A Libertarian Conundrum

Alfred Moore writes,

Hayek regards his own understanding of spontaneous orders as scientific. For all his talk of the distribution of knowledge in society, knowledge of society was concentrated among people initiated into the science of complex orders, and consequently Hayek sees as the major problem of politics how to bypass the tendency of people to be seduced by the idea that there are plausible alternative ways of organizing society.

You want people to resist conceding authority to those who claim to have scientific knowledge that they can use to design programs and regulations. But does that mean you have to tell people to cede authority to Hayekians?

Sort of related to this conundrum is Buchanan’s idea of using a constitution to prevent a democracy from degenerating into a rent-seeking free-for-all. That suffers from the “a Republic if you can keep it” problem.

Moore wonders whether there is not an authoritarian undertone to Hayekian liberty. Does it take a dictator to establish a free-market state? Lee Kuan Yew comes to mind. As does the idea of competitive government subject to “foot voting,” which is attractive in theory and problematic in practice.

UPDATE: I think that this comment is related.

…one of the big contradiction of the libertarian movement. Which is libertarians love the movement of increase of people and goods can not co-exist their love small local governance, institutions and religion. Long term the free movement destroys the the local governance at some point. In reality the EU has increased this flow of people and goods over the decades although in very clumsy bureaucratic way. Most likely the UK & EU breakup will be minor (I am amazed people voted leave without even a real plan here.) but there is potential for further rejection of the EU and decrease movement of people and goods….

How Should Europe be Organized?

In the wake of the Brexit vote, here are my thoughts. I view the issue primarily from a libertarian perspective, which means a bias in favor of free trade and free movement and a bias against centralized bureaucracy.

1. The actual Brexit vote, as I interpret it (and I make no claim to expertise at reading voters’ minds) seemed to rest mostly on hostility to free trade and free movement, with some hostility toward centralized bureaucracy. And if you have not already followed my recommendation and read Martin Gurri’s The Revolt of the Public, the Brexit vote is another reason you should.

2. I think that a common currency is a good thing. As readers of my new book will realize, I don’t subscribe to the sort of monetarist macroeconomics that would lead one to say otherwise.

3. I think that freedom of movement is a good thing. Border checkpoints are a bad thing.

4. However, you have to think about how to reconcile freedom of movement with welfare-state benefits. The libertarian approach is to get rid of the welfare-state benefits. A less radical approach is to clarify which benefits are limited to citizens and specify the qualifications for becoming a citizen.

5. As for terrorism coming from immigrants, it seems that we can choose two of the following three: privacy, open borders, and security. I am willing to toss out privacy, as long as the government actors providing security are not themselves able to hide what they are doing. Few card-carrying libertarians would agree with this view. Before you blast away at it, read or re-read David Brin’s Transparent Society Revisited. In any case, I interpret the voters as saying that we should toss out open borders.

6. Some people equate a strong EU with technocrats being able to solve/avert the sovereign debt crisis that threatens several countries. I do not.

7. Some people see the EU as a force for free trade. I see it as a force for trade that is managed, regulated, and harmonized. Is this more or less free than what we would see if trade policies were left up to individual governments? I would guess it is somewhat less free, particularly as we move through time, and the bureaucratic tentacles of the EU tend to spread.

8. Of all the reasons for selling stocks, I think this was the least compelling. I wonder if the stock market was simply poised for a decline, anyway, but it needed some sort of focal point to get the selling going.

On net, I would have voted “Leave.” But I don’t like the anti-immigrant, anti-trade rationale.

Yuval Levin praises my book

Actually, he praises two of them.

His 2013 book The Three Languages of Politics is a great example of that. The book sheds a bright light on our political life by arguing that progressives, conservatives, and libertarians tend to see political questions as arrayed along three distinct axes: Progressive think about politics along the oppressor/oppressed axis; conservatives think in terms of the civilization/barbarism axis; and libertarians think in terms of the freedom/coercion axis. . .Try that insight on for a minute as a lens through which to look around at our politics and you’ll find that an awful lot of our debates make much more sense.

Kling’s latest book, out this week and available practically for free on Amazon, is to my mind his greatest contribution yet. Specialization and Trade: A Re-introduction to Economics, is as ambitious as its subtitle suggests. Kling argues that our understanding of the fundamental character and purpose of the discipline of economics has been distorted by the form that the professionalization of the discipline has taken.

Those are just excerpts. More kind words at the link.

Neoliberalism vs. Socialism

Scott Sumner is frustrated.

The is no plausible argument that Hong Kong’s success is in any way a success story for statism, and there is no plausible argument that Greece’s failure has anything to do with neoliberalism. To suggest otherwise is to engage in The Big Lie. So what does this mean?

Read the whole thing.

Let me try, in a somewhat charitable way, to express what I believe is the mindset of the left.

1. Start with the assumption that there is a science of government. I need to credit Jeffrey Friedman with influencing me to articulate this assumption. Note that everyone uses the term “social science,” even though Jeffrey and I would argue vehemently that economics, sociology, et al, are not sciences.

2. If there is a science of government, then there is no reason to tolerate market failure. Since market failure is widespread, government intervention should be widespread.

3. If there is a science of government, then government failure is avoidable. Government failure only results from leaders not heeding the scientists.

4. If there is a science of government, and people on the right believe in markets, then they must believe that markets are perfect. They are clearly wrong about this.

According to this scheme, the key to intellectually overcoming the left is to get people to concede that there is no science of government. And in particular, it means taking economics down a peg. That is what Jeffrey is trying to do with his next book, and it is what I try to do in the book that will be out later this month.

My Review of Kim Holmes

Is here.

Holmes claims that the left has largely abandoned liberalism. To back this claim, he offers a depressing litany of examples, which I will not recite here. Instead, what I found particularly interesting is the way that Holmes blames post-modern philosophy for leading the left away from the Enlightenment values of free speech and individual liberty.

It is from reading Scruton and Holmes that I have come to see post-modernism as something other than a minor intellectual diversion.

A Taxonomy of Policy Ideology

This post is adapted from something I wrote in an email exchange with Jeffrey Friedman.

Consider two questions we can ask someone about policy knowledge.

1. Does an ordinary citizen know enough about policy area X so that you can say that things would be much better if an ordinary citizen were in charge of X?

2. Do experts know enough about policy area X so that you can say that things would be much better if they were in charge of X?

There are four possible answers: yes to both; no to both; yes to 1 but no to 2; no to 1 but yes to 2.

Yes to both is the progressive reformer quadrant. The claim is that we all know how to fix policy, but we have to overcome evil people by reforming the system.

Yes to 1 and no to 2 is the populist quadrant. Think of Trump supporters and policy area X is immigration. Or Bernie Sanders supporters who don’t believe the technocrats who say that we can’t afford free health care and free college for all.

Yes to 2 and no to 1 is the technocracy quadrant. You will find most mainstream economists here.

No to both is the skeptical quadrant. One example of a policy area in which many people can at least relate to the skeptical quadrant is “bringing peace between Israelis and Arabs.”

One thing to note is that you do not have to be in the same quadrant on every policy area. I am in the skeptical quadrant when it comes to most areas of economic policy, particularly macroeconomic management. Jeffrey and I are in the same quadrant, and perhaps not surprisingly we both champion exit over voice.

However, for me there are some exceptions. For example, I am relatively populist when it comes to breaking up the largest banks. I am in the technocracy quadrant when it comes to military operations or urban sanitation. I am not much in the progressive reformer quadrant. Perhaps the area where I come closest is housing finance policy. I see American housing finance policy as dominated by a conspiracy of interest groups, and I could see us being better off if policy were controlled by politically independent technocrats or even by ordinary citizens.

Market Entrepreneurs and Policy Entrepreneurs

One way to look at the issue of markets vs. government is to compare the relative strengths of entrepreneurs operating in the market with that of entrepreneurs operating through government. I think that this issue can be addressed along several dimensions:

1. Ability to resolve Coasian bargaining problems

Consider an entrepreneur wishing to solve an urban transportation problem. If the solution involves reconfiguring a lot of land, by building a new highway or rail system, then a market entrepreneur is likely to face a huge Coasian bargaining problem in trying to get all affected parties to come to terms that allow the project to be built. A policy entrepreneur, backed by the coercive power of government, can implement the solution by fiat.

2. Knowledge

I think that a lot of pro-government, anti-market bias comes from implicitly assuming that the policy entrepreneur knows everything about a problem. This is a troublesome implicit assumption, for a number of reasons. First, some problems are simply too complex to be fully understood. In James Manzi’s terminology, causal density is just too high. You cannot isolate the causes of phenomena, and so you cannot reliably predict the consequences of new actions.

Once we accept that knowledge is going to be imperfect, then the issue becomes comparing what a market entrepreneur is likely to know with what a policy entrepreneur is likely to know. As Hayek pointed out, the market entrepreneur works within a price system that coordinates local knowledge. In contrast, the policy entrepreneur relies on centralized knowledge. For opening, operating, and closing restaurants, local knowledge is likely to be more robust. For regulating nuclear power, centralized knowledge probably is more reliable.

3. Incentive to innovate

Large organizations are not well suited to innovation. The problem is that for an individual operating within a large organization, the risks and the rewards are both too small. If your project does really well, you get at most a trivial personal reward. If it costs a lot of money and flops, you personally suffer very little. The type of project that is optimal for a middle manager to launch is one that has a high probability of a small upside, even if it has a nearly unlimited downside. To prevent such projects from being launched, organizations set up procedures that make it difficult to undertake new projects.

(Note that a typical venture capitalist prefers a project with a nearly unlimited upside even if it has a high probability of a small downside. And self-funded entrepreneurs prefer projects where both the probability and magnitude of the potential upside are high enough to offset the downside risks.)

4. Incentive to evolve

Government has no reliable mechanism for discarding bad programs. The market has the profit-and-loss system. Thus, the market is better suited to evolution.

To me, the evolution issue is particularly important. Only a policy entrepreneur could undertake the DC Metro subway system. But once that works out badly, it does not fall by the wayside as would a market entrepreneur’s failed project.

Carlos Lozada Reviews Yuval Levin

Lozada writes,

So how do we go about strengthening families, religious organizations, schools and all those mediating institutions? Levin’s recommendations are aggressively vague, and where they get specific they seldom surprise. He calls for a “mobility agenda,” with economic growth spurred by tax and regulatory reform, a more competitive and low-cost health-care system, lower budget deficits — all part of a standard conservative recipe. He proposes education reform that includes more professional certificates, apprenticeships “and other ways of gaining the skills for well-paid employment that do not require a college degree.” He prefers to untether employees’ retirement accounts and health insurance from any particular workplace, but acknowledges that this would require “more fundamental policy innovations, and it is not yet evident just what those will be.” Okay, then. It’s nice if the things you want are all bottom-up and empowering and networked and diverse and flexible, but adjectives are not policies.

The review is more sympathetic than what I expected. In my view, Lozada makes too much of the contrast between Levin and Trump. Of course, that contrast is quite strong, but dwelling on it does not help the reader of the review understand what is distinctive about Levin’s thought. For that, you should go back to my review. And read the book when it comes out, which will be in a few days.

Martin Gurri on Elites vs. Democracy

He writes,

The elites’ loss of faith in democracy is directly proportional to their heightened loathing of the public. According to Cohen, the public is susceptible to “greed, prejudice, ignorance, domination, subservience and fear.” It worships political thugs like Donald Trump in the US and Jeremy Corbyn in the UK. It erupts into Tea Parties and Occupations that upset the steady progress of history. The elites, in brief, have come to doubt that their pet projects can be implemented democratically. They are shopping for alternatives.

Gurri ends up suggesting that Estonia and Iceland’s Pirate Party might offer workable models for the future. I think that it is fair to say that you won’t find that view widely expressed.

The Problem of Ignorance

Two recent discussions.

1. David Harsanyi wrote,

by weeding out millions of irresponsible voters who can’t be bothered to learn the rudimentary workings of the Constitution, or their preferred candidate’s proposals or even their history, we may be able to mitigate the recklessness of the electorate.

2. John Cochrane wrote,

Like most economists, I was a bit baffled by the Administration’s announcement of stricter overtime rules. The Jonathan Hartley and many others cover the obvious consequences on jobs, business formation and destruction, and so forth. A bit less mentioned, it reduces employee flexibility. If you like working more hours one week and less the next — perhaps you have child or parent care responsibilities — you’re going to be stuck working an 8 hour day. It’s part of the general regulated ossification of American employment. Or, it could be one more inducement to substitute machines for people or make people independent contractors.”>WSJ, and Jonathan Hartley and many others cover the obvious consequences on jobs, business formation and destruction, and so forth. A bit less mentioned, it reduces employee flexibility. If you like working more hours one week and less the next — perhaps you have child or parent care responsibilities — you’re going to be stuck working an 8 hour day. It’s part of the general regulated ossification of American employment. Or, it could be one more inducement to substitute machines for people or make people independent contractors.

As far as I know, the economically ignorant rules that Cochrane complains about were not demanded by the economically ignorant voters that Harsanyi complains about. So I think that the problem of ignorance is more complex than Harsanyi implies. Perhaps the elites are a bit less ignorant than the masses. Perhaps if the ignorant masses did not vote, elites would lean toward better better policies. Perhaps, but I doubt it.

My own view is that at the very highest academic levels, economics is a mess. At elite colleges, inane “sustainability initiatives” are launched without a peep of protest from the economics department. Macroeconomists still fill the air with the mumbo-jumbo of aggregate demand. There is much talk of market failure and hardly any talk of market self-repair or political failure.

I am most troubled by the bad intellectual habits of economists and other academics. My hope is that the ideas in my forthcoming book will eventually be re-discovered. Although hardly anyone is going to read the book, other authors with similar ideas may at some point prove successful. Restore sanity in the academy, and then see if the ignorance of the general public is still a large concern.