Half Sigma

The cognitive dissonance of the right

I used to think that only the left suffered from cognitive dissonance. Whenever the left encounters truths about topics such as the hereditability of intelligence, or how the incentives of welfare caused an explosion of out of wedlock births, they get all mad and go into a state of denial.

Because of my dislike of the left, I was pretty shocked when a commenter called my post about worker pay “leftist garbage.”

It seems that anarcho-capitalists suffer from the same problems of cognitive dissonance as leftists. The anarcho-capitalist philosophy is apparently founded on the religious-like belief that people’s wealth is rightly and justly came by. They believe that the money people have is exactly equal to the value they contribute to the economy.

Such is the view of the Ayn Rand novel Atlas Shrugged. In her novel, the world’s richest men all give up and move to a hidden valley in the Rocky Mountains. Without their immense contribution to the world, the economy collapses. But this is utter nonsense. If the hundred richest people in the world disappeared tomorrow, we would probably not even notice their absence. Bill Gates is actually proving there’s nothing he does that others can’t do by retiring to run his charity. (As I previously wrote in my blog, philanthropy is entertainment for rich people. Also, see my post on baseball and Atlas Shrugged.)

I used to buy into the idea that how much money people have is very closely correlated with their contribution to the economy. But the more research I do, and the more hard thinking I do, the more I come to the conclusion that there is only a small correlation between the value people are capable of contributing to the economy, and the income people actually make.

For example, my analysis of the General Social Survey data reveals that verbal IQ has barely any effect on income after accounting for education. I was surprised as anyone by the conclusion, and did a lot more fiddling around with the GSS data to make sure that I didn’t do anything wrong. But indeed, those are the real results.

I did some fiddling around with the NHIS dataset and discovered that if a man is 5’7” or shorter, this wipes out half of the income boost of a college degree. If people were compensated based on their actual ability to contribute to the economy, then the data would be telling us that a short man with a high IQ and a college degree is less capable of contributing to the economy than an average height man with only an average IQ and a college degree.

Of course, you don’t really need to examine data to realize that income isn’t so highly correlated with ability. The reason why Dilbert is such a popular cartoon is because such a large percentage of the population identifies completely with the boss being dumber than the employees. Everyone who ever worked at a medium sized or larger company knows of idiots in high places.

At one of my first jobs, I was given the computer of the company’s controller because he was upgraded to a better computer. I discovered that he left a file on his hard drive containing the salary of every person who worked at the company. I learned that there was only a rough correlation between people’s contribution to the company and their salary. And of course I learned that the highest paid people at the company were the salesmen, the people who didn’t actually create anything of value. (I’m not saying that the salesmen didn’t contribute to the company’s profitability, only that they didn’t actually create anything of value.)

But anyway, in response to the guy who called me a leftist, the difference between myself and the leftist is that the leftist hates the idea that people’s salaries are correlated with their ability to contribute to the economy. I, on the other hand, actually like the idea. The problem is that I see only very little correlation between salary and ability to contribute.

Does the rise of Christianism increase libertarianism?

Andrew Sullivan cites a Gallup poll which indicates that a decreasing percentage of Americans think the government should be promoting moral values. 60% in 1996 compared with 48% today.

Sullivan thinks that "the rise of Christianism has achieved the opposite of its intent: it has made us more aware of the need to keep government out of our private lives and moral choices."

Maybe Sullivan has been reading Robert Heinlein's posthumous first novel For Us, the Living. In Heinlein's imagined future, a religious populist type takes over the country in the early part of the 21st century, and the people hate it so much that they revolt and form a new government based on libertarian principles in which the government cannot restrict any activity which doesn't directly harm someone else.

The new government also gives everyone a guaranteed income, an idea which I kind of like.

Can't cancel your subscription? Negative sum competition.

Ever encounter the situation where you are able to sign up for a service over the internet, but then when you want to cancel the service you have to call customer service and/or go through a big rigamarole?

I encountered this situation today when I wanted to downgrade the hosting plan on my old blog because I was paying for more bandwidth than I needed.

Although you are able to upgrade your account via the hosting service's (Netfirms') control panel, there are absolutely no instructions on how to downgrade your account. I had to waste an annoying amount of time (1) finding the phone number to customer service (2) waiting on hold (3) having to compose an email and (4) then having to respond to the email with more information.

Clearly, Netfirms' strategy is to make it difficult to downgrade so you won't bother. Netfirms increases its profits by giving worse customer service and in fact the inferior service costs them more money because instead of me completing the transaction by myself I have to use up their employees' time.

Is this something that calls for government regulation? Free marketeers will say "but the free market should sort this out." The problem is that laissez faire competition with assymetry of information rewards the bad behavior. A government regulation, requiring that any service or upgrade that you can sign up for on the internet you must also be able to downgrade or cancel on the internet, would create a benefit for the economy because consumers wouldn't have to waste time trying to cancel their services.

Atlas Shrugged and baseball

What would happen if the 100 highest paid baseball players, inspired by the book Atlas Shrugged, walked off the job and moved to a secluded valley in the moutains?

The answer is that nothing bad would happen at all. New players would step up to the plate (literally and figuratively) and you would barely notice the old players' absence. The overall quality of play would decrease ever so slightly, but this would be hard to notice because slightly less able batters would be swinging against slightly less able pitchers. It's hard to say that the game would be any less entertaining. It's widely believed that the level of play in the 1920s was far below the level of play today, but 1920s fans enjoyed the game just as much as the fans today.

Baseball is a winner-takes-all occupation. A slight difference in baseball ability results in a huge salary difference at the top.

So when people get the idea that baseball players don't "deserve" their high salaries, they are just observing the fact that the highest paid baseball players aren't contributing any more to the economy than the lowest paid baseball players.

Why are libertarians poor?

Johnathan Pearce of Samizdata writes about how many leftists are filthy rich, and then points out how few rich people are libertarians:

What intrigues me is why there are so few seriously, stinkingly, rich folk on the libertarian side of the street, so to speak. There are a few libertarian friends of mine with decent jobs, nice houses; some have inherited fairly serious money and do not have to work; but I don't know any of our number who has the sort of wealth described in Jason's book review. It is a paradox that celebrants of capitalism and market economics are often on their uppers, financially, in my experience, although my impressions are just that, impressions.

He suggests what I think is the answer that best explains it:

It may also be that, in today's largely corporate world, being known as a holder of controversial ideas (such as legalising heroin, zero state welfare, etc) is not good for the prospects of a person trying to clamber up the corporate ladder.

I think this applies not just to the corporate ladder, but all other money making endeavors. Having real knowledge and skills only gets you so much money. Maybe as much as $200,000/year if you possess some super valuable skill like being a pyschometrician. Becoming filthy rich is mostly about having interpersonal skills and getting along with the crowd.

People espousing unpopular ideas like libertarianism don't get along with people and thus never become filthy rich. So the only libertarians among the filthy rich are those who keep their opinions to themselves (and are so accustomed to it that they will never come out of the closet, even after they retire, it's just not who they are), or people who are born filthy rich, but more often than not the children of the filthy rich turn out more leftist than their parents.

Libertarianism is probably doomed as a philosophy because libertarians will never get powerful enough to promote their ideas.

Should prostitution be legalized?

Warren Meyer says that prostitution should be legalized.

I read his post, and thought about it, and now I wonder how it makes sense that sex between two men is a constitutionally protected right while sex between a man and a woman where some money is paid to the woman is grounds for imprisonment.

It isn't very consistent. I prefer it when our laws make sense.

Legalizing polygamy

In his excellent highly recommended blog voluntaryXchange, finance professor David Tufte writes about the coming legalization of polygamy, which he disproves of for the following reason:

Just in case we're missing the point here, tolerant people should recognize that polygamy means that the husband gets to choose when additional wives get added to the relationship. We need to recognize that this would allow one party of a contract to unilaterally decrease the property right of the second party in favor of an as yet uninvolved third party. Most people view that as a form of fraud.

The above probably accurately captures how polygamy is practiced in the backdesert of the Four Corners states, as well as in other parts of the world like Saudi Arabia, but I would assume that if it were legalized in the United States it would be legalized in such a way to be fair and equitable to both sexes. Every partner in the "marriage" would be required to approve of a new addition, and there wouldn't be any discrimination by sex. So a woman could have two husbands, or three women and four men could all join together in one big polygamous marriage.

This is the type of marriage that was endorsed by libertarian science fiction writer Robert Heinlein.

For the record, I previously wrote why legalizing gay marriage is not a libertarian position, so the same applies to polygamous marriage.

If polygamy were legalized, I think the type of group marriage that Heinlein envisioned would remain extremely rare because it just seems to go against human nature. Much more common would be the "traditional" one man many wives form of polygamy, and this would have a negative impact on society because it would mean that there wouldn't be enough women to go around for all the men who want to get married.

So I am opposed to legalizing polygamy for the same reasons I'm opposed to legalizing gay marriage: it's not a libertarian position and its effects are bad for society. However, I see no logical reason why gay marriage should be legal but not polygamy.

Anti-smoking laws and economics

In New York City, it’s illegal to smoke in a bar or restaurant.

I think this law is great. You can go out to a bar, and not have to deal with cigarette smoke irritating your contact lenses, and not go home with all your clothes smelling like they were dipped in an ashtray.

I conclude that restaurant/bar smoking imposed a significant externality upon non-smokers that outweighed any pleasure that smokers got from smoking. The anti-smoking laws have maximized the economic value of society.

Now I know that libertarians will say that it’s not the government’s business to maximize the value of society, which is something I disagree with.

Free marketeers will say that if smoking was so harmful to non-smokers, the bars and restaurants would have banned it without government intervention. And this I disagree with too. The free market assumption is based on markets being efficient, and clearly markets aren’t always efficient. (NASDAQ bubble anyone?)

The long established tradition of smoking in certain types of establishments remained even after society’s attitude towards smoking had changed. With smokers having very strong expectations of smoking, and restaurants and bars reluctant to tell smoking customers to take their business elsewhere, the status quo with its negative economic consequences was only able to be changed by government action.

My support of anti-smoking laws in public establishments should not be taken to assume that I support making the practice entirely illegal. If people want to harm their health in a manner that doesn’t create any externalities, then I’m all in favor of it, and in fact I’m in favor of marijuana and cocaine also being legalized.

New York City and libertarianism

New York City is considered to be the bluest of blue cities, and libertarianism is a hardcore rightist "red state" philosophy, so what’s the connection?

The answer is Ayn Rand. Ayn Rand is the inspiration for many libertarians, and some of her whackiest ideas (like returning to the gold standard) are embraced by libertarian types.

Reading The Fountainhead and Atlas Shrugged, one gets a sense of Ayn Rand’s love of New York City. Could The Fountainhead, a story about an architect who designs skyscrapers, have taken place in any city but New York? Ayn Rand respected the technological and industrial achievement of man, and the creation of an island of skyscrapers is an example of man’s triumph over nature.

It’s unfortunate that modern libertarians have abandoned Ayn Rand’s love of New York City and instead choose to live in out of the way places like New Hampshire (which is, at least, better than Wyoming).

A blogger’s trip to Washington, DC

Jacob Lyles, who seems to be some kind of libertarian, writes about his trip to Washington, DC. (Hat tip: Scott Scheule at Catallarchy).

I found some of what he wrote especially interesting. For example:

The humbled cityscape of DC is directly a result of hubris at its center. The entire city is a monument to the arrogance of politicians. There is a law in Mordor [Mordor is the evil land in J.R.R. Tolkien’s The Lord of the Rings] that no building may be taller than Mount Doom [another Tolkien analogy], the Capitol Dome from which the eye of government watches and controls the world’s affairs. As a result of the ordinance, this masterwork of city planning has a problem with urban sprawl.

I have the same complaint about DC, which is that it would be a better city if it had taller buildings. The arbitrary zoning law restricting the heights of buildings does indeed cause urban sprawl, and even worse, it causes exurbanization, which is why the commutes in the DC area are so bad. (See my post Traffic is bad? Blame the commuter.)

Their walls are emblazoned with slogans trumpeting the virtues of the city’s masters. They use words like freedom, liberty, and equality when they speak of the gifts of government.

Once again, I agree with Jacob, people look at the words without really bothering to consider if they still apply to our modern government.

Finally, Jacob provides us with his thoughts on modern art:

After we left the classical exhibit we proceeded to a display of the work of Ed Ruscha. This “artist” was a no-talent hack. Some of his work resembled scribbles that I had done in middle school. Other famous canvases were literally just nonsensical words written in a plain font on a plain background. Ruscha felt that meaning confined a work of art, and often he tried to avoid it. If he were a character in “The Fountainhead”, Ellsworth Toohey [the socialist who hates people with talent] would be his patron.

I too believe that modern art was a liberal plot (and a very successful one at that) to suppress the truly talented artists. Liberals hate the fact that ability isn’t distributed equally in the population, so they endorse a form of “art” that requires little ability. (See my recent post Thoughts on ability grouping in primary and secondary education.)

Microsoft millionaires and the arbitrariness of wealth.

Today's NY Times has an article about Microsoft millioniares, they being the approximately 10,000 Microsoft employees who became millionaires because their stock options went into the stratosphere.

This article demonstrates the random nature of who becomes wealthy and who doesn’t. I’m not saying that the Microsoft employees weren’t brighter than average and didn’t put in a lot of hours. But there are lots of bright people who work hard and don’t get anything out of it at all. These Microsoft millionaires were just extraordinarily lucky to be in the right place at the right time.

In fact they were more than just lucky, they were probably somewhat stupid, because those who understood the wise investing principle of diversification would have sold their Microsoft options as soon as they could and invested the proceeds in other assets. But the stupid employees who let their money ride were the ones who hit the biggest jackpots.

The example of the Microsoft millionaires is definitely counter to the Ayn Randian notion that the richest people are only those who are the most capable and most productive.

Richard Posner on spam

Richard Posner writes:

A genuine externality created by the Internet that may call for some kind of government regulation is the phenomenon of "spam."

He goes on to explain how spam burdens recipients while only providing a tiny benefit for the spammer.

This is very similar to my recent post on trackback spam and libertarianism where I explained how spamming is a negative sum activity and I recommended making it illegal or taxing it.

I guess great minds think alike.

Libertarian paternalism

Glenn Reynolds tricked me into reading this so-called pro-choice column, which has nothing to do with abortion, and is in fact an attack on “libertarian paternalism.”

“Libertarian paternalism” is an extremely deceptive name for the movement (which maybe doesn’t even exist) which is supposedly about giving people limited choices because too much choice would be bad for them.

The basic reasoning behind limiting people’s choices is that people make dumb choices. People won’t save for their retirement, so collectively our democracy has decided to force people to “save” via Social Security as well as nudge people to save in other ways, such as the tax code provision 401(k). (Yes, I am aware that Social Security is really a transfer payment program and not a savings program—does the general public realize this?)

If pot were legal, some people would choose to get high all the time, harming their health, so once again our democracy has collectively decided people shouldn’t have this choice.

I say that “libertarian paternalism” is a deceptive name because it seems to be about only giving people the illusion of choice and not real choice. The panoply of investment choices given out by most 401(k) programs is an example of illusory choice, because all the funds are generally managed under the same principles and give mediocre results. True choice means letting people invest their money in whatever stocks they want. Well, actually, true choice might mean letting people choose not to save their money at all but to spend it.

The Social Security “private accounts” initiative seems to me like an example of illusory choice, which is why I think we are better off with the current model (if I have to choose one or the other).

I recommend the book Irrational Exuberance by Robert Shiller which has some excellent insights into how people choose to invest their money.

* * *

And for my opinion more clearly stated: I agree that people are stupid and make dumb choices, but in most cases the government should let people make the wrong choices.

Trackback spam and libertarianism

Captain’s Quarters, Ed Driscoll, and Epoch3 discuss the problem of trackback spam.

Trackback spam is an example of negative sum activity. Sending a spam trackback ping may have a benefit of +1 to the spammer, but a cost of -10 to the blog owner and readers. But because so many members of the human race are scum, they will engage in activity that has a benefit for themselves but a net loss for society.

So what does all this have to do with libertarianism? It’s like I said in my first post, “Pure libertarianism just doesn’t work because, when left to themselves, people pursue agendas to benefit themselves at the expense of society.” Trackback spam is just another example of this observation of human nature.

Sometimes, the most efficient way to stop people from engaging in negative sum activity is to make the activity illegal (or perhaps better, tax it so that the entity engaging in the activity pays back society for the harm caused). In this manner, well thought out laws and taxes benefit society and increase its economic efficiency.

Minimum wage and libertarianism

The labor market is one of those areas where pure libertarianism fails. The typical libertarian argument is seen in this anti-minimum wage post at the Mises Economics Blog.

The problem with the labor market is that employers and employees have unequal bargaining power. If unskilled laborers were all able to get together and form bargaining units equal in power to that of the employers, the free market wage in that case might very well be higher than the current minimum wage of $5.15/hour (which is such a pathetically low wage anyway that it’s hard to understand why anyone is complaining about it being too high).

Because, in the absence of any labor regulation, the lowest wages would be significantly lower than if they were fairly bargained for, an unregulated labor market unjustly enriches employers at the expense of employees and results in an inefficient allocation of resources because labor is undervalued.

Thus, by regulating the labor market, we actually increase economic efficiency. Society as a whole benefits, but fair labor market regulation is opposed by the wealthiest 1% who own the capital and become even wealthier if wages are kept low.