Category Archives: Libertarian Thought

The Alleged Problem of Crony Capitalism

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This commenter is not buying it.

It exists in some industries but it’s swamped by other factors, which creates the high turnover among the Fortune 500. Name an industry outside of healthcare or utilities that is “crony capitalist.” Technology? Retail? It’s hard to name an industry. You could name banking but remember that the ROE at Citi and Bank of America is in single digits. Goldman Sachs isn’t doing much better. A good example of crony capitalism is the mutual fund industry, which benefits from the complexity and limited selection of corporate 401k and IRA plans. But even the asset management industry is being decimated by Vanguard. Overall, the ROE for most of corporate America is around 10-12%, and that’s been true for a long time. It’s been going up recently but mostly due to the effect of low-capital technology firms like Google and Apple, which are not crony capitalist. So my argument is, name a crony capitalist outside of healthcare. It’s hard to do.

My thoughts:

1. I am sympathetic to some of his other comments on the same post, where he argues that right-of-center groups are using the crusade against crony capitalism as a positioning tool. I have never bought into the idea of making that crusade a focal point.

2. It is possible that the forces of market competition tend to win out in the long run, in spite of attempts at government interference. Ray Kurzweil used to say that about government regulation of technology–that regulations were merely stones in the river and the river just rolled over them.

3. Citibank is a dubious example. Without cronyism, I don’t think Citi would have a single digit ROE. I think it would have gone under.

4. If Goldman Sachs is not doing well, it is not for lack of government help. GS was the main beneficiary of the AIG bailout intervention.

5. Although creative destruction still exists, there are many indicators that its pace has been slowing down. See Tyler Cowen’s The Complacent Class.

6. For me, the poster child of crony capitalism is cable TV. From its very inception, it was a corrupt bargain between local governments and the cable companies. A lot of telecom in general is crony capitalist, as can be seen by the large lobbying expenses of the main players. If your measure of competition is firms going under, then telecom seems more cronyist now than it did twenty years ago.

7. If your measure of croynism is lobbying expenses, then the big industries include health care, finance, and housing. Energy is up there. Education is surprisingly big, considering that we think of it as mostly non-profit.

8. If your measure of cronyism is absence of creative destruction among the industry leaders, then higher education should be top of the list.

And a Lot Less Rock ‘n’ Roll

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Peter Beinart thinks we need a whole lot more religion.

Maybe it’s the values of hierarchy, authority, and tradition that churches instill. Maybe religion builds habits and networks that help people better weather national traumas, and thus retain their faith that the system works. For whatever reason, secularization isn’t easing political conflict. It’s making American politics even more convulsive and zero-sum.

For years, political commentators dreamed that the culture war over religious morality that began in the 1960s and ’70s would fade. It has. And the more secular, more ferociously national and racial culture war that has followed is worse.

My thoughts.

1. He is not the first to suggest that bad things happen when politics comes to fill a void left by a decline in religion.

2. I am glad that there are people on the left who would like to see the heat turned down in politics. The Three Languages of Politics is my attempt to help with that project. The revised edition is due out soon.

3. I hope that the left did not discover that political warfare is ugly only because of their shocking defeat in November. Instead, I would prefer to believe that Beinart would have written the same essay decrying politico-religious movements on both sides even if the requisite thousands of votes in key states had gone a different way and Hillary Clinton had won the Presidency.

The Many Enemies of Liberty

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Kevin Williamson writes,

The old robber barons were far from being free-enterprise men: J. P. Morgan and Andrew Carnegie, like many businessmen of their generation, believed strongly in state-directed collusion among firms (they’d have said “coordination”) to avoid “destructive competition.” You can draw a straight intellectual line from their thinking to Barack Obama’s views about state-directed “investments” in alternative energy or medical research.

…the capitalists are not prepared to offer an intellectual defense of capitalism or of classical liberalism. They believe in something else: the managers’ dream of command and control.

His claim is that many top corporate executives are naturally inclined toward progressivism.

Of course, we have known since Adam Smith that business leaders do not like markets and competition. What they like is protection and cronyism.

Progressives will engage in rhetoric against protected large businesses and cronyism, but that is not because they believe in markets and competition. What they believe in is industries that are organized and directed by government (e.g., Obamacare), which in practice devolves to. . .protected large businesses and cronyism.

I am skeptical of attempts, such as the Niskanen Center or ProMarket.org, to reach out to progressives. I would say to those who are trying this: don’t hold your breath waiting for progressives to reciprocate. They may favor you with a few status points, but their antipathy toward economic liberty will not abate.

I am not suggesting that an alliance with conservatives is the answer. There are many enemies of liberty among them, also. Moreover, reaching out to them will cost you status points with progressives.

Populism? I don’t think that the “keep your hands off of my Medicare” crowd is going to be our salvation.

All I can think of is to keep trying to explain the rationale for economic liberty, and hope that somehow amidst the din of all the outrage politics that the message gets through to some people and that they grasp it.

File this post under “being frustrated with those who disagree.”

Charles Murray at Middlebury

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The coverage in the Washington Post and in the New York Times was meager, with no follow-up op-eds.

The Times story, to its credit, says in the lead paragraph that it was “an encounter that turned violent and left one faculty member injured.” The Post story, which was buried deep in the paper (or maybe only appeared on line?) waits until the 6th paragraph to say that it “felt like it was edging frighteningly close to violence.”

On the other hand, the Times very early in the story quotes the Southern Poverty Law Center accusing the Murray of being a “white nationalist.” That is an irresponsible allegation coming from an unreliable source.

My thoughts:

1. In the view of conservatives, this is a very important story. I am pretty sure that a staff of reporters and editors that was more ideologically balanced would have given the story more prominence.

2. In terms of the three-axes model, this story feeds the worst fears of conservatives, which is that in the struggle between civilization and barbarism, progressives are on the wrong side.

3. Megan McArdle writes,

when it comes to physical violence, however noble the cause, that’s assault, not speech, and the perpetrators should be arrested.

The problem is that college administrators do not think in those terms. If you think that a college is capable of punishing violent demonstrators, you will be disappointed. For the most part, college administrators believe in hand-wringing and therapy, as opposed to punishment.

If I were in charge at a college, I would have real police at the event, and I would announce that protestors would be given five minutes to peacefully yell whatever they want. Following that, disturbing the peace will be dealt with by the authorities.

But that approach is about as alien to today’s college administrator as a visitor from Mars.

4. This incident will greatly reduce the likelihood of conservative speakers being invited to college campuses. Administrations do now want to risk being embarrassed by radical protests, and the best way to avoid that risk is to avoid having prominent conservative speakers. I may not be quite so prominent, and I only get one or two invitations a year, but my guess is that I have received my last invitation.

5. College politics can provide a prelude to national politics. Gender identity was a big issue on campus before it flared up on the national scene. The anti-Israel wing of the Democratic Party today looks a lot like the anti-Israel movement that emerged on college campuses several years ago. If conservatives are treated as unacceptable and violence against them becomes the norm on colleges, then there is a risk that this will spread well beyond the campus.

6. Late in 2015, I started to write a novel in which a left-wing movement became increasingly violent. I shelved it, because I did not have experience writing fiction (not even short stories), and I was making things too complex for a rookie writer. Also, only one person to whom I showed a draft gave me any encouragement. Still, many of the sorts of left-fascist rationalizations and behaviors that I was going to speculate on in the novel have become more manifest in the past year.

7. All that said, there is a non-zero chance that the Murray incident was isolated, and that it has no larger significance. I hope it turns out that way.

Ev Psych and Motivated Reasoning

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From a piece by Elizabeth Kolbert in the New Yorker.

Living in small bands of hunter-gatherers, our ancestors were primarily concerned with their social standing, and with making sure that they weren’t the ones risking their lives on the hunt while others loafed around in the cave. There was little advantage in reasoning clearly, while much was to be gained from winning arguments.

I have a new, expanded edition of The Three Languages of Politics coming out soon, and, like the first edition, it discusses these sorts of cognitive biases in the context of political rhetoric.

Kolbert also discusses “the illusion of explanatory depth.”

“As a rule, strong feelings about issues do not emerge from deep understanding,” Sloman and Fernbach write. And here our dependence on other minds reinforces the problem. If your position on, say, the Affordable Care Act is baseless and I rely on it, then my opinion is also baseless. When I talk to Tom and he decides he agrees with me, his opinion is also baseless, but now that the three of us concur we feel that much more smug about our views. If we all now dismiss as unconvincing any information that contradicts our opinion, you get, well, the Trump Administration.

Here, Kolbert and her New Yorker readers are reassuring one another that they are right to be contemptuous of President Trump. To me, they are illustrating the sort of socially-motivated biased reasoning that her article is describing.

Suppose that I were to apply the illusion of explanatory depth to the response to the financial crisis, including the bank bailouts. The elites in this country believe that they understand the causes of this policy (too much deregulation) and the consequences of this policy (saved us from another Great Depression). They hold this baseless belief because their fellow elite-members hold this baseless belief. And one could argue that the Trump Administration is a consequence of the fact that the elite view is not convincing to the rest of the country. (Note, however, that I do not claim to understand last year’s election. I am just suggesting that elites can be just as shallow as Trump supporters. I would go further and suggest that flattering yourself because you hate Trump is itself a sign of intellectual shallowness.)

Libertarians vs. Human Nature

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I believe that humans in large societies have two natural desires that frustrate libertarians.

1. A desire for religion, defined as a set of rituals, norms, and affirmations that are shared by a group and which the group believes it is wrong not to share. Thus, rooting for your local sports team is not a religion, because you realize that it is not wrong for someone else not to root for your local sports team. But if you are against GMO foods, then you believe that those who disagree with you are wrong.

2. A desire for war. I think that it is in human nature to fantasize about battles against tribal enemies. War arises when those fantasies are strong enough to drive behavior. People who have recently experienced war have mixed feelings about it. Some want revenge for defeats. Others are sick of war. The sickness of war often dominates, but not always. If there has been no recent experience of war, there is a gradual loss of the aversion to war, and war becomes more likely. Peter Turchin takes this view. Incidentally, Robin Hanson recently binge-read Turchin. I think that the way to read Turchin is to view his thought as 95 percent intuition/theory, 5 percent empirical analysis. Turchin himself would prefer you to believe that he is much more driven by empirical analysis.

If these desires were to disappear, I believe that humans could live without a state. However, given these desires, the best approach for a peaceful large society is that which was undertaken in the U.S. when it was founded: freedom of religion guaranteed by the government, and a political system designed for peaceful succession and limitations on the power of any one political office.

At the moment, I fear that the anti-Trump resistance strikes me as having the characteristics of a religion whose followers are fantasizing about war. Perhaps there is a symmetry on the other side, but it is dampened by the fact that when you hold the Presidency you can get your way peacefully (if coercively).

I think that it is fine for libertarians to warn of the dangers of religion and to oppose war. That is what I am doing here. On other other hand, when libertarians assume away the desire for religion and war, their thinking becomes at best irrelevant and at worst nihilistic.

Different Types of Expertise

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Something bothered me about the way that Tyler Cowen framed the issue of rule by experts vs. popular rule. He refers to David Levy and Sandra Peart’s new book, which I started reading. I think I am going to be bothered by their framing, also. Let me try to articulate my issue.

Last year, I was not happy with the way my bike brakes were working, and I took the bike into the shop. An “expert” diagnosed the problem as a worn brake cable and replaced the cable. The brake worked much better with the new cable, so as far as I can tell the diagnosis and the remedy were correct.

I believe that economics is fundamentally different from bicycle brake repair. We are not experts in the same sense that my bike mechanic was an expert. Let me try to explain why that is the case.

We know what a brake is supposed to do. It is much harder to give an account of what a financial system (or example) is supposed to do.

We can describe in complete and comprehensive terms how a bicycle brake should work. We cannot do that with a financial system.

A bicycle brake was built from a design. Knowledge of how it was designed can help us to fix it. The financial system emerged. There is no design specification to which we can refer.

When brakes are not working well on a bike, there are a limited number of possible causes. When a financial system does not work well, there are more possible causes than we can list.

Theories about brakes are easily tested under controlled conditions. Theories about financial systems are not.

The brake itself does not have beliefs that affect its behavior. The participants in the financial system do have beliefs that affect the behavior of the system.

It is possible to gain some wisdom from studying economics, just as it is possible to gain some wisdom from studying history. But it is not possible to attain the sort of expertise in economics that one can attain as a physicist, plumber, or bicycle repairman. To encourage such analogies is unwise.

Timothy Taylor on Homo Narrativus

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He writes,

Homo sapiens likes to protest that all conclusions come from a dispassionate consideration of the evidence. But again and again, you will observe that when a certain homo sapiens agrees with the main thrust of a certain narrative, the supposedly dispassionate consideration of evidence involves compiling every factoid and theory in support, as well as denigrating those who believe otherwise as liars and fools; conversely, when a different homo sapiens disagrees with the main thrust of certain narrative, the supposedly dispassionate consideration of the evidence involves compiling every factoid and theory in opposition, and again denigrating those who believe otherwise as liars and fools. Homo sapiens often brandishes facts and theories as a nearly transparent cover for the homo narrativus within.

That is his gloss on Robert Shiller’s recent address to the American Economic Association.

Notes from the 2017 Edge Question

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Folks were asked to name a scientific concept that deserves to be better known.

Lisa Randall nominates “effective theory.”

an effective theory tells us precisely its limitations—the conditions and values of parameters for which the theory breaks down. The laws of the effective theory succeed until we reach its limitations when these assumptions are no longer true or our measurements or requirements become increasingly precise.

Matthew D. Lieberman nominates naive realism.

If I am seeing reality for what it is and you see it differently, then one of us has a broken reality detector and I know mine isn’t broken. If you can’t see reality as it is, or worse yet, can see it but refuse to acknowledge it, then you must be crazy, stupid, biased, lazy or deceitful.

In the absence of a thorough appreciation for how our brain ensures that we will end up as naïve realists, we can’t help but see complex social events differently from one another, with each of us denigrating the other for failing to see what is so obviously true.

Matthew O. Jackson nominates homophily.

New parents learn from talking with other new parents, and help take care of each other’s children. People of the same religion share beliefs, customs, holidays, and norms of behavior. By the very nature of any workplace, you will spend most of your day interacting with people in the same profession and often in the same sub-field.

…Homophily lies at the root of many social and economic problems, and understanding it can help us better address the many issues that societies around the globe face, from inequality and immobility, to political polarization.

Dylan Evans nominates need for closure.

However great our desire for an answer may be, we must make sure that our desire for truth is even greater, with the result that we prefer to remain in a state of uncertainty rather than filling in the gaps in our knowledge with something we have made up.

Gary Klein nominates decentering.

Decentering is not about empathy—intuiting how others might be feeling. Rather, it is about intuiting what others are thinking. It is about imagining what is going through another person’s mind. It is about getting inside someone else’s head.

…Being able to take someone else’s perspective lets people disagree without escalating into conflicts.

Adam Waytz nominates the illusion of explanatory depth.

If you asked one hundred people on the street if they understand how a refrigerator works, most would respond, yes, they do. But ask them to then produce a detailed, step-by-step explanation of how exactly a refrigerator works and you would likely hear silence or stammering. This powerful but inaccurate feeling of knowing is what Leonid Rozenblit and Frank Keil in 2002 termed, the illusion of explanatory depth (IOED), stating, “Most people feel they understand the world with far greater detail, coherence, and depth than they really do.”

Cristine H. Legare nominates Cumulative Culture.

Cumulative culture requires the high fidelity transmission of two qualitatively different abilities—instrumental skills (e.g., how to keep warm during winter) and social conventions (e.g., how to perform a ceremonial dance). Children acquire these skills through high fidelity imitation and behavioral conformity. These abilities afford the rapid acquisition of behavior more complex than could ever otherwise be learned exclusively through individual discovery or trial-and-error learning.

If someone had asked me, I would have proposed something similar: cultural intelligence.

Eric R. Weinstein gives us Russell Conjugation.

the human mind is constantly looking ahead well beyond what is true or false to ask “What is the social consequence of accepting the facts as they are?” While this line of thinking is obviously self-serving, we are descended from social creatures who could not safely form opinions around pure facts so much as around how those facts are presented to us by those we ape, trust or fear. Thus, as listeners and readers our minds generally mirror the emotional state of the source, while in our roles as authoritative narrators presenting the facts, we maintain an arsenal of language to subliminally instruct our listeners and readers on how we expect them to color their perceptions.

Sarah Demers nominates blind analysis.

The idea is to fully establish procedures for a measurement before we look at the data so we can’t be swayed by intermediate results. They require rigorous tests along the way to convince ourselves that the procedures we develop are robust and that we understand our equipment and techniques. We can’t “unsee” the data once we’ve taken a look.

John Tooby nominates coalitional instincts.

These programs enable us and induce us to form, maintain, join, support, recognize, defend, defect from, factionalize, exploit, resist, subordinate, distrust, dislike, oppose, and attack coalitions. Coalitions are sets of individuals interpreted by their members and/or by others as sharing a common abstract identity

…to earn membership in a group you must send signals that clearly indicate that you differentially support it compared to rival groups. Hence, optimal weighting of beliefs and communications in the individual mind will make it feel good to think and express content conforming to and flattering to one’s group’s shared beliefs, and feel good attacking and misrepresenting rival groups.