Tag: spontaneous order

The Morality of Capitalism

This is part one in an eight part series on the morality of capitalism.  Originally posted here

It is a common belief that capitalism “delivers the goods” and creates prosperity, but does so only at the cost of our souls, our dignity and our humanity. Many people doubt capitalism not because they fail to see its wealth-generating capacity, but because they believe it to be immoral. I wish to contest the idea that capitalism is immoral and present evidence to the contrary. Not only do I believe capitalism passes the minimum test by failing to violate basic moral standards; I believe it actively promotes a robust sense of morality in a way far superior to any other system.

Before I present my arguments, I would like to define what I mean by the word “capitalism.” I mean only a system where individuals are free to keep, trade, use or give away property that was peacefully acquired. This is merely a negation of the use of force in the use and exchange of goods. I do not mean a system that is pro-capitalist, or pro-business or pro anything but freedom for the individual.

In matter of fact, capitalists and established businesspeople have always been the most active enemies of capitalism. That is because capitalism is decidedly not pro-business. It allows for human creativity, competition and ceaseless challenges to vested interests as people continually innovate in order to better serve customers. It is a system that does not allow one to rest on their laurels long, and as such, those who have been successful frequently try to slow capitalism down and look to the state to find shelter from its dynamism.

If the word capitalism is distracting, I encourage you to substitute “free trade,” “free markets,” “voluntary exchange” or simply “freedom.” It will not change the meaning of my arguments in the least. I have chosen to use the term capitalism because it creates a more provocative title and because the term is embraced by the curators of this blog. There are good arguments both for and against the use of the term capitalism by advocates of free markets, but I wish to avoid this debate at present.

The titles of the next seven posts in this series provide a clue as to where I am going:

Through these posts I will attempt to briefly explain why a system of free enterprise is the best possible way to promote these virtues. I don’t think we should merely accept or “put up with” capitalism, but we ought to embrace it as the key to unlocking human potential—moral, mental, spiritual and physical. There is much more to be said on the morality of capitalism than I will say in this series, and I mean only to present some of the most basic arguments.

The Timeless Way of Being

I am currently reading Christopher Alexander’s The Timeless Way of Building on the recommendation of a friend.  It is one of those books that is so full of insight that it cannot be absorbed all at once, especially with the analytical part of the brain.  It is as intuitive as it is logical.  It’s the kind of thing that forces you to think outside of your paradigms, but in a way that is oddly comfortable.

Yesterday a section of the book stood out to me in particular.  It was about the patterns in building that are good at resolving conflicting forces, and those that are not.  Alexander maintains that there is near universal agreement on what patterns of, say, a window or a garden resolve conflicting forces.  He asks people how they feel in a certain window area vs. another, and 95% or more feel good in the same one.  It may seem outlandish to claim that there is so little disagreement about what makes for a good pattern in building, but the key for Alexander is the word feeling.

He does not ask what they think of flat windows vs. Bay windows.  He does not ask their opinion on window material or position.  He does not ask what a builder should do.  He does not ask anything that evokes a belief or idea or a connection to some overarching plan or policy.  These ought expressions get in the way of the is  of the forces at work within us.  It turns out it is incredibly hard to be honest with ourselves about what feels good.  It takes a lot of discovery, and shedding all the baggage and ideology we carry around.

It someone asked me what I thought of using locally grown ingredients in food, my mind would immediately leap to the idiotic and regressive political movements that seek to force economies into localism, drive up prices, drive down quality, get everyone too involved in everyone else’s business while self-righteously proclaiming the superiority of an absurd proximity bias.  In other words, my thoughts on the matter would probably be negative.

Because of this, it is possible that I would overlook an opportunity to bite into a delicious and juicy local fruit at a farmers market, for fear of giving credence to the food busybodies.  These thoughts – my view that no one ought to get preachy about local ingredients – might prohibit me from finding alignment with the genuine feelings within me.  It’s harder than it first seems to constantly stay in touch with what feels right – with who we actually are – in the face of all the things we think we should be and believe.

This is one of the reasons democracy is such a poor way of resolving collective action problems.  It not only seeks and allows our mere opinions, it rewards our proclamations of what we wish we thought, or what we pretend to want, instead of what actually make us fuller, happier people.  It rewards and glorifies the boring lies and spin we weave into our narratives, and vilifies our honesty about what really harmonizes with us.

It’s much more fruitful to dig down to the bottom and discover what you really do feel, and work with those forces rather than pretending they don’t exist.  This is why capitalism is such a powerful and beautiful system of social coordination; because it takes humans as they are, imperfect knowledge and motives and abilities, and the scarcity and difficulty the natural world presents, works with it, and channels it all in a harmonious and life-giving way.  Capitalism is honest.

This is why the economic way of thinking – the rational choice model – is so enlightening and useful in explaining human behavior and institutions.  It does not condone or condemn, it just accepts ends as a given and seeks to understand what means will and will not achieve them.

Certainly some goals or desires or feelings are better than others.  Certainly some are worth trying to change.  But playing pretend and building patterns around forces we wish existed in us and in others, instead of what’s actually there, doesn’t help.  There is no better way to express this insight than to quote The Timeless Way at length:

“But a pattern which is real makes no judgments about the legitimacy of the forces in the situation.

By seeming to be unethical, by making no judgments about individual opinions, or goals, pr values, the pattern rises to another level of morality.

The result is to allow things to be alive – and this is a higher good than the victory of any one artificial system of values.  The attempt to have a victory for a one-sided view of the world cannot work anyway, even for the people who seem to win their point of view.  The forces which are ignored do not go away just because they are ignored.  They lurk, frustrated, underground.  Sooner or later they erupt in violence: and the system which seems to win is then exposed to far more catastrophic dangers.

The only way a pattern can actually help to make a situation genuinely more alive is by recognizing all the forces which actually exist, and then finding a world in which these forces can slide past each other.

Then it becomes a piece of nature.”

Mr. Alexander is an architect and is here talking about patterns in rooms, gardens, buildings and towns.  He refers to things like the human desire to go towards the light in the room, and the desire for comfortable seating.  The patterns he seeks are those that bring into harmony such forces.  But read the above again, slowly, and consider how much broader this insight might apply; to institutions, to social coordination problems, and to our own lives.

Bitcoin – Because Everyone Has to Say Something

Whatever it is, whatever it will become, Bitcoin is pretty cool.

I’ve enjoyed watching it get a lot of attention, and draw attention to big ideas and questions like the role of money, decentralized orders, radical choice, polycentrism and the digital future.  It’s also a little depressing to read the flow of articles on Bitcoin coming from most journalistic outlets.  Not because they like or dislike Bitcoin, or because they describe it correctly or incorrectly, but because their grasp on the economics of money, from its origin to its uses and history, is shaky at best.

No one need be an expert on economics – especially the conceptually difficult arena of monetary economics – to write for a newspaper.  But when you are writing about money, and confidently, it behooves you to dig in and discover what this money is all about.  Rothbard’s famous quote applies here,

“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”

Thankfully, none of this economic ignorance matters as it regards Bitcoin itself.  Bitcoin doesn’t care what journalists think.  The always quotable and insightful Jeff Tucker summed up why very nicely in a recent Facebook post,

“It’s so strange how this how thing is becoming some kind of fight between pro- or anti-BTC, as if this were some policy thing. It’s not. This is a market technology. It either works or it doesn’t. It’s like being for or against email, for or against online media, for or against Skype. I mean, if you don’t like it, don’t use it. Whether it succeeds or not is up to any intellectual; it’s up to the market.”

The downside of journalistic economic ignorance is that it may result in confused ideas among the public, and therefore create incentives for confused policy from lawmakers.  I’ve heard journalists claim that government guarantees are the best and only sign of a sound money, (because, you know, hyperinflation never happens) and that the core purpose of a currency is price stability (because, of course, markets have been traumatized when trying to adjust to the rapidly falling prices in, say, the tech industry).  It’s sad to see such silliness, but it’s also great to see discussion everywhere about what makes a currency.

It can be helpful to compare money to language.  Both are spontaneous orders.  Both are tools that facilitate exchanges between people.  Both are wholly dependent on the individuals involved for their value and evolution; yet neither can be controlled by any one person.  Try introducing a new language, or even a single new word to an existing language.  Not easy.  Yet anyone is free to try, and new words emerge constantly.  They stick around only so long as they are perceived as valuable ways to facilitate an exchange of ideas.  It doesn’t really matter what experts think makes for a good word or language.  It matters what actually takes root in the world – a world where people face trade-offs and try to get the most value for the least effort.

Bitcoin kind of reminds me (as an admitted computer ignoramus) of programming languages.  Computer programmers have developed and become conversant in all kinds of languages that mean almost nothing to me.  These emerged out of nowhere in a relatively short period of time.  Some lived, some died.  Today, they provide an incredibly valuable function that serves not just programmers, but all of us, even though almost none of us speak the language.  Perhaps Bitcoin could evolve similarly.

Even if never the dominant currency “above the table” so to speak, it may find a powerful place in behind the scenes markets among niche experts, just as programming languages do all around us.  Maybe you or your friend or your uncle will never own Bitcoins – none of you probably write computer code either – but perhaps the crypto currency will be busy at work facilitating exchanges among many market participants you interact with.

I don’t really know, and I’d rather spectate than speculate.  It’s pretty fun to watch, and it’s even better to hear the chatter about a lot of topics I never expected to see in the public conversation.  Money is a mysterious and complex thing.  It’s prudent in such matters to refrain from confident proclamations.  I’m as likely to buy-in to someone’s prediction of Bitcoin as I am their prediction of which words will fall in and out of use in the next ten years.

The Neutrality of Everything

A hammer is neither good nor bad.  It is a tool.  It is useful.  It can be useful in achieving good things, and equally useful in achieving bad things.  It is valuable because it is useful, but the fact that it has value does not make it good or bad.

The same is true of an iPhone.  The same is true of money.  These are all morally neutral, inanimate objects (Siri notwithstanding) that become extensions of human will and volition, and act as a catalyst for whatever good or bad ends we intend.  They deserve neither vilification nor praise, except in regards to their usefulness.

Tools have their own qualities and characteristics; they have their own nature.  They will react in certain ways to certain conditions.  If you slam an iPhone down on a hard surface, it will crack.  It’s silly to get angry at the characteristics of the iPhone.  Part of growing up is learning to understand and work with the natures of the objects around us, rather than being surprised or angered by them.

So much for tools.  What about people?  Immanuel Kant, along with just about every decent person I’ve met, would bristle at the thought of people as morally neutral tools; useful if properly employed, but neither praise nor blameworthy in and of themselves.  For good reason.  People as objects is probably a terrible and incorrect notion.  People have wills and can choose right or wrong.  People don’t just react, they can act to thwart one another.  They have qualities that take them beyond the level of tools.  That may be their place in the cosmos, but what about in our day-to-day perceptions?

It can be incredibly enlightening and freeing to treat people with the same neutrality we treat our iPhones.  Not because they are the same, but because seeing them that way can help shed bitterness and accomplish more.  If, just like you would with an inanimate object, we try to learn the natures of those around us and get an idea of how they will react to conditions around them, we will be better equipped to cooperate for mutual benefit.

Sure, they have motives, but ascribing motives and assuming intentions are often hindrances to productive relationships.  Whether or not it’s for good reason, if you know a person gets angry every time you say X, rather than begrudge them this habit, adapt.  Learn to navigate the world of human relationships with the same judgement-free attitude you do the non-human world.  People have natures.  They’ll act in accordance with them.  Don’t hold it against them, learn it, know it, expect it, and work with it.

There are certainly times when some kind of confrontation or intervention is required.  There are times when working around a person’s modus operandi may be worse than trying to help them see the need to change it.  I think these times are rare, and only really worth it when a kind of standing invitation to do so exists in the relationship.

See how it works to view people as morally neutral, rational agents, rather than out to help or harm you.  It can turn even unpleasant interactions into a kind of interesting puzzle.  It may be untrue, but it is useful and in some ways makes it easier to appreciate people and treat them well.

(An alternative approach, much more bizarre and playful, is to treat everything like we treat people.  Ascribe will, motive and personality to your car, your iPhone and your coffee mug.  Perhaps I’ll discuss this another day…)

Five Assumptions About Fire Codes (why laws are less important than we think)

Originally posted here.

A friend and I were discussing the provision of fire services, and he made a comment in passing about how, thanks to government fire codes, fires have dramatically declined. It is true that fires have declined over the last 35 years (at least), but is it true that government fire codes are the reason?

There are at least five untested assumptions behind the idea that fire codes are the cause of a safer world.

Assumption 1: Cause and Effect

The most obvious assumption is that fire codes cause a reduction in fires. It is easy to see how unlikely this is when you perform a simple mental exercise: Imagine enacting US fire codes in, say, India. In India it is not uncommon for electricity to arc between two buildings or for people to pirate electricity by tapping in to an existing power line with a makeshift wire draped across the ground. Surely fire codes would prevent the dangerous electrical fires that sometimes result. The problem is, fire codes already exist in India, but nobody follows them. Why not? Because no one can afford to follow them.

Before government regulations can be broadly followed, they first have to be of limited consequence. Child labor laws only take effect once there are very few children in the work force, due to economic growth. It is well documented that OSHA regulations only came into effect after workplace accidents dramatically declined on their own. If you tried to impose the U.S. minimum wage on a very poor country, no one would follow it because if they did many would die for lack of work, income and food. You cannot wave a magic wand and demand that people take on major costs if the majority of people are not already able to bear the cost. Government regulations have a damaging effect to be sure, but it is primarily on people at the fringes of the economy—the poorest.

Government fire codes receive the credit for reducing fires, when in reality it is economic growth that makes people wealthy enough to spend money on safer construction. The codes come after the fact and claim the credit.

Assumption 2: Irrational Consumers

The idea that government fire codes reduce fires also assumes that, absent such codes, people would not protect themselves from fire. Are people so short-sighted that they would not think to protect their own property if the government didn’t force them to?

It is in everyone’s interest to protect their property from catastrophe like fire, and as such the vast majority of people do. Insurance is a common way to do so, but people also seek safe construction and other assurances against disaster. In fact, insurance companies have a tremendous incentive to only insure buildings with good fire prevention techniques in the first place (except when, as is not uncommon, the government interferes and prohibits insurers from placing stipulations on policies).

It can hardly be granted that people are too foolish to protect their own property from fire damage at all, so maybe it is assumed that people will merely protect their property at a minimum level and not “enough” without being forced to. But what is “enough?”

Assumption 3: Less Fire is Better

Fires are on the decline, and this is universally good, right? Not necessarily. Economist Steve Horwitz gives a question to his students that goes something like this: If a massive earthquake hit a city, what would be the economically optimal number of buildings destroyed? The answer: greater than zero.

How could that be? We all know destruction is not good for the economy (everyone, perhaps, except Paul Krugman). Consider that the cost of making the least valuable shanty in town entirely earthquake-proof is probably more than the value of the building itself. The same goes for fires. Not all structures are of equal value, and not all structures have equal risk of burning down. Because of this, it makes sense that people will have different risk preferences when it comes to protecting their property.

If I own a pole barn full of ice far away from any other buildings or woods, I am unlikely to invest in sophisticated fire prevention or suppression technology (unless compelled by the state), whereas a fancy condo owner in a downtown location is far more likely to pay for the best of the best. It’s easy to see how silly it would be to mandate that every single structure be built to withstand F5 tornadoes, category five hurricanes, massive floods and epic earthquakes. The same principle applies to lesser degrees of protection. For many structures, government fire codes are not worth it and the risk of a fire is lower than the cost of prevention. For others, government codes are not nearly sufficient and much more stringent precautions are in order.

The problem with government codes is that they are blunt and uniform and force everyone into the same mold, squelching innovation and disallowing the kind of marginal risk assessment that conserves resources. Not only are less valuable structures forced to overprotect, but often government codes are so widely accepted that more valuable structures are perceived to be sufficiently protected if they meet government standards, when in fact they may be better off with more.

Assumption 4: Irrational Politicians and All-knowing Bureaucrats

For fire codes to be the cause of enhanced safety it would require irrational political actors. Elected officials and bureaucrats would have to act not in their own rational self-interest, but on behalf of the public at large. To choose just the right amount of fire protection and just the right technologies to supply it requires not only a denial of potential individual profit (by cozy deals with some companies, etc.), but also a superhuman knowledge of what kind of construction everyone needs in every situation.

In reality we see that “rent-seeking” is prevalent everywhere the government intervenes—indeed, it could not be otherwise. How is a politician to choose the physical properties that must be present in caulk used between drywall and copper piping in a commercial building? Without the expertise they—or a wide array of public agencies—must rely on the information provided by competing companies. If it all sounds the same, do you think the company that donates to the right political campaigns might get an advantage? It is a fairy tale to imagine political actors wise and selfless enough to pick exactly the right amount and type of fire protection for every application. Every time they do pick, it reduces the options available to consumers and stunts the discovery procedures of the market in finding the best methods.

Assumption 5: The Government Did It

A final assumption is that the codes and norms of fire safety are, in fact, created by the government. In our discussion my friend mentioned government fire codes but also added a, “Thanks to UL.” UL is Underwriters Laboratory, a non-government organization that certifies goods for safety. They have built up quite a reputation in the marketplace and are highly trusted. (So much so that one professor has taken to chewing on UL certified power cords to prove how safe they are!)

It is often assumed that the order we see around us is the result of a government mandate—after all, mandates do exist for almost everything. But more often than people realize there are private entities and institutions doing the heavy lifting—UL is just one of them. There is a market demand for fire codes, and the market supply is far more complex, subtle, efficient and diverse than a government could ever be.

Conclusion

It is easy to assume government ought to get the credit for a great many life improvements. After all, government agents are constantly taking any opportunity to claim credit for everything under the sun, and to pass laws and regulations that demand certain improvements, whether or not they already exist. The existence of indecent exposure laws is not what keeps me from running naked through the shopping mall, and such laws shouldn’t be credited with my propriety. It’s naïve to assume that fire codes are the cause of a safer society, not merely a reflection of it.

Laws are less powerful than we think they are.

The Seduction of Guarantees

We want guarantees in life.  We are risk-reducing creatures who want to plan and plot and know as much in advance as possible.  We want tight and definite parameters around the possible outcomes of our actions and our world.  Whether we like it or not, they don’t exist.  Still, we persist in fabricating them and acting offended when people acknowledge the impossibility of our desired guarantees.

I recently heard two libertarian philosophers discussing social justice.  One made the case that social justice is a good goal, and that it is congruent with liberty because a truly free society results in the best-case scenario for the least well-off; something even John Rawls would approve of.  He said free-marketers should proudly fight for social justice and remind the world that a free economy will improve the absolute conditions of the poor more than anything else.

The other philosopher responded by saying the world is awash in guarantees   We are not suffering for want of guarantees, but for want of opportunity.  He said guarantees create expectations; when these are not met, they result in complaints, frustration, blame and disillusionment.  We needn’t coddle the unrealistic desire for a sure thing, but encourage an embrace of the risk and uncertainty in life and the courage to create and try even when the end results are unknown.

Even if it is true that free-markets result in better lives for the poor, is it really helpful to make the case for freedom to specific individuals as one that promises this?  To say that freedom will make you better off is appealing to everyone, because everyone wants a guarantee.  And it is correct in a general sense.  But the truth is no system – not a free society or a totalitarian one – can guarantee a specific outcome to specific individuals.  Will markets produce better results than interventionism?  You bet.  But can either system promise what will happen to each individual?  No way.  To hinge the case for liberty on guarantees is to utilize the same false advertising tyrants have been using since time immemorial.

Liberty is beautiful.  It promises nothing but the freedom to be, to act, to try, to create, to produce.  It does not promise what effects will follow cause, only that cause will be unimpeded so long as it does not impede anyone else.  The desire for a guarantee is the very desire that causes people to tolerate and advocate their own enslavement.  This desire itself is dangerous.  Better to disabuse oneself of the myth of a guarantee.

Anyone who’s done sales knows the danger of relying on expected results instead of actual results.  Don’t count the money until the check clears.  If you cultivate a guarantee loving mindset, you’ll find yourself bitter at all the unrealized expectations in life.  You will feel as though everyone, society, the system, or reality itself is your enemy.  Really, by choosing to accept the unreality of guarantees, it is you who have made yourself the enemy of what is.  Why?  It accomplishes nothing but to stunt your own creative and cooperative capacity and replace it with an adversarial outlook towards your fellow man.

The world is uncertain.  We seek to make the most out of it and eliminate hardships, but every course of action only brings probabilities of success, not guarantees.  That’s OK.  In fact, it’s wonderful once we make our peace with it.  Stop debating which ideas can guarantee what, and embrace the fact that guarantees are a serum that slows us down from acting to achieve our ends.  After all, it is the process of seeking just as much as the ends we seek that brings fulfillment   Guarantees put all the emphasis on the sought, and none on the seeking.  Even if our ends are realized, this mindset deprives us of half the joy.

I am not making the case that freedom ought only to be embraced because it’s “right”; far from it.  Freedom will produce better outcomes than statism, and this is the best reason to advocate it.  But what those outcomes are specifically, and how the manifest in each individual’s life is unknown, just as the results of statisms deprivations and favors are unknown.  What is knowable is the fact that freedom produces an outcome for every individual that no system of control and dependency ever could; but it is not an external or material outcome.  It is a sense of pride, of life, of self-worth that is impossible in a system built on false guarantees and dispensations from authorities.  The freedom to experience the effects of one’s cause, regardless of whether it is for good or ill, produces a sturdiness and fullness that humans need to be fully human.  The dignity of uncertain freedom is orders of magnitude greater for the human soul than the patronizing promises of central planning.

Voters are Liars

I recently heard a political commentator bemoan the results of surveys and elections.  He said the sad truth, whether libertarians wanted to hear it or not, is that Americans want big government.  They want handouts, high taxes, regulatory interference, and on and on.  They vote for people who talk about it.  They re-elect them when they deliver it.  On opinion surveys they favor entitlement programs and broad intervention.  I couldn’t help but laugh.

A person who studies only quarterbacks is likely to interpret an NFL game as the result of QB play.  A person who immerses themselves in politics is likely to interpret society as the result of political opinion and activity.  In the former case, there is at least plausible evidence that QB’s are a major factor.  In the latter, it is almost entirely an illusion that politics and political sentiment reveal the broader health of liberty.

Voters are liars.  They tell the truth about their opinion in the abstract, free from trade-offs and constraints, but this has little to no meaning when translated into the real world.  If I asked you to vote between a person who offered a better world, and one who offered a less bad world, and promised that your vote was guaranteed to not change the outcome either way, what would you do?  What could I conclude about your preferences from your vote?

If I polled you and asked whether or not you like the idea of someone giving you something for free, again promising that how you answered had no bearing on the real world, what would you say?  What could I learn from that about your values?

Voting and surveys are free ways to express a sentiment or indulge in a real or desired preference.  Not only that, the sentiments expressed are not about the real world.  Politics is a zero sum game, completely unlike nearly every other arena of life.  Imagine how different your preferences would be if everything were zero-sum like politics.  What if you had to choose once for all between brands of coffee, cars or clothing?  What if you could not go back, at least not for several years, and try another?  What if whatever a majority in your area voted on would be applied to everyone else?  Under this scenario we could poll people and ask which of three or four brands they prefer.  We’d get some data, but it would reveal nothing whatsoever about what people actually value if they were choosing in the non-zero-sum marketplace and bearing the full costs and benefits of their choices.

Back to society today.  Do people really favor less liberty and more government?  Elections and polls are a very poor measure.  Let’s not look at stated preferences about the artificial political world, but revealed preferences in the real world of win-wins, marginal decision making, internalized costs and benefits, and trade-offs.  If you examine the market, what would you say people are “voting” for?  Radically individualistic technology.  More and more choice.  Freedom from being lumped in with groups.  The ability to choose everything.  Private alternatives to government dominated services like transportation, information transmission, education, protection, rule-making  social norms and values, health maintenance, and on and on.

Don’t listen so much to what people say, look at what they reveal by their actions.  Nobody admits to loving Barry Manilow, but the guy sells a ton of records.  No one says they want to abolish public education, but they keep putting their resources into alternatives to it.

Frankly, I don’t care what people say in polls or who they vote for in the fairyland of politics.  What I see around me – the revealed preferences of billions of earth’s citizens – is a vote, indeed a mandate, for more freedom.

Inequality vs. Favoritism

Inequality is inescapable and morally neutral.  There is no virtue in trying to eradicate it, and it makes no sense to talk of reducing it.

My children were born unequal.  They will remain unequal as they learn, achieve and acquire.  Any efforts to make them equal do harm to all parties involved.  Many people agree that I could never make them equal, but maybe I should try to make them more equal.  Equality is not a more or less concept, it is either or.

3 is not equal to 2.  Neither is 4 equal to 2.  It is meaningless to call one more equal to 2 than the other.  We could say that 3 is more equal to 2, because it is only one whole integer removed from 2.  We could say 4 is more equal to 2 because it is divisible by 2, and only one even number removed.  It is entirely dependent on our frame of reference.  Equality between individuals is as impossible as equality between 2 and 3, and degrees of inequality are entirely subjective; a matter of perception, different for all observers and participants.

It is fruitless to attempt to lessen inequality or increase equality.  In fact, it’s worse than fruitless, it is destructive.  Not only does it produce arbitrary and unpredictable results which disillusion and demotivate the targets, it fuels strife, envy, and limiting one’s potential to the achievements of their perceived betters.

Still, there is something to the desire to create equality.  I would be a terrible parent if I lavished gifts and affirmation, or insult and condemnation, on one child far more than the others.  Not because it would make them more unequal; they are and will always be unequal.  But because my deliberate action of applying the family rules, mores and norms selectively and unfairly would break trust and breed conflict.  I would be engaging in favoritism, either negative or positive.

I will not try to clearly define favoritism, because I think putting it into words actually makes it less understandable than if we stick with our intuitive and tacit understanding of the term.  It is not merely acting differently towards different people.  If I speak Spanish to a Spanish speaking person and English to an English speaking person I am not acting uniformly towards them, but I am not showing favoritism.  Interacting with my unequal children in ways that best resonate with their unique “language” is not favoritism either.  Favoritism is when the spoken or unspoken rules of the house are not consistently applied.

If it is known that doing X chores will get you Y payment, or that treating Dad’s iPad carelessly will result in less access to the iPad, these norms must be applied in a uniform way.  I may communicate the norms and remind my children of them in different ways based on their individuality and inequality, but if one kid gets paid more for the same work, or one gets access to the iPad despite throwing it against the wall and the others don’t, I’m engaging in favoritism that damages everyone.

Uniform application of the family norms will result in inequality, as is inevitable with unequal children.  Some will get more chores done and earn more money.  Some will have a hard time controlling emotions and end up throwing the iPad and losing access to it.  Their nature and choices will produce unequal results.  There is no evil in this.  To aim at equality puts the focus on outcomes; the relative positions resulting from individual actions within an institutional context.  This is a meaningless point of reference, and incredibly poisonous when chosen as the basis by which to judge institutions.  It devolves into, “Anything that rubs me the wrong way, or anything you excel at must be curbed.”  It’s a sentiment that coddles and nurtures our least civil and humane and most barbaric and short-sighted tendencies, usually in the name of the opposite.  It is the uniformity of treatment in relation to the understood rules and norms that matters, not the inequality that results.

The attempt to make my children equal, or more equal, or even treat them equally is futile and destructive.  It is enlightening and beneficial to keep an eye out for favoritism and uniform application of the rules.  I have to check my tendency to selectively apply the mostly unspoken institutional arrangements of the family, and it’s healthy to audit myself in this way.  But the minute I make equality the goal, confusion and frustration take hold, and the rules become more, not less, arbitrary.

Of course society is not a mirror of the family, but the lessons still apply.  To seek equality, or more equality, or less inequality, is an unproductive pursuit, and typically a mask for other frustrations we’re trying to ameliorate where we want the moral sanction of our peers to do so.  Drop it.  Inequality is morally neutral and needn’t be resisted or defended.  Focus on reliable and fair institutions that don’t systematize and reward favoritism, but make it harder and more costly.

Switch the Default to Neutral

Yesterday I talked about the virtues of remote work.  The point was not to prove remote work is better, but to change the default assumption.  The default position in nearly every firm is that workers must work together in an office.  The prospect of remote work is treated with special scrutiny, and it must prove especially valuable to be tried.  Meanwhile, the default of on-site work is given no scrutiny whatsoever, simply because it is the default.  What happens if we change our default to neutral?

Not just in the case of remote vs. on-site work, but in every choice between methods or worldviews there is much to be gained by switching the default away from the status quo and to an open position, ready to compare alternatives side-by-side.  One needn’t go out of the way to see the merits in a different point of view so much as back off a little from the currently favored view and see how it stands up to scrutiny.

Probably the most difficult areas to have a neutral default are those involving authority.  We tend to assume the best about authority and make it the default position, while we fear the worst about freedom and put it on trial.  Consider prevailing views about the state and state provided services.  The idea of fully private roads, or protection, or adjudication, or education, or charity are immediately met with skepticism and myriad objections in our minds.  They are compared to our idea of how things should be, and almost never to how things actually are under state monopoly.

Our default position is that a single authority is better at most things, but how often do we zoom out and analyze from a neutral default?  What happens when you compare government controlled postal delivery with private in a detached way, as if a disinterested observer from another planet?  What about other services?  The default position deserves analysis equal to that which we give to new ideas.

It’s not only government authority we default to.  I’ve found that as a parent, my default position is that raising kids on the power of my authority and say-so is better than giving them free reign and treating them like rational agents.  Turns out the default is wrong.  No, kids are not fully capable of making sound choices, especially at a very young age, but I’ve been amazed at how well – indeed how much better – they do when I back off and leave more choices in their hands.

The first time I heard radical ideas about unschooling, free schools, unparenting, and other laissez faire methods of interacting with children, I demanded answers to all the hard questions and difficult situations that may arise.  I examined every angle and poked holes in weaknesses I saw in each approach.  Had I ever been so rigorous in examining the more regimented style of traditional education and child-rearing?  Had I put my default assumption, that kids need order imposed by external forces, to any real test, mentally or in practice?  I was having a nice romance with the default position and failing to see its weaknesses, to the detriment of myself and my kids.

Sometimes you have a default for well-developed reasons: you have examined multiple options and found one far superior, so until further notice, it will be the default.  This makes sense and needn’t be abandoned as an efficient way of giving new ideas the basic smell test.  But ask yourself how many of your defaults fit into this category?  It’s surprising how many default assumptions we’ve never actually examined.  We assume our assumptions exist for good reason, but many do not.

Upon examination and experimentation, we may well arrive at the status quo as best option.  But if we never take a close look at our assumptions we do ourselves a great disservice.  You needn’t excitedly embrace every new idea or temper your skepticism about it.  Simply change the default position to neutral.  Be careful; your whole world may change.

Creating Disequilibrium is Good

Originally posted here.

There is no denying that our economy is undergoing dramatic changes. That brings not just difficulty, but also opportunity for entrepreneurs. In fact, the “creative destruction” of the market is part of what drives economic growth.

Putting aside the causes of our current economic troubles (except to say free markets are not the culprit), we can’t forget that, though massive bubbles are not necessary, markets are by nature dynamic even in the most stable of times. This dynamism is not an evil to be avoided at all costs but the very thing that makes free economies so productive.

Classical economists often treated economic growth as a mechanistic operation that happened at a stable rate as a result of unchanging levels of investment and production — as if economies simply grew on their own as long as production was steady and inputs were not disrupted. The problem with this view is that, quite simply, the real world doesn’t work that way. In 1911, economist Joseph Schumpeter’s Theory of Economic Development radically changed this view, and his insights are still relevant today.

Schumpeter stressed the role of the entrepreneur in economic growth and argued that, far from a static maintenance of equilibrium in production, it was the entrepreneurial ability to causedisequilibrium that created wealth. The constant innovation of these economic actors shakes the economy up, breaking down old methods and building up newer and better ones.

It’s not just increases in production that create wealth but a radical reforming of the way production itself is done. Think Henry Ford’s assembly line. Such entrepreneurial innovations disrupt the unrealistic ideal of a stationary economy. They do destroy the old order — like the classic example of buggy makers losing their jobs when the automobile took hold — but they cause growth because what they create is more valuable than what they replace. Can you imagine halting the progress of the automobile in order to preserve buggy makers?

Schumpeter argued that the role of the entrepreneur was different from that of the inventor, manager, laborer, or capitalist. Entrepreneurs need not be wealthy or even especially intelligent. They may be all or some of these things, but that’s not what makes them entrepreneurs. Schumpeter said the entrepreneur was the person who creates new combinations in production.

The creation of a new good or service — a new way to produce the same good or service, a new market for the good or service, a new source of supply, a new organization of the industry — these are the entrepreneurial functions. Such innovation does not necessarily require new invention, just a different utilization of available knowledge and technology.

As Schumpeter said in a 1928 edition of the Economic Journal,

“[I]t is not the knowledge that matters, but the successful solution of the task … of putting an untried method into practice.”

The entrepreneur, by seeing and acting on different combinations of existing knowledge, products, and services, disrupts the economic order and creates growth. There is evidence of this “creative destruction” all around us: every year millions of jobs are created and destroyed, yet the overall long-term trend is continued economic growth.

The growth could not happen without both creation and destruction; it is the driver of growth, not a problem to be solved. If the economy were static — if jobs were never lost, prices never shifted up or down, investments never enjoyed large profits or major losses — we would not live in a stable utopia but a stagnant subsistence economy.

Don’t be afraid to disrupt the economy. Look for ways that things can be done differently — goods, services, and production methods that can be rearranged, new technologies that can be better used. Right now, as the economy reshuffles, there are more opportunities to generate change than ever — the kind of dynamic change that we need to grow out of this slump.

Don’t just sit there, create some disequilibrium!

Monopoly Is Everywhere; Monopoly Is Impossible

Concern over the power of “monopoly” is often given as justification for government intervention in the economy. It shouldn’t be. There is no logically consistent definition of monopoly that warrants interference in market. Furthermore, government efforts to disperse market power tend rather to concentrate it, particularly among those best at playing politics, rather than helping consumers.

What is this monopoly thing that is so feared?

Monopoly is often described as two-pronged: complete control over a unique resource, and the ability to be a “price maker”. (“Price maker” means to set the price you want to sell at rather than responding to market conditions and being a “price taker”). Once you define monopoly, you realize what a meaningless concept it is. One of the two prongs is inevitable; the other is impossible.

If monopoly means control over a unique resource that no competitors can sell, everything is a monopoly. Every single product is unique. I have a complete monopoly on the product “public appearances by Isaac Morehouse”. No one else can offer it. What kind of power does this give me?

Sadly, I cannot charge whatever I want for public appearances simply because I have a monopoly. I’ve tried, and so far no one has been willing to pay $50,000 for this unique good over which I have sole control. (Email me if you’re interested.) In other words, I (and everyone and everything else) satisfy the first prong of the definition of monopoly, but that doesn’t help me with the second prong. I’m not a price maker.

In fact, no one is a price maker. OK, I suppose anyone can make any price they want to, but in order to actually sell something – no matter how valuable – they’re constrained. Think of a product that you need badly and can’t really live modern life without. How about gasoline. Why doesn’t Exxon start charging $20, $100, $1 million per gallon at the pump? What would happen?

Life would change pretty dramatically for some people, maybe just at the margin for others, but almost no one would pay that price. Even if all the oil in the world were controlled by one company (a scenario almost impossible to imagine absent government intervention), they still would not be a price maker.

Even complete control over a resource that people really need does not a price maker make. The firm faces substitute goods as a very real form of competition. McDonald’s burgers are not competing only against Wendy’s burgers. They are competing against Subway’s subs, mom’s PB&J, or going without lunch altogether. Firms are held in check not just by substitute goods, but by potential competition. If gas is too costly, new or old technologies become more profitable. Bicycles and solar cars both take a chunk of consumers.

So the first prong of monopoly, control over a unique resource, is everywhere. The other prong, the ability to be a price-maker, is impossible. In reality, firms and consumers are constantly moving up and down to varying degrees on being price takers and makers. There is no complete maker or taker. The market is a process of discovery, and if we want the best outcomes, we need to worry about keeping the process free and unencumbered, rather than the particular distribution of resources among firms at any given snapshot in time.

Efforts to fight the myth of monopoly and make the market look more like make-believe “perfect competition” make things worse. They often result in the one kind of monopoly that is dangerous; the one maintained by force. Forced monopoly, or forced price floors or ceilings, or the breakup of firms or the prevention of mergers, or any other intervention creates artificial markets. They shift entrepreneurial activity away from innovation to serve consumers and towards efforts to ensure regulation benefits me and harms my competitors.

We’re all monopolists, yet none of us are price makers. Stop worrying about it.

The Myth of Self-Regulation

No business, product, service or industry can self-regulate. All must and will be regulated by some external entity. The question is who or what?

In a market, regulation is inescapable. Firms are regulated by wholesalers, retailers, capitalists, workers, packagers, shippers, competitors, consumers, shareholders and public opinion. These myriad regulators are exacting. They apply pressure from every angle, on every aspect of business. Get sloppy with your purchasing practices and wholesalers make better deals with your competitors. Overlook product safety and consumers and public opinion slap you down. Make frivolous expenditures and your source of capital and shareholders head for the hills. Drive too hard a bargain with employees and productivity declines or they leave you for another firm.

Firms have room for experimentation and risk-taking, but they have full responsibility to all of these market regulators for the outcome. No firm is a “price-maker” in a market. No firm is a compensation, safety, or policy-maker in the market either. All the parties to which they answer set the terms. Oh sure, firms can do what they want; unless they seek profit. Profit demands that they obey the regulators that fill the market across the whole production chain. It’s not easy.

Firms that have become successful and large tend to get tired of the constant regulation. They want a reprieve from the demands of stakeholders. To gain freedom from the regulating market, firms seek the comfort and stability of government regulation.

Government regulation is nothing like market regulation. It’s yoke is easy for the well-connected and deep pocketed, but often unbearable for the shoestring upstart. Market regulation is blind to size, wealth, political affiliation, slickness, religion or creed. Government regulation is built upon them.

Market regulation keeps an open invitation to anyone who wants to join the ranks of regulators; though promises no one their opinions will have a final say unless they prove worthy across the market. Government regulation is strictly closed off to anyone except those long-loyal to the party in power, and promises that the elite cadre of regulators’ opinion is final and binding. Market regulation is nimble, swift, constantly adapting, inescapable and unrelenting. Government regulation is ham-handed, slow, hidebound, avoided with a little craftiness, and backs off for a favored few with the right mix of political moves.

Market regulation is created and enforced by parties that stand to gain or lose by the actions of the regulated; parties who gain real-world expertise on the regulations effects. Government regulation is created and enforced by parties with no connection to the regulated actions or items, except the few politically connected firms that agitate for it. Market regulation draws on the dispersed knowledge of millions across the globe, from experts to anonymous users. Government regulation pretends a handful of elites can outthink the millions.

Market regulation seeks only the betterment of all market participants, regardless of which firms offer it. Government regulation seeks to destroy some firms for the benefit of others, regardless of what they offer market participants. Market regulation is by the many, for the many. Government regulation is by the few, for the few.

Self-regulation is not an option. The question is who’s a better regulator, markets or government?

There’s No Such Thing as a ‘Public-Private Partnership’

It’s long been a trend for local and state governments to create agencies and entities that are supposed to enhance commercial activity in their area.  There are myriad legal and logistical arrangements, but they all have some common features.  They’re all reliant on government in structure and law, they all use taxpayer funds to accomplish their projects, and they all love to use newspeak phrases like, “public-private partnership” to describe their activities.

An online dictionary definition of partnership is useful:

“A legal contract entered into by two or more persons in which each agrees to furnish a part of the capital and labor for a business enterprise, and by which each shares a fixed proportion of profits and losses.”

And,

“A relationship between individuals or groups that is characterized by mutual cooperation and responsibility, as for the achievement of a specified goal.”

Clearly, government economic meddling projects do not fit either of these definitions.  How can “the public” enter into a partnership?  How can “the public” share in profit or loss?  In reality, governments take money from people in their vicinity by force, then they give some of it to suits in an agency who give it to favored businesses and investors.  “The Public” never agrees to anything.  There is no mutual cooperation and certainly no responsibility or profit/loss sharing.

The absurdity of calling it a partnership can be illustrated with the following thought experiment.  Imagine your friend took some money from your wallet, deposited it in his checking account, kept most of it for himself and gave the rest to another guy to start a business.  No strings attached, just a gift of start-up capital.  Then your friend started publicly talking about how this was a partnership between you and startup guy.  After getting over your initial anger that he took your money and didn’t even consult with you before throwing it after some business venture, you try to consider the possible upsides of this unjust act.  You ask him if that means you will own shares in the company.  No.  Does it mean you get some percentage of any profit?  No.  Do you get an interest payment on your stolen and loaned money?  No.  He assures you it’s OK though, because neither are you on the hook for any losses (besides of course the loss of the money he already took, which you’ll never see again.)  In other words, this is nothing like a partnership.

What you get is money taken from you, spent on middle-men who are paid to give the rest to whatever business they want to.  You are not a partner, you are a victim.  Partnership implies consent.  Partnership implies shared benefit and responsibility   Partnership implies choice.  There is no such thing as a public-private partnership.

Institutions Can Improve Even If People Don’t

Originally posted here.

Airlines are loaded with passengers who surf the Internet while soaring through the air, chatting in real-time to anyone else on the globe, posting in social media, shopping, and downloading and reading books on a wide variety of readers. Such a scene would have astonished a person living 50 years ago, to say nothing of a person living 500 years ago.

How do we account for this? A person born five centuries ago is probably just as smart as someone born today. The raw material of the human brain has not changed much during this span of time. Yet people are today infinitely more capable of accomplishing almost any task imaginable than people in 1512.

The greatest navigator of centuries past would have found it a monumental task to leave from one destination and arrive at a precise latitude and longitude halfway across the globe, and it would have taken months. Today, a half-witted teenager can use Google Maps and modern transportation to accomplish the same feat in a single day.

The greatest communicators in the past were unlikely to reach 1 million people with their ideas in a lifetime. Today, the most-incoherent celebrities can reach millions in minutes on Twitter. Conversely, if the greatest scientists today were sent back in time, they would be able to achieve almost nothing absent computers and modern lab equipment.

A weak and feeble worker today can move more tons of earth than the strongest shovel-wielding excavator of the past. Given the inherited technological progress of humanity, even an average Joe can do amazing things with ease. It does not take a superior human to achieve superior results.

Economically speaking, the marginal productivity of workers increases with the capital and technology available to them.

But let’s broaden the point to issues of morality. How can we become better people — more peaceful, cooperative, and creative — in the same spirit in which we have become more effective and productive with better technology? We need better moral “capital” and moral “technology” that enables morally superior outcomes even without morally superior people.

The moral technology I am speaking of is social and political institutions. A person born today is no more or less likely to be moral than a person born 500 years ago, but they can be more or less likely to act morally based on the institutions around them.

Moral institutions change and evolve just like technology. They can reduce or expand not only the morality of individuals on the inside, but the harm or good caused by their actions on the outside. The most saintly person born into a world where slavery was the norm would have very limited ability to stop the practice, though she could abstain from participating in it at great personal cost.

A horrendously evil person born into a world where slavery is considered abhorrent would be unable to lord over slaves, without tremendous personal cost. It is entirely possible that many people living today have it in them to be on par with the worst slave masters in history — only the opportunity for their evil does not present itself, given the progress in this area of our social and political institutions.

This does not mean that individual choices are meaningless. Far from it. A moral person can always do good within their institutional framework, and a good framework can exponentially enhance the good one can do. Individual choices are vastly important.

But in order for the world to be free of oppression by states, for example, it does not require that every individual be an angel or that the average morality of the population be better than it currently is.

How can institutions improve if morality does not? Institutions are ultimately the result of our beliefs. Better beliefs will result in better institutions, but better beliefs do not require morally superior people any more than beliefs in a heliocentric solar system require more-intelligent people.

Many people believe the Earth revolves around the sun not because they are smarter than ancient peoples, but because they grew up in a world where that was accepted. Many people believe slavery is wrong not because they are morally superior to all people from ages past, but because they grew up in a world where slavery was condemned.

The broader social narrative creates the institution. But where does this narrative come from? Here’s where individuals come in again.

Progress typically begins with iconoclasts and radicals espousing and experimenting with ideas that challenge the status quo. This is true of technological, intellectual and moral progress. The few who advance these radical ideas attract small, but influential followers, and some minds are changed by argument alone. But the real change comes when discussion turns into demonstration.

When the Wright brothers got off the ground, when slavery ended in some countries and the economy did not collapse — these occasions did more to change the prevailing beliefs about manned flight and slavery than did the necessary intellectual work that preceded them.

People do not have to possess superpowers to learn and adapt. All humans do it. Learning even to reject foundational and dearly held beliefs is possible and frequent in history, especially because the change typically takes place over several generations, so that each generation has to learn to give up only a part of the cherished belief. When it is understood that a new belief will result in better outcomes, it can be adopted with relative speed and ease, sometimes without any conscious “a ha!” moment at all.

Neither technological nor institutional progress is inevitable. History is replete with times of retrogression and collapse. When there are no radicals challenging the status quo, innovating and demonstrating new and better beliefs, it is not long before the prevailing institutions stagnate or advocates of a romanticized past win the day and drag humanity backward.

Progress is not inevitable, but progress is entirely possible even with flawed humans like us. Our beliefs can change as we learn better ways of doing things, and with our beliefs will change our institutions. Better institutions — free institutions, rather than coercive ones — will result in a better world.

We ought to continue to discuss and demonstrate the fact that states — their oppressions, confiscations, impositions, kidnapping, counterfeiting, and war — are not necessary or beneficial. Better morality is always better, but if we change the prevailing narrative about states, we can live in a stateless world even without a saintly populace.

It is a false and arrogant belief that only angelic geniuses are capable of believing that statelessness is possible and desirable. If a bunch of idiots can live in a world of technological wonder, so too can a bunch of jerks live in a world of freedom.

Want a Better World? Make a Profit

A few days ago, I noticed a post on Fast Company’s Co.Exist titled, “Is Working on Wall Street Actually the Most Ethical Career Choice?”  The post is about a project called 80,000 hours that is trying to get people to think about how best to spend the average 80,000 hours they will be in a career.

Somewhat refreshingly, the project encourages people to consider going into high-income careers rather than the non-profit world.  It describes the outsized impact you can have by funding several causes vs. working in one.  But the premise remains: to do good, it’s nonprofits that provide the boots on the ground.  You might have to bite the bullet and take a high-paying job so that you can support such efforts, but it’s very clear that aid and charitable organizations are what make the world a better place.

What’s so odd about this perspective is that all the evidence in world history reveals just the opposite.  There has not been a single, massively transformative development driven by charity work.  But millions upon millions have seen the end of poverty, disease and plague; we’ve seen lifespans extended, air and water cleaned, culture, art and beauty preserved and enhanced, and lives saved by profit-seeking enterprises.

Working for profit is, in a free-market, always a win for others.  Profit is a signal.  It reveals when value has been added to society, as measured by the subjective values of those in society.  Resources are purchased for a price.  That price is what the resources are valued at for their next best use.  Profit-seekers then do something to the resources.  They apply ideas, time, other resources and labor.  What comes out the other end is sold.  If consumers willingly pay a price high enough to cover the cost of inputs plus some, profit is made.  What does that profit signify?  It signifies value created.  It shows how much more valuable the resources are after the transformation than before.  It shows, in dollars, how much better off people are because of the enterprise.

Of course dollars are not a perfect measurement of value.  And of course economic value is subjective and changing.  But there is no perfect measurement, and there is none clearer, cleaner, or fairer.  You can ask people what they value, but when they willingly trade their dollars for it, it speaks volumes.  Any uncoerced exchange that generates profit should be hailed as a wonderful benefit to the world.

Sure, you can make a bunch of money so you can give lots away to causes you believe in.  That’s a wonderful thing.  It feels good.  It can help some people in tangible ways that are fulfilling to be a part of.  The truth is, whether you like it or not, you’re doing more good for the world by the activity that makes you the money (so long as it’s not subsidy, tax, or regulation supported) than by the activities you support in giving it away.

I highly recommend this excellent article by F.A. Harper on “The Greatest Economic Charity“.