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Adam Smith U is good for poor kids

In the comments to my post on Adam Smith U, Andromeda said:

Mind you the financing issue and the callous disregard which many people in this thread seem to have for the financial situation of most people vis-a-vis paying for college, and the enormous psychological barrier presented by high tuition prices even when scholarships are available, horrifies me.

Adam Smith Hospital

In my previous post, I discussed how, while we most often use the insights of economics to criticize the structure of government, there are similar problems in other large instutitions. The example was David Friedman's "Adam Smith University".

With my son in the Neonatal ICU for the last 3 months, my wife and I have now had a great deal of experience with hospitals. And, like a school, a hospital is a giant institution, often with a large disconnect between services provided and payment received. For example, from a parent's perspective, nurses vary widely in quality. Some are wonderful with kids, treating them as real people, while others clearly view them as just another piece of equipment to be managed, alarms to be silenced, demands that cut into coffee breaks.

It's tempting to blame the "bad" nurses for their behavior. But as Adam Smith described in the quote from last post, incentives matter. Professions with fixed rewards tend to select against people who want to work hard. And, for any given individual, a profession where hard work is rewarded will elicit more work than one with a fixed reward. I don't know exactly how nurses are paid, but I imagine that, like professors, it is much more a matter of education and seniority than quality of work. If a nurse doesn't get paid more for putting in extra effort to make her charges warm and happy, then she'll only do it from strong natural inclination.

Here is how things might work in Adam Smith Hospital. Read more »

Free market business reform

In Chapter 13 of Machinery of Freedom, David Friedman writes about Adam Smith U. He begins with a quote from the man himself on the incentives facing teachers, here are some key parts of the section (V.1.135):

In every profession, the exertion of the greater part of those who exercise it is always in proportion to the necessity they are under of making that exertion. This necessity is greatest with those to whom the emoluments of their profession are the only source from which they expect their fortune, or even their ordinary revenue and subsistence. In order to acquire this fortune, or even to get this subsistence, they must, in the course of a year,*111 execute a certain quantity of work of a known value; and, where the competition is free, the rivalship of competitors, who are all endeavouring to justle one another out of employment, obliges every man to endeavour to execute his work with a certain degree of exactness...

The endowments of schools and colleges have necessarily diminished more or less the necessity of application in the teachers. Their subsistence, so far as it arises from their salaries, is evidently derived from a fund altogether independent of their success and reputation in their particular professions.

In some universities the salary makes but a part, and frequently but a small part, of the emoluments of the teacher, of which the greater part arises from the honoraries or fees of his pupils. The necessity of application, though always more or less diminished, is not in this case entirely taken away...

In other universities the teacher is prohibited from receiving any honorary or fee from his pupils, and his salary constitutes the whole of the revenue which he derives from his office. His interest is, in this case, set as directly in opposition to his duty as it is possible to set it. It is the interest of every man to live as much at his ease as he can; and if his emoluments are to be precisely the same, whether he does or does not perform some very laborious duty, it is certainly his interest, at least as interest is vulgarly understood, either to neglect it altogether, or, if he is subject to some authority which will not suffer him to do this, to perform it in as careless and slovenly a manner as that authority will permit.

It is for this reason, for example, that I have a strict policy against donating to any college or university fund, despite my great affection for my alma mater. A large fund acts as a fixed resource that draws rent-seekers who fight over access to it, rather than working to make the institution great so as to draw more income from student tuition. As DDF says, a tuition-driven institution would serve its customers better: Read more »

Standards are important, but they can develop without governments

With a new baby at home, I have time to respond only briefly to Glen Whitman's post about De Soto and Polycentric Law. Glen points out that while property rights tend to form spontaneously, having many different local systems is less effective than having widespread standards. I'm in complete agreement so far. Where I disagree is on one single word, in bold below:

This poses a challenge to polycentrists, who contend that multiple legal systems can exist side-by-side. They can, but De Soto contends that formal unification is required for sustained and widespread economic growth.

I would argue that this is just a case about standards, as Glen and De Soto's argument don't seem to particularly depend on the features of this being a standard in rights or laws. It seems clear that having the government mandate standards is quite effective at making them widespread and uniform. The problem is quality. When standards are set by politicians, they are products of the political marketplace, which as we well know produces a much inferior product to the higgledy-piggledy of a real market, where different approaches are tried, modified, melded, and abandoned if they aren't good enough.

With laws, as with anything, while an altruistic government might best be able to unify local standards, there is no such beast. All we have are herds of swine like those fellows in DC, and I don't exactly trust them to keep my best interests in mind. My DVD's play on every DVD player, my browser can access almost every web site, and my computer can read a vast array of types of data files - all without any mandated standardization. Why do we think unifying legal standards requires the heavy hand of coercive government? Read more »

In the war of ideas, torture is a double-edged sword

Paul Phillips writes:

The intuitive case to me for why we should not use torture is this. I see the "war" we are presently in as a war of ideas. I do not find it plausible in the least that we can kill everyone who wants to kill us -- especially since every terrorist we kill creates some number of new ones, and it would not surprise me to find out that the second number is larger than the first. These people want to kill us because they have crazy ideas about the world they live in. If we don't want generation after generation to inherit those crazy ideas then we have to provide them with better ones. I like the idea that someone growing up amidst their brand of craziness will have the opportunity to wonder "why do we torture our enemies, yet they don't?"

I believe that in a battle of competing ideologies (and for that matter in any other endeavor) you must lead by example or you will never succeed. Yes, maybe torturing this terrorist will uncover information that will stop a bombing. Maybe you will save some lives today. But if the price of saving those lives is turning more people against us, making our competing ideas less appealing, extending the conflict even further into the future, then maybe -- even on the most pragmatic basis possible, even in the eyes of someone who has absolutely no ethical objection to torture -- it's not the right thing to do.

I'm not sure I buy that a torture which stops a bombing will lose more than it gains. Yeah, torture is a double-edged sword in the war of ideas - but stopping a bombing is a lot of benefit. However, I think the general point about the type of war we are engaged in is a very important one.

The largest military conflict of the 20th century, WWII, was ended by boots and nukes. We could occupy or nuke any country or set of countries in the world, and we would still be at war with terrorism and Islamic fundamentalism. This is a different kind of conflict, one mainly fought over memes, not people, and we ignore that at our peril. Read more »

Explaining Wealth

via Cafe Hayek, I stumbled across this great Paul Graham essay:

A surprising number of people retain from childhood the idea that there is a fixed amount of wealth in the world. There is, in any normal family, a fixed amount of money at any moment. But that's not the same thing...I can remember believing, as a child, that if a few rich people had all the money, it left less for everyone else. Many people seem to continue to believe something like this well into adulthood...

What leads people astray here is the abstraction of money. Money is not wealth. It's just something we use to move wealth around. So although there may be, in certain specific moments (like your family, this month) a fixed amount of money available to trade with other people for things you want, there is not a fixed amount of wealth in the world. You can make more wealth. Wealth has been getting created and destroyed (but on balance, created) for all of human history.

Suppose you own a beat-up old car. Instead of sitting on your butt next summer, you could spend the time restoring your car to pristine condition. In doing so you create wealth. The world is-- and you specifically are-- one pristine old car the richer. And not just in some metaphorical way. If you sell your car, you'll get more for it.

In restoring your old car you have made yourself richer. You haven't made anyone else poorer. So there is obviously not a fixed pie. And in fact, when you look at it this way, you wonder why anyone would think there was...

He also talks about how programmers, who directly create wealth by writing code, tend to be more libertarian (like other craftsmen). I've been delighted during the past decade by the influx of wealth into the tribe of computer nerds, since I identify with that group. If it also results in wealth for libertarians - so much the better. Read more »

Rich & Warm or Poor & Cold?

Coyote properly casts the debate over global warming as one over whether we should live in a rich, warmer world or a poor, colder one:

In a nutshell, given current technology and likely government intervention approaches, slowing global warming almost certainly entails slowing world growth. And while the true cost of warming is poorly understood, the true cost of reduced world economic growth is very well understood and is very high.
Read more »

The War on Festival Spirits

I think it's lame to be offended at being wished "Happy Holidays" because its a "War on Christmas", *and* it's lame to be offended at being wished a "Merry Christmas" just because you don't celebrate the religious holiday. It's just lame to be offended at trivial variations in people's festival spirits[1], period. Read more »

Shoestring classified as a Machine Gun

By the BATFE (apparently they've added Explosives to Alcohol, Tobacco, and Firearms - guess they're still trying to monopolize all the fun in life).

Why? Because any part designed to be part of a machine gun counts as a machine gun. And you can use a shoestring with some loops to hold down the trigger of a gun. Guess that makes it a dangerous weapon. We must stop these looped strings - think of the children! Read more »

Cartoons and the mythical Deflation Monster

Mahalanobis points us to some ECB cartoons about inflation:

The European Central Bank, in cooperation with the national central banks of the euro area, has produced an information kit entitled "Price stability: why is it important for you?" for young teenagers and teachers in all the official languages of the European Union.

Unmasking pseudo-index funds - the S&P500 is not an index

I hadn't realized this until I started following the S&P 500's decisions recently, but it turns out that the S&P 500 is not truly an index, and funds mirroring it are not index funds, as explained in this article. This is particularly sad because there are about 750 billion dollars worldwide which mirror the arbitrary set of stocks, chosen by committee, in the S&P 500. Read more »

Unintended Consequences: Breeding True Hawaiians

Coyote Blog has a great example of unintended consequences. The state of Hawaii lets native Hawaiians lease land for 1$ a year, but they can only pass on the lease (and the homes they've built on the land) to their kids if the kids also qualify. How do you qualify? Read more »

Democracy: political freedom at the cost of economic freedom?

hong kong democracy protests 12/04/2005Back in college I went to a talk by Milton Friedman where he pointed out the puzzling fact that democracies seem to stifle economic freedom, while authoritarian states (Hong Kong, Singapore) sometimes encourage it. You can see an example in this NYT article on the current Hong Kong democracy protests: Read more »

Iraqi girl on suicide bomber motivation

One common point of contention about the war is the degree to which terrorists and suicide bombers are reacting to things that we have done. To what degree are our actions *creating* terrorists vs. *deterring* them? Read more »