Economics

Families and time preferences: Should a libertarian society be childfree and polyamorous?

Usually when libertarians talk about marriage, it’s about how the government shouldn’t be involved. When we talk about children, we debate whether or not we can sell them. Rarely do we ever talk about the role of the family in a free society. The US is experiencing a huge decline in the nuclear family, and with it, some very clear economic costs. Fewer people are getting married and the ones who do are waiting longer to take the leap. The average number of children per family is down to .9 from 1.3 in 1970, causing some people to refer to our current period as the “baby bust.” In the face of these statistics and the popularity of social experimentation among young libertarians, it is essential to take another look at the role of the nuclear family in relation to both the well-being of society and the individual.

At first glance, it’s easy to look at these statistics and sing the praises of human progress and individualism. In his article, Capitalism and the Family, Steve Horwitz argues it was capitalism that pulled women out of the household and into the workforce, while simultaneously reducing the demand for child labor. In other words, the birth rate declined and women were able to focus on building their careers before getting married.

While I admire independent women (and men, for that matter) and respect a couple’s personal decision to have fewer or no children, I think my generation is going to experience a huge amount of non-buyer’s remorse for choosing the #singlelyfe or the increasingly popular DINK life. To be clear, I think that less child labor and more working women is likely a good thing; I just think that the pendulum may have swung too far to the other side in an attempt to rebel against the “shackles” of traditionalism.

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There is no such thing as capitalism

Shot:

Chaser:

Before it is an ideological option, capitalism is a being, with an individual history (and fate). It is not necessary to like it — but it is an it.

Nick Land, Outside In

What is Capitalism? Where do we even begin to define it? When we find Adam Smith describing Capital (as ‘stock’) it already exists. Or does it? Capitalism is believed to be simply the system “in which trade, industry, and the means of production are controlled by private owners with the goal of making profits.” from this we develop a contrary theory ‘socialism‘ – in which they are controlled by public ownership. However, at no point in time does this ideal situation arise; in Smith’s discussion in Wealth of Nations, he documents the effect of tariff changes on wheat prices. That is to say, he documents what is ostensibly a public control on trade. Never do we have a system in which all three of these come completely into the hands of private owners – but who are private owners, anyway? Is a man who serves as an alderman for a time and then goes back to his business a ‘private owner’? Is a King a private owner, or a public owner? Are men like Dick Cheney, who switch between high office politics and high corporate governance private owners? Are they actually public owners?

We can, for some situations, attempt to make a clear delineation. A tariff is a public control over trade, provided it is the government – by which we mean the sovereign and its delegates – that determines the tariff and sees that it is enforced. If the sovereign is a king, we still regard it as a public control in this system; as the king embodies the people or state. But this embodiment, even with democratic sovereigns, is problematic. Granted, in theory it makes sense, but in practice we find regulations pushed by private actors through government to benefit them. Trust busting is notoriously taken on behalf of a monopoly’s potential or real competitors. This is not new – even before there were official incorporated entities like we have, there were private actors using public office and law to benefit themselves. There doesn’t seem to be a non-technical distinction between private and public; or it may be that private and public are not, as we might have assumed, contradictory at all.

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The first conscious machines will probably be on Wall Street

We must consider the possibility that intelligence, creativity, and even consciousness are purely functions of the material world, with human beings as a peculiar kind of computer. In a world operating under this assumption, machines can theoretically have directed cognition, decision-making and consciousness. Even today we see supercomputers owned by financial institutions making trading decisions on behalf of the companies that own them. These are specialized machines that do something that produces similar results to cognition, and the fact that they are specialized thinking machines might lead one to believe that this precludes them from being conscious. I think the opposite is true; human beings are not generalized computing organisms. The machines in question, just like humans, are not general purpose beings, but highly selective imitation devices with an innate dedicated language system.

The financial industry is always on the bleeding edge of technological application. Always. Beyond ticker tape, the telecommunications revolution and mere computer algorithms, today’s Wall Street is the first and perhaps only industry putting artificial intelligence toward actual productive ends. Machine trading, which today mostly falls under high-frequency trading, (HFT) accounts for 73% of US equity trading volume, an increase from 25% of equity trading volume only five years prior. HFT machines make dozens or even hundreds of trades within a second, which far outstrips the ability of a human or any group of humans to make such a decision. The Sharpe ratio, which is used in the financial world to indicate reward against risk, is much higher with HFT than with traditional strategies. Vast profits can be made by these trades being made before others, whether it is a few milliseconds before competing traders, or executing trades before others even realize it. The supercomputers executing these strategies look for various signals, such as volume, volatility, changes in global interest rates and tiny economic fluctuations. But beyond quantitative data, news articles, tweet and other qualitative information accessed through the internet is taken into the calculations by use of natural language processing system that convert mined text into meaning for the machine. A recent example of this artificially intelligent news analysis happened when Associated Press had its twitter account hacked, making a tweet on April 23, 2013, falsely asserting that there was an explosion at the White House. The S&P Index lost $136 billion in a matter of four minutes, though it was recovered just as quickly. Wallace Turbeville notes:

Most trading of securities and derivatives is accomplished using supercomputers wired directly into exchanges and other venues. They operate at trading speeds well below milliseconds so no human is involved. The trades are dictated by artificial intelligence software… pattern recognition software that infers motivations and other characteristics of other traders in the markets to pick which ones to exploit. Another element of the system is software that reads data, including Twitter traffic, for key word combinations so that the supercomputers can fly into action within, let’s say, one ten thousandth of a second of the appearance of the words. I am going to go out on a limb, here – I suspect that a tweet that comes from a “verified” Twitter account and includes “Obama”, “White House”, and “bombs” might qualify as a sell-triggering word combination.

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Questions and answers on private cities

I was just informed my Freeman piece on private cities was reblogged by Don Boudreaux, Arnold Kling, and Isegoria. First off, thanks! It’s fun to see my piece making the rounds, especially as it is one of the first I wrote. Before writing on why private cities haven’t emerged, I’d like to argue that they are going to emerge.

The most promising development is in Honduras. Honduras passed a law allowing ZEDEs (zonas de empleado y desarollo economico). ZEDEs are granted wide degrees of autonomy, being exempted from Honduran civil and commercial law. Currently the Committee for the Adoption of Best Practices is writing a set of guidelines that ZEDEs will have to meet. At least one company interested in Honduras is trying to start a proprietary community.

Beyond Honduras, there are several other countries that have expressed interest in setting up similar zones. There has also been a resurgence in interest cities, with books such as Glaesars Triumph of the City. I think the trend is toward decentralization and one aspect of that will be private cities.

Kling raises three questions as to why there aren’t private cities:

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Filling in the incentive void of democracy

It’s clear that democratization is not the panacea for the problems of developing countries. Elected leaders even lack some of the incentives for good leadership that unelected leaders have, since their terms are limited and their rule is a short saga in the history books. Problems that demand solutions that exceed the term of the elected executive can easily be ignored. Sudanese-born telecommunications billionaire Mo Ibrahim seems to have have a solution to this: his own Mo Ibrahim Prize for Achievement in African Leadership. An African himself, it is easy to see that Ibrahim wants to to see his continent prosper. For maximum impact, he has made a monetary surgical strike: paying the leaders themselves to actually care about their country’s prosperity and future. A generous sum, $5 million US plus a $200,000 US yearly payment, is awarded to leaders of African nations who have recently left office, and who:

  • Have developed their countries, lifted people out of poverty and paved the way for sustainable and equitable prosperity
  • Are exceptional role models for the continent
  • Ensure that Africa continues to benefit from the experience and expertise of exceptional leaders when they leave national office, by enabling them to continue in other public roles on the continent

All of these criteria are apparently geared towards incentivizing leadership that is focused on the good to come after the statesman leaves office. Kicking the can down the road, which is de rigeur for elected officials, is no longer possible with the independent oversight of the Ibrahim Foundation. Politicians normally serve the interests of their parties or themselves. In poor countries governments are at their most predatory, being, as Mark Lutter pointed out, the major culprit behind third world squalor. Spinning, rhetoric, and political grandstanding, which work on the voting public, presumably do not work for the award committee of the Ibrahim Foundation, which is entrusted with handling millions upon millions of dollars.

What exactly is the subtext of this award? It is that political systems, on their own, are not built to act in the interest of the nations that they control. The much vaunted democratic political system has not brought African nations to the promised land. So why does the Foundation require that leaders who receive the award to be democratically elected? To the naive, this might be seen as an encouragement of democratic leadership, which is certainly a better alternative to dictatorship. I would guess that Ibrahim also wants to in fact fix democracy and all its misplaced incentives, having the requirement of a democratic election in order pinpoint these problems, and using his wealth to tip the scales from favoring government to favoring society.

Entrepreneurs and the informal economy

Here is a very interesting new paper on the informal economy by Andrei Shleifer and Rafeal la Porta. It is great to see two prominent economists write on the subject. The abstract gives an overview of the first half of the paper:

We establish five facts about the informal economy in developing countries. First, it is huge, reaching about half of the total in the poorest countries. Second, it has extremely low productivity compared to the formal economy: informal firms are typically small, inefficient,  and run by poorly educated entrepreneurs. Third, although avoidance of taxes and regulations is an important reason for informality, the productivity of informal firms is too low for them to thrive in the formal sector. Lowering registration costs neither brings many informal firms into the formal sector, nor unleashes economic growth. Fourth, the informal economy is largely disconnected from the formal economy. Informal firms rarely transition to formality, and continue their existence, often for years or even decades, without much growth or improvement. Fifth, as countries grow and develop, the informal economy eventually shrinks, and the formal economy comes to dominate economic life.

I found the second half more interesting. They critique Hernando de Soto, who argues informal economies are an untapped reservoir of potential constrained by regulations. Because of the need for business permits and government recognition of property they are unable to enter the formal economy. Shleifer and la Porta find that most informal businesses are constrained by finance, not regulation, and fail to enter the formal economy. This suggests the problem is not regulation. Instead, they conclude:

The evidence suggests that an important bottleneck to economic growth is not the supply of  better educated workers; indeed, at least on many observable characteristics the workers are rather  similar in informal and formal firms. Rather, the bottleneck is the supply of educated entrepreneurs –  people who can run productive businesses. These entrepreneurs create and expand modern businesses  with which informal firms, despite all their benefits of avoiding taxes and regulations, simply cannot compete.

This is largely consistent with my experience during the last week in Honduras. I was interviewing with a firm run by an Italian. In his words, the firm imports business models from middle income countries, Mexico and Argentina, to low income countries, Honduras, Guatemala, and Nicaragua. His success, without substantial changes in economic freedom, suggests the problem is not institutional, but entrepreneurial. I very much look forward to more research along these lines.