Friday, December 6, 2013

Rule-based Ethics are Uneconomic, and Therefore Impossible

Or: Why Objectivists are Wrong, and should try empathy instead.

After an exchange with Prof. Dan D'Amico on Twitter earlier today about the duty to care for others I realized my own ethical viewpoints are a bit eccentric, especially when expressed in a 140 character format. This post is to explain why I think the morally absolute arguments espoused by libertarians, objectivists, and small-government conservatives are lacking, the implication of that lack in spreading the libertarian cause, and finally some ideas of how a reformulation of libertarian ethics through empathy might lead to interesting places.

What are rule-based ethics? With this phrase I'm referring to deontological or Kantian claims, which say we should base our behavior off of universal rules. According to this logic, I should only act on a principle if I would want it to be universally enforced. Lying in general is bad, so I personally should never lie or else I break the rule against lying. I would not want to be stolen from, so I should never endorse theft being imposed on others.

Rule-based ethics have the advantage of clarity and they avoid contradictions, which is philosophically appealing. The downside is that nobody lives up to the standard of consistency and clarity that philosophers crave because the cost of doing so is too high. I'll explain why I think this is true below.

Rule-based ethics are uneconomic

In economic parlance, a universal obligation against stealing means that the demand to prevent stealing should be infinite: regardless of the price of doing so, the prohibition against stealing should never change. Otherwise it ceases to be a universal rule.

Ethical compliance can be seen as an economic good, and if so, why should it be beyond pricing? The only justification for an infinite price is that if some violations of the rule are allowed, then the rule as a whole will break down. A common libertarian argument is that if we allow government theft to support some good cause, then we lose the authority to stop government theft in general.

The difficulty with this argument is that it implies a public goods problem; if I personally refrain from supporting theft, it does not stop others from doing so. Put in another context, imagine Hardin's classic problem of the commons: I can graze my sheep in the pasture (support government redistribution for a "good cause") but if my neighbors all graze their sheep as well, the pasture is depleted (the state organizes massive theft for causes most people don't agree with). Even if everyone agrees that it would be best to let the pasture recover (theft should be universally reviled), breaking that rule brings me private benefit (ethical satisfaction) that I do not bear the full cost of.

These commons problems can be resolved in some settings, between individuals who know each other, can bargain, and have the benefit of a legal system to enforce those bargains. None of those conditions are met when trying to oppose ethical demands for government to redistribute.

Libertarians are optimistic that people can bargain intelligently to solve collective action problems, but when the good being bargained over is an absolute principle which by definition cannot be compromised, then how is it even possible for a bargain to be struck? Philosophers tackle these conflicting ethic problems (duty to protect vs. duty to non-aggression, etc.) and maybe come up with some answers, but the process of doing so is difficult. In other words, the transaction costs are very high. This is another reason to doubt that the collective action problem of enforcing a universal ethic will ever be solved.

Rule-based ethics are functionally impossible. Even if everyone agrees in the general principle, they will prefer to be able to violate it occasionally. If everyone can violate it occasionally, it is useless as a general principle.

So how do people make ethical decisions? 

My own view: people act ethically toward others because they feel empathy towards them. If I feel I can relate to or understand another person's suffering I want to help alleviate it, because it could be me suffering in their place. Moral principles are then chosen after-the-fact to justify the decision we have already arrived at through empathy.

Mental adherence to Kantian ethics makes us lie to ourselves so we can think our decision to help (or ignore) someone in need is purely rational, when in fact it is based almost exclusively on feeling. Justification is made easy by the plasticity of moral principles; given many conflicting rules to follow and with the idiosyncrasies of each still generating publications in top philosophy journals, it is easy for me to pick and choose which moral rule will apply best to get to the conclusion that I want.

Empathy easily explains the conflict between libertarians/conservatives and progressives over the welfare state. Conservatives empathize more with hard-working taxpayers than they do with the poor who made bad decisions to get where they are. Progressives empathize more with the downtrodden workers than they do with exploitative businesses who rob them of their labor surplus. Even if both sides agree that avoiding theft and helping the needy are moral obligations, differences in empathy lead to opposite conclusions. Saying "but my moral principle is stronger!" is justification after-the-fact by both sides and has no chance of being persuasive.

Empathy for others brings their well-being into my own economic calculus, so that my happiness is somewhat dependent upon theirs. This, in my view, is the best foundation for ethical action because it does not require subverting my own self-interest or reconciling complex philosophical problems. Instead, I offer help when I feel the need to do so and the cost to me is such that I find it worthwhile.

Many progressives would agree with the above paragraph, and then say that empathy necessitates even more government redistribution to help the poor. This is a misreading of empathy, however. If a progressive feels that some group is receiving an insufficient share to satisfy their feelings of empathy, they are welcome to personally give more. Saying "I don't have enough resources to do that, so society should pick up the slack" displays a lack of respect for others in deciding how their own resources are spent. It also circles back to the same imposition of universal rule-based morality which I criticize above. How can you treat others with empathy if you assume their moral judgments and autonomy are less valid than your own?

People can have different degrees of empathy for different groups, not everyone will feel the same way, and that is not a problem if charity is voluntary. Echoing Bryan Caplan's argument about the deserving poor, I feel a great deal more empathy toward people in less-developed countries who are never given the chance to become affluent than I do for Americans who had the great opportunity of being born here and then squandered it. By guaranteeing income to everyone living in America it may undercut the support for letting in foreigners who could benefit from being here even more (hat tip to Zac Gochenour, who is studying the political economy of immigration related to this idea).

Where does this leave libertarian activism? 

Saying "taxation is theft, abolish the welfare state" is pretty much a dead end strategy in my view. In spite of what I say above, neither I nor most people would feel good about the results if all social assistance were suddenly cut (whether it could be improved or reformed in many ways is an open possibility, however). The poor will always draw more empathy than the people who are taxed, and that is unlikely to change anytime soon.

There are plenty of other areas where the costs of government policy are easy to see: the 174,000 pages of federal regulation that cost the economy $1.8 trillion last year;  lives wasted through imprisonment in a failed war on drugs; poor health and environmental damage from sugar and corn production subsidized through our agricultural policy, and so on.

The sooner that libertarians can get away from abstract and abstruse moral claims and toward the lived reality of individuals, the better. Jettisoning the rhetoric of rule-based morality is a first step in that direction. If that means leaving some strident objectivists outside the tent, well, I'll admit that's one area my empathy is lacking.

Thursday, December 5, 2013

Structural holes and Twitter strategy

I'm reading David Knoke's Economic Networks (2012) for dissertation research. In it, he mentions Ronald Burk's take on social capital, which centers around the existence of structural holes.

A structural hole is a gap in communication between one party, who has information, and another who would like to receive it. This creates a power position for a broker who can create a link between those two. It's like being the middle-man in a market for information, who gains in status by exploiting the needs of the other two.

A company PR department issuing a press release, for example, has information which might be valuable to investors, customers, and competing companies. However, each of those groups would have to invest significant resources to read every PR release that might potentially interest them. This is where a (reputable) media source comes in, separating the wheat from the chaff and economizing the cost of providing information to interested parties. In return, that media agency gets to pay their staff's salary.

Social media changes the picture somewhat because there are millions of people out there all trying to be that media outlet, and they generate their own chaff in addition to helping separate out the wheat. Knoke observes "A large volume of information obtained from redundant sources is less valuable than high-quality new information acquired through connections to diverse sources." The perfect source is one which will do all the separating for you, leaving only the wheat. But, that source should be widely connected themselves so the quantity of information generated makes them worth listening to.

I'm starting to notice this at work on my Twitter feed, where I've been liberal in following pretty much any and everyone who might occasionally have something interesting to say. Unfortunately, the result has been a lot of noise to very little signal, and the news I care about is often reported redundantly or buried under items that are unimportant.

The optimal Twitter strategy for a news-consumer would be to pick out other people who follows lots of others and retweet often, but are extremely selective in who to retweet. The "retweeter" account can them take advantage of the structural hole between the flood of Twitter posts and the news consumer interested in a very few of them.

I'm sure there are some Twitter accounts out there which provide this retweet-screening service, but more commonly I see retweets being used as a sort of currency which is valuable to the person being retweeted but not necessarily to their followers. The use of retweets as a primary input for "influence" in applications like Klout makes this an attractive way to game the system. Also, retweets by mass-followed Twitter celebrities can be purchased as a way of building up a following, which is then later exploited for commercial purposes.

This has gone a bit longer than I'd intended, but I think the big takeaway is that there could be some unexploited opportunities for brokers to use the retweet system and serve as screening agents for their followers. Next stage: profit?

Monday, December 2, 2013

Micro-Modeling a Bitcoin Bubble with Selection Effects

Tim Worstall from Forbes has declared Bitcoin to be in "South Sea Bubble Territory" as other crypto-currencies are swept up in Bitcoin's dramatic rise past the $1000 mark. Lots of possible explanations for why this might be the case, but I'll start with two stylized facts about Bitcoin and see how far they can go in explaining why it is a bubble, and perhaps make a few predictions about how it will all shake out.

"Fact #1": by design, Bitcoin is deflationary, that is, the value of each unit will increase over time. This is contrary to most "fiat" currencies, which can have their supply expanded by a decision from a central bank. Unlike the number of dollars (or pesos or Yen), the amount of Bitcoins available is capped.

"Fact #2": most of the things that people use Bitcoins for exclusively are illegal or unsavory. While Bitcoins are not really anonymous, the difficulty of tracking any particular transaction makes them a useful medium for shady business on the internet.

Starting with #1, the deflationary nature of Bitcoin is a serious obstacle to it becoming a mainstream currency. If a Bitcoin tomorrow will be worth more than a Bitcoin today, your incentive is to save it rather than spending it. Investing in Bitcoins is largely based on the hope of a "greater fool" who will eventually purchase them from you. The exception to this is #2, the people who get Bitcoin for quick, often shady transactions.

So, you're a ForEx trader looking at bringing Bitcoin into the portfolio. The high volatility does create opportunities for arbitrage, and the prospect of future deflation in value should make it an easy profit. However, knowing that Bitcoin is commonly associated with risky transactions, the chance of a regulatory crackdown and collapse in value is high.

To put it bluntly, if Bitcoin investors are hoarding Bitcoins in anticipation that others will come along to buy those Bitcoins and in turn use them for recreational chemicals (the "greater fools"), and suddenly lots of people are being tracked down for those illegal purchases, the bottom falls out of the Bitcoin market and the currency collapses.

Anticipating this risk, mainstream currency investors stay out of Bitcoin. The ones who are left holding the bag are more risk-loving by definition. It sounds like a classic case of irrational exuberance in action. Risk-averse investors are scared away from Bitcoin by the threat of a regulatory action, justified or not, and the resulting selection effects make a bubble more likely.

This does not imply that all Bitcoin enthusiasts, or even most of them, are illegal or should be stigmatized. But you can see in some of the fervent defenses of the alternate currency that most do not have "mainstream" economic views, either, and might be subject to some bias which would prop up a bubble.

There is reason for optimism in Bitcoin as a new technological medium, but until more hurdles have been passed and it has entered into more mainstream usage, it's far too risky to think of as more than an ongoing (but promising) experiment. At the current prices, I'd say it's likely that a few of the current adopters will be losing their shirts before the experiment is over.