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Odd Ends

In discussing politics, I prefer to focus on outcomes over ethics. This sounds like I am taking a stand on the ageless means versus ends controversy but I'm not. Rather I consider the use of good means to be part of a good outcome. Means and ends are fungible; they can be traded off against each other.

To sum up my political values in one phrase: I don't like to treat people poorly and I don't like for awful things to happen. This captures the way that many people think about politics, maybe even most people.

However, libertarians tend to elevate means above ends to an extent that is unpalatable to the popular conscience. The standard way that libertarians wiggle out of this criticism is to deny that libertarian means ever lead to anything but the best possible outcomes. But that is when the movement takes on an air of a religious phenomenon - economic scientology. It assumes the existence of a benevolent world that is not guaranteed.

If you can't think of one instance where libertarian policy might create a sub-optimal outcome under some circumstances, then we're not going to have very interesting policy conversations. Anyways, I'd rather discuss structure instead of policy.

Libertarian ethics has a weird effect when it comes to the policy decisions which shape the substantive character of the world in which we live. Current governments possess an odorless, colorless quality called "publicness", and therefore libertarian ethics condemns these entities as illegitimate managers of the land they possess. Moreover, it strictly limits the policies they may ethically pursue. Governments may not create a public safety net which alleviates the worst suffering of citizens from sudden illness or injury - the taxes to pay for it would be coercive. Nor may governments seek to shape immigration policy in favor of well-educated and highly-skilled persons, or prevent pollution in situation where the cost of doing so through courts is infeasible (e.g. pigovian gas taxes), or offer incentives to have children to a population breeding below the replacement rate. A manager cursed with the quality of publicness must sit on its hands and hope that everything works out for the best.

But in some future world where all governments have passed through at least a momentary period of "privateness" (think seasteads or burbclaves) libertarian ethics allows managers to enact any set of policies they damn well please. If every government in the world were a fundamentalist theocratic mormon dictatorship that flogged gays and banned coffee, libertarian ethics would consider that perfectly fine as long as the management was put in place by some legitimate owner.

Libertarian ethics can lead to weird outcomes in some extreme circumstances, outcomes that most libertarians wouldn't like. I suggest we should allow outcomes to shape our decisions in concert with our ethics so we can live in a world that is pleasant to be in and not just a world that satisfies all the checkboxes of our moral philosophy.

This is the Libertarian Paradox again. It is also a good case for Moldbug's Formalism, which is less about ethical navel gazing and more about designing governments that have the incentive to function well.

Yes We Can! get away with murder

Chris Floyd's excellent blog contains a new entry in response to the disgusting circus known as the State of the Union Address:

As the overflow of pundit effluent after the State of the Union speech continues to sulfurize the political air, Glenn Greenwald brings up a background point that we have been hammering on about here for years: i.e., the fact that the President of the United States claims the arbitrary right to kill anyone on earth -- including U.S. citizens -- without charges, without trial, without warning.

As I first wrote in November 2001, George W. Bush proclaimed this divine power shortly after 9/11. And as we have often noted (here, for example), Barack Obama has reaffirmed this megalomaniacal principle. Greenwald focuses on the latest, and one of the most brazen, assertions of the doctrine of presidential murder: the Obama Administration's casual compiling of "hit lists" of people in Yemen that it wants to assassinate, including at least three U.S. citizens. (Fittingly enough, one of the first people murdered by Bush's universal murder racket was an American citizen in Yemen. Continuity, continuity, in all things continuity!)

I like Floyd's stronger wording, so I quote him here, but Greenwald's article is also great.

"Suck on that, Supremes!"

The Brown victory over Coakley has reignited an interest in politics for me; I don't know how long it will last. For the first time in many years, I watched the SOTU instead of American Idol.

One part that struck me was this surreal scene in which the POTUS shames the Supreme Court in front of the entire audience:

Edit: Here's Randy Barnett's take:

In the history of the State of the Union has any President ever called out the Supreme Court by name, and egged on the Congress to jeer a Supreme Court decision, while the Justices were seated politely before him surrounded by hundreds Congressmen? To call upon the Congress to countermand (somehow) by statute a constitutional decision, indeed a decision applying the First Amendment? What can this possibly accomplish besides alienating Justice Kennedy who wrote the opinion being attacked. Contrary to what we heard during the last administration, the Court may certainly be the object of presidential criticism without posing any threat to its independence. But this was a truly shocking lack of decorum and disrespect towards the Supreme Court for which an apology is in order. A new tone indeed.

When people begin to speak with, "No offense, but..." what they actually intend to say is offensive. When Obama says, "With all due deference to separation of powers...." what he actually means is, "Screw this separation of powers stuff."

Every time I listen to Obama, he speaks as if the Presidency is an Emperorship.

Market 1, Chavez 0

Yesterday came an awesome piece on news hasn't been spread enough so here it is.

It is strongly reminiscent of a recent opinion piece in the Wall Street Journal arguing for the same thing... dump the US gold reserve to burn the nutty right wing hoarders. Some nutty right wing hoarders said in the comment: Bring it on, we'll be here to buy.

Well Chavez tried to do something quite similar. Prop up his failing currency by dumping his foreign reserves on the market. And guess what? The evil speculators thanked him and sucked up the money.

Of course, those greedy speculators artificially devalue the great revolutionary bolivar by manipulating the market, but somehow a huge oil exporting nation sitting on a ridiculous amount of foreign exchange reserves is unable to manipulate anything. Manipulation works in mysterious ways ^^

Now don't get me wrong, dumping one's reserve in dollar might be a good thing, but if you're going to do that

- You do not brag about it. Trading 101. You do it stealthily like the Chinese. When the Chinese central bank say they don't want to buy more Gold, it's dumb to believe them, that's what they'd say regardless.
- You do not exchange it against your moronic socialist currency that you're simultaneously working to devalue.

All in all, this is evidence that markets work pretty damn well.

Doing business in an anti-business culture

A lot of legal climates are fairly hostile to business, but there's a deeper problem in some places, which is that the culture is also hostile. Legal climates can change drastically in the short term, but cultural attitudes are much slower-moving. Here's how one group tries to change their culture, a little at a time. I'll keep my fingers crossed for them.

Pirate Government Pirates

Econ Talk is my new addiction. Today I listened to Patri's interview on seasteading and I had a thought on the problem of piracy.

One of the obvious difficulties with seasteading that occurs to everyone when they first hear of it is the problem of pirates. Seasteading supporters often respond to these fears by noting that pirates will not have an incentive to attack seasteads because the vessels will provide little booty of value compared to the pirates' normal prey, cargo ships.

But this answer is incomplete. There is one obvious piece of booty of high value on a seastead, namely the seastead itself. What pirate wouldn't kill to have a permanent, mobile, highly-engineered, self-sustaining sea base?

My objection is not unanswerable. I get the impression that most modern pirate operations are small and located in coastal waters, so it isn't hard to avoid or outgun them. Pirates would have to make major changes to their organizational strategy to pursue well-defended seasteads in deep ocean waters. But given the value of a seastead, making the change may just cross the 1:1 benefit/cost ratio threshold.

Keynes vs. Hayek (Music Video)

This video deserves to be posted on every blog:

Written by Russ Roberts, the producer of the excellent and entertaining podcast, Econ Talk

The Libertarian Paradox and Bad Policy

I don't want to live in an area that indiscriminately lets in millions of poor immigrants from the third world. I believe such a place would be unpleasant to live in. At least I want my government to keep out the crazies with bombs.

Libertarian moral philosophy clearly allows me to pursue this goal privately. I am allowed to band together with other people, buy up some land, and prevent immigrants we don't want from moving to our gated community. Furthermore, in some future anarchist seasteading utopia where governments were privately owned and operated, libertarian philosophy allows me to choose to patronize a seastead government that is discriminating in how many and what kinds of immigrants it accepts (I'm moving to the one with Megan Fox). What's more, judging from public opinion polls I believe such discriminating seasteads would be vastly more popular and profitable than open borders seasteads.

But because we do not live in a libertarian world and much of the property in the United States is owned by the government, many libertarians (example) hold that we have no moral choice but to pursue an open borders policy and let in any immigrant who wishes to come.

This is an example of what I am christening the "libertarian paradox". Because of the governing systems currently in place, libertarian moral philosophy compels us to advocate for bad policies that nobody really wants. Because the roads and borders are not private property, it would be immoral for us to use government force to prevent some immigrants from using them to move here.

And then libertarians wonder why their message is so unpopular, all the while they are advocating policies that nobody, not even most libertarians, would voluntarily choose to live under if they had the personal free choice.

I'll give you another example of the L-paradox. A few months ago I read a blog post in support of a policy of mandatory paternity tests at birth. The author, and myself, think this policy would prevent severe injustice and provide incentive for people to act in more moral and honest ways. But then the author, a libertarian, backed off from his advocacy because he felt uncomfortable making any policy mandatory and thereby using government force on anybody.

But if we had a free choice between living in a society with mandatory paternity testing and one without it, both the author and myself would cheerfully choose the first. Again, libertarian moral philosophy compels us to pollute our real, current world with bad policy, saving our good ideas for a future world of private governments.

I'm a structural libertarian. I think we will have a more pleasant, productive, prosperous, and just world if people had substantive individual choice over the political systems in which they live. I believe modern governments are incurably insane, and most policy is too expansive. But I think it perverse that libertarian moral philosophy constrains us to make bad decisions until we achieve libertopia.

The Cruelty of U.S. Immigration Policy

Michael Clemens in The Washington Post:

After Hurricane Katrina devastated New Orleans and the Gulf Coast in 2005, one of the principal ways its victims helped themselves was by leaving. Katrina prompted one of the biggest resettlements in American history. Who would have blocked Interstate 10 with armed guards, forcing hundreds of thousands of people to suffer in the disaster zone, no matter how much assistance was coming in from outside? We wouldn't have done that, because it would have made us collectively responsible for their continued suffering. Why then, in the thoughtful debate that has emerged over how best to aid Haiti and help its citizens help themselves, are Americans still quiet about this sinister face of our immigration policy? [...]

We must let more Haitians come here. In fact, it's time to consider an entire new class of immigration -- call it a "golden door" visa, to be issued in limited numbers to people from the poorest countries, such as Haiti. It could be permanent or temporary, but that's less important than its core purpose. Our immigration law has traditionally had three primary goals: reuniting families, supplying employers and protecting refugees. But part of America's greatness is that in letting people come, the nation has pursued a fourth, unwritten goal: extending opportunity to those born in places without it. A golden door visa would simply recognize in law what the United States has done since its founding. [...]

In research I conducted with economists Claudio Montenegro and Lant Pritchett, we compared how much Haitians earn in the United States vs. Haiti. A moderately educated adult male, born and schooled in Haiti, typically enjoys a standard of living more than six times greater in the United States than in his homeland. In other words, U.S. policy wipes out more than 80 percent of a Haitian's earning power when it keeps him from coming to the United States. This affects everything from the food he can buy to the construction materials he can afford. The difference has nothing to do with his ability or effort; it results purely from where he is.

Funny story.

Three years ago I started working for an investment bank that raised money for firms that sold CDOs - one of the financial derivatives that caused the grand market shit storm in whose splatter we are still living. As a fledgling young analyst, I experienced a feeling of disquiet because I couldn't understand how CDOs created value. I felt dumb. I was especially embarrassed because I had a degree in Economics and did well in school, so I assumed I should be able to grasp the idea behind financial products at least at a high level. But my doubts were soon drowned out by a torrent of work. I blamed my ignorance on my inexperience and moved on.

After all, "they" wouldn't build a trillion-dollar market based on bullshit, would they?

For those not current on financial jargon, a Collateralized Debt Obligation (CDO) is made by taking a $100 million worth of mortgages, throwing them in a box, and then selling pieces of the box for a total of about $105 million. ~ $1 million gets paid to the investment bank who sells the pieces and the rest of the profit gets kept by the firm who owned the mortgages. Not a bad gig.

In fact, CDOs weren't always composed of mortgages. You could put other financial assets in the box, too. You could even buy pieces of other CDOs, throw them in a new CDO, and sell the pieces for more money. These are called "CDOs-squared". I-shit-you-not.

By now you might understand why I was puzzled by how this activity constituted a valuable economic enterprise. Theoretically, CDOs created value because owning half of two mortgages is safer than owning 100% of one mortgage. And that's true. If one mortgager defaults, you still have 50% of a mortgage that's sending you monthly payments. But that line of reasoning is a lot more true if you're the kind of person who buys one mortgage than if you're the kind of person that buys 10,000 mortgages. If you have a large budget, then you can already diversify pretty well on your own. CDOs are a convenient source of diversification, but is the convenience enough to justify paying some yahoo middleman a 5% cut?

As it turns out, the answer is "no". Part of that 5% value creation was generated from convenient diversification, but part of it came from the fact that once you throw all the mortgages in the box it's harder to figure out how risky it is to own them. So "value" was created by temporarily hiding the down-side behind a chain of opaque securitizations. This later blew up in our collective faces.

When the economy started to collapse partially from the collective weight of toxic unpriceable CDO slices, I remembered my earlier confusion and laughed. Maybe I wasn't so dumb after all.