Author Archive
The One Minute Case for Designer Babies
Posted by HeroicLife in Politics, Science on April 2nd, 2009
The term “designer baby” is a derogative term for the use of reproductive and genetic technologies to accomplish an optimal recombination of the parents’ genes. This case argues that the voluntary use of genetic technologies, as well as prenatal screening and abortion is both moral and desirable. It does not address the morality of abortion (defended in this case) or the safety of particular technologies – an important consideration, but not a fundamental issue.
Parents ought to want healthy children
While there are many valid motivations to become a parent, in choosing to create a human being, parents assume a moral obligation to provide for and educate their children to become independent, mature adults. Beyond the legal obligation of providing minimum care, to the extent that parents love and value their children (and there is no reason to have children otherwise), parents ought to strive to maximize their child’s ability to become fully functional adult human beings – physically, spiritually, socially, romantically, etc. This means providing both appropriate education, and taking care of their physical needs.
Health can be objectively defined in relation to the requirements of human life
It is possible to make judgments about which mental and physical states are objectively superior in relation to other states. For example, a broken leg, a bout of flu, or a headache are undesirable because they prevent one from accomplishing a whole range of actions which are required for human life. We recognize this when we use technology (medicine) to help people overcome and heal from their injuries and illnesses. The same applies to genetic physical and mental deformities, which adversely impact one’s ability to accomplish his values. If someone suffers from clinical depression or schizophrenia, we offer them drugs that improve their ability to use reason to deal with reality and achieve the values they desire. If healthy, successful, productive human life is a value, then it is moral to use all available technology to maximize human potential to achieve the values they desire.
Biotechnology adds new tools to an ancient arsenal of genetic techniques for better offspring
If health is desirable and can be objectively defined, then parents ought to choose to have healthy children. They do this in a variety of means: Genetically, humans instinctively seek mates likely to produce healthy offspring – this is the basis of selective sexual attraction based on physical traits. Consciously, parents choose partners who share their child-rearing values. They also take measures to prevent child defects, such as abstaining from drugs during pregnancy and choosing to have children earlier in their life. Genetic counseling and prenatal screening are just two new tools for enhancing an ancient process.
The Gattaca objection confuses the potential for the actual
The Gattaca objection to screening undesirable traits is that people with undesirable traits have made many valuable contributions, and are capable of living fully productive lives. Supporters often give examples of great scientists like Albert Einstein or Stephen Hawkins with genetic or developmental abnormalities, or of people with serious impairments such as Down Syndrome who nevertheless hold jobs and assume most of the functions of normal adults.
This objection confuses between the seen and the unseen. What we see is that many people with undesirable traits are unusually successful, either in relation the average person, or to people with their symptoms. What we don’t see are all the people who failed to achieve their values because of their symptoms. If their genotype or embryo had been eliminated before birth, the unhealthy people would not exist, but an equal number of healthy people would. Unless the undesirable symptom itself contributed to their success, the percentage of unusually successful healthy people would be far higher than the number of extraordinarily successful unhealthy people. Certainly, healthy people would have a better chance at a normal life than someone with a chronic syndrome such as Down Syndrome, Tay-Sachs, or Spina bifida.
Genetic diversity is valuable – but only if it is used to enhance human life, not impair it
The “neurodiversity” movement opposes genetic screening on the grounds that atypical neurological development should be recognized and respected. The movement has a valid point insofar as neurodiversity has played a critical part in the development of human civilization. If every human being had exactly the same intelligence and developed in the same way, we would have no great scientists, artists, intellectuals, or entrepreneurs.
Unfortunately, the neurodiversity advocates only support “diversity” when it is due to ignorance, not conscious choice. They support a baby being born with Autism, Parkinson’s disease, dyslexia, or other disorders because the parents had no choice in the matter, but they oppose giving the parents the power to choose to have a child which is healthier than he would “naturally” be. If most parents could consciously choose what traits to give their children, they might prefer more intelligence, curiosity, a longer life, or stronger muscles. These are also varieties of genetic diversity.
Objections to genetic counseling and gene engineering are ultimately objections to technology
Few parents would choose to have their children be born blind, deaf, retarded, or crippled. Yet this is precisely what the “diversity” advocates want: to prevent parents from being able to improve on the “natural” forms of biodiversity. Traits due to sexual selection, random genetic mutation, and embryonic variation are acceptable to them, but traits due to conscious human choice are not.
Genetic screening via sexual selection has been practiced since the dawn of life itself. No one suggests that we should pick a mate entirely at random, so the objection to genetic screening and engineering is due to the element of technology. Their objections are not to “designer babies” as such, but to the use of technology to improve the lives of human beings. They apply equally to a child whose genes are altered after birth, or to an adult. The logical conclusion of this neo-luddism is the opposition of all man-made improvements to human life as “unnatural.”
The One Minute Case Against Consumptionism
Posted by HeroicLife in Economics on February 15th, 2009
There is a tradeoff between economic growth and consumption
Economic growth is made possible by forgoing current consumption. For example, consider the case of a teenager considering whether to save money for his future. If he spends his salary on toys and trinkets, he will never accumulate any savings. If, on the other hand, he minimizes expenses and saves money for college, he will forgo current consumption and invest in capital improvements. The same tradeoff applies to all consumers and producers: capital improvements require a sacrifice in current consumption to invest resources needed to expand future production.
Production, not consumption drives economic growth
The lack of a consumer culture is not an impediment to economic growth, as resources that are not consumed are invested into new markets and production capital. If a consumer forfeits a new car now to buy a better car at some point in the future, his savings are not lost. Instead of being directed into present consumption, his savings become the investment capital for new factories and R&D into cheaper and better cars. This is why such high economic growth is possible in “Asian tigers” such as Hong Kong and South Korea – high rates of savings support rapid technological progress and investment into industry at the cost of a much more frugal lifestyle than in the West.
Capital has structure
Politicians and the media treat GDP as a single number, but it is crucial to understand that producers face a choice between producing consumer goods and investing in intermediate goods used to create consumer goods. Those goods differ as well: a factory owner can invest in merely maintaining his factory, building a similar factory to expand production, or engaging in a long-term research and development program in a new product or production process. Thus, the goods produced by an economy can be one, two, or more level removed from consumer goods.
Capital investments require savings and stability
Economic and technological progress requires that entrepreneurs make long-term investments in intermediate production goods many levels removed from the consumer. In order for this to happen, two things are necessary: that consumers forgo current consumption to invest in future production, and that reliable long term predictions can be made about future savings rates and demand patterns.
Monetary policy disrupts economic growth
Governments control over the currency allows them to use monetary policy to achieve short-term economic goals, such as increasing GDP. But the consequences of artificially manipulating interest rates are disastrous. By expanding the money supply through manipulation of interest rates or (as is happening now) sending money directly from the printing presses to banks and other corporations, the government is devaluing savings and redirecting them into increased consumer spending. This improves the economic statistics in the short run at the cost of wiping out the resources set aside for long-term capital improvements. Furthermore, the arbitrary nature of government intervention in the economy makes long-term predictions about future savings and demand impossible.
Let the market direct savings and investment or face financial ruin
There is no single right answer to the tradeoff between current consumption and the savings available to invest in future production and increased economic growth. Every individual must choose for himself how to balance present spending with investments in his future. In a free market, the sum of individual savings rates becomes the real interest rate.
For the last few decades, America’s spending binge has been funded by foreign investment and rapid technological innovation, but ultimately, unless we drastically cut our consumption, and direct our income into savings and repaying our debts, we will find our money increasingly worthless both here and internationally. The dire consequences of hyperinflation can be seen in Zimbawbe, where life expectancy has declined from 60 to 37/34 years, unemployment is at 80%, and as much as half the surviving population has left the country.
Further Reading
- The One Minute Case for the Austrian Business Cycle Theory
- Friedrich Hayek. The Paradox of Thrift 1929
- Ludwig Lachmann. Capital and Its Structure 1956
- Israel Kirzner An Essay on Capital 1966
The One Minute Case Against Wage and Price Controls
Posted by HeroicLife in Economics, Politics on February 13th, 2009
What is a job?
A job is a contract between two parties, in which one party agrees to provide certain services on a certain schedule in exchange for payment from the other party. By definition, an employee agrees to do job for a particular wage by his own voluntary consent. This is opposed to slavery, in which a slave is forced to work without his consent or compensation.
What determines wages? Can employers pay workers whatever they want?
A wage is the price an employer pays for the services his employee. While the two may negotiate any wage they come to mutual agreement on, the mutual self-interest of both and market forces intersect at a market-set price that represents the intersection of their interests. Disregarding non-economic factors, an employer wishes to pay his employee as little as possible. The maximum amount he will pay however is the value of the marginal productivity a given worker provides. (The marginal productivity is the value per unit of time the worker provides to the employer.) If the worker refuses to work at or below his marginal productivity, then the employer will not hire him, since doing so will incur a loss. Conversely, disregarding non-economic factors, the employee wishes to be paid an infinite amount. The minimum wage he will actually accept is the marginal value of his labor. This can be measured in terms of the next-most useful value-producing activity the workers may engage in.
For example, suppose that my marginal productivity as a programmer is $30 per hour. I will accept any job paying above $30 an hour, but no job below it, since I can find an employer paying that much in another computer or tech-related industry. A fast-food worker might have a marginal productivity of say, $6 an hour – the value per hour that his labor creates for the business. From the employer’s perspective, I create $40/hour of value, and the fast food workers creates $7 of value, so he will be willing to hire us. (Assuming that no one is willing to provide the same value for a lower wage.) However, if I only provide $20 of value, the employer will not hire me, because he would incur an hourly loss of $10 in doing so. Similarly, if the fast food worker only provides $5 of value, he would no be hired either because he would cause a loss of $1 for each hour he works.
Can the government increase wages when employers don’t pay enough?
Suppose that the government imposed a minimum wage of $8. Would the fast food worker who provides a value of $7 per hour now be paid $8? No, he would lose his job – because keeping him would mean a $1 loss for each hour he works to his employer. All minimum wage laws have a similar effect – they cause everyone with a marginal productivity below the minimum wage to lose their jobs – most often teenagers and the very poor. Wage caps (including progressive income taxes) have a similar effect – they lead the most productive individuals of our society to retire early or forgo new opportunities — resulting in a lost opportunity for them, and for everyone who might have benefited from their ideas.
What if the government creates a job by paying an unemployed worker to do make-work such as digging holes in the ground?
Where would the money to pay for his wage come from? It would have to be taken by force from the remaining employed fast food workers and computer programmers. Everyone will be paid less to pay for the government workers, but has a job been created? No – now the fast-food employer has $1 less to pay to his other $8 employees, so he must fire some of them or go out of business. Each new $7 government worker costs at least one $7 privately employed worker. This is always a social loss because by definition, the government worker is less productive. If he were not, then the private business would voluntarily employ workers to perform his job. While a minimum wage causes everyone who produces less than the marginal productivity of the minimum to lose his job, each new government job causes at least one more productive worker to lose his job.
If the government cannot raise wages, can it lower prices?
Prices are determined by the marginal value of a given good, just as a wage is determined by the marginal productivity of an employee. Attempts to regulate the cost of goods have the same effect as wage controls: if the price is set below the cost of a good, producers will be unable to make any. Since different producers have different costs, lowering the prices of a good will decrease the percentage of producers able to supply them, until they can make none at all.
So how can prices be lowered?
The only way for prices to go down is to increase the productivity of workers. Productivity in the production of a good comes from the application of mental effort to the production of values. A profit (the difference between the value of a good to a consumer and the cost to produce it) is the reward of an entrepreneur for bringing about the new wealth he’s created. In the absence of government coercion, profits can exist only as long as men continue to create new values ,or improving on existing ones. The only to make goods cheaper is to allow entrepreneurs the freedom to invest in improvements in the capital and labor methods used in production
Doesn’t a more efficient product result in lost jobs for those who were replaced by automation or better processes?
When oil lamps replaced candles, the cost of producing affordable lighting greatly decreased. In the absence of a government monopoly, competing lamp-makers quickly started making their own lamps, which brought the price decrease to the consumer. In the process of transitioning from candles to laps, many thousands of candle-makers lost their jobs. However, oil lamps did created a new industry of their own and increased the prosperity of society as a whole, just as electric lighting did in the 20th century. Since consumers could buy cheaper lamps, they now had more money to spend on other things, ,creating new industries, and raising their overall standard of living.
Technological progress and capital accumulation has both created new careers made us enormously more productive – we not only have a wider range of vocations to choose from but work far fewer hours.
Can government “soften the blow” when all these candle-makers lose their jobs?
In today’s world, the government would probably try to subsidize the candle or lamp-makers when their chief product became outdated. What would that subsidy accomplish? It would save the candle-makers jobs – but it would cost the jobs of everyone who stood to benefit from the increase wealth that came from cheaper lights. In the short term, the candle-makers might benefit – but in the long term, they would lose too, since they would lose the new, higher paying jobs the could have making electric lights and the new products the cheaper lights would allow consumers to afford. Meanwhile, the Thomas Edison’s, Graham Bells, Thomas Moore’s, and Bill Gates’ would be too busy working to pay off taxes to have the time or money for research.
Of course, we know that these inventors and entrepreneurs succeeded. But how many didn’t because they never got their first break in the field because of a minimum wage, or gave up before they tried because the red tape was too much, or the taxes too high, or they knew that the old, outdated industries would use the government to tax and regulate them out of existence? The real tragedy is that we will never know.
The One Minute Case For Capitalism
Posted by HeroicLife in Economics, Politics on February 13th, 2009
Capitalism a social system based on the principle of individual rights.
A capitalist society is based on the recognition of individual rights, including property rights. Under capitalism, all property is privately owned, and the state is separated from economics just as it is from religion. Economically, capitalism is a system of laissez-faire, or free markets, where the government plays no part whatsoever in economic decisions.
Capitalism is the only social system compatible with the requirements of man’s life
To pursue the values necessary for his life a society, man requires only one thing from others: freedom of action. Freedom means the ability to act however one pleases as long as one does not infringe on the same and equal freedom of others. In a political context, freedom means solely the freedom from the initiation of force by other men. Only by the initiation of force can man’s rights be violated. Whether it is by a theft, force, fraud, or government censorship, man’s rights can be violated only by the initiation of force. Because man’s life depends on the use of reason to achieve the values necessary for his life, the initiation of force renders his mind useless as a means of survival. To live, man must achieve the values necessary to sustain his live. To achieve values, man must be free to think and to act on his judgment. To live, man must be free to think. To be free to think, man must be free to act. In the words of Ayn Rand, “Intellectual freedom cannot exist without political freedom; political freedom cannot exist without economic freedom; a free mind and a free market are corollaries.”
Capitalism recognizes the inherent worth of the individual
In a human society – one that recognizes the independence of each man’s mind – each individual is an end in himself. He owns his life, and no one else’s. Other men are not his slaves, and he is not theirs. They have no claim on his life or on the values he creates to maintain his life, and he has no claim on theirs. In a free society, men can gain immense values from each other by voluntarily trading the values they create to mutual gain. However, they can only create values if they are free to use their minds to exercise their creativity. A man is better living off on his own than as a slave to his brothers. Capitalism recognizes each man as an independent, thinking being.
The individual is an end in himself
Just as no individual has the right to initiate force against anyone, neither does any group of men, in any private or public capacity. It is immoral to initiate force against any individual for any reason. This includes the initiation of force for “the public good.” The “public” is merely a collection of individuals, each possessing the same rights, and each being an end in himself. Any attempt to benefit the “public good” is an immoral attempt to provide a benefit to one group of individuals at the expense of another. In a free society, no individual benefits at the expense of another: men exchange the values they create in voluntary trade to mutual gain. The rule of law in a free society has just one purpose: to protect the rights of the individual.
Capitalism leads to freedom and prosperity
A free, capitalist economy has never existed anywhere in the world. The closest the world came to a free market was during the Industrial Revolution in Great Britain and during the late 19th century in the United States. The Industrial Revolution was a period of unprecedented economic growth and unimaginable improvements in quality of life. In less than two hundred years, the life of most people in the Western world changed from a a short life filled with poverty, plague, and near-constant war to a modern, comfortable existence that even the kings of medieval Europe couldn’t have imagined. Since 1820, the leading capitalist nations have increased their wealth sixteen fold, their populations more than four-fold, their productivity twenty-fold. Annual working hours went from 3,000 to less than 1,700 and life expectancy doubled from thirty to over seventy years. 1
Yet despite the undeniable material superiority of capitalist societies, its critics continue to attack it as inhuman and selfish. What the world lacks is not evidence of capitalism’s practical superiority, but a moral defense of a man’s right to his own life.
Reference
- Angus Maddison. Phases of Capitalist Development, p4 (1982)
Further Reading
The One Minute Case against the SEC
Posted by HeroicLife in Economics, Politics on February 10th, 2009
Markets regulate themselves
Long before the existence of the Securities and Exchange Commission, medieval guilds and trading houses established common standards, accreditation agencies, and accounting rules that have evolved to the present day. The system of English common law has been evolving since the 12th century 1, and the accounting system used today was codified in 1495.2.
Numerous non-governmental bodies have continued to develop accounting rules and set auditing standards for public organizations.3 It is the American Institute of Certified Public Accountants, not the government, which sets ethical standards for the profession and U.S. auditing standards for audits of private companies; federal, state and local governments; and non-profit organizations.
Voluntary oversight organizations are embraced by their participants because they provide executives with a value – they allow them to discover waste and fraud and advertise honesty to partners and customers. Unlike government regulatory bodies, they are flexible, efficient, and competitive. When the compliance costs of accounting rules exceed their value, or when lax controls lead to unethical or risky behavior, the markets embrace new standards. The Securities Act of 1933 and the Securities Exchange Act of 1934 did not begin the process of regulating markets, but nationalized much of the auditing market and turned it over to politicians and bureaucrats.
Regulations hinder competition and raise costs for investors
The SEC subsidizes politically connected corporations at the expense of smaller firms, hindering innovation and encouraging corruption. Established corporations lobby the government to create burdensome regulations that smaller investment funds and markets cannot afford, thus creating coercive monopolies that raise profits a few firms at the expense of investors.4 Government bodies like the SEC, the MSRB, the FTC, the USITC, the Fed, the Treasury, the IRS, the OTS, the MSRB, and the state attorney’s offices issue hundreds of thousands of laws, rules, opinions, bulletins, comment letters and threats and require numerous reports, statements, forms, notices, and approvals that investment firms and public companies must obey. 5 This creates an artificial scarcity of investment products that benefits large corporations and discourages savings and investment. Smaller companies cannot afford to raise money by issuing stock, and investors are forced to choose between public but expensive mutual funds and secretive and risky hedge funds with entry fees that only the rich can afford.
The SEC creates corruption
Rather than making Wall Street honest, regulatory agencies are the primary instruments of fraud and corruption on Wall Street. Politicians who control regulatory agencies have an incentive to use their power to extract benefits for themselves and their constituencies, rather than to keep markets honest and efficient. Power hungry politicians like Eliot Spitzer use the power of the SEC to go on crusades again innocent businessmen 6, and thus force regulatory bodies to hide the evidence of real corruption.7 By blocking outsiders from seeing its records, the agency is makes it harder for investors to discover real fraud.8
The case of Bernie Madoff is a typical case study in how the SEC encourages fraud. Investors figured out that Madoff couldn’t possibly make the profits he claimed, and have been writing the SEC since 1999, urging them to put a stop to Madoff’s Ponzi scheme. However, Madoff used his close family ties to the SEC, and was instrumental in founding key regulatory bodies – and then nominated his family members to serve on their boards. When skeptical investors inquired about the irregularities in his fund, Madoff told them that the SEC had already investigated and cleared him over a period of three years.
While Madoff stole $50 billion dollars under their noses, the SEC’s budget surpassed $900 million dollars, and grew at record rates during the two Bush administrations. In response to this outrageous case of nepotism and corruption, the government will likely increase its budget and staff once again.9
The SEC makes markets more volatile and risky
By banning crucial market functions like short selling10 and “insider trading” 11 the SEC hinders the market’s ability to react to new information, and makes markets more unpredictable and expensive.
The SEC cannot even oversee itself
While the SEC is charged with enforcing regulations like Sarbanes-Oxley, it consistently fails to control and report on its own processes and receives failing grades from the government’s own auditing body.12 This is not surprising – like any socialist organization, it has no incentive to be efficient or responsible to stockholders.
The chief source of fraud and corruption in the United States is not Wall Street, but Washington D.C.
Notes
- Medieval English common law: foundations for 21st century legal systems
- Wikipedia: The history of accountancy
- Self-Regulation in Today’s Securities Markets: Outdated System or Work in Progress?
CFA Institute Centre Publications (September 2007)
- See How the SEC Subsidizes Stocks by Jeff Scott and SEC: Protecting Investors Or Uncompetitive Companies?
- (There are so many regulations that the department charged with publishing them can only report that “The Office of the Federal Register Library now contains more than 550 cubic feet .. which has the force and effect of law.” – History of the Federal Register
- The Cost of the “Ethical” Assault on Honest Businessmen by Alex Epstein and Yaron Brook (Silicon Valley Biz Ink, July 8, 2003)
- Deafened by the S.E.C.’s Silence, He Sued
- The S.E.C. Prevents Investors From Discovering Accounting Fraud
- The SEC Makes Wall Street More Fraudulent by Robert Murphy
- See the One Minute Case for Stock Shorting
- See Inside Insider Trading and Should Insider Trading Be Legal? by Yaron Brook
- GAO Finds Material Weakness in SEC’s Controls
The One Minute Case Against Cheating
Posted by HeroicLife in Philosophy on May 20th, 2008
Recent studies have shown that in the U.S., 56% of middle school students and 70% of high school students have cheated.[1] Why is cheating on the rise? The best place to start analyzing this question is to look at the issue from the perspective of the individual student. What reasons does he consider for and against cheating?
For most people, the decision to cheat or not is guided primarily by emotion. Does the feeling of guilt exceed the feeling of satisfaction he will receive from getting an A? But emotions are ultimately based on one’s values and ideas. The predominant idea behind cheating is that morality is a conflict of self-interest versus self-sacrifice. Cheating is the “selfish” thing to do, and confers an advantage in class and in life. The “right” thing to, whether justified by promises of divine reward, utilitarian considerations, or a vague appeal to social harmony, requires an immediate personal sacrifice. In such a conflict, the “moral” choice is understandably difficult for students to justify. Without rational ideas to justify honesty and integrity, hard-working and “practical” students believe that morality only holds them back from success in life, and that they can “play by the rules” once they are out of school, and give lip-service to morality when it comes to more abstract and non-practical matters.
This is a grievous error is created by bad philosophy. The lesson that students need to learn is that the choice between the practical and the moral is a false dichotomy. Morality is the means to a successful life, not an impediment. Teaching the practical, selfish value of honesty is the best way to discourage cheating.
The primary purpose of an education is to provide the practical knowledge and thinking skills that allow success in life and career. Cheating erodes both those goals. In a career, success of failure has material consequences on one’s work and the people it affects. A grade on a biology exam is just a number, but a doctor who takes shortcuts with patients, or a construction engineer who takes shortcuts with buildings endangers both his career and other people’s lives. The ultimate goal of education is not a piece of paper, but practical skills and knowledge, and cheating deprives oneself of that knowledge. Whatever immediate benefit cheating provides is outweighed by the long-term harm. Educators need to stress the practical value of their lessons, and the harm students do to themselves when they forfeit their education.
Even though it is an attempt to deceive others, cheating is a form of self-deception as well. Cheating to get ahead will cause oneself to lose a grasp of what his skills actually are. Someone who cheats on a quiz will find out that he is unprepared for the final. Students who cheat in an entry-level class will find themselves helpless in higher-level classes. The more a student cheats, the more ignorant he becomes of his actual knowledge. The more he gets ahead by his falsehoods, the harder he has to work to keep up his un-earned position. Even if his dishonestly-obtained diploma gets his dream job, he will still be unqualified for it, and forced to continue his deception at work. He will attempt to hide his inadequacy from co-workers and bosses just as he hid it from classmates and professors. Cheating is an addictive habit that will surely destroy a career even if it does not (publicly) destroy an education.
Honest peers compete on the basis of their skill and hard work. Their mutual excellence inspires and motivates each other to success. Classmates and coworkers who cheat on the other hand, compete by the standard of who is the better liar. They lose focus of the purpose of their education or career, and try to outdo the audacity of each other’s frauds. Their peers do not inspire and motivate them, but present the constant threat of having their lies unmasked. As they lose sight of their real goals, they will find themselves slipping behind.
The solution to the rise of cheating is not to attempt to instill a vague sense of moral guilt, but to explain and demonstrate that cheating is counter-productive and self-destructive. Honesty does not require guilt or the threat of worldly or divine punishment. Instead, ambition, integrity, and pride should guide one to success.
Sources
The One Minute Case For Strict Civil Liability of the Justice System
Posted by HeroicLife in Economics, Philosophy on November 2nd, 2007
What is the problem?
The growing use of non-lethal weapons such as tasers by the police has to calls to ban or restrict their use. The real issue being debated is the extent to which police officers should risk their safety to detain suspects. Should they only use force when someone’s life is in danger, or to avoid the risk of injury when attempting to tackle a suspect, or to avoid a sprain from having to run after someone? It is likely that further debate will result in a consensus enforced by the legislative and judicial branches of government. But what criteria should be used to determine the level of risk that police officers may be exposed to before using force?
Under the current system, police officers are only held responsible for injuring others only if found guilty of a miscarriage of justice, that is, willful malice or negligent behavior in the performance of their job. This provides an incentive for the judicial branch to minimize liability by maximizing the leeway officers have in deciding whether to use force. Furthermore, establishing standards for proper police procedure is a highly-non objective process, based on factors such as the public’s fear of police brutality, their desire for safety, the cost of lawsuits from police actions, and the political gain politicians find from pushing more or less draconian policies. One means of improving on this process is to establish a strict liability criteria for police actions.
What is strict liability?
Under a strict liability standard, it is not necessary to find a party guilty of malice or negligence, only of fault. Perpetrators of damages arising from inherently dangerous activities are responsible for damages regardless of whether they acted improperly. For instance, drivers at fault for damaging another car or injuring a driver are held financially responsible regardless of whether they acted maliciously or negligently. Under strict liability, a police agency would be held responsible for personal injury and property damage if an officer injures an innocent suspect, or unnecessarily injures a criminal — even if the officer acted properly in the performance of his duty. For example, an officer who fires at a guilty suspect who poses a real threat would not be liable, but an officer who fires at a suspect who does not pose a threat will be held liable for damages whether the officer is guilty of a miscarriage of duty or simply made an error in judgment. Furthermore, such a system would repay defendants who are exonerated at trial for their time and suffering.
Strict liability shifts incentives to the party best qualified to control costs
One objection to the strict liability standard is that it would greatly increase the financial risk faced by police departments and courts. However, by placing the burden of minimizing costs on the judicial agency, a strong incentive is created to minimize mistakes – and therefore costs. It is likely that police departments would attempt to insure themselves against risk, and the insurance agents would in turn establish guidelines that seek to minimize their risk. Such guidelines may ban tasers because of their health dangers – or they may require them in most situations where deadly weapons were formerly employed. Police agencies may prefer to hire men because they would find it easier to tackle suspects (and thus avoid a major incentive for taser use) or women because they are better at resolving conflicts peacefully. Because they would bear the cost of mistakes, police agencies would be motivated to experiment on the most effective way to perform their jobs, while the public they protect would be financially shielded from their mistakes by a strict liability standard.
Strict liability discourages prosecution of victimless crimes
Another objection to strict liability under the current legal framework is that it would make police agencies averse to enforcing laws that are prone to mistakes or unsuccessful prosecutions – namely, those known as “victimless crimes.” Adultery, gambling, homosexuality, and the trade of illicit substances and goods are areas where the lack of a victim makes errors in suspect identification and successful prosecutions especially likely. This is especially true of laws pushed by vocal voters on unwilling recipients – for example, communities that favor drug or alcohol prohibition on communities that tolerate drug and alcohol users. Yet this only illustrates the insulation of government policies (and by extension taxpayers) from the cost of economically expensive (and thus socially destructive) laws. If enforcement agencies are required to pay for their mistakes, they will favor laws that can be objectively enforced, and violations of which result in victims pushing for enforcement.
Further reading
The One Minute Case for the Austrian Business Cycle Theory
Posted by HeroicLife in Economics on October 2nd, 2007
The Austrian Business Cycle Theory was developed by the economist Ludwig von Mises to explain the phenomenon of business cycles. It provides crucial insight for understanding the cause of cyclical boom/bust cycles and their connection the government’s manipulation of the economy. To understand the Austrian Business Cycle Theory, an analogy is helpful:
Imagine an economy with just one actor: Robinson Crusoe on an island. Crusoe loves fish, so he spends half of each day fishing so he can enjoy fish in the evenings. Additionally, Crusoe spends Friday mornings maintaining his fishing dinghy and nets. In order to have fish on Friday, he must fish for an extra hour every other day of the week. In economic terms, Crusoe has a savings rate of one hour per day. His savings rate is also his investment rate, or the percentage of present income he sets aside to maintain or increase future consumption.1
Crusoe doesn’t have a fridge, so he preserves his catch by throwing it in a small, dark pond. He can’t see how many fish are in the pond, so he keeps a stack of small rocks near it. Every time he adds a fish, he adds a rock, and every time he eats one, he removes one. The rocks are his money supply.
Suppose that Crusoe shares the island with some mischievous monkeys, who see Crusoe adding rocks to his pile. They decide to imitate him, so every time Crusoe ads a rock, they sneak in and add one as well. The monkeys are inflating the money supply by injecting currency into Crusoe’s investment fund.2
One day, Crusoe suddenly notices that his “savings rate” of fish is double the usual. He decides to compensate by eating some of the fish he catches during the “savings hour.” This is the consumption-side of the boom phase of the business cycle. Crusoe also decides to take some extra time each day to start building himself a new hut. This is the investment-side of the boom phase of the business cycle.
Crusoe now believes that the cost of saving fish is half the usual, while in fact his savings rate is too low for the investments he is planning.
Before long, Friday comes around. When it comes time to eat his midday meal, Crusoe suddenly realizes that he’s out of fish – despite having a surplus of rocks. He’s exhausted his investment capital because the additional currency snuck into his money supply did not represent a real increase in his productivity or savings rate. He doesn’t have the capital (fish) to maintain his previous consumption rate, much less increase it. He is forced to cut his investment rate (he must spend some of his Friday fishing) just to have some fish for Friday’s dinner. He must also abandon his incomplete hut because he does not have the time to finish it. The abandoned hut is an extravagant expenditure that represents a loss of capital.3 This is the bust phase of the business cycle.
To review, here’s the overall impact of the monkey’s trickery: Sunday-Friday, Crusoe catches the same number of fish, but consumes more, and therefore saves less. That’s the boom period. Friday, Crusoe consumes less fish, and spends less time for maintaining his nets (capital). Some of his investment/consumption time must now be spent in production. That’s the bust period. If Crusoe’s initial savings rate allows him to just break even each week 4, his nets will gradually get worse and worse and he will eventually go hungry.5
Notes
- Crusoe prefers to enjoy his fish sooner rather than later, but he is willing to put aside some of his catch to get more fish later. The discount he gives to eating a fish Friday is his time preference, or his originary interest rate. (To that, he adds the risk that the fish will spoil by Friday to get the market or “real” interest rate.)
- As long as the monkeys keep contributing one stone for every fish, Crusoe can account for their trickery. But if the monkeys are unpredictable, it will be impossible for Crusoe to set the proper savings rate.In the real world, the originary interest rate reflects the average time preference of all savers. If someone starts monkeying around with the interest rates, it becomes impossible for investors (or the monkeys at the Fed) to know what the real rate of savings is even if they know that the rate is being manipulated.
- That abandoned hut represents investments which exceed the ability of the actual savings rate to complete. The resources it takes to build compete with worthwhile investments (such as repairing the fishing nets) by raising the prices for all capital. Ridiculous business models and sky-high salaries during the dot-com boom, as well as over-extended sub-prime mortgages likewise compete with legitimate business models, salaries, and mortgages. Manipulating the money supply makes it difficult to distinguish bad investments from good ones, so no one can escape the inevitable crunch.
- That is, zero net profit, an equilibrium rate of savings, or “the evenly rotating economy” in Mises’ terminology.
- Suppose Crusoe decides to ignore his hunger and work on his nets all Friday. In other words, he trades current production (and therefore consumption) for higher future consumption (that is, economic growth). If he does so voluntarily, there’s nothing wrong with that. But there’s nothing inherently more desirable or efficient in spending some of one’s time starving just to increase future production (that is, in valuing economic growth over present consumption.) Note that the longer Crusoe delays the shift back to production, the more severe the miss-allocation of resources (and his hunger) becomes. The monkey’s trickery does not actually make Crusoe to become a better saver – he is more likely to start saving less because of uncertainty over the future.
Further reading
The One Minute Case For Advertising
Posted by HeroicLife in Economics on July 10th, 2007
Why defend advertising?
While the abundance of advertising is usually viewed as a sign of the vitality of capitalism, it is nevertheless under a near-universal assault by intellectuals. Because advertising “blatantly and unapologetically appeals to the self-interest of consumers for the blatant and selfish gain of capitalists”1, attacks on advertising are an assault on capitalism and ethical egoism. Arguments against advertising usually take two forms: the argument is that advertising is economically inefficient and the argument that advertising is somehow coercive. 2
The myth of “perfect competition”
Most economic arguments against advertising derive from the theory of “perfect competition, ” which is an ideal state against which markets are to be judged. This state is characterized by homogeneous products, relatively small sellers without monopoly power, prices which approach the cost of goods, consumers who have perfect information about all products and prices, and no entry costs to markets.
Advertising violates all these conditions, mainstream economists argue. Advertising seeks to establish product loyalty, and therefore to make certain brands more valuable than others. This creates barriers to entry by giving companies monopoly privileges, and allows them to price goods above cost. Furthermore, advertising is an imperfect and biased way of communicating product information to consumers. Finally, advertising retards progress by making it more expensive for new producers to enter the market.
In the real world, markets work quite differently: the essential characteristic of capitalism is the entrepreneurs who invest capital in new services, products, technologies, and businesses models. When their predictions are right, they gain a temporary advantage over their competition and turn a profit; when they are wrong, they take a loss. Success in business requires continual insight into which investments will prove profitable.
Rather than being a barrier to entry, advertising makes competition possible. New businesses and products stimulate demand by announcing their benefits to consumers. Expanding demand makes goods cheaper by creating economies of scale. While advertising is often attacked for creating demand for shoddy goods, it is not sufficient to advertise to gain consumer loyalty – only positive customer experience and continued positive goodwill can do that. Advertising is what allows new market entrants to capitalize on consumer dissatisfaction and dislodge established firms, as Japanese auto makers did when they demonstrated the superior value and quality of their cars over American ones.
The perfect competition model assumes that competing companies automatically lower prices to match their competitors. In reality, no business wants to lower prices unless consumers expect them – and it is advertising which performs that role by educating consumers about the competition. Advertising itself is a check on high marketing budgets: as consumers become better educated, competitive pressure creates price wars which force businesses to minimize expenses. 3
Yet another criticism is that advertising is a biased method of consumer education. Yet the continued importance of advertising as an influence on buyers proves that the creator of a good is the party most qualified to communicate the value proposition it offers, whether directly or through an intermediary. While word-of-mouth reports and independent product testing organizations are essential sources of consumer education, competitive pressure through advertising provides the claims whose veracity they evaluate.
Advertising is non-coercive
Opponents of “consumerism” often claim that advertising creates its own demand. But a commercial cannot simply implant a desire in the viewer. Rather, advertising tells consumers how their existing values can be satisfied in a particular concrete form. Some advertisements seek to meet well-defined values: toothpaste for clean teeth. Others educate consumers about products which fill a specific need: sports drinks for athletes, or diet colas for the health-conscious. Some advertising functions much like art, and present a concretization of highly abstract or subconscious values. For example, a sports car commercial may appeals to consumers who seek independence and efficiency, while a luxury sedan commercial might appeal to those who value comfort and elegance. Attacking advertising solely for appealing to emotions is as silly as criticizing a painting or a movie for appealing to the viewers’ emotion rather than presenting a dry, factual account.
Ultimately, advertising is a public appeal to the mutual self-interest of the seller and buyer. Movements to silence or limit advertising seek to regulate the freedom of the individual to voluntarily interact with others, and therefore are an assault on both freedom of speech and the right of association.
References:
- Google Books: Jerry Kirkpatrick: In Defense of Advertising: Arguments from Reason, Ethical Egoism, and Laissez-Faire Capitalism.
- The Five (Wrongheaded) Complaints against Advertising by Jerry Kirkpatrick
- Persistently high advertising budgets are indications of high barriers to entry, usually due to government interference. For example, in the case of drug companies, the FDA forces drug makers to spend up to a billion dollars to deliver a single drug to market. This limits the drug market to all but the largest companies and most profitable medicines. Prescription drugs have large advertising budgets because the legal barriers to entry make it prohibitively expensive to compete on price or quality, or to appeal to smaller markets such as rare diseases.
Further reading:
- Advertising is Good Medicine by Wayne Dunn
- A philosophic defense of Advertising by Jerry Kirkpatrick
- The Concise Guide To Economics: Advertising
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