Historically Hollow: The Cries of Populism

History textbooks are full of populist complaints about business: the evils of Standard Oil, the horrors of New York tenements, the human body parts in Chicago meatpacking plants.  To be honest, I haven’t taken these complaints seriously since high school.  In the absence of abundant evidence to the contrary, I say the backstory behind these populist complaints is just neurotic activists searching for dark linings in the silver clouds of business progress.  When business offers new energy, new housing, new food, the wise are grateful to see the world improve, not outraged to see a world that falls short of perfection.

Still, I periodically wonder if my nonchalance is unjustified.  Populists rub me the wrong way, but how do I know they didn’t have a point?  After all, I have near-zero first-hand knowledge of what life was like in the heyday of Standard Oil, New York tenements, or Chicago meat-packing.  What would I have thought if I was there?

If we’re talking about the year 1900, I’m afraid we’ll never really know.  Yet what I’ve seen with my own eyes during the last fifteen years has done much to cement my out-of-sample confidence.

During this time, I’ve seen the tech industry dramatically improve human life all over the world.

Amazon is simply the best store that ever existed, by far, with incredible selection and unearthly convenience.  The price: cheap.

Facebook, Twitter, and other social media let us socialize with our friends, comfortably meet new people, and explore even the most obscure interests.  The price: free.

Uber and Lyft provide high-quality, convenient transportation.  The price: really cheap.

Skype is a sci-fi quality video phone.  The price: free.

Youtube gives us endless entertainment.  The price: free.

Google gives us the totality of human knowledge!  The price: free.

That’s what I’ve seen.  What I’ve heard, however, is totally different.  The populists of our Golden Age are loud and furious.  They’re crying about “monopolies” that deliver firehoses worth of free stuff.  They’re bemoaning the “death of competition” in industries (like taxicabs) that governments forcibly monopolized for as long as any living person can remember.  They’re insisting that “only the 1% benefit” in an age when half of the high-profile new businesses literally give their services away for free.   And they’re lashing out at businesses for “taking our data” – even though five years ago hardly anyone realized that they had data.

My point: If your overall reaction to business progress over the last fifteen years is even mildly negative, no sensible person will try to please you, because you are impossible to please.  Yet our new anti-tech populists have managed to make themselves a center of pseudo-intellectual attention.

Angry lamentation about the effects of new tech on privacy has flabbergasted me the most.  For practical purposes, we have more privacy than ever before in human history.  You can now buy embarrassing products in secret.  You can read or view virtually anything you like in secret.  You can interact with over a billion people in secret.

Then what privacy have we lost?  The privacy to not be part of a Big Data Set.  The privacy to not have firms try to sell us stuff based on our previous purchases.  In short, we have lost the kinds of privacy that no prudent person loses sleep over.

The prudent will however be annoyed that – thanks to populist pressure – we now have to click “I agree” fifty times a day to access our favorite websites.  Implicit consent was working admirably, but now we all have to suffer to please people who are impossible to please.  Yes, tech firms made a business decision to ramp up privacy protections; but this business decision is tainted by a barrage of thinly-veiled threats of government persecution.  In a functional world, we would have a few start-ups catering to privacy fanatics – and the rest of us could enjoy the bounty of the tech industry without this absurd digital red tape.

How, though, do I logically leap from the unreliability of populists on tech to the unreliability of populists on business in general?  After all, anyone can make a mistake.  My reply: Being negative about the tech industry isn’t just a small, isolated mistake.  Populists are applying massive intellectual energy to major issues and ending up painfully wrong.  This is strong evidence that their whole way of thinking is deeply corrupt.  They don’t deserve our trust or attention – not today, not yesterday, and not tomorrow.

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What (Other) Economists Think About Democrats’ Education Plans

A recent NPR article, titled “What Economists Think About Democrats’ New Education Proposals,” caught my eye. FEE, after all, is an economic education organization that looks at how free markets and individual liberty lead to more progress, greater prosperity, and better outcomes for all than any other social or economic system ever created. I was curious what these NPR-interviewed economists might say about the Democratic presidential candidates’ education plans, which involve funneling more money into a government system of mass compulsory schooling.

What’s the Plan?

According to the article, Democratic presidential hopeful Kamala Harris wants to spend $315 billion of taxpayer money to lift teacher salaries. Joe Biden wants to increase federal spending to low-income schools with teacher pay hikes. Bernie Sanders wants to impose price controls for teacher salaries, imposing a pay floor of $60,000 for incoming teachers. To its credit, the NPR article explains that by both domestic and international standards, American teachers are already well compensated and enjoy above-average employee benefits.

But that’s not enough, according to one of the economists interviewed. Eric Hanushek of Stanford says: “I think teachers are way underpaid.” Hanushek and others argue that teachers who are able to increase student test scores can improve both a student’s lifetime earnings and contribute positively to society at large.

The NPR reporter, Greg Rosalsky, concludes: “While being a good teacher means huge economic benefits for the people they teach and society at large, teachers don’t get to fully share in all the benefits they create. In economic terms, that’s a positive externality, and it’s a big reason why we should pay them more.”

Duquesne University economist Antony Davies disagrees. Davies, the Milton Friedman Distinguished Fellow at FEE, explains that the media often misunderstands and misuses the term “externality,” as NPR did here. “Failing to share fully in the benefits one creates is not an externality,” says Davies. He continues:

The phenomenon is called “consumer surplus.” Not only does it exist in every transaction, it’s the reason we exchange with each other at all. Consider a car purchase. When a car dealer charges me $30,000 for a car for which I would have been willing to pay $35,000, the dealer does not benefit fully from the exchange. I walk away from the exchange $5,000 better off. But that doesn’t mean the dealer doesn’t benefit also. If the dealer charges me $30,000 but would have been willing to take $27,000, then the exchange makes the dealer $3,000 better off. For the exchange to occur, neither I nor the dealer can fully benefit from the exchange. Instead, we share the benefit. How we share the benefit is determined by the price to which we agree.

If teachers benefited fully from the value they create, there would be no point in obtaining an education because the entire value of the students’ educations would go to the teachers. Similarly, if students fully benefited from the value that teachers impart, there would be no point in teaching because the entire value of the students’ educations would go to the students. Instead, teachers and students share the value they create, and both walk away from the exchange better off than they were.

Davies points out a central problem with the Democratic presidential candidates’ education proposals, arguing that creating salary floors or offering universal pay increases do not address the root of the problem. He says:

The problem with teacher pay isn’t that teachers are paid too much, nor is it that they are paid too little. The problem with teacher pay is that it is largely divorced from teacher performance. Because pay schedules are usually set by the school district, principals don’t have the ability to reward outstanding teachers with greater pay nor to punish poor teachers with less.

Angela Dills, professor of economics at Western Carolina University, concurs. “I agree that better teachers should receive higher pay and that that’s more effective than across the board pay increases,” she says.

The inability to differentiate teacher quality and pay teachers accordingly limits the opportunity to reward top teachers and urge weaker teachers to improve. School leaders are not the only ones without the discretion to signal good and bad performance. Parents are also unable to offer these signals, with most required to keep their child in an assigned district school whether they like it or not. According to Davies: “Parents don’t have the ability to reward outstanding public schools and punish failing schools by diverting their tax dollars to the schools of their choice.”

A Better Alternative

Education choice mechanisms, like Education Savings Accounts (ESAs), tax-credit scholarship programs, and vouchers, allow parents to signal quality by opting out of inadequate schools and into higher quality learning spaces that work better for their children. Davies explains:

Voucher opponents claim that vouchers diminish the quality of public education by siphoning tax dollars away from public schools. But regardless of whether the quality argument is correct, the siphoning can easily be avoided. Allowing parents to send their children to any public school they choose and have the tax dollars follow the student—essentially, a voucher program restricted to public schools—would restore the link between pay and performance without removing any dollars from the public school system.

Programs like these can put parents back in charge of their children’s educations and can trigger true educational change. But the current crop of Democratic presidential candidates appears more interested in expanding the government’s ability to impose decisions on us. Empowering people to make their own choices is not in their education plans.

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Market Regulated Just Right Amount

I love watching the market work. I don’t call it “the free market” because if it’s not free it’s not a market. Under government rules and regulations what survives is a pale shadow of a market; the more rules, the dimmer the shadow.

Fortunately even this shadow of a market is enough to make life better for everyone; much better than the more regulated alternative. I appreciate this.

Under the unfree conditions that exist in America and other “civilized” places, the market manages to survive in the nooks, crannies, and loopholes. In some cases as the “black market,” where “prohibited items” are traded, and in others, as the “gray market,” where legal items are traded without government permission, or without giving government the piece of the action it feels entitled to skim from every transaction. They call this skimming “taxation” and “fees.”

The most visible examples of the market in action are yard sales and people selling goods and services online. Even in these cases, government rules try to prevent a market from existing; it’s to our benefit that they mostly fail.

The market scares some people. They have been told that without government controlling trade, food will be poison, products will be faulty, and fraud will be rampant. I’ve never quite understood how — if this is how people naturally behave toward one another — putting some people in charge will magically change their human nature. Unless you imagine they are not human, but angelic beings, uncorrupted by the human flaws plaguing the rest of us.

Sounds like superstition to me.

Fear of the market is founded upon the mistaken assumption that the market is unregulated.

The market is regulated; just the right amount. Regulated by the cumulative choices and actions of people, not by the misinformed opinions of politicians. If you are afraid of what the market would do freed from the opinions of the worst among us, you’re not paying attention.

Would you buy food from a business whose customers keep getting sick with food poisoning? Would you buy a car model known to have frequent brake failures? Would you keep such information to yourself or spread the word?

If you would protect bad businesses, you’re to blame, not the market. If you stop expecting someone else to do your job and hold bad guys accountable when you run into them, you’ll help regulate the market in the best way possible. It’s always been your responsibility, no matter what you’ve been told.

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£s for Brexit

With my perfect betting record hanging in the balance, I follow Brexit news to the point of obsession.  Out of the many hundreds of stories I’ve read, though, I have yet to hear anyone point to the simplest path to Brexit: Let Britain buy its way out! In Theresa May’s failed deal, the UK was supposed to pay the EU about £38 billion for the “divorce.”  Yet there is nothing magical about this price tag.  It could just as easily be £40 billion, or £140 billion.  Why, then, can’t the UK just tell the EU, “The backstop is a deal-breaker.  How much money will it take to make this issue go away”?

If this were any normal business deal, this straightforward path would be on the tip of every Brexiteer’s tongue.  It’s the logic of any familiar real estate transaction:

“We won’t buy unless you fix the roof.”

“OK, that will cost me $25,000, so let’s add that to the price.  Ready to sign now?”

As far as I can tell, however, there isn’t a single prominent British or European politician who even mentions the possibility of letting the UK pay more to get more, much less advocates it.  Instead, we see British politicians demanding better terms for free, and Europeans saying that the current deal is Take-It-Or-Leave-It.

But politics isn’t like business, you say?  I know!  I’ve been saying so for decades!  The very fact that elementary monetary bargaining on Brexit is so unthinkable is yet another symptom of the psychological chasm between the relatively rational, instrumental world of business and the irrational, expressive world of government.

Brexit now hogs the global stage, but politics is packed with look-alike impasses.  Why can’t Israelis just pay Palestinians for the land settlers have taken?  Why can’t the EU just pay Russian to withdraw from Ukraine?  Why can’t the U.S. just pay Maduro to resign – and Russia to welcome the regime change?  Indeed, why can’t Bay Area developers just pay local governments to approve a hundred more skyscrapers?  In each case, the answer is a multilateral mix of foolish pride and wishful thinking.

Since I think that Brexit is a bad idea, why am I telling its advocates how to proceed?  Because I know Brexiteers won’t listen – and even if they did, the EU wouldn’t budge.  While I can understand the failures of politics, I have near-zero ability to solve them.  Not coincidentally, this is precisely what my view predicts.

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One Cheer for Trump on Iran

On June 21, President Donald Trump informed the world (via tweet) that after getting US forces “cocked and loaded” to carry out strikes on Iranian targets the night before, he had canceled those strikes at the last minute rather than prospectively kill 150 people. “Not proportionate,” he wrote, “to [Iranian forces] shooting down an unmanned drone” earlier that week.

Anti-interventionists (including me) cheered the move. US hawks moaned that Trump had suddenly and inexplicably gone soft by avoiding the war they want so badly. Pretty much everyone thinks the “proportionality” claim isn’t the true explanation, given Trump’s over the top predisposition on most things.

But hey, I’ll take it, and I’ll thank Trump for it. Every time he avoids escalation toward outright war with the Iranians or anyone else, he’s doing the right thing and should get credit for it.

As to the bigger picture, the question now is whether Trump will undo his earlier errors on US policy toward Iran instead of compounding them.

He doesn’t seem inclined to. On June 24, he signed an executive order imposing new sanctions on Iran’s Supreme Leader, Ayatollah Ali Khameini, and Foreign Minister Javad Zarif, also in retaliation for the downing of a US drone — possibly over Iranian airspace, certainly  more than 5,000 miles from airspace it had any business in.

Unfortunately, Trump considers his warlike attitude toward Iran a campaign promise and seems to have every intention of keeping that promise. He was elected president on, among other things, his stated intention of undoing former President Barack Obama’s most significant foreign policy accomplishment, the Joint Comprehensive Plan of Action, (the “Iran nuclear deal”).

That JCPOA began winding down four decades of mutual belligerence  that began when Iranians had the gall and temerity to overthrow a dictator installed by the US , replacing him with a government more to their own liking. In exchange for partial lifting of sanctions and return of some money stolen by the US government after their revolution, the Iranians gave up a nuclear weapons program they don’t appear to have actually had, going above and beyond their already existing (and apparently kept) obligations under the Non-Proliferation Treaty.

Trump violated the deal, pretending that he was “withdrawing” the US from it (the deal is codified as a UN Security resolution; the only way to withdraw from it is to withdraw from the UN itself). He’s reimposed US sanctions and pressured US allies to do likewise.

In violating the agreement and returning to a belligerent footing, he confirmed something the Iranians, like the Sioux, have long had good reason to believe:  That the US government can’t be trusted to keep its word.

That’s a lot of toothpaste to get back in the tube, and it’s not clear that Trump intends to even try.  Canceling the strike may have just been a message to Iran and to recalcitrant US allies: “We could have gone to war but CHOSE not to.”

We should be glad he chose not to, and hope he keeps choosing not to.

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Facebook’s Libra Isn’t a “Cryptocurrency”

In mid-June, Facebook — in cahoots with 28 partners in the financial and tech sectors — announced plans to introduce Libra, a blockchain-based virtual currency.

The world’s governments and central banks reacted quickly with calls for investigation and regulation.  Their concerns are quite understandable, but unfortunately already addressed in Libra’s planned structure.

The problem for governments and central banks:

A new currency with no built-in respect for political borders, and with a preexisting global user base of 2.4 billion Facebook users in nearly every country on Earth, could seriously disrupt the control those institutions exercise over our finances and our lives.

The accommodation Facebook is already making to those concerns:

Libra is envisaged as a “stablecoin,” backed by the currencies and debt instruments of those governments and central banks themselves and administered through a “permissioned” blockchain ledger by equally centralized institutions (Facebook itself, Visa, Mastercard, et al.).

To put it a different way, Libra will not be a true cryptocurrency like Bitcoin or Ether. Neither its creation nor its transactions will be decentralized and distributed, let alone easily made anonymous. A “blockchain” is just a particular kind of ledger for keeping track of transactions. It does not, in and of itself, a cryptocurrency make.

In simple terms, Libra is just a new brand for old products: Digital gift cards and pre-paid debit cards.

The only real difference between Libra and  existing Visa or Mastercard products is that Libra’s value will fluctuate with the “basket” of currencies and bonds it’s backed by, instead of being denominated in one particular (also fluctuating — you experience the fluctuations as changes in the prices of goods) currency like the dollar or the euro.

When it comes to the goal envisaged by cryptocurrency’s creator, the pseudonymous Satoshi Nakamoto — to free money from control and manipulation by  governments and central banks — Libra is a dead end. Instead of being manipulated by one government or central bank, Libra will be manipulated by all of them.

Cryptocurrency is, to get biblical, new wine in old wine skins — it bursts those skins, by design. Libra isn’t new wine. It isn’t even a new wine skin. It’s a blend of the same old wines, in the same old skins, with a fancy new label. And there’s nothing to suggest that the old wine is getting better with age.

Fortunately, these structural defects also mean that Libra isn’t a threat to real cryptocurrency. Accept no substitutes.

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