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Empirical test of "Shock Doctrine"

Ok, so this September we've had a big "Shock", a crisis in the financial system. Naomi Klein's thesis is that it will be used to torture the public with free-market reforms. The standard libertarian thesis is that it will be used to torture the public with increased state power and spending.

So what are you seeing in the news: Disaster Capitalism or Disaster Socialism? Hmm...the 3 largest corporate bailouts in the history of the country in rapid succession (AIG, FNM, FRE), and now a proposal for the largest single spending bill ever, with the insistence that it be hurriedly passed.

Guess the libertarians win this round.

Really it's just common sense - in times of crisis, does power get decentralized and given up? Do politicians usually react to emergencies by passing new laws or undoing old ones? The answer is pretty damn obvious. One can cherry-pick occasional rare situations where things go the other way, but in general, war and crisis are the health of the state. (hat tip to Steve Horwitz.)

Happy Talk Like A Pirate Day from The Seasteading Institute!

Pirates, democracy, and seasteading, presented by yer very own Captain Patri:

The seastead blog post has some pirate links for ye as well.

Come to the first annual seasteading conference!

Tired of arguing about liberty and reading about people trying to destroy it? Would you rather try the positive focus of building alternatives to the current geopolitical system? Then come to the first annual Seasteading Conference, October 10th, 2008 in Burlingame, CA!

More details on the seasteading blog.

Dictatorship is not all bad

I only ever got to hear my grandfather speak publicly once, at the CMC Athaneum in Claremont, during college. One of the things he talked about was the odd lack of linkage between political and economic freedom, which was a bit of a puzzle to someone who is in favor of both. The freest economies of the twentieth century, he pointed out, were places like Hong Kong and Singapore that had no political freedom.

One of the points I've been trying to make since the beginning of the Iraq invasion is that benevolent despots are not all bad, and depending on the population, democracy can be worse. Specifically, Saddam Hussein, although a power-hungry dictator who happily murdered his political opponents, was not in any way a Muslim fundamentalist. Quite the opposite, in fact, and his Iraq was (compared to other countries in the region) a pretty good place for education, women's rights, gay rights, etc. Today's Iraq, on the other hand, is much more dominated by religious interests.

This interview w/ Jared Polis provides some evidence for my point:

NL: What did you take back from your trip to Iraq?

JP: It was really interesting and very educational for me. I spent several days in Baghdad and several days in Amman, Jordan. In addition to meeting with many different Iraqis and members of our military off-duty and NGO relief workers, I also got the opportunity to talk to several gay and lesbian Iraqis, too, who have a particular plight.

Under the administration of Saddam Hussein, Iraq was one of the more tolerant Arab countries. It's a relatively low bar, but certainly gays and lesbians weren't openly hunted or killed. It was much like it was in Jordan today, where there is a somewhat thriving underground gay and lesbian community that was officially tolerated. But now, really, every gay and lesbian that could flee Iraq has fled Iraq. Anybody who's known, or even suspected, to be gay or lesbian is hunted down and frequently killed by some of the fundamentalist militias there. Most Iraqi gays and lesbians have fled to Jordan. There are a few remaining in Iraq, and a few safehouses do exist, but that only really reemphasized the need, including in this country, to include gender identity protections, because the first to be hunted down in Iraq are those who defy the gender stereotypes--men who are effeminate, or women who are masculine or otherwise suspected of being gay or lesbian.

It's a very real human rights issue that hasn't gotten as much attention as it deserves.

I'm not saying that the democratization of Iraq was a net negative for its citizens (although that may be the case, when you count the costs of war damage). But when you tot up the costs and benefits, you need to include things like this - areas where freedom has, ironically, been reduced by democracy.

Democracy reducing freedom is very counterintuitive to most of us, I think. We've been brainwashed from birth to believe that democracy is the greatest safeguard of human rights, and dictatorships are purely horrible things that ban all free expression. But that viewpoint is naive - some demoses are worse than some dictators in some ways - perhaps even overall.

Happy July 4th

I have some thoughts about the day's significance over on the seasteading blog.

An argument against drug prohibition

In Can You Change Something If You Don’t Love It?, Seth Roberts wrote about how HIV prevention in the sex worker community failed in most countries. Except:

Pisani held up one country as an example of how to do it right: Brazil. Why Brazil? I asked. Funny thing: In Brazil, they respect sex workers. Unlike everywhere else. In this case, at least, Jacobs was right.

My reply (which Seth quoted in The Cost of Demonization and How to Avoid It):

This seems like a good argument for social freedom and harm reduction rather than criminalization, for things like prostitution, gambling, and drugs. If they are illegal, we tend to demonize them, and the people who do them are people willing to do illegal things, who tend to be sleazier. You get a feedback cycle of sleaziness. And then when there are problems (drugs that are bad for you, STDS among sex workers), they are hard to fix.

If instead you acknowledge that these things are going to happen anyway, make them legal and regulated, when problems come up it will be much easier to find smart, competent people who respect drug users, prostitutes, and Johns, and can provide good suggestions for fixing the problems.

This is a hidden benefit of libertarianism. People often say that a downside of drug legalization is that without the stigma of illegality (and with additional availability and lower prices), more people will use drugs. There is the obvious retort that sometimes things are cool *because* they are illegal, but now we can see an additional factor. Trying to fix the problems caused by illegal things is harder than legal things.

We don't respect the victims ("drug addicts"), and so research on how to help them is looked down on. Whereas if it is legal, drug addicts are just one more group of people with a problem, like the fat and the depressed. Heck, instead of being looked down on, they are a market!

Pure narcissism - I'm the June "Sexiest Geek Alive"

Some people might feel ashamed of posting that they were picked by Sexiest Geeks Alive as the June male "centerfold".

Fortunately, I am not one of them. Yay beefcake me! Excerpt from the article:

What makes Patri one of the Sexiest geeks alive is his ability to ignore "common wisdom" in the pursuit of a good idea, and even overcome the burden of "common wisdom" in others.

New ideas can not happen without someone who is not just brilliant, but also strange enough to either lack, or to be able to ignore, that part of the mind that acts as a governor concerning what is considered normal by others. The sense of what is normal is what defends old ideas from new ones, and it is only by overcoming this that new ideas can evolve. People who can not overcome their inhibitions about not being "normal" are not capable of having great ideas, or if they do have them, they are incapable of acting on them. They are too busy worrying about what their neighbors will think to ever be great.

In order to have new ideas, and act on them, one has to be something of a freak, and in order to produce good ideas, one has to have a logical mind. And that is just what Patri is; he is a very logical freak. Patri can follow a chain of logic beyond the point where most people stop because it is drifting into an area that seems strange. He is not only capable of acting on strange but logical ideas, he can also use his enthusiasm for such ideas to inspire others - to overcome their inhibitions about what is normal and make them see what might be better.

Thaler on Libertarian Paternalism

While there has been a lot of dissing about the Thaler/Sunstein libertarian paternalism, I'm listening to Thaler talk at Google right now, and it seems pretty convincing. He's here to talk about their book Nudge: Improving Decisions About Health, Wealth, and Happiness.

His basic claim is that we have to set up options in some fashion (he calls this "choice architecture"), and we might as well do so in a way that increases welfare. The "increasing welfare" is paternalism, and doing so without limiting choice is libertarian.

An example he gives is that defaults tend to be sticky, and there is tons of data about this. In the rational model for human behavior, as long as the cost of switching is low, the default shouldn't matter much. In practice, the default matters enormously. (Perhaps one way to look at this is that even when switching is physically easy, it is mentally difficult, so the total cost is always high.)

Another example is feedback mechanisms, like installing a light which glows based on current energy usage. By making usage more salient, people conserve more. He contrasts this idea with the standard economics which just says "get the price right", behavioral economists also want to make the price salient.

It's hard to see what there is to disagree with in setting good defaults and making costs more obvious. Why do Thaler and Sunstein generate so much ill-will from libertarians?

Winning The Long Peace

The most important long-term action to prevent terrorism is to close as many as possible of the open political wounds that allow mass murderers to think of themselves as fighting for a cause, transforming largely ineffective psychopaths into potentially very effective terrorists.

Serious long term work on finding peaceful, equitable solutions to issues like Israel, or the bloody borders of Islam, or Maoist insurgency in places like Nepal should be thought of as parallel to Cold War efforts to restrict Soviet bloc power: a long haul project to be passed forwards through generations. The policy of containment was never designed to be an overnight success.

This long-term peace building process is based on the understanding that a political situation which produces effective terrorists anywhere is a problem everywhere. A clear example of this is LTTE ("Tamil Tigers") who are held responsible for the invention of suicide bombing and are currently experimenting with using light planes as bombers. It is clear that terrorist R&D is conducted globally, not locally, because they are united by technique and not by ideology. But one cannot hope to stamp out a technique of war - only to remove the perception of just cause and turn these people back into ordinary criminals.

Any individual "cause" could eventually give rise to the leadership, will and technical capability to hit America, particularly if supported by hidden nation state backers. It took 60 years for Arab anger about Israel to contribute to the US taking a serious blow, but it did eventually happen.

"The Long Peace" is an alternative model to the "Long War." The "Long War" envisages defeating terrorism by depleting terrorist resources until they no longer function effectively. However, given the relatively low start-up costs of a new terrorist group this seems likely to be a fruitless long-term strategy. The "Long Peace" suggests an alternate model: focus on converting the passive support base of terrorists by multi-decade programs to settle the conflicts which give rise to terrorism, coupled with active outreach on issues like global poverty, AIDS and the environment to get the US the broad popular support that it will take to finally win the war on terror.

Vinay Gupta, Winning The Long Peace. He has some great, concrete proposals for how the US can constructively contribute to world security:

A first concrete instance: what if American embassies the world over issued extremely hard identity credentials to people - US citizens or otherwise?

This is a function typically strongly associated with conventional nation states, but in this age of ICT, there are no technical problems in issuing a biometric identity card to any person who asks for one...Obviously such an identity credential has many positive security implications.

Outsourcing certain kinds of regulations and research is the legislative equivalent of pegging a currency to the dollar. For example, a developing world country could state that their banned chemical list will be the same as the US list of 20 years ago except in the case of new urgent discoveries.

Winning with good products instead of bombs - now that's the American way! Unlikely to ever happen, but I bet it would be far more effective. As Vinay says:

There is no human intelligence network like a population which genuinely supports America and has a vested interest in America's continued prosperity and survival.

Ronald Reagan's Farewell Address

I was 12 when Reagan left office, old enough to remember the excitement of having met him the previous year, but not yet interested enough in politics to understand why he was special. Via TSI board member Joe Lonsdale's blog post, I just came across the text of his farewell address, and finally got, on an emotional level, what an unusual friend to liberty Reagan was.

For example, this passage is something we could use to remember in these dark days for America's reputation:

It was back in the early '80s, at the height of the boat people. And the sailor was hard at work on the carrier Midway, which was patrolling the South China Sea. The sailor, like most American servicemen, was young, smart, and fiercely observant. The crew spied on the horizon a leaky little boat. And crammed inside were refugees from Indochina hoping to get to America. The Midway sent a small launch to bring them to the ship and safety. As the refugees made their way through the choppy seas, one spied the sailor on deck and stood up and called out to him. He yelled, "Hello, American sailor. Hello, freedom man."

A small moment with a big meaning, a moment the sailor, who wrote it in a letter, couldn't get out of his mind. And when I saw it, neither could I. Because that's what it was to be an American in the 1980s. We stood, again, for freedom. I know we always have, but in the past few years the world again, and in a way, we ourselves rediscovered it.

On convincing by example:

Once you begin a great movement, there's no telling where it will end. We meant to change a nation, and instead, we changed a world.

Countries across the globe are turning to free markets and free speech and turning away from ideologies of the past. For them, the great rediscovery of the 1980s has been that, lo and behold, the moral way of government is the practical way of government: Democracy, the profoundly good, is also the profoundly productive.

A prediction that was vindicated by history:

Nothing is less free than pure communism, and yet we have, the past few years, forged a satisfying new closeness with the Soviet Union. I've been asked if this isn't a gamble, and my answer is no because we're basing our actions not on words but deeds. The detente of the 1970s was based not on actions but promises. They'd promise to treat their own people and the people of the world better. But the gulag was still the gulag, and the state was still expansionist, and they still waged proxy wars in Africa, Asia, and Latin America.

Well, this time, so far, it's different. President Gorbachev has brought about some internal democratic reforms and begun the withdrawal from Afghanistan. He has also freed prisoners whose names I've given him every time we've met.
My view is that President Gorbachev is different from previous Soviet leaders. I think he knows some of the things wrong with his society and is trying to fix them.

Good advice for people, as well as nations:

We'll continue to work to make sure that the Soviet Union that eventually emerges from this process is a less threatening one. What it all boils down to is this. I want the new closeness to continue. And it will, as long as we make it clear that we will continue to act in a certain way as long as they continue to act in a helpful manner. If and when they don't, at first pull your punches. If they persist, pull the plug. It's still trust but verify. It's still play, but cut the cards. It's still watch closely. And don't be afraid to see what you see.

On America's frontier origins and Seasteading:

The past few days when I've been at that window upstairs, I've thought a bit of the "shining city upon a hill." The phrase comes from John Winthrop, who wrote it to describe the America he imagined. What he imagined was important because he was an early Pilgrim, an early freedom man. He journeyed here on what today we'd call a little wooden boat; and like the other Pilgrims, he was looking for a home that would be free.

I've spoken of the shining city all my political life, but I don't know if I ever quite communicated what I saw when I said it. But in my mind it was a tall proud city built on rocks stronger than oceans, wind-swept, God-blessed, and teeming with people of all kinds living in harmony and peace, a city with free ports that hummed with commerce and creativity, and if there had to be city walls, the walls had doors and the doors were open to anyone with the will and the heart to get here. That's how I saw it and see it still.

Thanks for the vision Ron. America's lost its way a bit, but we're working to build your shining city on the high seas.

UPDATE: You can watch or listen to the whole thing here.

The world of tax-free hedge funds

AKA "Ivy League Universities"

Receipts = $2 billion of operating revenue + $7.3 billion of investment income + $0.6 billion of gifts to the endowment = ~$10 billion.

Operating costs = ~$3 billion.

Profit = $10 billion – $3 billion = ~$7 billion.

This explains why Harvard’s net assets increased about $7 billion in 2007, from about $35 billion to about $42 billion.

Viewed purely in terms of economics, Harvard is really a $40 billion tax-free hedge fund with a very large marketing and PR arm called Harvard University that has the job of raising the investment capital and protecting the fund’s preferential tax treatment.

The trick is that this hedge fund can’t remit earnings to investors, and has to keep them in the company’s account, renaming these retained earnings as an “endowment”. So how do the insiders extract value from this business? One way is by giving themselves cushy jobs that pay a ton of dough.

[Source: Jim Manzi]

To be fair, the fact that it can't remit earnings to investors, but must keep them in its endowment and use them to further its mission is very significant from a social standpoint. Sure, it's making tax-free profits, but those are tax-free profits that can only be spent on education and research. Which is somewhat different from private profits that are spent on consumption, or corporate profits that are partly returned to investors for consumption.

Still, I definitely don't buy the idea that money Harvard spends is better for society than corporate profits which are reinvested. I mean, sure, Harvard may invest in things which are not profitable but yet still socially beneficial (perhaps because benefits are widely dispersed). But they also invest in things which are not profitable because they have less social benefit than their cost.

The freedom to not try to make a profit lets you do things that accomplish enormous dispersed good, or are wasteful. I see no reason to think that the average result gives the world more utility than investment in private corporations. I'd guess less, actually. So the favorable tax treatment is actually encouraging malinvestment.

It's a movement to the frontier, not a retreat

There was a lot that Murray Rothbard and Milton Friedman disagreed about, but one thing they both agreed on was the pointlessness of libertarian "retreatism". Kevin has a good post at Polycentric Order explaining what is wrong with this viewpoint (emphasis mine):

I recently read an article by Murray Rothbard in which he expressed great contempt for groups of libertarians (and, presumably, anarchocapitalists since his version of libertarianism strongly espoused anarchy) who would go off to form a separate community.
Retreating, in the long term, accomplishes nothing for the philosophy and movement of anarchy. It does free one individual, to the extent that they can pull it off. But they then become invisible.
That ain't my style.

Forming a separate community under anarchic principles at sea is an entirely different sort of approach. It's based on an old axiom: Nothing sells like success.

Think about it. A seastead that was successful, autonomous, and connected to the world via internet and trade is newsworthy.
It would show people, rather than merely telling them, what motivated individuals can accomplish in the absence of government. I suspect that this would cause two complementary outcomes. First, especially early in the experiment, it would attract like minded people to try the same thing. As with any new frontier, some would make it, some would fail. But the frontier would again exist, and humans historically make the most advances when there is a frontier.

As part of revising the book draft, I've been working on the "Why?" section lately, and adding a lot more about the importance of the frontier. Here's an excerpt from the new section:

We cannot call merely dreamers or whiners those who see problems in society, have specific proposals for how to build a better society, and who would (if given the opportunity) join a group of like-minded people to create such a society.

These visionaries deserve better, for they are the pioneers of social innovation, who band together to start new communities with new rules. They are much like business entrepreneurs, but launching new social systems rather than companies, which makes them a key part of the evolution of human society. They still exist in the modern world, and they still have plenty of ideas about what ails society and how it might be cured. But there's a problem.

What we lack is a place for them to experiment. The original intention of the founders of the United States was for the states to serve as such experiments. But the idea of federalism is long dead, since nowadays most of government is implemented at the federal level, and even the states are far too large for easy experimentation. The main alternative, frontierism, is suffering from the lack of any modern frontier - every bit of land on the globe has been claimed by an existing government.

So society's valuable pioneers are left expressing their ideas uselessly in bars, blogs, and books, proposing better systems that will never be. Many turn their talents to business or academia, where good ideas are (sometimes) rewarded. A few become successful activists, and have some tiny positive impact on our fundamentally broken political systems. Most get frustrated and burn out, and then learn to focus on their own lives, where they can make a real difference. But deep within them still lurks the urge to blaze a new path, their pioneering spirit dimmed but not forgotten.

Them's our peeps, and they've had it rough. But we got their back.

(sorry if I seem a bit seasteading-obsessed in my posting lately. It's been taking up a big chunk of my life and mental space. Which is a good thing, even if it does make me a bit repetitive.)

Mobility matters

Arnold Kling gets it

But how would we get to limited government?

a) The leaders will wake up one day and decide to give it to us.

b) Lots of people will one day wake up and demand it.

c) Competition for strong central government will emerge.

I vote for (c). Even though the Free State Project looks like a long shot, and Seasteading looks like an even longer shot, they are interesting.
This suggests that the real technological fix for libertarians would be enhanced mobility. By the way, I once heard Robert Metcalfe say that the ultimate killer application for the Internet would be teleporting, so that your physical location is not a constraint. If that were possible, would government rents go way down?

This is exactly right. As evidence, note that capital is more mobile than labor, and gets lower tax rates. If we can increase the mobility of labor, we will decrease tax rates on labor. So while seasteading is a long shot, at least it's pointed in the right direction.

Also, its main obstacles are technological - and humans are damn good at solving engineering problems. I predict that if it doesn't work out, it will be for social or political reasons, not engineering ones.

Seasteading press coverage

Check out today's Reason article Homesteading on the High Seas: Floating Burning Man, "jurisdictional arbitrage," and other adventures in anarchism:

Despite the seemingly radical idea he's championing, Patri sees himself as a practical guy: "Starting a new country is actually a much less hard problem than, say, a libertarian winning a U.S. election," he says. He says that most of his competitors in the libertarian/anarchist autonomous entity business have been too ambitious, citing efforts from Sealand (the abandoned offshore fort-turned-free-state "which sort of worked" until it was devastated by fire in 2006) to more dramatic failures like Freedom Ship (current estimated cost >$11 billion, construction not yet begun) and the Aquarius phase of the Millennial Project ("colonizing the galaxy in eight easy steps!") to Minerva Reef (an uninhabited dredged island "invaded" by neighboring Tonga and eventually more or less reclaimed by the sea).

Learning a valuable lesson from his predecessors, Friedman is an incrementalist. "I want to talk about what to do this year, not how to colonize the galaxy." One way to start small, he says, is to hold a kind of floating Burning Man, called Ephemerisle, an idea inspired by childhood pilgrimages with his father to Pennsic, a Society for Creative Anachronism medieval reenactment held outside Pittsburgh, and college stints at Burning Man.

"There aren't that many people who are wiling to drop their lives and move to the ocean." Instead, he says, "it could start as a one week vacation, but then unlike Burning Man it could grow and eventually become permanent." Friedman hopes to hold the first Ephemerisle next summer, inviting many types of floating vessels to join him in international waters. Even an ordinary cruise ship might be enough to get started, since the cruise industry has proven that "providing power, water, food, and internet on the ocean is not only possible but can be profitable." But some of Thiel's grant is going toward figuring out the best way to throw up some small, cheap seasteads to provide a little non-state infrastructure and get things rolling (or floating, as the case may be).

Also some interesting discussion on this Marginal Revolution post about seasteading, to which I responded here.

If you're interested in following our progress, check out my Captain's Blog over at TSI.

Economic Creationism

Evolutionists have it easy. Sure, maybe half of the US disbelieves this solid scientific theory, which has zillions of weird implications many of which have been proven true and would be ridiculous things to explicitly design.

But I bet "half" pales in comparison to the number of people who believe in what I shall henceforth call "Economic Creationism": anything that contradicts old, well-established economic truths. Examples of Economic Creationism include the Broken Window Fallacy, confusing money and wealth[1], and protectionism (disproven by Ricardo's theory of comparative advantage). Often these fallacies come into play when thinking that a government intervention will somehow "Create" value out of nowhere.

These evolutionists think they know what it's like to have to deal with people holdin up crazy theories they disproved a hunnerd years ago? Look, while regular 'ol Creationism is uncool in most intellectual circles, Economic Creationism can be found in the hallowed pages of the New York Times. If done in an appropriately Bush or corporate-bashing way, it gets you respect - even though it's pure bullshit.

And evolutionists complain just because some wacky state like Kansas will occasionally try to legislate Creationism? Folks, almost every law in every state in the entire country is based on legislating Economic Creationism! There ain't hardly nothing else ever legislated!

Shit. Like I said, the evolutionists got it easy.

[1] Sadly, an example can be found in the wikipedia entry I just linked to for the BWF, where it says: "Another interpretation is that (in a more modern society) the money wouldn't go to the baker or the cobbler, if the shopkeeper was doing well enough for that money to go into a vault that wouldn't be used for a long time." The idea that removing money from the economy removes value from it is a classic confusion of the two. If all money disappeared, we'd still have all our stuff (which gives value), we'd just have to take a little time to reinvent money so we could easily trade stuff again.