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Powers of the Purse Strings

How far do the purse strings reach?

1. Compelled speech. May Congress withhold federal grants from people who decline to engage in federally-specified speech, where that speech is incidental to, or even antithetical to, achieving the stated purposes of the grants?

Context: Congress authorized funds for over-seas anti-AIDS/HIV programs, but specified that no funds may be given to a group or organization “that does not have a policy explicitly opposing prostitution….” Parties before the Supreme Court object that 1) the policy is counterproductive, in that it impedes their ability to work with prostitutes, and 2) the policy infringes on their freedom of speech.

2. Gag order. May Congress withhold federal grants from people who decline to refrain from engaging in federally-disapproved, but otherwise legal, speech? For example, may Congress withhold anti-AIDS/HIV funds from organizations that actively promote prostitution?

3. Compelled conduct. May Congress withhold federal grants from people who decline to engage in federally-specified conduct, where that conduct is incidental to, or even antithetical to, achieving the stated purposes of the grants? For example, may Congress withhold building contracts from firms that do not have an Affirmative Action policy?

4. Compelled restraint. May Congress withhold federal grants from people who decline to refrain from engaging in federally-disapproved, but otherwise legal, conduct? For example, may Congress withhold family planning funds from agencies that provide abortions?

5. Tax exemption in lieu of grants. May Congress withhold tax exemptions from people who decline to engage in federally-specified speech/conduct, where the speech/conduct is incidental to, or even antithetical to, achieving the stated purposes of the tax exemptions? May Congress withhold tax exemptions from people who decline to refrain from engaging in federally-disapproved, but otherwise legal, speech/conduct? For example, may Congress withhold a tax exemption from a not-for-profit university that engages in racial discrimination?

p.s. The Washington Post characterizes the government’s defense of its policy as follows:

Deputy Solicitor General Sri Srinivasan said that Congress decided to renounce prostitution and sex trafficking because they contribute to the spread of diseases.

Renounce? As in, Give up? Abandon? Discontinue support for?

Is Taxation Theft?

FYI: Is Taxation Theft? is being debated over at Alas, a Blog.

Distrib. Repub. abbrv.

[In the interest of time, this discussion is synopsizes as follows: I offer an argument. Constant_ offers a counter-argument. The result is indeterminate. Skip to next post.

You're welcome.]

State's role in providing access to electricity?

I’ve been watching a documentary on the history of the British power grid. You can see the first 15 min here.

Synopsis: Reeling from the rise of the Communists in Russia in 1913, the British of the 1920s were deeply suspicious of centralized state authority. Lenin had remarked that Communism was just the power of the people “plus electricity”; this prompted even deeper suspicion about expanding the role of the state into the world of electricity.

Thus England largely refrained from regulating electricity. As a consequence, in 1920 most of the nation remained without. And where electricity was available, rival providers would string competing lines down the streets, providing service at a variety of voltages. Thus, if you moved across the street, you might find that none of your electrical appliances would work. Also, the failure of any one supplier would result in blackouts for customers; there was no interconnection to provide back-up service.

One final consequence: The centralized governments of Germany and France had directed the rapid deployment of electricity throughout their nations. Due to economies of scale, electricity in those countries proved to be cheaper than in England. This gave a competitive advantage to firms operating in those countries.

Confronted with these facts – and the fact that expanding the electric grid would be politically popular -- England’s otherwise laissez faire Conservative government created the Central Electricity Board in the 1920s and launched into a process of centralized planning and construction of the electric grid -- the greatest program of government expenditures in the nation’s history to that time.

The project was opposed by many -- including luminaries such as John Maynard Keynes, Rudyard Kipling, and John Galsworthy -- on grounds that it would be ugly and required the condemnation of private property.

The project was completed on budget, ahead of schedule, and succeeded in expanding the availability of electricity and reducing its price. Among other results, this expansion would prove to be vital during WWII -- to power production, to enable production in rural areas, and also to provide reliability; the German Blitz would destroy England’s power plants, yet electricity would continue to flow in from Scotland and Wales.

England’s choice to establish the CEB and accelerate the expansion of the power grid: good, bad or indifferent? You make the call.


One mystery solved; one not:

Mystery 1. Why so many blog posts from me at this time? I'm under deadline; this is how I procrastinate. I told Brandon Berg that I shouldn't start blogging here because this is EXACTLY what I'd do when under deadline. And I was right. Oh, well; too late now....

Mystery 2. How do we get so many comments on three-year-old threads?

On free ridership, and the State as superhero

Who needs a coercive state? People who are concerned about externalities and free riders, that's who! I create externalities when I make decisions and you have to bear the consequences. I become a free rider when you expend resources to create a benefit and I derive the benefit without contributing.

Both phenomena arise from the fact that the ideal of “private property” often fails to adequately describe our world: we affect each other more than we might like to admit. This market failure demonstrates the absurdity of thinking that people can live together without coercion.

Or does it? Still working on the externality issue. But evidence suggests that free ridership is not the deal-breaker I had thought. Pretty much all institutions operate in the face of them. I can’t really recall any endeavor in which I would honestly say that all participants received benefits in proportion to the burdens they bore.

Lo and behold, a new study focuses on the financing mechanisms of two forms of voluntary association: synagogues and churches. Synagogues typically charge an annual membership fee; churches typically request voluntary donations. As you might expect, there’s a larger disparity in levels of giving in churches than in synagogues. But as you might not expect, all else being equal, these two systems generate roughly equal amounts of revenue. In other words, begging is a perfectly viable business model, notwithstanding the fact that plenty of people will decline to contribute.

Honestly, I’m having a problem accepting this. Free riders PISS ME OFF. They offend my sense of justice. I want to believe that we need a state to coerce these people into paying their fair share because I WANT TO COERCE THESE PEOPLE INTO PAYING THEIR FAIR SHARE. It’s not about the outcomes; it’s about the fairness.

I'm gradually coming to the view that I just need to get over it. But it’s hard. And that’s given me a new insight.

If I place less reliance of the coercive power of the state, I will experience injustice without hope of remedy. If I place greater reliance on the coercive power of the state, I will still experience injustice. I may even experience greater injustice. But at least I am able to cling to the abstract notion that there exists a coercive power in the universe – God, Superman, the state – that could and might remedy injustice.

And perhaps it is this hope – even if delusional – that dooms libertarianism. In this sense libertarianism becomes akin to atheism and existentialism: Embracing this view requires letting go of some comforting delusions. It’s a pretty bitter pill to swallow. I appreciate anew how difficult it may be to persuade any large number of people to swallow it.

Benefitting from FEWER options?

Conversations during first dates are insipid; each party is so obsessed with image management that nothing interesting gets said. Dan Ariely, author of Predictably Irrational and The Upside of Irrationality, quotes the film Best in Show regarding the results of these conversations:

“We have so much in common. We both love soup. And snow peas. We love the outdoors. And talking. And not talking. We could not talk or talk forever and still find things to not talk about.”

So Ariely conducted an experiment on an on-line dating site. He required the first message sent from any person to any other person to be one from a finite set of probing, slightly-beyond-the-bounds-of-propriety questions: How many romantic partners did you have? When was your last breakup? Do you have any STDs? Have you ever broken someone’s heart? How do you feel about abortion?

And later he asked the parties how they liked this arrangement. They liked it; they even preferred it. How can it be that constraining people’s choices makes them better off?

I see two dynamics as play here. The first is pretty mundane: Ariely’s system constrained people’s choices in the same way that contracts constrain people’s choices. That is, people bind themselves (limiting their choices) in order to secure a reciprocal concession from someone else. A member of a couple was willing to surrender her defenses in return for the other member of the couple surrendering his. No conceptual mystery here.

The second dynamic is more interesting: Sometimes people may feel constrained from doing what they’d like out of concern for reputation. People then look for opportunities to act without bearing responsibility for their actions.

 “OMG, I was so embarrassed to ask you that. But what could I say? The other questions were even worse!”

 “Ok, sure, I came onto your girlfriend last night. What can I say? I was drunk!”

 “Mom? Hey, I’m not going to be able to be home by curfew. What can I say? The car won’t start.”

 “Look, guys, I’m not any happier than you are to have to serve those Negros at my lunch counter. But what can I say? It’s the law.”

 “Yes, you know and I know that crumbling crackers into your soup is a lowbrow thing to do. But President Truman did it right on national television! You don’t want us to make the president look like a boor, do you?”

 “No, rabbi, I didn’t want to eat that hot dog, honest! But what can I say? That’s what they were serving. You say I should treat others as I would want to be treated, and if I were a host I wouldn’t want to have to cater to an ungrateful guest…. ”

 “I admit I slaughtered those Tutis. But what can I say? But if I hadn’t, my fellow soldiers would have killed me!”

This dynamic is NOT reciprocal. The actor really wants to act in a certain way that violates some people’s values. The fact that many might also join in the action is merely a useful cover; the actor would look for opportunities to act according to his preferences even if no one else were allowed to do so.

As such, this dynamic suggests a kind of opportunity to achieve a social benefit. To the extent that an authority figure can break through a social norm that people would like to abandon anyway, the majority may find themselves better off. (Conversely, to the extent that an authority figure can normalize the practice of shirking a duty owed to others, the majority may find itself benefiting by transferring wealth from those owed a duty to those having the duty. Whether that results in a net social benefit is doubtful.)

Unintended consequences of regulation – specifically, Prohibition

Organized crime, disrespect for law, yeah, yeah.

But David Okrent’s book Last Call suggests other, less familiar consequences of Prohibition: The growth of Walgreens. Budweiser Clydesdales. Expansion the amount of ocean that the US claims as part of its national sovereignty. The growth of home entertaining and mixed drinks. The growth of Coca Cola. Wholesale changes in California agriculture. NASCAR. Even an early version of seasteading.

Yet Prohibition had one large intended consequence: Contrary to libertarian lore, Prohibition actually succeeded in dramatically – and permanently – reducing per capita alcohol consumption.

Weath distribution in the US

Various news outlets are discussing the new study comparing
- what IS the distribution of wealth among the US's quintiles (top 20%, next highest 20%, etc.)
- what people THINK the distribution is, and
- what people WANT the distribution to be.

In short:

- It IS the case that the top 20% of Americans own 85% of everything; the bottom 40% own basically nothing.

- People THINK that the top 20% own 60% of everything, and that the bottom 40% own at least 10% of the nation's wealth.

- People WANT a world in which the top 20% owns 30-35% of everything and the bottom 40% own 20-25% of the nation's wealth.

The kicker is that these findings remain remarkably consistent whether you ask men or women, Democrats or Republicans, those earning less than $50K or those earning more than $100K. Rich people have the same egalitarian impulses as everyone else -- and the same ignorance about how far the world differs from those impulses.

What does autonomy mean to you?

Specifically, does autonomy mean low taxes, even if you feel you must engage in associations you’d rather not? Or does it mean the freedom to avoid unwanted associations, but at the cost of increased taxes?

A (now year-old) study tries to explain the decline of attendance at religious services in the industrialized world. Does it correlate with the increase in income? Education? Better comedians on Saturday Night Live, making it hard to get up on a Sunday morning?

Best explanatory variable seems to be … the rise of the welfare state. Apparently, in places where government provides a better social safety net people don’t feel the need to join churches.

Good news? Bad news? No news?

What do they have in common?

What do Pastor Terry Jones (the guy who proposed International Burn the Koran Day) and Rush Limbaugh have in common?

And what do Terry Jones and Palin have in common?

Another convert to seasteading....

Government response to financial panics

Jonathan Wilde initiated a discussion about forecasts of future economic growth and the prospects for deflation rather than inflation. This prompted a debate about appropriate government policies in the face of a fiscal collapse:

Is the price [of bailing out Wall Street] worth the cost? Should AIG, the institution that stupidly wrote credit default swaps on CDOs backed by shitty bonds based on even shittier mortgages, exist at all? We've perpetuated the shittiness in the system. I think we'd have been better off if the USG had let AIG and the banking institutions go bust. The information cloud encapsulating AIG and big Wall Street institutions needs to evaporate or else better, smarter information can't take its place.

To which Steve Ingram responded:

Hoover allowed the banks to fail; believed the deleverage had to occur and the market will get it right. Guess what? It didn't get it right. It spilled over to other healthy areas of the economy and basically took everything down, including the little main street guy that lost his savings.

To this I added three thoughts for consideration:

1. Today the little main street guy wouldn’t lose his savings. The little guy’s savings are backed up by the Federal Deposit Insurance Corporation. And his income is protected to some extent by unemployment insurance and Social Security Disability Insurance. And his pension is backed up to some extent by the Federal Pension Guarantee Corporation, and supplemented by Social Security. Etc.

So maybe we don't need government to engage in new interventions today -- not because intervention is always wrong, but because we already have sufficient interventions in place to keep the little guy from panicking.

2. How about this alternative scenario: Instead of bailing out the big guys the US focused on bailing out the little guys?

Imagine that while debating the bailout of Wall Street and the auto industry in 1998, the US sells gobs of bonds in anticipation. Then the US announces, “We’ve decided not to bail out any firms; you’ll have to stand or fall on your own. Yes, some firms will fail, and unemployment will rise. In anticipation, we’ve stockpiled enough cash to provide unemployment insurance until 2020 without debasing the currency. Thus the American consumer can be reasonably confident of his income, and can continue consuming, albeit at a slower rate. Firms that can sell to that consumer can feel reasonably confident of having sales, albeit at a slower rate. And everybody else – well, best of luck to you.”

3. Of course, if the US did this, lots of investors would end up burned, and would henceforth be more reluctant to lend/invest. This "friction" in the system would create a drag on the economy -- at least, relative to the go-go days of the mid-2000s.

So here's the big question: Should government try to make people feel confident in the face of uncertainty? Many aspects of government intervention, both during the current crisis and more generally, seemed to be designed to reduce people’s fear of loss, and increase people’s willingness to take risks. Is that sound public policy?

The FDIC helps people feel comfortable depositing money in financial institutions. I suspect the FDIC is sound policy. We could expect every consumer to incur the cost of investigating the soundness of every financial institution he invests in, but this would be pretty inefficient. Moreover, the fear of a bank failure can trigger a run on a bank, causing the very event that is feared. Deposit insurance seems to defuse this self-defeating fear, producing social benefits that arguably justify the social intervention.

Government blesses certain ratings agencies -- Moody's, Fitches, Standard & Poors (S&P) -- and gives certificates to "Certified" Public Accountants, all in an effort to provide people with greater assurance about data. Is this just a fool's errand?

Is there sound public policy in, for example, keeping interest rates low, thereby encouraging greater investment (and correspondingly less savings) than would otherwise occur? I’m iffier about this. The Austrians clearly don’t think so. Yet if we live in a world in which positive externalities exceed negative ones then society may well have an incentive to induce you to take risks beyond those that you would choose to take based solely on self-interest. Because classical economics suggests that positive externalities (consumer surpluses) are part of most typical voluntary transaction, leaving people to act only on the basis of self-interest (producer surplus) may result in a level of economic activity that is sub-optimal from the perspective of society.

Finally, is it desirable for a president to appear at the scenes of disasters and offer reassurance? Perhaps, in the short run. But these reassuring words arguably make it harder to remind people that we live in a world of risk, that we can console ourselves that this generation faces a lower risk of imminent death or injury than any generation preceding it, and that we might benefit from stoically acknowledging and facing risk. I suspect we’d all be better off if we could acknowledge that the risk of harm from most types of terrorism is not worth the cost of trying to thwart terrorism. I suspect we’d all be better off if we concluded that the benefits from capital punishment are not worth the cost of implementing capital punishment. And I suspect we’d all be better off if we concluded that the cost of protecting various industries is not worth the cost. But I’m not sure how to create a system that rewards leaders for this type of INaction.

Civil disobedience on private property: You Make The Call

Rand Paul’s recent electoral success has brought new attention to the state’s role in remedying discrimination by punishing private actors that discriminate on the basis of race in the provision of public accommodations, employment and housing. In short, Paul (coyly) opposes these policies. And this prompts questions about what alternative policies he might support. What should be the libertarian position about civil disobedience on private property?

Prior to the 1964 Civil Rights Act, for example, when a lunch counter refused to serve black people some people protested this practice by holding a sit-in at the counter and refused to leave. The owner called the police, who forcibly removed the protesters. This practice brought attention to the black people’s plight, some measure of public opprobrium on the owner of the lunch counter, and ultimately government prohibition on discrimination in businesses of public accommodation. What do you think of these events?

1. May the state sanction people who discriminate on the basis of race in the conduct of their private business? Does your answer change with respect to people engaged in businesses that do not require a prolonged interaction with any specific customer? (E.g., Once you sell your house, you typically will not have further interaction with the buyer.) Does your answer change with respect to people who hold themselves out as providers of public accommodations?

2. May Joe seek to influence the behavior of Bill by orchestrating negative (albeit accurate) publicity about Bill, thereby attracting public opprobrium? May Joe seek to influence Bill through threatening to orchestrate negative (but accurate) publicity?

3. May Joe temporarily intrude upon Bill’s autonomy as a means to achieving some other objective, provided Joe agree to bear whatever sanction results from Joe’s conduct? May Joe permanently intrude upon Bill’s autonomy as a means to achieving this objective?

4. May Bill ask the state to forcibly extract compensation from Joe for trespassing on Bill’s autonomy?

5. May Bill employ force to defend his autonomy? May Bill employ lethal force if non-lethal force proves inadequate to defend his autonomy (e.g., the protesters are really good at hanging onto lunch counter stools)? May Bill ask the state to employ force on his behalf? Does your answer to these questions change if Bill has access to after-the-fact compensation for the trespass?

(“May…” here means “Do you regard it as consistent with your understanding of libertarian beliefs that….”)

What’s REALLY at stake in the health care debate

Whether I get laid.

According to a recent study, a woman’s preference among male features is influenced by the mortality rates, life expectancy and impact of communicable disease on those around her. The worse the health statistics for her area, the better she likes masculine features. The better the health statistics, the less value she places on masculinity.

Why? Who knows, but people offer theories. Masculinity, manifesting a higher amount of testosterone, has trade-offs. A deep voice, stronger jaw line and bushier eyebrow are man's way of advertising good genes, dominance and likelihood to father healthier kids. Those attributes are also associated with infidelity, domestic violence and divorce. Women in different circumstances make different trade-offs. Women in less healthy environments find the benefits of greater masculinity relatively attractive and the detriments relatively unimportant. Women in more healthy environments tend to reach the opposite conclusion.

Fascinating, but so what? Each to her own. Celebrate whatever land you love, and whatever loves you land, right?

Fine. But the extent to which we live in a healthy environment or a sick one tends to be a social, not an individual, choice. In short, your votes determine whether or not I get laid. Please think about that the next time you’re in the ballot box; I know I do.

(Ok, don’t go OVERBOARD here; other people need to use that booth, too.)

For what it’s worth, Argentina seems to be pretty good environment for manly men. Lots of Old Spice there? On the other hand, meterosexuals might find optimal hunting in Belgium. And by passing the health care reform act, the US just took a big step away from Argentina and toward Belgium. So if future generations of Americans start to look curiously like Hercule Poirot and Tintin, you’ll know why.