Try This On For Size

The N.Y. Times (the New York freaking Times!) defends the big banks:

BANKS aren’t always popular even in the best of times, but the anger of recent years is unprecedented. The anger, while understandable, has fueled the misguided idea that we should break up the nation’s largest banks.
The argument is simple and sound-bite ready: In the years before the crisis, greedy bankers used their political muscle to grow from small, specialized banks into giant, all-purpose financial institutions. This transformation led to the financial crisis because banks became too big to manage and too big to fail. If we break them back up, we will eliminate the risk of future crises.
The problem is that every part of this argument is based on a fallacy.

Here’s another argument to consider:  We should revoke the corporate charter of the big banks because every last one of them has committed massive amounts of fraud, thus trampling over innocent people’s property rights.  Or, to state it another way, the mega-bank corporations should be broken up as a punishment for having broken the law.

Now, demonstrating that the government is serious about defending property rights by punishing the banksters for fraud will not ever eliminate future occurrences of fraud.  But I have to think that it will reduce them substantially.

Clean Water

Here’s a summary of a new research paper that claims the government regulation has had positive effects on the environment:

Levels of copper, cadmium, lead and other metals in Southern California’s coastal waters have plummeted over the past four decades, according to new research from USC.

Samples taken off the coast reveal that the waters have seen a 100-fold decrease in lead and a 400-fold decrease in copper and cadmium. Concentrations of metals in the surface waters off Los Angeles are now comparable to levels found in surface waters along a remote stretch of Mexico’s Baja Peninsula.

Sergio Sañudo-Wilhelmy, who led the research team, attributed the cleaner water to sewage treatment regulations that were part of the Clean Water Act of 1972 and to the phase-out of leaded gasoline in the 1970s and 1980s.

Three questions that spring readily to mind are: 1) is this correlation or causation? 2) Are there free market alternatives that could have attained similar results? 3) Does this prove, carte blanche, that all government regulation of the environment is similarly beneficial?

Regarding the first question, it’s difficult to answer clearly from the synopsis of the paper. The lead regulations seem like they would generally contribute to decreases in lead content in the ocean, for lead particles would be in the water vapor that is a by-product of burning automotive fuel. This lead would then enter the oceans from the atmosphere. It’s not so clear with the other metals, so it might be possible that these levels had begun to decline prior to the introduction of regulation (much like how automobile fatalities had begun to decline prior to seatbelt laws). At any rate, it seems likely, though it is not conclusive from the summary, that the environmental regulation worked.

Regarding the second question, it’s difficult to say that government interference is necessary when it would be possible to establish property rights on the coastal waters that were polluted. Under a system of private property rights, owners of said property—in this case the ocean—would be able sue those who polluted (i.e. altered and damaged) their property. As such, it would fallacious to use this study as proof that the government regulation is necessary for environmental protection. Governmental regulation may be efficacious, but that is not the same as saying that it is necessary.

Regarding the third question, it seems obvious that many environmental regulations are misguided, to say the least, and often counterproductive. As such, it does not necessarily follow that one effective, or even necessary, set of environmental regulation proves that all sets of environmental regulations will be similarly effective and necessary. Stated another way, it dangerous to extrapolate a trend from a single data point.

The conclusion to be drawn from this study is that there appears to be one instance where governmental regulation yielded positive results. Of course, this regulation was necessary because of a prior failure (i.e. the non-allowance and/or enforcement of property rights), but nonetheless the government did something useful. However, trying to prove that governmental regulation is universally necessary and effective from this single data point seems rather ludicrous, particularly in light of government’s other failures.

Greg Mankiw: Ignoramus or Liar?

How else to explain this nonsense:

The anti-SOPA crowd argues that this is a matter of basic liberty. But it’s not. In a free society, you don’t have the freedom to steal your neighbor’s property. And that should include intellectual property. Moreover, it is the function of the state to enforce those rights. We don’t leave it up to civil litigation to protect property rights (although that is part of the solution). We give the state substantial powers to stop theft. Just as owners of tangible personal property have good cause to call for a police force and a system of criminal courts, owners of intellectual property have good cause to ask the state to stop those who would infringe on their rights.

It’s like he doesn’t understand the difference between copying and theft. If I have a book and someone copies it, they do not deprive me of the book (except for the time spent copying it). If they steal the book, I never see it again. If I write a song and someone decides to copy it, they do not deprive me of my ability to play it. On the other hand, if I have an apple and someone takes it, then they deprive me of what belongs to me. As Thomas Jefferson once said, “He who receives an idea from me receives it without lessening me, as he who lights his candle at mine receives light without darkening me.
Also note that the supreme law of the land (the constitution, for MIT economics professors too stupid to familiarize themselves of the law under which they live) never refers to intellectual property in terms of theft. In fact, they refer to it primarily in terms of special monopoly privilege. Incidentally, this is why the constitution prescribes “exclusive Right” for authors and inventors for “limited times.” The founders never believed thoughts were real property, which is why they allowed these rights to expire.
Thus, Mankiw’s assertion, which is nothing more than pious posturing, is verifiably false. SOPA is not a matter of preventing theft or protecting property rights. It is, like all other forms of intellectual property law, just another form of government-enforced monopoly. And like all other monopolies before it, it is just another way to reduce freedom.

Fraud

Pay close attention to this chart:
This is a problem. As a libertarian, I generally view regulation as pointless, needlessly expensive, counterproductive, and anti-liberty. As such, I oppose a good portion of government interference in the economy. However, committing fraud is not simply a matter of failing to comply with ticky-tack regulation. Fundamentally, it is a violation of property rights. As shown by the chart above, the current vitriol directed at the banks is wholly deserved since every major bank in the united states has committed fraud (i.e. violated property rights) multiple times each.
Merriam-Webster defines fraud thusly:

deceit, trickery; specifically : intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right.

In essence, fraud is attempting to lay claim to the property of another under false pretenses. If you are selling a house and offer $50,000 for it but only pay $25,000, then my attempt to claim your property is fraudulent because I lied about what I would give in exchange for your house. Your decision to sell your house to me was made in the belief that I would pay you $50,000 for it. If I take title of the house without following through on my promise, then I have essentially cheated you out of your house.

Now, if the government must exist, then it is reasonable to expect the government to defend and enforce property rights. This means that the government should prosecute murder, theft, rape, and other crimes wherein one violates another’s property rights. This should also include fraud.

Fraud may not be coercive in the manner that, say, theft is, but fraud is no different than theft in that one takes something that does not belong to one’s self, in violation of the terms of the exchange. As such, fraud is most definitely a crime the government should wholeheartedly prosecute.

All the major banks have committed massive amounts of fraud. Every last one of them. Sometimes this has consisted of foreclosing on homes that were not even collateral for any loan. Sometimes this has consisted of knowingly lying about the quality of financial instruments. There are a variety of ways in which fraud has been perpetrated by the major banks, and I refer you to The Market Ticker (run a search for “bank fraud’)for a much more comprehensive view on the matter. Essentially, the banks have stolen from a large number of people and therefore deserve to be prosecuted to the fullest extent of the law. They have violated the property rights of far too many people, and they need to be jailed.

The assertion that the banksters deserve jail is not predicated on the complaint that banks have ignored trivial regulations; it is predicated on the fact that they have stolen from people. As such, it is not “socialistic” or “anti-market” to demand the prosecution of banksters. In fact, it is just the opposite. It is pro-market to demand that the government prosecute fraud and thereby uphold property rights. The time has come to stop the looting and start the prosecuting.

So Many Problems

We are richer than our ancestors mostly because of innovation. But most of the innovation benefits we receive are externalities – we only pay our ancestors (or those to whom they transferred their property rights) for a small fraction of that benefit. If we instead had better property rights for innovation, we’d pay a large fraction of our income as compensation for past innovation. That would increase incentives to innovate, the rate of innovation, and the fraction of the economy devoted to innovation. With good institutions, I could imagine more than half of all income being paid to the innovation industry.

There are several problems with this paragraph. First, as net-based pirates have shown, there are plenty of people who try to avoid paying for rights to use IP,* which invalidates his claim that “we’d pay a large fraction of our income for past innovation.” We’d likely pay more, to be sure, but given man’s tendency to avoid paying these sort of things, it foolish to say with any degree of certainty that we would pay a lot.
Second, there is absolutely no basis for saying that there would be more incentive to innovate. Since we have tried IP rights, we cannot tell what the rate of innovation would be in their absence, and cannot therefore properly compare the rate innovation under a system of IP to a system with no IP rights. Any attempt to do so is pure conjecture. Furthermore, all innovation is derivative, so even if people were more inclined to innovate more, IP law would more than likely prevent them from doing so since they would either have to license the product being innovated or be forcibly prevented from innovating.
Third, the stifling nature of IP enforcement, as noted before, would (and has) actually stifled innovation. Patent jumpers have forced people to redesign improvements because their proposed solution would infringe on their patent. This hardly encourages innovation, and it is hard to see how more of this would do so.

Alas, it is devilishly hard to design good innovation property rights. Patents are supposedly the best we have now, and they are often terrible. But over the next few centuries, we might just create better institutions (e.g., futarchy) to better encourage institution design, and within those institutions, folks may well come up with better designs for institutions to encourage innovation. Optimist that I am, my best guess is that we will succeed at this.

Perhaps the reason it is so difficult to design good innovation property rights is due to the fact that innovation is not actually property, and thus cannot be protected with rights. It is hard to see how copying someone or something diminishes them in any way. Some might argue foregone income, but this argument is riddled with errors (for one, there is no guarantee that a given consumer would have purchased from the innovator anyway, and no one has a “right” to be paid anyway).
Of course, it is possible that “society” will create institutions that actually incentivize innovation. I would bet that said institutions will consist mostly of educating people how IP is a myth, and does not deserve any form of monopoly or protection from the government.

Of course in the long run innovation must run out, and then we’ll have a long stable future with little innovation. But I expect the innovation era to last a few more centuries at least, with the best innovation yet to come.

I will deal with this in a separate post.
* Note: it is assumed that Hanson’s call for property rights on innovation either largely resembles patent and possibly some forms of copyright, at least in principle.

Yes, This is a Litmus Test

People who refer to themselves as “libertarians” spend a lot of time arguing over exactly what they mean by “libertarian.”

Personally, I try to be fairly “big tent,” figuring that people who self-identify as libertarian tend to get more libertarian after doing so, if a) accepted and b) encouraged to explore libertarian ideas.

So, when I disagree on this or that issue with someone who self-identifies as a libertarian, I generally try to frame that disagreement not as a negative verdict on the other person’s libertarianism, but rather as a possible error on their part as to how libertarian ideas apply to that particular issue.

But the fact is that there are some people who call themselves libertarians who … well, just ain’t libertarians. And the facts on some issues are so incredibly clear that it’s possible to use those issues as litmus tests. If you’re on one side of the issue, you may be a libertarian. If you’re on the other side, no, you aren’t.

One such issue is — to use the phrase fraudulently coined by its opponents — is the “Ground Zero Mosque.”

We’ll get to the fraud in a moment, but it’s really a secondary thing, a side effect. The important part in treating it as a litmus test is this:

If you support private property rights and freedom of religion, you may be a libertarian.

If you don’t support private property rights and freedom of religion, you aren’t a libertarian.

Period.

Cordoba House, the project being fraudulently referred to as a “mosque” by those attempting to prevent its construction, is planned for construction on private property and with private funds.

The opponents of Cordoba House are attempting to stop its construction by persuading a government board to declare the building currenly standing at the project’s prospective location “historic” so that the owners can be forced to “preserve” it and forbidden to demolish it and build a structure more to their liking there.

The opponents of Cordoba House oppose private property rights. Their opposition to private property rights stems from their opposition to freedom of religion. They are, therefore, not libertarians.

They’re also either liars or idiots, and the evidence points strongly to the former. Here’s the skinny:

Cordoba House is not a “mosque.” It’s an “Islamic cultural center,” which is no more a “mosque” than your local YMCA is a “cathedral.”

The construction site for Cordoba House is not at “Ground Zero.” It’s two blocks away, on Park Place between West Broadway and Church Street (and, FWIW, farther away than St. Peter’s Roman Catholic Church or St. Paul’s Chapel).

The opponents of Cordoba House generally claim to have knowledge of Islam beyond that of us non-Muslims who don’t obsess over who’s worshiping where. For example, they like to cite chapter and verse on the historical penchant of Muslim conquerors for building mosques on prominent conquered sites.

If they know that much, then presumably they’re not idiots — and if they’re not idiots they also know by now that Cordoba House isn’t a mosque. From that, it follows that they are just lying about it because lying seems more likely to get them what they want.

If they can use Google Maps (and if they can blog, they can surely use Google Maps) they also know that Cordoba House’s construction site isn’t at Ground Zero. From that, once again, it follows that they’re lying because they know that the facts aren’t as emotionally compelling as the fairy tale they’re pushing.

The whole “Ground Zero Mosque” meme is fraudulent in the classic sense: It’s an attempt at theft by deception. By convincing people that a cultural center is a mosque, and that “Ground Zero” is located two blocks north of where it’s actually located, they hope to build popular support for their call on government to steal some things — a piece of land, a building, and the religious freedom of the land/building’s owners — for them.

And fraud, a/k/a theft by deception, isn’t libertarian either.

Magic: How Slums Become Lovely Towns

An Economic Times article today, titled “Slums and economic stimulus”, says


If slum dwellers could be given property rights that are heritable but inalienable to the land on which they now have their make-shift homes, if these title deeds provide for being used as collateral, then immediately all of these people become eligible for drawing on the new housing loans…


The grant of property titles to the urban poor is again already part of India’s public policy. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) explicitly advocates security of tenure at affordable costs as the first of a seven-point charter for the urban poor, which means housing improvement through assignment of property rights.


This recommendation in JNNURM has in turn been influenced by the experience of countries of Latin America of assigning property rights in favelas and barrios, Turkey in 1983 for its slums called gecekondu and the accepted logic that titles to homesteads is an effective route to improving housing and environment conditions in poor urban localities. Efforts at “social housing” through parastatals like state housing boards have not been able to address the problem in any large scale. ”


A great idea I think, unfortunately the author gets all mixed up with the nonsense of fiscal stimulus and government intervention. The basic idea is that slum dwellers dont invest in their property because there is no guarantee of being able to retain the future payoffs from their investments. Also, private firms cant buy large tracts of slum land to develop it. Hence poverty sustains itself.


This also explains why many slum dwellers would rather buy a TV than build a toiled, when the government goons come to break down your home, you can run with a TV but the toilets got to be left behind.


De Soto “Mystery of Capital” is a good book to begin with. He essentially argues that lack of property and contracts mean that literally billions of dollars worth of property is simply lying dead, instead of being entrepreneurially transformed into productive resources. The other side of the coin is the “Mystery of Labor”, why do the poor remain poor despite working hard for long hours. Its partly because they cant invest their small savings in high payoff projects. And partly because they cant borrow money despite having high payoff ideas. Both problems originate from lack of property titles, which means they cant back their contractual obligations and banks dont have a safeguard to lend against.


And of course there is nothing new in this. The whole history of industrialization can be captured in two words (1) property and (2) contracts (needless to say, the socialists and fascist at Delhi University dont teach this). Private property is merely a system where it is legal for people to help themselves!


Lastly, we dont need to worry too much about how to allocate property rights to slum dwellers in India. The Dharwi Slum Authority in Mumbai already has designed some kind of finger print reader or biological mapping device which they use to establish who lives where, and then use the information to reallocate land. Instead of this whole reallocation process, why not just assign property rights.


And if the socialists amongst us are not convinced enough, I propose an experiment. Choose any slum in India, and allocate property rights to the residents. And then compare this area to other slums five years hence. That ought to dispel any doubts.

The Failure Of Free Markets

There is a lot of talk these days about the evils on unrestrained laissez-faire. There have been market meltdowns, business failures and tremendous losses for businesses and individuals. I have to agree that markets have failed. The real failure, however, has been that free markets have failed to exist for many decades.

A free market means that buyers and sellers can trade on any terms that they find mutually beneficial. They can trade whatever they want with whoever, whenever, however and why ever they want to. As long as fraud or coercion is not involved in the transaction, both sides trade because they believe they will be better off after the trade. It is a positive sum game.

The free market is based on property rights. People can use their property and dispose of it in any way that does not infringe on the rights of other people. Property rights are the key to economic progress in any country. Lack of strong property rights and economic freedom is the reason that less developed countries remain less developed.

The economic understanding of market failure is any situation where the allocation of goods and services in an economy is not efficient or optimized. The popular view is that any result in society that we don’t like is caused by market failure. Thus, depressions, pollution, homelessness, and shortages are examples of the infinite variety of things that can be blamed on markets.

There are many cases where the problem is a lack of adequate protection of property rights. In the case of pollution, people who’s property rights are infringed by the polluter should have the right to sue for damages. An appropriate justice system would make it expensive for a business to pollute or do other bad things because of the money it would have to pay to people who’s well being and property they damage.

The main problem with the market failure concept is the belief that benevolent politicians and bureaucrats should save the day. This approach has been energetically followed, but the reality is that the failures of government dwarf any failures of any market. In practically all cases, events that are demonized as market failures are the unforeseen and unintended consequences of prior government intervention in the markets, interventions that are invisible to everyday consumers.

The chain reaction will follow a few well worn paths. One such path is when someone perceives that prices are too high. Government then imposes price controls. The inevitable result of price controls is shortages. That means that rationing must be implemented. Black markets develop to supply the needs of consumers who can’t get what they want. Government programs are implemented to stamp out black markets, which invariably infringe on the rights of everyone. The string of cause and effect can go on for decades.

Another path may be when someone perceives that their income is too low. Government programs, such as the Agricultural Adjustment Act of the 1930’s and its many successors up to today, may destroy product and productive resources to keep prices high, subsidize the non production of crops and livestock, impose high tariffs and other protective measures. The net result is higher prices and a lower standard of living for all those not privileged enough to be in the protected industry. The protections and higher profits draw more people into production or discourage inefficient producers from leaving. The new producers increase production more, requiring further interventions.

These cause and effect chains can be followed in numerous industries, such as oil and gas, housing, banking and finance, agriculture, health care, automobile, and so on. When seen in isolation, an event looks like a random development. When taken together, they display a fairly understandable chain of events, emanating from some original intervention. The sad fact is that, even though this country is nominally free, and is still one of the more free nations , there is not one market that is not subject to massive government intervention at some level, national, state or local.

The current mortgage crisis and market meltdown are the unintended consequences of government induced inflationary credit, artificially low interest rates, lending and housing regulations and, in general, the lack of free markets in banking, housing and money creation. The present interventions of massive liquidity injections to preferred players in the market will have predictable consequences down the road. When those consequences come home to roost, people will forget about the cause of the failure and only blame the markets that failed by not being free.