Tagged: rational choice

Four Options When Government Gets in the Way of Your Dreams

Four Options When Government Gets in the Way

Illustration by Matthew Drake

 

This article is adapted from a presentation given at FEE and SFL seminars.  Co-authored with James Walpole for The Freeman.

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We all want to live free, but we have a problem: governments don’t always want us to.

From seemingly mundane rules (like banning raw milk sales) to the truly horrific (like taking your house from you or throwing you in jail), the state is probably going to mess with you at some point in your life. It will throw taxes and fees and fines and rules at you and erect roadblocks and regulations inhibiting your progress — especially if you’re trying to do something new and innovative.

What can you do?

You do have options. Grave as the stakes may sometimes be, you must first accept this outlook: it’s all a game. If you treat it that way, you’re more likely to find a way forward rather than simply cowering in fear or trembling with anger.

Here, then, are four options when you’re faced with the game of government interference.

1. Play the Game

This is the strategy you’re probably most familiar with. It’s what we’re all encouraged to do. Whether through voting, lobbying, or holding office, you can try to take on the state while playing by its rules. You can try to change it from the inside. This is a strategy we cannot recommend.

In business, this strategy leads to the phenomenon economists call “regulatory capture.” Many companies become involved in lobbying and political action to prevent hostile regulations. It’s understandable. They spend hundreds of thousands of dollars on campaign donations and dinners trying to sway politicians and regulators to delay a vote, join coalitions, or carve out exceptions.

It’s a tough, slow process, one that involves endless compromise of principle and decency, and the few who succeed end up with political power and the ability to gain more. They end up using that power not just to expand their own freedom but to crush the freedom of competitors.

But any changes you make will be temporary. Laws passed in one decade are easily repealed in the next, especially if they limit state power. The bigger loss is a personal one. If you play the game long enough, the game ends up playing you. You become a part of the power structure you were trying to fight.

2. Defy the Game

When the state crushes your dreams, you can fight back. History is full of people who stopped taking oppression for granted and started resisting. Look at the civil rights movement in the United States, the Hungarian revolt against Communist rule, or even Uber’s commercial rebellion.

Today, the ridesharing company is operating illegally in dozens of cities, and it’s already paid hundreds of millions of dollars in fines for its drivers who are caught violating local laws. The company is growing fast enough to absorb the damage, and while governments don’t like Uber, customers love it. In Uber-hostile cities like New York, riders are standing up for their favorite way to get around. The “rebellion” has been a huge success.

But rebellion plays out in more desperate ways in the rest of the political world. For people and companies without the money and reputation of Uber, successfully defying the game is hard. While you can get tremendous satisfaction from sticking it to the man, you might end up in jail. You might be killed. In other words, playing this way means you might run into the real power of the state in its rawest form.

3. Change the Game

Changing the game is about recognizing the incentive structures and putting external pressure on the government to bend. Often, all you need to do to win is to hold the state to its own rules.

But it’s not as easy as it sounds, and the people who try to change the game in this way have to be heroic, if not martyrs. They’re taking the longest route. Game-changers lower the cost of information to the public while raising the cost for government to break its own rules or be thuggish. This group includes lawyers, journalists, public intellectuals, and everyday citizens.

Look at the case of occupational licensing. Municipal and state governments throughout the United States require entrepreneurs to give up money and time to comply with regulations. Many would-be entrepreneurs are stopped dead in their tracks by competition-killing regulations.

Before the Institute for Justice (IJ) challenged the regulation, eyebrow threaders in Texas were required to train for 750 hours before they could set up shop. Before another IJ case in 2011, Texas required bakers wanting to sell cookies to the public to rent commercial kitchen space and obtain food-handling permits.

Changing the game isn’t limited to the courtroom. Governments will break their own rules if they can get away with it. Both IJ cases included concerted efforts to raise public awareness about the unfair consequences of the regulations while simultaneously challenging them in court. These efforts raised the stakes for any judge who wanted to rule for the status quo. It also resulted in politicians jockeying to change the law before the court case was even settled so that they could take credit and benefit from the positive PR. Think about the state lawmakers who jumped at the chance to restrict eminent domain after theKelo outrage.

This is one of the biggest pros of changing the game: if you’re successful, you’ve kept your own integrity, and you’ve helped to protect others from the dream crushers in government.

The problem is that you may not win. You can spend years of your life fighting the battle to change the game and lose — plenty of people have, from the Dred Scott case to the Kelo decision. Even if you do win, the victory is too often short-lived: as soon as public awareness and scrutiny abate, courts will “reinterpret” hard-fought constitutional changes put in place to restrict government.

4. Ignore the Game

Entrepreneurs in the last decade have made international-trade and immigration restrictions less and less important. Today, anyone can telecommute to work in the United States from a call center in India, an Internet cafe in Bangladesh, or a personal laptop in Mexico. These innovations allow labor to move freely, and the inventors never needed to lobby politicians.

You can quit, exit, and opt out of the games government uses to stop you. You can move. You can pull your kids out of school. You can alter your business plan. You can quietly sidestep the obstacles placed before you.

There are major benefits to ignoring the game. For one thing, you don’t have to think about politics. Psychologists and philosophers have long told us to not worry about things not under our control. By ignoring the game, you can be politically ignorant and much happier. You don’t have to fight court battles or Internet comment threads. You can focus on creating, not protesting.

Ignoring the game isn’t always as satisfying as defying it, but ignoring the game offers an immediate sense of personal freedom. It allows you to create a freer life for yourself while providing an example that others can learn from. Over time, if enough people ignore the game, it begins to wane in importance and power.

How Will You Respond?

If your goal is to live free, first understand the game and know the rules. The way you respond to the game is then up to you. The strategy you choose will have more influence over your quality of life than any near-term victory or defeat will.

You may respond to the government in many different ways throughout your life, but if you treat it like a game, it will be less likely to ruin you.

Three Types of Racism

  1. Scientific Racism: “Some races are biologically inferior and should therefore be treated differently.”
  2. Cultural Racism: “Some races are culturally inferior and should therefore be made to adapt to the superior culture.”
  3. Institutional Racism: “Some institutions have bad incentives that attract scientific and cultural racists and enable them to act on their racism without fear of bad consequences.”

All three forms of racism exist.  I think the first two statements above are false, while the third is true.

Those who believe in either of the first two are not likely to change easily, and almost never through direct argument.  A steady drip of experience could potentially affect them, and more likely a generational change.

The third type of racism is the kind that can be meaningfully alleviated by ignoring, defying, or innovating around the bad institutions.  When the bad institutions are undermined the first two forms of racism tend to shrivel and go into hiding.  The existence of bad institutions protects and perpetuates racist beliefs and actions.

In the long term, markets do not reward racism.  Free association does not perpetuate it.  It is for this reason that racists everywhere are always forced to go to violent state institutions to codify racism in the face of market pressure in the opposite direction.  When the market isn’t racist enough, the law is invoked.

You can justifiably scream about people’s horrible beliefs, but until you alter the incentives they face the outcomes are unlikely to change.

Sometimes You Have to Create a Chip on Your Own Shoulder

NBA great Stephen Curry has a chip on his shoulder.  It’s clear when you watch him play.  Even as he’s gotten better, it’s grown bigger.  This is what great performers do.  They play with a chip.

Steph is a great example of how the factual truth of a situation by itself does not dictate what kind of orientation we have toward it.  There are two stories about Steph Curry, both true.

In one story he was born with great genes to an NBA star dad and volleyball playing mom.  He grew up with plenty of money and access to basketball training facilities, coaches, mentors, and opportunities galore.  He honed his skills, went to a good school, played well, got drafted for good money, and continued excel with a great team and organization around him.

By this account, which is factually correct, he is one of the most fortunate people on earth.  How could this gifted athlete have a chip on his shoulder?

In another story Steph grew up with more pressure than most people could imagine.  His star athlete parents had done more than most kids could ever hope to in sports.  He lived under their shadow.  He didn’t grow as tall as he should have for basketball, and was too skinny.  Despite practicing the sport almost from birth, not a single major college was interested in him.  He ended up at a tiny liberal arts school.  He played well, but he was not fortunate enough to be on a team with any hope of a national title.  Despite his amazing shooting ability and NCAA tournament performance, Steph was questioned as an NBA talent.  He was seen as too small, and mostly just a shooter without a full range of skills.  He entered the league with virtually no hype compared to most future MVP’s.  He had to scratch and claw through a historically great Western Conference for the first several years of his career before making it to the finals.  When there, even though the team he led won, he did not get finals MVP.

By this account, which is factually correct, he is one of the biggest underdog greats in sports history.  How could this constantly overlooked late-bloomer not have a chip on his shoulder?

Steph can choose which set of facts to focus on and which narrative to tell himself.  Off the court, Steph is likely aware of the great life he’s had and thankful for it.  Remembering the best facts about ourselves is a powerful defense against self-pity.  Yet it seems pretty clear that, come game day, he’s thinking about the second story.  He’s not just happy to be there.  He’s got something to prove.

At Praxis we like to tell the participants at the start of the program these two bits of professional advice:

  1. Don’t take anything personally
  2. Take everything personally

The first is a reminder to think in terms of rational choice theory.  Deciding someone is wrong or out to get you is unhelpful for determining how to work around them.

The second is a reminder to stay sharp because no one cares about your success.  In fact, if you’re doing your own thing, they probably doubt you.  Good.  Use that.  Not with malice toward them in real life, but as fuel for the narrative you weave of your own hero’s journey.

See, we can all be like Steph Curry after all!  Now go watch some amazing highlight videos.

A Tale of Two Cities Part 2: Why People are Dumb at the Ballot Box

This is the sequel to a post about the two spheres we all dwell in – the political and the civil – and how each affect our behavior.

Originally published in The Freeman.

Why do so many San Franciscans want to curb Airbnb’s innovative business model?

Proposition F would have restricted the number of nights owners could list their homes and which types of rooms could be listed; it would also have required a litany of paperwork and reporting to a city department. Listings that did not meet city standards would have incurred fines of up to $1,000 per day. The details are many, but the thrust is obvious: this proposal was to make Airbnb far less successful at creating value for customers and investors.

The proposal ultimately failed, but it wasn’t a landslide. Forty-four percent of voters supported it. Nearly half of the voters in a city that owes its recent prosperity and identity to this kind of innovative company wanted to strangle one of the geese on whose eggs they are feasting.

Most political action is signaling.

The simplest explanation is that proponents of this proposal were the minority of businesses and individuals who are in direct competition with Airbnb — hotels and those working or investing with them. True, but something deeper is at work. A surprising number of investors, entrepreneurs, and everyday residents of the city who are not involved with competing businesses voiced their support for the proposal. Some supporters were even Airbnb investors.

How could this be?

Here are five reasons (by no means an exhaustive list) why people behave so badly in the political realm.

1. Other People’s Problems

Milton Friedman famously described the four ways to spend money. You can spend your own money on yourself, your own money on someone else, someone else’s money on yourself, or someone else’s money on someone else. It’s clear that you’ll be most judicious in the first scenario, and less so in each that follows.

All political issues are a case of the fourth scenario, even when money is not directly involved. You’re voting on the use of resources that aren’t yours — the pool of taxpayer dollars that fund government bureaucracy — to solve someone else’s problem, in this case hoteliers threatened by competition and San Francisco residents supposedly being pushed out of affordable housing.

Ballot initiatives tell us that some people, somewhere, are having some kind of problem — and that we can vote to make it better. It’ll cost you nothing (at least nothing you can see at the moment), so why not?

Not only voters, but also the regulators, enforcers, and drafters of such propositions are so far removed from the issue at hand and have no personal stake in the outcome that it is impossible for them to make decisions or draft policies without unintended consequences.

2. Information Issues

Proposition F is ridiculously complex. To cast a fully informed vote on the Prop F, one would need to begin by reading all 21 pages of legal text. What’s more, the costs of obtaining the information far exceed the probability that your informed vote will be decisive. The result is what economists call “rational ignorance.”

Customers, employees, managers, and investors of Airbnb are best suited to optimize the service. Even the company’s competitors are in an excellent position to curb it or force it to improve if they channel their efforts where the information matters, namely in the markets where they stand to lose or gain.

3. Signaling for Survival

Most political action is signaling. It’s not so much that people want to buy American or recycle everything — we know this because when their own money is on the line in the real world of trade-offs, they mostly don’t. But people want to be seen as the kind of person who buys American or supports recycling. There is tremendous pressure in the political sphere to prove to everyone that you support all the right things — especially things that come at a direct personal cost to you. This proves you care about that abstraction called “society.”

Once control by force is an option, a great deal of otherwise productive energy and otherwise creative people are drawn into the crooked craft of politics.

The best thing a rich person can do in the political sphere is vote for higher taxes on the rich. The best thing an Airbnb investor can do is claim to support regulations that restrict Airbnb. You’ll get lots of cheap signal points, even if what you support would actually be bad for everyone.

4. Binary Choices

Voting is a yes or no affair. The political sphere is incapable of genuine pluralism. Imagine if markets worked the same way. What if your local grocery store sent out a survey asking you to vote on which kind of wine you wanted them to stock, or how much, or at what price (with any losses to be made up by adjusting other prices)?

Can Airbnb be improved? Of course. Can a bunch of people with no control over the outcome and little skin in the game be given an up or down vote on a single policy proposal and make it better? Don’t be silly.

The adaptability, nuance, and diversity of options, offerings, and solutions in a market are the greatest strength and the very stuff on which the startup scene was built. Cramming broad society-wide solutions into binary choices is absurd.

5. The Problem of Power

The infamous Stanford prison experiment didn’t go horribly wrong because the wrong batch of subjects was chosen: it was a case of dangerous institutions and incentives. When rules are enforced by raw power, the person who wields that power has more control than any human being can responsibly handle.

Contrary to Thomas Hobbes, it is not the “state of nature” that is a war of all against all; it is Leviathan that rewards force over cooperation and cultivates the worst traits. Once control by force is an option, a great deal of otherwise productive energy and otherwise creative people are drawn into the crooked craft of politics.

F.A. Hayek wrote at length in The Road to Serfdom about why, in the political sphere, the worst get on top. It’s a predictable outcome of a powerful state.

Democracy doesn’t keep this tendency in check so much as it directs the power toward those who are best able to appeal to the desire of rationally ignorant voters to signal the trendy positions on the latest issues.

Focus on Freedom

The innovative startup founders on the San Francisco scene are an amazing force for good when they are pursuing their own interests within the incentive structure of civil society. Not one of them would remain a positive influence if they were granted monopoly power through the ballot box. Nor would their customers: even the most forward-thinking minds in the most innovative city in the world become petty and stagnant when operating within the confines of the political sphere.

When you act as a consumer and choose which kind of vacation housing to purchase, your action sends information and incentives rippling through the market price system, helping entrepreneurs guide resources to their highest valued use. When you act as a voter to support or reject a policy, you create losers and enemies, and your vote generates a host of destructive effects.

If you want a freer, better world, you’ve got to build it in the private sphere.

A Tale of Two Cities: Civil vs. Political Society

In one city it seems the innovation never ceases.  Bright and talented dreamers from across the globe flock there to build amazing things.  They create solutions to problems both commonplace and incomprehensible.  You can find entrepreneurs and investors working round the clock on everything from entertaining apps to asteroid mining to life extension.  In the past few decades alone the denizens of this city have revolutionized the planet, put massive computing power in everyone’s pocket and all the libraries of the world at the fingertips of the majority of earth’s population.

This city is always looking forward, upward, onward.  It is relentlessly focused on solving problems and improving quality of life.  It is driven by curiosity, new frontiers, and prosperity.  From this city have come simple yet revolutionary technologies that unlock billions in dormant assets like extra bedrooms, apartments, and cars.  Customers love them.  Investors love them.  And the city can be proud of the world-changing impact made by the companies headquartered there.

There is another city much different.  This city puts up barriers and blockades to keep bright and talented people out.  It proposes solutions to problems that don’t exist.  You can find demagogues and petty tyrants working 9-5 on everything from grocery bag taxes to restrictions on tree branches.  In the past few decades alone the figureheads of this city have managed to take record amounts of money from citizens and demand record levels of compliance with confusing rules and regulations.  They’ve taken untold creative power out of every citizen’s efforts and resources out of their pockets.

This city is always looking backward and downward.  It is relentlessly focused on creating new conflicts and categorizing everyone’s relative quality of life.  It is driven by fear, doubt, and preservation of the past.  From this city have come complex and confounding ordinances that strangle active assets and reduce quality of life.  Customers have no choice.  Investors can’t divest.  And the city can take credit for world-changing companies that have relocated to other cities to escape the Leviathan.

Both cities are the same place.  In this case, San Francisco.  But many cities share the same fate.  The citizens are the same.  Yet they live in two spheres simultaneously and the institutions and incentives in those spheres are so drastically different you can barely recognize the actors in each as the same people.

Make no mistake, they are the same people.  It’s not that some people are peaceful, productive producers and consumers and some people are meddling petty tyrants.  It’s that the same person behaves in both ways, depending upon the incentives and institutions.  The political man (as in mankind) is a barbarous, tribalistic busybody.  The market man is an inventive, curious soul.

I’ll be sharing a specific recent example of this split-personality disorder and what leads to the contrasting behaviors in the two spheres in an upcoming piece for The Freeman.  Stay tuned.

Why Do We Have to Pick Sides?

Not long ago I was discussing the famous Sons of Liberty who sparked the events leading to the American Revolution.  We grow up hearing of their exploits as heroic, bold, and founded on the highest principles.  Yet there is an alternative account too.  If their deeds are described devoid of historical context they have all the attributes we would associate with terrorists.  It was violent, destructive, thuggish, and as fueled by hate as principle.

The traditional historian will tend to whitewash these historical figures and focus only on the ultimate outcome, an independent nation, and assume that because it exists it is good, and therefore whatever led to it was also good.  The radical revisionist will brand them as evil and by extension whatever their deeds may have helped to accomplish must be bad and the right thing would have been no revolution at all.

Something about the history of whatever political jurisdiction we grow up in makes us incredibly dumb when it comes to analyzing actions and individuals.  If your dysfunctional neighbors had a nasty divorce that you knew about only through the grapevine, would you immediately proclaim one side just and the other unjust?  You’d be smart enough and staid enough to stay out of it and understand that both sides are equally likely to be in the right, if there even is a right at all.  Yet people few centuries ago with whom we share little in common got into complex conflicts and we feel the need to come down hard for or against one side or the other.

Free yourself from the patriotic reading of history which demands good guys and bad guys.  You don’t need to pick sides.  You can admire or be repulsed by all sides in historical epochs, or simply admit ignorance and have no feelings whatsoever.  The need to find the “right” side always results in fact-bending and uncomfortable association.  It makes you dumber and less happy, as there is always some alternative version you feel the need to respond to or stamp out.

History is not a football game where your team either wins or loses based on what the textbooks say.  It’s a bunch of messy stuff that already happened, and who was more or less wrong or right has no bearing on your life today unless you let it.  Don’t shackle yourself to the deeds of dead strangers.  If you want to understand history, move beyond good and evil.

Evil Doesn’t Mean Irrational

I was singing the praises of rational choice theory to a friend – telling him it can help people understand cause-effect relationships in the world and navigate better towards their goals, rather than just getting bitter – when he posed an objection.  Sure, he granted, most people are acting to get what they want and not just to torment you for its own sake, but what about those few people who may be genuinely evil, and truly revel in your misery?  How can rational choice account for this?  Don’t they destroy this worldview?  Isn’t it impossible to understand what they’re aiming at and negotiate to avoid pain?

I asked for a specific example.  He mentioned a friend of his who gets angry at people and immediately assumes evil motives.  When someone says they’ll show up at 10 and comes at 10:30, she thinks it’s because they’re simply a terrible person, and there’s no rationality behind their selfish tardiness, therefore there’s nothing she can do to cope with or avoid being the victim of it.  It’s a very helpless, disempowering way to look at things.  It’s also patently false.

Even if we grant that the person is pure evil, hell bent on her discomfort, this theory has provided no explanatory power for the particular actions taken.  Why didn’t the person just key her car or slash her tires if inconveniencing her was the goal?  Why did they show up 30 minutes late, instead of 60, or not at all?  What accounts for the particular choices made?  Clearly, some kind of calculation was involved.  If being a jerk was the goal, the person must have reasoned that showing up 30 minutes late was the least costly way to exact the most jerkiness.  In other words, they looked at costs and benefits, and made a rational choice given their preferences.

Once you strip away the emotion and realize that, evil or not, people still make rational choices about what means to employ in seeking their ends, it tends to melt away the anger and helplessness a bit.  If the person was rational enough to choose whether to be late and by how much, does it seem probable they did it just to tick you off?  Not in most cases.  Far more likely, they had a phone call, or forgot to get gas ahead of time, failed to account for traffic, or any number of other things, and they determined sacrificing 30 minutes was the least bad solution.  But even if they wanted to cause trouble, knowing they have a cost/benefit calculation just like you do can help you see possible work-arounds.  How might you change their incentives to improve the chances of punctuality?  The onus is on you to accept their preferences, whether you like them or not, and learn to get what you want anyway.

It’s much easier emotionally to just call them evil and irrational and propagate the myth of your own helplessness.  It might feel good in the moment, but it’s a terrible way to reach your goals, and it fails to explain the real world.  In fact, the vindictiveness that can result is likely to make them truly angry with you, whether they were at first or not, and want to exact revenge, perpetuating the conflict.

Worry less about the morality of others or their motives, and put more focus on what caused them to choose what they did and how you might alter what they view as in their best interest.  You’ll enjoy life more, and you might find people around you aren’t as bad as you think.

We Already Have the Solution: It’s Called Freedom

Milton Friedman once said of the political system,

“I do not believe that the solution to our problem is simply to elect the right people. The important thing is to establish a political climate of opinion which will make it politically profitable for the wrong people to do the right thing.”

There already exists an institution that ensures people, be they right or wrong, do the right thing.  It’s called the market.

Any wish to constrain government, or keep political interests behaving in the interest of the general public, is a wish that government behave more like a market; and that the political class behave more like individuals must behave to succeed in a market.  All reform efforts aimed at making the state smaller, less oppressive, more accountable, more efficient in it’s various activities, and less arbitrary are efforts to make it completely unlike itself, and completely like the market.

What I mean by the market is the entire realm of voluntary exchange and coordination.  Politics, like all institutions, is a type of market, but not the type I mean.  It has two unique feature that no other institution has, it produces a host of things unthinkable under other institutions.

The first unique feature is coercion.  The transactions in the political system are not voluntary.  This dramatically alters the incentives and signals in all the exchanges.  “Customers” tolerate what they hate, because it’s not worth being jailed for.  The second unique feature is near universal moral approval.  Though the coercion is real and known by all, it is not only accepted, but praised and condoned.  No other institution enjoys this kind of unskeptical reception and sanction.  Without these two features, there is no state.

It is easy to see why governments produce so much of what we hate, and destroy so much value.  Any market entity that attempted to engage in a single activity the way government does would cease to become profitable and receive universal scorn.  On the market, people think it immoral and tasteless to say you’ll provide a free soft drink with a sandwich and not make good.  That kind of behavior from a corner deli wouldn’t last a week.  On the political market, people think little of a politician who promises to stop sending young people to kill others across the globe, but then sends more instead.  That kind of behavior might get you another four years.

If we wish for the wrong people to do the right things, we can engage in the monumental task of altering public belief and preferences enough that they are willing to pay the price for resisting the state.  We can work to continually alter the incentives faced by politicians on every single issue, fighting back against every incentive built into government.  Of course, the state itself resists this by its very nature, and always will.

The real solution is not the state at all, but the market.  It’s not changing the state, it’s letting it fade into irrelevancy as markets grow up around it, carrying out all the activities states try so jealously to monopolize.  Markets don’t require perfect consumers or producers.  They put bad people in the position where they must do good to succeed.

Friedman was right.  The easiest way to do it is to force political entrepreneurs out of government, and into the realm where they’ll have to be market entrepreneurs.

Individuals Act in Own Self Interest!

BREAKING: Individual’s, when given a range of choices, do things they see as most beneficial to themselves. Surprisingly, giving them titles like “public servant”, paying them with a percent of earnings taken by force from others, providing a lot of power and public trust, and offering little scrutiny do not reduce the tendency towards self-interest.