Category: Current Affairs
Badges? We don’t need no stinkin badges.
In pursuit of an Eagle Scout badge, Kevin Anderson, 17, has toiled for more than 200 hours hours over several weeks to clear a walking path in an east Allentown park.
Little did the do-gooder know that his altruistic act would put him in the cross hairs of the city's largest municipal union.
Nick Balzano, president of the local Service Employees International Union, told Allentown City Council Tuesday that the union is considering filing a grievance against the city for allowing Anderson to clear a 1,000-foot walking and biking path at Kimmets Lock Park.
"We'll be looking into the Cub Scout or Boy Scout who did the trails," Balzano told the council.
Story here. Hat tip to Modeled Behavior.
Innumeracy can get you killed
"Statistically, it is very dangerous, but I have lived here a long time and I don't feel like I'm in any danger."
That is Justin Fenton, the Baltimore Sun's crime correspondent.
The quote comes from a longer article by a British reporter who switched places with his Baltimore counterpart because he wanted to see whether The Wire was accurate. It is.
Give them your tired, your poor, your huddled masses
Three countries that relied on low-skilled immigrant workers during good times – Japan, Spain, and the Czech Republic – have recently introduced voluntary return programs programs, popularly known as "pay-to-go" programs, in an effort to reduce the number of unemployed immigrants.
The programs established in 2008-2009 generally provide unemployed legal migrants with stipends that cover the cost of a one-way plane ticket "home." Some programs also offer migrants a lump-sum payment.
More here.
Ayn Rand
With two new biographies being covered in all the major newspapers, The Daily Show, and elsewhere, Ayn Rand is in the news. Yet all of the reviews that I have seen have focused on her personal life rather than her ideas. Nearly five years ago Tyler and I both wrote on Rand’s ideas on the occasion of the 100th anniversary of her birth. It seems like a good time to reprise. Here is my post with links.
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Here, on the 100th anniversary of her birth, are some thoughts on Ayn Rand. See also Tyler’s post and Bryan Caplan’s excellent series (links.)
It used to be commonly said that “Until Robinson Crusoe is
joined by Friday there is no need for ethics on a desert island.” Rand replied that it was on a desert island
that ethics was most needed because on a desert island you cannot free ride on
the virtues of others; if you are to survive you must yourself exercise the
virtues of rationality, independence, and productiveness. As her reply indicates, Rand was an exponent
of virtue ethics,
the Greek/Aristotelian idea that ethics is about how one should live. Indeed, although she does not get much
credit, Rand is the most prominent and lucid, contemporary exponent of virtue ethics.
I think Rand’s version of virtue ethics is compelling
because it is explicitly modern – where the recent literature still sometimes seems to focus
on the virtues required of a Greek olive grower, Rand’s virtue ethics is post
industrial-revolution, a virtue ethics for the capitalist world.
If ethics is about the virtuous man then politics is about
the social requirements for the virtuous man to exist (the modern literature
lags behind Rand in connecting ethics and politics). One can understand Rand’s novels as an
extended disquisition on virtue ethics and the political and social requirements
necessary to practice such an ethics. In particular, she argued that rights, a legal concept creating a protected sphere for
independent action, were a necessary condition to live a life of virtue.
One need not buy Rand’s deductive argument that laissez-faire
capitalism is the sine-qua-non of ethical action to appreciate her insights
connecting the good man and good woman with the good society. Relatedly, I do think that Rand was absolutely right to say that capitalism requires a moral
defense. Moreover, the only plausible defense must involve the virtue of
selfishness. It is all too obvious that
capitalism promotes and rewards self-interest and, Mandeville nothwithstanding, no defense which simply
excuses this fact will succeed.
Rand’s language hasn’t done much to advance her case and
indeed it has obscured areas where her insights are now widely accepted. Today, for example, you can find many books
attacking the evil of altruism. Surprised? Of course, the books
don’t use those terms, instead they call it the problem of codependency (or
some other such). Relatedly, it’s no
accident that Hillary Clinton was once an avid Randian (recall her political
career started with Barry Goldwater) because Rand
is an important feminist. Rand’s
portrayal of strong, independent, intelligent women is coming to be recognized
as a landmark in fiction but in addition Rand’s attacks on self-sacrifice have
special meaning in a culture that has long used the “caring ethic” to bind
women to the service of others.
Of weaknesses there are many, most of which flow from the combination of Rand as philosopher, novelist and powerful
personality. John Galt, for example, is
but one instantiation of the Randian/Aristotelian virtue ethic, an
instantiation which was created for a particular aesthetic purpose by a
particular person. Too often both Rand and
her detractors have taken the instantiation for the class thereby limiting
the vision.
I have a bad feeling about this
Here is the latest on Tysons redevelopment:
Remaking Tysons Corner
into the second city of Washington will take a lot more than a new
Metro line and a downtown of tightly clustered buildings designed for
walking. It will take almost $15 billion in new roads and public
transportation.
Even in this age of sticker shock, that's a lot of money for a local project. You'll recall my earlier prediction that Tysons will get the road widenings but not enough of the other changes needed to make it a walkable downtown; the road widenings will on net make things worse. Call me an apologist for suburbia if you wish, but I sooner view myself as an apologist for public choice theory. Some parts of the redesign will be more popular than others and we will get a very unbalanced mix of reforms. This is indeed what I predict:
The numbers also have prompted some proponents of dense development in
Tysons to argue that if the county pushes too many costly road
improvements and makes room for more cars, the vision could unravel.
To simply insist that it "should be different," or to charge that I do not spend enough time criticizing interstate highway subsidies, is to miss the public choice point. Now that the stimulus is up and running, you can see road widenings all over NoVa and they will be finished. Who will put up the money for the rest of Tysons reform?
For funding, Fairfax officials say, they will look to the Obama
administration, which is committed to subsidizing growth projects in
urban areas. They hold out little hope from the Virginia Department of
Transportation, which this year slashed the county allocation for
secondary roads to zero. Given the millions of dollars Northern
Virginia has gotten for big projects such as the HOT lanes and new
Woodrow Wilson Bridge, "More state funding is pretty much politically
doomed," said Kathy Ichter, the county's chief of transportation
planning.
Stay tuned…
PETA, or environmentalism?
The bodies of thousands of rabbits culled every year from the parks in Stockholm’s Kungsholmen neighbourhood are being used to fuel a heating plant in central Sweden.
The story is here and I thank Jonathan Falk for the pointer.
Gone, gone, gone
At BofA and AIG close to a majority of the top executives whose salaries were to be cut have already left. Nuff said.
"There's no question people have left because of uncertainty of our ability to pay," said an executive at one of the affected firms. "It's a highly competitive market out there."
At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents.
At American International Group, only 13 people of the top 25 were still on hand for Feinberg's decision.
A big hat tip to Ryan Lee for the link.
Going Galt
The Obama administration orders huge pay cuts:
Under the plan, which will be announced in the next few days by the Treasury Department, the seven companies that received the most assistance will have to cut the cash payouts to their 25 best-paid executives by an average of about 90 percent from last year. For many of the executives, the cash they would have received will be replaced by stock that they will be restricted from selling immediately.
And for the 25 best-paid executives, the total compensation, which includes bonuses, will drop, on average, by about 50 percent.
The companies are Citigroup, Bank of America, the American International Group, General Motors, Chrysler and the financing arms of the two automakers.
There is no way this will work as advertised. If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere. Executives not directly affected by the pay cuts will also quit when they see their prospects for future salary gains have been cut. Chaos will be created at these firms as top people leave in droves. Will the administration then order people back to work?
Addendum: Larry Ribstein has an excellent post on this issue and see Max Fisher for an interesting explanation of the timing and a good roundup.
*Too Big To Fail*
That's the new book by Andrew Ross Sorkin and the subtitle is The Inside Story of how Wall Street and Washington fought to Save the Financial System — and Themselves. Last night I read through to p.132. So far it seems to be the single best narrative of the crash and its aftermath. I haven't seen anything theoretical or on root causes, etc. I chuckled at reading this sentence, which starts with Dick Fuld of Lehman Brothers picking up the phone:
"I know this call may be a little unusual," [Treasury Secretary] Paulson began. "You and I have been trying to kill each other for years."
I'll let you know if my judgment changes, but so far this falls into the "recommended" category, noting again that it is narrative not theory.
Addendum: Here is Yves Smith on the book, very good post. See also Felix Salmon.
Insurance industry update, continued
President Obama mounted a frontal assault on the insurance industry on Saturday,
accusing it of airing “deceptive and dishonest ads” to derail his
health care legislation and threatening to strip the industry of its
longstanding exemption from federal anti-trust laws.
Here is the longer story.
Insurance company update
Pelosi said the House may adopt a Senate provision that would assess a
flat fee on insurance companies that is expected to generate about $40
billion over 10 years, as a way to pay for its reform bill.
Here is more. The WP reports:
The blunt admonition echoed a round of harsh statements Wednesday from
senior Senate Democrats, and came in response to the insurance's
lobby's aggressive campaign to block reform legislation from advancing.
Really?
Saudi Arabia trying to enlist other oil-producing countries to support a
provocative idea: if wealthy countries reduce their oil consumption to
combat global warming, they should pay compensation to oil producers.
Here is the story.
Vernon Smith on Elinor Ostrom
Vernon, of course, knows Ostrom's work well:
Relentlessly, Ostrom has pursued answers to two questions:
(1) Since "everybody's property is nobody's property," how is it that there are so many cases where collectives of ordinary people with no education and with none of the economists' knowledge of "the tragedy of the commons," in fact discover ingenious rules (institutions) for taking the "tragedy" out of a productive resource they hold in common? If you read her book you will find among the diversity of examples a Swiss village whose people have private property in the plots they plant and harvest, but also have a communal summer meadow for grazing their cows. One rule, still enforced, dating back to 1517 states that "no citizen could send more cows to the alp than he could feed during the winter." Wintering a cow is costly, and this rule rations access to the commons by tying it to private property rights….
(2) As a distinguished political-economic scientist she will be the first to tell you that there are also plenty of commons problems that represent institutional failures and fragilities; she has asked why, and what makes the difference between success and failure? The fragilities include inshore fisheries and groundwater basins with continuing commons problems; failures include salt water fisheries and irrigation systems hamstrung by the complexity of the rules.
Success is associated with clarity in the definition of and bounds on individual rights (and opportunities) to take action, and the geography of the commons; details for monitoring, operations, sanctions and mechanisms for conflict resolution emerge from within the collective and out of motivated people's direct experience with environmental context and each other. When too many of these problem-solving elements fail, the governance systems fail or require continuing attention to their fragility characteristics. A fatal source of disintegration is the inappropriate application of uninformed external authority, including intervention to prevent application of efficacious rules to political favorites. Also detrimental to good solutions is the OPM (other people's money) problem.
…Ostrom brings a distinct style in applying her skill in different methodologies. She blends field and laboratory empirical methods, economic and game theory, the really important ingredient of scientific common sense, and she constantly challenges her own understanding by looking at new potentially contrary evidence and designing new experiments to challenge her understanding of the emergent historical rules and the theory used to explicate them.
Oliver Williamson and the pin factory
In Adam Smith there is the pin factory and the market and from that beginning we trace the long literature in economics focused on the twin questions, What price to set? How much to produce? Following Coase, Williamson asks different questions, Why a pin factory? Why are the 18 steps to make a pin performed by a single firm rather than two or more? Why are there many firms instead of one large firm? Why does the pin factory not vertically integrate upwards to buy the steel factory and downwards to buy the retail hardware shop?
Williamson’s answers rest on the notions of bounded rationality, contract incompleteness, asset specificity and opportunism. Start at the end, asset specificity and opportunism. When a deal has been sealed the parties typically move from having many potential partners to being locked in. That’s bad because it raises the possibility of opportunism–one party can exploit the other. But it’s also good because when the lock-in is credible each party may be more willing to invest in assets which are extra-productive but specific to the relationship.
Marriage, for example, takes away some possibilities but it adds others. With marriage, for example, comes a greater willingness to invest in children (n.b. asset specificity, the child is of extra value but only to the specific parties involved in the marriage) but that very benefit also means that one of the parties has the leverage to be opportunistic. Knowing all of this when they enter the contract the parties bargain ex-ante, they exchange promises and make investments (the ring), they establish rules for ex-post bargaining or decide on the background rules to apply in that eventually (pre-nup, no fault divorce, covenant marriage). The rules are never perfect and the contacts are always incomplete.
Transaction cost economics is all about applying these ideas in different settings to figure out the best governance structures (marriage, vertical integration etc.) in different circumstances. How does one deal with expensive investments (such as highly
individual dies or plant construction) that are specific to a given
trade and put the investor at risk yet which increase productivity? Williamson analyzes how firms
come to rely on long term contracts or vertical integration or other
seemingly non-competitive solutions to enhance market productivity.
Early generations of antitrust enforcers often saw these as
monopolistic dealings, but scholars such as Williamson helped us
understand how these are essential to the workings of the invisible
hand.
Williamson’s paper, The Economics of Governance (working version) published in the May 2005 AER is an excellent recent summary of his views in the area.
Williamson’s work is notable for inspiring a large body of empirical and theoretical work in modern industrial organization and having influence in law, political science, and management. His work has been widely cited, and by some counts he was the most widely cited economist in the world.
I especially thank John Nye who contributed to this post.
Elinor Ostrom and the well-governed commons
Elinor Ostrom may arguable be considered the mother of field work in development economics. She has worked closely investigating water associations in Los Angeles, police departments in Indiana, and irrigation systems in Nepal. In each of these cases her work has explored how between the atomized individual and the heavy-hand of government there is a range of voluntary, collective associations that over time can evolve efficient and equitable rules for the use of common resources.
With her husband, political scientist Vincent Ostrom, she established the Workshop in Political Theory and Policy Analysis in 1973 at Indiana University, an extraordinarily productive and evolving association of students and professors which has produced a wealth of theory, empirical studies and experiments in political science and especially collective action. The Ostrom's work bridges political science and economics. Both are well known at GMU since both have been past presidents of the Public Choice society and both have been influenced by the Buchanan-Tullock program. You can also see elements of Hayekian thought about the importance of local knowledge in the work of both Ostroms (here is a good interview). My colleague, Peter Boettke has just published a book on the Ostrom's and the Bloomington School.
Elinor Ostrom's work culminated in Governing the Commons: The Evolution of Institutions for Collective Action which uses case studies to argue that around the world private associations have often, but not always, managed to avoid the tragedy of the commons and develop efficient uses of resources. (Ostrom summarizes some of her findings from this research here). Using game theory she provided theoretical underpinnings for these findings and using experimental methods she put these theories to the test in the lab.
For Ostrom it's not the tragedy of the commons but the opportunity of the commons. Not only can a commons be well-governed but the rules which help to provide efficiency in resource use are also those that foster community and engagement. A formally government protected forest, for example, will fail to protect if the local users do not regard the rules as legitimate. In Hayekian terms legislation is not the same as law. Ostrom's work is about understanding how the laws of common resource governance evolve and how we may better conserve resources by making legislation that does not conflict with law.