There’s a joke among anarchists: “What’s the difference between a minarchist and an anarchist? Six months!”
For context, a minarchist is someone who believes in a minimal state. The joke is commenting on the large number of people who discover libertarian philosophy and end up gradually becoming more extreme in their views until they conclude that the state should not exist.
This is part if a broader pattern that affects other ideologies as well. Have you noticed that self-professed socialists tend to be left-wing activists? And that left-wing activists are much more likely to identify as socialists than, say, politically inactive non-voters?
In fact, the connection between extreme views and political engagement is so strong, we often don’t bother to distinguish between the two. The word “extremist” is used interchangeably to describe people with extreme viewpoints and people who take extreme action for their views. But there’s no reason why someone with moderate political views can’t be marching in the streets, circulating petitions, joining activist circles, burning down buildings, and the like, all in the name of moderation. There’s also no reason someone can’t have extreme views while not engaging much with political or social activism. And yet, extreme views tend to go hand in hand with activism. To borrow Jason Brennan’s terms, you have the Hobbits, who have low political engagement and moderate views, and the Hooligans, who have high political engagement and relatively extreme views.
Garett Jones returns to the podcast to discuss the issue of ethnic diversity. There is a wide body of research showing that ethnic diversity can reduce the productivity of teams, firms, and even whole countries.
Classical liberals like Milton Friedman and Friedrich Hayek have supported the idea of a basic income guarantee as an improvement on the current patchwork of welfare programs. The welfare systems in most countries are the product of a century of piecemeal reforms, where politicians have created many overlapping programs targeting different problems and interest groups. This makes perfect sense from the politicians’ perspective; creating a new program allows one to attach one’s name to a high-profile bill, thus winning favorable media attention and votes. It’s the same reason governments often create shiny new highways rather than filling in the potholes on old ones. Where’s the glory in marginally improving something with someone else’s name on it?
As a result of this political process, welfare systems have dramatically higher administrative costs than they need to have. Rather than having separate (and often multiple!) bureaucracies to administer welfare programs for the homeless, the temporarily unemployed, seniors, disabled workers, single mothers, etc., why not fold them all into one? In fact, Milton Friedman’s negative income tax would fold them all into the agency responsible for administering taxes. Replacing a hundred parallel agencies with one agency tasked with administering a simpler system would clearly reduce overhead costs.
The other consequence of the patchwork welfare system is that it creates more severe unintended consequences than it needs to. All redistribution schemes affect incentives, but a basic income guarantee paired with a reasonable tax scheme (maybe a flat tax or a progressive consumption tax) would avoid the worst of the perverse incentives. Current welfare systems feature “welfare cliffs,” where many programs abruptly cut off at the same income level, leading to absurdly high implicit marginal tax rates. The examples I’ve seen have situations where earning $1,000 more income can make one ineligible for $10,000 in benefits from various programs. That’s an implicit marginal tax rate of 1000%, far higher than the tax rate paid by the highest of high earners! Continue reading A Basic Income Guarantee Can Work if it Replaces State Education and Medicine→
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.
This year I will be making a series of predictions about the future, and assigning each of them a probability. I was inspired to do so by Scott Alexander and Phillip Tetlock. Too many commentators make vague predictions about future events and then declare victory however things turn out. So, in the interest of holding myself to a higher standard than a fortune cookie or horoscope, here are my predictions for 2016:
Canadian year-over-year CPI growth will be higher than it was in December 2015: 90%
Canadian year-over-year CPI growth will be at least 2.0%: 60%
American year-over-year CPI growth will stay below 1.0%: 60%
American year-over-year CPI growth will stay below 2.0%: 80%
Unemployment in the US will be lower than it was in December 2015: 60%
Unemployment in Canada will be lower than it was in December 2015: 60%
Canadian year-over-year real GDP growth will be lower in 2016 than in 2015: 70%
American year-over-year real GDP growth will be lower in 2016 than in 2015: 60%
Iranian year-over-year real GDP growth will be higher in 2016 than it was in 2015: 80%
The S&P 500 will end 2016 lower than it started: 60% (note that I am making this prediction on January 26th, and it has already fallen since January 1st)
The price of crude oil will be above $35 USD at the end of 2016: 70%
The price of crude oil will be above $30 USD at the end of 2016: 90%
The price of Bitcoin will be above $400 USD at the end of 2016: 70%
The Canadian Federal Government will not decriminalize marijuana: 90%
The US Federal Government will not decriminalize marijuana: 99%
At least one more US State will decriminalize adult use and cultivation of marijuana: 60%
Donald Trump will not win the Republican nomination: 60%
Conditional on Trump winning the nomination, voter turnout as a percentage of the voting age population will be higher than it was in the 2012 presidential election: 90%
Conditional on Trump losing the nomination, voter turnout as a percentage of the voting age population will be lower than it was in the 2012 presidential election: 60%
Hillary Clinton will be the Democratic nominee: 80%
Hillary Clinton will be elected President: 60%
ISIS will hold less territory than it did at the beginning of 2016: 90%
ISIS will lose Raqqa: 60%
The Force Awakens’ worldwide gross will exceed that of Titanic: 80%
The Force Awakens’ worldwide gross will not exceed that of Avatar: 80%
No 2016 movie will gross more than The Force Awakens: 90%
I attended a Students for Liberty conference organized by my good friend Liz Jaluague and happened to speak to a reporter from The Tyee. We talked about many things, but she made climate change her focus when writing her article. Here’s my part:
Like Proenca, Garrett Petersen is conflicted about climate change. The PhD candidate in economics at SFU acknowledges climate change is a failure of the market or a “market externality” imposed on future generations.
“Obviously we can’t write a contract with them because they are not born,” he said, referring to instances where the polluter signs a contract with those impacted by pollution, like cap-and-trade systems where industries are allowed a certain amount of emissions.
“For climate change I would argue there is no perfect solution. It would be great if we could all come together in a perfectly utopian and altruistic way and decide how much carbon to emit,” he said.
But he believes neither governments nor private companies are better suited to making that decision: markets can’t bargain with future generations, and politicians only care about the time they’re in office — not how their actions will impact the next generation.
There’s a tradition at least as old as Kant of investigating philosophical dilemmas by appealing to our intuitions about extreme cases. Kant, remember, proposed that it was always wrong to lie. A contemporary of his, Benjamin Constant, made the following objection: suppose a murderer is at the door and wants to know where your friend is so he can murder her. If you say nothing, the murderer will get angry and kill you; if you tell the truth he will find and kill your friend; if you lie, he will go on a wild goose chase and give you time to call the police. Lying doesn’t sound so immoral now, does it?
This is a great way of doing philosophy, but reading it, I realized I had heard it before. I’ve heard this sort of argument in the context of policy debates.
Unlike the case of the door-to-door murderer, which is a deliberately fanciful way of examining a broader moral truth, this is a policy proposal made on the basis of a fanciful scenario. The argumentation goes like this:
In an unlikely scenario, economic system A would allow bad outcome X
Therefore, abolish A (and substitute it with another system, such as B)
There are a lot of errors packed into this line of thinking. What if bad outcome X happens under both systems? What if changing systems just substitutes bad outcome Y for X? What this fails to do is compare the relevant alternatives. Is the implicit claim that under socialism, nobody would ever starve? Millions of Soviet citizens beg to differ. Continue reading The Trolley Car Approach to Public Policy→
Meanwhile, Hillary’s actual policies on women are a disaster waiting to happen. Consider her support for “equal pay for equal work.” What effect will this have on women in the workforce? It not only puts government in charge of micromanaging every aspect of payroll and personnel of every business in America. It also incentivizes managers to keep women in lower positions in a firm in order to comply with the wage mandates, and disincentivizes advancing women up the ladder by making the costs of ascending too high. The result will be the very “glass ceiling” that mainstream feminism abhors.
An intelligent friend, who shall remain nameless, replied:
I feel like this runs on the same logic that if you raise minimum wage to a livable wage, jobs will be destroyed and small business will crumble, when in fact the opposite has been shown to be true.
Now, this friend is not an economist. What I suspect is that the news sources he typically reads report heavily on the few studies that show positive employment effects of minimum wage increases, and ignore the rest of the literature. This isn’t exclusively the territory of the left, I’m sure people who read only right-wing or libertarian news sources overestimate the disemployment effects in the other direction.
But look at the conclusion he drew! Since he got the false impression that raising the minimum wage has positive employment effects, he concluded that there is essentially no tradeoff in government artificially boosting any wage; in this case the wages of half (!) the population. But given the initial error, this extreme conclusion naturally follows. Continue reading It All Comes Back to the Minimum Wage Debate→
My latest article on Mises Canada takes on the Price Transparency Act, a piece of legislation that would allow the Competition Bureau to investigate alleged “price gouging” of Canadians. Here’s a bit of it:
The price transparency act aims to seek out firms that sell profitably in Canadian markets and shame them into charging lower prices for their outputs. I’ve seen complaints that, since the legislation doesn’t grant the Competition Bureau the power to set prices, the investigations will create costs for the government and for compliant firms without having any real impact on prices. Actually, that would be the best possible outcome. The legislation would be far more disastrous if it succeeded in its goal of putting downward pressure on prices. To do so would remove the incentive for entrepreneurs to efficiently employ their knowledge and insight in allocating resources. While bailouts famously socialize losses while privatizing gains, antitrust actions to reduce “gouging” effectively socialize gains while privatizing losses. We all know how privatized gains and socialized losses led investors to take excessive risks in the lead up to the financial crisis. If the antitrust authority steps in to force profitable firms to reduce prices, effectively socializing gains, then entrepreneurs will be excessively averse to risk taking. Entrepreneurs will not seek out opportunities for high profit if they anticipate that government officials will order them to reduce their prices if they succeed.
High profits are what motivate entrepreneurs to zealously pursue opportunities. Whether they achieve those profits or not, in pursuing them they bring their best knowledge and insight to bear on the problem of allocating scarce resources. High profits motivate entrepreneurs the same way a carrot can motivate a donkey. Mainstream economists are too worried about losing the occasional carrot to realize that taking away the carrot would seriously impair the donkey’s motivation to walk. Taking away the carrot would save a carrot, but it would forfeit something far more valuable. Similarly, while pushing down prices that far exceed marginal costs could reduce the deadweight loss in a particular time, place, and industry, doing so would hamper the entire entrepreneurial process.
Ludwig von Mises wrote that, “[d]emocratic control is budgetary control. The government has but one source of revenue—taxes. … But if the government has other sources of income it can free itself from this control.” This principle is particularly important for understanding the internal politics of Canadian Native tribes, whose governments are the recipients of large transfers from the Canadian federal government.
A recent scandal involving the Squamish Nation, a Vancouver-area tribe with a population of about 4,000, is a case in point. Two political officials of the band spent $1.5 million from an emergency fund for their personal ends. According to the investigation that eventually exposed them, “it was clear they handed out funds to develop political support from members.”  The scandal derives from the fact that funds earmarked for one purpose, emergencies, were used for a different purpose. But the interesting economic story would nonetheless hold if the funds had been used only for their intended purposes.
According to its most recent financial statements, the Squamish Nation earned $11.3 million from Aboriginal Affairs and Northern Development Canada, i.e. the Canadian Federal Government, and only $8.4 million from taxation in 2014. As Mises suggests in the quote above, a government with alternative sources of income besides taxation can use this income to free itself from democratic control. Robbing Peter to pay Paul is a favourite activity of all governments, but when the robbery occurs through taxation, it is at least limited by Paul’s awareness that he is being robbed.