Thursday, July 29, 2010

The Tale of the Slave

Ever since I started becoming politically aware in my teenage years, I've noticed that a very common theme throughout the American landscape was the solidarity with, and encouragement of, directly taking part in the political process. This was never proffered in the context of the exchange of ideas, political debate, or anything of this nature - but rather the focus was on the importance of voting in and of itself. I'll never forget a teacher in high school who often exclaimed, "If you don't vote, you have no right to complain!" I found the argument compelling at the time. But after a while, its sheen started to fade away.

It's not that I feel doing so is immoral or unethical. Instead, I've come to regard it as ineffectual and degrading. My pull, in this political process, is absolutely insignificant at the margin. I feel like I would be more effective in spending that time sharing ideas with people and simply talking to them. But beyond the measure of its utility, from a personal standpoint, there's something to be said about the difference between the nature of what people perceive is happening in that process and what actually is happening. To Johnny Everyman, democracy is the bulwark of freedom - the signal of liberty. To me, it's the consolidation of power, and the competition of various factions and classes to turn that power against their rivals. Even worse, the marginal insignificance of an individual's say arguably perverts incentives, lulling those individuals into a false sense of security and placing a heavy fog on the political battlefield on which those interests vie for power.

In short, the political process does not necessarily technically prevent more favorable politicians from being elected, but I would argue that it effectively moves the political goalposts. What once may have been a struggle about the breadth and depth of political power has turned into a struggle for that power in and of itself. The actions of government through a revolving door of politicians has resulted in a breathtaking amount of accumulated law and policy, turning what was once political ideology into nothing less than a fight over who gets to control the proverbial gun at any given moment. In short, I'm less than optimistic about the longterm effects of our system than most of my fellow Americans - I believe it has turned political focus onto content exclusively, the context of which (on the rare occasion it is brought up) is quickly dismissed as arcane or esoteric. We've lost the patience for deliberation. We've lost the civility for reason. And we've traded in our sense of ethics for existential relativism. It's not a pretty picture.

I can't help but be reminded of probably one of the most forthright and noble critiques of democracy that I've come across in my reading - and I will leave you with that short piece. This is a passage from Robert Nozick's Anarchy, State, and Utopia - it is the Tale of the Slave:

Consider the following sequence of cases, which we shall call the Tale of the Slave, and imagine it is about you.
  1. There is a slave completely at the mercy of his brutal master's whims. He often is cruelly beaten, called out in the middle of the night, and so on.
  2. The master is kindlier and beats the slave only for stated infractions of his rules (not fulfilling the work quota, and so on). He gives the slave some free time.
  3. The master has a group of slaves, and he decides how things are to be allocated among them on nice grounds, taking into account their needs, merit, and so on.
  4. The master allows his slaves four days on their own and requires them to work only three days a week on his land. The rest of the time is their own.
  5. The master allows his slaves to go off and work in the city (or anywhere they wish) for wages. He requires only that they send back to him three-sevenths of their wages. He also retains the power to recall them to the plantation if some emergency threatens his land; and to raise or lower the three-sevenths amount required to be turned over to him. He further retains the right to restrict the slaves from participating in certain dangerous activities that threaten his financial return, for example, mountain climbing, cigarette smoking.
  6. The master allows all of his 10,000 slaves, except you, to vote, and the joint decision is made by all of them. There is open discussion, and so forth, among them, and they have the power to determine to what uses to put whatever percentage of your (and their) earnings they decide to take; what activities legitimately may be forbidden to you, and so on.

    Let us pause in this sequence of cases to take stock. If the master contracts this transfer of power so that he cannot withdraw it, you have a change of master. You now have 10,000 masters instead of just one; rather you have one 10,000-headed master. Perhaps the 10,000 even will be kindlier than the benevolent master in case 2. Still, they are your master. However, still more can be done. A kindly single master (as in case 2) might allow his slave(s) to speak up and try to persuade him to make a certain decision. The 10,000-headed monster can do this also.
  7. Though still not having the vote, you are at liberty (and are given the right) to enter into the discussions of the 10,000, to try to persuade them to adopt various policies and to treat you and themselves in a certain way. They then go off to vote to decide upon policies covering the vast range of their powers.
  8. In appreciation of your useful contributions to discussion, the 10,000 allow you to vote if they are deadlocked; they commit themselves to this procedure. After the discussion you mark your vote on a slip of paper, and they go off and vote. In the eventuality that they divide evenly on some issue, 5,000 for and 5,000 against, they look at your ballot and count it in. This has never yet happened; they have never yet had occasion to open your ballot. (A single master also might commit himself to letting his slave decide any issue concerning him about which he, the master, was absolutely indifferent.)
  9. They throw your vote in with theirs. If they are exactly tied your vote carries the issue. Otherwise it makes no difference to the electoral outcome.
The question is: which transition from case 1 to case 9 made it no longer the tale of a slave?

Friday, July 23, 2010

Market Perception

Over at Marginal Revolution Tyler Cowen poses and interesting question to his readers:

I have never heard a market-oriented economist argue that a rise in the minimum wage boosts the demand for labor...Market-oriented economists instead claim that entrepreneurs "see through" to the real marginal products of these laborers...So what happens when the Fed "sets" short-term interest rates or influences other prices? What is postulated by monetary misperceptions theories, including Austrian business cycle theory? Entrepreneurs no longer see through to the fundamentals...What is the difference between these two cases?

My economic insight is amateur at best, but I find the comparison somewhat tenuous. I'm not really sure if it matters if entrepreneurs "see through" the fundamentals or not. In the case of minimum wages, if a market actor takes into full account the actual marginal product of his laborers, he will choose to not hire additional workers or even try to get rid of a few current ones, resulting in rising unemployment. But even if he IS fooled by the government stamp of quality assurance, he still is forced to contend with the rising inequity of dispensed wages and the MRP of his laborers, and will probably eventually be forced to withdraw from new employment, etc., resulting in rising unemployment. A decree of increased minimum wage does not change the fundamentals of production or investment, no matter how much a given actor may or may not choose to believe it.

Similarly, I'm not sure if it matters that entrepreneurs see through the fundamentals in the second example either. In the case of mandated wages, the price of employment rises, creating a market incentive for unemployment. In the case of artificially deflated interest rates, the price of investment decreases, creating a market incentive for capital investment. Cowen seems to want to know why, if actors can see through the folly of the wage mandate, why they couldn't see through artificial interest manipulation. I think this is begging the wrong question. The real question is, "If market actors could see through interest manipulation, how would they have reacted any differently than they did?" I would contend that they wouldn't. And this is why it simply didn't matter if entrepreneurs had some kind of foresight into the issue or not.

In the case of the wage mandate, actors stand to lose on employment, regardless of their belief on the matter. In the case of altering nominal interest rates, actors stand to win on investment, regardless of their beliefs on the matter. The real productivity of labor hasn't risen when wages are artificially inflated, and the real productivity of investment hasn't risen when interest rates are artificially decreased. However, the nominal PRICE for labor and investment has changed (artificially) - which is exactly why individual actors act as they do. An employer sees that the price of employing labor has risen when the marginal product of labor has not; he stops employing. An investor sees that the price of investment has DECREASED when the marginal product of investment has not; he starts investing. If an employer ignores the relationship between price and productivity with regards to labor, and continues employing, he will lose money at the margin. If an investor ignores the relationship between price and productivity with regards to investment, he will lose money at the margin.

National unemployment or economic bubbles are largely irrelevant to the individual actor, even though they may ultimately affect his bottom line. Here we have a genuine market-failure; albeit one induced by government controls. If all actors choose to ignore individual incentives, there is a small failure as opposed to a larger one . If an actor chooses not to cooperate, he wins while other actors lose. It's a prisoner's dilemma of sorts. If all employers choose not to alter their employment trajectory, they all lose some profit but avoid mass unemployment. If all investors choose not to alter their investment trajectory, they all lose some would-be profit but avoid an investment bubble. The problem, of course, is that if they choose not to act in their self-interest, while other actors DO, they stand to lose even more.

This is, of course, analogous to the tragedy of the commons; if we all let our sheep use up common resources, we lose. If other shepherds' sheep use up the common resources, and I naively restrain my sheep from using those common resources as well, I lose relative to those who openly dismissed restraint. In the case of the Austrian Business Cycle Theory, in regards to the economic bubble, it didn't really matter if shepherds (investors) understood that we were over-using resources or not. What mattered is that there was an incentive to use those resources, because they were highly likely to, as individuals, lose more if they didn't do it at all.

And isn't this the case? In hindsight, we can all agree that if we could have stopped the investment from happening, we could have avoided catastrophe. Easy enough. But, as an individual actor, would you really have been better off simply disassociating yourself with that investment at the time? Were the people who flipped 2-3 houses in that period of time worse off (individually) than those who didn't? Sure, the aggregate result of choosing to invest was devastating. But, as in the case of the common pasture, those who let their sheep unabashedly consume the land were certainly in a better position when it all came crashing down in the end - and that outcome wasn't dependent upon whether they realized the aggregate result of their actions or not.

Friday, July 9, 2010

Children and Liberty

Over at Pileus, Jason Sorens writes a great piece about what parents owe to their children and vice versa. Agreeing with him morally, I inquire about the qualitative nature of parental obligations - a la the infamous Rothbardian counter-point. A great conversation between liberty-minded people ensues...

Tuesday, July 6, 2010

Federalism Revisited or Why Principles Matter

ISSUE: New Immigration Legislation in Arizona

Democrats: Federal power usurps that of the States...

Republicans: State Sovereignty is critical...

ISSUE: Supreme Court Ruling on Second Amendment Incorporation

Democrats: State Sovereignty is critical...

Republicans: Federal power usurps that of the States...

Conflict, anyone?

What more evidence do you need of the ever-encroaching presence of utilitarianism in the public psyche? What's that you say? These objectively conflicting means will help me meet my subjective ends? Sign me up! Meanwhile, back in the world of ideas, some of us have to wonder why people are so quick to ditch their principles. Which is it? Do you believe in federalism or not? Are you willing to throw those principles away if you think it will help you keep your guns or protect immigrants for some unspecified time? Maybe we should all sit back and think about things a little harder.