By Simon Grey, on July 20th, 2012
Alex Tabarrok, at Marginal Revolution, has a post about firefighters and their work. In it, he notes that the number of career firefighters has doubled over the last 25 years while the number of fires has halved. To put it another way, it’s highly probable that the market has reached its saturation point for firefighters.
Thus, now may also be a good time for privatizing firefighting since the risk of fires is declining while the cost of fighting them is increasing. To put it another way, the need for firefighters (and presumably the direct demand) is declining while the practical cost is increasing. We have an inefficient market since the government serves as the middle man, and payments are indirect and cannot be opted out of. Thus, privatizing firefighting should help to significantly reduce costs without significantly reducing the amount of actual firefighting service provided.
To address the practical objections, I imagine that the most probable way of handling privatization would be to handle it through insurance companies. For example, home insurers would likely make subscribing to a firefighting service a requirement for a policy. Alternatively, home insurers might offer discounts to people who subscribe to a firefighting service because that indicates conscientiousness, which in turns indicates a lower risk of having the fire in the first place (for if one takes some pains to address fires, will he not also take others?). Or insurers could sell subscriptions as a form of insurance (if your house starts to burn, you’ll be guaranteed that some company will come put out the fire). This line of reasoning also extends to landlords as well. Furthermore, the continued presence of volunteer firefighters suggests that even those who are too poor to subscribe to a firefighting can still be reasonably assured of help, much in the same way that poor people used to be assured of charity health care.
In any event, privatizing firefighting is very feasible. Not only that, the risk and transitory pains are, at this point in time, likely the lowest they will ever be. Maybe it’s time for a change.
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By Simon Grey, on April 17th, 2012
In the first place, it is helpful to define collectivism and failure. Collectivism refers to any and all economic and political systems where goods and services are publicly owned and operated; it is also popularly known as communism and socialism, among other terms. Failure is defined as failing to satiate the maximum number of persons’ desires as feasible, or, more generally, failing to supply persons with their basic needs (healthy food, clothing in good repair, shelter from the elements).
There are many theories as to why collectivism fails, most of them having to do with incentive structures. This view is not necessarily wrong, but it is very limited, and does not account for the range of human emotions and motivations. Monetary incentives do impact human behavior; this is not in dispute. However, it is foolish to assert that human behavior is always and ever motivated by monetary incentives—as some economists seem wont to do—or that it is always a primary motivation. As such, it is helpful to look at the failure of collectivism more broadly.
One thing that is interesting about those who are more inclined toward the collectivist persuasion (henceforth called leftists) is that they are generally observed to be hypocrites, in the sense that they often demand collective action for something—say, welfare to help the poor—but do not themselves make any individual effort towards that end. More commonly, those of the leftist persuasion believe that their personal contribution to relieving the plight of the less-fortunate—however defined—is “raising awareness.” Thus, leftists often talk about helping the poor, in the name of raising awareness, but never themselves get around to actually helping the poor.
Ultimately, this is nothing more than status-mongering. Instead of actually doing something, the collectivists live in a world of ideals, wherein it is better (read: higher-status) to signal one’s affiliation to an ideal than to actually live by it. It is therefore better to preach selfless sacrifice in the name of helping others than to teach profit motive. While profit motive, as Adam Smith observed, can be a significant motivator, it is, in the eyes of leftists, a morally inferior motivator. Thus, one must call for selfless concern, and raise awareness for said type of concern. But one need not concern oneself with getting one’s hands dirty.
Thus, one potential explanation for the failures of collectivism is that a collectivist society places more emphasis on signaling group affiliation than actually getting things done. This stands in contrast to an individualist-oriented society, which by definition avoids group affiliation. The individualist society, then, has only personal accomplishment as a status signal, which strongly encourages productivity because the only way one has status is to create it for oneself. Collectivists, though, always try to appropriate others’ status for themselves. In essence, the collective identity enables some individual to credit for something even though said individuals have not actually done anything that can be meaningfully described as productive.
The collective political economy, then, is one based on higher-order status signaling, and not more direct (and productive) lower-order status signaling. As such, it is more likely to fail because most participants are too busy chasing status to make things. Basically, it’s better to signal status and identity than do actually do something.
By Winton Bates, on May 23rd, 2011
I should begin by defining what I mean by a naïve economic model. The naïve model I have in mind is a conventional neoclassical model, with a few bells and whistles added. The bells and whistles are necessary because so called ‘rational economic man’ who is the basis of conventional neoclassical economics doesn’t practice altruism. There are probably still some economists who claim that everything everyone does is for a selfish reason, but I am not one of them. While I recognize that a lot of people do a lot of noble things for their own satisfaction, I see no reason to doubt people when they claim to be motivated by altruism.
So, in terms of the naïve model I have in mind, the objective functions that individuals follow in making choices take some account of the well-being of other people (i.e. I am assuming interdependent utilities). That means that individuals might volunteer to do something even if they perceive that this involves some cost to their own well-being. The extent that they do this would depend on the net cost in terms of loss of individual well-being and the extent that their actions affect the collective benefit they seek to obtain by volunteering. The main potential source of net loss of individual well-being would be the value to the individual of opportunities foregone from use of time in volunteering, which would be offset to the extent that the individual obtains satisfaction from volunteering, or from recognition of her efforts. The effect of individual actions on the collective benefit being sought would depend on the size of the group seeking the collective benefit. In a large groups the actions of each individual tend make a small contribution to the objective being sought, so there would be a greater incentive to free-ride on the efforts of others.
The naïve model suggests to me that people would tend to volunteer to a greater extent when they had fewer opportunities for paid employment. It therefore suggests that volunteering would tend to decline if workforce participation increased. It also suggests that volunteering would be a substitute for other forms of charitable giving – people with time on their hands would tend to volunteer their time and people in well-paying jobs that give them little leisure would be more inclined to put their hands in their pockets to make financial donations. It also suggests that people would tend to volunteer to a greater extent in small, well-defined communities (e.g. country towns) where their efforts are more likely to be recognized that in major urban centres where individuals are more likely to get lost in the crowd.
How well does this naïve model explain volunteering in Australia? Not particularly well. The first point I noticed when I looked at the relevant section of the Productivity Commission’s recent report on ‘Contribution of the Not-for-profit sector’, is that there has been a consistent upward trend in rates of volunteering across all age groups over the last decade, although this has been offset to some extent by a decline in the average number of hours volunteered. This has occurred at a time when labour force participation has continued to increase.
As might be expected, ABS data show that volunteering rates are higher among women than among men. The difference is confined mainly to the 35-44 year age group – when most female volunteering could be expected to be associated with school canteens etc. People with young children are the group most likely to volunteer regularly, but they spend fewer hours per week volunteering than do people with older children and older people without children.
Again, as expected, the rate of volunteering is higher outside capital cities than within capital cities. But the difference is not huge. The rate for regular participation in voluntary work was 19% in capital cities and 23% outside capital cities in 2006.
The naïve model would not predict that employed people would be more likely to volunteer than unemployed people. For women, although those in full-time employment had the lowest rates of regular volunteering, those who were employed part-time had higher rates of regular volunteering than those classified as unemployed. For men, rates of volunteering for those in full-time and part-time employment were the same and higher than for those who were unemployed.
The most surprising departure from the naïve model relates to donations of money as a substitute for donation of time. I know such substitution does occur, but it doesn’t show up in the ABS survey data. Volunteers are much more likely to have donated money or contributed financial assistance to someone outside the family in the last 12 months than non-volunteers.
In order to explain non-volunteering we seem to need a model of behaviour that recognizes that volunteers and non-volunteers have different personal characteristics. It seems that non-volunteers tend to have relatively weak links to the community in general. The evidence suggests that they are much less likely to have attended a community event recently. They are also less likely to agree with the proposition that most people can be trusted.
By Winton Bates, on January 14th, 2011
‘If respect for individual rights were to be shown to lead, not to order and prosperity, but to chaos, the destruction of civilization, and famine, few would uphold such alleged rights, and those who did would certainly be held the enemies of mankind. Those who can see order only when there is a conscious ordering mind – socialists, totalitarians, monarchical absolutists, and the like – fear just such consequences from individual rights. But if it can be shown that a multitude of individuals exercising a set of “compossible” rights … [rights that can exercised at the same time without entailing conflicts] … generates, not chaos, but order, cooperation, and the progressive advance of human well-being, then respect for the dignity and autonomy of the individual would be seen to be not only compatible with, but even a necessary precondition for, the achievement of social coordination, prosperity, and high civilization’ – Tom G Palmer, ‘ The literature of liberty’.
I wish I had written that paragraph. It captures a lot about the relationship between freedom and flourishing that I have been writing about on this blog for the last couple of years. My personal conviction is that individual liberty is necessary to individual flourishing because individual flourishing is an inherently self-directed process. While I seek to persuade others to adopt that view, I recognize that the course of public policy depends much more strongly on public perceptions of the consequences of alternative courses of action.
Much of the discussion in my blog has been about the consequences of freedom or lack of it. I discussed the strong positive relationship between freedom and objective measures of well-being (income, longevity etc) in an early post. The general conclusion from my posts discussing measurement of subjective well-being is that claims sometimes made that the findings of happiness research conflict with these conclusions are simply wrong. Not only do people in countries with relatively high levels of freedom have higher material living standards, they also tend to have higher life satisfaction.
However, even though the existence of a positive general relationship between liberty and well-being now seems to be disputed less frequently, freedom is still under challenge from several different directions. First, there is a challenge to economic freedom associated with the global financial crisis (GFC). The GFC has raised important economic issues about the role of monetary and fiscal policy, the effects on the financial system of the failure of large financial institutions and the effects of different regulatory regimes on behaviour of large financial institutions. Economists will probably still be debating some of these issues in 50 years time, but at this stage it looks to me as though the extent of additional regulation likely to be seriously contemplated will be relatively minor and confined to the financial sector. Not many people are suggesting the nationalization of industry and the introduction of Soviet-style economic planning to prevent future financial crises.
The second challenge to freedom is associated with action to deal with alleged externalities, particularly global emissions of greenhouse gases. Some restriction of freedom is of course justified to discourage activities that impinge on the rights of others. Some of the ways the ‘problem’ of greenhouse gas emissions is being tackled in many countries, however, involve greater than necessary restrictions of economic freedom. This stems from rent-seeking activities of industries, including those favouring particular technologies. The challenge is serious, but probably easier to deal with than previous challenges that many countries have dealt with successfully, including, for example, overcoming opposition to reductions in barriers to international trade.
The third challenge to freedom seems to me to be more fundamental and more serious. It stems from the collectivist idea that governments are responsible for the happiness of citizens, rather than for protecting their rights – including their right to pursue happiness as they think fit. Many people have come to expect governments to act as guardians of their well-being, not only giving financial support in times of need, but also protecting them from making bad decisions. In relying on governments to perform such a role they infringe the liberty of other people who do not want or need such protection.
This challenge to individual liberty seems to come mainly from people who do not mean anyone any harm – people who live among us who want us all to have happier lives. As I write this I am conscious that at times I have actually supported government regulations to protect people from making bad decisions that might adversely affect their well-being. You might have similar memories. Sometimes we may have had reason to be concerned that if people were not compelled to act in what we perceived as ‘their interests’ they would end up imposing a burden on the welfare system or on private charity. That just underlines the point I am making – the greatest challenge to individual liberty comes from people who do not mean anyone any harm.
In modern democracies the choice between liberty and paternalism rests ultimately in the hands of our fellow citizens. The course of public dialogue about such matters turns most crucially on public perceptions of the consequences for human well-being of the policy choices that governments are making. While each public policy decision to restrict liberty and relieve individuals of responsibility for their own actions may seem relatively benign when considered in isolation, that doesn’t mean that the cumulative impact of many such decisions will be benign.
By Bron Suchecki, on September 9th, 2010
Worthwhile read for libertarians – The Mind Conspirators by Nelson Hultberg. A quote:
Philosophical fallacies and socialist falsifications of economics and history have gained sway in the school system to poison our citizens’ minds against the American concept of freedom. Such fallacies have created a grossly distorted image for the man in the street about the way the world works. Freedom is now seen as inimical to human dignity. Creative entrepreneurship is portrayed as exploitation of the poor instead of their only hope. Gold is termed a “barbarous relic” instead of history’s proven store of value. …
We are being conditioned to accept sloth as normalcy, servility as dignity, weakness of will as compassion, and government conveyed privilege as justice. The world of sanity and rationality gives way to regimental nightmares of Orwellian “newspeak” and “political correctness” in order for legions of middle-class sluggards to feel good about themselves while they live out their spiritually squalid lives queuing up to the entitlement troughs of the mega-state.
My response to the article agrees very much with the comments of MetaCynic:
Accepting Hultberg’s argument that ideas are the engine of not only entire civilizations but of every individual, begs the question why do some ideas gain traction and not others. Why did the ultimately unworkable collectivist ideologies of the big picture intellectuals, Rousseau, Hegel, Comte and Marx, find acceptance in the midst of the wondrous prosperity produced by the Enlightenment’s Industrial Revolution? Why does the siren call of unaccountable collectivism to this day continue to outsell individual liberty with all its attendant responsibilities?
Despite its clashes with reality, do collectivist intellectuals really have to work very hard to find widespread acceptance for their ideas? Maybe there has always been a ready market for their disabling poison. In politicians and bureaucrats they have, of course, an enthusiastic audience eager to legitimize their own drive for wealth and power. In the envious masses they have deluded voters proudly participating in the process to redistribute the wealth of others into their own pockets. And in the captains of industry they have “capitalists” in need of protected markets and guaranteed profits. The great majority of humans are conformists and clock watchers interested only in comfort and entertainment.
By Thersites, on February 8th, 2010
From Albert Jay Nock’s Our Enemy, the State:
What we and our more nearly immediate descendants shall see is a steady progress in collectivism running off into military despotism of a severe type. Closer centralization; a steadily growing bureaucracy; State power and faith in State power increasing, social power and faith in social power diminishing; the State absorbing a continually larger proportion of national income; production languishing, the State in consequence taking over one “essential industry” after another, managing them with ever-increasing corruption, inefficiency and prodigality, and finally resorting to a system of forced labour. Then at some point in this progress, a collision of State interests…will result in an industrial and financial dislocation too severe for the asthenic social structure to bear; and from this the State will be left to “the rusty death of machinery,” and the casual anonymous forces of dissolution will be supreme.
 We’ve survived 75 years since this was written back in 1935 when lovers of liberty already thought we were doomed. Are we too far down the road to serfdom or can we still reclaim our nation?
By Thersites, on July 24th, 2009
One of the central messages of President Obama’s inaugural speech was that Americans now must sacrifice in a time of great hardship. This sounds noble, but also is rather vague. What kind of sacrifice is Obama talking about?
It would be fair to venture to guess that sacrifice for Barack Obama means a number of things that our forefathers would have shunned. Sacrifice means higher subsidization of the masses by those at the top of the economic scale through increased taxation. Sacrifice means imposing the will of the government on the people in the name of “fairness,” “equality” and “justice.” Sacrifice means that everyone must be required to bail out the few who are reckless and irresponsible. Sacrifice means coercive taking of our life, liberty and property for the “greater good.”
At root of all of this is collectivism. How did we end up here? We had an economy that was mixed as opposed to a true, free-market one. We had a small republican government that grew to be a massive democratic one. We had a society built on success and failure, that gave way to one of success and protection against failure. We took the middling path, which inevitably led us to this socialistic mentality. I posit that democracy mainly paved the way for this collapse, but that will be addressed in a post in the near future.
Prior to the Great Depression, we lacked a government-imposed social safety net because of the sacrifice of individuals. Some voluntarily chose to provide for those who were less fortunate, not always with just a handout, but for some like Rockefeller by providing an education for those who showed aptitude in the hopes that they could better themselves. Our forefathers fought for our country, sacrificing their lives so that they could build a society where they would not need to sacrifice their liberty and their property. They sacrificed so they could establish a country built on the natural rights granted to them by G-d, not the rights so determined by the new Messiah, Mr. Obama.
People labored in steel mills and coal mines not out of the goodness of their hearts, but out of self-interest, and this work helped pave the way for unprecedented economic growth. It all brings to mind Adam Smith’s line in the Wealth of Nations, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
We did not achieve our prosperity from forced sacrifice, but from voluntary trade predicated on the self-interest of individuals seeking to better their lot. People could dispose of their wealth for the most part as they so chose. Universities, libraries and medical institutions were established by wealthy folks, and charitable institutions were able to provide (probably much more efficiently than the public) services for those who were needy. But this charity again was voluntary.
You have to wonder why it was the case that the government stayed out of the business of charity. Was it because individuals knew that politicians would only use these programs out of their own self-interest to gain votes? Was it because of the belief in a government with limited responsibilities? Was it because of the belief that it wasn’t the job of all of society to take care of those who were broke?
I think it was probably a combination of all of these things. Also, I think that while individuals may have acted out of self-interest in giving charity like politicians (be it for PR purposes or for religious reasons), they were still making this decision unto themselves, not forcibly requiring all others to sacrifice as well. There just is not this sense of individualism anymore. It is one for all and all for the banks. We all own a piece of Wall Street, we all own a piece of Fannie and Freddie over on Main Street and we all own a piece of Detroit too. Of all cities, I mean come on…Detroit?!
We did not build the most prosperous nation in the world through sacrifice and collectivism. We built it through the self-interest of the skillful, visionary individuals that immigrated to this land. Our forefathers did not sacrifice themselves during the Revolution for more sacrifice; they sacrificed themselves for freedom. To forget this fact would be to tarnish their efforts.
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