Tag Archives: Regulation

Power Corrupts, Slavery Edition

I’ve just finished reading a 1980 book Advice Among Masters: The Ideal in Slave Management in the Old South, which mostly quotes US slave owners from the mid 1800s writing on how to manage slaves. I really like reading ordinary people describe their to-me-strange worlds in their own words, and hope to do more of it. (Suggestions?)

This book has made me rethink where the main harms from slavery may lie. I said before that slaves were most harmed during and soon after capture, and that high interest rates could induce owners to work slaves to an early death. But neither of these apply in the US South, where the main harm had seemed to me to be from using threats of pain to induce more work on simple jobs.

However, this book gives the impression that most threats of pain were not actually directed at making slaves work harder. Slaves did work long hours, but then so did most poor European workers around that time. Slave owners didn’t actually demand that much more work from those capable of more work, instead tending to demand similar hours and effort from all slaves of a similar age, gender, and health.

What seems instead to have caused more pain to US south slaves was the vast number of rules that owners imposed, most of which had little direct connection to key problems like shirking at work, stealing, or running away. Rules varied quite a bit from owner to owner, but there were rules on where and when one could travel, times to rise and sleep, who could marry and live with who, who could talk to who when, when and how to wash bodies and houses, what clothes to wear when, who can cook, who can eat what foods, who goes to what sorts of churches when, and so on. Typical rules for slaves had much in common with typical “upstanding behavior” rules widely imposed by parents on their children, and by schools and armies on students and soldiers: eat well, rise early, keep clean, say your prayers, don’t drink, stay nearby, talk respectfully, don’t fraternize with the wrong people, etc.

With so many rules that varied so much, a standard argument against letting slaves visit neighboring plantations was that they’d less accept local rules if they learned of more lenient rules nearby. And while some owners emphasized enforcing rules via scoldings, fines, or reduction of privileges, most often violations were punished with beatings.

Another big cause of pain seems to have been agency failures with overseers, i.e., those who directly managed the slaves on behalf of the slave owners. Owners of just a few slaves oversaw them directly, and many other owners insisted on personally approving any punishments. However still others gave full discretion to overseers and refused to listen to slave complaints.

Few overseers had a direct financial stake in farm profitability, and many owners understood that such stakes would tempt overseers, who changed jobs often, to overwork slaves in the short run at the expense of long run profitability. Even so, short run harvest gains were usually easier for owners to see than long run harm to slaves, tempting overseers to sacrifice the former for the latter. And even if most overseers were kept well in line, a small fraction who used their discretion to beat and rape could impose high levels of net harm.

US south slave plantations were quite literally small totalitarian governments, and the main harms to such slaves seems to parallel the main libertarian complaints about all governments. A libertarian perspective sees the following pattern: once one group is empowered to run the lives of others, they tend to over-confidently over-manage them, adding too many rules that vary too much, rules enforced with expensive punishments. And such governments tend to give their agents too much discretion, which such agents use too often to indulge personal whims and biases. Think abusive police and an excess prison population today. Such patterns might be explained by an unconscious human habit of dominance via paternalism; while dominant groups tend to justify their rules in terms of helping, they are actually more trying to display their dominance.

Now one might instead argue that the usual “good behavior” rules imposed by parents, schools, militaries, and slave owners are actually helpful on average, turning lazy good-for-nothings into upright citizens. And in practice formal rule systems are so limited that agent discretion is needed to actually get good results. And strong punishments are needed to make it work. Spare the rod, and spoil the child, conscript, or slave. From this perspective, US south slave must have led decent lives overall, and we should be glad that improving tech is making it easier for modern governments to get involved in more details of our lives.

Looking to the future, if totalitarian management of individual lives is actually efficient, a more competitive future world would see more of it, leading widely to effective if not official slavery. Mostly for our own good. (This fear was common early in the industrial revolution.) But if the libertarians are right, and most dominant groups tend to make too many overly-harsh rules at the expense of efficiency, then a more competitive future world would see less such paternalism, including fewer slave-like lives.

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Regulating Self-Driving Cars

Warning: I’m sure there’s a literature on this, which I haven’t read. This post is instead based on a conversation with some folks who have read more of it. So I’m “shooting from the hip” here, as they say.

Like planes, boats, submarines, and other vehicles, self-driving cars can be used in several modes. The automation can be turned off. It can be turned on and advisory only. It can be driving, but with the human watching carefully and ready to take over at any time. Or it can be driving with the human not watching very carefully, so that the human would take a substantial delay before being able to take over. Or the human might not be capable of taking over at all; perhaps a remote driver would stand ready to take over via teleoperation.

While we might mostly trust vehicle owners or passengers to decide when to use which modes, existing practice suggest we won’t entirely trust them. Today, after a traffic accident, we let some parties sue others for damages. This can improves driver incentives to drive well. But we don’t trust this to fully correct incentives. So in addition, we regulate traffic. We don’t just suggest that you stop at a red light, keep in one lane, or stay below a speed limit. We require these things, and penalize detected violations. Similarly, we’ll probably want to regulate the choice of self-driving mode.

Consider a standard three-color traffic light. When the light is red, you are not allowed to go. When it is green you are allowed, but not required, to go; sometimes it is not safe to go even when a light is green. When the light is yellow, you are supposed to pay extra attention to a red light coming soon. We could similarly use a three color system as the basis of a three-mode system of regulating self-driving cars.

Imagine that inside each car is a very visible light, which regulators can set to be green, yellow or red. When your light is red you must drive your car yourself, even if you get advice from automation. When the light is yellow you can let the automation take over if you want, but you must watch carefully, ready to take over. When the light is green, you can usually ignore driving, such as by reading or sleeping, though you may watch or drive if you want.

(We might want a standard way to alert drivers when their color changed away from green. Of course we could imagine adding more colors, to distinguish more levels of attention and control. But a three level system seems a reasonable place to start.)

Under this system, the key regulatory choice is the choice of color. This choice could in principle be set different for each car at each moment. But early on the color would probably be set the same for all cars and drivers of a type, in a particular geographic area at a particular time. The color might come from in part a broadcasted signal, with the light perhaps defaulting to red if it can’t get a signal.

One can imagine a very bureaucratic system to set the color, with regulators sitting in a big room filled with monitors, like NASA mission control. That would probably be too conservative and fail to take local circumstances enough into account. Or one might imagine empowering fancy statistical or machine learning algorithms to make the choice. But most any algorithm would make a lot of mistakes, and the choice of algorithm might be politicized, leading to a poor choice.

Let me suggest using prediction markets for this choice. Regulators would have to choose a large set of situation buckets, such that the color must be the same for all situations in the same bucket. Then for each bucket we’d have three markets, estimating the accident rate conditional on a particular color. Assuming that drivers gain some direct benefit from paying less attention to driving, we’d set the color to green unless the expected difference between the green and yellow accident rate became high enough. Similarly for the choice between red and yellow.

Work on combinatorial prediction markets suggests that it is feasible to have billions or more such buckets at a time. We might use audit lotteries and only actually estimate accident rates for some small fraction of these buckets, using bets conditional on such auditing. But even with a much smaller number of buckets, our experience with prediction markets suggests that such a system would work better than either a bureaucratic or statistical system with a similar number of buckets.

Added 1p: My assumptions were influenced by the book Our Robots, Ourselves on the history of automation.

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Against DWIM Meta-Law

Smart capable personal assistants can be very useful. You give them vague and inconsistent instructions, and they “do what I mean” (DWIM), fixing your mistakes. If you empower them to control your interactions, you need less fear mistakes messing up your interactions.

But one thing a DWIM personal assistant can’t help you so much with is your choice of assistants. If assistants were empowered to use DWIM on your choice to fire them, they might tend to decide you didn’t really mean to fire them. So if you are to have an effective choice of assistants, and thus effective competition among potential assistants, then those same assistants can’t protect you much from possible mistakes in your meta-choices regarding assistants. They can protect you from other choices, but not that choice.

The same applies to letting people choose what city or nation to live in. When people live in a nation then that national government can use regulation to protect them from making many mistakes. For example, it can limit their legally available options of products, services, and contracts. But if people are to have an effective choice to change governments by changing regions, then such governments can’t use regulation much to protect people from mistakes regarding region choice. After all, a government authorized to declare your plan to move away from it to be a mistake can stop you from rejecting it.

Similarly we can elect politicians who pass laws to protect us from many mistakes. But if we are to have an effective choice of politicians to represent us, then they can’t protect us much from bad choices of politicians to represent us. We can’t let our current elected leaders much regulate who we can elect to replace them, if we are to be able to actually replace them.

I’ve long been intrigued by the idea of private law, wherein people can stay in the same place but contract with different legal systems, which then set the rules regarding their legal interactions with others. Such rules might in effect change the laws of tort, crime, marriage, etc. that people live under. And so such competition between private laws might push the law to evolve toward more efficient laws.

One of the things that legal systems tend to do is to protect people from mistakes. For example, contract law won’t enforce contracts it sees as mistakes, and it fills in contract holes it sees resulting from laziness. Law is often DWIM law. Which can be great when you trust your law to choose well. But if one is to have an effective choice of private law, and real competition for that role, then one’s current law shouldn’t be able to overrule one’s choice of a new law. Instead, one’s choice of a private legal system, like one’s choice of nation, needs to be a simple clear choice where one is not much protected from mistakes.

Today we don’t in fact have such private law, because our standard legal system won’t enforce contracts we sign that declare our intent to use different legal systems. To achieve private law, we’d need to change this key feature of our standard legal system.

Your choice to change nations, either for temporary travel or for permanent moves, can be a big mistake. It might result from temporary mood fluctuations, or from misunderstandings about the old nation or the new. Nevertheless we have little regulation of such choices. Instead individuals are mostly fully exposes to their possible mistakes. For example, while Europe is heavily regulated in general, European teens today can decide to go join ISIS, even when many others greatly regret such choices. We disapprove of nations that prevent people from leaving because that cuts competition between nations to serve people.

Similarly, if we want completion between legal systems without forcing people to move, we’ll have to change our law to accept our not protecting people from bad choices of legal systems. There will have to be a simple clear act by which one chooses a law, a choice not much subject to legal review and reversal. We’d want to encourage people to take such choices seriously, but then to accept the choices they make. Freedom of choice requires a freedom to make mistakes. For big choices, those can be big mistakes.

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Why I Lean Libertarian

Imagine that one person, or a small group, wants to do something, like watch pornography, do uncertified medical procedures, have gay sex, worship Satan, shoot guns, drink raw milk, etc. Imagine further that many other people outside that small group don’t want them to do this. They instead want the government to make a law prohibiting similar groups from doing similar things.

In this prototypical situation, libertarians tend to say “let them do it” while others say “have the government make them stop.” If we take a cost-benefit perspective here, then the key question here is whether this small group gains more from their activity (or an added increment of it) than others lose (including losing via their “altruistic” concern for the small group). Since this small group would choose to do it if allowed, we can presume they expect to gain something. And if others complain and try to make them stop (or cut back), we can presume they expect to lose. So we are trying to estimate the relative magnitude of these two effects.

I see three considerations that, all else equal, lean this choice in the libertarian direction.

  •  Law & Government Are Costly – It will take real resources to create and enforce a law to ban this activity. We’ll have to negotiate the wording of this law, and then tell people about it. People will complain about violations, and then we’ll have to adjudicate those complaints, and punish violators. We’ll make mistakes in which laws to create, who to punish, and how to manage the whole process. More rules will discourage innovation, and invite more lobbying. All of which is costly.
  • Local Coordination Might Work – If people do something that hurts those around them more, often those nearby others can coordinate to discourage them via contract and freedom of association. If playing your music loud bothers folks in the apartment next door, your common landlord can set rules to limit your music volume. And kick you out if you don’t follow his rules. The more ways that smaller organizations could plausibly solve a problem, the less likely we need central government to get involved.
  • Lawsuits Might Work – Legal systems have well-established processes whereby some people can sue others, claiming that the actions of those others have hurt them. Suit losers must pay, discouraging the activity. Yes, people harmed can need to coordinate to sue together, and yes legal systems tend to demand relatively concrete evidence of real harm, and that the accused caused that harm. It might be hard to figure out who to accuse, the accused might not have enough money to pay, and the legal process might be too expensive to make it worth bothering. But again, the more situations where the law could plausibly solve the problem, the less likely that we need extra government involvement.

Again, each of these considerations leans the conclusion in a libertarian direction, all else equal. Yes, they can collectively be overcome by strong enough other considerations that lean the other way. For example, I’ll grant that for the case of air pollution, we plausibly have strong enough evidence of large harms on outsiders, harms insufficiently discouraged by local coordination and lawsuits. So yes in this case central government might be an attractive solution, if it can act cheaply and efficiently enough.

But the main point here is that the three considerations above justify a libertarian default that must be overcome by specific arguments to the contrary. If outsiders complain about an activity, but aren’t willing to buy less of it via contract, or to sue for less of it in court, maybe they aren’t really being hurt that much. There is an asymmetry here: if we don’t ban an activity and might get too much, contract & law could reduce it a lot, but if we ban an activity and might get too little, contract & law can’t increase it much.

Yes, other persuasive contrary considerations might be found, including considerations not based on the net harm of the disputed actions. But the less you think you know about these other considerations, the more your choice will be influenced by these three basic considerations, all of which seem to me pretty solid.

While I have said before that I am not a libertarian according to common strict definitions, I still usually tend to lean libertarian, because in fact arguments based on further considerations often seem to me pretty weak. While one can often make clever arguments, it is often hard to have much confidence in them; the world seems just too complex. And so I often have to fall back on simple defaults. Which, as I’ve argued above, are libertarian.

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Yay Soda Firms

It is usually bad for people to die, and so good for them to keep living. Overall in our society, people who weigh more for their age and gender tend to die more, and so many are concerned about an “obesity epidemic”, and seek ways to reduce people’s weight, such as by getting them to consume fewer calories. Such as from drinking sugary soda.

TIME magazine says that evil soda firms, like evil tobacco firms before them, are lying about science to distract us from their evil:

You may not have noticed it yet, but sodamakers are working hard to get you off your couch. On Aug. 9, a New York Times article revealed that Coca-Cola was quietly funding a group of scientists called Global Energy Balance Network that emphasizes the role of exercise, as opposed to diet, in fighting obesity. … This has some nutrition and obesity experts charging soda companies, whose sales of carbonated soft drinks have hit a 20-year low, with cherry-picking science to make its products more appealing. … Indeed, there isn’t strong evidence to show that exercise alone … can help people shed pounds and keep them off. … It’s not the first time science has been used to sway public perceptions about the health effects of certain behaviors; the tobacco industry famously promoted messaging passed on studies that claimed to prove that “light” or “low-tar” cigarettes were less harmful that regular ones. (more)

Yes, it is true that the literature usually suggests that for most people exercise won’t do much to change their weight. However, another consistent result in the literature (e.g., here, here) is that when we predict health using both weight and exercise, it is mostly exercise that matters. It seems that the main reason that heavy people are less healthy is that they exercise less. Obesity is mainly unhealthy as a sign of a lack of exercise.

So if we cared mainly about people’s health, we should cheer this effort by soda forms to push people to exercise. Even if that also causes people to cut down less on soda. A population that exercises more doesn’t weight much less, but it lives much longer. In fact, exercise seems to be one of the biggest ways we know of by which an individual can influence their health. (Much bigger than medicine, for example.)

I suspect, however, that what bothers most people most about fat people isn’t that they’ll die younger, its instead that they look ugly and low status, and so make them also look low status by association. So we don’t want people near us to look fat. All else equal we might also want them to live longer, but that altruistic motive can’t compete much with our status motive.

So boo soda firms if you want your associates to not seem low status. But yay soda firms if you want people to live and not die (sooner).

Added 11a: The New York Times reports this as the main message:

… Global Energy Balance Network, which promotes the argument that weight-conscious Americans are overly fixated on how much they eat and drink while not paying enough attention to exercise. Health experts say this message is misleading …

Actually that message seems exactly right to me, and not at all misleading.

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Regulating Government

Wall Street is apparently profiting from helping local governments use an accounting trick to underfund pensions:

Pension bonds … current boom is … being driven … by a new accounting quirk that has largely escaped public notice while morphing into a major marketing tool for Wall Street banks. The quirk stems from a rule change that was meant to force governments to more clearly disclose the health of their pension funds. … If a pension plan is so poorly funded that it is projected to run out of cash, the new rules require it to make less optimistic projections about future returns. That increases the reported pension shortfall. But if governments infuse a big slug of borrowed money into the fund, they can resume using optimistic projections, and the shortfall shrinks. …

A review by ProPublica and The Post of the 20 largest pension bonds issued since 1996 found that in three-fourths of the deals, governments did not make their full required contribution in the years after the bonds were sold. … Because of the underfunding, most of the pension funds now are worse off than before the bonds were issued. (more)

I find it plausible that these pension bonds are often bad ideas, and that some general regulation might be useful to prevent their misapplication. But today I’m less interested in the particular issue of pensions, and more in the general issue of when democratic governments can be trusted to act in the interest of their voters.

Consider also the examples of public employee unions, and of eminent domain. In all these cases we don’t trust democratic governments to make the best choices for their citizens, and so we may empower some other democratic government to regulate or constrain those distrusted governments. For example, it seems we don’t trust governments to choose good wages for their employees, since we empower unions to negotiate with them.

It is not just that some citizens aren’t allowed to vote, or that governments representing different regions may have conflicts, or that the same government at different times can have conflicting time-inconsistent preferences. It seems to also be about a limited ability of citizens to pay attention to government activities. But how is it exactly that citizens can pay enough attention to the regulating government to help it choose a good regulation role, but can’t pay enough attention to the regulated government, tempting that government to make bad decisions? How is this supposed to work, even in theory?

This seems an important issue, and I’m interested in reading more about it. I expect there is a literature out there on this, but I don’t recall ever coming across it. Anyone have some good cites?

This topic is of course related to the possibility that governments may often be over-regulated.

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Firms Now 5/6 Dark Matter!

Scott Sumner:

We all know that the capital-intensive businesses of yesteryear like GM and US steel are an increasingly small share of the US economy. But until I saw this post by Justin Fox I had no idea how dramatic the transformation had been since 1975:

intangibles

Wow. I had no idea as well. As someone who teaches graduate industrial organization, I can tell you this is HUGE. And I’ve been pondering it for the week since Scott posted the above.

Let me restate the key fact. The S&P 500 are five hundred big public firms listed on US exchanges. Imagine that you wanted to create a new firm to compete with one of these big established firms. So you wanted to duplicate that firm’s products, employees, buildings, machines, land, trucks, etc. You’d hire away some key employees and copy their business process, at least as much as you could see and were legally allowed to copy.

Forty years ago the cost to copy such a firm was about 5/6 of the total stock price of that firm. So 1/6 of that stock price represented the value of things you couldn’t easily copy, like patents, customer goodwill, employee goodwill, regulator favoritism, and hard to see features of company methods and culture. Today it costs only 1/6 of the stock price to copy all a firm’s visible items and features that you can legally copy. So today the other 5/6 of the stock price represents the value of all those things you can’t copy.

So in forty years we’ve gone from a world where it was easy to see most of what made the biggest public firms valuable, to a world where most of that value is invisible. From 1/6 dark matter to 5/6 dark matter. What can possibly have changed so much in less than four decades? Some possibilities:

Error – Anytime you focus on the most surprising number you’ve seen in a long time, you gotta wonder if you’ve selected for an error. Maybe they’ve really screwed up this calculation.

Selection – Maybe big firms used to own factories, trucks etc., but now they hire smaller and foreign firms that own those things. So if we looked at all the firms we’d see a much smaller change in intangibles. One check: over half of Wilshire 5000 firm value is also intangible.

Methods – Maybe firms previously used simple generic methods that were easy for outsiders to copy, but today firms are full of specialized methods and culture that outsiders can’t copy because insiders don’t even see or understand them very well. Maybe, but forty years ago firm methods sure seemed plenty varied and complex.

Innovation – Maybe firms are today far more innovative, with products and services that embody more special local insights, and that change faster, preventing others from profiting by copying. But this should increase growth rates, which we don’t see. And product cycles don’t seem to be faster. Total US R&D spending hasn’t changed much as a GDP fraction, though private spending is up by less than a factor of two, and public spending is down.

Patents – Maybe innovation isn’t up, but patent law now favors patent holders more, helping incumbents to better keep out competitors. Patents granted per year in US have risen from 77K in 1975 to 326K in 2014. But Patent law isn’t obviously so much more favorable. Some even say it has weakened a lot in the last fifteen years.

Regulation – Maybe regulation favoring incumbents is far stronger today. But 1975 wasn’t exact a low regulation nirvana. Could regulation really have changed so much?

Employees – Maybe employees used to jump easily from firm to firm, but are now stuck at firms because of health benefits, etc. So firms gain from being able to pay stuck employees due to less competition for them. But in fact average and median employee tenure is down since 1975.

Advertising – Maybe more ads have created more customer loyalty. But ad spending hasn’t changed much as fraction of GDP. Could ads really be that much more effective? And if they were, wouldn’t firms be spending more on them?

Brands – Maybe when we are richer we care more about the identity that products project, and so are willing to pay more for brands with favorable images. And maybe it takes a long time to make a new favorable brand image. But does it really take that long? And brand loyalty seems to actually be down.

Monopoly – Maybe product variety has increased so much that firm products are worse substitutes, giving firms more market power. But I’m not aware that any standard measures of market concentration (such as HHI) have increased a lot over this period.

Alas, I don’t see a clear answer here. The effect that we are trying to explain is so big that we’ll need a huge cause to drive it. Yes it might have several causes, but each will then have to be big. So something really big is going on. And whatever it is, it is big enough to drive many other trends that people have been puzzling over.

Added 5p: This graph gives the figure for every year from ’73 to ’07.

Added 8p: This post shows debt/equity of S&P500 firms increasing from ~28% to ~42% from ’75 to ’15 . This can explain only a small part of the increase in intangible assets. Adding debt to tangibles in the numerator and denominator gives intangibles going from 13% in ’75 to 59% in ’15.

Added 8a 6Apr: Tyler Cowen emphasizes that accountants underestimate the market value of ordinary capital like equipment, but he neither gives (nor points to) an estimate of the typical size of that effect.

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Blockchain Bingo

Two weeks ago I was on a three person half hour panel on “Bitcoin and the Future” at an O’Reilly Radar Summit on Bitcoin & the Blockchain. I was honored to be invited, but worried as I had not been tracking the field much. I read up a bit, and listened carefully to previous sessions. And I’ve been continuing to ponder and read for the last two weeks. There are many technical details here, and they matter. Even so, it seems I should try to say something; here goes.

A possible conversation between a blockchain enthusiast and newbie:

“Bitcoin is electronic money! It is made from blockchains, which are electronic ledgers that can also support many kinds of electronic contracts and trades.”

“But we already have money, and ledgers. And electronic versions. In fact, bank ledgers were one of the first computer applications.”

“Yes, but blockchain ledgers are decentralized. Sure, compared to ordinary computer ledgers, blockchain ledgers take millions or more times the computing power. But blockchains have no central org to trust. Instead, you trust the whole system.”

“Is this whole system in fact more more trustworthy that the usual bank ledger system today?”

“Not in practice so far, at least not for most people. But it might be in the future, if we experiment with enough different approaches, and if enough people use the better approaches, to induce enough supporting infrastructure efforts.”

“If someone steals my credit card today, a central org of a credit card firm usually takes responsibility and fixes that. Here I’d be on my own, right?”

“Yes, but credit card firms charge you way too much for such services.”

“And without central orgs, doesn’t it get much harder to regulate financial services?”

“Yes, but you don’t want all those regulations. For example, blockchains make anonymous money holdings and contracts easier. So you could evade taxes, and laws that restrict bets and drug buys.”

“Couldn’t we just pass new laws to allow such evasions, if we didn’t want the social protections they provide? And couldn’t we just buy cheaper financial services, if we didn’t want the private protections that standard services now provide?”

“You’re talking as if government and financial service markets are efficient. They aren’t. Financial firms have a chokehold on finance, and they squeeze us for their gain, not ours. They have captured government regulators, who mostly work to tighten the noose, instead of helping the rest of us.”

“OK, imagine we do create cheaper decentralized systems of finance where evasion of regulation is easier. If this system is used in ways we don’t like, we won’t be able to do much to stop that besides informal social pressure, or trying to crudely shut down the whole system, right? There’d be no one driving the train.”

“Yes, exactly! That is the dream, and it might just be possible, if enough of us work for it.”

“But even if I want change, shouldn’t I be scared of change this lumpy? This is all or nothing. We don’t get to see the all before we try, and once we get it then its mostly too late to reverse.”

“Yes, but the powers-that-be can and do block most incremental changes. It is disruptive revolution, or nothing. To the barricades!”

I see five main issues regarding blockchain enthusiasm:

  • Technical Obstacles. Many technical obstacles remain, to designing systems that are general, cheap, secure, robust, and scaleable. You are more enthusiastic if you think these obstacles can be more easily overcome.
  • Bad Finance & Regulation. The more corrupt and wasteful you think that finance and financial regulation are today, the more you’ll want to throw the dice to get something new.
  • Lumpy Change. The more you want change, but would rather go slow and gradual, so we can back off if we don’t like what we see, the less you’ll want to throw these lumpy dice.
  • Standards Coordination. Many equilibria are possible here, depending on exactly which technical features are in the main standards. The worse you think we are at such coordination, the less you want to roll these dice.
  • Risk Aversion. The more you think regulations protect us from terrible dark demons waiting in the shadows, the less you’ll want a big unknown hard-to-change-or-regulate world.

Me, I’d throw the dice. But then I’d really like more bets to be feasible, and I’ve known some people working in this area for decades. However, I can’t at all see blaming you if you feel different; this really is a tough call.

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Yes, Compare Nations

I called for more empirical work on the effects of liberty:

Libertarians focus too much on trying to argue abstractly that liberty would be better, and not enough on just concretely describing how liberty would be different. … From [our] vast literature we should be able to identify many concrete patterns and “stylized facts” about how government-provision and heavy-regulation tends to change products and services. (more)

David Henderson agrees:

The reality is that after Stigler’s speech, many economists did look more at the data and the data tended to show that the free market and economic freedom work better than government control. But Robin is not satisfied. There is more to be done, he says, and he’s right.  (more)

But he does have a criticism:

I do have one main criticism of Robin’s post. … It’s the West/East Germany and the South/North Korea comparisons that I want to defend. With all the variables that could affect economic growth, think about how hard it is to know what some of the most important factors are. … The stark contrast between those two pairs of countries and what that said about some economic freedom versus harsh totalitarianism.

I very much agree that those nation pairs make useful comparisons; sorry that what I wrote could mislead on that point. These comparisons do indeed suggest that “some freedom” is better than “harsh totalitarianism”, and they are good data-points on which to base stylized facts on the general effects of more liberty. Their main limitations are that they don’t say much directly about the effects of a lot more liberty than is found in West Germany or South Korea. To imagine even more liberty, we need those stylized facts.

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Policy vs. Meta-Policy

What is our main problem, bad policy or bad meta-policy? That is, do our collective choices go wrong mainly because we make a few key mistakes in choosing particular policies? Or do they go wrong mainly because we use the wrong institutions to choose these policies?

I would have thought meta-policy was the obvious answer. But CATO asked 51 scholars/pundits this question:

If you could wave a magic wand and make one or two policy or institutional changes to brighten the U.S. economy’s long-term growth prospects, what would you change and why?

And out of the 29 answers now visible, only four (or 14%) of us picked meta-policy changes:

Michael Strain says to increase fed data agency budgets:

BLS data on gross labor market flows … are not available at the state and MSA level, they do not have detailed industry breakdowns, and they do not break down by occupation or by job task. … We also need better “longitudinal” data — data that track individuals every year (or even more frequently) for a long period of time. … The major federal statistical agencies need larger budgets to collect the data we need to design policies to increase workforce participation and to strength future growth. … My second policy suggestion is to expand the … EITC.

Lee Drutman says to increase Congress staff policy budgets:

I would triple the amount the Congress spends on staff (keeping it still at just under 0.1% of the total federal budget). I’d also concentrate that spending in the policy committees. I’d give those committees the resources to be leading institutions for expertise on the issues on which they deal. I’d also give these committees the resources to hire their own experts — economists, lawyers, consultants, etc. But I’d also make sure that these committees were not explicitly partisan.

Eli Dourado says to pay Congress a bonus if the economy does well:

A performance bonus would help to overcome some of Congress’s complacency and division in the face of decades-long economic stagnation. … One good performance metric would be total factor productivity (TFP). … Fernald adjusts his TFP estimate for cyclical labor and capital utilization changes, making his series a better measure. … Members of Congress would earn a $200,000 bonus if the two-year period in which they serve averages 2 percent TFP growth. (more)

Robin Hanson says to use decisions markets to choose policies:

First, I propose that our national legislatures pass bills to define national welfare, and fund and authorize an agency to collect statistics to measure this numerical quantity after the fact. … Second, … create an open bounty system for proposing policies to increase national welfare. … Third, … create two open speculative decision markets for each official proposal, to estimate national welfare given that we do or do not adopt this proposal. … If over the decision day the average if-adopted price is higher than the average if-not-adopt price (plus average bid-ask spread), then the proposal … becomes a new law of the land.

It seems to me that Michael, Lee, and Eli feel wave pretty weak wands. Surely if they thought their wands strong enough to cast any policy or meta-policy spell, wouldn’t they pick meta-policy spells a bit stronger than these? (And why is it always more spending, not less?)

By focusing on policy instead of meta-policy, it seems to me that the other 25 writers show either an unjustified faith in existing policy institutions, or a lack of imagination on possible alternatives. Both of which are somewhat surprising for 51 scholars chosen by CATO.

Added Dec3:  3 of the 25 remaining proposals were in the meta-policy direction:

Susan Dudley:

[Regulatory] agencies should be required to present evidence that they have identified a material failure of competitive markets or public institutions that requires a federal regulatory solution, and provide an objective evaluation of alternatives.

Michael Mandel:

The Regulatory Improvement Commission … would have a limited period of time to come up with a package of regulations to be eliminated or fixed, drawing on public suggestions. The package would then be sent to Congress for an up-or-down vote, and then onto the President for signing.

Megan McArdle:

Instead of analyzing whether the [cost-benefit] calculations in a regulatory ledger sum to a positive or a negative number, we need to set a level of [regulatory] complexity that we’re willing to live with, and then decide which positive sum regulations we’re willing to discard in order to stay within that budget. … Crude rules which might well serve, like capping the number of laws and regulations, allowing a new one to be implemented only if an older one is repealed.

Added 30Sept2015: There are now 51 of these proposals, collected into a book. I found no more that are plausibly meta-proposals.

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