Steven Horwitz
Right now, Tom is singing the"Interstate Commerce Blues", complete with guitar, to the tune of"House of the Rising Sun". And we're now getting a new verse, in French, dealing with the EU.
Steven Horwitz
What's especially nice about Steve's lecture is that he links together the early feminists' critique of state intervention in the market, their support for voting rights and other forms of political equality, and their opposition to the"traditional" marital relationship under which men were the complete and total masters of the household. In all cases, women were treated as second class citizens, comparable to slaves, and saw these changes as providing them with the demand for equal treatment that is at the bottom of the first wave of feminism. In the US, as Steve points out, the individualist feminist movement was linked with the abolitionists, often via Quakerism.
For me, teaching history, or listening to it being taught, is a form of magic, as modern students are often so ignorant of elements of history that have direct bearing on their current beliefs and you can literally see their eyes and minds opening up when they learn things of which they were previously unaware. This is particularly true for libertarian students, who have often suffered through college courses where the parts of history that offer information about, and support for, their own intellectual traditions are frequently omitted or caricatured. Good history gives students something the desperately need: intellectual ammunition (to use an old Randian phrase). Frankly, if I were a student at an IHS seminar, the history lectures would be the ones I'd be paying rapt attention to, jotting notes furiously, as a way of preparing for returning to campus with new material for class discussions and research papers. Even as a faculty member, I always come home from these seminars with new bits of history that I previously didn't know.
Robert Higgs
The answer is, yes, many economists have done such experiments, in a variety of interesting and cogent forms. Vernon Smith won a Nobel Prize for his leadership of this experimentation program over the past several decades. The experiments, by and large, demonstrate what others have concluded on the basis of economic theory and historical observation: markets work. Indeed, the amazing thing is that in the experiments the markets often converge very quickly to the competitive equilibrium. Whudda thunk?
David T. Beito
Here is what Bush said at a June 10, 2004, press conference after the G8 summit:
Q: Given recent developments in the CIA leak case, particularly Vice President [Dick] Cheney's discussions with the investigators, do you still stand by what you said several months ago, a suggestion that it might be difficult to identify anybody who leaked the agent's name?
BUSH: That's up to -- Q: And, and, do you stand by your pledge to fire anyone found to have done so? BUSH: Yes. And that's up to the U.S. attorney to find the facts.
McClellan at a September 29, 2003, press briefing:
McCLELLAN: The president has set high standards, the highest of standards for people in his administration. He's made it very clear to people in his administration that he expects them to adhere to the highest standards of conduct. If anyone in this administration was involved in it [the leaking of Plame's identity], they would no longer be in this administration.
[...]
Q: You continue to talk about the severity of this and if anyone has any information they should go forward to the Justice Department. But can you tell us, since it's so severe, would someone or a group of persons, lose their job in the White House? McCLELLAN: At a minimum.
Q: At a minimum?
McCLELLAN: At a minimum.
Anthony Gregory
On the particular point of the Exit Plan, I've seen other intriguing arguments for and against — or at least, in some defense of and with objection to — the proposal, notably by Chris Claypoole and Tom Knapp, respectably, over at The Libertarian Enterprise.
(I'm still thinking of my precise take on it, though I do generally dislike the gradualism in the plan, especially the idea of moving the troops from Iraq another countries to continue the"war on terror." Certainly, I don't think Iraqis will be much better off unless they're allowed — not forced into by a foreign power — a more decentralized governance, which would likely lead to a partitioned or federated Iraq, as Ivan Eland has suggested.)
On the more general point of gradualism, Rockwell critiques what he considers a counterproductive approach to public policy and the questions of the state, looking at attitude differences and drawing the line not at minarchism vs. anarchism, but on a more subtle and yet possibly more fundamental distinction in how libertarians view the state. As he puts it in his defense of more radical minarchism,"There is a difference between seeing government as a necessary evil, and viewing liberty as the offspring of power."
William Marina
Why is it that the dreaded federal budget deficit only commands screaming headlines when it's rising, not falling? And why is it that the deficit is portrayed as a fire-breathing, hydra-headed monster only when the press can portray the villain as "irresponsible tax cuts," not runaway federal spending?
We ask these questions in the wake of the great unreported fiscal story of 2005: the shrinking federal deficit. It's down by at least $100 billion because federal tax receipts have skyrocketed this year by 14.6% (or $204 billion) through June. Private economic forecasters now believe the budget deficit may come in at about 2.5% of GDP, which is in line with the historical average for the past 40 years. Given that we're fighting an expensive, must-win war on terror, these deficit numbers aren't too shabby.
Not even the most unbridled supply-sider predicted that President Bush's investment tax cuts would unleash such a spurt of tax receipts this year. But thanks to sustained economic growth, more Americans working and improved business profits, individual income tax receipts have shot up by 17.6%. Even more astonishing is the nearly 41% spike in corporate revenues. There's a fiscal lesson here that bears repeating: The best way to grow tax revenues is to grow the tax base, and that is what has happened this year.
Alas, what hasn't happened in Washington this year is federal spending restraint. Despite pious pledges from Mr. Bush and Republicans in Congress to trim spending growth to 4% this year, so far total nonmilitary spending is up 7.3%. Thanks to a 10% boost in Medicare (even before the prescription drug program hits next year), we now devote a larger share of the budget to health care than national defense -- notwithstanding that Congress has a clear Constitutional mandate to spend money on national security, but not so when it comes to funding gall bladder operations or Viagra.
During last year's Presidential campaign, Democrats ripped Mr. Bush for underfunding education -- which is incredible given that the Department of Education budget has jumped by a gravity-defying 20% this year and has more than doubled over Mr. Bush's tenure. One gets the sense that Republicans have thrown up their hands in despair and are pleading: Stop us before we spend again. All of this is to say that Washington doesn't have a budget deficit problem, it has a spending problem. Thank goodness for Mr. Bush's tax cuts or things would be much worse.
William Marina
BBC 5, July 7, 2005
A radio interview on BBC 5 during the evening hours of July 7 with the managing director of a Crisis Management Firm tells: Underground Bombing 'Exercises' Took Place at Same Time as Real Attacks
This scenario echoes the 9/11 wargames in New York.
A consultancy agency with government and police connections was running an exercise for an unnamed company that revolved around the London Underground being bombed at the exact same times and locations as happened in real life on the morning of July 7th.
On a BBC Radio 5 interview that aired on the evening of the 7th, the host interviewed Peter Power, Managing Director of Visor Consultants, which bills itself as a 'crisis management' advice company, better known to you and I as a PR firm.
Peter Power was a former Scotland Yard official, working at one time with the Anti Terrorist Branch. Power told the host that at the exact same time that the London bombings were taking place, his company was running a 1,000 person strong exercise which drilled the London Underground being bombed at the exact same locations, at the exact same times, as happened in real life.
Audio Interview clip
The transcript is as follows.
POWER: At half past nine this morning we were actually running an exercise for a company of over a thousand people in London based on simultaneous bombs going off precisely at the railway stations where it happened this morning, so I still have the hairs on the back of my neck standing up right now.
HOST: To get this quite straight, you were running an exercise to see how you would cope with this and it happened while you were running the exercise?
POWER: Precisely, and it was about half past nine this morning, we planned this for a company and for obvious reasons I don't want to reveal their name but they're listening and they'll know it. And we had a room full of crisis managers for the first time they'd met and so within five minutes we made a pretty rapid decision that this is the real one and so we went through the correct drills of activating crisis management procedures to jump from slow time to quick time thinking and so on. . .
The fact that the exercise mirrored the exact locations and times of the bombings is light years beyond a coincidence. Power said the drill focused around 'simultaneous bombings'. At first the bombings were thought to have been spread over an hour, but the BBC reports just today that the bombings were in fact simultaneous. . .
This is precisely what happened on the morning of 9/11/2001. The CIA was conducting drills of flying hijacked planes into the WTC and Pentagon at 8:30 in the morning.
Steven Horwitz
Of course this argument is precisely parallel to the Hayekian/Austrian argument about the way in which the market works as a discovery process. (See Hayek's essay"Competition as a Discovery Procedure.") What I find especially interesting about this is that the Hayek essay was written in the late 1960s (although embryonic versions of the ideas were around earlier), after Hayek had been engaged in his fairly deep study of Mill. Hayek long admired Mill and edited a collection of Mill's letters with Harriet Taylor. In the early 50s, he and his second wife took a European vacation that retraced some steps that Mill had taken.
Given Hayek's admiration for Mill, I wonder how much of what emerged in the 1960s in Hayek's thinking about competition came from his study of Mill and Mill's argument for free speech in On Liberty? Furthermore, some contemporary Austrians, myself included, have argued that markets are extra-linguistic communication processes, so one way of seeing the parallels in Mill and Hayek is to argue that all forms of communication should be free because all forms of communication, whether speech or markets in this case, are ultimately discovery processes that are socially necessary to overcome our structural ignorance.
I think this same argument can be extended to Darwinian evolution as well. Evolution via natural selection is a very similar sort of discovery process as markets and free speech. The implied vision of human natural and social life as being an interconnected set of evolutionary discovery processes is, for me, quite inspiring. We are all connected in our biological, social, economic, and intellectual evolution by similar sorts of discovery processes.
Anthony Gregory
I first noticed this image on a television commercial for Burlington Coat Factory and recorded my surprise at the LRC blog.
Jason Kuznicki
What persons may and may not do to one another limits what they may do through the apparatus of a state, or to do to establish such an apparatus.I was mildly critical as follows:
Perfect. It's succinct, crystal-clear, and altogether principled. Indeed, it's virtually the whole of libertarianism in a single sentence--so much so that I doubt if many non-libertarians would ever agree with it. To my non-libertarian readers: Do you accept Nozick's claim? Or do you find that agents of the state may do more than ordinary individuals acting in the state of nature?The very intelligent and avowedly non-libertarian Richard Chappell has taken up the challenge, arguing that Nozick's claim has no real meaning:
It is either trivially true, or patently false. For once we reject absolutism, the question of"what persons may and may not do to one another" will be influenced by situational factors (e.g. what the consequences of performing a particular action would be). And if one is acting through the apparatus of the state, then one is in a different situation than one would be in the state of nature.This, though, is not a valid logical inference: Because contexts as a class can influence the rightness or wrongness of actions as a class, it does not follow that this particular context will influence the rightness or wrongness of any individual action. Nor does it follow that the direction of influence will lie as you think it does. Some acts may well become immoral where previously they were permitted (consider an IRS auditor making sexual advances, for just one example!).
Now, this factor will influence what it is morally permissible for the person in that situation to do. The"all things considered" conclusion yielded by our moral theory will take this factor into account. On this interpretation, Nozick's claim is trivially true: of course what government agents may do is going to be limited by what they may do. It's tautological.
Alternatively, the claim might be that what individuals may do in different situations limits what they may do in this situation. And this claim, if we reject absolutism, is quite obviously false.
We might likewise argue by Chappell's own reasoning that the context of government agenthood actually shrinks the domain of legitimate moral action rather than expanding it, moral context being important and all. Neither one seems a priori true; a closer look at the nature of government is required to determine whether Chappell (on the larger-government side), Nozick (a minarchist), or, say, Murray Rothbard (who argued in effect that the context of government made all acts immoral), is ultimately correct.
As a different approach to the problem, I consider that ethical imperatives are contextually absolute. By this I mean that given the same exterior circumstances, two individuals of differing cultures, temperaments, inclinations, and characters are equally obliged to act according to the dictates of the same ethical injunctions. Such rules are always relative to the situation; they are never relative to what we happen to think or feel about them.
Now admittedly, finding just what these rules should be is at times be quite difficult, but without at least contextual absolutism, it is nearly impossible for ethics to be anything other than a purely descriptive activity.
Given my understanding of ethics as a contextual absolute, Nozick's statement may be rephrased as follows:
The moral character of an act is never affected by the context that the actor happens to be an agent of the government.It's not a statement about all contextual elements in ethics--merely about one, the quality of government agenthood. As such, I still think the statement has a meaning that may be debated. (I do concede that it has lost some of the apparent force of law that the previous formula had, and that it now requires a good deal of further support. I don't think, though, that the statement has been refuted outright.)
To give an example that I find particularly compelling, I would argue that if I were somehow to find myself in the state of nature (an elusive state, I know, but Nozick deals with this objection elsewhere), I would have no moral authorization to enter my neighbor's home, destroy his marijuana crop, and seize his growing equipment under the theory of asset forfeiture. Given that acts like these cannot conceivably be justified for individual actors in the absence of government, then if we accept Nozick's claim, it also follows that government may not do them either.
One possible way to refute Nozick's statement, I think, would be to come up with some activity that an individual or group of individuals could not do in the state of nature, but that they incontestably could do if ever they were lucky enough to become government agents. I suspect that for many liberals, social welfare programs and wealth redistribution systems would fall into this category, though for me they do not.
Other such activities might include taxation of nonconsenting individuals or a prohibition on vigilante justice (Nozick's comments on the latter are particularly interesting but off-topic at the moment).
I repeat my original point, then: Whether one agrees with the statement or not says more about your politics than it does about the truth of the statement itself. I still think it stands. Any takers?
[Crossposted at Positive Liberty.]
Roderick T. Long
A little over a century ago, Herbert Spencer published his last book of essays, a volume with the rather unexciting title Facts and Comments. (His previous book had been titled Various Fragments; clearly the man needed some marketing advice.) Topics of the essays ranged over Spencer’s usual broad range of interests, from business ethics, the psychology of music, and the criteria of literary style, to evolutionary biology, the existence of God, and the metaphysical basis of geometry.
Among the essays were four, unfortunately as timely today as in 1902, dealing with the evils of militarism. The first of these, Spencer’s acerbic"Patriotism," I posted online nearly two years ago; in fact it was the very first text to be included in the Molinari Online Library. I have now posted the remaining three:
- "Imperialism and Slavery" examines the relation between foreign and domestic policy, arguing that militarism abroad must inevitably translate into loss of liberty at home.
- "Re-barbarization" explores the reciprocal influence between militarist policy and the increasing brutalisation of popular culture.
- Finally,"Regimentation" analyses the growth of governmental bureaucracy and corporatism as part of the militarist syndrome.
Radley Balko
Sheldon links to this defense of Tom Cruise by Jeffrey Schaler, an ardent fan of libertarian philosopher and psyotherapy critic Thomas Szasz. I've written before on the Szasz-Scientology connection, and noted before that I find it more than a little troubling.
I think the piece is pretty weak, even offensive in places. It's offensive, for example, to draw comparisons between the way some governments treat Scientology to the way some governments have historically treated Jews. No one is denying Scientologists their civil rights. Scientologists aren't being rounded up and slaughtered. Some European governments have taken some action against the church that I find troubling, but it's generally been in response to complaints of fraud and brainwashing by former Scientologists. Schaler closes with"the enemy of my enemy is my friend," a silly slogan that's patently untrue. I share an opposition to affirmative action, for example, with the Aryan Nation. The Aryan Nation isn't an ally of mine.
I believe in freedom to practice religion, including the freedom to practice a particularly wacky, cultish one. But make no mistake -- Scientology is an especially wacky, cultish attempt at religion. Google"Lisa McPherson," for example. Or"Rondey Rimando." Or"Susan Meister." Here are a few more. Look also for terms like"disconnection" or"dead agenting." This isn't religion as most of us know it (and I'm not much of a fan of any religion). It's a particularly paranoid, aggressive, manipulative kind of religion. If you've followed the Cruise story, you've probably also read about the odd way Katie Holmes disappeared for several days shortly before their relationship began, how she has since been cut off from friends and family, and how she's now minded round the clock by a Scientology rep, who apparently won't even let her go to the bathroom alone. I'd also note that the Scientology practiced by Tom Cruise and John Travolta is a far cry from the Scientology practiced by just about everyone else. L. Ron Hubbard wrote about the importance of recruiting celebrities into a new religion to establish early credibility, and how those celebrities should get different treatment than the rest of the church's following.
The article says Szasz and Scientologists merely want to prevent people from being medicated against their will. I mostly support that idea (I'm more open to coerced treatment on people who have committed violent crimes). I certainly oppose President Bush's plan to start screening public school children for mental illness, even when it's against their parents' wishes. And I think we should all be concerned about the"anti-euphoria" drugs many U.S. pharmaceutical companies are working on in conjunction with the drug war efforts of the federal government.
But while Szasz's problems with psychotherapy might be limited to the practice of state-coerced treatment, that certainly isn't true of Scientology. Scientology wants to forbid voluntary psychotherapy, too. Cruise, for example, has called for making all psychotherapy illegal. And while I'm generally supportive of Scientology's efforts to keep mental health assessments out of the public schools, the church at the same time sets up various front groups aimed at getting its own mental health counselors and propagandists into the schools, usually under the guise of anti-drug programs (Narcanon is the most well-known Scientology front group).
I haven't read enough Szasz to know exactly what I think of him. I do know that many people I respect have a great deal of respect for Szasz. But I've done a lot of reading on Scientology over the last several years, and I find the connection troubling, to say the least. I've also known lots of people whose lives were immeasurably improved by psychotherapy. Those people likely wouldn't be any better if Scientology had its way.
Walter E. Grinder and John Hagel III
Bob Geldof’s Live 8 concerts are generating considerable publicity for the movement to forgive the rapidly escalating debt of governments of developing countries and to commit even more foreign aid to these governments. Andreski wrote deeply insightful works regarding the pathologies that have mired the populations of both Africa and Latin America in poverty and misery. His analysis offers little comfort that the measures favored by the Live 8 promoters would do anything to relieve these tragic conditions. Instead, these measures are certain to strengthen the political elites that, in the words of Moeletsi Mbeki, the brother of South Africa’s president, “have squandered [Africa’s] wealth and choked its productivity over the last 40 years.” Vargas Llosa would no doubt echo these sentiments for Latin America.
In 1966, Stanislav Andreski wrote Parasitism and Subversion: The Case for Latin America - to this day one of the best social analyses of the evolution of the State in Latin America. Andreski believes parasitism is key to understanding the limited and uneven economic development of Latin America.
Andreski observes that: Parasitism exists in all human societies: everywhere there are people who succeed in obtaining a large share of wealth without in any way contributing towards its production. There are, however, differences of degree which are of decisive importance; in some societies it is a residual phenomenon whereas in others it pervades the whole social fabric. Generally speaking, parasitism constitutes the most powerful brake on economical progress by destroying the link between the effort and the reward.
It is also the foundation of social conflict, as Andreski drives home with this blunt characterization: “Once a society is pervaded by parasitic exploitation, the choice is only to skin or to be skinned.”
He credits Charles Comte, the great classical liberal social analyst in 19th century France, with first exploring in detail the harmful consequences of parasitism in the magisterial four volume work Traite de la Legislation published in 1826. As Andreski comments: “This great work still remains the most exhaustive survey of parasitism and class oppression.” For those interested in learning more about Comte without plowing through the four volumes in French, we highly recommend David Hart’s excellent discussion of Comte’s work in his “Class Analysis, Slavery and the Industrialist Theory of History” .
Andreski summarizes his core theme: The pivotal contention of the present interpretation of the predicament of Latin America is that, speaking in broadest terms, it is the consequence of the original sin of conquest, which bequeathed to the republics customs and institutions which constitute an enormous obstacle to political order and economic progress.
He discusses many different forms of parasitism and their impact on Latin American society, including kleptocracy (systematic corruption and theft), taxation, militarism and what he describes as the parasitic involution of capitalism. On militarism, Andreski comments that: Militarism has become introverted in the Latin American republics: with few opportunities to fight for their countries, soldiers remained preoccupied with internal politics and the search for personal and collective advantage.
On the parasitic involution of capitalism, Andreski writes: . . . by parasitic involution of capitalism I mean . . . the tendency to seek profits and to alter market conditions by political means in the widest sense of that word. This tendency is by no means unknown outside Latin America: it is absolutely ubiquitous but its intensity marks off the indigent from the affluent societies.
Andreski shifted his focus from Latin America to Africa in The African Predicament: A Study in the Pathology of Modernisation , published two years later. Andreski writes: “. . . the present book is in many ways a companion volume to my Parasitism and Subversion: The Case for Latin America which also deals with the social mechanisms perpetuating misery and strife.”
Andreski argues that sociological analysis is key to understanding the poverty and strife of African societies. He maintains that Economic theory will remain a steel construction built on foundations of sand until our understanding of non-economic factors is brought to the same level of generality and sophistication as the study of the strictly economic matters, so that economic and sociological theory form a continuum.
In this context, Polly Hill’s book, Development Economics on Trial , provides a useful complement to The African Predicament. While Andreski focuses on the political institutions and practices that have impeded development, Polly Hill provides deep insight into the complex and evolving social and economic institutions that stand in conflict with the political class. Hill’s book and Andreski’s book illustrate the power of integrating economic and sociological analysis. This analytic integration will be essential to building the deep insight required to fully understand and ultimately to change the institutions that have held society back.
Contrasting African and Latin American societies, Andreski observes that Nowhere in Africa do we find well-established and large institutions of parasitic suction like those we can see in Latin America . . . The exploitation of man by man – and even more of woman by man – is done mostly on small scale but it is ruthless, all-pervading, and grafted on the still living traditions of slavery which nowadays often revive under the name of apprenticeship and education.
In particular, Andreski zeroes in on kleptocracy, devoting an entire chapter to this concept and asserting that “the newly independent African states provide some of the closest approximations to pure kleptocracy that have been recorded.” Again, contrasting Latin America and Africa, Andreski comments that . . . graft is rampant throughout Latin America but it constitutes there a relatively less important channel for the flow of wealth than in Africa; although the sums are relatively larger. . . . the proportion of wealth absorbed by bribes and embezzlement is limited by the political power of the old-established property-owning classes whose chief concern is to preserve their possessions rather than to multiply them quickly.
In this context, Andreski is skeptical of the value of foreign aid, which suggests feeds the parasitic classes that have consolidated position in Africa: In societies severely afflicted by parasitism the number of parasites seems to be governed by the amount of surplus . . . An augmentation of the surplus tends to increase the number of parasites and, therefore, their force in relation to the productive elements of society.
Indeed, he is deeply critical of the partnership that emerged between former colonial governments and the parasitic classes that exploit African society.
In both his books on Latin America and Africa, Andreski emphasizes the role of the military as a key foundation of the state and obstacle to economic progress. In a future post, we will explore in more depth his analysis of the military and its role in shaping both the state and broader society.
Anthony Gregory
Steven Horwitz
The students are resisting that bestiality should be legal by arguing that animals can't consent. James's response is to ask them if they are vegetarians. "You are willing to kill animals brutally to eat them - all I want to do is make sweet love to one beautiful sheep." That's a brilliant response in my book. It's really pushing them to get at what our objection to bestiality really is. Is it just that it's "icky?" Of course the real danger is that rather than get them to rethink bestiality laws, he might turn them all into vegetarians!
Now we've gone to adult, consensual incest and then to necrophilia. We should have some interesting lunch conversation.
I also need to mention the he told us that the state of Idaho has a law against anal sex, the punishment for which is life in prison. James noted the irony of using life in prison as a way to deter men from engaging in anal sex.
Steven Horwitz
Anthony Gregory
More than likely, the real underlying purpose of the London attacks was similar to that of the Spanish train bombings in March 2004 on the eve of the Spanish elections. Al Qaeda took advantage of the Spanish government’s support of the U.S.-led Iraq invasion and the Spanish public’s intense dislike of that policy to drive home the high costs of being a Bush administration ally. The Spanish public realized that the Spanish government, in the name of national defense, was actually endangering the security of the Spanish people in order to score points with the United States. They promptly voted that government out of office and installed a replacement that withdrew Spanish troops from Iraq.
Al Qaeda is likely looking for a similar outcome in Britain, a country much more vital to the Bush administration’s war effort in Iraq than Spain. In contrast to Spain’s primarily symbolic importance for the U.S. war and occupation, the British have about 8,500 capable troops in Iraq. Britain is the only nation in the world to provide more than symbolic support for the globally unpopular U.S. military adventure in Iraq.
The question remains as to how the British will react in response. On the immediate response, Eric Margolis had this to say (along with other interesting insights in the same article):
London's emergency service functioned brilliantly. There was none of the chaos or jingoism we saw after 9/11 in New York. Britons uniformly exhibited stiff upper lips, coolness, and manners for which they are deservedly respected. I was very proud of them.
The bombings paralyzed London during morning rush hour, but by afternoon the city's trademark red buses were again careening around corners and even subway service partly resumed.
There were no witch hunts against London's Muslims, 10% of that great city's population.
A senior British police official declared there is no reason why the words"Islamic" and"terrorist" should go together, even though Blair had just used them.
The cop is right. The terrorists who struck London on 7/7 may have been Mideast Muslims, but their primary goal was political, not religious.
The Spanish pulled out of Iraq. Will the British? It appears not for now. For now, the British State is at least copying the American State in a few key ways, such as in Blair's rejection of an inquiry into the bombing, requested by the Conservative opposition party.
Jason Kuznicki
Has anyone ever done empirical, controlled, double-blind, and otherwise scientific tests to examine how, how well, and why markets are able to aggregate knowledge?It would seem that by setting up dummy futures markets, in the style of IEM and Tradesports, albeit with outcomes that were set in advance but unknown to all participants, one might be able to determine the types of knowledge and the degree of knowledge aggregation that markets are able to handle, at least in the abstract.
Experiments like these would probably provide a lower bound to knowledge aggregation in markets, however, as inarticulate distributed information--"knowledge" in Hayek's knowledge/information dichotomy--would potentially come from sources that even its beneficiaries could not describe.
It strikes me--again, speaking as a fan--that there are at least three distinct types of knowledge that markets are now thought able to detect.
1) Insider trading. When a small number of market actors possesses all of the knowledge relevant to making a good decision, they will consistently act according to what they know. Given sufficient time, markets will notice this and follow suit.
It would be easy to design a series of experiments around this premise that would gauge under what conditions markets tend to recognize insider trading. It strikes me that when, for example, Tradesports offers futures on the identity of the next pope, they can only be expecting inside information to show up.
One other possibility is that the knowledge aggregated by the market is just a restatement of conventional wisdom, which often happens to be correct even about arcane processes like a conclave. A dummy market--say, in one of fifteen names drawn at random--would eliminate conventional wisdom. A small group of insiders would know in advance the name of the winner, be it Joseph Ratzinger or Bede the Venerable, but they would only be allowed to communicate their knowledge through transactions, not through any other venues. Would the market figure things out? Has anyone even tried to find the answer?
2) Articulate distributed information. Picture a market in very large nonprime numbers. If each participant in the market knew only one factor in a prime factorization of the winning number, would the market be able to identify the correct number unaided? The question is easily testable, and again, there would be no conventional wisdom if the market participants were unable to communicate with each other beyond their market transactions alone.
It seems that the outcome of a U.S. Presidential election is analogous to this second case. In an electronic market, each American participant will have some small amount of knowledge about the outcome of the election: Each one knows exactly how he intends to vote. Again, though, conventional wisdom gets in the way, and conventional wisdom is very often accurate.
3) Inarticulate distributed information. This is the"knowledge" that interested Hayek the most. Frustratingly, it's almost by definition impossible to test. Unlike 1) and 2), 3) would seem to depend on conventional wisdom. Arguably it is conventional wisdom. How could we potentially design an experiment around it?
Please, enlighten me.
[Crossposted at Positive Liberty.]
Steven Horwitz
Making these sorts of public choice arguments to libertarian students is like shooting fish in a barrel, at least in the sense that they are strongly predisposed to being cynical about political actors. What public choice can do is to give them a theoretical framework for understanding and explaining the perverse outcomes of the political process without assuming that politicians are irredeemably evil.
Steven Horwitz
He also has two really good examples about how incentives matter. The first is the, presumably apochryphal, story about the American elementary school class who raised money to buy African children out of slavery as a way to reduce the total amount of slavery. His point was that this raised the price of slaves and encouraged more people to"reallocate" children into slavery to capture the now higher returns. (For the econ-geeks, the demand curve shifted up and to the right, raising the price of slaves, leading to an increase in the quantity supplied.) Incentives matter and they often create unintended and undesirable consequences. The other example was increased security at airports leading people, on the margin, to drive instead of fly, which is, of course much more dangerous. Thus the attempt to increase airline safety backfires and causes more problems. I've made this same point about proposed legislation to require all small children on planes to be in carseats. Kids who currently fly free on a parent's lap would now have to be charged as the carseat takes up a paying seat. That additional expense will lead some folks on the margin to drive, dramatically increasing the danger to the child.
He's now talking about his Wal-Mart and Mexican labor regulations example he mentioned here.
