Protectionism == Luddism

December 10, 2012

There is a strong economic analogy between offshore outsourcing and productive technology. Many people have erroneous understanding of such situations and promote mistaken policies, namely protectionism from trade and from technology.
This issue is reccurrent as many basic economic questions which need constant explaning. For instance, it came up recently in the presidential debate and last week in discussions of Apple possibly setting up factories in the US.

Back to the issue, let’s consider a factory as a black box. Every day some people go work there, it receives some resources as inputs, and it eventually produces outputs. Over time the technology it uses can be improved. Such investments allows the factory to produce more output by using fewer resources and less labor. They make society better off by pushing back the constraints of scarcity.

Now consider that the factory may be in a shipping yard and that the workers may be dock workers. The technology is trade.
Just like any factory, it requires engineers (to design the production line), managers (to coordinate the flow), workers (to handle and assemble stuff), resources (as inputs), technology (processes, information systems, shipping infrastructure) and time (to process the inputs into outputs).
From the outside, both look the same, they only differ in what happens behind the scene.
In both cases, the improvement allows the customer to get more benefits for lower costs (less or cheaper resources and labor).

Yet, just as Luddites were afraid of the effects of technology (automated looms), protectionists are afraid of the effects of trade. They both wrongly see temporarily displaced workers and the corresponding pain of adjustment as a threat to employment, they ignore the benefits such developments and specialization bring (see Ricardo’s difficult idea), and they seek narrow-minded special privileges for the party most visibly affected.

David Friedman and Steve Landsburg use the Iowa car crop to illustrate this point:

There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First, you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and send the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.

International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans’ well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars.

Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or a ban on ‘imported’ automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.

Notes on The Practical Case For Anarcho-Capitalism

November 3, 2012

In the lecture below, Peter Leeson starts by defining anarchy and justifying why it is important to study how social order emerges privately. A large portion of countries already have weak or failing governments. Also a quarter of world GDP comes from international commerce (in absence of a world government).

He digs into three levels of his case: self-enforcing contracts in presence of government backdrop (the easy case), solutions in absence of government backdrop and with force asymmetry, and finally comparing the efficiency of anarchy to government (the hard case).

He covers two broad classes of solutions to building trust and enabling social order: reputation and signalling.
Reputation works in many cases (he gives everyday examples, which are numerous since we rarely fall back on expensive government court services), but has some limitation if there is no repeat interraction (or if individuals are impatient and discount long-term gains), or if the population is large (hard to communicate) or diverse (non-uniform expectations).
Signaling is an ex-ante mitigation (before the interaction) which improves on reputation by itself.
He gives examples of restaurant reputation, brand signaling (banks, Coca Cola), the not so wild Wild West, international arbitration, diamond traders, mafia rules, ancient Iceland and Somalia.

To address the hard case, he starts by clarifying the notion of relevant alternative. Is is irrelevant to compared Iceland, the Wild West or Somalia to the modern US. Example of Somalia is important, as it is doing well on many development indicators compared to stateful Somalia and it’s African neighbors.
He also makes an interesting point about stability of anarchy. Does it devolve into a state? Somalia  is good example, where different factions are keeping a balance of power without tendency towards centralization (except whe foreign government step in to nominate the official government).


Notes on Bruce Benson at Libertopia 2010

November 3, 2012

Benson mostly focuses on private enforcement of crimes. Crimes is the category of offenses prosecuted by the state, not by the victim. Later in the talk he argues for reforming this categorization (decriminalizing crimes) and also restoring the principle of compensating the victim.

He gives a quick historical perspective explaining how the system shifted away from victim compensation. In short, it is the result of public enforcement (crimes provide justification for taxation, punishement provides a rationale to sooth un-compensated victims).

He then tries to analyze how market-based law enforcement would probably work, in broad strokes. He offers some thoughts on marketization process (rolling back current system towards competitive marketplace).

The different stages of crime: crime prevention, some crimes still happen (and get reported or witnessed), criminal is pursued, prosecuted and restitution is collected. He addresses each stage.

There is already private security guards (in fact a growing number, with 3 to 1 ratio to public cops in US). There are different functions and qualifications. Nightwatcher is probably cheaper. Incentives are better than public cops (less abuse because they are liable and firable, salary paid by customer instead of seizing assets, incentive to prevent unlike public cops who need measurable crime).
Example of a firm who offers such service successfully in some low-income housing areas. Service paid by landlords. Focus is on prevention and community-building, with properly trained personnel.

Changing back to a system of compensation would also help reporting of crimes. Currently, it is estimated that 40% of crimes are reported. Compensation offers some incentive to report, whereas low arrest-rate and high costs of assisting investigation are deterrant.

Right to compensation would also improve pursuit of criminals. Such right could be transferred and insurances and bounty hunters would offer services. Historical example of private railroad cops and early bounty hunters. Later, bounty hunting was affected by government payment as opposed to payment by the victim, which had a negative effect on the profession.

He offers some example of private prosecution and also bargaining with the victim (would become more common under a system of compensation).
He also offers counter-example of “private attorney generals” in environmental law in US. Those just extend the coercive power of government bureaucracy and create perverse incentives.

Finally, there would be a range of options for collecting the restitution, from bargaining, ostracism, using force, and imprisonment. Some would pay, others would have to pay off their debt. In some cases, the bargain would impose additional contractual constraints on the criminal.

The discussion ended with a note that crime would be less in a free society overall, and we are currently seeing trends towards market solution to social order (increasing number of private security, arbitration becoming more common).





Using offline solutions to online identity

August 9, 2012

As the recent hacks of some Apple and Amazon’s accounts highlight, it is difficult to safely authenticate people online for various recovery scenarios (lost password, hijacked account, etc).

So I am surprised that we don’t see brick and mortar solutions emerge.

For example, you could imagine Apple taking advantage of its physical presence (Apple Stores) to strengthen it’s authentication solution. A number of providers could fill that role, such as stores like Fedex/UPS/USPS, banks, or even specialized providers (if they can do it more effectively and cheaply).

As Bruce Schneier pointed out in his video on identification and ID security, identification is a system (issuance procedures, tokens and cards, registries, verification procedures, unplanned usages) and only a part of the broader system of security. There is no reason that the online and offline parts of those systems be so disconnected.

Follow-up on privacy

May 18, 2012

There is still a lot of buzz around privacy on the internet, although the focus seems to be shifting to cybersecurity these days (I’ll have a post on this shortly). Here is a quick follow-up highlighting some of my earlier points about the market’s ability to provide privacy features (as opposed to central regulation by the federal government).

Many of these efforts seem quite recent (except search engine DuckDuckGo). I suspect they spawned in response the recent buzz on online privacy. They may subside if privacy indeed turns out to be an important consumer preference. But the fact that those privacy-sensitive search engines have been advertising consumer-friendly privacy policies for years without garnering a large user base seems to indicate that consumers had different priorities.


Two search engines heavily advertise their privacy features. DuckDuckGo offers a very clear privacy policy (not logging IP, user agent, and not using any cookies by default). It’s been online since 1998. Ixquick also offers some strong privacy claims and backs some of them with independent audits and certifications.

The privacy-at-a-glance project offers standardized icons and ratings to summarize a service’s privacy policy. 

MobileScope is a tool to find potential privacy-revealing flows in mobile apps. I don’t think this tool is meant for end-users, but it certainly would make it easier for a hacker to inspect an app and write a review. PiOS is another automated tool that can identify possible privacy breaches from iPhone apps, by inspecting the binaries of the application. TRUSTe offers a mobile SDK to implement user tracking and opt-out, and SiteTruth offers a browser plugin to tag ads with rating icons. Finally, Clueful reports what data different apps use and share (although it appears limited to free apps at the moment).

These efforts highlight how privacy features can emerge from a competitive marketplace: contractual agreements (improving privacy policies, standardized claims), third-party auditing (specialized firm and tools), and reputation (ratings and reviews). I wouldn’t be surprised if the app stores incorporated some additional privacy-related features in the near future as well.

Update: some alternatives which offer privacy-oriented offers.

Gravity Defying Cat – The Slow Mo Guys

May 4, 2012

Two geeks pointing a super-hi-speed camera at everything imaginable. Lloyd the cat also features in this video.

Penn & Teller : ‘Shadows’

May 1, 2012

A beautiful illusion which is now at the center of a copyright and patent complaint.

Is Price Gouging Immoral? Should It Be Illegal?

May 1, 2012

While high prices are undesirable and visible, the effects of trying to control prices down by law are worse. This analysis highlights those unseen effects and illustrates why well-intentioned policies often have negative and unintended consequences, ultimately hurting those in the most need.

New Threats to the Internet

April 14, 2012

Excellent talk by Bruce Schneier. I always appreciate his perspective which considers not only technical aspects but also social, economic and political factors. In fact, his books helped start and stimulate my interest in economic thinking.

My only feedback is that corporate threats that don’t involve political power (government lobbying) are curbed by competitive pressure. So I am confident about innovative and consumer-focused features and trade-offs emerging (quality, costs, privacy, security, etc.).

Some ambiguous words

April 3, 2012

Sometimes languages have gaps, sometimes we just use imprecise words. A few examples:

Wrong: mistaken vs. morally wrong. And conversly, right: correct vs. just.

Value: price vs. moral values vs. subjective utility.

Regulation: having some feedback system vs. government rules.

In french, two separate words are used: régulation (the body regulates its temperature) and réglementation (setting rules or régles). The distinction matters when discussing emergent behaviors in the market. Government legislation (réglementation) is not the only way to achieve protective feedback (régulation).

Free: libre vs. gratis (gratuit)

The distinction between free will and free beer blends into welfare politics, where one means freedom or negative liberty, while the other implies positive liberty or access. The confusion can be cleared by realizing that welfare policies are not free (gratis), they simply force the cost onto other individuals and impede on their freedom.

(HT to Stefan Molyneux and Pascal Salin)

Update: here is one more, to save. One meaning is to rescue, the other is to economize. An example inspired by an ad from a South Korean oil company to illustrate the possible ambiguity: save resources to save the planet.