Saturday, January 28, 2012

Collective Action Solutions for Libertarian Politics

The biggest problem for an individualistic, freedom-oriented political movement is getting each of those individuals to join any sort of movement in the first place.

Many economists wonder why anyone votes at all  -- the chance of any one ballot changing the outcome is statistically zero and the cost of voting is small but positive (e.g. risk of dying in a car accident on the way to the polls), so rationally it would be better to stay home on election day. Most people vote out of a feeling of moral obligation or civic duty.

The low impact of voting helps to explain why barely more than half of the American electorate usually shows up to vote. That problem is magnified for a political party whose "base" has a strong individualist leaning; they are less likely to feel the civic obligation which pushes others to the polls.

Enter the Free State Project. Goal: collect signatures from libertarians, who will move to New Hampshire when total signatures reach 20,000. Why New Hampshire? It has low tax rates, little dependence on federal spending, and a small enough electorate that 20,000 people might be able to sway its political orientation.

In economic jargon, the Free State Project uses a pre-commitment device to solve a collective action problem. No one is asked to move to New Hampshire until sufficient signatures are obtained (as of this writing there are 11,578 participants; 8,422 to go). Any one person moving to New Hampshire in order to change its politics would bear a large cost, with uncertain chance of success. Assuming people stick to their word, the Free State Project allows each person more confidence that their action will make a difference.

Agree or disagree with the libertarian political platform, it's hard to argue about because there are few real examples of libertarian societies to reference. I hope the libertarians do succeed in taking over New Hampshire, because it will be an interesting test case for a liberty-motivated legislative majority. Even if the result is a total disaster the impact will be negligible, and the advance in knowledge for political science / public choice well worth it.

Monday, January 23, 2012

One small victory for Privacy vs. GPS Trackers

The Supreme Court ruled today that a warrant is required for police to attach a GPS tracking device to a suspect's car. Previously, officers could use GPS to track a car's movements for suspicious activity, and then substantiate criminal charges using those findings.

Prosecutors justified this practice by saying it was no different from tailing or following a suspect. The Supreme Court disagreed, holding that
The Government’s attachment of the GPS device to the vehicle, and its use of that device to monitor the vehicle’s movements, constitutes a search under the Fourth Amendment.
It's a welcome victory for privacy rights advocates. After the controversial passage of the NDAA on Dec. 31, civil libertarians must have been hoping for some good news.

How much tangible impact will this decision have on criminal investigations? Probably a very small one. Police departments will have to pay more overtime for old-fashioned surveillance on suspects, instead of using a fancy GPS unit.

Alternately, wireless technology and smart-phones have provided even better ways for law enforcement to establish location. As the BBC article on this case concludes,
...the ruling is unlikely to have an impact on the use by law enforcement agencies of another surveillance method, mobile phone tracking software.
 Police, and executive agencies with support of the Obama Administration, have had no trouble requesting location data from iPhone or iPad services to aid in criminal prosecution. I'm no legal expert, but this Supreme Court decision might establish precedent for that practice to be challenged in court as well.

Thursday, January 19, 2012

The American Entertainment Industry's Death Rattle

It's obvious that the circumstances which allowed so much wealth to be accumulated in Hollywood by major record labels have changed, but the people at the top don't want to change with them. The industry's demise (at least in its current form) is evidenced by the great efforts being made to legislate demand for their products - through the SOPA/PIPA legislation in Congress, which led to a blackout of many popular sites yesterday, and today's effort to shut down Megaupload.com as a copyright infringer.

Piracy is not really the problem here, but a symptom of a larger issue: the entertainment industry wants to charge more for their products than people are willing to pay. Maybe people used to be willing to pay $15-20 for a CD, but no more. With digital distribution, artists can sell their music to fans directly, without the entertainment edifice standing in between. This is a better deal for both musicians and fans, but makes most of the music industry obsolete. The same is not exactly true in Hollywood - someone has to finance big-budget action flicks - but digital services such as Netflix Watch Instantly are changing the game there too. Why would I go pay $12 to see a movie in a theater, when I can pay $8 per month for more streaming content than I can watch in a lifetime?

Even if online piracy were eliminated completely, it wouldn't address the bigger issue facing the entertainment industry: substitution. Consumers have an increasing variety of entertainment options to choose from, many of which are free or extremely cheap. Now that online distribution is easy, there's really no need for the big industry surrounding content distribution. They can kick and scream all they want, but the entertainment industry as we know it is functionally doomed. It just doesn't realize that yet (or is trying desperately to deny the obvious).

Friday, January 13, 2012

Paper books are a depreciating asset

...at least for a grad student.

Why? Any time I move, I have to pay to transport them. Shipping fees aren't cheap, plus packing and carrying books is a lot of work. Given that I will definitely be leaving Fairfax after graduating (cost of living is too high to stay permanently) and will likely end up moving several times after that before settling down, that's a lot of money and effort that might go into lugging paper around with me.

At first, I was hesitant about e-books. The feel of a good book in the hands is hard to replace. But, a Kindle (or other e-reader) with a cheap cover is a decent imitation, and a lot more convenient. The only real downside is inability to re-sell the book when I'm done reading.

Basically, it's time to go digital.

My new policy is to only buy paper books when (a) there's a chance I might be able to sell it later for a decent amount of cash, as is the case with a textbook or (b) the paper copy is much, much cheaper than the electronic version.

It'll be a few years before I'm moving again, but there's no time like the present to start downsizing (just don't take me out of context on that line). Right now I have around a hundred books and several years worth of National Geographic magazine. It's a paltry collection compared to some of my professors, but still more than the average person needs.

The punchline: if you want any of my books, I'll sell them cheap. Check out My Bookcase and make an offer. Even if it's low, I won't be insulted - cover the cost of shipping plus a little bit more and I'm satisfied. If you're already settled in and won't be moving soon, or don't find hauling paper to be as much of a hassle as me, then an exchange can make us both happy!

Thursday, January 12, 2012

Liberal Arts Degrees as Social Signaling

The model of education as signaling for the labor marketing has been thoroughly developed by Bryan Caplan; for some examples, see here, here, and here. I think the argument is pretty convincing, but it leaves a few details unexplained. Namely, some majors - especially liberal arts - are not even very good as signals!

The highest unemployment rates for college graduates are found among architecture, art, and humanities majors. Especially given the relatively low salaries for jobs in these "industries" why go into serious debt to get a degree, when the signal is likely to be weak or even totally ineffective? While the number of liberal arts colleges has been declining over the last 20 years and business is the most popular major for under-graduates (chosen by 20% of students) the liberal arts curriculum is far from disappearing.

It could be that these students are maximizing with regard to something other than wealth, such as social status. This may accrue to either the college student or that student's parents, who get to brag about how their son/daughter will be a progressive hero and "save the world one day." Parents have incomplete control over what major their child picks, but at least some power to encourage or discourage certain fields of study.

Thinking of education as a status symbol helps to explain variation in choice of majors across countries. In the United States, the poor and middle-class can get luxury items like fancy cars, jewelry, nice TVs, smartphones etc. by using credit (Robert Kiyosaki's "Rich Dad Poor Dad" observes that this is a big reason why they do not ascend to the capitalist upper-class). Seeing someone with nice jewelry or the latest tech is no longer a good indicator of high status in America; in fact, it is often a signal of the opposite! A liberal arts degree then becomes a new status symbol, a way of displaying "yes I can spend four years doing nothing productive, and rack up debts while doing it, because money isn't important to me."

In China, by comparison, most of the affluent or middle-class people have attained that status within the last one or two generations. The rich in China display their wealth through luxury items, but parents still often discourage or frown upon liberal arts degrees (or so I'm told by someone with personal experience). Based on the social signaling theory sketched out above, one would expect that as the middle-class in China grows and expensive items are no longer limited to the nouveau riche, more will go get liberal arts degrees, instead of the focus on STEM (science, technology, engineering, and math) which is the stereotypical image of Chinese students currently.

If this model is accurate, it just further reinforces Dr. Caplan's point that we should not be subsidizing higher education as much as we are now.

Wednesday, January 11, 2012

Female Infanticide Isn't a Women's Issue. It's a Human Issue.

A news article today, Female Heads of State Discuss How 'Climate Change'--But Not Sex-Selective Abortions--Hurt Women, highlights how female leaders are declining to discuss the issue of female infanticide in a current summit. When asked for a comment on the issue by CNS News, they were told
“I think the council is unlikely to take that kind of a stand,” Mary Robinson, former president of Ireland and president of the Mary Robinson Foundation – Climate Justice, responded.” It’s not that kind of a body.”

‘Women who have joined the council because they qualify as a former president, prime minister, or the ministerial level that Margot (Wallstrom, special representative to the United Nations Secretary General on sexual violence) chairs to empower, to support, to make visible and to listen to the voices of women.”

“And so that issue [abortion of female babies] would be more appropriate to some other kind of activist group,” Robinson said.

Robinson also said “the nearest I can come to it” is her work to combat child marriage, including the fact that “religion and tradition are often distorted to subjugate women.”

According to an Oct. 4, 2011 report by CQ Global Researcher, an estimated 160 million female babies have been killed by abortion or were killed or left to die after they were born in India, China and other Asian countries in the past 30 years.
Some feminists are probably outraged by this omission, but I am actually sympathetic to Mrs. Robinson's view here. While sex-selective abortion is targeted at young girls in China and India, it may be the men of those societies who are losing the most, not the women.

Putting aside the ethical issues surrounding abortion (I don't plan to open that can of worms) an undeniable effect is that the fetus never experiences life outside the womb. The "victims" of female infanticide never see the male-dominated world which they would be born into, so they really can't be said to suffer as a result of it. The group who really loses out are young men, many of whom by sheer arithmetic certainty will never be able to marry or start a family of their own.

In fact, sex-selective abortion may even increase the bargaining power available to women living now or born in the future. When single women become a scarce commodity, their bargaining position relative to men improves. Women can demand better conditions and treatment under marriage, because if the wife leaves her (ex-)husband will have less chance at remarriage. Paradoxically, the female infanticide which occurs under a male-dominated system may actually become that system's undoing!

Some would say that sex-selective abortion causes an increase in prostitution, which may be true. However, one would still expect prostitutes to benefit from increased bargaining power as well, when demand for their services increases. While this is probably less desirable than a world in which no women turn to the sex trade, it is also probably better than sex workers living in desperate poverty.

If CNS News had worked through the economic implications of female infanticide more thoroughly, they might have been less outraged by its omission in favor of discussing climate change. Sex-selective abortion has many negative social effects, but from a purely selfish standpoint it should really be the men who are most concerned about it - not women.

Tuesday, January 3, 2012

Do higher tax rates spur more charity? I doubt it.

A few days ago I was talking with my mother about the state of the economy, income inequality, and social obligations... Typical evening conversation on any New Years, I'm sure. From life experience and observations on a (privileged) extended family, her opinion was that more charity occurred when tax rates were higher. I disagreed, and offered to present a mathematical demonstration on why that was the case. After that effort, I wanted to show the Internets the fruits of my labor.

Charitable giving is a very personal decision and the tax law surrounding it is complicated and arcane, so I start with some simplifying assumptions to make the problem more approachable. These are:
  • Money given to charity is 100% tax-deductible.
  • Each person lives for two periods, then dies, and their entire stock of wealth is donated after death.
  • An individual's money earns 10% interest.
  • To make the problem concrete, I'll imagine a person earning $100,000 in each period, and two different tax regimes: one with a 0% tax rate, and another with 50%. 
Now a quick exercise in arithmetic, starting with a tax rate of 50%. The individual earns $100,000 in the first period, $50,000 of which would go to the government. Instead that $50,000 is given to charity to avoid taxes. At the start of period two, they earn $5,000 in interest and another $50,000 in after-tax income, then die and donate all of it. Total charity given is $205,000.

Now imagine a tax rate of 0% (and if you're a libertarian, try not to faint with excitement). An individual earns $100,000 and keeps all of it, earns $10,000 in interest before the second period, makes another $100,000 then dies and gives all of it away. Total charity given is $210,000.

One could argue that this result emerges just from the assumptions made, which is partially true. However, as long as individuals can earn a higher return on investment than the government (which is not a controversial claim) and all money is transferred upon death (a de facto necessity) then the result, qualitatively, will still be the same. If you make the example more realistic, and envision a person making money then saving and investing it for more than just two years, the difference between the two tax rates becomes even more apparent.


Of course, someone might say there are distributional issues this exercise neglects. Maybe needy recipients of charity are more sympathetic than the undeserving heirs of some wealthy person. Aside from that, the general point still stands: when government takes money through taxes, the overall social "pie" becomes smaller. When individuals can invest it, they put money into productive activities which can generate more wealth, making the "pie" bigger. Even if higher tax rates drive some people to give more money to charity than they otherwise would, society in the aggregate is better off if that money can be productively invested by individuals instead. Charity is then a pleasant side-benefit of greater social wealth.

Monday, January 2, 2012

I Have No New Years Resolutions.

The New Year is a nice time, symbolically, to make a big change in life but practically it almost never works out that way. From a Boston Globe article, I learned that 80% of New Years resolutions are broken. Frankly, I'm surprised that as many as 20% are accomplished! People don't change much on the eve of December 31 to the morning of January 1 (perhaps except for the addition of a hangover) so I suspect much of the 20% accomplished are trivial ("remember to call my mom on her birthday this year") and require single actions, not sustained effort.

Resolutions are puzzling from both an economic and psychological perspective. To an economist, there's no reason why one day should be intrinsically more favorable than another to make a positive life change. If drinking less or exercising more would be a good idea, why wait until January 1st to start doing it? On the other hand, a psychologist might wonder why people set themselves up for failure so often. If 80% of resolutions ultimately amount to lying to yourself, why persist in encouraging such a mentally unhealthy activity?

The real question: if most resolutions would be good things to accomplish, why are people so bad at keeping them? It's easy to just dismiss New Years resolutions as "cheap talk" which people utter in order to sound socially acceptable and make themselves feel better, with no intent of actually following through. But, I think there's a little bit more to it than that.

In their book, Willpower: Rediscovering the Greatest Human Strength, Roy Baumeister and John Tierney offer a pretty good explanation for why New Years resolutions have such a short shelf-life. When someone creates a list of challenging self-improvement tasks, they are probably very optimistic about their future state of mind. But, realistically, we only have so much willpower to divide between different goals that require self-control. Willpower, in this regard, is somewhat like a muscle: when it is used lots in a short span of time it becomes fatigued, so later acts of self-control are more difficult. Creating a list of resolutions is like weight-lifting beyond the mind's capacity; it can't dedicate enough mental power to accomplish all the goals at once, so in the end none of them are met. As a result, creating a big list of dramatic changes is one of the least effective ways to actually modify your own behavior.

A better strategy is to choose one area that seems most important and focus on moderate improvements. Also like a muscle, willpower can become stronger when exercised. Picking reasonable goals gives a sense of accomplishment when they are completed, making it easier to stick with other changes in the future. In other words, build up capacity slowly to avoid a painful sprain of the willpower muscle (although if I stretch this analogy much further, I might suffer a tear in my credibility). Introducing the concept of willpower to economic thinking means we don't have to dismiss failed self-improvement projects as mere cheap talk, and can instead look more realistically at the human mind and its practical limitations.