Freedom's Just Another Word For Pigouvian Taxation

By Robert H.

For confusing reasons, the government taking away more of your freedom does not always mean you are less free.  Here's why:

If you are worried about human freedom, I think the right way to look at the growth of government is in absolute terms, not relative terms.  A government that devotes 1 percent of a trillion dollar GDP to the police state can simply do things a government that devotes 2 percent of a billion dollar GDP cannot.  10 billion dollars buys you lots more coercion than 20 million.  Just so, if the government takes a thousand dollars from you it has constrained what you can do significantly more than if it takes one dollar, regardless of your overall income.  You may lose less marginal utility, but you definitely lose more freedom.

So it should follow that personal freedom is also best measured in absolute terms, not relative terms.    If we pretend government does not exist, it's obvious that I am free to do things a medieval peasant is not purely because I (along with most everyone else) have a higher income.  Even if my government is "bigger," I am still free to go on plane rides to parts of the world he doesn't know exist.

Oh, you are engaging in subsistence farming?  That's cool.  Yeah, I am in Maui drinking mixed drinks that would be as  nectar to you, but subsistence farming is good.  

So it is possible, if incomes climb, both for government opression and personal freedom to meaningfully grow.  The net result could be freedom enhancing even if government is more tyranical.  

The first infrence we can draw from that is that no one should assume we are less free than in the past merely because government is bigger.

The other inference is that  libertarians should, in some circumstances, embrace growth enhancing redistrubituon. Unless you've fallen into the "public choice theory means government can do nothing good ever" trap a libertarian might look favorably at government programs meant to redress market failures in the economics sense (regulating pollution, funding basic research, etc) or to policies meant to help with agency problems (for example, kids aren't rational enough to make schooling decisions but their agents, parents, have different lifetime goals and preferences from their kids and might make choices that their kids, if they were rational, would not).  Even though the government program will hurt freedom and be bad, the net growth it creates will be freedom enhancing and make the policy worthwhile.

I bring it up because Matt Yglesias thinks it is illogical for Greg Mankiw to 1. reject utilitarian arguments for redistribution, but to 2. support regulating market failures on what Matt assumes are utilititarian grounds.  The solution might be that he thinks policing market failures will lead to higher growth and be freedom, not utility maximizing.

The Lion Kings

By Robert H.

Matt Yglesias has really pioneered doing cutting edge policy analysis on Westeros, but I think his latest posts have been way too skeptical about house Lannister's power base.  The argument, in short, is that the main Lannister assets are gold and people owing them money.  House Tyrell, on the other hand, is rich in fertile land.  Fertile land feeds people and armies; unleashing stores of gold just inflates the money supply, so House Tyrell for the win.

It's an interesting argument, but far too modern.  He even uses an early modern example -- The Hapsburgs -- when he should be thinking along medieval or classical lines.  In the world before 1453, the race was not always to the swift, nor political power to the highest NGDP.  Some reasons House Lannister has real power and a real chance to win the throne:

Meow!

1. Medieval and Classical armies foraged.  Caesar, a logistical genius, sent his legates *ahead* of the army to negotiate grain supplies, he didn't amass grain *behind* the army and ship it to the front (with rare exceptions).  Shipping food to armies is just too hard with medieval or classical technology (especially organisational technology).  So in that context being relatively rich in fertile land is sort of bad -- it makes it easier to fight on your land, where the foraging is good, and harder to fight on the other guy's land, where the foraging is bad.

2.  It is easier to defend gold than grain.  Build a big castle on a big rock, station a big army there, and put the gold under it.  Defended!  Grain wealth, on the other hand, is tied up in diffuse, hard to defend fields. You can store some of it but

3. Medieval crop yields were not the best.  Much of your grain has to be reinvested in planting the next year's harvest or in feeding the peasants.  Which makes being a super populous region a mixed blessing: more people to enlist, but also more people to feed.

4. And can you enlist them?  For one thing, if you march your people away to fight they can't plant or harvest the next crop and you starve.  This is one of the reasons nomadic societies (or people who can afford to pay nomadic societies) were often so much better at conquering.  For another, Westeros seems to have a pretty primitive sort of feudalism in which lords call on vassals to produce troops in times of war.  The actual power of House Tyrell to mobilize its people hinges on convincing dozens of minor lords to honor feudal obligations to the house.  But the Lannisters can make competing offers to get them to change sides -- possibly even with some moral force behind them, if the Lannisters occupy the iron throne.  So who do people choose?  This gets us to point five:

5. Medieval and classical societies often didn't have super-strong institutions, meaning that PEOPLE mattered a lot more.  Like, individual dudes.  King Richard is king and everything in England is relatively fine.  Then John is king and French armies are marching all over English soil and barons are revolting and magna carta and the Pope now owns England and it is a mess.  Then Henry III is king and everything goes back to being fine again (for a bit).  The lannisters being rich helps them in the person power dimension along several fronts:

A. "A lannister always pays his debts."  Their gold has let them make and keep an enormous number of contracts, building a universal reputation for keeping their end of bargains.  In contrast, their money lending and easy attitude towards debtors has ensured that countless houses have publicly made and *failed* to keep contracts them.  In other words, the Lannisters have the most important thing you can have in an anarchic environment where you can't count on good institutions to make people abide by a contract: you can trust them to keep a deal.  Even better, they've worked hard to make sure you can't trust anyone else.

B. Their wealth is liquid.  In an anarchic free-for-all war, the guy who can pay you gold *now* is a lot nicer to work with than the guy who can promise to pay you grain *later*, when it gets here/is grown.  Later the promissor may be dead or change his mind.   And while, sure, paying everyone in gold can lead to inflation, that will take a bit of time to become apparent.  In the meantime, you are negotiating with medieval sell-swords and minor lords firmly enchanted by that most powerful of spells, the money illusion.

C. Gold is much more practical for making ransom payments.  Combat in Westeros often involves poorer houses taking richer lords hostage.  The minor lord then has a choice -- will they execute the prisoner, ransom him back to his house, hand him over to their liege  what?  Ransoming a Lannister is easy and attractive: you hand him over, you get gold gold.  Not so much with ransoming a Tyrell: moving vast sums of wheat in exchange for a body would be a much more complicated transaction (and harder to hide from your lord).  Indeed, Lannisters throughout the books are often eager to get captured and confident of the likely outcome (though equally often they are disappointed by their hosts lack of greed.   This is less for socioeconomic reasons and more for "having what the character expects to happen happen is boring" reasons).  People matter, keeping your best people alive and active matters, and having the gold to pay any ransom makes that happen.  Have I mentioned Richard I and John yet?

6. Think of all this in terms of Yglesias's own model for politics in the seven kingdoms: A. most of the time things are stable and everyone agrees on a king.  B. Occasionally the king loses legitimacy or there is a succession dispute and everything goes haywire.

Being able to store your wealth through the good times and quickly mobilize it in the bad times is key.  Being able to build a reputation that will make people trust you when society is falling apart is key.  Worrying about the long term inflation rate is not key.  It took the Hapsburgs decades to seriously disrupt Europe's prices, it only takes a few years to win the iron throne.  Especially when

7. In an anarchic war type environment, the demand for gold will skyrocket -- food is maybe more valuable, but durable and easy to hide wealth in the form of gold is more valuable than your home, your fields, your clothes, and all your other stuff with a "loot me" sign on it.  You'd gladly trade that loot-able wealth for hide-able gold.  Sure, if your city is actually being besieged food prices will skyrocket.  But everywhere, prices for things that aren't food will plummet as the market is flooded with sellers (people who looted wealth and people looking to sell wealth before it is looted).    The lannisters unleashing a river of gold in that environment might just counteract deflationary pressure and not be inflationary at all. 

Hear me roar!

8.  The Lannisters can sell the chance to slap Joffery.  That is more valuable than food, even to a starving man.

Warning: I am only about half way through the third book.  Some of this may be silly and wrong if I am missing key facts.

Basic Guaranteed Job

by Robert H.

Morgan Warstler has a plan to replace a bunch of our current welfare programs with a new, more economically efficient scheme.  He thinks it will be able to woo liberals with it.  Well, I'm a liberal already wooed by Milton Freedman, so let's see how he does.  I'll put the basics of his plan here, but it is worth reading the whole thing.  Anyways, the basics (long):

The Basic Plan
Using the Paypal and Ebay platforms, the US govt. should establish a Guaranteed Income of $240 per week. Anyone who wants to work registers, receives a Paypal Debit Card, and each Friday at 5PM has their GI deposited.
All GI recipients have their labor weeks auctioned online. 
Job offers begin at $40 per week ($1 per hour).  Offers increase by .50 cents per hour ($20 increments).
At $40 per week, there’s no able bodied / able minded person that some rational returns bidder won’t find use for.  The 70 yr old woman in a wheelchair who wants to work to keep busy?  Plenty of teleservice operators have work for her to do from home for $1 per hour.
Note: I solve for the criminally lazy.  Identifying and fixing them is one of my plan’s advantages. I’ll get to it a bit later in the What Abouts plan.
So minimum take home cash under GI is $7 per hour or $280.  $240 is the social commitment paid out of taxes and $40 is the winning job offer.
To perfectly align incentives, for each $20 per week offer increase over $40, the govt. gets back $10 of our $240 social commitment, and the auctioned employed keeps $10.
So, on a offer of $100, the govt. is paying $210 and the auctioned receives $310.  A offer of $200, hits the govt. for $160 and auctioned receives $360.
The system ends at $10 per hour.  The maximum offer allowed in the GI Auction is $280 and the govt. is still kicking $120 netting the auctioned $400 per week.

So, I have some questions.  Keep in mind that my current preferred policy is a basic guaranteed income coupled with a negative income tax.  I think this should replace most forms of subsidies for low income folks (college subsidies, food stamps, TANF, unemployment, etc) with healthcare and educating children left as big expenses (and boy howdy, how we educate children also needs to be reformed too).

So, with that as my alternative, I have some questions.:

1. Surely there are, sometimes, more socially useful things someone can do with their time than work?  What if someone wants to go to school?  What if they want to stay home and take care of their kids?   Take an unpaid  internship?  Under my plan people can spend their lump to support themselves while they do these things and to cover their expenses (IE, tuition).  Under Warstler's plans either no one can devote themselves to those things or else we will need some separate  convoluted government programs to subsidize higher education, work training, etc.

2. What about part time workers?  Surely for some people working an amount lower than 40 hours a week is efficient?

3. Are we not trying to maximize utility?  It seems to me letting an old blind granny have 280 a week to live off of and + all of her free time is much more utility maximizing than giving her 280 a week and making her work for very marginal social gain 8 hours a weekday.

4.  What does Warstler think is a better way to have 1000 dollars allocated efficiently:  give it to someone who hasn't earned it, or give it to someone who hasn't earned it along with some preconditions on how they can spend it, what they can do with their time, etc?

5. If Warstler is worried about poor people getting money who haven't worked for it, what does that imply about the optimal inheritance tax?

6. What about parasites?  In eastern Europe under communism, another system in which everyone was required to work, there was a class of people called parasites (that link talks about anti-parasite laws as a pretext for oppressing social dissidents, which happened, but they were also used to go after actual parasites.  A few seconds googling can't find a better source).  They didn't work hard so no one wanted to hire them, and when firms were forced to hire them their bosses hated them.  At their jobs everyone had to cover for them in order to make the communal work norms, so their co-workers hated them.  They were fired at the first opportunity, at which point they were technically breaking the law.  Generally a judge or social worker would at first try to encourage them to get work, but at some point it would become clear that the person simply wasn't interested and they would be sentenced to jail.   The end result was that they tended to bounce from job to unemployment to prison in a sort of depressed, alcoholic haze.  Eventually they would die young.  This was a relatively large class of young men, and was often the fate of the non-functioning alcoholic in the GDR.

Under my system, people like that stay at home and try to scrape a little bit of happiness out of life.  Maybe they drink themselves to death, maybe they reform.  Under Warstler's system, they apparently don't exit?  This is how he describes lazy people:

That guy right now hides amongst 30M good people who want to work.  The first step is to expose him.  The second step is ostracizing and singling him out.  The third step is firm but forgiving punishments until his behavior is altered.

On day one, he signs up with everybody else, and never shows up at job.  His feedback is bad, he gives an excuse, or he ignores it.  The bidder doesn’t lose anything.  He’s just disappointed. 

After 4 weeks of taking the $240 GI, never being rehired, and given negative feedback, the criminal lazy is suspended, cut off for 6 weeks on first infraction.  Where does he go?  How does he eat?  Who’s couch does he sleep on?

Now all around him are 30M people waking up and going to work, getting their GI + Bid. They are happily employed, they are choosing between multiple jobs.  They are productive members of society.

He lives amongst them and they hate him.  They are getting louder and angrier with him.  He’s no longer able to hide amongst them complaining about the bad economy.  His support system crumbles.

Finally he breaks, after 6 weeks, maybe then 12, maybe then 26, he is put back to auction, and if he is rehired, he’s back in the game!  Take pictures of the work he did, prove he arrived early, stayed late by his own choice!  The system quickly exposes any positive effort and rewards it.

26 weeks to go from alcoholic bum to the new soviet man!

***

So yeah, I could keep going, but those are my big questions.  In general Warstler confirms a pet theory of mine: we can blame both liberals and conservatives for not having a more rational welfare system.  Liberals are too paternalistic and aren't willing to just give low income people money and trust they will know what to do with it.  But free market types are often too righteous, and aren't willing to give people money who haven't worked for it.  Obviously there are exceptions to the rule.

HT: Scott Sumner

Why I Think About Libertarianism So Much

By Robert H.

I am not a Libertarian, but I devote a lot of time to thinking about libertarianism and reading libertarians.  Why?  Well, the answer to that question depends a lot on the libertarians I am thinking or reading about.  I divide libertarians into three sorts:

1. Marginal Libertarians: For most policies, these people think the next policy step should be in a libertarian direction, but they don't necessarily want a libertarian state.  So of all the realistic policies we might adopt towards health care, the marginal libertarian wants the one that has less government intervention in the  marketplace, less government subsidies, etc.  Maybe he likes Paul Ryan's plan.  But, unlike a traditional libertarian, he doesn't necessarily want government OUT of healthcare.  At the margin he prefers libertarian policies, but going all the way to a minimalist state scares him.

Obviously more people are *mostly* marginal libertarians, than are *completely* marginal libertarians, since it is more a coincidental or attitudinal thing ("hey, look at that!  Most of the policies I like involve less government!") than a real ideology.  Greg Mankiw is an example of a marginal libertarian.  Or Tyler Cowen.

2. Consequentialist Libertarians: Consequentialist libertarians think the marginal policy move should be in a more libertarian direction, but they also think that those policy moves should go all the way, and we should have a night-watchman state, or anarcho-syndicalism, or whatever.  They want this because they think those kind of states are simply the best way to arrange public affairs, IE that adopting a minarchy has better consequences than adopting other forms of government.  They aren't much interested in libertarianism as a philosphy, they see it as a practical and superior form of government.

I tend to think of Scott Sumner as a consequentialist Libertarian, though he may be more of a marginal libertarian. In general I think very few people fall into this category, and I don't spend much time thinking about it.

3. Philosophical Libertarians: Philosophical libertarians think a libertarian state would have good consequences, but they also think it is philosophically mandatory.  They think government simply has no right to engage in redistribution, for example, and that this is as much a moral evil as theft.  Or maybe they don't go that far, but on some level they think there is a *moral*, as well as a practical case to be made for minimal government.

I am just going to pick the obvious example and say Robert Nozick was this kind of libertarian.  Or at least, was when he wrote Anarchy, State, and Utopia.  But this category obviously includes people with muddier thinking. Ron Paul, say.

***

So why do I care about libertarianism?  Because I am close to 1 and detest 3.  In terms of category 1, I've been convinced on the merits that a lot of policy should move in a more libertarian direction.  I am for free trade, open borders, less local regulation of property (IE, "zoning," height restrictions, etc), less incarceration  etc.  I still have big soft fuzzy liberal notions that keep me from identifying as a libertarian (hooray obamacare!), but I can read Tyler Cowen's blog and "right on" more than I "tsk tsk."  So I tend to enjoy reading and thinking about consequentialist libertarians, even when they disagree with me.

In terms of category 3, I pay attention because a lot of philosophical libertarians are, to me, terrifyingly counter-majoritarian , rejecting the basic

Democratic Focused, Rights Focused, Rule of Law Focused Cultural Norms + Democracy + Rights as Side Constraints = Sound Government 

formula that worked increasingly well over the 20th century.  So, for example, here's a law profesor, Glenn Reynolds, who came on Russ Robert's show to talk about all the ways he would like to change the constitution in order to ensure that his policies always win.  His proposals run the gamut of ways you can fail to respect modern democracy,  from changing long established process rules to make the outcomes you want more likely (IE, fiddling with term limits, which he wants to do), to constitutionally forbidding democratic outcomes simply because you don't like them on policy grounds (IE, instituting a balanced budget amendment, which he does not oppose and only does not support because he thinks it won't be stringent enough), to undermining human rights when you find them inconvenient (IE, he wants a constitutionally mandatory poll tax, currently forbidden by the 24th amendment and probably by Article 25 of the ICCPR, an international human rights treaty we have ratified).

That's modern philosophical libertarianism: "We are clearly right as a philosophical and policy matter, but modern democratic government keeps not doing what we want.  Therefor, democracy is flawed and the government is only failing to recognize our obvious rightness because it is in thrall to special interests.  Therefor, we should limit democracy not just when it steps on human rights, but more generally whenever it fails to enact the policies we want.  Convincing people to vote libertarian is all well and good, but most important is to take away or limit their ability to vote for non-libertarian outcomes."  The US constitution's model, limited powers for federal government to guard against tyranny, but broad powers for state government to empower the people, has been turned into a radical new model: limited power for all government, not for the purpose of preserving democracy, but in order to make sure all our preferred policies win.  It's a sickening rejection of majoritarian rule.

Add the distrust of democracy in with the utopianism, the blind conviction in an over-simplified philosophical position, the bad economics, the confident predictions of imminent doom for western democracies (doom that will conveniently reveal the status quo to have been flawed and libertarians right all along), the revolutionary rhetoric, and the on-campus appeal and you get a movement that reminds me uncomfortably of American communism in the 20th century.  I'm not sure if movement libertarianism has the potential to actually be as dangerous or global as communism was, but I don't think it's worth finding out.  Philosophical libertarians, from Ron Paul to law professors on Econtalk, have terrible ideas.  Those ideas have to be engaged.  Doubly so since so many of their policy positions coincide with my own, and since it worries me when my beliefs about, say, ending the drug war get lumped in with the beliefs of someone who wants a constitutionally mandated gold standard, or something.

So, that's why I spend a lot of time thinking about philosophical libertarianism.

Obviously, not all philosophical libertarians fit the description I just painted (most don't, probably.  The most wrong voices are probably the ones I am most likely to remember), and I try to be charitable to the best arguments philosophical libertarianism can present (which are pretty good!).  Just as obviously, plenty of people who hold a few views I find objectionable are probably smart people with lots of other good views (I am sure Reynolds, the law professor I talked about above, is smarter than me and has better ideas than me about most things, he just has really bad ideas about whether the constitution should be amended).  I am trying to demonize ideas, not people.

Minarchy Is Coercive

For some bizarre reason, ideological libertarians make arguments like this:

Instead, suppose you try to convince people of the similarity between government and organized crime. You say that both provide “protection” backed by coercion. The advantage of this is that if you can get someone to shift to looking at issues along the freedom-coercion axis, that person will be less receptive across the board to arguments for state intervention based on the oppressor-oppressed axis or the civilization-barbarian axis.

Just a reminder that minarchy is coercive.  Libertarian government will coerce me if I try to tort you, rob you, break our contract, tack a nap in your bed, walk through your yard, whatever.

The scale of coercion isn't even necessarily smaller in a libertarian state.  You could imagine a state where social norms are breaking down -- maybe there is a bad recession or a war of self defense or a disruptive technological change afoot -- and *lots* of people *really* want to steal or break and enter or tort or assault.   The threat or use of force is actually having to be invoked super often to change people's behavior.   Just so, you can imagine (and might be living in) a state where most people don't particularly mind paying their taxes, and the threat of and actual use of force is less necessary to get them to comply with tax law than it is to get our people in the first state to respect property law.  Even more important, you can imagine (though it may be unlikely) taxation and redistribution transforming the first state into the second state -- maybe the state taxes people and subsidizes public education, giving people a road out of poverty and, over time, making the masses less grumpy.  Maybe it's a social insurance program.  Whatevs.  Point is I can imagine a welfare state ultimately coercing less than a libertarian state would, with coercion defined as using force or the threat of force to change behavior.

Now you may think it is extremely unlikely that welfare-state policies will have that outcome, but that's an empirical and economics question more than it is a philosophical one.  To the extent it is true based on empirical observation that libertarian states coerce less, we are making a pragmatic or consequentialist argument,  not an ex-ante ideological argument.  And pragmatic libertarians are all right in my book.

Which isn't to say ideological libertarians are clearly wrong.  Ideological libertarians like minarchy because they think it coerces for the morally right reasons, IE to enforce the harm principle.  But they should argue that.  This whole "its all about coercion vs. freedom" thing is either a wrong or a pragmatic argument, it isn't a self evident philosophical truth.  The argument they want to make is "it is about justified coercion vs. unjustified coercion."  The state isn't the mafia because it is possible for the state to coerce you for justified reasons, but it *can* *be* like the mafia if it goes too far.

Hot Opinions: Slavery Sucks!

In the comments to this post, J Billings asks, "Not asking because I disagree, just haven't thought about it before, but what are your reasons for opposing self selling?"

I've got lots!  But I think the one that most appeals to libertarians is pointing out the obvious public choice problems.  Markets -- including markets in self selling -- only work if the societal institutions around them are good.   But societal institutions are made by the people in society, and in societies with slaves they tend to be made by slave holders.  And that pretty much never results in good public policy.  Here in Texas back in the 1870's, convict labor could be rented out to help defray the cost of incarceration.   Which is no,t necessarily a terrible idea.  But, of course, it gave the politically powerful class -- business owners -- a huge incentive to screw over the politically powerless class -- the newly freed african american population.  Suddenly the law was changed so that a black man could be arrested and given a good sized sentence for just about anything ("loitering" being the great example), they were in fact arrested, in droves, and we had a new sort of slavery. 

That's really common.  Here was a trick in ancient Rome the rich people tried: go to war, laboring class has to go fight, laboring class can't tend to crops, laboring class gets in debt to you, laboring class can't pay debt, you get their land and themselves as slaves (early roman law was big on debt bondage, I think that got relaxed).  So on the one hand, maybe there was a rational decision to take on a debt, knowing failure to pay could result in slavery.  But on the other hand, the only reason the poor dude was in that position in the first place was that the rich dudes launched a war!   

So yeah, I am not convinced you could ever structure a society where 1. Labor can be coerced, and 2. when it is, it is completely the result of free market forces, with no other nudges from public policy getting people to sell themselves.  If you want a model, try this: we've got a rich guy who wants to abuse the slave system and a poor guy who doesn't.  Then the rich guy buys the poor guy.  Now, in effect, we've got two people who want to abuse the slave system, since the political voice and power of the slave now belongs to the master.  Rinse and repeat and eventually the laws and customs around self-selling will take on a coercive, brutal nature.

I don't know if that model is right, I just know that, historically, coerced labor tends to be brutal, ugly, and not fair, even if your definition of "fair" is extremely libertarian. 

Which raises the question, are our society's two big forms of coerced labor (convict labor and the draft) good ideas?  My answer: probably not!  Exhibit A: we don't have a draft anymore and have sharply limited how we use convict labor, because both systems were unpopular and cruel.