Teach Price Gouging Using Uber

I was talking with some young people in Boston about getting around during the severe snow. They commented that Uber’s prices would go up by a factor of 4 or more when things got really tough. But they were not angry. They were grateful that the could get transportation at all. And they understood the role that the higher prices played in helping the situation.

Perhaps one could discuss this phenomenon in class. And then ask why the young people did not complain about “price gouging.” Why is it that if a store were to raise prices on snow shovels during a snowstorm that would be price gouging, but Uber’s approach was not price gouging? Why would someone be inclined to favor a regulation to prevent the store from raising the price of shovels during a snow storm?

I suspect that the intuition is that the store’s supply of shovels is presumed fixed, but Uber’s supply of drivers goes up as prices rise. Since the higher price creates a supply response, people can see it playing a constructive role. But with the store and the snow shovels, all you see are higher profits.

Of course, there are two other benefits to higher prices for snow shovels. First, it discourages people who do not really need shovels from hoarding them (if you already have one shovel, you would not go out and buy a second one at a high price). Second, in the long run it encourages stores to keep extra shovels in stock. Knowing that they can make a good return from having a large inventory of shovels in case of a snow storm, the stores will be willing to hold larger inventories than if their profits are constrained.

The Ideological Cesspool that is Academia

1. Kimberly Strassel writes,

Apparently the only kind of thought not allowed is that which might “undermine,” according to UnKochMyCampus, “environmental protection, worker’s rights, health care expansion, and quality public education.” Stopping such research is the mission of this organization, which is spearheaded by Greenpeace, Forecast the Facts (a green outfit focused on climate change), and the American Federation of Teachers.

2. Read Tyler Cowen’s post on Elizabeth Anderson, a chaired professor of philosophy invited to give a prestigious lecture at Princeton.

I won’t summarize her views, but I will pull out one sentence to indicate her stance: “Here most of us are, toiling under the authority of communist dictators, and we don’t see the reality for what it is.” These communist dictators are, in her account, private business firms. That description may be deliberately hyperbolic, but nonetheless it reflects her attitude that capitalist companies exercise a kind of unaccountable, non-democratic power over the lives of their workers, in a manner which she thinks is deserving of moral outrage.

I cannot view this charitably. The way it looks to me, if you are on one side of the ideological divide, you are harassed and hounded. If you are on the other side, someone whose ideas are ignorant and ridiculous is considered an eminent scholar.

I am not saying that no one should listen to Elizabeth Anderson or that she should not have a forum in which to speak. Exposure to a broad range of viewpoints is a good thing. I just wish that there were a little boy who would stand up and say that the empress has not the slightest bit of clothing until she can explain the concepts of exit and voice, and explain the different ways in which they empower individuals.

But as far as I can tell, broad exposure to ideas is not what our leading colleges and universities are providing these days. Let me provide a perspective on this, and on “critical thinking.”

Critical thinking is not challenging views that are disliked. Anyone can find fault with those with whom you disagree. It is questioning the views of people with whom you agree that constitutes critical thinking. Above all, it means questioning your own views.

Many people are familiar with Rene Descartes’ phrase, “I think, therefore I am.” Few people know the context. Descartes’ is meditating about what he can know with certainty. He asks, what if all of my sensory perceptions are simply tricks played on me by an evil demon? Then maybe everything I believe that I know about the world around me could be wrong. But I cannot be wrong about my belief that I am thinking. At least one entity in the world certainly exists, namely, the person doing this thinking.

The ability to question large chunks of your own belief system is for me the essence of a well-trained mind. When we share things that other people say and write on the Internet, chances are they are things that we agree with. How often do you share things that raise reasonable doubts about your beliefs? If you do that as often as once a month, you are doing well.

If the future truly belongs to those who can think critically, then today’s college faculty may be left behind.

Online Self-Education: The Bigger, Closer Library

When I was in college, I sometimes went to the library just to browse and learn. I might pick a book or journal off the shelf, read something, see a reference to something else, go read that, and so on.

From that sort of self-education perspective, the Internet is like that college library, only bigger and closer. I don’t have to go to the library–I just turn on my laptop or tablet. The contents are not confined by shelf space or budget. As an aside, there is multimedia (YouTube). Also, much more frequent updating.

One downside of the bigger, closer library is that it has many distractions. In college, the only competition for my attention was the sports section of the newspaper and the occasional girl I wanted to chat up. To play a game or get entertainment I had to go somewhere else. Now, the distractions are right in the library.

The bigger, closer library has to be an enormous boon to what Tyler Cowen calls infovores, particularly those for whom a traditional library was out of reach.

The question I have is how school as we know it relates to the bigger, closer library. Possibilities:

1. They are complements. You use the bigger, closer library more efficiently because of what takes place in school.

2. They are substitutes. Time you spend in school courses is wasted–you would be better off spending time in the bigger, closer library. But when you are distracted in the bigger, closer library, you would have been better off in school.

3. Schooling is not about learning. It is about socialization. Schools are in the process of shifting their focus to socialization, with the responsibility for learning shifting to the student and to the bigger, closer library.

On point (1), think of learning as requiring motivation, feedback, and content. The library has the content, but you have to be motivated to use it and you need feedback to know whether you are using it well. Perhaps right now the classroom provides better motivation and feedback.

However, I expect within a few years to see feedback systems on phones and tablets that are at least competitive with the feedback process that occurs in a classroom. At that point, the only contribution that classroom time can make is to help with motivation–teachers motivating students and students motivating one another.

Keen vs. Krugman

The controversy flared three years ago. The issue is whether banks are special because they can create deposits “out of thin air.” The formative exposure that I had to this issue–and I would bet that the same goes for Krugman–is James Tobin’s Widow’s Cruse paper.

I am now reading a draft of a book that talks about this issue. The author argues vehemently that those of us aligned with Tobin or other mainstream economists fail to appreciate what makes banks special.

I could argue either side of this issue. As you know, I like to say that the nonfinancial sector wants to have a balance sheet with long-term risky liabilities (newly-planted fruit trees) and short-term risk-free assets (money). The financial sector accommodates this by doing the reverse.

The kicker is that financial institutions are owned by people, also. When a bank finances a fruit orchard, what it does is carve the returns of the fruit orchard into two tranches: a debt tranche (deposits at the bank) and an equity tranche (shares of the bank). This carve-up adds value in part because the debt tranche because its relative price is relatively stable and transparent.

First, let me argue against what I see to be the position taken by the author of the draft book that I am reading. He comes across to me to be claiming that banks break the identity between saving and investment. I would express what it seems to me to be saying as something like

S + L = I

where S is saving, I is investment, and L is the banks creating loans at the stroke of a pen. I am not buying that at all. Banks may be able to create loans and deposit balances at the stroke of a pen, but they cannot create real goods at a stroke of a pen.

Banks can do things that indirectly stimulate the production of real goods. But the chain of events has to be something like

1. Banks loosen lending
2. Businesses invest more
3. Saving goes up (not necessarily the rate of saving, but total saving)

The Keynesian explanation for (3) would be that income has gone up. My explanation might be more along the lines that banks have made the risk of the fruit orchard, as perceived by savers, go down. The banks may do this through better diversification of fruit investments, by obtaining and exploiting information that enables them to avoid bad fruit trees, or just by public-relations moves that encourage depositors to be trusting, perhaps too much so. As a result, people are happier about using fruit trees to enhance future consumption opportunities, so that saving and investment go up.

Now let me take the other side. A lot of economic activity in a modern economy depends on credit. Business investment, housing investment, and some consumer spending are dependent on credit. In a mainstream AS-AD macro, a contraction in the supply of credit is going to reduce spending and economic activity. Or, from a PSST perspective, a credit contraction will disrupt those patterns of specialization and trade that require credit to operate.

So, I am willing to go along with the author in attaching importance to credit conditions. However, I am not willing to go so far as to attach special significance to the particular mechanism by which banks create credit.

Conservatarian Dilemmas 3: Israel

This is my third and final post prompted by the dialogue between Nick Gillespie and Charles C.W. Cooke. The issue is foreign policy, and although they did not discuss Israel, I think that it is about that country that conservatives and libertarians get most confrontational–and uncharitable–with one another.

Conservatives want a strong national defense, and some libertarians (seemingly including Gillespie) are ok with that. However, conservatives often want to intervene in this barbarous world, and libertarians are against intervention.

One libertarian argument against interventionism is that the U.S. government that is our agent to perform such intervention is the same flawed, bumbling entity whose intervention in domestic affairs we fear. Cooke concedes that point. However, he does not regard it as a decisive argument against any and all intervention.

There are more than a few libertarians whose vehemence against Israel makes it difficult for me to picture them joining a conservatarian coalition. The most charitable interpretation that I can come up with for the libertarian antipathy toward Israel is the following:

American libertarians are anti-interventionist. Israel is a country that wants America to intervene in ways to protect its interests. America has sometimes (often?) done so. Without Israel there would be less American intervention, and because of that Israel deserves to be singled out for opprobrium.

The conservative view might be the following:

Israel’s and America’s interests generally align. Along the civilization vs. barbarism axis, Israel is far more civilized than its enemies. American intervention is constructive and appropriate.

Some libertarians and progressives blame Israel for the costly, counter-productive attempt to force democracy on Iraq. I think it is unfair to hold Israel responsible. While some Israelis, notably Natan Sharansky, indeed were keen on spreading democracy, his views were much more popular in the U.S. than in Israel. Faith in democracy as a solution to the problems in the Middle East is as American as apple pie. If anything, President Obama took that faith even farther than President Bush.

My own feelings about Israel are similar to those expressed by George Gilder in The Israel Test, which I wrote about a couple years ago. Gilder sees hostility to Israel as reflecting a dislike for dynamism and entrepreneurial success. Progressives can seem nostalgic for the socialist poverty that Israelis shared before the liberalizations that took place over the past 30 years or so.

For some American Christian conservatives, support for Israel has a religious basis that is off-putting to more secular people (and to many Jews). Otherwise, I think that American support for Israel among conservatives is based more on Israel’s circumstances than on its diplomacy or lobbying. If there were as many medieval fanatics surrounding Singapore or Switzerland, my guess is that the conservatives who see America as the Indispensable Nation would want us to be heavily involved in those areas as well.

Another possible argument for leaning against Israel is that one should do so in order to counter Jewish political pressure. However, my sense is that most Jews feel a stronger affinity to the cause of progressivism than to Israel’s government, particularly with a conservative at its head.

Yes, there are American Jews who advocate for the U.S. to pursue hawkish policies in the Middle East, but they are far outnumbered by other American Jews who loathe the hawks. My guess is that if Binyamin Netanyahu wanted to get into a popularity contest in America with Barack Obama, he would do better if American Jews were excluded from taking part in the poll.

Finally, I have to say that I have concluded that this is a topic on which people have a hard time disagreeing with one another charitably. If you (or I) want to voice an opinion on Israel in order to vent, then fine. But you (or I) should not expect that someone’s mind is going to change as a result. Instead, expect an uncharitable response.

While I expressed some of my views on Israel, they are beside the main point, and feel free to ignore them. The main point in this post is simply the observation that Israel profoundly divides conservatives from a significant group of libertarians. If you disagree with that, or you think that the divide is caused by something I have not mentioned, then by all means weigh in.

Conservatarian Dilemmas 2: Social Issues

This is the second of three posts inspired in part by the dialogue between Nick Gillespie and Charles C.W. Cooke. The social issues that I have in mind are drugs, abortion, and gay marriage. Some thoughts.

From the civilization-barbarism perspective, one may oppose legalizing marijuana, abortion, and gay marriage to the extent that one believes that civilization depends on, or at least is enhanced by, restrictions against these. However, that is not Cooke’s conservatarian position. He instead favors allowing different communities to adopt different policies. My thoughts:

1. From the freedom-coercion perspective, I see Cooke as trying to argue for a (local) “freedom to coerce.” As a general rule, this is problematic. In fact, the controversy over Indiana’s religious freedom law (or “religious freedom” law, to those who oppose it) may be an illustration of the difficulties with this approach.

During the battle over civil rights, Barry Goldwater applied federalism to argue for states’ rights to impose Jim Crow laws. Milton Friedman argued that businesses should be allowed to engage in discrimination. Today, most Americans believe that Federal coercion to prevent racial discrimination is a good thing, and Cooke supports this consensus.

2. Some conservatives try to appeal to libertarians by arguing that progressive social policies are coercive. For example, a businessman who opposes abortion can be forced to pay for health insurance that in turn pays for abortions of employees. The libertarian counter is that the wrong involved here is not that the businessman is forced to pay for abortions but that he is forced to pay for health insurance.

3. Another conservative line is that without traditional family values, people will become degenerate and thus dependent on the government, leading to bigger government. Call this the David Brooks argument. My own view, as readers of this blog (particularly the posts under the category “Four forces watch”) know, is that bifurcated family patterns are unlikely to be altered by government action.

4. The elephant in the room here is religion and voters who are motivated by it. Just the other day, I saw a full-page ad in the Washington Post using biblical imagery to argue against legalization of gay marriage. There is a long tradition of conservative politicians (and, for that matter, progressive politicians) who are not themselves committed to religious beliefs wanting to appeal to voters who are.

5. Should a baker who is opposed to gay marriage have the right to refuse to sell a wedding cake to a gay couple? I think that the most appropriate libertarian answer is to say that the baker should have such a right. But it seems to me that if you open the door to a right to discriminate, then racists can use that door. On the other hand, if you say that government should be able to force a baker to do business with an unwanted customer, does that mean that government also should be able to force a customer to do business with an unwanted baker?

My preferred society would be one in which (a) there is sufficient market competition so that if you are discriminated against by x you can easily obtain what you want somewhere else. The government has to get involved only if discrimination is pervasive; and (b) religious values are enforced within religious organizations only. If you violate the beliefs of your religion, you can be excommunicated by that religion, but otherwise you should not suffer.

I do not think that this solves the conservatarian dilemma on social issues, but it’s my best shot.

Conservatarian Dilemmas 1: Immigration

This is the first of a series of three posts, inspired by several things, but primarily by a dialogue between Nick Gillespie and Charles C.W. Cooke. I will be referring to the three-axis model, as described in my e-book The Three Languages of Politics.

The libertarian argument against immigration restrictions is that they restrict personal choice in a very fundamental way. Along the freedom-vs-coercion axis, immigration restrictions are prima facie coercive.

The conservative counter is that immigrants bring a culture of dependency and support for populist demagogues. Thus, unrestricted immigration, or even loose immigration, will end up undermining America’s commitment to liberty.

One libertarian rejoinder is to argue that, empirically, immigrants value liberty. [UPDATE: For an example, see this Cato paper.] A conservative rejoinder might be to point out that progressives are salivating at the prospect of seeing more immigrant voters, and this is not because progressives expect these voters to value liberty.

Another libertarian counter would be that restricting immigration in order to preserve liberty creates too much dissonance between ends and means. If you are for liberty, then you should be for liberty, period. Fight the battle against dependency and demagoguery by arguing against those phenomena, not by restricting the liberty of people to choose where they live.

I am inclined to go with this latter view. Also, I am not worried so much about how immigrants vote. If a libertarian society is to emerge, it is likely to result from exit rather than voice.

Yuval Levin on Conservative and Libertarian

He writes,

Successful lives in the postwar era involved effectively navigating our large institutions and making the most of the benefits they offered. Success in the coming era will increasingly involve effectively navigating a profusion of smaller networks, and a government that wants to help people flourish will need to retool—focusing more on enabling bottom-up, incremental improvements and less on managing top-down, centralized systems. Both empowering individuals and offering them security will look rather different in this era.

Read the whole thing. Even by Yuval’s standards it is a very pointed, articulate post.

He is responding to Charles C.W. Cooke’s provocative case for conservatarianism. I have a few posts scheduled on that same topic. While recognizing differences, Yuval is focused on the affinity between conservatives and libertarians. So is Veronique de Rugy. (The high quality of commentary on Cooke’s work speaks well for the book itself, which I have not read.) My focus instead will be on the tension between the two.

Don Boudreaux on Exit and Voice

He writes that it is a “weird notion” to believe

that if each individual can, on his or her own, choose which offerings of private businesses to accept and which to reject, and all without having to coordinate these choices with other individuals, people are slaves to corporations – but that individuals regain their freedom and dignity only by voting to use government power to regulate businesses, with every individual forced to abide by the ‘will’ of the majority.

By the way, there is a web site called Voice and Exit, which may represent an interesting libertarian-ish movement, but the web site seems to have been designed by stoners. I just can’t penetrate it.

What I’m Reading

MIT and the Transformation of American Economics, edited by E. Roy Weintraub. David Warsh cited it and I blogged on Warsh about ten days ago, talking about how other universities’ resistance to hiring Jews enabled MIT to surge ahead. I think it is a fascinating volume, and I don’t think it’s just because I did my graduate work at MIT. A few things I’ve picked up so far.

1. Economic methods changed relatively rapidly between 1935 and 1955. In 1935, economics still looked a lot like a branch of social and political philosophy. By 1955, it was much more technical and policy-oriented, with a shiny scientific veneer. Keynes and the Depression got economists interested in activist government, and the operations research of World War II stimulated much subsequent work on theory, data collection, and policy.

2. Beatrice Cherrier’s essay, and others in the book, describe the emergence of what Samuelson dubbed the “neoclassical synthesis.” You can think of this as an attempt to reconcile Solow’s growth theory, in which saving is good, with Keynesian macro, in which saving is bad. The resolution is to say that the economy is only Keynesian in the short run.

3. In Andrej Svorencik’s essay, we get quantitative support for the view that a few dissertation advisers at MIT have played a dominant role in the profession as a whole. He points out that in my era Dornbusch out-sired Fischer in terms of numbers of students. Still, I continue to hold Fischer responsible for turning macro into a wasteland.

4. In Yann Giraud’s essay, we find that Samuelson’s textbook was bitterly opposed by conservatives, who put pressure on the MIT Administration, which in turn persuaded Samuelson to make changes. If this caving into outside pressure seems surprising, remember that this was the McCarthy era, and most individuals and institutions preferred discretion to waving a red cloak in front of that bull, so to speak.

I am still only part way through the volume.