In my previous post, I discussed the fact that regulation was slowing the redevelopment of land in California. A recent paper by Leander Heldring, James A. Robinson, and Sebastian Vollmer (HRV) entitled “The Long-Run Impact of the Dissolution of the English Monasteries” examines a related issue.  They find that in areas where religious monasteries were broken up and sold to entrepreneurs, economic growth accelerated.  They argued that the new owners implemented productivity improving changes, such as more efficient farming techniques.  There’s a risk of becoming smug about how far we’ve advanced from the feudal era, but Matt Yglesias provides a wake-up call in a post that examines the implications of the HRV research for modern America.  After discussing the obvious link to zoning regulations, Yglesias points to some other ways that land use is misallocated by government policies: But it’s notable that not only has the United States re-invented all kinds of feudal-style local control and community control measures, we very specifically have policies in place designed to prevent this sort of transfer of ownership to the parties that get the most value out of it. After all, consider a scenario in which the value of a homeowner’s property rises a lot, which leads their property tax bill to rise. Such a person might be “forced” to sell, securing a large profit for herself, and putting the property in the hands of someone who thinks that both the high price and the high property tax bill are worth paying. Elected officials across the country largely regard this as a bad outcome and have put various policies in place to prevent it from happening. California’s Proposition 13 property tax rules are probably the most extreme and notorious version of this. But most jurisdictions have various rules designed to “protect” owner-occupants from rapid increases in property taxes while affording no such protection to investor-owners. Our policies that encourage owner-occupied housing also lead to a misallocation of ownership: Whenever someone does a version of the “homeownership is bad, actually” take, you end up with a discourse that blends two different questions:Is it prudent for the typical middle-aged middle-class American person to become an owner-occupant of their home?Is it prudent for the United States of America to have tons and tons of policies in place designed to specifically encourage and subsidize the former?I think the answer to (1) is “clearly yes,” but that’s precisely because there is so much subsidization happening, not just in obvious ways like the mortgage interest tax deduction but in subtler ways like the “homestead deduction” I get on my property taxes and the fact that profits from the sale of owner-occupied housing are exempt from capital gains taxes. Max Weber is famous for his theory of “The Protestant Ethic and the Spirit of Capitalism.”  But the Heldring, Robinson and Vollmer paper provides an alternative mechanism to explain why economic growth might be linked to the rise of the Protestant religion, a link that has little to do with religious dogma. (0 COMMENTS)

The home of the Slumdog Millionaire is finally getting its supposed emancipation. Dharavi, the vibrant and iconic slum that has often served as an image of India’s woes, is finally getting a makeover. The long envisioned Dharavi Redevelopment Project was finally given the green light by the Maharashtra and the Indian governments. The plan is to evict nearly a million people who live there and then hand over the land to a private developer who will ‘redevelop’ the slum, finally fulfilling the dreams of many-a-bureaucrat and activist. But seeing this as a cause for celebration ignores the disturbing history of ignorance of the Indian elites towards the existence of slums. Seeing slums as a nuisance that has to be ‘redeveloped’ is an attitude held by many influential people. Whether it be Sanjay Gandhi’s crusade against the slums in Old Delhi or the numerous plans drafted by bureaucrats to redevelop various slums or the moralistic crusade of activists and the judicial system against the existence of slums, India’s elites have had a single voice on this. Almost all of them view slums like Dharavi as a sign and a result of the country’s underdevelopment. While this may be true, equating slum reconstruction with progress would be confusing symptoms with causes. The existence of slums in cities in India and elsewhere is not merely, or mostly, a sign of underdevelopment but a sign of poor policy thinking. The existence of slums is often a response to the trifecta of restrictive housing policy, vibrant (often low-skilled) job market, and to a lesser extent, topographical constraints. Many Indian slums are located inside larger cities and closer to the city centre and are more prevalent in cities with geographical constraints like Mumbai. However, the root cause of slum formation is the restrictions on the building of new housing. Like in other fields, India’s early policymakers assumed a highly idealised vision of what an average Indian’s housing should be and designed policies and regulations that reflected the same. This has deprived millions of people access to decent housing. India’s housing codes are therefore highly elaborate, and by extension, restrictive. There are high floor-area ratios, minimum parking requirements (in a country reliant on two-wheelers and public transport!), limits on population density and adherence to numerous other codes. This, combined with the power politics that revolves in and around these regulations, creates a dynamic that drives people towards slums. Many slum residents choose slums simply because they are cheap and are closer to the job centers. It is unlikely they would choose a government-mandated redevelopment if it didn’t provide both of these key features, even if it looks good and is spacious, especially since many of the slum population are temporary residents. An oft-cited alternative to this is in-situ development. While this is better than the earlier approach, it faces three major challenges. First, charging market rents for them would likely push the poor out of the area. Secondly, even if they are subsidised, evidence suggests that they are likely to sublet or resell their home as they could use the extra money-which makes the project a waste of public funds. This explains the widespread unpopularity and failure of slum redevelopment projects worldwide, from Brazil and South Africa to India. Demolishing or relocating a slum does not change the underlying economic, regulatory, and geographical dynamics that underlie slum formation, which can only be solved by making policies around what is the case, not what ought to be the case. A far more economical, feasible, and welfare-enhancing policy to follow is to try and make slums a better place to live. This option is also way more popular than redevelopment or reconstruction among slum residents. A crucial first step of this process involves providing security of land and tenure to the owners so that they are more incentivized to develop on their own. A logical next step would be to provide provisions for municipal utilities like water, sanitation, electricity, and broadband. This would likely enhance their welfare more than a spacious house without these facilities. A good example of the successful implementation of this model is the Kampungs in Indonesia, where the local community and the government jointly provide municipal services. The Dharavi redevelopment project, instead, is an effort at hiding the problem. Even though the project has an impressive Floor Space Index of 4, which allows for reasonable vertical development, it won’t solve the underlying problems mentioned above unless it is matched by deregulation of construction in other parts of the city, like by removing restrictions on Floor Space Index. And this is by ignoring the fact that you are forcing lakhs of people to relocate, at least temporarily, from their local community and workspaces for pretty much aesthetic reasons. The residents of Dharavi should not be paying for the mistakes of the elite. Making places like Dharavi a better place to live requires listening to those who live there and respecting the choices and trade-offs they are making, and not to follow any abstract, ideal vision of how one ought to live. Redeveloping Dharavi, while a seemingly noble and pleasing action, is doing nothing to solve the underlying issues.   Nidan Ali Basheer studies development economics at IIT-Madras and is a writing fellow with Fellowship for Freedom in India.     (0 COMMENTS)

The lobstermen and the whalers are at each other’s throats in Maine. The former need to use strong ropes to pull up their lobster traps from the ocean floor. The latter claim that this gear the former uses enmeshes their bread and butter, that is, whales, who are needlessly killed in this manner. It would be difficult to name other industries or commercial interests that contended against one another in any such manner. Yes, those producing peas and those producing carrots compete against each other, as do bicycles and fish, shoes and socks. But none of the are suing the others over infringement of their territory. City taxi cabs, Uber, and Lyft are in competition with one another. But at least it is clear from a justice point of view what should occur: the latter should be allowed to compete against the former, no matter how loud and powerful the squeal of the first kids on the block. No, you would have to go back a century or two ago to find any analogous philosophically intractable situation, to when farmers and ranchers were squabbling with each other over water rights. What’s going on off the seacoast of Maine? What is going on there is a lack of clear private property rights, just as in this previous, historical case. The law, at present, does not allow anyone to own any aspect of the ocean. That is precisely the problem, and the explanation for the present imbroglio. Before your false teeth drop right out of your mouths and bite your toes, listen up for at least a little bit. Yes, this solution, ocean privatization, sounds more than just a little preposterous. Even such erstwhile defenders of private property rights as Robert Nozick dismissed this erstwhile free enterprise option. He sneered at the idea of anyone pouring a can of tomato juice into the sea as a means of owning part of it, a la John Locke’s homesteading principle. Instead, he averred, such a person would merely lose this drink of his. However, in the absence of ownership, how are we to decide which is economically more important, whales or lobsters? In every other corner of the economy this altercation is settled by bidding for the resource in question. Should this specific amount of steel be used for railroad tracks or high-rise building construction? Should these textiles be incorporated into a rug or clothing? Thousands of such potential debates are settled every day, every hour, every minute, without fuss or fanfare. The competing parties offer bids to the owners of these resources and that is how they are settled without controversy. But if competitive bidding is to occur, someone must own the resource in question. There is nothing unique about oceans (nor rivers, lakes, aquifers, when farmers and ranchers were having wars over them). Other liquids are privately owned: orange juice, milk, oil, soft drink colas, wine, beer, booze, mercury. (Blood, too, is a liquid, but not a trouble free one, since there are numerous regulations, price controls and other interferences with economic freedom in this sphere of the economy). Yes, water moves around a bit more than land, but there is solid water (icebergs) and moving land (mudslides, volcanoes). If we are to rationalize this part of the economy, we must stop thinking of land amenable to privatization, and water, not. Yes, yes, it cannot be denied, things are rather a bit more complicated with rivers, lakes oceans, aquifers. That only makes it more of a challenge to privatize them; it does not constitute an insuperable barrier. We already have some of the complementary technology available: electrified fences in the water, for example. All we need are laws that allow this. Then more would become available. The main reason for the failures of the economies of the USSR, West Germany and North Korea was lack of private property rights. We are now living under the Sovietization of water resources, with all the attendant tragedies of the commons associated with such failures. Please do not dismiss out of hand bringing in water resources under the system that has functioned so well on the land.     Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and is co-author of the 2015 book Water Capitalism: The Case for Privatizing Oceans, Rivers, Lakes, and Aquifers. New York City, N.Y.: Lexington Books, Rowman and Littlefield (with Peter Lothian Nelson ).     (0 COMMENTS)

[ANNUAL LISTENER SURVEY: Delayed till later this week. Watch here for the url as soon as it’s available!] Dwayne Betts was a 16-year-old in solitary confinement when a fellow inmate slid a book of poetry under his cell door. What happened next is an astounding story of transformation: from desperation to the discovery of beauty, even […] The post Dwayne Betts on Beauty, Prison, and Redaction appeared first on Econlib.

A few days ago, I visited downtown Long Beach. The city of Long Beach is located in LA County, right on the Pacific. It has a population is 456,000 and is fairly expensive. The city should be booming, but instead it seemed sort of depressed. What went wrong?I saw one fairly new high-rise residential building, but mostly it was just block after block of older low rise commercial and residential buildings, with very little construction underway. There are a few homeless people walking around, although not so many as in LA. Given the high rents and housing prices in coastal California, why isn’t Long Beach experiencing a boom in redevelopment?I suspect the problem is regulations. California has such strict regulations that it is now extremely expensive to build in California. Thus the state no longer sees the dynamic economic growth it experienced during the second half of the 20th century.  And these regulations are not protecting beautiful old historic neighborhoods; downtown Long Beach is rather bland and unattractive.  A hundred new high-rise residential buildings in DTLB would attract new restaurants and shops, making the city far more attractive.  A few of the poorer residents would have to move a few miles inland, but there would be many more good service jobs to pay their bus fare.One of the most important economic identities is that saving equals investment (at least at the global level.) So if California stops building housing, what happens to all of the saving that used to go into property development?   With less investment in real estate, savers have trouble finding people that wish to use their funds.  Thus puts downward pressure on the equilibrium interest rate.  Some might argue that the actual interest rate differs from the equilibrium interest rate due to Fed policy.  But if the Fed is committed to a 2% inflation target, then it must cut its interest rate target when the equilibrium rate declines. Over time, the two rates are generally quite close. The fall in interest rates does not, by itself, bring saving into equilibrium with investment.  You need potential investors to respond to lower rates by creating more non-residential investment.  Projects that were not profitable at a 5% interest rates become highly profitable at a 1% interest rate. Most people don’t understand this process.  When they see it play out, they misdiagnose what is actually going on.  I see article after article claiming that the Fed “artificially” lowered interest rates, and that this created “malinvestment” into unproductive projects.  They claim the problem can be fixed by raising interest rates to a level that imposes discipline on investors, a rate that doesn’t allow for low quality investments to be profitable.  That’s wrong. The US does have a malinvestment problem, but it’s not at all what many pundits assume.  The cause of the malinvestment is zoning and other regulations that make it difficult to build housing.  And housing is not just another sector; it’s a key part of investment.  These bad regulations push saving into areas that are less productive than housing construction, including marginally productive government and corporate investment. The problem of malinvestment cannot be fixed by having the Fed tweak interest rates; it requires much more fundamental solution.  The only way to fix malinvestment is to remove regulations that prevent developers from building what people really want, which is high quality housing. The Upper East Side of New York was wonderfully transformed in the 1920s, when low-rise buildings were replaced with high-rise residential buildings.  Downtown Long Beach can and should do the same.  But America has lost its ambition, and settled into stagnation. If you ask most people what stands in the way of them having the sort of lifestyle they wish to have, not many will mention a lack of food or clothing.  Most have adequate cars and TV sets.  Most have a school to send their kid to and some form of health care.  Instead, housing is the one area where lots of people are dissatisfied, where dramatic improvements in living standards are still possible.  But that requires building new housing in locations close to good jobs.  Bandaids such as rent control do not result in a single extra person having housing, and indeed reduce the housing stock in the long run.  More housing is the low hanging fruit to raising living standards.  Fix housing regulation and you go along way toward fixing malinvestment. PS.  While downtown Long Beach is unattractive, the oceanfront is nice: (0 COMMENTS)

Free trade may be on wane in popular opinion from the US to China, but across the world’s second largest continent – by geographic size and population – it is a different story. In 2019 Foreign Affairs opined ‘’[e]conomists may have to accept that convincing most people of the value of free trade is a losing fight’’. By the end of that year, all African countries joined the world’s largest free trade area by number of countries participating. Connecting 1.3 billion people across 55 countries comprising a combined gross domestic product valued at US$3.4 trillion. Much analysis on the recent US-Africa Leaders’ Summit focused on countering the influence of China and Russia. However, on free trade and its supporting institutions, there is space for advancing ordered liberty into which many non-governmental actors are already active. Free trade within African markets is not only around adopting sound economics. On a continent where borders were artificially imposed, free trade is normative: a restoration of what once was, not a new modernising project to ‘catch up’. This is an important impulse and one in which many young African are deeply engaged through think tanks in the Atlas Network. During the annual conference of the Canada-Africa Chamber of Business held in Johannesburg this year, to which I privileged to chair several sessions, discussions centered on how to ensure free trade works – not whether it does. Sebastian Spio-Garbrah, a risk analyst says free trade and markets are a culturally and socially ingrained. ‘’The ideas are there, but governance issues are the barrier.’’ Spio-Garbrah explains: ‘’Markets are defended for superior material outcomes, with the concept of homo-economus defined in a way that conflates with self-interested individualism. Across Africa, the aspiration for free markets comes naturally – it is the reasoning and justification that differs’’. ‘’The Acton Institute gives a sense of the deep ethical and moral considerations on questions around free markets, which align to an approach that works in Africa.’’ Important as well is two-way dialogue. Economic success stories already exist as in the case of Botswana, while the social fabric of society and markets as a social institution receive significant attention in discussions of development. Tasked to lead free trade in Africa at the African Union, Wamkele Mene gave only one caveat around his call to ‘’defend free trade and free markets’’: that it be done to ensure an equal chance for all. Today young leaders have formed networks like the Initiative for African Trade and Prosperity (IATP) focused on implementation. The issue is not free trade a concept, but the institutional pre-requisites and reforms needed in each member state to make it work. Among CEOs there is ‘huge support’ of over 90% for AfCFTA in this year’s Africa CEO Trade Survey. Where to from here? Trust matters. On the global stage Canada played the role of honest arbiter and trust third party, convening the creation of the African Continental Free Trae Agreement, through supporting researchers and legal work to create the text of the current deal. In the non-governmental sphere, the words of the Fraser Institute’s Fred McMahon reverberate across Africa: “With proven reforms we’ve researched, there is no reason African countries could not become some of the most economically free and prosperous nations on earth’’. State capitalism does not provide the richness of a lasting defence of markets grounded beyond economics, consistent with a normative and empirical defence of markets about which so many young people are energized. Between the state and the individual in free societies are a range of actors. On the international stage, this holds true to an extent: the exchange of ideas among free associations  is worth assessing. Much happens away from the highly publicized high-level summits, as important as they are for studying relations between states.   Garreth Bloor is a former executive politician in South Africa and currently resides in Toronto. (0 COMMENTS)

I came across a reading recently in which the author quoted the late Republican Senator Everett Dirksen. He was Senate Minority leader from 1959 to 1969. The quote, which Dirksen is alleged to have made about overspending by the federal government, is “A billion here, a billion there, and pretty soon you’re talking real money.” When I first heard that quote in the late 1960s, I didn’t believe Dirksen said it. Why? Because the federal budget at the time he was alleged to have said it (the early 1960s) hadn’t yet broken above $100 billion annually. So everyone would have understood that a billion dollars, let alone $2 billion (a billion here and a billion there) was in itself over 1 percent of the federal budget and so no one would have had to have that pointed out to him or her. So what would have made more sense, and what I vaguely recall hearing quoted in the late 1960s, when I started paying attention to U.S. politics, is “A million here, a million there, and pretty soon you’re talking real money.” I wanted to use that line in an article a few years ago, but I couldn’t find it. So I called the Dirksen Congressional Center in Pekin, Illinois and was told that the Center had no record of Dirksen ever having said it. This article shows that same Center saying there was no evidence of the billion dollar number either. What’s my point? My point is that we’ve had what I’ll call “quote inflation.” Let me explain. Compare $1 million in 1960 to the size of U.S. GDP in 1960. U.S. GDP was $543.3 billion in 1960 dollars. $1 million is 0.000184 percent of $543.3 billion. So apply that same percentage to our current GDP, which is just shy of $26 trillion. 0.000184 percent of $26 trillion is $46.8 million. Round that up to $50 million. So if you wanted to be faithful to the spirit of the Dirksen quote, if he had said it, you would say today: $50 million here, $50 million there, and pretty soon you’re talking real money. One billion is 20 times $50 million. This just goes to show how high a threshold people think is needed to think about government spending adding up to “real money.” (0 COMMENTS)

David Beckworth has a very interesting interview with Paul Tucker, a former governor of the Bank of England. Tucker has a new book on international affairs, and had this to say: [W]e need peaceful coexistence with China, and that can probably include some trade with China, but that should not include trade with China where we would be overly dependent in vulnerable ways. There are good arguments here on both sides, but I lean toward engagement with our adversaries (i.e. China, Iran, Cuba, Venezuela) and embargoes aimed at our enemies (Russia.)  An enemy is an adversary that has turned violent.  Regarding China, I see three important considerations: 1.  Engagement with our adversaries is hugely beneficial to both countries when not at war. 2.  Engagement with our adversaries gives both sides a strong incentive to avoid war. 3.  Engagement with our adversaries can turn out to have negative effect if a war breaks out.  That is, if our adversary becomes our enemy. The fact that two of the three factors point toward the benefits of engagement is not in and of itself decisive.  The third factor might be more important. Perhaps the most famous example of the third factor in action is the case of European gas imports from Russia.  Indeed, I’d argue that this single case is far more important to Europe than all the other economic effects of the Ukraine War combined.  Nothing else even comes close.  In retrospect, it probably would have been better if Europe were less dependent on Russia gas.  Thus the case of Russian gas imports is far and away the best example one could cite for disengaging from economic interaction with our adversaries.  (Oil is much different, as it is a fungible commodity that can be traded globally with relatively low transportation costs.  The effect of the Ukraine War on the global oil market has little or nothing to do with the fact that Europe previously imported lots of Russian oil.) I won’t argue that, in retrospect, Europe was wise to rely on Russian natural gas.  But what I find so striking about this example is that it doesn’t seem to support either of the arguments made by foes of economic entanglement: 1.  The argument that reliance of Russian gas would push Europe toward appeasement of Russia. 2. The argument that reliance on Russian gas would have devastating consequences for Europe’s economy in the event of war.  Neither prediction panned out.  Economists keep telling non-economists that markets are surprisingly good at doing a workaround when their are shortages, and non-economists continue to not believe us.  And this outcome occurred despite the fact that public policies in Europe (subsidizing wasteful use of gas) actually made the situation worse. Here’s another point to consider.  Russia is currently being aided by economic sanctions that reduce oil output from its competitors, including Iran and Venezuela.  Thus if we are going to contrast two policy regimes, it ought to be free trade with Russia and Iran vs. economic sanctions against Russia and Iran.  Instead, we ended up with the worst of both worlds, aiding our enemy (Russia) by sanctioning our adversary (Iran) in such a way as to benefit Russia (with higher global oil prices.) Now let’s return to the three factors that bear on the question of whether or not to become entangled with our adversaries.  I cannot be sure how the three factors net out, but I am pretty confident in making the following two claims: 1. We know that US–China trade is hugely beneficial to both countries, and we also know that richer countries tend to be more peaceful. 2.  We know that the number one example of the dangers of entanglement, cited by almost all pundits that are opposed to entanglement, did not turn out to have either of the negative consequences that was predicted.  Europe did not appease Russia and the European economy was not devastated.  And again, this is the best example that anyone can cite; in most other industries the effects of the Ukraine War on European welfare have been trivial. That doesn’t mean that the foes on entanglement are always wrong.  Nordstream 2 was probably a mistake.  But the fact that even the European natural gas situation turned out to be much more benign than expected suggests to me that the weight of evidence points toward the benefits of entanglement outweighing the costs, at least in the vast majority of cases.  One exception to this generalization might be trade in goods with clear military applications.  But with pundits now calling for the banning of TikTok and laws against the purchase of US farmland by the Chinese, I think it’s fair to say we’ve gone far beyond the national security argument. (0 COMMENTS)

Jeffrey Friedman spends a significant amount of time in Power Without Knowledge concerned with the epistemic complexity of society. But what does he mean when he says society is epistemically complex, and what factors make this the case? Freidman does not merely mean that social problems are complicated or difficult. Physics is complicated and difficult, but it can still be understood well enough by people of adequate intelligence and training to land probes on comets or smash protons together head-on at nearly the speed of light. However, technocracy cannot be made successful by “technocrats’’ use of the methods – however one might define them – that are successfully deployed by physicists, chemists, biologists, and so on.” The task of a technocracy is qualitatively different from these fields: A successful technocracy presupposes knowledge of a different kind, knowledge of human behavior: that is, knowledge of how to control human action effectively, hence knowledge of how to predict the outcome of manipulating it—which is what all technocratic policies do…If they lack [this knowledge], however, then they will not be able to produce accurate forecasts of the effects of technocratic measures on the problems they are intended to solve, mitigate, or prevent. This, however, raises a new question. Why should human behavior be so difficult to predict? The difficulty lies in the fact that each individual human’s behavior is shaped by their own ideas and interpretations of their circumstances – and those ideas and interpretations are unique to each person. Friedman lays out three theses building up to this: Thesis 1 (interpretive determinism). At least insofar as an agent is acting deliberately, her interpretation of which action is advisable under her perceived circumstances will determine the action she takes. Thesis 2 (ideational determinism). An agent’s interpretation of which action is advisable under her perceived circumstances will be determined by the web of those of her ideas that seem (to her) relevant to (a) the circumstances themselves, (b) the purpose of actions that (for her) count as normatively advisable in those circumstances, and (c) the effects that seem (to her) likely to be produced by such actions in those circumstances. Also playing a part will be the implicit assumptions and other tacit ideas that stand behind ideas about (a), (b), and (c). Thesis 3 (ideational heterogeneity). The ideas, and thus the interpretations, that determine agents’ deliberate actions, as well as the ideas of the technocrats attempting to predict and control the agents’ actions, vary from person to person to some extent, making each person’s actions somewhat unpredictable to the others. Ideational heterogeneity is, to Friedman, the primary obstacle facing technocracy: If there is ideational heterogeneity, it would tend to produce some degree of behavioral unpredictability, given the other two theses. Ideational heterogeneity between my web of beliefs and yours would keep me from knowing how you will interpret your situation, and thus how you will act in response to it. Even if I know what your situation is, then – itself a difficult matter, if you are anonymous to me, as are most agents to the technocrats attempting to predict their behavior – I cannot know how you will subjectively interpret it, and thus how you will act in response to it, if you and I are ideationally heterogeneous. Even if we could know all the ideas someone had been exposed to in their life, simple variation in the order they encountered those ideas can produce different webs of beliefs: Consider a 14-year-old whose first exposure to a compelling picture of society (at T1) came from The Communist Manifesto, leading her to explore longer works by other critical theorists—all interpreted through a web of beliefs initially shaped in large part by Marx; but who then, at age 18 (T2), happened to read Atlas Shrugged, followed by other libertarian writers (say, as an assignment in a college course). The interpretations of society produced by her web of beliefs at T3, when she is 22, are likely to be very different from those produced at T3 by the web of beliefs of someone who, as a 14-year-old, read Ayn Rand first, leading her to explore other libertarian writers during the next four years, only getting to Marx and other critical theorists at age 18—even if, by the time she was 22, she had read exactly the same list of works as had her counterpart at T3. For the sequence in which these works were encountered would ensure that at each point along the way, the interpretive context in which a given item on the list was read would be cumulatively and radically different between the two people. Because effectively predicting behavior requires knowing in advance people’s reactions to their circumstances, which itself requires knowing in advance how they will subjectively perceive those circumstances and what reactions will occur to them to choose, the methods of the natural sciences cannot be usefully employed by technocracy: From the first thesis it follows that, to the extent that technocrats attempt to predict agents’ deliberate actions, they must predict the agents’ interpretations of their circumstances. This makes the technocrat’s task much more difficult than that of the natural scientist, contra Dewey. Inanimate physical entities do not act on the basis of interpretations of how best to respond to their objective circumstances; they act on the basis of the objective circumstances themselves. Unlike natural scientists, then, technocrats need to anticipate not the objective circumstances to which behavior will respond, but agents’ subjective interpretations of how they should deal with whichever objective circumstances they find relevant to their actions (which itself is a matter of interpretation). Statistics and probability cannot deal with ideational heterogeneity any better than natural sciences can: The heterogeneity of people’s ideas should not be written off as random noise that can be dealt with through probability theory. Ideational heterogeneity does not have random causes that would produce a normal distribution. Idiosyncratic ideas, which is what we are discussing, are not random ideas. They are ideas that have an interpretive, path-dependent logic of their own; behavior caused by this logic is not random (although it may seem to be random because we cannot easily understand it, lacking access to the webs of belief that cause it). As a result of ideational heterogeneity, failures of Type 4 knowledge are essentially guaranteed: Taken together, the factors suggest that, insofar as human actions are determined by human thought, technocrats are, as a practical matter, poorly equipped to predict them. Yet such predictions are required of technocrats. Behavior that can’t be reliably predicted by technocrats cannot be reliably controlled by technocratic policy initiatives. This runs afoul of the internal justification of technocracy: But if we have reason to think that we cannot accurately know the results of a certain action (such as a specific technocratic action), then our knowledge of the beneficial outcome of taking that type of action cannot serve as the rationale for it, as technocracy demands, since we lack such knowledge. Likewise, if the defender of technocracy concedes that it is likely to produce unintended consequences but allows, too, that she does not know what they are likely to be, then her putative knowledge of the beneficial results of technocracy (the prevention, alleviation, and solution of social problems) cannot serve as the rationale for it, for she lacks knowledge of what lies on the cost side of the ledger. Technocratic expertise faces internal challenges as well. We’ll look at Friedman’s evaluation of this in the next post.   Read Parts 4, 3, 2, and 1 of this series.   Kevin Corcoran is a Marine Corps veteran and a consultant in healthcare economics and analytics and holds a Bachelor of Science in Economics from George Mason University.  (0 COMMENTS)

  Within Transport was the Canadian government’s Air Navigation System, which cost the feds $200 million in annual subsidies. In 1996, partly to save money and partly to improve air navigation, the feds sold the system to a private nonprofit company called Nav Canada. The transaction netted the feds a cool $1.4 billion. That doesn’t sound like much, but remember that this was Canada, whose economy is approximately 10 percent of the size of the US economy. Remember also that this was in 1996 dollars. One quick change from the old model to Nav Canada was in funding. Whereas the federal government had funded the Air Navigation System with a tax on airline tickets, Nav Canada is financed with fees to airplanes that are based mostly on the weight of the airplane and the distance flown. This is from David R. Henderson, “Privatize the Skies,” Defining Ideas, January 18, 2023. And: If you want to see a quick comparison of technology with Nav Canada and “technology” in US air traffic control, check out this 2009 video. Compare US technology at the 1:23 point of the video with Nav Canada’s technology at 5:15. Thanks to Scott Lincicome at the Cato Institute for the link to the 2009 video. And: In a 2008 study for the Brookings Institution, economic scholar Dorothy Robyn, who had been a special assistant for economic policy during President Clinton’s time in office, catalogued the failings of air traffic control in the United States. Foremost among them were flight delays. In 2007, she estimated, flight delays cost passengers and airlines between $12 billion and $14 billion in lost time and fuel. She noted, for example, that the time taken to fly from New York to Los Angeles was twenty-five minutes longer in 2007 than in 1997. She attributed the problems to poor governance, another term for bad incentives. Because Congress and federal budget rules constrained the FAA, it was ill-suited to run “what amounts to a capital-intensive, high-tech service” business. Also, the use of passenger taxes to fund air traffic control “encourages overuse of scarce capacity” and deprives the FAA of feedback from aircraft operators. While Robyn called aircraft operators the FAA’s “real customer,” in fact the structure of control and financing means that its real customer is Congress. Read the whole thing.   (0 COMMENTS)