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Neoliberalism and the Washington Consensus

It's nice to be able to create content, since I've always wanted to ask question like this on Catallarchy but would've been practically trolling to put this in the comments.

I'm curious as to how Libertarians like yourselves deal with the results of Neoliberalism and the Washington Consensus. As far as I can tell, the "structural adjustment programs" that have been shoved down the throat of every country that needs some IMF money are almost perfectly in line with everything that Libertarians advocate as policy. Here's a list of the basic conditions (culled from wikipedia):

* Cutting social expenditures
* Focusing economic output on direct export and resource extraction,
* Devaluation of overvalued currencies,
* Trade liberalization, or lifting import and export restrictions,
* Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets),
* Balancing budgets and not overspending,
* Removing price controls and state subsidies,
* Privatization, or divestiture of all or part of state-owned enterprises,
* Enhancing the rights of foreign investors vis-a-vis national laws,
* Improving governance and fighting corruption.

With the exception of last one (which is really so vague as to be meaningless) I should say that I've probably heard every single one of these programs defended on Catallarchy and can't remember any of them being disputed by any non-left-Libertarians (I could easily be wrong on that last one, though.) These programs have almost always been unmitigated disasters (indeed, the countries which have developed have always RADICALLY violated these rules) and so I guess i fail to see why this stuff hasn't just basically ended the economic argument for Libertarianism altogether. Actually, that's disingenuous, because i think I do understand but for a group as intellectually honest as ya'll, well I don't get it.

I suppose someone could get on here and argue that they haven't all been unmitigated disasters (there might be an example of certain exceptions, though I haven't seen them outside of city-states.) More likely though is the standard marxist-style claim that every single country this has been tried on (and there have been a LOT) has simply had some critical flaw in it that nobody could've seen beforehand that prevented our magic from working. I'm happy to refer anyone who makes this argument to some overheated rhetoric (probably culled from No Treason) about how we "can't afford to keep trying these horrific experiments when the consequences are so deadly" and "when will we stop imposing our utopias on other people's lives when we wind up killing them."

One last thing, and this could get controversial: I think the deaths caused from these programs and programs like these (which we can just go ahead and call "free market capitalism" unless anyone can present a good case why we shouldn't) are plausibly higher than those caused by marxism/communism as an economic system. Let me explain what I mean: while I probably agree with most the people here that something like the Stalinist purges are derivable from Marxism (that nonsense about a "Vanguard party" will probably lead inexorably to totalitarianism) I'll say that has to do with Marxism as a socio-political system rather than an economic one. With this same spirit of fairness in mind, I don't attribute to Capitalism the 2 million+ killed by the US in Vietnam. Famines attributable to communism (like in China) are fair game.

A Thought Experiment on the Balance of Trade: Part the First

A few years ago, I came up with a thought experiment to demonstrate that a trade deficit or surplus is not, in and of itself, particularly meaningful. Not yet having been inducted into the cow-cult formerly known as Catallarchy, and being too lazy to set up my own blog, I just sat on it. But it's kind of lumpy and I'm getting tired of sitting on it, so here we are:

Consider first a country "A" existing in autarky--that is, not engaging in any sort of foreign trade. Each year, the only goods available for use are the goods produced that year, or goods produced in prior years but not yet consumed.

Next we add trade with a second country "B" into the mix. First, the case of balanced trade. There will be gains from trade on both sides due to comparative advantage, so both countries will now have access to more goods than they would under autarky. But there is no net trade surplus or deficit.

Now consider a perpetual trade imbalance. Each year country A imports goods from country B, but sends back only money in return. Rather than using the money to buy goods from country A, the citizens of country B hold on to the money, and this imbalance persists indefinitely. For country A, this arrangement is clearly preferable to balanced trade. Not only do they have access to goods imported from country B, but they are able to keep the goods they otherwise would have exported.

Of course, this is an unlikely scenario (albeit not a completely absurd one; if country A's currency is very stable and country B's is not, the citizens of country B may wish to use country A's currency for domestic trade rather than sending it back in exchange for country A's exports). But it's important to understand that a perpetual trade deficit is actually quite desirable. This runs contrary to the intuitions most people have on the topic.

Let's stop here for today. Next week we'll see what happens when the trade imbalance evens back out.

The War on Terror

Writing in part to respond to McIntosh and Constant, I thought I'd make a few simple points about the so-called war on terror.

1. Can you declare war on a tactic? This is not as pedantic a point as one might think, since it may be deeply problematic to declare war on something so obviously bad if one if one is only masking more sinister aspirations. Sort of like declaring yourself "pro-family" or "anti-death."

2. Can you declare war on something you're definitionally guilty of? Which is to say, is it logically possible to declare war on oneself? To take a simple example, Orlando Bosch is a known terrorist (one of the worst, in fact- take a look) we funded and now keep in the United States, refusing extradition. Okay well step two simply requires that classic Bush quote "Those states which Harbor terrorists are no different than the terrorists themselves." Therefore, the US is a terrorist nation, QED. Could the US declare a war on terror in that case?

3. Can Iraq be considered part of a war on terror? Consider, first of all that the war in Iraq is drastically increasing active terror, the threat of terror, and recruitment for Al Qaeda-style groups (I don't know anyone who disputes this, but I'll happily provide a source if you like.) Furthermore, this was known ahead of time (the CIA for example, warned that invading Iraq would increase terror) and should have been perfectly obvious anyway- the US fighting an obviously unpopular war adds at least another 10 minutes of solid propaganda to the Al Qaeda recruitment videos. Either Iraq was simply not fought as part of the war on terror (obviously) or it was one of the most catastrophic military defeats ever recorded, one that actually saw the opposing army quadruple (at least) in size and spread even further around the globe rather than dwindle .

4. Is there then a war on terror? I've seen no evidence other than simply "it's true because the dear leader says so" and I would hope that people as devoted to anti-stalinism/statism as there are around here would despise such evidence. What might we expect a war on terror to look like? It'd start with the addressing of underlying grievances that lend public support to these inexcusable acts and it'd probably continue by avoiding the acts that give rise to terror (the most tell-tale, as I understand it, is illegal/unjust occupations of foreign land) and, well see point 3 again.

PS- this is a great look for the site- what a radical change. I'm excited about this.

What's (Amorally) Wrong With the GWoT

Estimates of the cost to date of the Global War on Terrorism run to about $600 billion and are only going to keep going up. Pretty much everyone has an opinion about what the returns to date have been, ranging from "the world is a significantly better place and it's completely worth the cost, plus much more" to "the world is a significantly worse place and we shouldn't be spending a dime on such a disaster". And in between there are hundreds of (presumably coherent, but often mutually inconsistent) more nuanced positions.

The persistance of this disagreement should be setting off alarm bells no matter where on the spectrum you find yourself: If we can't even come to anything remotely resembling a broad consensus on just what the consequences of a policy are, then clearly what we're lacking is broadly agreed-upon, checkable metrics of success. And if we don't have those, then why would anyone spend so much money on a project where we can't even determine the sign of the effect?

Surely it's uncontroversial to say that if we must spend money, it should be spent on projects where we can easily tell if they're having the desired effect or not. There ought not be a whole lot of room for reasonable disagreement on the matter (though there may be plenty of room to disagree on which effects are desirable). But at the end of the day, I have no clue what the hell Iraq is going to look like in 10 years and neither do you. Surely there should be some sort of dicussion about whether this is a prudent investment strategy, even among those not resolutely hostile to the idea of something like the GWoT. $600B is a lot of moolah to throw away on roulette.

Jobs Are Not Scarce

Don's most recent post brings to mind a point with which most of our regular readers will be familiar, but which always bears repeating: The idea that jobs are a scarce resource is a fallacy.

In a world of finite resources and infinite demands, there's no shortage of useful work to be done. This is why the number of jobs correlates so strongly with the size of the labor force; if someone is willing to provide labor, someone else will find a way to utilize it productively, barring third-party interference or unrealistic expectations on the part of the job seeker.

The interesting question is not the quantity of jobs, but their quality--how much they pay, what the working conditions are like, etc. And job quality is largely a function of labor productivity. If a worker is highly productive, his employer can afford to pay him well and maintain good working conditions.

So it's not jobs that are the scarce resource. What's scarce is capital--the equipment and skills necessary to make labor more productive. Any claim that something will "create jobs" without increasing the supply of capital available to enhance labor productivity is to be viewed with great suspicion. Such claims generally rely on a variant of the fallacy of the broken window.

Just Say No To Home Equity

Brandon's post about matching home loan payments to income got me thinking about my loan philosophy. I like interest-only loans, because index funds have a substantially higher return than real-estate, so equity is loss as far as I'm concerned. But thinking about the lifecycle of the loan makes me realize that that isn't enough. After all, even an interest-only loan will accumulate equity due to appreciation, and equity is bad!

So in addition to getting an interest-only loan (which I have), I think the consistent thing to do is periodically take 2nd mortgages, and put the proceeds into index funds.

Negative Amortization and Consumption Smoothing

I've been thinking about mortgages recently (mostly out of idle curiosity--I'm not planning on buying a house any time soon). When I first heard about interest-only and negative amortization loans, I thought they were recipes for disaster. But after some additional thought I've realized that they actually make a lot more sense than traditional mortgages.

The aspect of traditional mortgages that strikes me as suboptimal is the fact that the monthly payment is fixed. Fixed for a period of thirty years, during which inflation may reduce the real cost of the payment by a factor of two or three, and during which a combination of inflation and promotions may increase the borrower's nominal income severalfold.

In short, the payment is greatest in real terms when the borrower's income is least. From a consumption-smoothing perspective, this is precisely backwards. At the very least, the payment schedule should allow for inflation, and there's a good case to be made for (conservatively) adjusting it to allow for expected increases in real wages, as well.

I think that the ideal mortgage for most people would be one in which the monthly payment grew by 3-4% per year, or some other conservative estimate of the nominal growth rate of the borrower's income. In a 30-year loan, this would generally result in negative amortization for the first few years, but the payment would quickly grow to the point where it would exceed accrued interest and start chipping away at the principal.

I can see some potential problems with this type of loan:

1. Some people will buy houses so expensive that they can barely make the initial payments. This eliminates any margin of safety, making default almost certain if their incomes fail to grow as quickly as predicted at any point during the next 30 years. This is probably true in some cases, though the desire of lenders not to lose money should help to check this tendency.

2. Children are expensive, perhaps so much so that the amount of money available for housing expenses doesn't actually grow much over the typical person's lifetime. I'm not sure whether this is true, but it is worth noting that renters also have to deal with monthly payments that grow over time, and they seem to be able to handle it.

3. People don't save enough for retirement as it is; if smaller mortgage payments give them extra disposable income now, they'll end up consuming some or all of it. This will reduce total saving and make them even worse off in retirement. Perhaps, but stocks, particularly when held in a tax-deferred retirement account, generally give better returns than paying off a mortgage early. Paying less for your mortgage now and investing the difference has positive expected value.

Or maybe we could, you know, be courteous and nice

Ok, yeah, I get where he's coming from here, but sheesh, getting pissy about the Queen is so British Labourite- so the irony of getting pissy over it on American Revolutionary grounds ("we ain't them!!") makes my head spin.

Maybe its just me as a Virginian, but we kind of remember that we were founded by Englishmen (just take a look at pretty much every place, town, and city name in southeastern Virginia; our forebears were brave, but unoriginal) and having the Queen come over to celebrate our founding is just respectful and a nod to our roots. A howdy and a smile is good enough, but I think we're all secure enough in our superpowerdom that if someone wanted to show her respect in an archaic way, I think the Republic will survive somehow...

Exit and Voice

Two million French can't be wrong, right?

All of this is, of course, precisely what previous generations of European politicians have feared. For the past decade, French, German and other European leaders have tried to unify European tax laws and regulations, the better to "even out the playing field" -- or (depending on your point of view) to make life equally difficult everywhere. The emigration patterns of the past decade -- and the past five years in particular -- prove that that effort has failed. Sarkozy's election campaign, if successful, might put the final nail in the coffin.

The political and economic consequences of this new mobility could be quite profound. Countries such as Poland and France may soon be forced to scrap those regulations and taxes that hamper employment, however much the French unions and the Polish bureaucracy want to keep them: If they don't, their young people won't come home. Leaders in those countries may also have to alter their rhetoric. Sarkozy's Socialist opponent, Segolene Royal, now uses words such as "entrepreneurship" at least some of the time, too.

(yeah yeah, the Cato guy essentially made the same quote, but its the money graf as the kids say)

It's also apropos of the recent Will Wilkinson post where he totally pwns one of Ezra Klein's cobloggers on the subject of whether or not France is 'just fine, thanks', whereby a quote Will's quote of Edmund Phelps:

Why does it suck so bad there “compared to the U.S. and a few other countries that share the U.S’s characteristics?”

In my thesis, the Continental economies’ root problem is a dearth of economic dynamism–loosely, the rate of commercially successful innovation. [...]

Further, I argue that the cause of that dearth of dynamism lies in the sort of “economic model” found in most, if not all, of the Continental countries. A country’s economic model determines its economic dynamism. The dynamism that the economic model possesses is in turn a crucial determinant of the country’s economic performance: Where there is more entrepreneurial activity–and thus more innovation, as well as all the financial and managerial activity it leads to– there are more jobs to fill, and those added jobs are relatively engaging and fulfilling. Participation rises accordingly and productivity climbs to a higher path. Thus I see the sort of economic model operating in the Continental countries to be a major cause– perhaps the largest cause–of their lackluster performance characteristics.

Sparing you further recursion of other people's posts and points, I think it bears remarking that despite the fact that 2 million French have left for bigger and more dynamic things, those remaining in La France happen to be replacing them at a decent clip (for Europeans, anyway)- so I wonder if the anecdote Anne's seeing here is simply the latest iteration of a trend that's been going on for roughly 3 centuries now- the dynamic folk of Europe *and* their misfits leave (coming to the US or anglosphere), contributing to and amplifying the dynamism of their new homes, while those remaining make the old country ever more of what drove the others out in the first place, in which case the effort to harmonize the crappiness everywhere won't work, and America and Europe's civic cultures will continue to diverge as there's self segregation of dynamists and stasists. Inwhich case Anne's conclusion will probably not come to pass, so long as the conservative types stay at home and the liberals all leave...

Reefer Madness?

A new study in Britain shows why, for a fringe of tokers, the usual cliched paranoia becomes/leads to actual schizophrenia.

For what its worth, if it were legal, my money says Novartis or Monsanto would make GM weed that maximized both THC *and* CBD.

Taxicabs and Regulation

PZ - I am very sorry to read about you being taken for a ride in Boston. But why do you think there isn't much regulation of cab drivers in Boston? I am failing to think of a major city that does not have heavy regulation on cabs and cab drivers.

Amongst the unintended (at least unintended by the Baptist half of the Bootlegger & Baptist coalition) effects of regulation are increased barriers to entry and a reduction service levels towards the lowest common denominator. A heavy regulatory environment is effectively a legalized cartel granted and enforced by the government. Perhaps I am over cynical, but the cabbie took you for a ride. 'Mis-hearing' and 'asking for directions from other cabbies' was an act, and signaling to the other cabbies that he was having a good day, at your expense. In the best circumstances, the regulated industries work for the regulators not the customers. In the worst circumstances, the regulators are former industry employees and future industry consultants.

BTW, I love Friday's cephalopod. Kinda cute.

The Great Kim Jong Il

North Korean communist propoganda has found its way to Youtube giving us a glimpse to what the citizens of that country might see daily.

This is the description of the video from its contributor::

Dear Leader Comrade Generalissimo Kim Jong Il the brilliant statesman, political genius, prolific author, musical virtuoso, master of the arts, prodigious humanist, invincible military commander and respected Lodestar of national reunification leads the Korean nation in building the great powerful prosperous country with his adroit and inovative economic ideas.

Making the rounds on field guidance insterction tours, Comrade Kim Jong Il always makes himself aware of every details of a situation and teaches the creative ways to overcome difficulties in reaching the targets of the six-years plans which are the driving force of the Democratic People's Republic of Korea economic processes based on the mass-centered Juche-orientated Korean-style socialism which is the system the Korean people have freely chosen by themselves out of their own free will.

Thus Leader Kim Jong Il is the mass-based leader truly serving the people by bringing about the great upswing in revolutionary economic building for the prosperity of the Korean people and all of humankind.

This description is from its contributor:

Dear Leader Comrade Generalissimo Kim Jong Il's wise perfect leadership is so extraordinary and genuinely mass people-based that the entire Korean nation rely upon Him as their god giving him the passionate worship of the peerlessly great Mt. Paektu-type general born of Heaven.

Drawing strenght from the all-powefull image of Kim Jong Il, the Korean people can always achieve the greatest victories.

Also available on YouTube:

Kim Jong Il The Great Athlete
Kim Jong Il The Great Warrior
Kim Jong Il Fashion Designer
Kim Jong Il The Great Traveler
Kim Jong Il The Great Architect

And many more...

Back to May Day 2007: A Day of Remembrance

Hoeryong: Peering Inside a Death Camp

From, " Former guard: Ahn Myong Chol remembers atrocities:"

A food factory produced soy sauce and cookies and bean paste. And here the women worked between 20 and 30 years old. The women are the sexual slaves of the security officers, they are forced to wear only white thin gowns and no underwear, they are not given underwear. They make all the beautiful women work here.

The prisoners go to the coal mine along this road, in carts pulled by cows. And while they are passing through here, I was instructed to beat a disabled person by my superior, and I had no choice but to obey.

Even in the small village there is an officers headquarters, and if any prisoner disobeys, then he can be beaten here, and the officers were armed, and they would kill prisoners here.

Not only here but all other places, even in the small hills they bury bodies. And when we cut the trees down, sometimes we find a buried body. Not only here, but all around here are buried bodies.

In the hills here, if there is some flat area, it is covered with graves. And if people start to farm there, they find bodies or bones.

This area is where there are the most densely buried bodies. There are graves all over here, and we can see the graves where there are no woods. There is no particular area to bury dead bodies, but they put them all in this general vicinity, and no one can cry. It is forbidden to cry, and there is no funeral ceremony, and the officers say, “The anti-revolutionary person has died, so there is no reason to cry.”

How can these things happen?

The gulag seems like a thing of the past. It seems like knowing about these atrocities should somehow keep them from happening. Shedding light on it and exposing atrocity to the eyes of the world should prevent a repeat of history, right?

We hear about cruel things happening in areas of instability --- ethnic cleansing in the former Yugoslavia, genocide in Rwanda, and the continued chaos in Darfur. While these events are certainly terrible, they seem to have a different flavor from the concentraion camps described in the above quote. Genocide often arises in times of conflict, times when it's very hard for the rest of the world to have a sense of what's going on, where the fog of war hides the bloodshed. When the war ends, when the fog lifts, the atrocities end. Thus, we have a way of fighting war-born atrocities: end war.

Yet, the systematic killings carried out by tyrannical states exist in places not embroiled in war. Should the lessons of the past not relegate them to a dark page of human history? Have we not learned from the past? Perhaps, it's the very stability that perpetuates their existence. The gulags are isolated and protected behind the curtain of militarized government ruling over an insular society cut off from the rest of the world. As such, we have few tools to fight these atrocities, or even know that they occur. We have to rely on the tales of those that escape, on old pictures taken in secret or from a distance, and satelite imagery.

Today we look to North Korea, to a camp on its north-eastern border secluded in mountains. It is called the Hoeryong concentration camp. Because so few priosoners ever make it out alive, most of the stories we have come from former employees.

Who are The Prisoners of Hoeryong?

From The U.S. Committee on Human Rights in North Korea, The Hidden Gulag:

The most strikingly abnormal feature of the kwan-li-so system is the philosophy of “collective responsibility,” or “guilt by association” — yeon-jwa-je — whereby the mother and father, sisters and brothers, children and sometimes grandchildren of the offending political prisoner are imprisoned in a three-generation practice. Former prisoners and guards trace this practice to a 1972 statement by “Great Leader” Kim Il Sung: “Factionalists or enemies of class, whoever they are, their seed must be eliminated through three generations.” According to the testimony of a former guard at Kwan-li-so No. 11 at Kyungsung, North Hamgyong Province, this slogan was carved in wood in the prison guards’ headquarters building. According to the testimony of YOON Dae Il, a former police official, the number of family members abducted and sent to the lifetime labor camps depends on the severity of the presumed political offense.

The other strikingly abnormal characteristic of the kwan-li-so system is that prisoners are not arrested, charged (that is, told of their offense), or tried in any sort judicial procedure, where they would have a chance to confront their accusers or offer a defense with or even without benefit of legal counsel. The presumed offender is simply picked up and taken to an interrogation facility and frequently tortured to “confess” before being sent to the political penal-labor colony. The family members are also just picked up and deposited at the kwan-li-so, without ever being told of the whereabouts or wrongdoings of the presumed wrongdoer.

The most salient feature of day-to-day prison-labor camp life is the combination of below-subsistence food rations and extremely hard labor. Prisoners are provided only enough food to be kept perpetually on the verge of starvation. And prisoners are compelled by their hunger to eat, if they can get away with it, the food of the labor-camp farm animals, plants, grasses, bark, rats, snakes — anything remotely edible. It should be noted that below-subsistence-level food rations preceded, by decades, the severe nationwide food shortages experienced by North Korea in the 1990s.

Are Dissidents Being Gassed in Camp 22?

Witness statements and documents disputed by the Democratic Republic of North Korea are all we have to answer this question.

Witness statements from a report by The Guardian:

I witnessed a whole family being tested on suffocating gas and dying in the gas chamber,' he said. 'The parents, son and and a daughter. The parents were vomiting and dying, but till the very last moment they tried to save kids by doing mouth-to-mouth breathing.'

Hyuk has drawn detailed diagrams of the gas chamber he saw. He said: 'The glass chamber is sealed airtight. It is 3.5 metres wide, 3m long and 2.2m high_ [There] is the injection tube going through the unit. Normally, a family sticks together and individual prisoners stand separately around the corners. Scientists observe the entire process from above, through the glass.'

He explains how he had believed this treatment was justified. 'At the time I felt that they thoroughly deserved such a death. Because all of us were led to believe that all the bad things that were happening to North Korea were their fault; that we were poor, divided and not making progress as a country.

'It would be a total lie for me to say I feel sympathetic about the children dying such a painful death. Under the society and the regime I was in at the time, I only felt that they were the enemies. So I felt no sympathy or pity for them at all.'

His testimony is backed up by Soon Ok-lee, who was imprisoned for seven years. 'An officer ordered me to select 50 healthy female prisoners,' she said. 'One of the guards handed me a basket full of soaked cabbage, told me not to eat it but to give it to the 50 women. I gave them out and heard a scream from those who had eaten them. They were all screaming and vomiting blood. All who ate the cabbage leaves started violently vomiting blood and screaming with pain. It was hell. In less than 20 minutes they were quite dead.'

So I find myself wondering if Hoeryong will someday have the same sort of name recognition of Auschwitz. Will we someday, after some sort of liberation or struggle, look into this prison and wonder: How could this have happened in our world, in this day and age? How could it have gone on this long? How could it have gotten this bad? Could we have done anything to prevent it or change it? Will it happen again?

For more Info including satelite images, witness statements, a complete copy of The Hidden Gulag and a history of North Korea's prison camps please visit:

U.S. Committee on Human Rights in North Korea

Back to May Day 2007: A Day of Remembrance

Ecocide: The Murder of the Aral Sea

The Aral Sea didn't die, it was murdered.

-- Nazhbagin Musabaev, the governor of the Aralsk region, Kazakhstan

The destruction of what was once the 4th largest inland sea in the world was premeditated and deliberate, a result of Soviet central planners deciding to turn the deserts and arid steppes of Uzbekistan and Kazahkstan into cotton plantations for export. In order to do this, almost the entirety of the flows of the Amu Darya and Syr Darya rivers were diverted into irrigation works, and the Aral left to dry up:

The Aral in 1985:

The Aral in 1997 (1957 shoreline in red):

The Aral in 2003:

Consequently, the economy as well as the ecology of the area collapsed:

* Commercial fish catch went from roughly 48,000 metric tons in 1957 to zero in 1982.
* The canning industry that depended on the catch collapsed, which had at its peak employed 60,000 people.
* The muskrat farming industry died (along with the muskrats), which had previously provided skins and were used in making hats.
* Of the 24 species of fish that used to live in the sea, only one survives (barely) in the Small Sea in the north.
* 173 animal species once lived in the two delta regions; 38 remained by 1988.
* Due to the loss of moisture in the air from the sea, summer temperatures have increased ~1.5C and winter temperatures have dropped an equal amount. As a result, the growing season in the area has been reduced by 10 days, forcing some commercial farmers to switch from cotton to rice (further exacerbating the water demand in the region).
*From 1960 to 1980, livestock pastures and hayfield areas under cultivation had shrunk by 81%, and yields halved.
* By 2005, hay yields in the region were 22 times less than 1960 levels.
* Estimates of economic damage to the basin in 1982 was roughly 1.5-2 billion rubles annually.

What once was described as an area with Africa-like biodiversity is now a toxic salt pan wasteland, subject to clouds of aerosolized salt & pesticide runoff, some of which has been found as far east as the Siberian Arctic, as well as the fertile valley up upland Uzbekistan (the dust is also collecting on the high mountain glaciers, reducing albedo and increasing melt-off, threatening the long-term source of water for the entire region.) On top of the economic and ecologic devastation, the concentration of toxic chemicals and minerals has led to an increased of incidence cancers, lung disease, and infant mortality in the Aral basin 30 times higher than other equivalent regions in Kazakhstan and Uzbekistan. And even this bill of particulars is just the tip of the iceberg for measuring the total devastation wrought by the destruction of the Aral.

But at least the two 'stans got what was intended- a huge cotton export sector (as well as extensive rice production). But then, even setting aside the immense cost of the disaster to the west of the producing regions, these crops come at a high cost to maintain above and beyond their thirsty natures, as according to Soviet figures in the 60's, while usual Soviet agriculture used ~25 kg/ha of pesticides and fertilizers, the cotton fields of the 'stans required ~550 kg/ha; even with modern fertilizer efficiencies introduced since the fall of the Soviet Union, it is clear that it takes a very large amount of effort to get these ill-suited crops to even grow in Central Asia. It is hard to imagine such an export industry arising naturally in Uzbekistan, despite the value of the crop on the global market; indeed, prior to the Soviet developments no such cultivation was even dreamed of in the region.

That environmental degradation of all sorts was rampant under Communism is a fairly well understood truth. But why the Aral tragedy in particular? So given the immense value of the Aral sea's commercial activities, how is it that the central planners got the cost-benefit analysis so wrong as to think that cotton cultivation would possibly come out ahead? The answer is an explicit illustration of Mises' argument against socialism in general; the central planners who devised the demise of the Aral had literally no means to rationally or accurately calculate the cost of letting the sea die because there were neither internal markets nor property rights among those dependent upon the sea.

Quoting extensively from Philip Mickin's 1988 paper on the Aral:

During planning for a major expansion of irrigation in the Aral Sea basin, conducted in the 1950s and 1960s, it was predicted that this would reduce inflow to the sea and substantially reduce its size. At the time, a number of experts saw this as a worthwhile tradeoff: a cubic meter of river water used for irrigation would bring far more value than the same cubic meter delivered to the Aral Sea. They based this calculation on a simple comparison of economic gains from irrigated agriculture against tangible economic benefits from the sea. Indeed, the ultimate shrinkage of the Aral to a residual brine lake as all its inflow was devoted to agriculture and other economic needs was viewed as both desirable and inevitable.

These experts largely dismissed the possibility of significant adverse environmental consequences accompanying recession. For example, some scientists claimed the sea had little or no impact on the climate of adjacent territory and, therefore, its shrinkage would not perceptibly alter meteorological conditions beyond the immediate shore zone. They also foresaw little threat of large quantities of salt blowing from the dried bottom and damaging agriculture in adjacent areas. This theory rested, in the first place, on the assumption that during the initial phases of the Aral's drying only calcium carbonate and calcium sulfate would be deposited on the former bottom. Although friable and subject to deflation, these salts have low plant toxicity. Second, it was assumed that the more harmful compounds, chiefly sodium sulfate and sodium chloride, which would be deposited as the sea continued to shrink and salinize, would not be blown off because of the formation of a durable crust of sodium chloride. Some optimists even suggested the dried bottom would be suitable for farming.

That they could come to such a conclusion is because unlike most of the activity at and around the Aral Sea, cotton can be traded worldwide and thanks to the information aggregating and calculating power of market prices, the central planners had an accurate view of what one side of the equation was worth; and precisely because there were no internal markets to put valuation on the commercial fishing of the Aral, the recreational usages, and other non-exportable activities, the planners had to rely on completely arbitrary valuations on the other hand. That the push for cotton cultivation was also driven by the insane desire for autarky (er, 'self sufficiency') is just bitter icing on the cake.

The moral of this story is that for lack of property rights & trade, a huge ecosystem (and the health of millions of people) was sacrificed. Let us all keep this in mind when latter day pundits claim that property rights and trade are enemies of the environment.

(Postscript- There's a slight glimmer of hope, for the tiny northern remnant at least.)

Desiccation of the Aral Sea: A Water Management Disaster in the Soviet Union by Philip P. Mickin
Environment in Central Asia page on the Aral Sea
The Aral Sea Disaster by Guy Phipps
The Aral Sea Tragedy by Paul Welsh
Desertification in the Near Aral Sea Region and Population Migration by Sergey Myagkov
Aral Sea Wikipedia Entry

Back to May Day 2007: A Day of Remembrance

Psychology: Sound Science or Conformist Weapon?

Psychology is a rather young field. It most certainly is not a medical science. Indeed, up until around the beginning of the 20th century, it was nothing more than vague notions and questionable philosophical biases. It is questionable as to wether or not psychology is still more or less the same today. Afterall, it has not been much more than one single century that it has been seriously persued as a science (which is nothing compared to fields such as physics and math, which go back multiple centuries and even millenia) and many of these persuits in themselves are most definitely blunders. The actual medical study of the brain is an entirely separate field from psychology. Psychology is the study of the mind, which is an intangible thing. Psychology is, at best, a highly underdeveloped social science. At worst, it is simply the personal delusions and means of empowerment for men in ivory towers.

It must be pointed out that psychology as a field has an inherent paradox, weakness or loophole within it. Essentially, "the mind" is no less of a philosophical thing to be studying then "the soul" or "the will". If another man tells you that he knows why you acted in a certain way better than you yourself did (I.E. that he knows your will better than you do), there is a 99.99% chance that the man is completely full of it. The mind is not something that was can realistically penetrate with 100% accuracy. We cannot completely deterministically predict the nature and behavior of people's minds with mathematical formulas or testing. Humans are not telepaths, capable of reading eachother's minds, and as such, neither are psychologists. The idea that we can reduce the mind to statistics and actually learn something meaningful from this is nonsense.

The mind is incapable of being measured. Even in seemingly non-tangible or "invisible" areas of science, things can be measured and scientifically observed. Gravity can be measured. Inertia can be measured. Speed can be measured. Time can be measured. Yet the mind cannot be measured. This is what gives psychology such a flimsy basis to begin with. The mind is completely immeasurable by the methods of the natural sciences. As such, the claim that a bunch of men can measure the mind is questionable at best. It is simply impossible to truly "study" the mind in any real scientific sense. It is practically immune to observation. In short, psychology is trapped from the start in that it is impossible to apply any pre-existing scientific methodology to the mind. The mind is intangible to the point where you cannot apply direct observation and traditional scientific methodology to it. Read more »

On private universities

Along with roads and defense, education often comes as a necessary output of the State. Even Hayek claims that, since we need to be educated to value education, it has to be compulsory. I will not go into the details of the implication of State controlled education, nor will I discuss the question of compulsory education. I want to focus on a slightly different question, the cost of universities. There are various statist arguments around State funded universities, based on different angles

- Universities produce positive externalities, a country needs to be smart (although knowledgeable would be more appropriate) to develop, thus we need to finance education.
- Paying universities increases inequalities since rich people get to have education while poor people don't, thus creating an endless separation.
- (Combination of both) It's unfair that smart but poor students have to pay, providing them with free education is necessary.

All of the goals stated in these arguments can actually be fulfilled with greater efficiency by the free market. There are four ways by which university education is funded. Direct payment, grants, work, loans.

Direct payment is of course the easiest. The student's parents will save money in order to pay for the children education. Although this system makes them, it is doubtful it will convince leftist. They'll argue that the poors still can't afford it, come up with the paternalistic argument that parents don't know what's good for their children or argue that relying on ones parents is an unacceptable tyranny.

Grants work fine... basically you're given money by a generous entity. Arguing for grants is like arguing for private charity, it's doomed to fail - as an argument - because no one can actually know the amount that would be spent in charity, men are greedy, etc.

Working is another possibility, but it's not always easy to work and study at the same time. It puts students who cannot rely on direct payment at a disadvantage and there comes the same argument again.

Of all the payments method, the loan is probably the healthiest. It highlights education as an investment. Why should you pay for your education?
a) Because you want to be educated, for your own pleasure
b) To be more successful in your life, make more money

In the first case, education is pure consumption, at that point few people will argue for the need of "free" education. The second case sheds an interesting light on education as investment. The cost of studying becomes a market price signal to know if it's a good idea to study or not.

One problem remains, lending represents a low risk to the bank, since loans are aggregated and collateral can be required. However, it represents a huge risk to the student. If you don't plan on defaulting, you know you'll have to pay a fixed cash flow in the future, but depending on your future, the disutility could be very different. If your studies succeed and you make tons of money, repaying the loan is nothing, if you don't, you face a lot of nights eating spaghettis.

How do we remove this risk? By replacing debt with equity. A student could issue shares of his future work and sell them to ventures capitalists, or rather students capitalists planning to cash in on his future income. However, this is impractical and the much more logical solution is to integrate this task with the university itself.

A university could offer students the choice of paying the whole cost upfront or agree to a future cash flow indexed on this income. For example, you could give up 10% of your income for the next 10 years in exchange for free education. You face absolutely no risk in doing so. Now the university faces the risk that you will choose not to become a doctor but to start living a simple life raising goats. Venture capitalists protect from such thing by having a say in the direction the business is going, the university would only rely on the student's incentive to do something with his life. Maybe he can contractually agree to seek work or pay a fee etc.

What would be the consequences if universities adopted this mean of payment

- The best students would get lower rates since they are likely to make more money, thus the system becomes meritocratic
- Anyone could afford the studies, at no risk to him
- The rates would reflect market demand for specific job and thus create incentive to adapt the supply. If there are too much university educated persons, the universities forecasts that wages will go down and raise their rates. If the universities expects a higher demand for biologists, the rates for biologist fall and more students will opt for biology.

Having a plain upfront price doesn't reflect the market at all and leaves the forecast to the students, while private competing university might be better at it....

- The university has a very good incentive to provide excellent education. Instead of suffering from bad results indirectly, through reputation, they suffer direct financial damage if their education is not good enough.

This is how the free market could provide efficient, meritocratic, market driven universities.

Retrospective Predictions

I haven't had a chance to read Nassim Nicholas Taleb's book "The Black Swan: The Impact of The Highly Improbable" yet, but I thought that Niall Ferguson's piece in the Telegraph last week, on it and how it relates to the coverage of the Virgina Tech massacre, was pretty eye-opening. The key insight is that there is a human cognitive bias which prevents us from appreciating improbable events - we tend to conflate improbable with impossible - and we are also naturally predisposed towards creating narratives or "retrospective predictions" for such events. It's easy (or rather facile) to see *now* the sequence of events leading to Cho's rampage and it's an easy trap to fall into to (incorrectly) assume that this sequence should have been obvious before the massacre.

By chance a similar discussion about a "family annihilation" has been taking place here in Ireland: Adrian Dunne killed his two young daughters and his wife (the official line is that she wasn't herself involved with the planning and implementation of these killings) before hanging himself. Most of the debate centres around what could and should have been done by the authorities to prevent this tragedy: Dunne had visited a funeral home shortly before and had ordered four coffins and given detailed instructions for the funeral in the event that an "accident" took place. The popular, and in my view incorrect, assumption seems to be that this event was utterly predictable given the (now) compelling narrative leading up to it.

Online discussion ennui

I used to blog at Internet Commentator but have let that pretty much lapse. The principal reason for neglecting it was the overwhelming sense of ennui which had begun to descend (almost) every time I considered any kind of internet commentary, whether by blogging, or even just commenting on websites. This ennui stems from a growing awareness - thanks to discussions here and posts at blogs such as Overcoming Bias - of both my own capacity for bias and - from all sorts of online discussions - of how tenacious and irrationally held many entrenched beliefs are.

The key implication of the former insight is that it's worth checking for over-confidence in the correctness of your opinions and your assessment of the opinions and motivations of your opponents. It's not so much that I'm embarrassed by my blog postings between 2003 and 2006 but I have had cause to revise my opinions on some issues. I don't think that I was overly uncharitable to those with whom I disagreed and if anything my cynicism towards political "activists" has even deepened, but I do think I could have tried harder, say in the case of Iraq, to find the best possible argument against my position as opposed to taking on the median argument or a biased interpretation of a better argument.

An implication of the latter insight is that most online discussions are futile and a wasteful use of precious time and energy. It's so easy to get sucked into a discussion, let it occupy a lot of your thinking and achieve nothing at the end of it save the pointless satisfaction of besting your opponent for the benefit of some hypothetical (and probably non-existent) "neutral" observer. It's not that I seek to restrict online discussions to an echo chamber populated by those with whom I already agree, far from it. It's just that I don't have any interested in getting sucked into debates with those who have entrenched opinions on the matter. Such entrenchment is mercifully rare here so I do hope to get involved.

Off the front page

Just checking to see if I pop down to the Community if I don't post to the main page.

Celebrating 100 Years of Heinlein

On 7/7/7 Robert A. Heinlein would have been 100 years old. And if the series of seven's isn't enough coincidence, it is also a Saturday! Add up all the coincidences and you guessed it, there is one hell of a big party happening. Sign up, reserve your hotel rooms, and make your way to the event.

I will be on several panels speaking about spaceships and space business. Schedule permitting, I will be in the front row heckling asking pointed questions at the panels dealing with Heinlein's takes on revolution, economics, and politics.

If coming to see me hold forth on space flight is not enough - how about coming to see astronauts Buzz Aldrin and Brian Binnie, many great writers (including Sir Arthur C. Clarke), and many others?

See you at the Heinlein Centennial!