You are currently browsing the monthly archive for December 2007.


Mark Thoma lists three different reasons for market intervention,

[1] Some types of government intervention – weights and measures, disclosure requirements, truth in advertising, safety requirements, etc., are intended to make markets work more efficiently by creating conditions that better approximate competitive ideals. The debate over health care can be cast in this light, i.e. as a debate about how best to solve a market failure that prevents broader coverage at lower prices.

[2] As second type of intervention redistributes income ex-post, i.e. after the market process has occurred, often through taxation and spending programs. In an economy with significant market failures that cause an inequitable distribution of income and wealth, ex-post redistribution may be justified to redress the imbalances caused by the market failures (and to create equal opportunity).

Thus, the first two types of intervention occur due to market failures, in the first case the intervention is to correct the failures and improve market efficiency, and in the second case the intervention redistributes income ex-post to make-up for inequities caused by existing market failures.

[3] There is also a third possibility, intervening when markets are working reasonably well. Here, the assumption is that even well-functioning markets can produce inequitable outcomes and hence ex-post redistribution is required. Unlike the first type of intervention which corrects market failures, this type of intervention often leaves markets functioning less efficiently. Much of the objection to government intervention is made on this basis.

He goes on to say that he thinks that reason #2 is the most compelling reason for wealth redistribution and that reason #3, redistribution for redistribution’s sake, is relatively unimportant. I disagree. I disagree partly because I do not see certain markets as failing in ways that systemically harm specific groups to a great extent, but I mostly I disagree because my values are utilitarian and Thoma’s are not (apparently). I consider inequality among outcomes to be the most compelling reason for redistribution of goods. If we can give people large benefits at low costs to other people, we should do so. It is important to remember that the outcomes of perfectly competitive market processes are not moral judgments. People who have highly valued skills and are rewarded for it by market processes are not more “deserving” than people who don’t.

I don’t mean to say that identifying market failures is not a worthwhile task. If certain market failures mean that the labor market rewards some labor skills substantially less than if the labor market did not have those failures, it suggests that correcting those failures could be a low cost way to make workers lives better. If lack of access to credit due to some market failure seriously harms the poor, working around such a market failure may be a good idea, but my motivation for doing so would not be that the poor are not fairly rewarded by the market, but simply to make people’s lives better.

I also don’t mean to say that perfectly distributed income is the ideal; it is important to consider revealed preferences. Other things equal, if one person works harder than another, it likely means that they value the rewards of working more than the other person; leisure and other things which are hard to measure are consumption goods just like material goods. When making judgments about the appropriate amount of redistribution, it is also important to pay attention to how redistribution affects economic growth, because redistribution now may come at a high cost for the future, and this is important even though the future will be significantly richer than us.

I recognize that my utilitarian view is probably a minority view. I think most people probably give much more weight to fairness concerns than to utilitarian concerns.


A fascinating AP article about commercial surrogacy in India. It’s legal to pay someone to have your baby here in the US and in many other countries, but apparently the Indian clinic profiled in the article is on the leading edge of making surrogacy less niche and more routine. Infertile couples need only supply the sperm and eggs and sign on the dotted line. The clinic finds and cares for the surrogate mothers, making the process easier and more affordable for the parents-to-be. Included in the article are the stories of several of the surrogates and couples, all upbeat and heart-warming. But of course, there are “critics.”

Critics say the couples are exploiting poor women in India — a country with an alarmingly high maternal death rate — by hiring them at a cut-rate cost to undergo the hardship, pain and risks of labor.

My first reaction was “ick.” Don’t let these people pass laws than make surrogacy like organ donation. (Here’s an MR post that links those two subjects.) Let me be a little more careful, though. Regarding the high maternal death rate, the clinic might do well to keep its costs low by making sure that the pregnancies are successful and healthy for both woman and child. Perhaps the proliferation of such clinics would actually lower India’s rate of deaths in childbirth. The fear is that the incentives will run the other way. Read the rest of this entry »


I clearly do not share Sandy Levinson’s judgment about what the biggest flaws in the American political system are, Levinson sees democracy as a much better method for making decisions than I do, but I do agree with Levinson when he argues that we shouldn’t give disproportionate political power to small states.

I would also like to point out that people vote generally altruistically, so we shouldn’t expect raw greed to motivate people in large states to take advantage of people in small states through the political process. This is especially true because people no longer strongly identify with their state, so are less likely to favor the interests of the people in their own state over the interests of people in other states. Certainly some demographics have tried to take advantage of other demographics through the political process, but it is not motivated by greed.


The concept of rational voter ignorance has been around since the 50’s. The reality of rational voter ignorance seems obvious to me, but I have been searching for a good source of strong evidence for broad voter ignorance, a paper or survey that I can point people who doubt voter ignorance to. Several papers that I have run across mention that voter ignorance is well documented, but they do not cite anything, and I have been unable to find any survey paper that specifically focuses on the extent of voter ignorance. There are also several papers I have run across that note significant policy preference shifts when voters become more informed (like this and this), which this implies voter ignorance, but I would like a paper specifically focused on the extent of voter ignorance.

Does anyone know of such papers?


In the past, I have advocated both Direct Representation, a form of proportional representation, and the institutional protection of federalism by having state governments at least partially elect the national government, as was the case in the U.S. before the 17th Amendment. How these two institutional features might fit together is not immediately obvious, but the solution is relatively simple:

At the state level, each population elects it’s representatives (parties) in the normal Directly Representative way. At the national level, Direct Representation elections are also held normally except the votes are cast by all the individual state parties using the votes they have been delegated instead of by voters in each of the states. In this way, both the state and national legislatures remain Directly Representative, and the national legislature remains representative of the state governments.


In a nice post at Angry Bear, Spencer argues that higher prices are not needed to attract additional supply in disaster areas. I am not sure if Spencer advocates anti-gouging laws, but I would like to discuss how his reasoning affects whether anti-gouging laws are a good idea.

Spencer’s argument is essentially that short term supply curves are quite flat for individual stores even in disaster areas, because stores like Wal-Mart and Target have flexible supply contracts which let them buy more than they normally do at the same price and because supplies can be inexpensively redirected from other stores around the country (see Spencer’s very enlightening comments for a more in depth explanation and his earlier post for some anecdotal evidence).

This logic does not support anti-gouging laws, though, because it fails to explain why prices might rise in the first place; if supply curves are quite flat, as he claims, then even large demand increases should not lead to significantly higher prices. One possible reason for rising prices (I don’t have any evidence on whether disasters induce significantly higher prices any longer) is that stores have temporary effective local monopolies during disasters. During a disaster, the value of time goes up considerably because people have to attend to the damage done to their lives. Transportation costs can also increase considerably. This means that in many cases, it is much more expensive to go to stores besides the most local store. This means that the local store has a significant price advantage to other stores and can charge a correspondingly higher price. This logic does imply that price controls (in the form of anti-gouging laws) could be a good policy.

But perhaps stores are sufficiently close together that even consumer transportation cost changes are relatively unimportant, so that the price premium stores command are very low. I would be very interested to learn whether the ease of getting additional supplies to disaster area stores makes disaster induced price increases disappear altogether, even in the absence of anti-gouging laws. If disaster time price increases continue to occur, perhaps stores do have a significant temporary monopoly. If this is the case, anti-gouging laws, even though they are very blunt instruments, could potentially be good policies.


Arnold Kling takes issue with Mencius Moldbug’s favorable opinion of the corporate city-state. Kling points out (I think; it wasn’t entirely clear) that there is an incentive for groups outside of the government to attempt to take control by force, citing Latin America’s many military coups as an example. All regimes are vulnerable to armed takeover, since there is no higher power to protect their property rights. In Moldbug’s terminology (not sure if it is borrowed from somewhere else), an organization like the US government is a primary property holder, meaning it enforces its own rights by force. Corporate city-states, then, will also be vulnerable to coups. Adding a reference to Neal Stephenson’s Snow Crash, Kling apparently feels he has shown that “you would have violence and instability in the corporate city-state world.”

I don’t think he has. Though it’s true that many governments have been toppled over the years, many have persisted for long periods of time. Kling gives no reason for why a corporate city-state would be less able to defend itself and enforce its property rights than a democracy or a monarchy.

Further discussion happens in the comments on Moldbug’s blog. Brendon objects that the management might prevent citizens from leaving, eliminating the competition between states that we would expect to spur good government. Moldbug argues that this would be unprofitable for the corporation. Explaining the situation in North Korea becomes the focal point; there, a nondemocratic regime has run the country into the ground, seemingly in contradiction to what Moldbub. TGGP mentions the Iron Law of Institutions. Kim Jong Il might not care that his country is poor, if he can maintain his position of power within it. Certainly, the state would get more revenue if the country were rich, but taking the necessary steps to achieve prosperity might bolster opposition to the regime. The behavior of nondemocratic regimes would seem to be determined by what decisions the leadership percieves will yield the best mix of stability and riches. Maybe Dubai and Singapore are relatively successful because the people in those places don’t care much about democratic reform, so officials can focus more on prosperity and less on securing their power.


I liked this old article by Alex Tabarrok, Arguments for Federalism. Tabarrok’s arguments are

  1. Districts form laboratories of democracy, where relatively low cost experiments can be run
  2. Districts can adopt different policies for diverse preferences
  3. Districts that most closely match an “area of effect” for some political decision are better because they reduce political externalities while still allowing for economies of scale
  4. Open borders between districts will preserve liberty through competition

Numbers 1 and 4 strike me as much stronger arguments than 2 or 3, but 4 needs to be more general. Districts with open borders compete on the overall quality of governance, not just liberty. Inter-district competition will pressure district governments to be relatively efficient and adopt productive policies. Indeed, I would think that they compete least of all on the issue of liberty, because liberty is usually most important a small minority.


University of Washington President Mark Emmert is apparently demanding that convicted sex offenders, who are off probation, be evicted from their housing north of the UW (link). Emmert is trying to get Gov. Gregoire to met out extra-judicial punishment against these sex offenders, who the judicial branch has deemed fit to reenter society. If Emmert thinks that the justice system is wrong, he should lobby the legislature for stronger punishments, perhaps even including housing restrictions, for sex offenses, but he is wrong to seek extra-judical coercive punishment. It is a terrible example for the President of the university to send to its students.


John directed me to this essay, which contained quotes from Bernard Bailyn’s Ideological Origins of the American Revolution. The essayist at one point sums up Bailyn’s analysis of political pamphlets from the Revolution thusly: “America obtained its independence because of a war that was started by people who were genuinely terrified of the 18th-century equivalent of black helicopters.” He is referring to the belief in late colonial America that there was a big plot to subvert liberty, both in the American colonies and in England. In hindight, apparently, it is pretty clear that no such conspiracy existed.

Reading about these colonial conspiracy theorists, I was reminded of another blog post I read recently about the mentality cultivated in madrasas in Pakistan. What a strange parallel to draw between different places at different times, from colonial America to the tribal areas of Pakistan.