skeptical of Rod’s implicit claims about optimal firm size. He thinks that a genuinely free market will involve a larger number of smaller firms. Maybe, but I think he’s overselling it. I agree that, at a certain scale, the lack of internal prices can create inefficiencies greater than the efficiencies of bringing tasks inside the firm. But the point at which you hit diseconomies of scale depends on what kind of business it is. To go back to Wal-Mart, once it’s basic structure is in place, it’s hard to see how the marginal outlet significantly increases internal transactions costs. “Bigger” in this sense doesn’t do much to add complexity for the managers of the core firm. But it does create efficiencies. The larger the market Wal-Mart constitutes, the harder a bargain it can drive with suppliers, allowing it to offer consumers lower prices, etc. It seems to me there is market pressure toward larger scale in this kind of retail, whether or not the state subsidizes roads. And it’s worth noting that the innovative efficiencies of Wal-Mart in part explains why localities offer subsidies to attract their stores. Wal-Mart is a stable, reliable source of jobs and tax revenue because it is a highly-successful business because it offers lower prices than competitors in part because of its economies of scale. Big business can be beautiful.

Pedro Carneiro on Charles Murray

Today at Cato Unbound, University College London economist (and James Heckman student) Pedro Carneiro replies to Murray’s claim that the value of a BA is vastly overblown. A sample:

Recent research shows that, empirically, the expected rate of return to college varies widely across individuals: as we expand college attendance we attract individuals which are increasingly less suitable to attend college, and which have lower expected returns to college than the ones who are already there. Nevertheless, these studies also show that most people can expect a relatively high return to college. Even if we take the most pessimistic estimates for the return to education for those outside the elite (who economists would call the marginal students), they are probably above 7% per year of college, and they are not lower for a year of a BA as opposed to a year of any other type of post-secondary schooling. Individuals for whom a BA degree is truly a bad idea are just not enrolling in college anyway. In fact, the best predictor of college enrollment, or of completion of a BA, is cognitive ability, and most individuals with low levels of cognitive ability end up never enrolling in college.

So, what’s the punch line? Murray is correct in stating that a BA is not for everyone, and may be right in saying that some people are wasting their time getting a BA, but for most of the population I doubt that the case he is making is of great importance. As he says, firms are not stupid, and will not pay for a BA degree if a BA is not teaching anything to their potential recruits. Similarly, I believe that individuals make mistakes, but at this level they are probably not as serious as Murray is implying. For most of those enrolling in college, a BA has a good expected return, but there is some risk.

Coming up on Friday: Bryan Caplan.

New at Cato Unbound: Charles Murray vs. the B.A.

Charles Murray argues that idea that everyone should get a four-year college degree is the bunk.

Here’s this month’s sales pitch:

Universal college education is often held up by politicians and pundits as a heady ideal of social progress. Economists insistently point out the “wage premium” for college graduates and infer that a main route to greater social and economic equality is an increase in college enrollment. Barack Obama, probably America’s next president, has put forth a plan for meaty tax credits  “for Americans who need a hand with tuition and fees,” because, as he says, “I do not accept an America where you can’t achieve your potential because you can’t afford it.” But does this really make sense? Do you really need a four-year college degree to “achieve your potential”? Is more college for more people really such a guaranteed ticket to greater opportunity and equality?

In this month’s Cato Unbound, the American Enterprise Institute’s Charles Murray, who knows something about ruffling feathers, argues that the BA degree isn’t all its cracked up to be, and urges us to adopt a system that stops pushing everyone to get a BA, whether they really need one or not, and starts offering a wide array of certification exams that signal competence without requiring years of college and thousands in debt. Lined up to reply are economist Pedro Carneiro of the University College, London, an expert in “human capital”; economist Bryan Caplan of George Mason University, who suspects that value of higher education is more about signaling than the cultivation of skill; and education policy expert Kevin Carey of Education Sector.

Carneiro is a frequent co-author of Nobelist James Heckman. His retort to Murray will be available in the morn. The idea that increasing rates of college enrollment is a key to reducing wage inequality is extremely widespread among labor and education economists. If Murray’s right, it would seem that lot of fancy economists aren’t.

Keeping Our Cool

Posting here will continue to be light as Kerry and I make our way to the Hawkeye State, but please turn your attention to the new issue of Cato Unbound, “Keeping Our Cool: What to Do About Global Warming,” featuring a lead essay by the estimable Jim Manzi. Commenters include: Joseph Romm, climate wonk at the Center for American Progress; Indur Goklany, author of The Improving State of the World; and Michael Shellenberger and Ted Nordhaus, authors of Breakthrough.

Here’s a taste of Manzi:

The only real argument for rapid, aggressive emissions abatement boils down to the point that you can’t prove a negative. If it turns out that even the outer edge of the probability distribution of our predictions for global-warming impacts is enormously conservative, and disaster looms if we don’t change our ways radically and this instant, then we really should start shutting down power plants and confiscating cars tomorrow morning. We have no good evidence that such a disaster scenario is imminent, but nobody can conceivably prove it to be impossible. Once you get past the table-pounding, any rationale for rapid emissions abatement that confronts the facts in evidence is really a more or less sophisticated restatement of the precautionary principle: the somewhat grandiosely named idea that the downside possibilities are so bad that we should pay almost any price to avoid almost any chance of their occurrence.

But to force massive change in the economy based on such a fear is to get lost in the hothouse world of single-issue advocates, and become myopic about risk. We face lots of other unquantifiable threats of at least comparable realism and severity. A regional nuclear war in Central Asia, a global pandemic triggered by a modified version of HIV, or a rogue state weaponizing genetic engineering technology all come immediately to mind. Any of these could kill hundreds of millions of people. Scare stories are meant to be frightening, but we shouldn’t become paralyzed by them.

In the face of massive uncertainty on multiple fronts the best strategy is almost always to hedge your bets and keep your options open. Wealth and technology are raw materials for options. The loss of economic and technological development that would be required to eliminate literally all theorized climate change risk would cripple our ability to deal with virtually every other foreseeable and unforeseeable risk, not to mention our ability to lead productive and interesting lives in the meantime. The precautionary principle is a bottomless well of anxieties, but our resources are finite — it’s possible to buy so much flood insurance that you can’t afford fire insurance.

We have ideas about what a real, rigorous, intellectually honest debate about climate policy should look like. We hope this will be it.

After Heller

A great debate on the future of gun rights and gun control after the Washington D.C. v. Heller decision is shaping up over at Cato Unbound. Cato’s Bob Levy, who was co-counsel for Heller, leads off with his take on the decision and its implications. And today Dennis Henigan of the Brady Center contributes a sharp reply, arguing that though the decision was terrible jurisprudence, it’s actually good for gun control. He argues that by decisively forbidding outright bans, Heller has defused the argument that gun control regulation sets us on a slippery slope to total gun confiscation. And therein lies what Henigan calls the “Heller paradox”. By making Second Amendment rights clearer, the Court has made gun control easier. I actually find this argument pretty seductive. Am I wrong?

Dave Kopel pipes up on Friday, and on Monday we’ll have Duke Law’s Erwin Chemerinsky.

The World in Your Pocket

Here’s something I hadn’t considered:

One early darknet has been termed the “sneakernet”: walking by foot to your friend carrying video cassettes or floppy discs. Nor is the sneakernet purely a technology of the past. The capacity of portable storage devices is increasing exponentially, much faster than Internet bandwidth, according to a principle known as “Kryder’s Law.” The information in our pockets yesterday was measured in megabytes, today in gigabytes, tomorrow in terabytes and in a few years probably in petabytes (an incredible amount of data). Within 10-15 years a cheap pocket-size media player will probably be able to store all recorded music that has ever been released — ready for direct copying to another person’s device.

In other words: The sneakernet will come back if needed. “I believe this is a ‘wild card’ that most people in the music industry are not seeing at all,” writes Swedish filesharing researcher Daniel Johansson. “When music fans can say, ‘I have all the music from 1950-2010, do you want a copy?’ — what kind of business models will be viable in such a reality?”

That’s from anti-copyright guru Rasmus Fleischer in the lead essay of this month’s Cato Unbound. But that’s a good point. Suppose you can put everything on Lexis, or every movie ever made, on a thumb drive. What are they going do, ban Fed Ex? Thumb drives? Fleischer seems to think copyright is hopeless, but that in the short term, the attempt to police violations could really harm civil liberties. I suspect he’s right.

George Kateb vs. Patriotism

I’ve recently become a big fan of the eminent political theorist George Kateb (I’m actually pretty baffled about how it could be that I didn’t know of him until late last year), so I’m pretty thrilled he agreed to write the lead essay for this month’s Cato Unbound on the value of patriotism. A thoroughgoing individualist, he doesn’t find much value in it. Here is an especially fine passage:

The brute fact of patriotism is made brute by the inveterate inclination in men to associate virility with the exertion involved in killing and risking death. No theory can ever defeat or discredit this inclination, which helps to engender the fantasy that the competition of political units is the highest kind of team sports. Men love teams, love to live in a world where they are called on to back or play for their team against other teams, even though the sport of war is soaked in blood. Socratic notions of gratitude or Jamesian notions of infinite indebtedness are not necessary for this love. In the sport, where aristocrats used to play their games, elites now mobilize groups or masses to slaughter each other. Men can become peace-loving for a while, but not forever. The women who love them encourage their inclination to see team sports as the essence of their masculinity, and to call patriotic this inclination when it is projected into politics. The pity is that men lend their energies to a state that sooner or later embarks on an inherently unjust imperialist career and thus gets constantly engaged in policies that are deliberated in secrecy, and sustained by secrecy and propaganda, and removed from meaningful public deliberation. Patriotism is indispensable for sustaining this career of anti-democracy.

Now, I know a lot of folks think there is a kind of benign patriotism that is centered on the celebration of the principles of the Declaration and the Constitution and the culture that values them. Maybe. But go to GOPAC and tell me that the patriotism of liberal principles, and not the vulgar “highest kind of team sports” eagles and bunting and wiretaps version, is the most salient incarnation of patriotism in America.

Is Limited Government Possible?

Hey, political theory geeks! This month’s Cato Unbound should be pretty sweet. Here’s the editorial summary of Anthony de Jasay‘s lead essay, “Government, Bound or Unbound?“:

Reprising the topic of his 1989 essay, “Is Limited Government Possible?” political theorist Anthony de Jasay continues to express limited skepticism. According to de Jasay, the incentive of political actors is to gain power by putting together winning coalitions, and to stay in power by rewarding their supporters at the expense of their opponents. If constitutional limits stand in their way, they will eventually be reinterpreted, undermined, or otherwise worked around. Governments are more delayed than limited by constitutional rules, like a lady with the key to her own chastity belt. If governments are effectively limited, de Jasay argues, then it is by means of the structure of campaign finance, the practical limits on tax rates, and public panic at the prospect of economic ruin. De Jasay admits conventional cultural and moral norms may limit government, but doubts these are strong enough to fully check the interests that drive politics.

It’s long, but very worthwhile. Stay tuned for University of Arizona political philosopher Gerald Gaus, author of On Philosophy, Politics and Economics; Michael Munger, chair of the Duke University political science department; and Randy Barnett, professor of law at Georgetown University and author of Restoring the Lost Constitution.