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This is NOT what Globalization should look like

Scary

It's not quite the powers that be meeting in smoke filled rooms, but it's close enough.

At a morning-long event at the Ritz-Carlton Hotel in Clayton, Qishan held closed-door meetings with Missouri's two U.S. senators while business leaders pitched the region to a roomful of Chinese firms looking to invest in the Midwest. And several local companies and soybean industry groups held an official signing ceremony for $5.3 billion worth of export deals to China.

If Chinese firms want to invest in the St. Louis area, then they can simply, uh, invest in the St. Louis area. Bringing government officials into the mix tends to mean one thing: government handouts. And I don't just mean subsidies. Missouri is notorious for it's eminent domain abuses. If St. Louis wants to compete for the destination of all Chinese goods flowing to the midwest, then they can do that with lower taxes, strong police protection, and strong property rights. Handing out subsidies and redistributing property ultimately will undermine the intended end of economic development.

Also note the hypocrisy of the Missouri senators. It's perfectly ok for Chinese firms to invest in Missouri, but not Belgian firms. At least not when it comes to beer:

"I was very upfront," McCaskill said of her discussion with [InBev CEO,] Brito. After offering him a Budweiser and sipping one herself, she told him she would "do everything I could to stop this sale from going through … It’s a bad idea. I don’t want you to buy [Anheuser-Bush]. The people of Missouri don’t want you to buy it."

Normally anti-foreign bias is the strongest against countries with a significantly different culture because it fuels the 'us vs. them' mentality. In this case the opposite seems to be occurring. Any speculation as to why?


To All With a Bleeding Heart: Reevaluate Your Priorities

Whether you are a bleeding heart liberal or a bleeding heart libertarian (what Will Wilkinson calls a liberaltarian), you think that some sort of government provided social safety net is justified in some way on the premise that the government should help poor people. We'll go ahead and assume that this premise is correct. Debate it in the comments if you like.

What is interesting is that it does not follow, then, that some sort of welfare system is justified. The fallacy is a disregard for people who don't live in one's own country. This is probably an inconsistency for most of the bleeding heart group. Do they really think that low income Americans (or Europeans, etc.) are the master race?

Probably not. So when they claim that the government should help poor people what should they really be supporting? Policies that help poor people abroad, not at home. Unless home happens to be a third world country. The marginal dollar spent on fighting poverty in America is almost assuredly to be less effective than the marginal dollar spent fighting poverty abroad simply due to the amount of poor people in either country. Despite the war on poverty, in America absolute poverty has been virtually eradicated. Low income Americans make far more than anyone in poverty by global standards. An annual income of $1000 means you are richer than more than half of the world.

So instead of focusing on the welfare state which only helps people already doing rather well by most standards, bleeding hearters should focus on policies which either help people abroad or help bring people abroad over here.


No Cartel Here

Nope. This is a full fledged market. Though I'm not really sure what a cartel in the market for ideas would look like. In any case, this is totally necessary. What's a republic without a market anyway? Impoverished, that's what. So consider this as an attempt by Jonathan to bring the republic out of poverty with the help of some outside consultants. Or at least to bring some more people into the community - bloggers, commenters, lurkers, and maybe a few trolls as well.

There will be anywhere from one to about twenty people blogging here at any given point in time, depending on the level of enthusiasm among the group I have gotten together. Hopefully we can generate similar levels of discussion as the Catallarchy and Community feeds, but part of that depends on you, dear reader.

But enough of all that. Without further adieu, the market is open for business! Remember guys, this is mutually advantageous intellectual exchange. None of that negative sum ad hominem crap is allowed here.


Just for Will: Defining Legitimacy

I'm sure you've all seen Crispin Sartwell's challenge by now. DR even has it's own post on it, chock full of comments. Over at fly bottle, Will Wilkinson has even commented on it, writing, among other things:

I may agree with Sartwell about legitimacy, depending on what he means by it.

Well, the marketing ploy worked. I bought the book and it arrived today, just in time for me to bring it on the plane to DC for the KSFP (for any fellow... uh... fellows reading, I'm the skinny guy with the big ears, say hi). I probably won't be reading it until I'm on the plane tomorrow, but I flipped through and managed to come across something just for Will- Crispin's definition of legitimacy:

I regard the assertion that the state is legitimate as equivalent to the claim that we have at least a conditional duty to obey the laws and other requirements imposed by the state, and to obey the officials of the state operating in their official capacities.

pg. 37

I've managed to hold back my comments this long, so I'll wait until I read the book before I make a substantive post about it. In any case, for everyone else out there debating the topic, maybe this little definition will fan the flames. If we are lucky, Will will* confirm or deny his agreement with Crispin now that he knows what Crispin means, with explanation.

* redundant words twice in one post... I'm not much of a wordsmith, am I?

edit: fixed a typo - 'anarchy' is now 'legitimacy' in the sentence just before the second quote


Piling it on: Why the Division of Labor is More Important than Comparative Advantage

In a comment thread over at Fly Bottle, Muriego has already inspired two posts by our very own Micha Ghertner. Well, here's a third. Muriego writes:

Ricardo has 3 requirements for comparative advantage to be successful.

1) No flow of capital across borders
2) Full employment and freedom of labor to move from job to job
3) Trade is equal.

None of these requirements is met by our current trade policies. I would argue that I am more “Ricardian” in principle then those claiming our current policies fit the bill.

Micha does a good job of responding to this point in the two posts linked to above, but there is another line of attack worth pursuing. Comparative advantage is only one of two logics of trade that need to be taken into account. The division of labor, which comes from Adam Smith, is probably more important. Incidently, I seem to recall Austrians completely missing the concept of the division of labor, though they do use the term to refer to Ricardian comparative advantage from time to time.

Under comparative advantage, each party to a trade has a fixed set of endowments which affects their ability to produce different types of goods. For example France has it's climate which is conducive to producing wine, China has it's ability to produce silk, etc. For any two goods, there is a ratio between the production of them. This ratio doesn't have to be constant over all levels of production. For example, France might be able to produce 2 gallons of wine for every yard of silk it produces. The benefits of trade from comparative advantage come from the fact that it is extremely improbable that the ratios of production between every set of two goods for one party (whether it be a country, person, or something else), is equal to that of another party. So each party can specialize in producing what they have the most favorable ratio for, relative to everyone else, and trade with everyone else, resulting in increased total production and increased consumption for all.

Note that everything was held constant in the comparative advantage scenario except what was produced. Comparative advantage tells you how to optimize given your constraints. Under the division of labor, things are quite different. By allowing individuals to specialize and trade, the division of labor increases production through very different channels. First, specialization allows everyone to get better at their job, given whatever constraints are in place. Second, specialization saves the time everyone would spend switching from task A to task B to task C. Instead of being wasted, it is spent on producing more, or perhaps more leisure.

Third, and most importantly, specialization directly increases the rate of technological growth. The more familiar someone gets with a production process, the more likely that person can find a way to improve the production process. This can be anything from finding a more efficient way to line up the machines in a factory to a technological breakthrough in the literal sense.

This all comes straight from chapter 1 of Smith's Wealth of Nations. Smith is credited with the principle of absolute advantage when it comes to international trade. For some reason he didn't see the applicability of the division of labor. Well, we do now. Increased international trade means increased specialization which leads to growth for the reasons mentioned above. The borders simply don't matter for the analysis. As long as more people are involved in the specialization and trade process, the benefits accrue. (Note that this is one argument against population doomsayers.) So in essence, if comparative advantage tells you how to optimize given your constraints, the division of labor tells you how to change the constraints in a favorable way. If we take growth theory seriously, it is just this changing of technological constraints which fuels long term growth, which suggests that we should pay more attention to the division of labor than to comparative advantage.

For much more detail, see this econlib podcast.


Why I'm not (quite) a formalist.

Or a neocameralist. Or a Jacobite. Or whatever Mencius is calling his political philosophy these days. What follows is my comment on his latest post:

In any case: not only do we not live in a world of good government, we live in a world of disastrously bad government. If the 20th century does not go down in history as the golden age of awful government, it is only because the future holds some fresher hell for us.

Whoa...slipping into the nirvana fallacy there. Our governments are disastrously bad relative to what? Perfection? Sure, but who cares. Considering the level of prosperity that Western civilization is achieving now relative to other periods, our governments look pretty good, if imperfect.

Like Kling, I have a problem with formalizing all governments into corporations. I think you are attacking the symptom rather than the disease. If we imagine a world full of formalized governments, it isn't difficult to imagine heinous dictatorships where the CEO finds it profitable to (quite literally) wall everyone in, increase taxes to a very high level, and then use force to guard the wall and collect taxes. Dead people don't pay taxes, sure, but a few examples go a long way toward quelling dissent.

The actual problem is a lack of competition in which the consumer of government services can leave the jurisdiction of their respective government quickly, cheaply, and easily. Solve that problem and government structures will improve. Note that Dubai, one of your favorite examples, is a city state attempting to be the financial capital of the world. Competition seems to be the driving force there.


If you thought seasteading was crazy...

I've been catching up on the Econlib podcasts lately, and recently listened to Edward Castronova on Virtual Worlds. He makes a number of striking claims during the podcast, but in particular, Edward thinks that there is a very real possibility that virtual worlds will provide competitive pressure on governments. I know what you are thinking, doesn't the virtual world have to be hosted in meatspace where a government can get to it? Sure it does, but that doesn't mean it has to be centralized. Castronova points out that file sharing networks have to be hosted in meatspace, yet they are extremely difficult for governments to get a handle on.

I think seasteading has more promise, but this is an interesting possibility.


Missouri is #1

Today Dave Roland from the Show-Me Institute gave a talk on eminent domain abuses in Missouri at my school, Lindenwood University. He has previously worked for the Institute for Justice on, among other cases, Kelo vs. New London, so we were pretty excited to have him. One interesting thing I found out was that Missouri has the dubious distinction of having the worst laws on this issue in the country, at least in terms of how they are interpreted, and of having the highest number of eminent domain abuses per capita among the 50 states. And I thought San Francisco was the home of socialism. Apparently St. Louis holds its own in this battle.


Routine Libertarian Question Begging

Micha reposts this libertarian parable. In the comments, Scott links us too a response . Read them both if you haven't already for a bit of context.

The parable is a sort of standard story that libertarians tell to illustrate how the state is coercive. In Richard's response (he's actually responding to a similar story from Kling), he concludes:

There are good pragmatic reasons to favour some libertarian policies. But the moral ideology ("taxation is theft") is obtuse.

I completely agree, but for different reasons. Why does he think "taxation is theft" is obtuse? He quotes himself:

A well-ordered society is governed by the rule of law. This means that there are institutional processes to govern certain classes of action. The outcome of a just
institutional process -- whether it be a guilty verdict, or minimum wage legislation -- has a different normative status than the corresponding action of a neighbour who takes it upon himself to unilaterally impose his will on others.

I don't think any libertarian would disagree with that statement. Richard just misses the point - the libertarian theory of justice. Libertarians, at least of the sort we are talking about here, would simply claim that our current institutional processes are unjust and thus dodge Richard's criticism. The libertarian theory of justice is usually claimed to flow completely from the non-aggression principle (NAP). This is highly misleading, however, as Richard inadvertantly makes clear in the post he quotes himself from:

To claim ownership of a resource is to prevent others from making free use of it. If another attempts to use the resource in the same way as you do, you can call it "theft" and initiate force against them (or have the police do so on your behalf).

Thus it seems the NAP alone forces us to conclude that property is theft. And we thought Proudhon was a socialist. But this isn't the full libertarian story. A complete statement of the NAP, at least as I understand it, looks something like this:

It is always and everywhere immoral to initiate force against a person or his or her property.

Notice that the NAP presupposes property. There is another principle at work here which has to do with acquiring property coming straight down the pipe from Locke: the homestead principle (HP). For this reason I call this sort of libertarianism Lockean libertarianism or neoLockeanism. It rests on these two principles, as far as I can tell. Some versions try to derive the NAP from the HP, but that is unimportant fo For completeness, here is the HP as I understand it:

The only just way to acquire unowned property is by mixing one's labor with it.

These two principles together seem to be the foundation of neoLockeanism, though to digress, one important libertarian conclusion doesn't seem derivable from them: that voluntary exchange is always moral, or at least always just even if it is immoral. The NAP gives us that force or coercion is bad, but it doesn't give us that voluntary is good or even just. Perhaps I have screwed something up here (let me know if I have), but this isn't the point of this post anyway, so I'll let it go.

So Lockean libertarianism rests on these two principles, but do they hold water? The NAP is intuitively appealing and not all that controversial among ethicists. All deontologists (Kant) and virtue theorists (Aristotle, Aquinas, Hume) would accept it in some form while most utilitarians would reject it. Two out of the big three ain't bad. I say "in some form" above because the theory of property you accept may affect the NAP in some way, but the general idea runs across both classes of theories. I suspect even Richard accepts it in some form, with caveats for the formation of property.

The HP, on the other hand, has it's problems. For one, I still don't know what "mixing my labor" with something means. Labor isn't literally a substance that is mixed with other substances. Metaphors may be useful in communicating a complicated concept, but in this case we have all metaphor and no concept. Intuitively we have an idea of what it means, but without an actual definition, we'll argue endlessly about what actions count as labor mixture and how much property can be acquired by them - even with the "Lockean proviso," which is just as vague.

The problems with the HP don't end there, however. It is often asserted among libertarians but rarely defended. Locke himself tried to ground it in the existence of God. Ultimately, he assumes it anyway because God owns us by "maker's right" which allows him to argue that we have to take care of ourselves by acquiring property through the HP. I don't know what "maker's right" is outside of the HP. Rothbard is content to assert the self-evidence of his foundations without an account of what self-evidence means. Ultimately, he's waving his hands. Hoppe's argument is an attempt, but it doesn't work for a variety of reasons, on of which is that it isn't incoherent to argue with your slave (for fun, of course). Nozick also assumes the HP, but - and correct me if I'm wrong because I'm going off memory here (this applies for everyone else's views above as well) - he acknowledges this and points out that a rigorous account of property might substantively alter his conclusions, but he ignores the issue to get to other things.

As far as I know, no one has actually given a solid defense of the HP, let alone a clear exposition of what it actually is. I haven't read every libertarian theorist, so I might have merely missed it, but I have my doubts (but by all means, correct me if I am wrong).

In the mean time, let's forget about the HP principle and see what happens to the libertarian's favorite conclusion. The striking thing is that we know longer know if taxation is theft because we don't have an account of property. It seems the neoLockeans were begging the question all along.

So in the end, I agree with Richard's conclusion wholeheartedly - not, like him, because I think the neoLockeans misunderstand institutions, but because I think neoLockeans assume their pet theory of justice.

If one holds a markedly different theory of justice, say something like Hume's, governments seem almost by definition to have a legitimate property right. This doesn't automatically give us the social contract theory as the justification for government, but it does imply that governments are voluntary. Time permitting, I'll have more on this relatively soon.

Now, if this doesn't start a shitstorm, I'll be very disappointed in you guys. Or is my assumption that most of you are neoLockeans is wrong?

edit: Micha agrees that Richard misses the point.

edit: After reading Micha's post again, I think I need to make myself a bit more clear. I agree with just about everything he says. In particular, social contract theorist beg the question too; and Nozick, given his assumptions, doesn't really justify the state. At this point in my argument, it would just as question begging to say that taxation is theft as to say that it isn't. What social contract theorists and neoLockeans alike need to avoid the fallacy is a theory of justice/property. Until an adequate one is presented, we just don't know whether taxation is theft or not under any (or all)
circumstances. Time permitting, I plan on presenting a Humean take on this, but it may have to wait until the final weeks of the semester have passed.


Why I may be an Austro-Keynsian

Arnold Kling describes it here. Read the whole thing, it's short. Then we have my comment, reproduced just for you:

It's interesting that Horowitz departs from the standard Austrian
model. Traditionally, it's the increase in the money supply that is the
culprit for Austrians. For Horowitz, it's inflation, whether or not it
was caused by an increase in the money supply. I think this allows him
to avoid Caplan's substantial theoretical critiques of the Austrian
theory of the business cycle. But your right about it needing to be
integrated into a general theory of fluctuations, which takes into
account both Keynes and Schumpeter.

And the question, does Horowitz's version of the ABCT hold water? In particular, does it escape Caplan's criticisms of the traditional ABCT, available here?

I've long had the inuition that the Austrians were on to something even if the formal statement of their theory of fluctuations didn't quite work (Caplan's criticisms are pretty good). Perhaps this is it. By the way, I hesistate to call Horowitz's version "Austrian" because of the difference, but the emphasis on coordination perhaps merits the label, lets just be careful to keep the two versions straight. Perhaps big-A Austrian for the Mises-Hayek theory and little-a austrian for Horowitz's version?. One unAustrian implication which Kling mentions: deflation screws with the coordination process just as much as (according to Kling, more than) inflation.


Revolutionary Fractal Constitution and Political Theory - What?

An ad that google keeps on putting on my gmail page is for a M C Williams' book on "Revolutionary Fractal Constitution and Political Theory."  I'm extremely skeptical, but my curiosity has been piqued.  Anyone know anything about it? Or care to speculate?  link

The ebook is only $3.50 for anyone who is bit more curious than I.


Of Risk and Bailouts

A week ago today, I got to hear an Italian economist (whose name I can't remember) speak at the St. Louis Fed about the current financial mess. During the Q&A I asked him if he was worried that bailing out Bear Stearns would cause moral hazard problems down the road. He balked at me calling it a bailout and dismissed the moral hazard problem because $2 a share "isn't much." I believe the price has moved up to $10 a share now, but that still isn't much, or at least I think he would say that.

He seemed to be working with a different concept of bailout than me. To me, a bailout occurs when the government (Fed or otherwise) intervenes in some way to prevent someone from bearing the full consequences of a financial collapse. In this case, the Fed lent JP Morgan the money it needed to buy out Bear Stearns. Had the Fed not been there to offer a nice loan, JP Morgan probably wouldn't have been willing to spend as much money on the buyout, if at all. It wasn't a direct bailout, sure, but the bottom line is that the shareholders of Bear Stearns lost less than if the Fed hadn't intervened.

Which brings me to the moral hazard problem. For some reason the aforementioned economist at the Fed wasn't thinking at the margin. At the margin, shareholders at Bear Stearns were shielded from loss. At the margin, this encourages risky behavior. So, at the margin, we have a moral hazard problem. The size of the bailout may be small in the end, but by signalling willingness to orchestrate such a bailout at all, the Fed may create the moral hazard problem anyway.

Or am I completely wrong?

Russ Roberts agrees and Arnold Kling disagrees.

 


Sowell on Immigration, evidence?

Today I listened to this podcast with Thomas Sowell and Russ Roberts. At the end, Sowell gives some arguments against relatively open borders. I may be biased because of my own opinion on the subject, but he didn't seem to have as strong as an argument as in previous subjects in the podcast. In particular, he made an empirical claim- that our culture can't handle this many immigrants (at least from certain areas), but didn't provide any evidence. Then it struck me, is Theophanes' link to the article on the amount of americans in prisons evidence for Sowell's claim? To add to this, Daniel D'Amico points out that this number has been increasing in recent years.

It seems plausible that if a relatively high proportion prisoners are (legal) immigrants, then they are causing problems within our culture and our institutions. If this is the case, we should probably be wary because capitalism does depend, to a large extent, on the institutional and cultural foundation we have in the west.

It seems more plausible to me that this is a sign of the drug war or if it is a sign of our slowly crumbling culture, it's crumbling from within because of certain structural problems that help churn out people who are dissillusioned with capitalism and western values for whatever reason. In particular, I'm thinking of inner cities here.

The big question is, what does the evidence say? Can anyone think of/find anything relevant?

 


B.S. Sentences that I read today..

From my money and banking textbook:

As with adverse selection, the government has an incentive to try to reduce the moral hazard problem created by asymmetric information, which provides another reason why the financial system is so heavily regulated.

I fail to understand why textbook writers in general stop doing economics when the get to government intervention. It's one thing to say that these problems potentially justify government intervention, but the above sentence is simply false.

edit: html


Anonymous vs. Scientology

Scattered groups of hackers across the internet have united in response to the Church of Scientology's attempts to remove the Tom Cruise video from the internet. They call themselves anonymous, and they aim to destroy the church. Tons of people seem to have joined the raids. IRL raids are also happening. Relevant video:

Digg is their media outlet at the moment. They are keeping related links at the top of the page rather easily. Tons of news reports, some in mainstream outlets, are there, along with a couple vids of IRL raids, ex-scientologists talking about their experiences, files- including the full length tom cruise vid (hosted on torrent sites) and tons of documents (also on torrents).

They also seem to be trying to get Anderson Cooper to give them some attention, since he has been going after Scientology lately.

Here we have a decentralized "organization" taking on a centralized organization. The results should be rather predictable as long as the anons don't either get bored or, worse, scared once the church starts striking back, and they should be able to have the law on their side.

Who do you guys think will 'win'? Who do you want to win? Should someone set up a betting market? Does anyone else find this hilarious?