Libertarian Social Engineering and Solving the Public Good Problem
At Cato Unbound I argue for libertarian social engineering:
The better markets work, the less the demand for the state. By improving markets and other voluntary organizations, libertarians can make their political vision more attractive while at the same time making people better off.
Modern libertarianism began after many of the market institutions that we take for granted had already been developed. Fee simple property, for example, dates to 1290. Could we have a libertarian society without fee simple property? In theory, yes. In practice, the free society is attractive because it generates wealth. Without fee simple property it is, at the very least, more difficult to create a rich, industrialized society. The limited liability company dates much later than fee simple property, to the 19th century. Without the limited liability company, it would probably have been much more difficult to raise large amounts of capital. As a result, without limited liability, markets would be at a great disadvantage compared to the state in conducting economic activity on a large scale. Thus fee simple property and the limited liability company are among the technological/legal institutions that have made a free society possible, not because they are constitutive of a free society, but because they make a free society work better and compete better against statist alternatives.
So how can we improve markets? Public goods are one of the biggest challenges to markets and it was long thought that because of the free rider problem markets could not produce public goods. In Tabarrok (1998) I showed that such reasoning was wrong; a large class of public goods can be produced voluntarily using what today would be called a crowdfunding contract with a refund bonus or what I called at the time, the dominant assurance contract (DAC). My piece at Cato Unbound describes the DAC and also some other ideas for libertarian social engineering in more detail.
What’s important about dominant assurance contracts is not simply that they solve the public good problem but that:
Dominant assurance contracts open the provision of public goods to entrepreneurship, innovation, and the market discovery process.
Is there any possible strategic justification for Trump’s tweets?
I consider that question in my latest Bloomberg column, and actually contrary to conventional wisdom the rationality of extreme presidential tweeting cannot be ruled out. Here is just one bit in a longer argument:
On top of all that, now imagine that you consider nationalism, resurrecting America as it once was, negotiating from strength, returning to older notions of masculinity and “building a wall” as the major issues of the day. You don’t see the traditional Republican concerns with cutting taxes and repealing Obamacare as all that salient for reversing America’s deterioration, even if you are willing to go along with those reforms. Nor, given your nationalism and unilateralism, do you see alienating allies as a major cost of opining so openly.
In that rather pessimistic view of the world, it might make sense to give up entirely on the idea that your administration will accomplish much in the way of policy, at least as the concept is traditionally understood. Instead, you might be thinking of shifting the window of policy debate over a 10- to 20-year period. That is, you might be hoping the American public will be thinking in more Trumpian terms a few administrations from now, even if outwardly they have rejected your legacy. It then will be the case that mainstream politicians will work to implement some Trumpian ideas through more traditional channels.
Do read the whole thing.
The Geography of Family Differences and Intergenerational Mobility
That is the title of a new paper by Robert Kaestner, Ryan Gallagher, and Joseph Persky. Here is the abstract:
A recent series of studies by the Equality of Opportunity Project has documented substantial geographical differences in intergenerational income mobility. These spatial differences are important because they suggest that place matters more than previously thought in determining economic well-being. In this paper, we show that family characteristics vary widely across areas and simulations indicate that differences these family characteristics can explain a substantial share of the variation in intergenerational income mobility across places documented by the Equality of the Opportunity Project. Additionally, we show that the characteristics of families that move differ substantially from families that do not move, which raise doubts about the external validity of causal inferences based on the Equality of Opportunity Project’s analysis of movers.
And from the paper:
…we find that differences in the income of adult children associated with mother’s race, age, education, marital status and nativity explain 80 to 120 percent of the difference in intergenerational income mobility between the lowest and next lowest quintiles of absolute mobility in Chetty et al.’s (2014) place-based distribution of intergenerational income mobility.
I am wondering to what extent this is a criticism of Chetty et.al., or simply a disaggregation. I’m still trying to wrap my mind around what exactly are the differences between place-level characteristics and family- or person-level characteristics. I don’t take Chetty’s original story about places to concern what kind of molecules are in the dirt, or what is the climate, but rather how people in a particular place interact with each other. In that sense the result always was about family- or person-level characteristics. Does the ability of family-level characteristics to pick up these interaction effects mean that place-level effects are not operating?
Anyway, regardless of interpretation this paper does seem to me to make some very real progress toward figuring out what is going on in those mobility studies.
The show so far, a continuing series
South Korea suspends THAAD deployment
Turkey prepares to send troops to Qatar
Iran’s Revolutionary Guards charge that Saudi Arabia was behind the terror attack on Teheran
Hmm…Meanwhile Qatar is engaging in talks with Turkey and Iran for emergency food and water supplies.
I don’t know what to expect from the Qatar situation, but I will say this. If America really is withdrawing from its global role, “crude economism” predicts that small, hard to defend, oil-rich states are the first places where you would expect fighting to break out. So Qatar is a bellwether for how global world order is likely to evolve.
Recall, by the way, that Qatar hosts the largest U.S. military base in the Middle East. Unless the Qatar situation is resolved very quickly, and sufficiently in Qatar’s favor, I would say that the expected return from hosting such bases just fell dramatically.
Wednesday assorted links
1. Nobel Laureates give advice to young economists.
2. “One Wonderful Sunday,” a story of a poor couple in immediate postwar Japan, while not well-known, is one of Kurosawa’s best films.
4. Claims about batteries and energy storage.
5. Thomas Pynchon should write a Qatar novel. And a brief look at Qatar’s earlier history. And a new book on the history of Qatar is coming out next week, I have pre-ordered. Try this one too.
What do economists know about school vouchers?
That is the new Journal of Economic Literature survey by Dennis Epple, Richard E. Romano, and Miguel Urquiola. It is a fine piece, the best I have seen (and in fact one of the better survey pieces I’ve read on any literature), and it stresses such important distinctions as small- vs. large-scale voucher programs, and why that matters for interpreting various voucher tests. Here is the abstract:
We review the theoretical, computational, and empirical research on school vouchers, with a focus on the latter. Our assessment is that the evidence to date is not sufficient to warrant recommending that vouchers be adopted on a widespread basis; however, multiple positive findings support continued exploration. Specifically, the empirical research on small-scale programs does not suggest that awarding students a voucher is a systematically reliable way to improve educational outcomes, and some detrimental effects have been found. Nevertheless, in some settings, or for some subgroups or outcomes, vouchers can have a substantial positive effect on those who use them. Studies of large-scale voucher programs find student sorting as a result of their implementation, although of varying magnitude. Evidence on both small-scale and large-scale programs suggests that competition induced by vouchers leads public schools to improve. Moreover, research is making progress on understanding how vouchers may be designed to limit adverse effects from sorting, while preserving positive effects related to competition. Finally, our sense is that work originating in a single case (e.g., a given country) or in a single research approach (e.g., experimental designs) will not provide a full understanding of voucher effects; fairly wide-ranging empirical and theoretical work will be necessary to make progress.
…Vouchers have been neither the rousing success imagined by proponents nor the abject failure predicted by opponents…The most robust finding is that voucher threats induce public schools to improve.
My chat with Steve Davies on UK politics
This 24-minute podcast was recorded in April, a time when I believe both of us were underestimating the chances of Labour. In any case it was a fun chat, here is the podcast (no transcript), and here is one excerpt:
Tyler: Is Scotland going to leave? Yes or no?
Steve: I would like to say yes but I think no.
Tyler: You want them to go.
Steve: Oh, I definitely do.
Tyler: Tell us why.
Steve: My attitude and the attitude of the majority of English is that it would be pretty good to get rid of the bloody Scots. If there was a referendum on Scottish independence purely in England there would be a clear majority in favor.
More generally: “They talk about how the general election could shape the terms of Brexit, how much further the EU and even the UK will splinter, the prospects for the European left-wing, and the populism underneath it all.”
I am a big fan of Steve Davies. He is a historian, formerly at Manchester, extremely well-read, and now Education Director at Institute of Economic Affairs. He is also great fun to hang out with.
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Why was the Qatar cut-off so extreme and sudden?
I am considering hypotheses here, to see how game theory might apply, so don’t think of this is an actual description of the situation.
As an economist, what struck me was the quick and extreme cut-off of Qatar by the Saudis and six other supporting parties. In the simplest versions of principal-agent theory, we think of most incentives as being applied continuously and varied in small doses: was Qatar’s behavior the day before the Qatar embargo/boycott really so different than the day of and after? So why did it happen this way? I can think of a few possibilities:
1. The boycott is like suddenly firing misbehaving workers. For morale reasons, you don’t want to keep them around on lesser terms, because they will be destructive. This hypothesis implies that the cut-off of Qatar is a permanent one.
2. Demonstrations of power require large, discrete events. If the Saudis had simply tweaked the incentives facing Qatar, the Qatar citizenry might not have distinguished the effects of that tweak from random noise. This hypothesis suggests that once the Saudis have made their point, and received Qatari concessions, the cut-off will be lifted or at least modified.
Note that along this game path, Qatar may not wish to “fold” immediately, as that could make them an ongoing puppet of the Saudis, all too easily manipulated. And indeed Qatar still has significant open markets for its natural gas.
3. Donald Trump’s meeting with the Saudis gave them an unexpected green light, either explicitly or implicitly, and thus the sudden receipt of this new information motivated their sudden switch in behavior.
During my recent trip to the Middle East I stated that there can no longer be funding of Radical Ideology. Leaders pointed to Qatar – look!
— Donald J. Trump (@realDonaldTrump) June 6, 2017
#3 still may be consistent with either #1 or #2.
4. The Saudis actually are playing a game with Iran, not so much with Qatar. What appears to be a big, sudden snap to the Qataris is actually just a smallish, mid-sized tweak in the incentives being applied to Iran. Qatar, because it is so small, feels a high degree of collateral damage.
5. The punishment space is multi-dimensional. Once “duration of punishment” is viewed as a variable, even a big punishment applied for a short period of time can be viewed as a marginal tweak. In this sense there is no paradox.
6. The Saudis view the Qataris as the ones who made a “discrete break” from the previous equilibrium, by paying a $1 billion ransom to Iranian and al Qaeda-linked forces, to induce the release of some kidnapped royal family members. Discrete breaks are inefficient, but perhaps you have to respond to one discrete break with another, precisely because they are inefficient.
7. Ian Bremmer mentioned on Twitter that 90% of the Qatari food supply is imported, 40% of it from Saudi, and now that is at risk. There are some countries for which a partial degree of agricultural subsidies and protectionism may make sense, for national security reasons. In any case, the degree of allowed smuggling reintroduces the notion of a smoother punishment space.
In a rational actor model (ha), this cut-off would be lifted in about a week from now.
Which states are moving to green energy most quickly?
Two years ago, Kansas repealed a law requiring that 20 percent of the state’s electric power come from renewable sources by 2020, seemingly a step backward on energy in a deeply conservative state.
Yet by the time the law was scrapped, it had become largely irrelevant. Kansas blew past that 20 percent target in 2014, and last year it generated more than 30 percent of its power from wind. The state may be the first in the country to hit 50 percent wind generation in a year or two, unless Iowa gets there first.
Some of the fastest progress on clean energy is occurring in states led by Republican governors and legislators, and states carried by Donald J. Trump in the presidential election.
The five states that get the largest percentage of their power from wind turbines — Iowa, Kansas, South Dakota, Oklahoma and North Dakota — all voted for Mr. Trump. So did Texas, which produces the most wind power in absolute terms. In fact, 69 percent of the wind power produced in the country comes from states that Mr. Trump carried in November.
That is from Justin Gillis and Nadja Popovich at the NYT.
Addendum: Kansas also just raised taxes.
Perry Anderson on Kemalism
One of his main points is that secular nationalism and Islamism have never been so separate in Turkey:
Tactical and transient, the new regime’s [Kemal’s] use of Islam, when no longer required, was easily reversed. But at a deeper level, a much tighter knot tied it to the very religion it proceeded on the surface to mortify. For even when at apparent fever pitch, Turkish secularism has never been truly secular. This is in part because, as often noted, Kemalism did not so much separate religion from the state as subordinate it to the state, creating ‘directorates’ that took over the ownership of all mosques, appointment of imams, administration of pious foundations – in effect, turning the faith into a branch of the bureaucracy. A much more profound reason, however, is that religion was never detached from the nation, becoming instead an unspoken definition of it. It was this that allowed Kemalism to become more than just a cult of the elites, leaving a durable imprint on the masses themselves. Secularism failed to take at village level: nationalism sank deeper popular roots. It is possible – such is the argument of Carter Findley in his Turks in World History – that in doing so it drew on a long Turkish cultural tradition, born in Central Asia and predating conversion to Islam, that figured a sacralisation of the state, which has vested its modern signifier, devlet, with an aura of unusual potency. However that may be, the ambiguity of Kemalism was to construct an ideological code in two registers. One was secular and appealed to the elite. The other was crypto-religious and accessible to the masses. Common to both was the integrity of the nation, as supreme political value.
Here is the full LRB essay, via Alex Xenopoulos. The comments after the essay are worth reading too.
Tuesday assorted links
1. Tankersley Vox interview with Bernanke.
2. The Bob Dylan Nobel Prize speech shows he deserved the prize.
3. Gavyn Davies praises Marvin Goodfriend (FT blog).
4. Again, a new feature, AEA research highlights.
5. Will Nevada create “Medicaid for all”?
Perfect complements, Saudi Arabia edition?
Manama: A Saudi judge and former Shura Council member has suggested hiring Saudi couples as flight attendants on Saudia, the flag carrier of the kingdom, as a first step to enabling Saudi women to become air stewardesses.
“The number of stewardesses with Saudia is around 1,000 and it is possible to recruit 1,000 Saudi couples to work together as flight attendants,” Dr Nasser Bin Zaid Bin Dawood said.
“Couples can start on domestic flights and then gradually move on to international flights. The idea of recruiting couples to work together is not new and we had a similar experience in the past when husbands were recruited as guards in the girls’ schools where their wives worked as principals, administrators, teachers or assistants,” Bin Dawood said, quoted by Saudi daily Okaz on Thursday.
Here is the link, via Air Genius Gary Leff. And here is Gary on the new air traffic control proposal. Peter Orszag also approves.
What I’ve been reading
1. Gunther S. Stent, The Coming of the Golden Age: a view of the end of progress. Starting on p.84 (!), this short 1969 tract becomes a remarkable disquisition on stagnation, through the lens of “Faustian Man,” the decline of romanticism, Ortega y Gasset, Kierkegaard, and the hippie beats of San Francisco. At some point the social sciences won’t make that much more progress, and Stent portrays the Maori as the non-complacent branch of the Polynesians.
2. Susan Southard, Nagasaki: Life After Nuclear War. What is a city like after a nuclear bomb hits? Beautifully written, both historical and anecdotal, and the ignoble record of the American government in this episode, with respect to cover-ups and poor treatment of survivors, extends well into the recovery period.
3. Jonathan Abrams, Boys Among Men: How the Prep-to-Pro Generation Redefined the NBA and Sparked a Basketball Revolution. A study of youth vs. experience, you can think of this as an excellent management book in addition to its basketball virtues.
4. Javier Cercas, La verdad de Agamenón, selected essays about literature, Borges, Tijuana, Spanish political culture as expressed through history, and the life of an author. About half of them are excellent, none of them bad. Could Cercas be the least-known (in America) great author in the world today?
5. Richard V. Reeves, Dream Hoarders: How the American Upper Middle Class is Leaving Everyone Else in the Dust, Why That is a Problem, and What To Do Abut It. The top one percent is not the relevant group.
6. Fernando Vallejo, Our Lady of the Assassins. This short and violent novel is about Colombia during the period of its troubles. Full of life and vigor, makes the case for complacency.
Gary Saul Morson and Morton Schapiro, Cents and Sensibility: What Economists Can Learn from the Humanities, covers a topic I am greatly interested in; here is a partial review by David Henderson. Related issues are considered by Mihir A. Desai, The Wisdom of Finance, with Charles Sanders Peirce and Wallace Stevens being two points of focus.
I am happy to have just written a blurb for Brink Lindsey and Steven Teles, The Captured Economy: How the Powerful Become Richer, Slow Down Growth, and Increase Inequality, self-recommending.
The Seville study on bike ridership and bike safety
Here are some of the results:
Here’s what they found: bike network connectedness seems to immediately pay off in the form of lower risk to people biking. The risk of a biking trip in Seville seems to have fallen dramatically in 2007 and stayed mostly flat afterward. No other single variable predicted bike safety as well as that single yes/no question: Has a network been built yet?
More accurate still was a formula that took into account both variables — the length of bikeways built and that yes/no question about whether or not the network had been connected.
In other words: Generally speaking, every additional mile of protected bike lane somewhere in the city improved safety. But network connections improved safety most.
Here is a summary, here is the study itself. For the pointer I thank Roland Stephen.
Monday assorted links
1. An interesting post on differing measures of wage growth, some showing more optimism than the usual story. I interpret these data as showing overall productivity stagnation, and that we are near full employment, but that finally some terms of trade shift toward less skilled workers can be observed. Other interpretations are possible, though.
2. The Parfitian lawsuit: “you made me exist!”
3. What happened to Jim Carrey?
4. “A society hospitable to the down and out will not be afraid to dress up.”
6. I was surprised to learn that the world’s largest bus terminal is in Tel Aviv. The link presents nine other “largest buildings of a particular type” around the world.