Economics

Applying the ten principles of Burning Man

This year, like every year, there is a discussion in burner circles about plug and play camps at Burning Man, camps where rich people pay over ten thousand dollars to have their camp set up, meals prepared, costumes designed, even sometimes a “sherpa” to help guide them around. These plug and play camps go against several of the principles of Burning Man, most notably, radical inclusion, radical self-reliance, and participation. Though I am a second year burner, I have tried to abide by the ten principles. Here is my attempt to clarify what they might mean in practical terms.

Like all rules, there is difficulty in interpreting the principles. Radical inclusion, for example, if taken literally, could mean no private property. This year dozens of people tried to wander into our camp on Friday night (our neighbors were having a big party and we experienced some overflow). Some lovely members of our camp spent the night directing the wanderers to the party next door and out of our camp. This was sometimes met with questioning, “aren’t all camps open?” The perhaps unfortunate answer is no. Most camps pack only enough food and booze for themselves. If there are leftovers to dinner they might share them with passers by, but most campsites are private property of the campers themselves. In this sense we can differentiate between private and public spheres in Burning Man. Public spheres, them camps and art cars should be radically inclusive, limiting people for mainly for safety reasons. Private spaces include sleeping areas, shade areas, and kitchens which are constructed solely for the use of people in the camp. Of course, these private spaces should be welcoming to outsiders, but outsiders should not feel entitled to use them.

More specifically, what constitutes a plug and play camp. Paying a camp mate for buying groceries does not make a plug and play camp. What about paying someone to use their generator, paying someone for a shade structure. Again, these do not seem to define plug and play camps. Simply by the nature of large camps, a small group of people will keep and maintain important playa gear, shade structures, cooking equipment, art cars etc. Paying for the maintenance and storage seems in line with Burning Man principles.

Let us have another scenario. Suppose you do not live within a day’s drive of Black Rock City. However, you have several friends in the Bay area. They camp together every year and are fairly well organized. One year you join their camp. They buy the food and bring it to Black Rock City as usual, as well as bringing shade structures and kitchen supplies, however, you are un-involved in the process except for an email chain simply because you live in a different area. You pay them at cost for the food and the shade structure. This seems to be getting closer to plug and play, but it is not quite there yet. What if you arrive on Tuesday after they have set up the communal shade structures and leave on Sunday before they take them down. How radically self-reliant are you?

I ask these questions, because, like most things, hard lines are difficult to draw. What then, separates someone of modest means of joining a camp of well-organized burners and paying a few hundred bucks for storing, maintaining and bringing the shade structure and kitchen to camp, as well as food and electricity, from a wealthy burner paying ten thousand dollars for something similar? In the above scenario, the only substantive distinction would be the quality of food/shade/alcohol/etc.

Larry Page, for example, attended Burning Man before 2002, far earlier than me. Who am I to judge him if he wants to organize a camp with all his rich friends? He likely contributes a lot more to the art projects than I do.

That being said, there are substantive differences between the plug and play camps and friends getting together and splitting costs. I will outline them below, but I think the primary aspects are, paid employees, wristbands, and setting up your own tent/yurt/etc.

Paid employees at Burning Man clearly go against radical self-reliance in a strong way. I think having a camp cook is a strong dividing line between chipping in when someone buys groceries and a plug and play camp. If Larry Page wants to eat caviar all week, that’s his prerogative, however, he or his friends should prepare it themselves.

Wristbands are another indicator of a pay to play camp. Human experience puts a natural limit on the number of people who can share a space/food with no formal exclusion. For example, my camp this year had 43 people and I had trouble remembering all of them. This seems around the natural limit for a camp which shares a kitchen. Our camp was small enough that we could identify most of our camp mates. On the other hand, wristbands mean that a camp is so big that facial recognition alone isn’t enough. The wristbands then act as a formal method of exclusion of outsiders from the food and drink. While not as clear of a giveaway of a plug and play camp as paid employees, wristbands still suggest something is running counter to the ethos of burning man.

Lastly, setting up your own sleeping structure. It is better if everyone helps set up the whole camp, but that is not always possible. This year there were a limited number of early arrival passes in my camp so the kitchen and the shade were mostly constructed by the time I arrived. However, people should at least set up their own sleeping structure. Of course, they can ask for help, and some people might be unable to do it. However, if you arrive at camp and everyone had their sleeping structure set up by someone else, it might be plug and play.

These are some of my recommendations on how to differentiate plug and play camps from regular camps. I purposefully left them fairly loose. I think radical inclusion means we should welcome everyone except those who repeatedly and intentionally violate the ten principles. In this context that means only defining plug and play camps as an extreme.

The next question is how to deal with these camps. This year, Larry Harvey said he would visit plug and play camps to see how he was received. This seems like a poor idea. I would be somewhat skeptical of a 50 year old man I did no know entering my camp. I would offer him beer, water, or a snack, but try to guide him out, as I would feel obligated to stay with him to ensure he did not take anything. I imagine female campers would be extra cautious for obvious reasons.

As for how to reduce the number of plug and play camps, I would recommend banning those who advertise for paid positions from Burning Man, and perhaps creating a public registry of them for humiliation. Even if they did not publicly advertise for the positions, word would likely escape it would be relatively easy to set up a mechanism for determining whether or not a camp had paid staff.

In conclusion, I am appreciative toward rich people at Burning Man. They allow me to see beautiful art that I would never be able to fund myself. However, they also have created some camps which violate the spirit and the principles of Burning Man. Banning paid employees at Burning Man (of course this excludes essential staff, police, doctors, EMTs, DPW, etc), would help restore some of those principles.

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Higher learning at an all-time low

In so many words, I say college is dumb and people who go are stupid over at Taki’s Mag today. An excerpt:

At a more general level, American universities have become far too lax regarding admissions. Many of the students I attended university with were spoiled, listless, and just going through the motions to graduate in between keggers. They weren’t challenging themselves to think more broadly about the world. For many it was a struggle to make it to class Friday morning after getting sloshed. Should the government really be picking up the tab for what amounts to a four-year Oktoberfest?

If you still aren’t convinced that college does more harm than good, consider the damage done to mental health. According to a recent survey by the American College Health Association, 54 percent of college students say they have felt overwhelming anxiety within the past year. In a recent Atlanticcover story, psychologist Jonathan Haidt and constitutional lawyer Greg Lukianoff detail how college administrators and professors are combating increased anxiety by suppressing unpleasant or controversial thoughts from the greater student body. Students are no longer engaging with ideas that are contrary to their own. Instead, they are shunning anything that is uncomfortable. This includes harassing professors, forcing speaker cancellations, and vandalizing the property of those who refuse to give in to political correctness. With this amount of thought policing on campus, it’s no wonder students are more anxious than ever.

Read it here, and then tell your friends in college they are wasting their time (all the while decreasing the supply of degrees in the marketplace and thus boosting your own value).

(Image source)

Big government and economic development

Noah Smith has an interesting piece on big government and economic development. Namely, there is a strong correlation between the size of government and economic development. The bigger the government, defined as government spending as a percentage of GDP, the richer the country. This relationship is fairly strong. Take, for example, the Economic Freedom Index published by the Fraser Institute. The index is constructed by five metrics, size of government, property rights, sound money, international trade, and regulation. Of these, four are strongly positively correlated with GDP per capita. One, size of government, has a negative correlation.

The point being, the typical libertarian story about the importance of government spending on economic development is false, or at least, incomplete. Noah, however, then makes a common error. He confuses size of government with strength of, government. State capacity, as it is commonly described in the economics literature, is not necessarily defined by government spending as percentage of GDP. Think of state capacity as the ability of a state to get things done. Singapore, for example, has a great deal of state capacity, yet the size of government is small compared to other developed countries, 17% compared to 40% for the UK.

It is possible to have a small government that is strong, a big government that is strong, and a small government that is weak. It is very difficult to have a big government that is weak. This is because a weak government is unable to tax enough of the economy for it’s spending to qualify as a big government. This dynamic creates a bias where big governments are going to be relatively well off because they have strong states which boost economic growth.

I also think Noah is mistaken when he identifies public goods as the reason big government is necessary. Examining America’s budget, it is clear only a fraction of it is spent on public goods in the traditional sense. The big ticket items, military spending, social security, medicare, are not public goods. The latter two are transfers, and America’s military spending does not count as a public good (for Americans at least). Even railroads, which Noah mentions and are generally considered to have been one of the most transformative innovations, only increased GDP in 1890 by 2.7%. Given that rich and poor countries are separated by wealth magnitudes of 30 or more, a 3,000% increase, it would take 1200 public goods on the order of railroads to account for the disparity in wealth.

A more plausible explanation for the importance of state capacity is free trade, though in a fairly roundabout way. States are better thought of as a coalition of different interest groups. In the middle ages, this group was a number of local lords, princes, etc. Each of these territories would impose a small tax. Even though each tax was small, the sum was large, making trade prohibitively expensive in many cases. State capacity is important because a strong state would be able to crush these local taxing authorities, creating an internal free trade zone. Britain, for example, had higher tariffs than France during the first half of the 20th century, when the industrial revolution began. Britain’s advantage was far freer internal trade.

In the modern world there are no longer local princes and lords. There are largely analogous actors though. Latin America, which I am more familiar with, has extremely strong unions. Mexico, for example, only recently eliminated the practice of buying and selling teaching positions. This was heavily protested by the teachers union. These interest groups protect their rents, ensuring low economic growth. A weak state is dominated by these interest groups. A strong state is able to overcome them.

Response to Romer on private cities

Paul Romer has commented skeptically on private cities in two recent interviews. Having written on private cities I thought I would take a second to respond.

First, in his own words “And my rule is that I will not support any public policy initiative for a new city if it is not the kind of place that I would be willing to go live or where I would want my children and grandchildren to live.”

I think this is the wrong criteria for judging public policy initiatives. A better way to judge public policy initiatives is whether they improve the lives of those who are targeted by the initiatives. There are many cities throughout the world that I doubt Paul Romer or his offspring would want to live in. However, those cities are inhabited by hundreds of millions of people who want better lives for themselves and their children.

Romer does argue for experimentation and does not seem wedded to a particular organizational structure of a Charter City. I agree that openness and experimentation is necessary in creating new cities. Unfortunately, Romer specifically contrasts his vision to that of private cities, suggesting private cities should not be allowed. Before specifically answering Romer’s critique I will offer a few comments defending private cities.

The basic argument is that profit encourages the effective provision of goods and services. A private city that fails to provide those goods and services would quickly go out of business. Romer correctly notes that this analogy is somewhat lacking. Moving to a new city is high cost. As such, exit in governance terms is always more costly than exiting a grocery store, as new grocery stores are easier to substitute.

One advantage of private cities is that the initial construction of a city is very costly. A private city would mean the cost of infrastructure would be provided privately, possibly saving a government billions of dollars.

Another advantage is the distinct organizational structure. One of the primary benefits of a new city, be it Charter or private, would be to create a new bureaucracy to escape corruption in the home country. A private city would have a strong incentive ensure the bureaucracy is entirely separated. Old bureaucratic influence would be more likely in a public vs. private partnership.

Romer’s primary critique comes down to police. I will quote him in full.

The track record of private police forces and private judicial proceedings is very bad. We have some of these in the United States run by private, but non-profit, universities. If the university has a sports program that generates lots of revenue and prestige, the university tends to protect athletes, typically men, who commit sexual violence, typically against woman. They do not offer anything like “equal protection under the law.” It is a telling illustration of how police and judicial proceedings can be bent to support the mission of the organization, even one like a university that we usually think of as being well intentioned, and fail to protect the people it is responsible for.

First, I think it is odd that in critiquing private, for profit cities, he uses the example of non-profit universities. However, I agree his point stands and must be thought about. Many informal sources I have read suggest similar things happen at hotels, petty crimes by wealthy patrons are somewhat ignored. That being said, I think Romer overestimates the police, in first world countries and especially in the developing world.

As the events of Ferguson and Baltimore illustrate, police have rarely lived up to the ideal of equal protection under the law. Freddie Gray likely died because of a nickel ride, a procedure where police do not strap a suspect in a police van and then drive recklessly. Chicago PD had a black site, and before that they literally tortured people. Stop and frisk, done by several major cities, but most prominently by New York City, is essentially the continual harassment of minority males. I would recommend Radley Balko’s excellent book if Romer is interested in modern policing in America.

However, Charter Cities and private cities can do the most good in the developing world. Unfortunately I am unaware of much literature on law enforcement in the developing world. That being said, it is assuredly worse than in America. Some friends from Honduras, which is the murder capital of the world, have told me stories which illustrate how bad law enforcement can get. I heard from several people that they fear the police more than they do the maras, the gang members. Other people have told me that women being arrested are usually sexually assaulted, if not raped.

Now, given the level of violence in Honduras, I imagine the police force there is more corrupt than average. However, when thinking about how to improve the world it is important to understand the world as it exists. And the world is currently filled with terrible poverty and predatory institutions. Private cities seem like they could reasonably be better than many of those institutions.

Romer then comments, “Unless someone is willing to specify whether there is a local police chief and how he/she is appointed and held accountable, any suggestion they make about private cities can be dismissed as frivolous.”

This question does not strike me as particularly difficult. The obvious answer is the police chief would be appointed by the owner of the city, though I imagine Romer would consider that a frivolous response. They would then be accountable to the owner of the city, who would be accountable to the residents to the extent the owner would want to maximize revenue.

There are a number of other mechanisms which could be used for police. First, the police can be controlled by a non-profit. The board can be controlled by a mix of the owners, politicians, and other prominent individuals.

Another scenario, if there is a proliferation of private cities, is to unbundle the goods provided by each. Perhaps a firm dedicated to policing services will arise, and be contracted by the city itself. It has happened in Sandy Springs Georgia, among other places.

Another possible scenario is for an accreditation body to emerge which would rank various police departments. They would only give high scores to those police departments which taught best practices.

A private city would also likely lack sovereign immunity. It would be subject to lawsuits if it broke it’s founding charter. The charter could specify equal application of the law and due process procedures. Failing to follow these procedures would guarantee a loss in revenue.

Ultimately, I don’t know whether a private city would provide these goods and services or whether it would devolve into a corporate dystopia. I suspect Romer does not know either. Given our collective ignorance I would recommend, as Romer does, creating a set of meta rules for changing institutions on a local level. I would not limit the institutional experimentation, so long as the experimentation is not imposed on anyone. I would hope that Romer would not either.

The age of exit

I wrote a piece for the Freeman arguing that we are in The Age of Exit.

Instead of ideological battles, the 21st century will be defined by political decentralization. Rather than enforcing a single political model as ideal for all of humanity, people will instead choose from a sort of political menu. Political decisions will be made on a more localized level, encouraging experimentation and innovation.

I think my thesis is broadly true. However, for a short article I was unable to discuss several challenges, namely, China, Russia, the Middle East, and the EU. China has SEZs, however they are unlikely to allow the same amount of political autonomy as European nations facing independence movements. China is also pursuing assimilation policies to wipe out the Uyghur population in Xinjiang that would be untenable in Western countries. Russia is recently aggressive, however the drop in oil prices makes them less dangerous. The Middle East is having their borders redrawn. They are largely tribalist but have a unifying element in the Muslim faith. The EU has centralized some functions lowering the cost of independence movements in Europe. My thesis is overstated to the extent I do have not accounted for these counter trends.

Ultimately changing geo-political trends are very complicated and will remain so. Humans will try to draw patterns out of limited data and extrapolate into the future without fully understanding the causes of the changes. I am certainly guilty of it. However, the mainstream narrative is currently missing an important trend, one that should be included in discussions of geo-politics, that of the increased power of political autonomy on a local scale.

Market nudges and discrimination

When it comes to the corporate version of systematic discrimination, the type based on preference for gender, sexual orientation, race, or some other generalized variable, businesses can employ the practice in two main ways.  Labor discrimination refers to employment preferences on said grounds.  On the other side of the spectrum, discrimination can also manifest in barring potential customers from transacting.

Markets, in all their unplanned, decentralized glory, inherently punish those who choose to discriminate.  Those skeptical of the efficiency and utility of the market routinely gloss over this point, yet its logical truth is as sound as they come in the sphere of economics.

On the employment side, routinely discriminating against a certain group or demographic has the effect of shrinking the potential pool of labor.  A smaller labor pool is a more expensive labor pool.  If you really needed to fill a key position and there were only 2 or 3 candidates qualified to take on this important role, their bargaining power, and thus negotiated salary, would be quite high.  Now imagine the same role, with the same crucial nature attached to it, yet picture 10 or 100 or 1,000 qualified candidates interested.  The wage really only has one direction to go.

Categorically refusing to hire competent labor, for whatever non-economic reason, results in a financial hit relative to the counter-factual alternative.  As a firm moves away from precisely zero discrimination to some positive amount, this will almost always be the case.

Similarly, slicing off discriminatory chunks of would-be customers has the obvious effect of shrinking one’s market opportunity.  Less customers means less sales and therefore less profit.  For unprofitable companies, discrimination means less time treading water and covering fixed costs and therefore quicker financial distress and bankruptcy.

From both angles, discriminators see their bottom lines lessen compared to what they otherwise would have been.  This is very much a good thing, assuming that you believe discrimination on the aforementioned arbitrary grounds is not a nice thing to partake in.

Not to be missed here are a few key characteristics of the procedural market mechanism that “punishes” discrimination and “rewards” its inverse on any number of corporate axes.  First of all, this perpetual nudge or disincentive is not designed by anyone.  The only preconditions here are a few key tenets of private property, such as the institution itself as well as a reasonable and stable rule of law.  No matter what might be consciously drawn-up to fix business discrimination, such proposals are not competing against an alternative that rewards or even allows these practices.  In fact, it is the opposite.

Second, the market mechanism requires no acknowledgment of its existence on behalf of the person responsible for the discrimination.  The process operates impersonally and in the background, constantly pushing back against discriminatory behavior.  While this system doesn’t thrust the prejudice or shortcomings into the face of those harboring them, such a process has its benefits.  It should, all else equal, result in less discriminatory active businesspeople, rather than a legally-enforced anti-discrimination regime which may remove some of the behavior from its midst but not the persons themselves, whose tendencies will tend to pop up in other areas, even if they might have to hire you or sell you goods (e.g. customer service, hostile workplace environment, promotions, reviews, etc…)

Moreover, confronting people about their politically incorrect and widely condemned behavior is often a good strategy for causing the confronted to double-down and retrench rather than the opposite.  Now you might say they deserve that, but it’s not clear if this is a benefit from a results perspective.  So the impersonal market nudges have their advantages.

This is not to say that a legislated approach to abolishing discrimination is not an effective or even preferred way of going about the issue; it certainly can be on various grounds.  In societies or areas with large amounts of deeply-rooted prejudice or skepticism of out-groups, such behavior may go on for long periods of time and can, indeed, be rewarded instead of punished, temporarily reversing the laws of economics where this behavior is praised or intentionally reinforced.

Nevertheless, government is a blunt tool and legislating problems away never quite goes as planned.  Imagine, for instance, the pendulum swinging too far to the one side, where salaries and wages are mandated to always be equal regardless of race or gender or even age.  Such a policy would be disastrous for economic efficiency and corresponding standards of living.  Women, as a whole and thus on average, make different educational choices and still shoulder different burdens in terms of household responsibilities like child-rearing (although this gap is closing).  They enter into less-risky professions, usually work less hours, and have career trajectories punctuated by maternity leave.  These things affect productivity: when you control for as many variables as possible and really isolate gender in econometric studies looking at wages, the large pay gap shrinks from those CNN-headline figures of 25-30% to almost nothing.

A comparable dynamic goes for minority groups and different races that are disproportionately concentrated in urban areas, such as blacks.  Policy failures including terrible public schools, the war on drugs, minimum wages, restrictive market regulations, and prejudiced law enforcement can disadvantage groups in many ways and job skills and productivity aren’t going up as a result.

Pure unfettered markets allow for the pricing of different productivity levels without fear of government fines or lawsuits.  If different groups display different relevant characteristics on average, regardless of why, monolithic legislative impositions will do more harm then good.  Meanwhile, the impersonal nature of the market helps ensure that what should be priced differently is, while simultaneously guarding against and nudging away true discriminatory, non-productivity based screening.

The left would have you believe that discrimination runs rampant in business today, parading around with impunity.  There is no corner of American capitalism untouched by it.  The truth is that it exists, yet it’s not all that common or meaningful.  If it was a widespread practice, on either the employee or customer front, then bloodthirsty capitalists have one of the largest pieces of low-hanging competitive advantage fruits floating before their very noses: don’t discriminate.

Bigger pools of labor and customers mean lower expenses and more sales and profits.  If women or homosexuals or Latinos were systematically under-compensated today in the U.S. economy, a surefire way to get a leg up on the competition would be to exclusively hire only these groups.  How, exactly, do the critics reconcile their market-skeptic indictment of the profit motive and greedy property owners with these big free lunches persisting all over the place?  I have yet to see a good explanation.  We are supposed to believe that all profit opportunities are exploited to the utmost in capitalist society, except, of course, for those that conveniently fit the ideological narrative of people who are just so certain they exist.

Until a better explanation (send me them if you’ve seen ’em!) emerges, don’t forget that markets provide a real incentive to avoid discrimination.  It might not be the best that can be done, but it is something after all, and no one had to think it up or continually maintain it.

The business person who acts on their racist, sexist, or homophobic views generally won’t do as well as they could have, they won’t escape unscathed, especially in today’s America.  The ballot box, however, offers no such impersonal push-back.  And that, if nothing else, is a distinction worth remembering.