Bookends

I have been reading Timothy Egan's The Worst Hard Times: The Untold Story of Those Who Survived the Great American Dust Bowl, a book about life in the Dust Bowl. It has been a nice bookend to other information I have read on the Depression. This includes Howard Zinn's People's History of the United States, John T. Flynn's The Roosevelt Myth, Jim Powell's FDR's Folly, and Friedman & Schwartz' A Monetary History of the United States. Egan's book provides a human perspective on momentous times.

My own personal theory, to which I have seen allusions but not the definitive book (surely someone has written it) is that the Depression was the effect of society absorbing the final shift from the agrarian economy. Putting a plow behind an internal combustion engine-driven machine meant you didn't need all those people working on farms. But neither were they finding employment in the cities.

Although Egan alludes to the state's complicity in the conditions that produced those hard times, and at the end acknowledges the bad long term effects of FDR's intervention, FDR, Hugh Bennett, and farm policy are definitely the heroes of the story.

The state's complicity lies in first running the natives out, then establishing incentives to farm the land rather than use it for grazing. The long term effect has been to establish farm subsidies which are detrimental. On the one hand, price supports result in the overproduction of commodities such as cotton, which the government then buys and dumps, further depressing world markets, and further impoverishing African farmers. On the other hand, other convoluted policies such as sugar price supports, ethanol incentives, and ethanol import tariffs, are intended to support corn prices, further impoverishing Mexican peasants. It is a sad reflection on people who worship FDR's policies as the salvation of impoverished American farmers while ignoring the ill effect of those policies on the impoverished farmers in the rest of the world.

Some anarchists claim that defense is the tough problem; I doubt it. I think that The Depression is a tougher problem. The benefit of Egan's book is that it highlights the real stories of real people. In the context of those times, when it seemed reasonable for the state to encourage homesteading and farming prior to the closing of the West, when the prospect of prolonged drought seemed dim prior to 1932, when the invoice for the social cost of their actions was not yet due, what happens to those people in the absence of the New Deal?

Still, one cannot help but think that Egan has absorbed just a little too much of the high school version of those events. The high school version is that the farmers were too dumb to know what they were doing, so FDR hired some smart men who invented and taught contour plowing and the use of trees for windbreaks, and then they paid the farmers to let some fields go fallow. It is an unusually common myth, as seen in this example:

In response to the urgent need for soil and water conservation programs to halt farmland destruction, the Soil Conservation Service was established in 1935. SCS employees set up demonstration plots and taught methods such as contour plowing, terracing, and strip-cropping to retain water on the fields and reduce runoff and erosion. Windbreaks were planted to break the force of the prairie winds, tillage methods were changed to reduce exposed soils, and vegetation or stubble was retained on the fields after the growing season to provide protective cover. With these methods, damaged lands were reclaimed and the dust storms were brought under control.

Also, in the free market banking system of the day, banks ripped everyone off, so FDR instituted banking reforms and federal deposit insurance. The truth? It's a little more complex.

First, the New Deal: FDR ran on the New Deal platform, which was to undo all of the Hoover Administration errors. According to FDR, those consisted of deficit spending, excessively high taxation, and too much government (Flynn). When he actually took office, the first thing they did, of course, was to raise taxes, increase spending, and run a deficit just like Dr. Keynes said they should.

Despite similar conditions in Canada, not a single bank failed there (Powell). In fact, prior to the Federal Reserve Act, the US weathered several similar periods with almost no bank defaults. The FRA was supposed to have made the government the lender of last resort, but the act was truly established to serve the needs of the bankers (Kolko).

Another Hoover policy which FDR had vowed to overturn but then repeated was the destruction of food supplies in the farming states even while people starved in the cities (Flynn and Powell). It is a question of that which is seen (starving farmers helped by the payments) and that which is not seen (starving city dwellers and destroyed crops): the former have much more impact in an era when newspaper photos and newsreels hold sway.

Today, the collective effect of those actions is an agriculture policy which enriches large corporations, leads to a substantial amount of water overuse and water pollution, reduces the quality of our food, and impoverishes poor farmers around the world who have to compete with subsidized American farmers.

Second, there is the problem that conservation measures had been around long before FDR took office. Contour plowing in particular had been around since at least ancient times

Contour farming was practiced by the ancient Phoenicians, and is known to be effective for slopes between two and ten percent. Contour plowing can increase crop yields from 10 to 50 percent, partially as a result from greater soil retention.

Or at least nearly the birth of the Republic

In 1808, Jefferson transmitted a refinement of his design to a Monsieur Sylvestre in France, for the benefit of the Society of the Seine.

The deep tillage could heavily erode the steep terrain of Jefferson's plantations, though, and he discovered that contour plowing around the curvature of the hills, rather than cutting furrows straight down-slope toward neighboring streams greatly reduced erosion.

He wrote to Tristam Dalton in May 1817 about his son-in-law Col. T.M. Randolph’s development of this method, laying off the plow lines in advance using a (wooden) rafter to measure and strokes of a hoe to mark the contours.

Plowing across slope on hilly terrain put a severe strain on the plowman and Col. Randolph modified the plow, fusing two separate shares against their flat sides at a right angle.

Plowing one way with the sod thrown down slope around the hill to the end of a furrow, the plowman would flip over the plow bottom and head back in the other direction with that sod thrown down slope as well. This eventually developed into a widely used "hillside plow."

Jefferson sent Dalton "a bit of paper cut in the form of the double share, which being opened at the fold to a right angle will give an idea of its general principle."

Jefferson's farms, including Monticello, had been losing soil into Chesapeake rivers for years and these new methods resulted in substantial improvements: "Let me beseech you" Jefferson wrote to others, "to make a trial of this method."

These techniques were not unknown to moderns:

As he had always been a voice for the working class, Villa would continue in this facet as the owner of a large piece of land. He attempted tremendous agrarian reform on his land. First, he studied the new, American techniques of contour plowing and crop rotation. His agrarian reform went one step further to include not only the crops, but also the people who tended the crops. Villa remembered the unfair economics used by the hacienda owners and made refreshing changes.

Pancho Villa died in 1923, less than a decade before Egan's story begins.

Egan relies on an article, "Small Farms, Externalities and the Dust Bowl of the 1930s" by Zeynep K. Hansen and Gary D. Libecap, published by the NBER. Among other things, the article discusses erosion as an example of several kinds of externality. In one, suspension, fine particles are blown into and then suspended in the air. To the farmer, this was an internal cost, but the fine particles in the air caused health problems to humans and livestock. Saltation and creep are externalities in which the topsoil from one farm is deposited on another farm, not only killing the wheat but also burying the downwind farm's erosion control stubble. In the article, they note that prior to the creation of the SCS,

The two leading erosion control methods in the 1930s were strip cropping with strip fallow and windbreaks of trees or brush. Both provided barriers to lower surface wind velocity and carrying capacity, but the former was more prevalent because trees could not be grown in many parts of the plains. Strip fallow also had the advantage of building up soil moisture and roughness, which reduced erodibility, whereas tree windbreaks actually absorbed moisture from surrounding ground.

This is interesting because it shows that (1) Dust Bowl farmers did practice conservation before FDR saved them, and (2) one of the fables from the high school version, FDR's commitment to using trees to block the wind, was not only a failure, but potentially could have worsened the situation. Egan also describes the tree idea as a failure.

Further in the article, they explain,

To completely combat regional erosion, all of the cultivated acreage in a topographical area of similarly erodible soil would have to be included in a "wind erosion unit" of 50,000 to 500,000 acres or more. The optimal farm sizes for addressing wind erosion and production, however, were not the same. Most estimates by agricultural economists and extension agents in the 1930s of appropriate production sizes for the region suggested two sections of land, 1,280 acres, depending on location in the plains. Few scale economies could be realized beyond that size. Nevertheless, in the 1930s, most farms were smaller than the prescribed levels for optimal production. The Great Plains was covered by hundreds of thousands of small farms. This condition was largely a legacy of the Homestead Act that limited claims to 160 to 320 acres when the region was settled between 1880 and 1925.

This is the same opinion reported by Egan of Hugh Bennett, the first director of the Soil Conservation Service. The area covered by Egan's story was formerly the domain of Plains Indians who thrived on grass-fed buffalo. The first whites to successfully live on the land ran the XIT cattle ranch. It was government policy to replace both with small claims farmers. According to their report written for Roosevelt,

"Mistaken public choices have been largely responsible for the situation," the report proclaimed. Specifically, "a mistaken homesteading policy, the stimulation of war time demands [World War I] which led to over cropping and over grazing, and encouragement of a system of agriculture which could not be both permanent and prosperous."
[...]
[Egan, continuing to quote from the report] "The Federal homestead policy, which kept land allotments low and required that a portion of each should be plowed, is now seen to have caused immeasurable harm. The Homestead Act of 1862, limiting an individual to 160 acres, was on the wesern plains almost an obligatory act of poverty."

Since the government subsequently wanted farms greater than 500 acres, and most farms of that period were smaller, Hansen and Libecap conclude that the farms were too small. This is consistent with other rationalization schemes of that era in which it was thought that efficiency required government-directed coordination.

Accordingly, collective action among farmers was necessary to address wind erosion. In commenting on strip cropping and recognizing the externalities involved, Charles Kellogg of the Bureau of Chemistry and Soils stated: "Such a practice, to be most effective, must be adopted on a community basis. Isolated farmers following this practice are not greatly benefited if the adjoining land is allowed to blow badly." The large number of small farms on the Great Plains, however, raised the costs of coordination. Indeed, Roland Renne of the Montana Agricultural Experiment Station (1935, 426-9) noted: "Dealing with thousands of different owners slows up the adoption of a planned land use program..."

They try to make a case that small farmers face different incentives than large farms:

Private motivation to invest in strip fallow was reduced when farmers did not internalize the externalities. The problem was accentuated for small farm owners. Each farmer had to consider the benefits of strip fallow with the opportunity costs of lost production. Because small farmers captured fewer of these leeward effects, they were less likely to have any fallow rotation, leaving their land in cultivation and their fields exposed to wind.

It might at first appear that there should be little difference in the proportion of land fallowed on a large or small farm since large farmers would face a correspondingly higher opportunity cost. However, a family faces about the same need for income (fixed cost) no matter how large the farm. Hansen and Libecap find that the proportion of land dedicated to conservation was proportionally larger on large farms.

Dissappointingly, they neglect to account for the possibility that adjoining farmers could coordinate through private mechanisms, in much the same way as the Animas Foundation and Malpai Borderlands Group pioneered the grassbank concept. They make passing references to "mixed incentives" to participate voluntarily and to transaction costs, but do not explain what those are. This could be the loss of reputation that might result from buying out a smaller, less profitable, and more harmful farm in a community where bidding in a bankruptcy auction brought threats of violence. Part of the problem may be that the Dust Bowl and the Depression occurred at the same time; had the Dust Bowl occurred separately, there might have been enough money to buy them out without the concurrent bankruptcy and bank failure problems.

I think this is a case in which there was little appreciation for the problem beforehand, and the immediate crisis was solved in conjunction with deep-pocketed and politically motivated politicians. Afterward, everyone is aware of the problem and at least several solutions, but now the state has become associated with the solution and becomes inseparable from it. Before: ignorance, no state. Afterward: knowledge, solution, and state.

Before	After
Ignorance	Knowledge
Problem	Solution
No state	State
Voluntary	Coercion

The frame then becomes that the state and the solution are one and the same when in fact the knowledge and the solution are independent of the state. We forget how often we have ignorance/no-state/before and knowledge/no-state/after, and also how often we have ignorance/state/before and ignorance/state/after. Celera's being the first to map the human genome is an example of the first (the state eventually joined the party), the S&L meltdown of the 1980s is an example of the second (the 1980 S&L Act signed by Carter precipitated the fiasco by expanding the federal insurance and then encouraging them to invest in local real estate (very non-diversified) and high-risk assets like art, creating a predictable problem), and most agriculture policy is an example of the third (nobody seems to know there is a problem or what to do about it).

As Egan describes the Dust Bowl era, farmers were ready for someone to show them a solution; if that happened to be a government agency that would also come in with money, they weren't going to turn it down. That doesn't seem to be the case: One telling fact that comes from the NBER paper is that the voluntary federal programs largely failed, while the coercive state programs succeeded.

Given the mixed incentives to participate in erosion control, the response to calls for voluntary collective action was limited. Indeed, the SCS noted a lack of voluntary farmer participation in the erosion control programs outlined in the demonstration projects.

Later,

More direct and coercive government intervention came in 1937 with inauguration of Soil Conservation Districts (SCDs) that had the authority to force farmer compliance and the resources (subsidies) to cover the costs of erosion control. The SCDs were local government units and required state legislation for establishment.

Oddly, according to Hansen and Libecap, "Kansas, Oklahoma, and Texas, at the center of the Dust Bowl, enacted wind erosion laws in 1935", but Egan fails to note those changes.

I am frequently accused of being too theoretical. For example, I think that this episode in America might have gone differently if the state had stayed out. People who favor state intervention will pooh-pooh the Malpai Borderlands grassbank initiative, inevitably pointing out that no private action did actually occur at that time, and that the farmers failed to join in the voluntary programs. I say that they are not going back far enough: what about leaving the ranchers and before them the Indians alone? Those are actual policies of the state that created the conditions for the environmental and social disaster. That is not a theoretical, paper claim: even Hugh Bennett agreed that the Homestead policy was a mistake. The Nature Conservancy and not the federal government pioneered the use of prescribed fire to maintain the health of the grasslands. Grass-fed buffalo are being reintroduced to the grass-fire-buffalo ecosystem as a sustainable food source. It turns out that laissez-faire would have been the best policy. But I am the theoretical one?

Me vs the libertarian vice

As the argument goes,

Private actors and markets tend to be dynamic because the actors respond to incentives. Proactive people will be promoted in dynamic companies and those will win market share from companies that stifle creativity and drive creative individuals away.

Government bureaucracies are static; there are no incentives. If they do a job poorly, they still keep their market share and jobs.

It occurs to me to take to heart Tyler's suggestion that the libertarian vice is to think that gov't quality is fixed. I confront the second statement from above, asking whether it is true if we consider what I have said about bureaucrats. Chiefly, are they self-selecting? If so, then they have reason to see a good job done regardless of the benefit to themselves, i.e. in spite of the fact that they have few or no market incentives to do a good job.

It seems that there would be a tradeoff between "work for myself" and "work for my ideals", i.e. some might not be self-selected and some might be sell-outs. What percentage of people are self-selected, and how strong are their ideals? Also, they may over time begin to blur the two, perceiving "that which makes my job easier" as "that which is right".

Coase is not magic; neither are agencies

Given that my original response to Megan included a very tepid mention of Coase -- and that not even a central argument -- and that I tried to calm the overenthusiastic commenters on the first MR post, I don't think her post "Coase is not magic..." was aimed at me specifically. However, it is worth noting what is wrong with it. She says,

Coase requires low transaction costs, which is a stumbling block between two multi-party resource users, but maybe not insurmountable. It also requires perfect information. That is harder. But the real problem is that farmers are not profit-maximizers along every variable that they manage.
...
If your first sentence doesn't overcome the problem that farmers are not profit-maximizers in water use, DO NOT write a second sentence explaining a theory that depends on that assumption.

1) I reject Megan's premise: Coasian bargaining does not require profit maximizing farmers. If we were to accept these conditions for the operation of incentives, then there are many more policies we should reject.

One of my favorite measures of whether energy is too expensive is to note the presence of Christmas lights in poor neighborhoods. When they are on all night, electricity must be cheap. Likewise, when the local high school parking lot is filled with gas guzzlers which they use to drive 500 yards to Sonic, gasoline must be cheap. The people engaging in these and other behaviors (e.g. failure to install CFLs) are clearly not profit maximizers by Megan's definition (they are rejecting free methods for saving money on energy like turning off Christmas lights at bedtime, or not hanging them in the first place). So what good will it do to promise them a little more money to install solar or buy a Prius? If the rise in gasoline prices by $2 in a few years won't change their habits, what good will a little carbon tax do?

I doubt that Megan or for that matter anyone else is going to accept the idea that those people won't change their habits in the face of a tax or subsidy. The point is that people will change their behavior on the margin if not on average. This has nothing to do with their ability to maximize along every variable. It has much to do with their response to incentives.

Incidentally, I'm not convinced that farmers are as hard-headed or superstitious as implied. We have evidence that farmers are capable of quite sophisticated maximization and bargaining. Steven Cheung ("Fable of the Bees: An Economic Investigation") and David Johnson ("Meade, Bees, and Externalities") reported in 1973 that it had been common practice for nearly a century for farmers to pay bee keepers for pollination when they needed those services (to enhance yield), but for the keepers to pay to put their bees in a field in order to promote honey production in other seasons. I have also read that some farmers engage in fairly sophisticated hedging in the commodities markets using Scholes-Black option-pricing schemes.

2) Nor does Coasian bargaining require zero transaction costs or perfect information. These may be requirements of the "Coase Theory" as popularized by Stigler in his textbook, but I find no such argument made by Coase in the original article to which these discussions refer, "The Problem of Social Cost".

As Alex correctly points out, such conditions are sufficient for Coasian bargaining to yield an efficient result, but they are not necessary conditions. I doubt whether there are any markets in which there are zero transaction costs or perfect information, yet markets in general seem to work well. The best treatment of this subject, once again, is David Friedman's from Law's Order, webbed here (you'll want Chapter 4). He divides the explanation up into three parts: Nothing works, Everything works, It all depends.

Nothing Works is the explanation of the world in which the allocation of rights seem to be handed out in an arbitrary manner despite the fact that it is the presence of both parties that causes the problem. The polluter is as responsible -- but not more -- than the people living downstream because if they didn't live there, it wouldn't be called pollution. Then Coase introduces the part which Megan and Barkley Rosser (see his comments here) seem to have in mind: in the absence of transaction costs, you could give the property rights to either party and it would be negotiated to an equitable outcome (Everything Works). However, this only covers about one-third of the original essay, because Coase then moves on to relax the assumption about transaction costs. In the presence of transaction costs (the real world), it all depends on initial allocation of rights and the relative magnitude and direction of the transaction costs (which are not symmetrical).

At its heart, Coase's point (as distinguished from the Coase Theory) is about (a) property rights and especially (b) transaction costs and their interaction with both disputes and the regulatory/judicial environment. One-third of the way into the essay, Coase points out,

The argument has proceeded up to this point on the assumption that there were no costs involved in carrying out market transactions. This is, of course, a very unrealistic assumption.
...
Once the costs of carrying out market transactions are taken into account it is clear that such a rearrangement of rights will only be undertaken when the increase in the value of production consequent upon the rearrangement is greater than the costs which would be involved in bringing it about. When it is less, the granting of an injunction (or the knowledge that it would be granted) or the liability to pay damages may result in an activity being discontinued (or may prevent its being started) which would be undertaken if market transactions were costless. In these conditions the initial delimitation of legal rights does have an effect on the efficiency with which the economic system operates.

That seems a far cry from "requiring no [or low] transaction costs". It says that the bargaining will depend on the relative costs and the initial allocation, but Coase himself is at this point emphasizing the effect of transaction costs, not assuming it away.

3) In my original response, I was reacting to Megan's table-banging defense of bureaucrats (something Bernard Yomtov seems to have overlooked) by pointing out that (1) the state had created the problem by forgetting earlier agreements, (2) that all attempts to "balance competing needs" had been all-or-nothing, winner-takes-all decisions that disregarded earlier settlements, (3) the logic of politics and bureaucracy drove those decisions and serves to perpetuate the bureaucracy rather than creating solutions, and that (4) contra the so-called libertarians commenting on Megan's site, a libertarian response would almost certainly not favor the farmers. I listed several interesting arrangements that would inform a truly balanced, dynamic solution. Without saying it, I was implying that the required balance might be achieved by allocating the property rights to the fishermen and/or tribe. For one thing, this has the intuitive appeal that it restores the rights to the initial holders. I believe it also holds some promise for the situation. Curiously, the "Coasian" initial rights allocation assumed by Megan and many other commenters including the Coase cheerleaders have all been the same, and opposite to those I implied.

Under farmers' water, I agree with Megan that the farmers may be too conservative in selling and the fishermen too uncertain about how much to buy and how high to value it. However, under fishermen's water, while the fishermen might also be too conservative in selling water (resulting in the extreme in the outcome ESA advocates defend), the farmers ought to be able to calculate fairly precisely how much water to buy and how much it is worth. In reading about corn, cotton, and soy, I have found that there are fairly well-known relationships between local conditions (temperature), water, and crop yield. Undoubtedly, many farmers would choose not to farm at all under conditions in which they have to buy water at market (and hopefully they would have to buy electricity at market, too). Some farmers would buy the water at market and probably squander some of it. And some farmers would choose to farm under conditions in which they would maximize yield from every drop: this gets Megan the agribusinesses with Cadillac water systems she prefers.

As I noted in my first response, there is historic precedent for this arrangement. As Richard Stroup reports in the article to which I linked but I doubt anyone read,

In England and Scotland, for example, unlike in the United States, the right to fish for sport and commerce is a privately owned, transferable right. This means that owners of fishing rights can obtain damages and injunctions against polluters of streams. Owners of these rights vigorously defend them, even though the owners are often small anglers' clubs whose members have modest means. They have formed an association that is ready to go to court when their fishing rights are violated by polluters.

Although the US is normally associated with strong property rights protections, I find it interesting that we don't have such arrangements. There is probably a historical curiosity involved, but why haven't our legislators or bureaucrats noted the benefits of the arrangement and taken action to import it?

(What follows is conjecture that is relevant, but perhaps not entirely clear.)

I believe this issue illustrates a common problem: bureaucrats are too unimaginative. They think that by weighing lots of opinions and arriving Solomon-like at a decision that they are "balancing the needs" and that this is very creative. This isn't substantively more creative than what teenagers would do in adjudicating a schoolyard fight between pre-teens by picking their favorite and enforcing it through threat of violence. A really creative solution would be to figure out how to strengthen existing self-governing institutions or establish new ones that don't require the constant attention of some state agency.

I have a house and a yard; people rarely trespass. It isn't just because of the threat of police action; professional criminals know how to get in and out without getting caught and random break-ins are rarely solved. Besides, simple trespass (walking across my yard) could be accomplished without even my knowledge. The secret is that everyone knows, understands, and accepts the difference between that which is their property and that which isn't. The idea is self-enforcing and scales rather well.

In David Friedman's "A Positive Account of Property Rights", he explains how bilateral agreements to behave civilly may be described as a series of Schelling Points (Schelling Points all the way down, so to speak). Among them is arguably private property rights. I have conjectured that policy decisions (regulations) are not only Schelling Points, but because they generate similar ideas about how to proceed, they are Schelling Means (I think the literature would probably still call them Points). Regulations are a Schelling Means that generate additional Schelling Points that strengthen the state without intending to do so. In common usage, people are quick to say, "There ought to be a law..." because force is the first solution that comes to mind and the state sanctions force through legislation. Few people are happy with the results when the state grows out of control (fascism/communism) or comes under the control of less-than-stellar politicians (corruptarchy), but this is what happens when we rely on agency-enforced regulations for every problem, perceived or real.

Contrast those results with the institutions of civil society that generate Schelling Points that strengthen society. These would include property, trade unions, family, banking, mutual aid societies, education, money, agriculture, and common law. These are obviously not easy to create from whole cloth and doing so is an act of immense creativity. Forming voluntary associations to create institutions to address problems was a characteristic of Tocquevillian America, abandoned in the Progressive Era. Our goal should be to build Civil rather than State Schelling Means; we can expect a fight from those most interested in preserving or extending the State Schelling Means.

Objections to Positive Rights as Basic

Rights are social guarantees for the actual enjoyment of a good. You have freedom of speech, I have both the duty to refrain from interfering and also the duty to provide assistance when you are being deprived of it.

Positive rights may be created by bilateral agreement, i.e. we may contract with one another creating your right to be paid and my corresponding duty to provide payment on the condition that you fulfill my right to whatever you are selling and your corresponding duty to provide those goods.

A basic right is one in which the good to be enjoyed (physical security, the freedom from physical harm, for example) is a prerequisite to enjoying other rights, such as freedom to assemble.

A right to sustenance (among other things) seems different, though many (Hohfeld, Shue, Sunnstein, Rawls) have attempted to argue that they are not. The argument rests on the idea that because a so-called negative right is one in which there are obligations to refrain and to supply aid, then there really is no distinction between that and a right in which there are obligations to provide the good to be enjoyed. That seems to me to fail on several counts.

The first is the obvious distinction between the duty to refrain from interfering with the enjoyment of the good and the duty to provide the good. Everyone may refrain from interfering at no cost, but someone must incur cost to provide the good. The objection may be raised that someone must incur cost to fulfill the second part of the negative right obligation, the duty to provide aid. That seems weak, but valid.

The second problem is that the enjoyment of the goods of positive rights do not seem to be pre- or corequisite to enjoying other goods (Cohen, "Must Rights Impose Positive Duties?"). I could be currently not enjoying food, shelter, or clothing in order to participate in an assembly, but I would have to be enjoying the right not to get beat up in order to enjoy the right to assemble. In fact, I can enjoy not getting beat up without enjoying food, but I doubt I could enjoy food without enjoying not getting beaten up.

A weak objection against positive rights is that which says that negative rights must be violated in order to provide the positive right. That is to say, in order to provide food to others, my right to keep my property must be violated (taxation). Why is no corresponding objection raised to the use of my property to raise a police force? The comeback to this objection seems to be that people are allowed to do certain things in their own defense, and that the state may go that far, also, but that the state may not do what individuals or collections of individuals could do. Individuals could protect their own property but not take from third parties in order to feed the hungry. But this begs the question - how do we know what individuals can do? Social convention? Then what is to keep us from changing social convention and say, "Collective groups of individuals are henceforth allowed to forcibly take some of your property and feed the poor"? You might come back with, "But positive rights are not basic rights!", to which someone might respond, "So? Why does it have to be a basic right in order for it to be public policy?"

The argument goes from there to efficiency at which point it takes on a utilitarian vs. consequentialist flavor. My personal opinion is that the federal government is too large and impersonal to effectively deal with problems of poverty on that scale; at some point, either the burden of fraud and corruption swamps the gains to be made in human capital, or the cost of preventing fraud and corruption do so. And this doesn't even consider the dead weight losses or the human capital lost when private institutions are destroyed in the process. Sure, those might have problems in scaling up to meet the same needs, but all of these arguments seem to me to point toward federalism, regionalism, polycentrism, or whatever you want to call it.

Blog rearguard action

Would it make sense for

• a diarist to say, "I just wrote a diary about my experience last night"?
• a newspaper reporter to say, "I just wrote a newspaper about the incident"?
• a TV reporter to say, "I did a series about that last night"?

No?

Then why the hell do people keep writing, "I just wrote a blog about such-and-such"? A whole friggin' blog? Wow.

The diarist writes entries, the newspaper reporter writes articles, the TV reporter does a show or a story, and the blogger writes entries, articles, or posts. Unless you're my wife, in which case you actually do have three different blogs. But even in her case, she doesn't write a complete blog "last night".

Sheesh. It's like teaching your parents to use slang and not sound like complete rubes. Shall I give up?

A dual dilemma

My wife and I have been having this discussion. The apparel industry, being among the oldest industries known, has no standards. Literally, there are few or no standards: no licensing, no written standards, etc. Anyone who wants to set up shop can do so. The result is lots and lots of waste as people who made their money elsewhere decide to get into the business and go broke slowly, wasting lots of time, capital, material, and energy in the process. What few standards there are were actually developed by the US military.

The military, because it is the single largest buyer and because they want need uniformity of product, finally started writing specifications and demanding them in the bidding process. I wrote a lengthy post on the military origins of quality control, so this doesn't surprise me in the least. Nor would it surprise Michel Foucault.

The temptation is to look at it and say, "but without the military, standards would have developed anyhow, albeit much slower" or "but people were sewing before the military developed those standards, so what purpose do the standards serve?" Perhaps, but the fact is that the military standards exist and do make for a more efficient industry. The standards are for things like seam types and seam allowances. Even if you the customer or even the designer don't know about them, machine builders do, so you can buy machines that, for example, automatically create the seam in your jeans in a single step. The result is that clothing is much less expensive than it would otherwise be.

And contra Kirkpatrick Sale, manufactured clothing is typically of far higher quality than homemade [1] for exactly the same reasons that a Boeing airplane is better than one you could design and make yourself; it is engineered by specialists for manufacture and then manufactured with machines that are designed for the purpose. For example, presser foot pressure in an industrial machine is higher than that in a home machine (professional machines are also less expensive and more rugged), and the greater pressure means the pieces of cloth are held closer together and the stitches are therefore tighter and stronger.

The challenge for the libertarian is to explain how the industry would be better without the military (and remember that the retort for most of your proposals is going to be, "then why didn't that happen historically?"). The challenge for the left anti-libertarian [2] is to justify military spending on the basis that something good like this might come out of it in light of the fact that it would be more efficient to simply spend money on this kind of outcome directly and with the a similar retort.

Personally, supporting this outcome strikes me as a little too much like the "Support NASA spending because of spinoff developments like teflon" type of argument. First, NASA didn't really develop teflon. Second, if these things are important, then perhaps we ought to spend money on them directly rather than wasting billions of dollars on a program in the hope of a serendipitous spinoff. It seems a little wasteful to build an organization designed specifically to kill people and break things -- an organization that has been used for that purpose by all three post-Cold War presidents -- just so we can have cheaper clothing.

If something good falls from the sky, don't throw it back, but don't become a Cargo Cultist, either.

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[1] Higher quality than homemade is, not necessarily higher quality than homemade could be.

[2] There is no challenge for the right-anti-libertarian. Getting cheap clothes from a powerful military? What's the problem?

Dilemmism vs n-lemmism

This is not a post about Motorhead.

I had an undeveloped thought while watching the Rodrik-Tabarrok death match; maybe someone can work it up into something useful.

There are two kinds of people in the world, those who subscribe to Dilemma and those who subscribe to n-lemma. [1]

The Dilemmists include people like Bill O'Reilly, George W. Bush, George Lakoff, and Dani Rodrik. Their chief characteristic is to think in one-dimensional terms (respectively): right-wrong, terrorist-'merican, strict-nurturant, and -- in Rodrik's case alone -- we have 1st-2nd, pro-anti government, pro-anti industrial policy, and simple-sophisticated.

The n-lemmists include Tyler Cowen and David Friedman. Their chief characteristic is that they tend to look for multiple explanations to puzzles. Look at Tyler's lists, at Friedman's chapter in Machinery of Freedom on libertarian arguments he doesn't agree with and in Law's Order at the back & forth arguments over various legal principles.

For any given problem, there may be m true explanations. m may be as few as one [2] but may be greater than that. The dilemmist stops looking at two; that's not exactly true, they stop looking at one and then determine its opposite analytically. The n-lemmist tries to list as many as possible, even considering contradictory explanations. Neither the Di- nor the n-lemmist is going to get the m=1 case correct. The Dilemmist is also never going to find a correct explanation when m>2. When m<=2, the n-lemmist is wasting time and probably putting too much emphasis on finding new explanations after identifying the correct ones [3]. Thus, neither of these groups is going to be successful all of the time at explaining observed facts. Rodrik, for example, has determined that the explanation for why some people agree with him is that they are sophisticated, second best economists. Therefore, everyone who disagrees must be the opposite: an unsophisticated, first best economist. It does not seem to occur to him to look for other explanations [4]; no need to be too sophisticated, I suppose. Tyler on the other hand tends to go well beyond the call of duty in opposing himself (though Tyrone might disagree).

This whole system seems rife with irony. The strongest Dilemmists believe themselves to be more sophisticated despite their adherence to a belief in simple models. The n-lemmists seem to be committed to an approach that generates many explanations, which seems wiser and more rational in the face of uncertainty, but in all probability m << n so they should be looking at how to reduce the number of conjectures required to get to the correct answer(s). In other words, the wiser people are wasting lots of time generating quantity rather than quality. And of course I have just built an entire system around a simple dualist explanation while implying that dualist explanations are probably the less satisfactory approach.

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[1] I realize my use of "lemma" is a little unconventional here, but it's a lot catchier and less cumbersome than "n-explanation" and "di-explanation".

[2] Although social phenomena seem to have multiple plausible explanations, do physical phenomena have only one true explanation where the science is "settled"? Or perhaps regardless of whether the science is settled? The duality of light suggests that either this conjecture is not true or that science needs to resolve the issue in favor of a single explanation.

[3] I think the n-lemmist approach is more likely to be successful because we don't know a priori which are the correct ones, or even how many there are (m).

[4] Or perhaps he has considered them and has already discounted them and edited his comments. Did I mention that I am an n-lemmist, too.

More 1st and 2nd best fun

I enjoy this so much that I'm not going to let my own comments on Rodrik's blog languish there. The quoted material below is from Dani's post in response to Alex Tabarrok (along with more, previously covered here).

the rest of us in the classroom would roll our eyes at the stupidity of the questioner.

And my wife calls libertarians mean?

They envisage a real good world out there that looks like nothing we have now (or have ever had), and they want us to get there.

I think that's essentially correct: take all of the evidence we have of institutions that worked, improve them, and see what happens.

"Most importantly, I believe government can be a force for good; they do not."

The second part is true of the anarchists, not so of the minarchists. The key phrase in the first part is "can be". It can also not be.

"But third, libertarians hold on to their priors so strongly that they seem impervious to evidence. They shrug off the fact that there is more freedom and more wealth in those parts of the world where the government is stronger, not weaker. With respect to industrial policy proper, they refuse to engage with the fact that every nation that has grown rapidly has made use of it."

Partly true, partly false, partly misleading. This is the problem with Dani's posts: he wants to claim evidence, but then loads the dice with heavy rhetoric, implying that he doesn't want an honest debate. This is why Alex believes that his argument can be boiled down to "I'm sophisticated, you're simple."

I agree there is strong correlation between governance and freedom/prosperity (the truth); I think it would truer to characterize it as "good" rather than "strong" government. Totalitarian governments are strong, but not good, and their people are poor and not free. I think it might also be fair to say that in some cases those people are free/prosperous in spite of government, not because of it, while he seems to assume/imply causality.

Also, Dani tends to conflate everything from those things minarchists would accept (defense) to those things few accept (the list is long) under "legitimate government responsibility" (the misleading). Although he is unfortunately not alone in this confusion, there is a symmetrical problem on the libertarian side: it is the tendency to defend the actions of private actors benefiting from state-induced distortions as "free market" (defending GM and Exxon, for example, as if the massive public investment in roads was not an indirect subsidy of the oil and auto industries).

The false bit is the claim that libertarians are impervious to evidence. Actually that would also be misleading - I submit that they are neither more nor less impervious than Dani. He isn't arguing about evidence, he is arguing about interpretation of it and claiming that his is fact. Instead of setting for himself a task to discriminate between things properly left to a market or government, he seems to be determined to try to figure out how to justify everything the government does and maybe find new tasks for it. Proof? He said so:

I look at the world and see some government programs that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second.

Some libertarians would rather say "I look at the world and see some institutions that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second. As a side constraint, I want to prevent the world from becoming dominated by a few powerful people."

First-best v Second-best

Wow, this is great: Vulgar Second Best Theory, bonanza edition.

First we have Dani Rodrik claiming that simple supply and demand thinking doesn't always work (granted), so state interventions are justified. Rodrik doesn't bother to justify this: it's self-evident, to him and his fellows, because they see imperfections and have many models from which to choose. The rest of us just aren't very sophisticated, I suppose. Then we have Tyler Cowen asking (worth reading) how the state interventions got promoted to second best and asks who the real utopian is. Then Rodrik responding that since "almost no-one questions whether [health, education, social insurance, macroeconomic stabilization] properly belong in the government's arsenal", then the state's role in any other activity industrial policy is justified. Alex Tabarrok rightly calls him on defending this idea on the basis that the heart of his argument is that the intervention in both cases is "targeted on a loosely-defined set of market imperfections that are rarely observed directly, implemented by bureaucrats who have little capacity to identify where the imperfections are or how large they may be, and overseen by politicians who are prone to corruption and rent-seeking by powerful groups and lobbies."

Again, let's review the basics of Vulgar Second Best Theory:

1) Identify market failure (any will do, no need to quantify, ignore counteracting multiple failures, ignore private responses, ignore existing state interventions' effect on "market")
2) Identify intervention
3) Declare victory (ignore unintended consequences, ignore government failure, no need to verify outcomes, everything can be fixed with refined intervention)

Once upon a time (August 2006), I had an exchange with David Anderson, a guest poster at Environmental Economics blog. Among the points I felt worth discussing:

• David asserted that petroleum is artificially underpriced with no explanation -- why? How does he know? By how much? That would be an interesting post. On the one hand, we know that gasoline taxes have generally exceeded profits in the past 20 years. On the other hand, the justification for those taxes is to build roads. On the other hand, only 1/3 to 2/3 of those road taxes actually make it to the roads. On the other hand (sheesh, 4 hands?), we know that the costs of security and the externalities listed as well as other costs are not included in the price. However, the latter would be at least partially offset by the former and some discussion of magnitude would seem to be consistent with alleviating imperfect information. Incidentally, I found that we had spent about $727 B total on the war between 2003 and 2006, and we consumed approximately 146 B gallons of gasoline per year, so (727/3)/146 =~ $0.61 / gallon for Iraq. How much has the price gone up since the start of hostilities?
  
• We learned from an article in The Economist in August 2006 that the world's largest private reserve held by Exxon is only the 14th largest reserve when including state-owned oil companies. Isn't that the opposite of a free market? David asserted the existence of "market power" without any backing discussion -- what does he mean by it? How do you measure it? Why didn't it exist in 1998 when oil prices collapsed? Wouldn't market power imply an artificially high price? Which dominates - the artificially lowness or the artificial scarcity-driven overpricing? And wouldn’t the fact that two of the larger petroleum companies -- Shell and BP -- have substantial investments in alternative energy suggest that any exercise of "market power" to keep solar down indicate a lack of self interest? That would be an interesting claim if he could substantiate it.

I went on ask some questions that needed to be answered before I was ready to concede that market failure and not technical problems or production cost was the reason we couldn't drive cars running on sustainable fuels. Then, David graciously thanked me for the exchange and asked a question similar to the one posed by Rodrik in his industrial policy post:

The crux of our differences may lie in your acceptance of the market failure (your items 2 and 3, which you say are "true") and yet your characterization of the conclusion that markets fail to yield efficient outcomes (your item 6) as controversial.

I responded this way:

• If you want to say, "Market failures exist in this market, therefore this market is inefficient," I can agree with that. If you want to say, "Market failures exist in this market, therefore markets have and will always fail," or "Market failures exist in this market, therefore markets cannot deliver solutions", I think that is a compositional fallacy and an overstatement.
• If you want to say, "I spy a market failure, therefore there can be no free market solution in this market," I am going to have a problem with that, too. First, I doubt whether there are very many markets that don't have at least one type of failure present, so intervention can almost always be justified on the slightest pretext. Unfortunately, most seem to stop their analysis at that point without looking at the inefficiencies introduced by the recommended intervention. The market may not provide a perfect solution, but the best intervention may actually be a third-best solution to a secondary market solution. Radio, which seems to fit the definition of a public good, seems to work pretty well with the inclusion of commercials.
• Second, I think knowledge failures are at least questionable for several reasons. I've read that imperfect information is a cornerstone of Austrian theory and that Vernon Smith's work shows that markets perform amazingly well despite knowledge gaps. Buyers and sellers almost always possess information the other does not. Akerloff would have us believe that a market in used cars can't exist; and yet it does. Markets are also amazingly adept at providing solutions to market failures: Carfax, OU, and CU, for example.
• Third, when a market suffers from multiple failures, they don't add only in one direction; they frequently cancel one another. The state ownership of oil and the corresponding ease with which OPEC should be able to cartelize should raise the price, while externalities imply an artificially low price - which dominates? We know that the cost of our interventions in oil-producing regions is not accounted for in the price, but the risk premium brought about by the unstable regimes and regions that happen to possess the oil and our interventions in them is. Now add Hotelling into the calculus, and figure that the cartel members are going to cheat to drive prices downward, while federal taxes and regulations (not all of which are rational or efficient) raise the price.
• Fourth, "the free market" is not a monolithic organization with a common goal. Toyota is killing GM and Ford with its high efficiency lineup - does anyone truly believe they won't respond? If they don't and fail, are we worse off (less competition) or better off (the better product and organization takes market share)? BlueSun, Piedmont Fuels, Yokayo and other dealers are trying to make a go of biodiesel, and the current high price environment makes them the low cost producer. Incidentally, I can't resist pointing out that you can't buy a new diesel in any state that has adopted CARB, so a grey market in used diesels has sprung up (a market response to a failure caused by intervention!).

Second Best is a simplistic meme that will not die, but needs to. Because its advocates believe their additional analysis is so much more sofisticomated than First Best Analysis, they fail to realize that an even more sophisticated analysis skewers intervention in the same way as their analysis skewers First Best analysis. Their failure leads them to believe that anyone who does not accept their view must be a First Best analyst; it's the left-right, one-dimensional point of view moved from political science into economics, with no more satisfactory results.

Tyler has an interesting approach: he believes that many successful markets have positive externalities and are therefore better than First Best outcomes. In the Rodrikian taxonomy, my approach would be called nth-Best. But I'm not an economist.

White Zombie

I'm still chuckling while writing this.

From the WSJ ($? "Those Muscle Cars Really Are Electric", John Fialka, 1 August 2007), Portlander John Wayland took a '72 Datsun 1200, shoved a couple of forklift motors and 30-some batteries in it, and is now the fastest street legal drag racer in the country. It completes a quarter mile at 109 mph in 11.9 seconds, dusting all kinds of muscle gassers.

Yes, the batteries are a little dangerous (the WSJ explains how he got the PlasmaBoy nickname) and the electricity probably comes from a coal-fired or natural gas fueled plant. As I claimed in this article about biodiesel dragsters and this one about solar-n-hydrogen powered stretch Hummer limos, these may be totally impractical, but they demonstrate the potential, push the envelope, and turn skeptics into believers.

Here's Wayland's EV dragster homepage, PlasmaBoyRacing.