A Curious Miscellany of Items Philosophical, Historical, and Literary

Manus haec inimica tyrannis.

Friday, December 17, 2010

Jeffersonian Rhetoric: A Specimen

Education is crucial for the proper functioning of a democracy. Why? Because, runs the usual argument, if the people are to be entrusted with deliberating and making decisions for the common good, they must have the intellectual wherewithal to deliberate and decide effectively, and this comes from education.

This is true and important, and it has the consequence that a democratic education must be as broad and encompassing as the considerations which the citizens of a democracy might conceivably be called upon to deliberate. These considerations will necessarily be many.

But I have thought that there is another reason why education is important to democracy, and one that stresses the importance of a specifically humanistic education. A democracy must be capable of producing leaders capable of contributing wise counsel to public deliberations, and of adopting the right course of action. The leader of a healthy democracy suffers from several disadvantages that a king or emperor does not: First, she must obtain her office, usually through some mixture of persuasion and (one hopes) demonstrated ability. Second, she does not have the luxury of resorting to naked force to get people to do her bidding, as her sphere of legitimate action is circumscribed by laws. Third, the powers granted to her by the people’s sufferance are held only for a limited period of time and during good behaviour. With frequent elections comes frequent singing for one’s supper.

Thus, however judicious are the views of a democratic leader, she will get nowhere without considerable powers of persuasion. (Remember, I am talking about the leader of a healthy democracy. Ours is not healthy, and our leaders only need “persuade” a small cadre of followers, and such persuasion most effectively takes the form of rewards and punishments.) Such leaders are best produced through a liberal education. Of course, it would be nice if such a leader had a solid grounding in other areas of expertise, but a liberal education can provide a leader with the resources to see the bigger picture, as well as to inspire, persuade, and motivate.

To do this, a leader must have the ability to articulate the values and aspirations of the people’s better natures, and to provide fuel for their sparks of better hope. This is best gained through the sort of sensitivity to language and the access to the power of rhetoric that a liberal education can provide. And yes, I say “rhetoric” — only a culture as debased as ours is incapable of seeing value in rhetoric.

I don’t think I’m stepping too far out on a limb when I say that, however qualified they may be in other ways, today’s leaders are a less-than-inspiring lot. And I also think I’m not too far off the mark in saying that a contributing cause in this leadership decline is a lack of real liberal education among our leaders, amongst whom we have many lawyers, economists, and bankers, but very few humans.

Read through something like the US Declaration of Independence and tell me there is a leader in office in any of the affluent democracies that is capable of producing such a document today. It is my opinion that Barack Obama is such an inspiring public speaker largely because he exists in an age of rhetorical Neanderthals. As the saying goes, in the kingdom of the blind, the one-eyed man is king. Mr. Obama has an admirable delivery, but his speeches are, it must be admitted, pretty vapid in terms of form and content.

Thomas Jefferson, for all his many faults, was a master of the rhetorical arts. What’s more, although the first draft of the Declaration was Jefferson’s work, it was the responsibility of a “Committee of Five”, and this committee made improvements upon his work. Through a system of liberal education that was second to none at the time (except perhaps for Scotland’s), the early American Republic found itself with an embarrassing abundance of top-notch leadership, men who were great in their generation.

You need only look at the opening sentence of the Declaration to see the power of Jefferson’s rhetoric, a passage which the Committee of Five saw no need to amend:

“When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.”

To fully absorb Jefferson’s genius here, a consideration of the context is required. The American colonists were proposing to do the unthinkable: to reject the authority of their lawful king, the representative of a divinely instituted monarchy, and to take up arms against him. Second, although it’s easy to forget now, the Americans themselves were very divided about this. It is estimated that 15-20% of the population of the American colonies at this point remained loyal to the Crown. Many of these would say that the revolutionaries were proposing to violate the natural order. Furthermore, I have no doubt that, depending on how you define “loyalist”, this figure is an underestimation. For example, until well into the Revolution, there were many who, although they identified with the rights of the colonists, nevertheless hoped for reconciliation with the mother country and who, needless to say, maintained some inner doubts about the legitimacy of their actions. After all, not everyone has the stomach for a revolution, however aggrieved they might feel themselves. Then as now, politics was complicated. We should not be too eager to accept the conventional view of the period as it was constructed later.

Thus, instead of immediately making high-flown assertions of the rights of the colonists and their liberty, Jefferson chooses to address himself to those, both at home and in Britain, who are uncomfortable with revolution. Instead of playing up the notion of liberty, Jefferson’s language is highly necessitarian. He does not immediately launch into a justification of why the colonists ought to separate from Britain. Rather, he chooses to insist that the colonists must do so. It is the same move as Martin Luther made when at the Diet of Worms he famously said “Here I stand; I can do no other.” Here are the examples of necessitarianism contained in the opening sentence of the Declaration of Independence.

“When in the course of human events…”

There is a double dose of necessitarianism here. First, there is reference to the course of human events, which the educated part of his audience would be immediately able to connect with its Latin root cursus, which to the Romans was a racetrack. When running a race, one of course does not stray from the course (pardon the instructive pun). It is already laid out. One may only follow along it as fast as one can. Second, there is the reference to human events, which is interesting mainly because Jefferson chose not to say “human deeds” or “human actions” or "human affairs", which would have smelled too much of voluntarism. Deeds and actions are things one does, usually voluntarily; events are things that happen of themselves, whatever might be one’s intentions. In other words, the conditions that make it necessary for the Americans to dissolve the political bands which have connected them with Great Britain are brought about by impersonal and disembodied events, not by the choices, actions, or whims of the colonists themselves.

“…the Laws of Nature and of Nature’s God…”

Again, there is a another double dose of necessitarianism packed into this tiny phrase. Although this is a nice example of Jefferson’s Deism (after all, he could simply have said “to which God entitles them”), more important for our purposes is that the reference to laws of nature has a physicalist and deterministic feel to it. His audience would have naturally thought of Newton’s laws of gravity as examples. One does not – because one quite literally cannot – disobey the physical laws of nature. But the reference to “Nature’s God” brings a theological necessity to bear upon his audience as well. Both Deists (or atheists) and conventional religious believers are being appealed to here, and at the same time.

“…the opinions of mankind requires that…”

His choice of verb here is strikingly necessitarian. Instead of “requires” he could have used any number of other words: “asks”, “requests”, “entreats”, “begs”. Indeed, this last word would have its own peculiar rhetorical force in the sentence, but not quite of the kind Jefferson seems to have been looking for. When your boss requires you to work overtime, it is not in your power to effectively refuse. But if he begs you to work overtime, you are in a stronger bargaining position. In this case, respect for the opinions of mankind requires that the colonists explain themselves; hence the need for the Declaration.

“…the causes which impel them to the separation.”

This phrasing is straightforwardly necessitarian, in the most concrete and physical sense. “Impel” comes from the Latin impellere, “to strike against; to set in motion”. We might almost picture to ourselves a pool table with racked billiard balls. An external and irresistible force (the cue ball) acting upon passive objects, forcing them to separate and go their different ways. Again, the Americans are forced (literally) into independence; they can do no other.

I find in reading the Founding Fathers that each seemed to have his own talent. Washington is striking for his integrity and perseverence, and his singular ability to command the respect of nearly everyone. Madison was probably the deepest political thinker among them. But Jefferson was certainly the best writer (with Hamilton a close second). It is rather disappointing to discover that a man who is so famous for his stirring political prose was not a confident public speaker.

Friday, December 3, 2010

"Brother, can you spare a dime?"

There has been some comment in the Canadian media over the past couple of days about new data showing that the gap between the highest income earners in Canada and the lowest has become wider than it has been since the 1920s. Most of this comment has taken the form of fretting, but with few reasons given for why there should be such fretting. I wonder if many simply take it for granted that equality in material wealth is a basic value, and that disparities in wealth are somehow an affront to that value, to be avoided at all costs. Should equality be a fundamental value? If so, why? And if you are an egalitarian, are there any circumstances in which at least some inequality may be justified? These are all worthwhile questions, none of which it seems are ever broached when these inevitable reports come out telling us that the rich are getting richer.

In his famous work A Theory of Justice (Harvard University Press, 1971), John Rawls offered what is called his “Difference Principle”, which roughly states that inequalities in the distribution of goods in society are justified when they are reasonably expected to favour the least advantaged. Put another way, although equality is prima facie preferable, inequality is morally acceptable so long as the worst-off people in society are better off than they would be if all were equal.

More technically, Rawls argued that if we were all deliberating about the principles of justice by which our society’s basic institutions were to be configured, and if we are deliberating from behind a “veil of ignorance” — none of us knowing anything about what position we would occupy in the society being created, or about the distribution of talents, and all being mutually disinterested in each other — we would, if we were reasonable, choose something like the Difference Principle. We would not want to be worse off than anyone else, but if there were a way that we could be even better off by allowing inequality, then we would take it. The Difference Principle would ensure that if I were unlucky and ended up among the worst-off in society, I would at least be better off than I could hope to be under any alternative scheme. Strict equality is cold comfort if it means no more than that everyone gets to be equally poor.

G. A. (“Jerry”) Cohen attacked Rawls’ Difference Principle in various works, most recently in his Rescuing Equality and Justice (Harvard University Press, 2008). Cohen is (or was — he died in 2009) a Marxist and a firm defender of egalitarianism. He attacks the “incentives-based” premise at the heart of Rawls’ Difference Principle, which is the assumption that providing material incentives to the well-off will help them help the worse-off. As Adam Smith might have put it, assisting the well-off in catering to their own self-interest will have an improving effect on the lot of the poor. It’s the old “a-rising-tide-floats-all-boats” argument, also known by its other name, “trickle-down economics”.

Whether the liquid wealth rises or trickles, Cohen says that the problem with the argument is that the Difference Principle is not properly a principle of justice as such. Saying that the poor would be prudent to accept inequality arising from the Difference Principle, or predicting that they would accept it, is not the same thing as saying that they should or that the resulting inequality is just. It would be perfectly in keeping with justice if the poor were to stand their ground and refuse to go along with the distribution, even if they would be worse off as a result.

Let us use the example with which Cohen begins his discussion. In 1988 Nigel Lawson, then Chancellor of the Exchequer brought in a tax cut of 20% for the highest tax bracket, from 60% to 40%, a move he “justified” by the incentive effective this would have. The rich would then take that extra money and use it in ways that would benefit the less well-off.

According to Cohen, Lawson’s justification is a tacit admission that the rich would refuse to work harder unless they were given a tax break. The rich are, in effect, saying “Unless I get a 20% tax reduction, although it is in my power, I will refuse to help the poor.” This is no different, claims Cohen, from the kidnapper who says to the parents of the child he has kidnapped, “Unless you pay me $100,000, I will not return your child to you.” It may be prudent to pay the kidnapper, but would we wish to say that the kidnapper is justified in demanding the ransom?

According to Cohen, what the kidnapping analogy shows us is that rather than look at the putative justification for the tax cut offered by Mr. Lawson (its incentive effect), we should instead imagine that the “justification” comes from the rich man himself. Or, as he puts it, the principle of justice being espoused must pass the “interpersonal test”, that is, it must ring true as a principle of justice no matter who utters it. It must have the same purport whether uttered in the first, second, or third person, no matter who utters it. Take the following two sentences, the first uttered by Mr. Lawson, the second by a rich person.

1. LAWSON: “Cutting the taxes of the rich is justified because it will make the rich work harder and this will ultimately benefit the poor.”

2. RICH PERSON: “Cutting my taxes is justified because it will make me work harder, and this will ultimately benefit the poor.”

Sentence 2 sounds much less like a justification than sentence 1. It might pass muster if “justified” were replaced with “prudent”, but then the rich person would no longer be justifying the tax cut; at best, he would be recommending it. What’s worse, sentence 2 is virtually equivalent to the following:

3. RICH PERSON: “Cutting my taxes is justified because if they aren’t cut, then I will refuse to work harder, and the poor will stay poor.”

Sentence 3 makes the rich person sound much more like the kidnapper. Cohen’s point is that a true principle of justice must be utterable by anyone. Since the incentives-based justification of inequality can be offered by the rich themselves only at the cost of sounding hopelessly greedy, hypocritical, or callous, it fails to justify inequality, however much it might recommend it.

That is the essence of Cohen’s “interpersonal test” of justice. However, there are some problems with it. First, let us assume, which I think we must admit is the case with the vast majority of wealthy people, that the rich person did nothing to earn his wealth at the expense of the poor. Whatever the reasons for the poor being poor, they have nothing to do with the rich person taking from them what was theirs.

Next, instead of trying to justify a tax cut for the rich, let’s imagine Nigel Lawson trying to justify a redistribution of wealth from the rich to the poor (yes, difficult to picture, I know, but try anyway). If we are to apply the interpersonal test, it seems to me that we should apply it to the poor person as well:

1*. LAWSON: “Taking money from the rich through taxation and giving it to the poor is justified because it will help the poor.”

2*. POOR PERSON: “Taking money from the rich through taxation and giving it to the poor is justified because it will help me.”

Now there is something strange about 2*. It’s not so much that what the poor person says is wrong. Rather it sounds odd coming from him. We cannot be sure it’s not just as self-serving as the rich person’s justification of his tax cuts. The poor man may indeed need money badly, but his justification still comes off as unseemly somehow. It sounds even more indecorous if instead of saying “and giving it to the poor” sentence 2* said “and giving it to me”.

Perhaps what Cohen’s interpersonal test really shows is that moral norms exist barring certain parties from offering justifications of certain kinds. This does not mean that a tax cut or a wealth redistribution is unjustified. It merely means that not just anyone can offer a justification in support of them. The situation is much the same as where a judge must recuse himself from a case in which he has a personal interest. If the judge doesn’t recuse himself and happens to find for the side with which he has an interest, his judgment must be suspect, even if a more impartial judge would decide the case the same way.

Interestingly though, sentence 2* might work better, or sound less unseemly, if it was uttered as a collective appeal, coming from the poor as a group or class:

3*. POOR PERSON: “Taking money from the rich through taxation and giving it to the poor is justified because it will help us.”

It is strange how this sounds better when it is uttered in the first person plural. Is it possible that this underlying social (or moral?) norm governing such appeals is at least partly the reason why Marxist or socialist egalitarian claims are almost always claims based on class? Food for thought. If libertarianism and socialism are inextricably bound up with individualist or collectivist claims, respectively, then it seems the two sides are doomed to talk past one another.

I am also not convinced by Cohen’s claim that the poor would be justified in standing on their rights and refusing to go along with the inequality proposed under Rawls’ Difference Principle, even if it means they will be worse off as a result. Imagine, quite plausibly, that Mr. Lawson and the rich person justify the tax cut in this relatively candid way: “This tax cut is justified because, although it will make some (i.e. rich people) very well off indeed, even the poor will be better off with it than without it.”

Put this way, it seems to me that the ball is very much in the poor person’s court; if he wishes to reject the tax cuts, he must make some appeal to justice. I think this will be a hard case to make, for he must justify why he is entitled to hold back everyone in society, rich or poor, on the basis of an abstract notion of egalitarianism which, in the circumstances proposed by the Difference Principle, does nobody any good. He simply has no reasonable grounds to refuse his consent (keeping in mind that envy is not a reasonable ground). He would come off seeming pointlessly pig-headed (and it would seem equally pig-headed if he somehow got the rest of his class to go along with him).

This brings us to a position that looks very much like that of Harvard philosopher T. M. (“Tim”) Scanlon, a close friend of both Rawls and Cohen, who proposed roughly that a principle is just if it cannot reasonably be rejected. Now the word “reasonably” is made to do a lot of work here, and I do not have space to pick it apart. But I do not think that the worst-off person can reasonably reject the Difference Principle. On the other hand, the worst-off may reasonably reject a particular application of the Difference Principle. For example, perhaps it could be demonstrated that as a matter of empirical fact, Nigel Lawson’s tax cut would fail to have the intended incentive effect. But this is not the same thing as rejecting the principle itself.

Now, Cohen would say that the poor person is justified in rejecting the Difference Principle, because, if the incentive would get the rich man working harder, then he ought to work harder without the incentive; he should not need the incentive to do what is his duty. Social solidarity should make him want to work harder. But is working hard really a duty? It certainly is where, for example, I’ve promised my boss I would and he is paying me to do so. But what if I am rich and self-employed? And let us not forget that the rich are not the only ones who could conceivably be working more than they are.

I don’t always work as hard as I could. As a matter of fact, a socialist planner might disapprove of my writing this blog post, not only because of its content, but because there is inevitably something else I could be doing that has more value to society and to the poor. Following this logic, it is easy to see how people’s personal aims and projects — “personal prerogatives” in philosopher’s jargon — could be swamped by the needs of the rest of humanity. In making it the duty of each to make everyone happy, we could end up all being miserable. This is an outcome all too visible in those places that have attempted to thoroughly institute communism or socialism. I do not wish to discount the value of social solidarity; here, as in the rest of life, balance is needful.

It’s hard enough to look out for the interests and welfare of one’s family and friends. It’s an unbearable burden to be responsible for looking after the needs of an entire society. Even worse, it might be ineffective. Perhaps that is why we have traditionally distributed the burden among families and friends. I like to call this the moral “buddy system”. Sometimes the buddy system fails, requiring backups, the so-called “social safety net”. But again, this is a far cry from the kind of demands a thorough socialism would put on the individual.

From what little I’ve learned about human nature, I can say that people like to conserve their labour where they can, and to devote a certain portion of their time and effort to leisure, and to play (Lord, how the world needs a philosophy of play right now! Something comparable to Huizinga's classic, Homo Ludens). This is true not only of the rich. To get them to give more of their labour than they currently wish to give requires either incentives or coercion. Offered sufficient incentives, they will work voluntarily, their dignity as persons will be respected, and they will be paid whatever their labour is worth to those who offer the incentive. Since the only kind of incentive Cohen’s mode of argument allows for is the fuzzy and unreliable fellow-feeling of social solidarity, and since when it comes to social solidarity demand is usually greater than supply, resort to coercion will be found necessary. Under coercion, a person does not work for herself, her dignity as an autonomous individual is not respected, and her labour is forcibly extracted from her by others at a discount. This is the very essence of communism.

On the other hand, it must be recognized that people who are desperately poor typically do not have the luxury of picking and choosing between whatever incentives are offered. They must take what they can get. I know because I’ve been there. In such cases, it’s a stretch to say that they are free, that their labour is voluntary, or that their dignity as persons is respected. There must be provisions so that such people can also participate in the market in a dignified manner. These people can make a claim based on justice to some share in society’s wealth. However, this is not the same thing as the sort of strict egalitarianism that Cohen advocates. It does however support my belief in the need for a guaranteed minimum income, one more robust than current welfare rates provide. (I imagine this will sound strange to those who know a little about me. The Spectacled Avenger is full of surprises. And he is, after all, a Red Tory.)

It must also be said that Cohen’s comparison of the rich person to the kidnapper is rather a shabby move. It borrows whatever rhetorical effect it has from the fact that the kidnapper is by definition involved in wrongdoing, and thus his actions are unjustifiable ab initio. This is not the case with the rich person, unless Cohen assumes from the start that the rich person somehow got his wealth by nefarious means and at the expense of the poor, an assumption which is neither obvious nor warranted (though to Marxists it is an indispensible article of faith).

If the rich person has committed a moral trespass, then Cohen ought to be able to name it. Being rich is of itself no crime. Unless it is a wrong simply to be in contravention of a moral norm enjoining equality. But that assumes there is such a moral norm. I do not believe there is. I believe that there are prudent reasons for discouraging vast disparities in income, but I do not believe there are moral reasons (except perhaps in the cases of desperate need outlined earlier). I further believe that if we focused on those prudential reasons rather than the moral ones, we might have better luck in convincing the wealthy to give a little back. Automatically branding them as somehow criminal or morally degenerate is unfair and only makes them understandably more resistant. Appealing to the prudence and good sense of the rich, showing why it is in their own long-term interest and in the interest of their children not to allow too great a disparity, would be more productive than scolding them. We need to develop an ethic among the rich of feeling that they are a part of society — not a target of it — and that the well-being of others can contribute to their own well-being. Taxation is necessary if we are to have even the rudiments of a society, but taxation is unlikely to achieve a change in morals, at least not a change for the better.

Finally, on a more superficial note, I find it curious that Cohen characterizes the incentive effect as a threat on the part of the rich person to refuse to work harder unless he gets a tax cut. Usually, when such a tax cut is contemplated, the purpose of the policymaker is not really to get rich people working harder. Quibble if you wish about their remuneration, but most of the rich people I have known already work incredibly hard. It’s not like a 20% tax cut will free up 20% more of their time or brains for work. The key aim is to get them to expend or invest their money, not their labour. The hope is that they will do this in a way that will stimulate the economy. They can only do this if the money is theirs to expend or invest. Now, whether a tax cut actually has this beneficent effect is an empirical question, but to characterize it as a threat by the rich to withhold their labour from the poor is a canard. In propagating this silly notion, Cohen betrays his gross ignorance of the most basic concepts of economics. If there are to be tax cuts, I would also advocate that policymakers also put some thought into ways to encourage the rich to expend or invest their freed up wealth in ways that will have the intended good economic effects. Experience has shown that these effects do not always magically materialize.

Cohen believes that inequality under the Difference Principle might be assented to out of prudence, but not out of justice. I believe the same about equality: I don’t think that justice demands equality, but prudence dictates that we not allow too much inequality. According to Justinian, justice is constans et perpetua voluntas ius suum cuique tribuendi, “the constant and perpetual will to give to each man what is his due,” (Institutes, Bk. I, tit. 1). What is a man’s due is what he earns, not what others earn. But it is in his interest to share some of what he has, more often perhaps than he’d like to believe.

* * * *

As a postscript, it should be mentioned that the report I referred to at the beginning contained two notable facts that somewhat mitigate the pessimism it might engender. First, despite the fact that the rich are getting richer, the poor do not seem to be getting poorer. Their income is stagnant (although my hunch is that they’re working harder to maintain this status quo). Of course, if government transfers are considered as income, then the fact is, at least among the very lowest of income levels, income is downwardly rigid: if you’re already on welfare, barring changes in government policy, your income is not subject to downward pressure in the same way that a middle class income is; similarly, if your income is $0, then it simply cannot get any lower. This may mean that it’s really middle class incomes that are the bellwether for measuring the growth of inequality. Just a thought.

Second, the report noted that around 67% of the income of the richest 1% of Canadians comes from wages and salaries, not from capital gains and other financial rents; for the richest 0.01%, this figure is a rather astonishing 75%. This trend is historically unusual. In the 1940s the top 1% earned 45% of their income from wages and salaries. They might be overcompensated, but at least today’s rich actually seem to work for a living.

Here’s another interesting fact I recently read in the business section of one of the local newspapers. According to the OECD, in 2008 the US collected 70% of its revenues from the richest 10% of its citizens, which technically makes it the most progressive tax system in the world (using “progressive” in its narrow tax policy sense). This figure, though true as far as it goes, is extremely illusory. The US tax system only seems progressive because in the US the wealthiest 10% are so very much wealthier than the other 90%. In other words, inequality accentuates the “progressive” nature of the tax system. If 90% of GDP goes to the wealthiest 10%, then even under a flat tax rate, revenue would disproportionately come from the wealthy, and more so where they are taxed at a progressive rate.

Wednesday, November 24, 2010

The Freedom to Breed

In his much-cited 1968 paper “The Tragedy of the Commons”, ecologist Garrett Hardin presented the tragedy of the title as a story about how individual choices which seem rational have irrational consequences at a collective level. Unfortunately, the story has meant many things to many people, so I thought it would be good to take a look at the original context of Hardin’s thought experiment.

The so-called “tragedy of the commons” takes this form: Imagine a fairly primitive community of sheep herders. These herders graze their respective flocks on a piece of common pasture (thus, the term “community”). Let’s say that there are ten herders, each having a flock of ten sheep. Thus there are 100 sheep grazing on the common pasture, which number, let us further imagine, is exactly the carrying capacity of the commons. Any more sheep on the pasture would constitute overgrazing, leading to gradual degradation of the land and decreased well-being for both sheep and community.

Now, a herder might wonder to himself whether it would pay to increase his herd by another sheep. This would constitute overgrazing of course, but he might naturally look at it in the following way. “I would stand to gain $10 from the extra sheep. Unfortunately there will also be $10 loss due to overgrazing, but since that loss is spread amongst me and the nine other herders, my personal share of the loss would be $1. That makes a net profit of $9.”

On the basis of such reasoning, there would be a strong incentive for our enterprising herder to expand his operations, at least up to that point at which the marginal gain of another sheep equals his share of the marginal loss of doing so.

Although Hardin didn’t consider the possibility, we might like to give our herder the benefit of the doubt and credit him with some level of community spirit. Seeing that his actions would impose costs on the community, he might wish to refrain from expanding. But unfortunately, he is also rational and knows that his fellow herders will be doing the same calculations he is doing, and they might not be quite so altruistic. He may have confidence in enough of them doing the right thing, but if he has doubts about enough of them, the pressure not to let oneself become a sucker will begin to pick away at the stitches of his better intentions.

If the other herders are going through the same thought processes (and we have no reason to believe they aren’t), well, the results will be predictable. Choices that seem individually optimal, have disastrous collective outcomes, in the form of overgrazing, sick and malnourished herds, and a poorer community.

How could this poor outcome be avoided? Well, many who have read Hardin’s tale see in it a justification for private property. If that common land were divided into ten plots and distributed to each herder according to the size of his flock, our herder would no longer have an incentive to overgraze, because the loss resulting from his overgrazing would be paid solely by himself.

And if it happened that our herder was better at his occupation than his compatriots, he might have an incentive to pay the other herders for the use of their lands, enough perhaps for them to leave the business completely. And so on (the remainder of the story can be filled out by reading Smith or Ricardo).

Why the Concern with Property?

The fact that so many have seen in this tale a moral about the needfulness of private property is somewhat peculiar.

First of all, the “solution” they see to the dilemma is by no means the only or most obvious one. For instance, as Aristotle pointed out in his Politics, there is more than one way that common ownership can be instituted, not all of which would lead to the disastrous results envisioned in the tale. The herders might (i) hold both sheep and land in common, or (ii) they might — as in Hardin’s version — hold the sheep privately but the land in common, or (iii) they might hold both sheep and land privately, but make the profits common property, to be divided up equally. Although, as Aristotle pointed out, each of these scenarios comes with its own particular problems, there is no prima facie reason why (iii) couldn’t constitute a solution to Hardin’s specifically environmental dilemma. There would be a potential lack of productivity and work incentives, but it is less likely that there would be overgrazing.

Furthermore, there are at least two solutions that countless pastoral and agricultural communities have commonly used since the beginning of time. One is to have a system of common morality that includes injunctions against free-riding at others’ expense. The other is to have a public figure such as a village chief or elder (or council of elders if you prefer) who is responsible for organizing production and making decisions for the good of the community. Both of these methods are consistent with commonalty of property and work surprisingly well in small communities, although a strong system of morals is difficult to consciously institute where it doesn’t already exist.

Other non-private property solutions aside, what makes it peculiar that commentators should take from “The Tragedy of the Commons” lessons about the importance of private property is that Hardin himself intended it to illustrate something else, namely the problem of overpopulation. (To be fair, in other writings, he does specifically advocate for private ownership as a solution to many such “tragedies of the commons”, an example being overfishing).

To Breed or Not to Breed?

Where the seemingly property-obsessed see the enterprising herder as making a decision about production, Hardin is trying to get across the point that he is actually making a decision about reproduction.

The additional sheep represents “another mouth to feed”, the herd represents a family, and the commons is in reality our environment. I think it’s a nice way to look at reproduction, because too often it’s viewed as a basic human right, even where the decision (or impulse, as the case may be), imposes significant externalities in a world of limited resources.

Unfortunately, the logical conclusions of following such a conceptualization are not very comforting to those who, like me, value individual liberty. As we approach the carrying capacity of our environment, we may have to stop viewing procreation with so cavalier an attitude, as adding one more member to the herd may be an act of free-riding at the expense of others.

(I long ago stopped viewing procreation cavalierly, which is why I long ago stopped listening to anything that comes out of the mouth of “environmentalist” David Suzuki. He has five children, while my wife and I made a conscious decision not to have any children. As such, Dr. Suzuki has done far more damage to the environment and left a much bigger carbon footprint on the earth than we could ever hope to do. In truth, Dr. Suzuki free-rides on our restraint, which makes us better environmentalists. Go figure! The funny thing is, Garrett Hardin also ended up having five children, so I suppose I should take anything he had to say with a grain of salt too…)

The problem is, how do you stop people from reproducing without resorting to gross violations of individual liberty? You can’t just go around castrating people. (Or can you? Sometimes when I look around me I can’t help but think that a program of social eugenics might be just the thing… I’m joking of course.) The fact is, so long as we continue to view procreation as a basic human right, any infringement of freedom of procreation is ipso facto an infringement of a human right, of the liberty to reproduce.

Hardin is of the opinion that whatever population control program was implemented, to be effective, would quickly run into problems, especially if we wish to limit reproduction to a rate that still maintains us as a species (which itself begs a valid question). To keep our species in existence, some procreation would need to continue. We would wish to pick a population level, whether it be our present one or another below it, and somehow adjust reproduction to match the replacement birthrate, and maintain that population level.

But the replacement birthrate is 2.1 children per woman, and it is obvious that an individual woman cannot have precisely 2.1 children. Some will have 1 or 2, and others will have 3 or 4 (or more). These latter women — and their mates — would essentially be free-riding on those who have more restraint. And yet, if the population is to replace itself (at whatever level), there is no possibility of avoiding this free-riding. Decisions must be made as to who will be allowed to over-reproduce and who must under-reproduce. But then we find ourselves back in that unpalatable situation of having some authority making decisions about individuals’ procreation, with all the eugenic implications arising therefrom.

Hardin considered the option of “moral suasion”, of a mass propaganda campaign to convince people to limit their procreation. This would have the virtue of not being as intrusive on individual liberty as outright coercion of reproductive choices. But Hardin sees a long-term problem with this too.

Imagine that a program of moral suasion is in place. The population will divide roughly into three groups. There will be some, like me, who accept that new morality and wholeheartedly agree not to reproduce. Call this group 1. I imagine such people will be few, but let’s imagine that there are enough — or that they are respected enough — to influence a second group of people who, although they don’t accept the morality as such, yet still wish to maintain their reputation with their peers in group 1. Call these group 2. And then there will be group 3, who simply don’t care.

Group 3 will breed unabashedly. This will likely cause some instability in group 2 who are not as committed to the new morality and who will not relish the idea of being suckers, limiting what they would otherwise like to do while others get away with it and free-ride at their expense. Nevertheless, for argument’s sake, let us imagine that group 2 mostly holds the line and exercises procreative restraint. Nevertheless, says Hardin, the inexorable callousness of mathematics will thwart the best intentions of groups 1 and 2, at least in the long run.

You see, members of group 3 are less conscientious. Much like David Suzuki, they simply don’t care about the effects of their procreative decisions on others. And, by definition, they have a higher birthrate. In each generation, they will outbreed their more conscientious fellow citizens, grabbing an ever larger share of resources, while the conscientious proportion of the population continually shrinks. In other words, in each generation, the portion of the population lacking procreative restraint will grow larger. And thus, population will increase. Thus, says Hardin, moral suasion may, in the long run, be counterproductive. There is a sort of biological Gresham’s Law implicit in this vision, in which the “bad” breed out the “good”.

Of course, this argument only works if “conscientiousness” is somehow hereditary, right? Well, Hardin says we needn’t insist on heredity in the strict biological sense (which is not proven). All we need accept is that there is a fairly strong correlation between being conscientious and having conscientious offspring, whether this be due to genetics or upbringing. Although it is still a questionable premise, standing in need of empirical verification, it is much less implausible when stated in this form.

(And the fact is, David Suzuki notwithstanding, it does commonly seem to be the people we’d least like to see reproduce themselves that have the greatest number of children.)

And in case you think Hardin is way off base, there is a considerable and growing literature on psychopathy which suggests that it is a heritable condition. And, more chillingly, the birthrate of psychopaths tends to be higher than that of the general population. If true, why hasn’t our species been swamped with psychopaths? Well, for one thing, they make poor parents, which means that through much of our evolutionary history fewer of their children have tended to survive. And because they are greater risk-takers and have a proclivity to high-risk lifestyles, psychopaths tend to die at a younger than average age. They scatter their seed to the four winds and quickly die off, much like mayflies or dandelions. This is a different reproductive “strategy” from that of the tacitly accepted moral norm, which urges us to have fewer children but invest more resources in rearing them and ensuring they reach adulthood. Both strategies may be found in various species, and neither is necessarily unsuccessful from a strictly evolutionary point of view.

(The uncomfortable possibility has been suggested that our more materially comfortable and civilized — and anonymous — society may be a good breeding ground for psychopaths. They can more easily slip under the radar, and society will pick up the slack for their poor parenting. After all, it takes a village to raise a child, right? Only a little research on this issue has been done so far. I would be interested in seeing more.)

Spaceship or Lifeboat?

Besides arguing that effective population control will likely involve infringements of individual liberty that many find objectionable, the tragedy of the commons also brings us face-to-face with some hard questions regarding the movement of existing populations, not just those yet unborn. Most environmentalists, says Hardin, envision the “spaceship earth” model of ecology, in which the entire planet is a commons to be shared among all the earth’s peoples. This has the uncomfortable implication that rich countries must share their resources with the world’s poor, even where — as is commonly the case — those poor come from countries whose people have bred past what would be the optimal population level for either its economic or resource base. To distribute the earth’s “common” resources among all her people would likely require some kind of overarching world government. National governments are too self-interested, too parochial to accomplish this feat. But is it a feat we should wish to accomplish?

Instead of the spaceship, Hardin says that we should adopt a “lifeboat” model. The lifeboats are individual (rich) nations. In the water about them are the world’s poor. These people are spillovers from other lifeboats whose inhabitants increased at too high a rate and sank the boats. Imagine that your lifeboat only has enough space and provisions to take on 10 more people, but there are 100 desperate swimmers in the water surrounding it. To take on all 100 would be national suicide, as would taking on 50, or 20. Perhaps you could take on 10. But then, you also have a moral duty to leave enough and as good for the next generation that will be born on the boat. So it would likely be fewer than 10. And fewer still if you envision that these swimmers will procreate at a rate likely to swamp the ten places reserved for future generations. You cannot with a good conscience take on swimmers at the expense of future generations. The swimmers had their chance, but your children and grandchildren have not yet had theirs. If you wish to leave a spot on the boat for your offspring, you cannot give it away to newcomers.

In a later paper, Hardin gave another reason for preserving the lifeboat model rather than favouring some kind of cosmopolitan spaceship captained by a world government. The lifeboats can be viewed as laboratories, each conducting its own experiments in history. They can look over at one another, observe what they are doing (or failing to do) and see what might work and what doesn’t. Some lifeboats might sink, but the passengers in the other ones might learn and prosper. This is a much safer way of doing things than risking the possibility of all of us going down in the same leaky vessel.

Reasons for Optimism

It seems to me that Hardin’s anti-immigration argument is tinged with more than a little paranoia, and more than a little xenophobia too.

First of all, we must be careful about appeals to the rights of “future generations”, for the appeal is to the rights of beings that do not exist, and may never exist. If something were to happen to make it so that the future generation did not come to be, they could not suffer a loss by this fact, because the agent whose loss it is supposed to be simply does not exist to experience the loss. Grammar tends to bewitch us here; it forces us to refer to “they” and “the future generation”, as if these already had some kind of existence. They do not, any more than unicorns or the tooth fairy do. By this point in my life I suppose I could have scattered my seed to the four winds and sired countless offspring, at least as a matter of bare biological fact. By not doing so, have I committed an injustice on countless unborn? Am I history’s greatest monster? No, because those “unborn” (again, grammar forces us into a corner here) do not exist. And that which does not exist cannot be a bearer of rights. Indeed, it’s at least questionable whether anything can be a bearer of rights, the very concept itself is so utterly mysterious.

Second, refugees are not necessarily poor because of overbreeding in the home country. They may simply be fleeing natural disaster, political tyranny, or civil war (though granted the last is often an outcome of overpopulation). Furthermore, even if there has been overbreeding in the home country, the refugees themselves aren’t necessarily guilty of it. They may have no children, and may themselves be the children of parents who bred below the replacement level. Might we be punishing them for the “sins” of others?

Third, once settled, refugees will not necessarily continue to outbreed the native-born (if they ever did). They may end up adopting most of the customs (including the procreative habits) of the people into which they’ve largely assimilated. World population statistics show the trend: with increasing wealth comes a decreasing birthrate. Given other opportunities to lead meaningful lives, people will forego procreation to pursue them. The education and material security of women and their ability to make decisions pertaining to their own reproduction is crucial here. Given these conditions, there is much to hope for. Which is why it is important that, whatever customs and traditions certain immigrant communities bring to our shores, it is imperative that they be made to leave behind their patriarchy and misogyny (with which we already have enough of our own to contend).

Fourth, amidst all the environmental bad news in the world today, there has been one small bright light that is in my opinion under-reported: the rate of increase of the world’s population has begun to level off. Now, that means population will continue to increase for some time yet, and it’s still unclear if the world’s population will rest at a number that is sustainable. It also seems to be a natural trend for which we can take little credit. But still, it is cause for hope.

Some Strange Parting Thoughts

Despite his ignorance about immigration, Hardin does pose one question that in my opinion we have not adequately considered:

“In the welfare state, how shall we deal with the family, the religion, the race, or the class (or indeed any distinguishable and cohesive group) that adopts overbreeding as a policy to secure its own aggrandizement?”

Such groups exist. We all know they exist, although I won’t name any for fear of legal repercussions. Luckily, the policy of overbreeding has not been notably successful in this country. But that could change. And we need not live in a welfare state nor even be resource-scarce for the question to press on us. If we use Hardin’s “tragedy of the commons” as our conceptual compass, then how are we to deal with such groups?

In a multicultural society, if we take official “multiculturalism” seriously, perhaps we might think about viewing “cultural space” as a common good that must be shared amongst all? Groups that try to breed out others would then be like the herder who tries to move extra sheep into the commons at the expense of others. But then we would have to be willing to do some very unpalatable things to stop the practice, things which, luckily we have never had to seriously contemplate.

On the other hand, could not proselytizing be viewed as a similar wrongful appropriation of common cultural space? I think the idea is too fuzzy to work without gross violations of free expression, which is too bad, because then I could really stick it to those Mormon wackjobs on the Broadview bus.

Friday, November 12, 2010

Life in the "Great Society"

Friedrich Hayek is usually classified as a libertarian thinker. But in Chapter 14 of his masterwork Law, Legislation, and Liberty (3rd volume, Chicago: University of Chicago Press, 1979), Hayek has some very un-libertarian — and rather refreshing — things to say about the respective roles of the public and private sectors in the provision of goods and services.

He begins with the observation that it is an article of faith among libertarians to regard almost all functions currently performed by the state as capable of being more efficiently performed by markets. The ideal form of government for libertarians is, to use the language of Robert Nozick, the “minimal state”, or what in classical liberalism used to be quaintly called the “night watchman state”. This would be a state whose areas of legitimate activity were largely confined to the maintenance of national defense, and the enforcement of contracts, property rights, and the criminal laws. Perhaps it might also build a few roads for its soldiers to march on. However, Hayek dissents from this faith:

“Far from advocating such a ‘minimal state’, we find it unquestionable that in an advanced society government ought to use its power of raising funds by taxation to provide a number of services which for various reasons cannot be provided, or cannot be provided adequately, by the market.” (p. 41)

Indeed, he notes a number of areas where the state has an interest in providing services, even in the very name of preserving and enhancing the market order itself. An example would be the collection and dissemination of information in the form of statistics and education. Information helps to make markets operate more efficiently, and yet markets cannot in all cases adequately provide this vital service for themselves.

Indeed, the later Hayek, as he became increasingly conservative, added to this function the propagation of valuable cultural information (e.g. religion, art, and morality) from one generation to the next. What could be less libertarian than allowing government to play an active role in the inculcation of forms of worship, taste, and morals? And yet, my inner Tory applauds the move, at least with regard to the last two items.

Hayek on the “Taxation-as-Forced-Labour” Argument

In his Anarchy, State, and Utopia (1974), Robert Nozick (in)famously equated taxation with forced labour. It is a common mode of argument among libertarians to claim that some expenditure X amounts to theft or extortion from those citizens who don’t want X and who therefore would rather not pay for X. In a social order that respects people’s liberties, I should at least be able to opt out of paying for “my share” of X. By being taxed to support X against my will, some share of my labour is being taken from me to contribute to someone else’s ends. In other words I am compelled into forced labour. I am to that extent a slave. Or at least, that is how the argument is usually run.

Hayek has a very interesting alternative way of conceptualizing this situation. First of all, we live in what he calls a “Great Society”. By “Great” he doesn’t necessarily mean “powerful” or “hegemonic”. Rather, the term connotes extensiveness and complexity. For better or worse, our society has grown complex, and with this complexity comes certain trade-offs. A Great Society depends on many services that are unnecessary in more simple forms of social organization. For instance, only a numbskull would claim that we could live in sprawling modern cities without some form of mass transit, and for various reasons, such transit is a collective good that for various reasons is more efficiently provided by the agency of government.

“Collective” vs. “Public” Goods

Before proceeding, some clarification of terminology is in order here. I use the term “collective” good to refer to goods that everyone benefits from, whether directly or indirectly. Mass transit in a large city is a collective good because even those who do not use it benefit from it: If I drive my car, I benefit from less congested roads, from decreased costs of road maintenance, from decreased demand for the gasoline I need to fill my car, and so on. Since there is no way to stop me from benefitting from this good, if I do not contribute I am in essence a free rider (pardon the pun). Thus, a collective good is one from which there is no fair way of opting out, because even if you didn’t contribute to its provision, you would still benefit from it. This characteristic of collective goods has been used by some philosophers to justify requiring everyone to contribute. (I do not think it is a sound justification, but that is a subject for another day…)

I use the term “public” good to refer to those goods that are more adequately or efficiently provided by public rather than private agencies. This is obviously not the same thing as a collective good. We may all benefit from X (a collective good), while at the same time X can be provided by the market. On the other hand, Y might be most efficiently provided by a public agency, and therefore be a public good, while only benefitting a minority of the population.

Rather than looking at each item of government expenditure in isolation and judging its legitimacy according to whether or not one personally benefits from it, Hayek says we should view taxation in the aggregate, as everyone’s contributing to a common pool, out of which expenditures will be made for collective and public goods. Although I may not agree with or make direct use of some of the goods provided out of that pool, Hayek says that so long as I get at least as much benefit from what comes out of the pool as what I contribute to it, then taxation is a legitimate practice and not merely a form of forced labour or slavery.

Of course, none of this is to say that a government’s powers of taxation aren’t abused. No doubt, much of what comes out of the common pool could be spent more efficiently than it is, and could benefit more people than it does, rather than being spent on goods that are in truth neither collective nor public. Indeed, it could even be the case that a number of citizens do not receive as much benefit from taxation as they contribute to it. Hayek’s aim is merely to justify the principle that taxation by government is not ipso facto illegitimate or a violation of liberty.

How Collective?

I suppose the drift of Hayek’s argument so far is that in an ideal libertarian world, taxation is legitimate when it is expended on goods which are both collective and public, with some allowance for expenditures that do not meet this rather stringent requirement, so long as every taxpayer benefits at least as much from government expenditure as he or she contributes in taxes, taken in toto. Another way of putting this last point, in economists’ jargon, is that to be legitimate, taxation taken in the aggregate must be Pareto efficient; that is, it must make at least one person better off, without making anyone worse off.

(When we speak of taxation “not making anyone worse off”, opportunity costs must be taken into account. Let’s say that the benefits I receive from government expenditure exactly correspond to the amount of money I’ve contributed in taxes. But when I stop to think about all the things I could have benefited more from if I had been allowed to spend the money on my own rather than contribute it to the common pool, I might find that I’m actually much worse off. Pareto efficiency is more stringent than it sounds, and than Hayek would lead us to believe. In other words, for the bundle of goods X I receive through public expenditure, there is likely to be another possible bundle Y that, while containing some of the same goods, also contains other goods, and where in terms of benefits, Y > X.)

Using collectivity as a necessary condition for justified taxation can be tricky. For example, I’m sure that there are many goods we might wish to classify as collective that are not entirely so. There might always be some naysayer who would rather not spend his money on any given item, because he doesn’t personally stand to benefit enough from it.

Again, this worry is partly dealt with by Hayek’s requirement that we view taxation and expenditure in the aggregate rather than item by item. A certain item of expenditure might not be Pareto efficient, while a bundle of items that includes it might be.

Hayek’s strategy of assessing the collectivity of goods from the aggregate level is probably better than at least one obvious alternative method, which would involve adding a requirement to the effect that a good can be classed as collective if a certain threshold proportion of the population would benefit from it. We might call such a good imperfectly collective; it is “collective enough” to justify taxation. So long as it benefits enough people, the naysayer is legitimately required to “suck it up” and contribute for the good of the larger community.

This is a tricky move. First of all, what number should we set as the threshold proportion of the population we are justified in benefiting through the forced sacrifices of others? Second, we would also have to put limits on how much people can be required to sacrifice for the greater good. We could bankrupt the naysayer and spread his wealth among a lot of people who need it. We could create one have-not but also create several haves in the process. Should we be allowed to do this? I think not. Ideally, we would want to say that there is some “fair share” that we can commandeer from the naysayer. We cannot take everything.

And third, there is the problem of limiting the uses which can be made of what is commandeered, even if it is used on a good which is putatively collective. Imagine we could take all of the naysayer’s money from him, and make a reality television show that documents his subsequent skid row life, providing much satisfying entertainment for masses of people. I think the naysayer should not be required to contribute to this dubious sort of “collective good”. And this is not because it would bankrupt him. It is not the amount of the sacrifice that matters here. I don’t think he should be made to contribute a single dollar to minister to such depraved tastes. This is where morality has something to say to the calculations of economists.

How Public?

Besides some lack of clarity as to whether a good is really collective, there is also the difficulty of assessing whether a good is really public. For one thing, there are some goods that are currently viewed as public that might not be such at all. Hayek gives the example of postal delivery. In the US and Canada it happens to be publicly provided, even though it is relatively inefficient, and even in the face of a large amount of evidence that it could be better provided by the market. Indeed, most nations have now privatized their postal systems, almost all of them successfully. (I would like to say all of them, but I can’t be confident that there isn’t a counter example lurking somewhere that I’ve missed.)

Hayek says that we must be wary of considering something a public good merely because the government, as a matter of contingent historical fact, has happened to be the sole provider of that good. In the case of postal delivery, governments historically had their own raisons d’├ętat for instituting it, reasons having more to do with the aggrandizement of administrative power than with the good of the people. From this it does not follow that governments must continue to provide it.

He says we must also be careful of falling into the habit of too starkly delineating supposed classes of goods that are of necessity publicly provided. Such a view blinds us to the possibility of improvement. In many cases there may be good reasons for why a particular good can best be provided by government. However, in the future circumstances could change and those reasons may no longer be good ones. If that becomes the case, the government should cede that sphere of activity to market forces.

And lest you think I’m plumping too much for the libertarian side here, and driving at the claim that the natural development is unidirectional — i.e. a natural takeover by the private sphere of public functions — things could just as easily work the other way around. As a matter of fact, many of the things that are considered properly public goods were once exclusively private. Education would be an example. Health care (at least in Canada) is another. I know many libertarians would dispute classifying health care as properly public, but I see no evidence anywhere that the market can do a better job in that area (not to say that there is no possibility of some form of mixed system).

As a matter of fact, many historians and anthropologists have argued that in primitive societies the enforcement of rights was often done privately, through self-help, clan feuds, or other “private” security arrangements. In other words, in the beginning, all was private. At some point many of these societies came to see the obvious drawbacks of arranging the proto-legal order this way and ceded large areas of activity to some public body. This was the birth of the rule of law and maybe even of government itself. There is a delicious irony here, the tantalizing possibility that the public sphere itself was born of market failure! But much of this is speculation.

Social Security in the Great Society

There are many people in society who, through no fault of their own, are unable to participate in the market economy, perhaps because of old age or disability. Hayek says that such people must be provided with an income. (Actually, in his other writings he seems to indicate that perhaps everyone should be guaranteed some minimum income). He has more than one argument for this.

First, the things that make such people unable to participate in the market are such that they could in principle befall anyone. I could become gravely injured tomorrow. And sooner or later — if I live long enough — I will reach an age where I am no longer able to work. These are “common risks”, which makes the provision of an income to people disadvantaged by them a collective good. Of course, this argument only works if we add the assumption that we are all relatively risk averse. If we all have a rational fear of being disadvantaged by common risk factors, then we benefit by contributing some share of resources to a pool to insure against those risks.

In other writings Hayek buttresses this “common risk” argument with what we can call the “risk encouragement” argument. He says that in order to be successful, capitalism depends on a certain level of entrepreneurship, which by definition involves risk-taking. Another sort of risk-taking “entrepreneurship” also happens when I leave a job in the hope of securing a better-paying one. Such risk-taking makes for a flourishing economy, from which in theory we all stand to benefit. But people will be less willing to take such economic risks if the costs of failure are too high. This provides justification for things like lenient bankruptcy laws (which in effect subsidize debtors at the expense of creditors) and unemployment benefits. These provide a sort of “smooth landing” in case of failure.

Of course, more militant libertarians (e.g. Milton Friedman) would say that if there is a common risk, then everyone has an incentive to plan for it through, for example, an insurance scheme, and there is no reason why such a scheme shouldn’t be available through a market. In other words, even though social security might be a collective good, it is not a properly public good. And if you fail to insure yourself, maybe because you are not sufficiently risk averse, then you are responsible for the consequences. Perhaps a voluntary charity may help you, but the state should neither use its coercive powers to force you to insure yourself nor to force others into providing relief for your folly. This is the only consistent way to respect the autonomy of the individual. And after all, why should 95% of people be forced to pay for the other 5% of people who are improvident or reckless?

Hayek has an answer to this, at least in the “common risk” cases, although I am sure it wouldn’t satisfy the hardened libertarian. Every society has recognized a moral duty to help the aged and infirm, a duty not based solely on the personal virtues of the sufferer, but either on personal ties of affection or common humanity. Thus, traditionally this duty was most commonly fulfilled by family members or, where this was not possible, by those voluntary charities and religious foundations that libertarians seem so fond of. But, says Hayek, we no longer live in those simpler societies. We live in a Great Society, in which those ties of kinship and feelings of moral duty have weakened and can no longer be taken for granted. Although the duty to help the disadvantaged still stands (how so?), the old ways of fulfilling it seem to have vanished. The suffering individual no longer has a claim on others based on kinship or shared belief in a religious commandment. In its place, government must step in and help, as impersonal as that help must necessarily be.

I find this argument fascinating in its admission that capitalism has not been an unadulterated success. In order to live in the general prosperity that the Great Society provides, much that was meaningful has been traded away. Perhaps it was a good bargain, but it was a hard one, as those that suffer in our midst can attest.

It is a recognition that is very un-libertarian. But my inner Red Tory nods in agreement.

* * * *

To return to the above discussion about privatizing postal delivery, this past summer I was drawn into an argument about this very subject with two “progressive” friends (I didn’t start it). In the course of a conversation I made the barest suggestion that Canada Post could be privatized, and was immediately set upon. I was told in no uncertain terms that it would not work, that no country does it, and that where it has been tried it has failed.

I should mention that one of these two friends has the maddening habit of adamantly claiming an empirical statement to be true, and refusing to back this claim up with an authoritative source, leaving the disputant at a dead end as to how to refute him. If you don’t happen to have briefing notes on hand, you cannot dispute such a proffered “fact” conjured up out of thin air. On this occasion the “fact” he proffered was that Canada Post is a profitable enterprise.

The sheer emotionality and increasingly aggressive drift the argument was taking caused me to wisely drop the subject. However, I was not convinced by my opponents. I did some follow-up research. It turns out that (i) many countries have privatized their postal delivery, including most developed ones, (ii) that it has worked in these places, by any objective standard you care to use to assess it, and (iii) that there are few complaints about the market-delivered service.

Furthermore (iv), as for my friend’s vouchsafing Canada Post’s profitability, I looked up the latter’s annual reports, something which I was obviously unable to do during the heat of our discussion in the context of a backyard barbecue. In the fiscal year just passed, the corporation barely broke even. By its own admission, this accomplishment was due to certain unforeseen and one-time-only increases in revenue. Therefore, it would seem that Canada Post must have actually budgeted for a net loss and been pleasantly surprised when, despite its best attempts at fiscal incompetence, it actually ended up in the black (which, incidentally, it has consistently failed to do in previous years). Of course, this does not take account of the fact that much of their “revenue” in any given year consists of government transfers.

I hope my friend is reading this, because although I like to have the last word, I have no wish to return to that conversation and play the bear, to be baited by people who offer articles of faith in the place of reasoned argument.

Wednesday, November 3, 2010

From Arbitration to Arbitrage

Arbitrage happens when someone — an “arbitrageur” — profits from a price differential between markets for some good. He buys low in one market to sell high in another, and pockets the difference as risk-free profit. Etymologically, the word “arbitrage” is French, and refers to the decision of an arbitrator. The term was first used in English in its current sense early in the 18th century. At first sight it seems difficult to see how its meaning could drift so far from its original source. However, I can tell a little story that might shed some light on this.

According to Cicero (De Officiis, 1.33), Quintus Fabius Labeo (consul in 183 BC) was appointed by the Roman Senate to arbitrate a boundary dispute between the cities of Nola and Naples:

“[H]e took up the case and interviewed both parties separately, asking them not to proceed in a covetous or grasping spirit, but to make some concession rather than claim some accession. When each party had agreed to this, there was a considerable strip of territory left between them. And so he set the boundary of each city as each had severally agreed; and the tract in between he awarded to the Roman People. Now that is deceiving, not arbitrating [Decipere hoc quidem est, non iudicare].”

The same story is also related by Valerius Maximus (Facta et Dicta Memorabilia, 7.3.4), where he writes that “arriving at the scene, he [Labeo] advised both separately not to be greedy but to go backwards from the nodal point of the dispute [regredi a nodo controversiae] rather than forwards.”

Now, although it might not seem like it, this case bears a more than analogous relationship to arbitrage. Let us imagine that, instead of separate parties to a bargaining situation, we redescribe Nola and Naples as different markets for a single type of good. This case is somewhat unusual in that there happens to be only one token of that kind of good, namely, a specific tract of land lying between the two cities.

Let us further imagine that each market/city values that land at a certain price. In other words, each has a price in mind at which they are willing to part with the land. Unfortunately, when Labeo first appears on the scene, it seems that the land is — paradoxically — worth more to each party than the price at which the other is offering to purchase it. Nola thinks it is worth 1,000,000 denarii and would be willing to purchase it in exchange for some amount of money less than this, say 800,000 denarii. Same with Naples. In other words, each city would not pay more than 800,000 denarii for the land, but would not sell it for less than 1,000,000. Under these conditions, no bargain can be struck. There is a further and more obvious reason no bargain can be struck.

There is a theorem in economics called the Coase Theorem, which roughly states that, so long as property rights are well-defined and transaction costs are zero, parties will reach an efficient bargaining outcome. (Strictly speaking, this formulation of the theorem is grossly oversimplified, but it will do for our purposes.) Besides the fact that there is almost never such a thing as zero transaction costs, the obvious problem in this case is that there is an absence of defined property rights. A defined property right is precisely what they are bargaining for. And for this reason, neither party is sure whether it is playing the role of buyer or seller.

Here is where an arbitrator can come in and restore the conditions for efficient bargaining under the Coase Theorem. In effect, both parties give up their claims to some other party, namely the arbitrator. Under normal circumstances the latter, although he is now the “owner” of the land for purposes of bargaining, stands in a fiduciary relationship to the parties: rather than owning the land, he is more properly described as holding it in trust, and as such, he is not supposed to profit from it himself. The advantage to establishing this trust is that, for the purpose at hand, there is someone who can play the role of seller, while the two original parties become, in effect, bidders.

Once this new arbitrated bargaining structure was in place, Labeo, in the role of seller, accepted offers of purchase from the parties separately. It was exactly the circumstance that the parties were consulted separately that made them more akin to separate markets than to parties to a single transaction. In effect, it was a sealed auction. Cicero’s account says as much, and I think it must have been, because if either party caught wind that the other party was bidding so low (or rather, was willing to part with so much), they would have driven a harder bargain and asked for more. There must have been an information gap created by Labeo.

Obviously it differed from a normal sealed auction in that the auctioneer was privy to what was in the bid envelopes before they were opened. Indeed, Labeo was instrumental in helping the bidders to formulate their respective (inefficient) bids. Through what must have been his considerable powers of persuasion, he in effect convinced both parties to reduce their respective valuations of the land in question, leaving a differential which represented a profit to be pocketed by himself (on Rome’s behalf, of course).

Labeo effectively opened up a price differential between two markets for the same good, and made a risk-free profit as a result. If he had been bargaining in good faith in the role of trustee, he would have done his best to ensure an efficient outcome, which would have meant creating a price convergence between the two markets, so that there was no differential. In other words, he would have worked towards some optimal solution where each party was willing to purchase just so much of the land at just such a price as would ensure no surplus leftover for some third party to pocket. Labeo was an arbitrageur, not an arbitrator.

What makes arbitration and arbitrage similar is that both involve some agent who acts as go-between. In the former the go-between is a trustee who works to bring about market efficiency without profit to himself. In the latter the go-between takes advantage of market inefficiency rather than seeking to correct it. Thus, the difference between an arbiter and an arbitrageur is one of motivation.

The irony is that in economics, arbitrage can lead to long-run efficiency, because arbitrage activity acts as a signal to markets, alerting them to inefficient pricing, and leading to its correction. It would be as if after being burned by Labeo, Nola and Naples had a better understanding of what was at stake and what they lost. Armed with this new knowledge, if they were to do it over again, they would come to an agreement to split Labeo’s differential equally between, leaving no differential to be scooped up by a third party. Then they would both end up better off. Unfortunately, their’s was not a currency market; they won’t get another chance to do things right.

The trickery of Labeo aside, the profit margins in arbitrage are usually quite small and the opportunities presented tend to be rather fleeting. Once price information becomes available, markets adjust themselves quickly.

* * * *

The world is full of modern-day Labeos. They’re called real estate agents, and they work in pairs. One represents the seller of a home, and the other “represents” the prospective buyer. It’s supposedly a fiduciary relationship, at least in the sense that the two agents are supposed to be looking out for the interests of their respective principals. In reality, only the seller’s agent can be said to do so. Because they make their money from the percentage commission they receive from selling the house, both agents in reality represent the seller. They both have a vested interest in having the house sell for as high a price as possible, and thus in fleecing the buyer.

Unlike other kinds of arbitrageur, real estate agents don’t correct market valuations; they grossly inflate them. This is because they have an effective monopoly over whatever it is they do: if you wish to buy or sell a house, you must use their services, which means that although they distort prices, there is no real way the market can correct this unless buyers and sellers are allowed to interact directly with each other, thereby establishing non-collusive price signals to guide the market.

This monopoly may be breaking down, at least where I live. Real estate agents are now being forced to open up access to the Multiple Listing Service (MLS), meaning that they are about to lose their monopoly on access to the real estate market. In conjunction with this, I’ve noticed that a number of small firms have appeared on the scene whose aim is to make it easier for people to buy and sell homes without requiring the “services” of an agent. I predict that such developments, if allowed to continue apace, will lead to a moderation of prices and hopefully will someday make shelter more affordable in this city. I say “if allowed to continue apace” because there is a large lobby — guess who it’s funded by? — trying to put a stop to it.

Interestingly, the agent who “helped” us buy our home had the stones to tell us not to worry about what she was making in commission from our purchase, because we weren’t the ones paying it. She claimed that it was coming out of the seller’s pockets. She must truly have thought we were cretins, too stupid to figure out that the sellers would be paying the commission out of money that we had forked over to them in the first place. If the agents have done their jobs well, once the seller makes his end, he will be paying the commission out of the differential between selling price and the non-collusive market price.

Homework assignment: Can you find other examples of economic activity requiring a similar level of structural fraud and collusion? In a wry aside in The Selfish Gene, Richard Dawkins gives the example of divorce lawyers. The lawyers of both parties have a stake in not having the split settled quickly and amicably, as this would lead to a reduction of billable hours. This differs from the real estate case in that instead of both agents representing only one of the principals, they truly represent neither of them.

None of this is to say that there aren’t ethical lawyers and real estate agents out there who don’t operate in this unscrupulous way. However, I think it is useful to be aware of the underlying structure of such relationships, so that one doesn’t end up with an arbitrageur instead of an arbitrator.

Friday, October 29, 2010

Year of Our Ford

I wrote this post in late September, back when polls showed Rob Ford with a healthy lead in the Toronto mayoral race and certain other candidates had not yet dropped out. But I shelved it. I shelved it because I didn’t want to give my readers the wrong idea about what I was (or wasn’t) advocating in it. There was (is) a lot of hysteria in the air around the election. My personal experience during this election campaign has been that, in the circles I run in, unless you toe the “progressive” line, you might very well end up being loathed and excoriated by people you thought were your friends. To even be (mis)perceived as supporting Rob Ford is a kind of social death.

So I censored myself out of fear. Quite literally. I am now ashamed of myself for my cowardice. “Progressives” claim to advocate “diversity”. I believe that this diversity should mean more than just having a variety of national cuisines to eat or music festivals to attend. It should also consist of a diversity of opinions, including the ones we don’t like. Despite what they seem to think, “progressives” might still have a thing or two to learn about “progressivism”.

It is in that spirit that I belatedly post the essay below, while acknowledging that it resorts to some obvious overgeneralizations. My “progressive” friends will not like much of what I have to say. To them I would reply that, since I’ve patiently allowed them to shovel their half-baked “progressive” swill into my unwelcoming maw for the last several months, it’s only fair that they now open wide so that I can return the favour.

I ask that you leave the hating until after you’ve read it through and thought it over for awhile.

* * * *

The city I live in, Toronto, is going through what is proving to be a very interesting mayoral race. This week a poll came out showing that candidate Rob Ford is leading by a wide margin.

Just a little background for those not from Toronto: left-leaning mayor David Miller announced last year his intention not to seek re-election. The putative frontrunner to replace him is supposedly George Smitherman, a former provincial Minister of Parliament who quit his cabinet post to run for mayor. Smitherman has the money. He has the backing. He has the name recognition. Therefore, he is well-placed to win, at least on paper. Unfortunately, he also comes with a lot of political baggage (too much of it to inspect here). How much this baggage will weigh him down remains to be seen.

Carrying the torch for the outgoing mayor’s “progressive” legacy is Joe Pantalone, the only candidate besides Ford to have improved his standing in the polls. He seems a decent chap, if lacking in charisma. However, he will likely lose, if for no other reason than that to much of the electorate he represents a status quo they can’t jettison quickly enough.

There are some other candidates who are, frankly, also-rans at this point.

And then there is Rob Ford. He is regarded by many as a fat, wife-beating, drunk-driving, racist buffoon. There is considerable warrant for this characterization. He is running on a platform of cutting spending (and certain much-loathed taxes) at city hall, and ending such corrupt practices as sole-source contracting. His other policies are not so clear or plausible, but luckily for him, getting a grip on out-of-control city spending is the only policy that seems to matter with those who say they’ll vote for him. Judging from the poll numbers, barring some unforeseen change — and this race has been full of surprises — Ford will win, possibly by a landslide, but more likely by a fairly narrow margin, especially if other candidates back out.

When this week’s poll came out, many of my left-leaning friends seemed beside themselves, at least if their Facebook activity is any indication. I would say that a few are even panicking. They simply can’t understand how a man like Ford could possibly be the people’s choice in a supposedly “progressive” place like Toronto.

I’m going to attempt to explain Ford’s appeal. In order to do this, I feel I should first declare my personal leanings with regard to this election: I AM AMONG THE 25% OF RESPONDENTS WHO ARE UNDECIDED. In fact, I’m so undecided and so nonplussed by the candidates in general that I’m contemplating the violation of my long-cherished philosophical principle of always exercising my democratic rights. In short, I’m considering not voting at all. Thus, what follows should not be regarded as an endorsement of Rob Ford’s candidacy, a man about whom I have very grave reservations.

Rather, I’d like this to be read as a piece of advice on how my “progressive” or “left-leaning” friends might need to change a few attitudes if they wish to work to defeat Ford in the five short weeks remaining to do so. Indeed, there are lessons to be applied to “progressive” political action more generally.

Some Lessons for “Progressives”

There have been many attempts to explain Rob Ford’s appeal. For a while now, many commentators have framed it in terms of an urban-suburban divide. Ford’s following is supposedly mostly in the suburbs, or the city’s old boroughs (i.e. Etobicoke, Scarborough, East York), whereas most of the supposedly sane voters are concentrated in the city’s urban core. Others have seen in the phenomenon an expression of the angry, white (male) vote — people who, again, mostly live in the suburbs.

The latest poll has shot both of these theories down. Ford’s appeal seems to have spread to the old city of Toronto proper. And new Canadians like him too.

By far the most common — and condescending — approach taken by media pundits is that Fordites are somehow uninformed or just plain stupid. A good example of this is a recent Globe and Mail article that, while trying to “explain” Rob Ford’s popularity to the city’s elites, ironically ends up simply repeating the tired old line that Fordites are ignoramuses.

Based on this, here are some helpful observations and recommendations that I’d like to make to all those who would like to see Ford defeated.

1. Toronto consists of more than just the Five Boroughs. The “Five Boroughs” are my facetious name for Rosedale, Forest Hill, Riverdale, High Park, and the Beach(es). I suppose we could also call them the “Hills and Dales”. This is where “progressive” Toronto is most easily to be found. For the most part, the unprogressive can’t afford to live in these places. Instead, they live in those “benighted” areas that “progressives” sneeringly call “the suburbs”. This sneering should stop. My Toronto includes Scarborough, East York, Downsview, and Etobicoke. Whatever you think of amalgamation, it’s here now, and it’s not going anywhere. So suck it up, and let’s pull together.

I am personally less than impressed when I read in the Toronto Star that because I live in East York I am poorly educated, ignorant, and therefore more likely to vote for Rob Ford. I am not a poorly educated “knuckle dragger” (as one writer charmingly described East Yorkers), and I am no more ignorant than the average Torontonian in the Five Boroughs. To a great extent, the much-touted division between city and suburbs is exacerbated by the smug and ignorant attitude of the “progressive” media. If I have had any temptation at all to vote for Ford, it is precisely because of reading such insulting rubbish. I used to live in the Five Boroughs; I didn’t suddenly drop thirty or forty IQ points the moment I moved to East York.

2. New Canadians do not necessarily share the “progressive” agenda. Residents of the Five Boroughs are likely to be white, and are more likely to be old Canadians. They are also likely to be wealthier than the average. Thus, it is ironic when people claim that Rob Ford appeals mainly to angry, middle class whites, as if Ford is the poster boy for WASP privilege.

Despite what the punditocracy would have you believe, anecdotally speaking, I see no evidence on the ground that new Canadians view Ford as a privileged white candidate to whom they can’t relate. But I suppose we’ll have to wait for the election results to confirm or disconfirm this hunch of mine. What I will go out on a limb and say is that there is no obvious reason why new Canadians would share the “progressive” agenda. So perhaps “progressives” do their own cause a disservice with their “diversity”- and “multiculturalism”-mongering. They may be hitching their wagon to the wrong horse.

I suspect that a sizeable proportion of new Canadians have fairly conservative values imported from their home countries, countries where government is either corrupt, inept, or just plain vicious, and where people learn to rely on family and personal relationships rather than official agencies. They also tend to be people who struggle to make ends meet. It should therefore come as no surprise that they would find much to approve in an agenda of smaller government and respectful stewarding of their hard-earned dollars. Call it a simplistic agenda, but it resonates, and I predict that this will show in the election results. I also predict that it will continue to factor into future election results in places with large immigrant populations.

3. Torontonians do not like being called stupid. Oliver Cromwell once said to a Calvinist General Assembly of the Church of Scotland, convinced of their own righteousness, and considering themselves among God’s elect, “I beseech you, in the bowels of Christ, think it possible you may be mistaken.” In that spirit, if a Torontonian refuses to accept your “progressive” vision, I beseech you to think it possible that your views may be mistaken. I beseech you to not call the dissenter stupid. Many parts of the “progressive” agenda I find dangerous, poorly thought out, unjust, and the very opposite of progressive. Believe it or not, I have reasons for these beliefs. They are not simply a product of my stupidity. I have thought them through. If I am mistaken in some parts of these beliefs, it may be because I am human and therefore fallible. The same fallibility afflicts holders of “progressive” beliefs.

Conservatives are often rightly accused of intolerance, but that is no reason to fall into the same sin. Indeed, it is even less excusable in a “progressive”, because of his putative commitment to that very value of tolerance. If you cannot summon the humility to entertain the bare notion that you could be wrong, at least look at it from a pragmatic angle: your shrill denunciation of all who disagree with you will not make converts of them. It’s off-putting, to say the least. It only stiffens your enemy in his resolve.

4. Many Torontonians are precarious homeowners. It is no secret that real estate in Toronto is absurdly expensive. There are some for whom this is not a problem. I posit that if you can afford to own a home in the Five Boroughs, you may be one of these. For such people, an annual rise in their property tax of 3% is not a big worry. If it is felt at all, some simple economizations, some cutting back on luxuries, will offset the expense.

(For context, I should point out that property taxes in Toronto have risen every year for the last ten years. Last year’s increase, the smallest of them, was 2.9%, still well above the general inflation rate of just under 2%. That means that assuming a very conservative average property tax increase of 3% per year, a person who paid $2000 ten years ago, must now pay around $2700. And of course, let us not forget the magic of compounding: next year’s increase will be 3% of $2700, not of the original $2000. And if you think a percent or two on either side won’t make much difference, if we assume a rate of 5%, our original $2000 becomes $3260.)

There are also people in the Five Boroughs who rent. Although they too pay absurdly high rents, and are rather less well off than their home-owning counterparts, they are less likely to feel an increase of 3% in property taxes for the simple reason that they do not pay property taxes at all, at least not in the short run. There are two reasons for this. First, their landlords have a market-based incentive to keep rents from rising too much, too quickly. If rents are too high, condos start to look like a good deal. Second, there is legislation limiting how much landlords can raise rents. Of course, eventually the market will work itself pure: either rents must rise, or some quantity of rental housing will leave the market. Either way, renters suffer. But the key difference is that there is a lag effect between a rise in property taxes and the point at which it begins to pinch the renter. Ironically, when renters do finally feel the pinch, it will probably be blamed on greedy landlords rather than on inept politicians ambitious to do good works with other people’s money.

I believe these phenomena go a long way towards explaining why my “progressive” friends in the Five Boroughs see no real problems with City Hall’s current spending habits. Outside the Five Boroughs, things are a bit different. We moved to East York because it was literally the last place in Toronto we could afford to buy a house. And we did buy one, barely. Given the property tax trajectory outlined above, some point will be reached at which we’ll have to sell and either move further out from the city, or go back to renting. Unless, of course, we come into some sudden windfall or receive a pay increase far enough above the rate of inflation that it will offset some of the tax increases. And Lord help me if I become unemployed, or sick, or have to take a pay cut, which is the reality for many.

So you’ll have to excuse me if I get annoyed that Joe Pantalone’s progressive “vision” for the city will involve another 2.5% property tax hike next year. First of all, how is it “visionary” to do that which has been done every year for at least the past decade? Second, I see nothing “progressive” about bankrupting future Torontonians to pay for politicians’ visions in the sky, while core services continue to deteriorate and the rent-seeking city unions continue to mug us.

Whoever wins the election, they’ll have their work cut out for them. This city is fast becoming ungovernable. I suppose “progressives” can take heart in the near certainty that, should Rob Ford win, he’ll eventually be brought down by strikes. That is a constant in this city, no matter who happens to be mayor.

* * * *

UPDATE: I did end up voting for someone in the election. If you’re curious to know for whom, e-mail me privately and I will tell you.