Friday, August 28, 2009

Confessions of an Existential Socialist

A libertarian premise that seems to go too often unchallenged is that we “own” stuff in more than a legal sense. Ownership is strictly a legal invention. Society gets together and says that it will authorize and direct certain of its number to enforce members’ control of certain resources. I get to say who lives in “my” house only because I can call the cops on anyone who contests my right to do so. Absent that ability, I can claim to “have” my house for as long as I can defend it, but not to “own” it.

It follows, I think, from this notion, that society can say to what extent “ownership” confers privileges. Nuisance laws exemplify this point. If there are certain things you just cannot do on “your” property, then there must be strings on its “your-ness.” Society may allow you to do more things with “your” stuff than with other stuff, but that’s society’s decision, not yours. Everything belongs to everyone because everyone can decide at any moment that nothing belongs to anyone.

Viewed in this light, the arguments between capitalists and socialists become less philosophical than the participants make them out to be. The question that matters is not whether “ownership” confers privileges by natural magic but, rather, what privileges ownership will confer by common consent. Within this argument, there is a lot of room for the laissez-faire view that ownership should confer a very wide degree of control. But those arguments should not take as their premise the circular claim that “it’s my money.” If we’re trying to figure out what consequences should flow from it’s being “your” money, how can we say that some particular consequence arises necessarily from its being “your” money?

The idea that private property is a social construct is like the idea that morality is socially developed. Both leave the absolutist with no place to stand. Nothing “has to be” a particular way. All rules are arrived at by active or passive consent to their promulgation or unplanned emergence. And this broad idea feeds back into the choice of evolutionary questions generally, specifically, “Why did x arise?” vs. “Why does x persist?” “Why does a bee sting?” is not as useful a question as “Why do stinging bees out-reproduce non-stinging bees?”

Economic systems, morality, and evolved traits all depend on their consequences. Whatever has what it takes to persist, persists; everything else goes away. Not because some authority says so, but because nature is inherently competitive, the more survivable supplanting the less so in every realm. It is this essential competitiveness that drives my reductionist view of things: if everything is competitive, analysis of all things should begin with the question of how competition brought it about and kept it in place.

Tuesday, August 4, 2009

Everybody Hates Game Theory

I wrote in April about the Prisoners Dilemma as the template for situations in which Government regulation is appropriate. I have been putting that idea forward for some time in various fora, and it has almost always been greeted with hostility. Not disagreement – although, of course, that, too – but outright hostility. Something there is that does not love game theory.

I’m engaged in another round here. Note how testy some people get. I get accusations of intentional obtuseness, claims that I’m arguing red herrings, and, in general, a flurry of desperate evasions from some very intelligent people who would would see through the same level of logic if it were aimed at them. People just don’t like the thing. And that’s interesting.

I think the problem is that game theory has no agenda. You cannot trust it to support you, and it takes the fun out of being right when it does support you. Where game analysis of a situation suggests that coordination of action would benefit all involved, the result is a prescription for government intervention. But the prescription comes without the feel-good element of sacrifice. To raise the minimum wage because “no one should have to live like that” makes liberals feel all warm and fuzzy, but the emotional pay-off is diminished if, as game theory teaches, the businesses paying the inadequate wages had no rational alternative, and so weren’t villains after all. Even worse, the change will actually increase everybody’s wealth, including the idea’s supporters. Where’s the fun in that? Consequently, liberals tend not to like what game theory has to say.

Conservatives, especially libertarians, don’t like game theory because, where it supports intervention, it impinges on their autonomy. I like autonomy. I like to decide for myself what risks to take, where to shop, how much to pay, etc. So I’m suspicious of nostrums that restrict my action, and when you tell me that it’s in my interest because John Whackjob Nash says it is, well, that’s not likely to change my mind. The whole thing reeks of ivory tower mad science. So what amounts essentially to an immune response to the unknown includes not just resistance, but ad hominem attack. Conservatives do not so much refute game theory arguments as reject them as inconvenient. I think the response is perfectly natural, but it is unhelpful. And fascinating.

I’m not sure why I’m so comfortable with game theory as a tool of policy analysis. Maybe I like the idea that it ignores my prejudices rather than feeds them. Also, I’m not wedded to the outcome of the exercise as determinative of my policy position. Almost all “good” things are only contingently good. Thrift is good unless it destroys consumption. Efficiency if good unless it puts people out of work or shortcuts full exploration of options. That’s a big one: the fastest way to find a qualified person to do something is to limit the pool arbitrarily to the smallest number likely to contain a qualified applicant. You don’t get the "best" person, but you get an adequate person, where, as is often the case, the marginal cost of getting the best person is far greater than the maginal value of the improvement. Nevertheless, that sort of efficiency is unfair, and that matters, no matter what game theory says. Not being overly committed to what game theory suggests, I’m not worried that it will unthinkingly take me where I don’t want to go.

On the other hand, as a philosopher friend once remarked, self-descriptions are not privileged, i.e. I may have no clue as to why I find game theory so hospitable and others don’t. But I do know that I do, and that they don’t, and that it shows.

Sunday, August 2, 2009

Limiting Pay

There are a lot of reasons why people want to limit the pay of CEO’s, investment bankers, and money managers. Most of those reasons are bad. Yes, there is an unseemly disparity in income levels between the top and the bottom, and yes, no one needs to make $1,000,000,000 or more per year managing other people’s money. But limiting income disparity artificially and paying people “according to their needs” are bad ideas; they either remove incentives for achievement that create the wealth of the nation, or they delegate to fallible and corruptible bureaucrats decisions that the market can make in a dynamic and self-correcting manner.

But there is a second-order consequence of limiting pay. The current pay regime allegedly creates incentives to risky behavior – behavior of a sort that could bring down the financial system and the economy. If the claim is true – it is just a claim – then one needs to consider effectively limiting those incentives, and if limiting those incentives involves limiting pay, then that’s just how that cookie crumbles. One need not have a socialist bone in one’s body to want to protect our economy from collapse.

So, two questions arise. First, is economy-threatening risk-taking a product of the opportunity to make a ton of money risking other people’s money? And, second, if so, what should we do about it.

I can’t answer the first question. I can only say that I would entertain the possibility, and until I know the answer, I wouldn’t oppose efforts to limit compensation on principle.

As for the second question, how to limit pay, I think the income tax is the only viable approach. The progressive tax structure should add brackets at $1,000,000, $5,000,000, $25,000,000, and $125,000,000 of ordinary (not capital gain) income. And partnership income (e.g., hedge fund contingent management fees) should be treated as ordinary income to the extent the partner does not have a proportional amount at risk.

But that’s only if the case can be made that risk-taking was a but-for cause of the late unpleasantness. And I’m not sure that case can be made.

Saturday, August 1, 2009

Bob Herbert is a racist.

His Op-ed today contains the following:

Mr. Gates is a friend, and I was selected some months ago to receive an award from an institute that he runs at Harvard. I made no attempt to speak to him while researching this column.

Nosirree, Bobby, don’t you get yourself all confused by the facts. Just join the list of liberals who are most proud of not having had to be there to know what went down there. Only an idiot would actually have had to see what happened at Gates’s house to know that the man was a victim of racist cops run amok. He was doing nothing wrong (disorderly conduct being a civil right, not a misdemeanor), and he was black. Res ipse loquitur.

There is a metamessage in every complaint about race. Every such complaint reveals that people are still complaining about race under the circumstances being complained about. My guess is that most white Americans see what happened at Gates’s house as unexceptional and unexceptionable. All Gates had to do to avoid this mess was behave the way any white man would have behaved in the same situation. Maybe, a white man would have been cut more slack for behaving badly, but then, charges or implications of anti-black racism are, one hopes, uniquely obnoxious, so maybe the reaction it allegedly provoked is the best evidence of its untruth. (Do you think a black man could have pissed off a white cop fifty years ago by accusing him of racism?) But even if Gates were allowed a bit less slack than a white counterpart might have been, that’s the sort of thing one should want to know more about before assuming to be the case. Is Bob Herbert really spilling all that inky bile to say “Crowley should have cut my hotheaded friend some more slack”?

Herbert calls Gates’s offense “being angry while black.” Compare that to “being unjustifiably angry and verbally, race-baitingly abusive while black to a man who is risking his life to protect your home from reported burglars while white.” Do I know that’s what happened? Nope. I wasn’t there!!! Does Herbert know it didn’t? Yes, because he. like Gates, is black for a living and so didn’t have to be there.

DWB stops are unacceptable because the victims are not doing anything that a white person wouldn’t ordinarily do under similar circumstances. Driving is not some misdeed a white man might get away with, and stopping a black man for doing it (and not also exhibiting other antisocial indicia – pimped-out ride, darkened glass, etc.) is racially motivated police action. But in the Gates situation, race may have at most been an unconscious element in a loss of patience. Or maybe not; maybe the accusation of racism, terrible thing that the accuser routinely tells us that it is, more than the race of the accuser, was the accelerant to this particular conflagration.

Such distinctions – the difference between having a short fuse for black citizens and being called a racist by a black man whose house you have come to protect – are lost on racists like Herbert, for whom not inquiring further is a badge of honor. After all, how could an event be symptomatic if it is idiosyncratic? The details can only detract from the outrage. Sometimes, the devil wants no part of the details.