Brexit, The European Union, and the European Economic Area with Sam Bowman

Two days ago, Britain voted to leave the European Union (EU). The “leave” option won with 52 percent of the vote, leaving elites and the media frustrated with voters for choosing what they perceive to be the “wrong” option.

My guest today to discuss Brexit is Sam Bowman, Executive Director of the Adam Smith Institute.

The EU can be thought of as three things: A trade union known as the European Economic Area (or EEA), a currency union (the Euro) which Britain was never a part of, and a central regulatory body.

The EU has been around in one form or another since the 1950s. Although its primary function was always to facilitate trade among European states, its ultimate goal was to prevent Europe from falling back into the brutal wars that had consumed it during the first half of the twentieth century. The Union brought freedom of movement for goods and services and for people across member states.

This freedom of migration only became controversial after the fall of the Berlin Wall. Many poorer states in Eastern Europe joined the EU in the 1990s, creating the opportunity for large numbers of economic migrants to enter the wealthier states of Western Europe (a good thing, from my perspective!). Opposition to open migration was one motivating factor for some in the Leave campaign, but it wasn’t the only factor.

Many older Brits who voted to leave did so out of a desire for national sovereignty. The most important legislative body in the EU is the European Commission, the members of which are appointed by the various states. There’s a democratically elected European Parliament, but it is less influential than the Commission, having only the power to approve or reject proposals by the Commission.

The members of the Commission are appointed to specific roles. So, for instance, a Slovenian is in charge of transport policy for the entire EU, a Lithuanian is in charge of health and food safety, and a Portuguese politician is in charge of research, science, and innovation. Many in the Leave camp resented having British policy set by unelected politicians from other countries.

What’s next for the UK?

While the Leave campaign may have won the referendum, they don’t control policy going forward. The only thing that must occur is for Britain to exit the EU. It doesn’t have to adopt any other of the Leave campaign’s policy goals.

Sam argues that the best option for the UK would be to stay in the European Economic Area (EEA) and the European Free Trade Association (EFTA). This EEA option would maintain the economic benefits of free trade with the EU. This would place Britain in a similar position to Norway and Iceland, which both chose not to become EU member states while participating in the EEA. Britain could also aim for a trade agreement that is tailored to its particular needs, like that of Switzerland.

Brexit puts the EU in a bit of a bind. If they work out a favourable deal with Britain, other states might try to leave once they observe how painless it is. But if the EU adopts a punitive stance towards the UK it could send a bad signal to the other states. Just how voluntary is this club if you’re punished for quitting?

Additional Links:

Sam Bowman on Twitter.

More details about the institutions of the European Union.

Download this episode.

[Photo credit: Dave Kellam.]

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The Age of Em, Whole Brain Emulation, and Humanity’s Future with Robin Hanson

When I think of emulation, I think of retro gaming. My Android phone can easily emulate a Super Nintendo, a gaming console from the 1990s, and it can do that because the phone is much more powerful than the Super Nintendo and because we know exactly how a Super Nintendo works. My guest for this episode, Robin Hanson, argues that we may one day be able to emulate human brains. His book, The Age of Em, provides a detailed analysis of what a society made largely of emulated humans would be like.

Whole brain emulation is unlike my emulated Super Nintendo in many ways. With the brain, we’re trying to emulate something that we couldn’t build ourselves. The challenge is in developing a sufficiently accurate model of each part of the brain that is necessary for it to function. If we knew how each node in the brain worked, if we could model it such that our node would take the same inputs, produce the same change in its internal state, and send the same outputs as biological brain cells, then all that would remain would be to find the precise network of cells in a biological brain. This could be achieved by scanning an actual human brain. The brain could then be emulated by a sufficiently powerful computer. The emulated brain would have precisely the same memories and thought processes as the person who was scanned. Hanson calls these emulated individuals “ems.”

Hanson applies standard theoretical tools to the analysis of this em economy. Here are some of the implications:

1. Ems will be able to operate much faster or much slower than normal human brains.

The cost of running an emulation faster or slower is roughly linear in the speed. That means that for ems working on time-sensitive tasks, a race to develop some new technology first for example, they will likely work many times faster than biological humans, perhaps experiencing weeks or months in the blink of an eye. Ems that work alongside biological humans, for instance those engaged in services, would likely run at the same speed as we do. Ems could also run at slower-than-human speeds, which might be used as a sort of low-cost retirement for ems who have completed their working lives.

2. Most ems will probably live at subsistence.

We live in a world where the supply of human labour is limited by biology. Ems will not be so limited. Once a single em exists, making a copy will only be as costly as the processing power needed to run that copy. This means that the value of em labour will fall to the marginal cost of running an em. The em economy is a Malthusian economy, where the em population can vary instantaneously to keep up with the need for em labour.

However, subsistence might not be as bad for an em as it has been for most humans through history. Ems need not fear starvation or disease. Their consumption goods will all be simulated, and in a world of extremely cheap processing power, simulated luxuries would be cheap as well.

3. An em can work 99 percent of the time and go on vacation for 99 percent of the time, too.

This may seem paradoxical, but it follows from the possibility of creating and deleting copies at will. Suppose you have one em plumber. Each day he can make 99 copies of himself, in order to perform 99 plumbing jobs while he relaxes on a simulated beach, deleting the copies at the end of the day. While 99 percent of his processing power is being used to complete plumbing jobs, each em experiences a life of leisure followed by a single day of work.

4. Biological humans will be a true rentier class.

In a world populated by ems, the value of human labour will fall to near zero. An em brain can do anything a human brain can do, and ems will be produced until their marginal value falls to the cost of processing them. Biological humans won’t be able to count on the value of their labour to sustain them, but they will earn vastly more from the wealth they already own. An em economy will grow very quickly, and thus will be able to give very high returns to the owners of capital.

5. The age of em might only last a few years before the next major change.

Robin compares the development of an em economy to three past changes in our society: The evolution of our latest non-human ancestors into humans, the move from a hunter-gatherer society to a farming society, and the birth of our modern industrial society. He observes that with each transition, the growth rate (measured as the increase in brain size before the evolution of humans and as economic growth thereafter) has increased and the period between transitions has shrunk. As ems will be able to experience far more time than we do, and since an em economy will be capable of extremely high growth, it won’t take long for em society to produce the next radical shift. Perhaps just a year or two.

What will that shift entail? Robin declines to speculate, as there are too many degrees of freedom to predict with any degree of accuracy.


Additional links:

Buy The Age of Em on Amazon.

Read Scott Alexander’s review of the book, which I mentioned during the interview.

Read Robin Hanson’s blog, Overcoming Bias.

Download this episode.

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The Tang Coinage Debate of 734

Chris Stewart’s excellent podcast, The History of China, had an interesting discussion of an economic debate that happened in 734. The debate in the Tang court was between Chang Chiu-lin, a Confucian who favoured legalizing illicit minting, and many Legalist officials who opposed legalization. I was so intrigued that I read through the source material on the debate, a 1976 article by Penelope A. Herbert.

The background for the debate was an ongoing crisis of too little coinage to “meet the demands of trade.” This apparent shortage of coinage led many people to take up counterfeiting. Counterfeiters would mint coins with lower precious metal content than the official coins. They risked the death penalty if caught, but the privately minted coins were widely traded nonetheless. All the historical sources seem to agree that this was the problem, but as we know, economic problems are easy to misdiagnose.

This apparent lack of currency was confusing to me because any amount of currency can meet the demands of trade at the right price level. Herbert (1976) writes,

“For the first half of the [Tang] dynasty, the administration succeeded in confining the large scale activities of the merchants in the provincial urban centres and capitals to official markets, supervised by bureaucrats. The administration reserved the right to manipulate prices by a system of officially imposed price controls, based on the standard coinage.” (p. 258)

That clears things up. “Not enough coinage” apparently means that there’s not enough coinage to facilitate trade at the official prices. In other words, the official prices were habitually set too high! Nobody in the debate seems to have realized that you can just let prices float and they’ll converge on the appropriate price level for the amount of coinage you have. Continue reading The Tang Coinage Debate of 734

Three Videos About Drug Prohibition

I can’t be sure that people who listen to my podcast, read my blog, or watch my YouTube videos are aware of the other content I create. I made three videos to promote my recent interview with Mark Thornton. I used the audio from my interview along with stock footage, some archival footage, images, and kinetic typography to make short videos dealing with individual topics from the episode. Continue reading Three Videos About Drug Prohibition

Drugs, Prohibition, and the Suburban Overdose Crisis with Mark Thornton

Mark Thornton is a Senior Fellow at the Mises Institute. He is the author of many books, including The Economics of Prohibition (which you can access for free here), which is also the topic of this episode.

1. Does drug prohibition help stop poverty and homelessness?

The conventional wisdom on drugs is simple: you see drugs and drug abuse mixed with poverty and homelessness and it makes intuitive sense that drugs play a role in causing poverty. It seems to follow that by criminalizing drugs, you can take them out of the equation and help solve the other problems.

Mark disputes this conventional wisdom. First, the causation doesn’t necessarily go from drugs to poverty. Poverty can cause people to abuse drugs and mental illness can cause both self-medication and poverty. Second, if you legalize drugs, they won’t be sold on the street. Instead, they’ll be sold by legitimate businesses with a particular interest in maintaining their reputation and not harming their customers. Prohibition is what creates the black market, which in turn generates violence, crime, and more potent and dangerous drugs, all of which exacerbate poverty. You can’t clean up the social problems related to drugs by criminalizing them when criminalizing them is what caused many of those problems.

2. The Suburban Heroin Epidemic

Mark recently authored an article called The Legalization Cure for the Heroin Epidemic. In the article, he calls attention to the rising number of overdose deaths in the United States:

The number of drug overdoses in the US is approaching 50,000 per year. Of that number nearly 20,000 are attributed to legal pain killers, such as Oxycontin. More than 10,000 die of heroin overdoses. I believe these figures vastly underestimate the number of deaths that are related to prescription drug use.

Continue reading Drugs, Prohibition, and the Suburban Overdose Crisis with Mark Thornton

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Prediction Contest 2016

In my capacity as President of the Economics Graduate Student Society at SFU, I set up a prediction contest. We hosted a pub night and I used the opportunity to solicit predictions on a wide range of topics. The person with the lowest Brier score will be the winner.

The predictions were made on March 12th, 2016 (before Lee Sedol’s fourth match against AlphaGo) and they will all be resolved on July 1st, 2016. I report the predictions and their outcomes (when they occur) in the table below: Continue reading Prediction Contest 2016

I Went on a Twitter Rampage for #TheTriggering

Fellow Vancouverite and accomplished internet troll Lauren Southern started a hashtag called #TheTriggering. The idea is that every March 9th, everyone tweets out all their non-PC opinions and jokes at the same time under this hashtag in defense of free speech.

I’m usually not big on participating in the culture war, but what the heck? Might as well have fun with this hashtag while it lasts. I started with the most controversial statement I could think of:

Typing that, I noticed something strange. Even though #TheTriggering was the top trending hashtag, it wouldn’t auto-complete when I typed it. Other people noticed it too.

It’s strange that a company like Twitter would take a side in the culture war. After all, the harder the culture war rages, the more people flock to Twitter to complain about it.

Continue reading I Went on a Twitter Rampage for #TheTriggering

A Minor Correction to Richard Posner

I quoted the following passage from Richard Posner in my recent article on Scotland’s three-verdict system:

When . . . judges and juries are asked to translate the requisite confidence into percentage terms or betting odds, they sometimes come up with ridiculously low figures-in one survey, as low as 76 percent, see United States v. Fatico, 458 F. Supp. 388, 410 (E.D.N.Y. 1978); in another, as low as 50 percent, see McCauliff, Burdens of Proof: Degrees of Belief, Quanta of Evidence, or Constitutional Guarantees?, 35 Vand. L. Rev. 1293, 1325 (1982) (tab. 2). The higher of these two figures implies that, in the absence of screening by the prosecutor’s office, of every 100 defendants who were convicted 24 (on average) might well be innocent.

See if you can spot the error in this reasoning. Continue reading A Minor Correction to Richard Posner

Scotland’s Curious Three-Verdict System

Lately I’ve been interested in true crime stories. It started with Serial and Undisclosed, two excellent podcasts on the case of Adnan Syed, a Baltimore teenager wrongfully (yes, wrongfully) convicted of killing his girlfriend in 1999. Then came the popular Netflix documentary Making a Murderer, which detailed the case of Steven Avery, who was wrongfully convicted of rape in 1985, released in 2003 after being exonerated by DNA evidence, and then (apparently) framed for murder.

Kill the wife, frame the husband. Only an owl could be so dastardly.
Kill the wife, frame the husband. Only an owl could be so dastardly.

Because of my interest in these stories, my parents recommended I watch another, less known documentary series called Death on the Staircase. The series documented the trial of Michael Peterson (no relation) for allegedly killing his wife Kathleen. He found Kathleen at the base of the staircase and assumed she had taken a fall. The prosecution claimed that he actually beat her to death. However, the physical evidence didn’t really match a beating (no skull fractures or brain contusions, no splatter on the ceiling), nor did it match a fall (falls don’t usually cause that amount of bleeding). Neither theory can explain the microscopic owl feathers found in Kathleen’s hand, nor the suspiciously talon-shaped lacerations on her scalp.

In all four of these cases (including both of Steven Avery’s convictions), the jury found the defendant guilty on the basis of flawed, circumstantial evidence. I think all three men are innocent, but even if I’m wrong or have been misled (though I’ve done independent research on all three cases), it seems like there must be at least a reasonable doubt of their guilt. So how could the juries convict them? Unless… Continue reading Scotland’s Curious Three-Verdict System

Rome’s Economic Suicide with Lawrence Reed and Marc Hyden

Ancient Rome went from a thriving civilization to a dystopia before its eventual collapse. My guests today explain how that happened. Lawrence Reed and Marc Hyden co-authored “The Slow-Motion Financial Suicide of the Roman Empire.” Lawrence is the President of the Foundation for Economic Education, and Marc is a political activist and amateur Roman historian.

Many accounts of the fall of Rome focus on military problems and the barbarian invasions. However, the Empire was in decline long before the barbarians showed up to finish it off. The barbarians didn’t kill the Roman Empire; the Roman Empire committed suicide. There were six important factors in the Empire’s decline:

1. Political violence became normalized.

The populist reformer Tiberius Gracchus redistributed public farmland to Roman citizens. His reforms angered the Senate, and his political enemies clubbed him to death in 133 BCE. This was the first open political assassination in Rome in nearly four centuries, but it wouldn’t be the last. Suddenly, it became acceptable for powerful Romans to kill their political enemies, and this would spell doom for Rome’s republican government.

2. The Roman state gave ever-increasing amounts of free food and entertainment to the masses.

Despite having killed Tiberius Gracchus, the senate did not repeal his reforms in an effort to assuage the masses. Tiberius’ brother Gaius Gracchus would take his brother’s position and further his reforms, also introducing a system of subsidized grain for the masses. When Gaius also succumbed to political violence, most of his reforms died with him, but not the grain dole. The dole was retained and expanded, proving a huge burden on the Roman state. Successive generations of Roman leaders would buy political popularity with panem et circenses (bread and circuses). The Roman people came to value the dole over all other values. When the emperor Caligula was assassinated, there was a brief opportunity to restore the Republic, but the people preferred the rule of strong men who could provide them with ever more panem et circenses.

3. Roman armies became personally loyal to their generals rather than being loyal to the Roman state or the people. Continue reading Rome’s Economic Suicide with Lawrence Reed and Marc Hyden

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Garrett M. Petersen's blog about markets, institutions, and ideas.