A Philosophy of Markets

from Jason Brennan:

Peter Jaworski and I have a book on commodification, Markets without Limits, coming out next month. Our thesis is that any service or good that you may give away for free, you may sell for money.

Pointer from Bryan Caplan.

If it’s worth doing, it’s worth doing for a profit. That sounds like what I said about Planned Parenthood controversy. If harvesting body parts from aborted babies is ok, then they should be allowed to profit from it. But if it’s not ok, then doing it for free would not make it better.

What I’m Reading

Why Him? Why Her? by Helen Fisher. A family member was reading this at the beach, and I picked it up. An attempt at personality psychology, sort of like the controversial Myers-Briggs with four main types. Think of her Explorer as an SP, her Builder as an SJ, her Director as an NT, and her Negotiator as an NF. Anyway, a couple of excerpts:

The Explorer-Explorer match does not appear to be a good strategy for raising children. Yet here, too, nature has a plan. Since Explorers are more likely to divorce and remarry, they are also more likely to bear children with more than one partner. In fact, it’s commonplace to encounter the man or woman who has married twice and had children with each spouse. I don’t recommend divorce and remarriage, but there’s genetic wisdom here…If ancestral Explorers produced more variety in their young, some of these children would survive hard times–passing on their DNA.

Recall that Robert Putnam talks about bifurcated family patterns. Perhaps a lot of Explorer-Explorer matches produce children out of wedlock.

Much later:

The Negotiator is far more idealistic. As a result, the Director can become annoyed by the Negotiator’s far-flung humanitarian concerns, while the Negotiator can begin to regard the Director’s more technological approach to fixing the world’s problems as narrow-minded and unfeeling.

The Negotiator sounds hard to argue with. To the Negotiator, economic logic just “feels” wrong.

The Epistemological Status of Economic Laws

I am reading Robert Murphy’s new book, Choice. Think of it as an English translation of Human Action. I am very happy with it so far. I can see how much of The Book of Arnold can be found in Mises, and yet. . .

I still do not buy into Mises on epistemology. Murphy writes,

Mises shows that economic laws are not obvious and that they do indeed enlarge our body of knowledge, even though economic laws do not need to be verified with empirical observation.

The Anglosphere is largely empiricist, or logical positivist. We tend to believe that there are two types of truths. There are tautologies, which are embedded in language; and there are truths about the world, which are learned by observation.

A claim that 2 + 2 = 5 can be falsified using logic. A claim that pigs know how to fly can be falsified using observation.

Milton Friedman takes an empiricist view of economics. For Friedman, the economist makes predictions about the world, and those predictions are verified or falsified on the basis of observation.

Empiricists give no epistemological status to anything that appears to be a claim about the world that cannot be falsified using observation. Such claims are classified as dogma or nonsense.

Mises was no empiricist. Murphy writes,

From the starting point that humans act, the economist could logically deduce–thereby forming a tautology, it’s true–that individuals have subjective preferences with ordinal rankings, that choices come with opportunity costs, and that the value of second-order capital goods is dependent on the value of the first-order consumer goods that the individual believes they have the technological power to produce.

The way I read Murphy/Mises, economic laws are derived from insight into human nature. At least some insight into human nature comes not from observation but from introspection. The insight that comes from introspection is not falsifiable. For example, suppose I find it inconceivable that I would make choices on some basis other than benefits and costs at the margin. This makes it inconceivable to me that other people would make choices on some other basis. Hence, I appear to arrive at a statement about the world–people make choices on the basis of benefits and costs at the margin–that is not falsifiable by observation.

My take on this is that a statement such as “people make choices on the basis of benefits and costs at the margin” falls into a category that I might term “guiding dogma.” We will use a guiding dogma to make predictions about the world. However, the guiding dogma is not testable. If our predictions go awry, we will not discard the guiding dogma. Instead, we will look for something else that made our prediction go wrong.

“Guiding dogma” may be synonymous with Kuhn’s notion of “paradigm.” In physics, there are some spectacular cases in which a guiding dogma came to be replaced by a new guiding dogma.

The interesting predictions are those which go beyond a guiding dogma. For example, a prediction that a rise in the minimum wage will reduce employment is based in part on the guiding dogma of the Law of Demand. However, the prediction about the effect of the minimum wage is falsifiable empirically. Suppose that a rise in the minimum wage does not produce a decline in employment. Will we throw out the Law of Demand, or will we look for some other factor at work? My claim is that we will do the latter.

Speaking of the minimum wage, consider this sarcastic assault on Larry Summers by John Cochrane:

Never mind centuries of supply and demand, centuries of experience with minimum wages and other price controls, or even the current controversies. Never mind that who works for what business and how many do so is a little bit endogenous. Larry has a new and very clever theory about monopsonistic wage setting in the presence of recruitment and motivation costs. (One that apparently only holds at the lower end of the wage scale where minimum wages bite?)

Thus, if we were to find that an increase in the minimum wage does not reduce employment, then we would credit something like “a new and very clever theory about monopsonistic wage setting in the presence of recruitment and motivation costs” rather than reject “centuries of supply and demand.”

Incidentally, the laws of probability are also not easy to fit into the empiricist framework. When we say that the probability of a coin landing on heads is 1/2, that sounds like a statement about the world, but it also might be thought of as the definition of a fair coin. Once again, the phrase “guiding dogma” comes to mind.

Ron Bailey’s New Book

It is called The End of Doom. From the final paragraph:

New technologies and wealth produced by human creativity will spark a vast environmental renewal in this century. . .the world will be populated with fewer and much wealthier people living mostly in cities fueled by cheap no-carbon energy sources. As the amount of land and sea needed to supply human needs decreases, both cities and wild nature will expand, with nature occupying or reoccupying the bulk of the land and sea freed up by human ingenuity.

Other notes:

1. Bailey is another devotee of North, Wallis, and Weingast. He argues that open access orders achieves sustainability, but limited-access orders do not and hence collapse. He worries less about environmental doomsday than about the United States slipping back into a limited-access order, in which political elites and business cronies are able to thwart human ingenuity.

2. From the introduction:

Canadian environmental researcher Vaclav Smil calculates that back in 1920 in the United States it took about 10 ounces of materials to produce a dollar’s worth of value, but that same value is now accomplished using only about 2.5 ounces

3. Also from the introduction:

wherever someone sees an environmental predicament in the world. . .the problem is occurring in an open-access commons, an area no one owns and for whose stewardship no one is responsible.

He is a fan of fish farms and private ownership of aquifers. For atmospheric pollution, such as chlorofluorocarbons that threaten the ozone layer, he sees a role for international treaties and regulations.

Bailey spoke here, and I enjoyed attending the talk.

What I’m Re-reading

Alone, the second volume of William Manchester’s biography of Churchill, The Last Lion. If I were to sum up Manchester’s view of the 1932-1940 period in British history in two paragraphs, they would be:

1. The British ruling class was rotten. The British Prime Ministers of that era were dull-witted and feckless. Traumatized by the first World War and frightened of Bolshevism, they came up with an endless list of excuses not to confront Hitler. The role played by the media during this period was dreadful–covering for Hitler and suppressing the views of Churchill until very late in the game.

2. Churchill was, in many ways, more out of touch with the twentieth century than were other members of the ruling class. However, he had the strength and intelligence that the leading politicians lacked. And unlike most others of his class, he saw Hitler with clarity.

It is very tempting to draw parallels between the highly-educated classes in this country today and the upper-class twits of Britain in the 1930’s. Indeed, at one point I suggested such a parallel during the discussion of the future of democracy, prosperity, and freedom.

So, as usual, I wrote the foregoing and scheduled it ahead. Meanwhile, there was the Islamist’s attack that killed four marines in Tennessee.

A casual reader of the Washington Post could be forgiven for blaming the attack on conservatives and the National Rifle Association. The lead Post story said that this was “the latest eruption of gun violence in the United States.” The print newspaper also provides a second front-page story, headlined “Shooter grew up in conservative family.” [The online version says “middle-class Muslim family.”]

I read every word of the second story, looking for the basis for terming the family “conservative.” Did they have a Romney bumper sticker on their car? A subscription to National Review? Perhaps they flew a Confederate flag? Were active in the Tea Party?

Instead, there are only two references to the attacker’s parents. One says that his father was briefly put on the terrorism watch list but was later removed from that list. The other quotes someone familiar with one of the daughters of the family:

“I got the sense [her parents] were very religious,” Harper added. “I got the sense they wanted to pick who she would marry.”

I would love to know how the Post determined on the basis of the content of the story that the best adjective to describe the family was “conservative.” Getting back to the 1930s comparisons, I do not want to equate Muslim radicals with Nazis, because I think that there are important differences. What I am getting at here are the similarities between the British media in the 1930s and what we find in the U.S. today.

As for the American educated in class in general, consider Harry Painter’s analysis of summer reading lists for college students.

Upon browsing the list, one might conclude that all of humanity’s best books are about minorities fighting and ultimately overcoming the oppressive constrictions of Western, male-dominated society.

My guess is that no college is going to suggest that students read Alone.

Greece and Representative Negotiation

John Cochrane writes,

So, the Drachmaized Greece that I see is not the cleanly devalued newly competitive powerhouse that some on the left seem to envision. Instead I see a two-currency economy. Pensioners and government workers and anyone unlucky enough to still have a Greek bank account get Drachmas. Hotel owners, restaurant owners, and exporters get euros, above or under the table.

My comments:

1. I agree with John that nothing real changes with a new currency. Instead, it is a way of arranging the government’s default. In addition to defaulting to bondholders, the government will default to other claimants, including pensioners. But the way it will default to the latter is by paying them in lower-valued currency.

2. I continue to believe that we will see an opaque bailout. What is happening now is pre-concession posturing on the part of the other European nations.

The classic example of pre-concession posturing is the labor union strike. One theory of strikes is that they take place because the union leaders are ready to make a deal, but they need to convince their membership that the union leaders bargained really hard. Going out on strike sends that message. Similarly, for the European leaders, engaging in table-pounding and other theatrics will help convince their constituents that they were really tough on the Greeks. Meanwhile, in the background, an opaque bailout will be arranged.

This theory of representative negotiation also holds for the nuclear negotiations with Iran. The theory predicts that there will be a deal, but in the meantime the negotiators will posture to indicate that they are being very tough with their opponents.

Speaking of Iran nuclear issues, I read Michael Oren’s new book about being Israel’s ambassador to the U.S. I found Oren credible, although for my taste he squeezes too much melodrama out of his experience. One of Oren’s points about the Obama Administration is that it has very tight message discipline, and I believe that we can see that in some of the negative reviews of Oren coming from Obama-linked writers.

Oren’s description of Obama amounts to saying that he operates using the oppressor-oppressed axis, which strikes me as accurate. Even so, it still requires some mental contortions to treat the leadership in Iran as oppressed, rather than as oppressors.

North, Wallis, and Weingast

It is not a new book, but still I wanted to review it.

Open-access orders are likely to be highly stable. Everyone who is ambitious and able to organize others is free to attempt to earn a profit or address a political problem. This gives citizens a feeling of having a stake in the system. Moreover, the layers of beliefs, norms, and institutions that precede the open-access order all serve to reinforce the order once it is in place. For example, Americans are culturally committed to free speech, disdain for corruption, and obedience to the Constitution.

This leads one to be relatively optimistic about the prospects for the United States, regardless of how one feels about recent political and economic trends.

Thoughts on Hatred and Persecution

In a post called Fearful Symmetry, the pseudonymous Scott Alexander draws parallels between the mentality of the Social Justice Warrior and his or her opponent.

The social justice narrative describes a political-economic elite dominated by white males persecuting anybody who doesn’t fit into their culture, like blacks, women, and gays. The anti-social-justice narrative describes an intellectual-cultural elite dominated by social justice activists persecuting anybody who doesn’t fit into their culture, like men, theists, and conservatives.

My thoughts:

1. He is describing two distinct forms of persecution. Persecuting people for being black, woman (or man), or gay is hating them for who they are, for something that they cannot change. Persecuting people for being a conservative or theist is hating them for what they believe, and by implication you will stop hating them if they change their beliefs.

2. Historically, Jews have experienced both forms of hatred. As I understand it, the Inquisition sought to change their beliefs. The Holocaust was existential hatred.

3. It is not clear to me which form of hatred is “better.” Both forms can lead to violence and extreme forms of inhumanity.

4. Probably both forms can be traced to the xenophobia that is in human nature. Coincidentally, I have just received a review copy of Nature, Human Nature, & Human Difference: Race in Early Modern Philosophy, by Justin E. D. Smith. Perhaps this book will shed more light on these topics.

5. Just because you can find one example of somebody on the other side who explicitly argues for persecuting your group does not mean that your group is necessarily persecuted. Before you become paranoid, make sure that everyone really is out to get you.

6. It seems easy to go from “I am a member of a persecuted group” to “I therefore have a license to persecute.” I think that it would be helpful if we could refrain from making that move. If you took away the “license to persecute” aspect, then I think that people would find grievance politics and persecution narratives less attractive.