Posts Tagged ‘economics’

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).





What If the National Debt Were Your Debt? – YouTube

March 28, 2012

Looking at the federal government budget at the scale of an average household:
Annual income: 50,000$
Annual expenses: 88,000$
Credit card debt: 320,000$


David Friedman on market failures

March 28, 2012

David Friedman describes market failures as situation where individual rationality does not lead to group rationality. What is best for individuals can create adverse effects for the group.
The prisoners dilemma is an archetype of this situation. Other so-called market failures include public goods and externalities.
Friedman illustrates this with many examples. But he also shows that the problem can often be designed around with creative market-based solutions. For instance ad-funded broadcast radio.
He goes on to apply the same analysis to political situations, with problems such as rational voter ignorance, high information costs and political long-termism.
He concludes that where markets are imperfect, markets still offer the best chance of solving the problem, whereas government intervention is less likely to do so.

What markets say

October 18, 2011

Steps in the right direction are likely to be taken, both in relation to Greece, and in relation to bank recap and improved sovereign support. But it is unlikely to be the ‘bazooka’ the market has been hoping for in recent weeks.

We often hear that markets want such and such policy. Or that some changes in the market were caused by some announcement. Such narrative is attractive for the media, but such claims have no rigor or value.
The only information generated by markets (of any kind) are prices and trade records. Anything else is speculation or anecdotal opinion (often from a single perspective, such as sellers), if not plain propaganda.

Seven Myths about Free Markets

February 19, 2011

David Henderson from EconLog on 7 common economic myths.

Why Health Costs Are Still Rising

December 9, 2010

In support of economic theory, the above data shows that healthcare costs rise when others pay. In contrast, when providers have to compete for the consumer’s own resources, their service gets cheaper and better.

As an analogy, the same thing would happen if we had socialized “food insurance”.

I have to caution that interpreting empirical data is difficult. There is always the possibility of some hidden factor. That said, I have yet to see some solid empirical evidence of lower costs and improved quality as the monopolistic footprint of government increases in any industry, especially in the long-term. Instead, it appears that as an industry becomes more controlled and politicized, efforts get diverted to gaining control of the political process and away from improving the production of goods and services.

Maybe we should consider some simple and drastic steps towards a healthcare solution (audio).

A Century of Failure: Why It’s Time to Consider Replacing the Fed | George Selgin

December 3, 2010

Selgin addresses a number of questions about the Fed by looking at relevant historical statistics, and shows that it failed on each count:

* Did it reduce unemployment?
* Did it stabilize prices and value of money?
* Did it kept prices more predictable?
* Did it avoid dangerous deflations? Two kinds of deflation: demand shrinkage vs. increased supply. The Fed has given us more bad deflations (demand reduction) or inflation, as opposed to good deflations before the Fed.
* Was GNP volatility reduced? The problem is with how statistics were collected and computed before 1920.
* Has the frequency and length of recessions has improved under the Fed? Those statistics remained about the same.

Overall, he adopts the mainstream economists’ point of view to evaluate the success of the Fed and illustrate its failure.
Also, he points out a number of other factors which cause his analysis to underestimate how bad the Fed performed. For instance, he takes care to discount the interwar period as “practice”, as some mainstream economists do.

Lowering Taxes Is Not Increasing Government Spending

November 25, 2010

New York Times carries an article titled “The Blur Between Spending and Taxes”. The author is Harvard Professor N. Gregory Mankiw. The essential theme of the article is that the government is spending when it decides to forgo tax revenue that it otherwise could have collected. Indeed, tax revenues forgone in the enactment of tax deductions, such as for interest payments on home mortgages or charitable contributions, and tax credits, such as for first-time homebuyers or adoptions, are now commonly described as “Tax Expenditures.” The thought is that the government is spending money in deciding not to take it in taxes and to allow the taxpayers to keep it.

In terms of balancing a budget, foregoing some incomes is in fact equivalent to having additional spending.
But the size of the budget obviously differs. Also, when it comes to government budget, this accounting view obfuscates a critical notion: ownership.

Do individuals own the fruit of their labor, and give some of it up in form of taxes, or is the government generous in letting them keep some of it? Is taxation “taking”, or is anything that’s left untaxed “given”?

Blurring that line and ignoring property rights allows disguising increased taxation as reduced government spending (which is needed, given its debts). Furthermore, by shifting what’s considered the default, the burden of proof is shifted: individuals now need to defend why they should keep some income, rather than government having to justify why it should take some of it.

More fundamentally, if the food and housing that you obtained through your work were in reality “granted to you by government”, doesn’t that mean that government is granting you your life and your body? How can property in one’s body be reconciled with the absence of property rights in your labor?


August 16, 2010


Another good show from Stossel. The main points are:

  • if public or subsidized transportation networks can’t pay for themselves (let alone turn a profit), how do we know that they were worth the investment?
  • the incentives of private companies yield much more efficient services than their government-run counterparts, yielding better quality and lower prices.

If anything, I would bring a few words of caution:

  • don’t confuse privatization and contracting out: yes, private contracting does have some benefits, but it is susceptible to a number of bad incentives (some are funded with taxed resources, the contract is still managed by government, and government merely leases out the resource while keeping a legal monopoly).
  • don’t confuse the free-market with an absence of rules: as much as I find the experiments with removing the street signals encouraging, they only illustrate the failure of government in innovating and the mistake of assuming chaos and the worst of people absent strict rules; but you should not use them to argue that less rules is always better. Privately run roads would still have rules, maybe even more (who knows); but the important part is that the rules would be subject to the competitive forces.

I recommend Walter Block’s work (The Privatization of Roads and Highways (pdf), talk) for more detailed analysis of the question of road privatization.