No, a myriad of new silk roads will not rise up to replace the old one

The State’s war on Dark Net marketplaces will result in previously trusted marketplaces being replaced by riskier and less trustworthy ones. Honest people operating on a reasonable risk/reward calculation will increasingly abstain from using them. The likely consequence is that the confidence level of DarkNet c-to-b transactions will begin to resemble that of traditional c-to-b transactions, with the additional negative repercussions of being more riskier to the buyer than the traditional c-to-b model.

By now, I’m sure anyone reading this post is aware of the sentence handed down to Ross Ulbricht(aka,”Dread Pirate Roberts”). The purpose of this post is not to extend a commentary on the barbaric character of the sentence.1 That will be for another time. Instead, I want to counter the conventional postscript that concludes virtually every postmortem of the drug war.

“Just another example of an irrational,failed drug war. Take one down, fifteen will rise up to take its place…”

Nope. Not the case. Particularly, in this instance.

First, we should accurately report the full sentence Ulbricht received. It was life imprisonment and a 185 million dollar fine. The State rolled up money laundering charges in the conviction, in no small part because the United States government now “recognizes” bitcoin as a legitimate medium of exchange.2The financial penalty of bitcoin money laundering appears to be the total transactional value that can be pieced together through a forensic analysis of the public blockchain.

Secondly, public court documents and testimony regarding the fed purchases of product from the original silk road marketplace indicate an abnormal level of reliability in a c-to-b(consumer to business, or, if you prefer, user to dealer) drug transaction. Documents indicate you had about a 95% level of confidence that you were actually getting what you thought you were buying. Trust me, that level of confidence is not the norm in traditional c-to-b drug transactions. That’s the real story. The “reduction in violence” argument is not. Frankly, if you made the argument, it is a good indication that your only knowledge of the drug trade comes from watching tv/movies and reading state media sources.

Unfortunately, the effect of barbaric sentencing and draconian money laundering penalties will serve to introduce quite a bit of fraud into Dark Net drug marketplaces. Yes, knock one down, and perhaps fifteen will rise up to take its place. But the level of confidence of a c-to-b transaction confidence will begin to approach the traditional level and indeed may even fall below what you can expect on “the street.” In addition, the confidence level of “dealing with a narc,” on either side of the ledger(consumer or supplier), begins to exceed what you can expect “on the street.” So while there will be replacements, they won’t be exactly the same version as the previous ones.

Frankly, anyone who engages in a repeated pattern of buying or selling on Dark Net sites can only expect to be busted. You may as well just send out an email to the pigs for all intent and purposes. This is opposed to the traditional model where only the dealer following a repeated pattern faces a probable certainty of being prosecuted.

Bitcoin has its uses, but in terms of buying contraband, you are better off sticking to the old-fashioned human p2p network of your reasonably trusted inner/outer circle.

Unfortunately, that conclusion doesn’t exactly make for a “failed war on drugs,” now does it?

1 I’ve read many characterizations that described it as “tragic.” Its not tragic. Its barbaric.

2 Another demonstration why the dipshit “libertarians” at George Mason University campaigning for a “bitcoin regulatory regime” are mortal enemies of libertarianism. The argument that a “regulatory regime” carves out a “legitimate space” in a space that would otherwise be treated wholly as “criminal” actually introduces a far more punitive criminal sanction regime.”Legitimacy” allows the feds to wield the weapon of “money laundering.” And the blockchain is not anonymous. It is only pseudo-anonymous. The crime of operating a website can now carry the financial penalty of any applicable transactional value of the duly recorded transactions in the public blockchain.

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What Is Free Trade?

Terms like “free trade” and “free markets” are ubiquitous spout from the lips of libertarians. Occasionally, it is helpful to review what these terms actually mean. “Free” specifically refers to free of any encumbering moral ends other than the ends of the exchanging agents. So it is a matter of liberty. Practically, it means no contravening authority standing between supply and demand. The only justice promised is one of mutual advantage.

Here is what “free” does not mean(in terms of a sufficiency condition): (i) efficiency (ii) self-regulation (3) un-regulation (4) de-regulation (5) perfect competition (5) pareto optimality (6) nihilism (7) justice ….

Yes, “free trade” is not even a sufficiency condition for mutual advantage in the sense that if we show “free trade” we necessarily show “mutual advantage.” Otherwise, there would be little need or demand for that thing called the law.

The point is that “free trade” presumes liberty but implies little beyond that other than an implicit(sometimes explicit) promised mutual advantage. We fashion “free trade” into a social theory(spontaneous order, invisible hand, etc) from experience and attempt to model this experience by economic analysis of rational (marginal)utility calculating agency. While I have no quibble with this per se, it remains important to be cognizant of the distinction between a social theory(predicated on a justice of mutual advantage) and methodology of economic modeling.1.

For example, the notion of “market failure” is in need of a curious bit of deconstruction. “Free Trade” presumes liberty but implies little beyond that. “Free Market Failure” is really a bit of a non sequitur. What we really have is “model failure.” This justifies all sorts of government regulatory intervention to enforce a model outcome. Of course, when we apply an economic analysis to the regulatory agency itself we end up with a predictive model error of correcting the original “model error.” This, of course, is termed “government failure, the distinction here being that the “regulatory agency” is actually promising everything.

Frankly, I think the above example demonstrates why laissez-faire doesn’t comport very well with the neoclassical economic method. That which treats “free trade” as a matter of liberty is always going to spit out model error by something that treats it instead as a regulatory model of a rational pattern.

The incongruity between liberty and regulatory efficiency can be profound. To see this, consider “comparative advantage.” We all should be familiar with how opportunity costs explain patterns of trade. Even if, say, A is superior in productive skill and efficiency to B for every produced item in a given economy, there are opportunity costs involved in A dividing time and labor to self-produce all items of our given economy. So rather than dividing the time up proportionately to produce everything, A specializes in those things which it does relatively best at(compared to what A does less best at, or earns less from), leaving an opportunity for B to produce the other things for trade exchange.2

No doubt opportunity costs explain trade patterns. But comparative advantage also implicitly suggests something else: namely, refusing to trade imposes external costs on trading partners. In our A-B model, if B refuses to trade with A, B imposes costs on A. Essentially, refusing to trade not only hurts yourself, but it also hurts others.

Now I won’t dispute the external costs implication of comparative advantage. However, I will dispute that these costs are a form of injustice, or more specifically, that these costs are something that need to be enforceably corrected(in the legal or regulatory sense). “Free Trade,” after all, must include the freedom not to trade. Otherwise, it is just another form of “freedom to obey.”

However, within the purview of neoclassical economics, “enforcing” Free Trade is entirely consistent with a regulatory model of a rational pattern.

This brings us to a consideration of these “Free Trade Agreements” such as TPP. The public arguments for these trade pacts–supported by many libertarians–essentially reduce to correcting the external costs implied by comparative advantage. The rationale is that despite any “flaws” these pacts are an improvement. An ancillary argument is that if the US doesn’t take the lead in forging these agreements, it opens the door for less savory countries(read: China, Russia) to forge something far less agreeable.

Frankly, these Free Trade Agreements demonstrate why sometimes it is better(perhaps always) to think like a philosopher and not like an economist. In lieu of thinking about the pareto efficiency of trade models, one perhaps may be better served contemplating the philosophical implications of a social theory that implies one bad actor playing a bad strategy forces everyone to play a bad strategy. Au contraire, “justice of mutual advantage.” More like a suicide pact.

Perhaps only after such consideration is it then profitable to dissect the problem from an economic point of view.

From a public choice perspective, these “free trade agreements” are essentially trading decison-making costs for external costs. Recall decision-making costs are “the price we pay for civilization.” These type of costs are imposed by a decision-making rule whose legitimacy–at least within the purview of liberal political theory–is delineated by some condition of unanimity.

A trade-pact is rent-seeking bargain. But the decison-making cost of this bargain results in a disclaimer that the price we pay for civilization–in this case, trade–is the loss of geo-political differentiation. In other words, unitary jurisdiction. Or more descriptive yet, oligarchical collectivism.

When the United States declares the entire planet a battlefield or issues talking points asserting global jurisdictional reach, it is not grandstanding on an explicit or implicit threat of military invasion. Instead, it is relying on a presumption of organs of a unitary political economy serving as an agency of enforcement. Wherever you are on this planet, there stands an authority between supply and demand that is hierarchically intertwined with the regulatory jurisdictional reach of any government. The price of dissent is that you do not trade. Or another way to put it: you can trade but there is nowhere to run.

A rent-seeking bargain that imposes decison-making costs is the negation of Milton Friedman’s famous aphorism regarding capitalism and freedom: showing freedom is sufficient for showing capitalism3. Friedman’s aphorism fails because capitalism as an economic treatment translates to a regulatory model of a rational pattern. And an economic analysis of this regulatory model suggests the potential for an intractable agency problem. If trade entails a decision-making cost attached to the enforcement of the regulatory model, then capitalism trumps “liberal trumps,” with the latter defenseless against an agency problem in our rent-seeking bargain.4

This agency problem is why I reject the notion of markets as any instrument of social justice, a la bleeding heart libertarianism. To treat it as such an instrument is to treat it as a regulatory model of a promised rational pattern. Enforcing the promise is what introduces the agency problem. Markets serving in the role of a type distributive justice may indeed by an observed pattern, but justice without an enforcement mechanism/agency is a trifle thing indeed. Distributive justice as an enforceable outcome is not a free market.

I conclusion, I am bit flummoxed at the extent many libertarians endorse “free market” as a regulatory model of a rational pattern. Whether cognizant of it or not, this endorsement more or less substitutes “free trade” with “conscription to the market.”5

Interestingly, the most recent cinematic work of the Wachowski brothers(actually now brother/sister since Lana now identifies as a trans-gender), Cloud Atlas(which is a cinematic adaptation of a novel and not an original screenplay) illustrates my point quite dramatically, demonstrating that if a picture is worth a thousand words, a good film is certainly worth a million.

In the futuristic corporate state, Neo Seoul6, fabricant AI subordinate themselves to indentured contractual servitude to the efficient functioning of consumer society. In exchange, the fabricants are promised a retirement nirvana(operating under their own agency with no wants) at the conclusion of their contractual obligation. The fabricants are indoctrinated into a religious catechism oriented around the sanctity of the consumer.

In reality, the fabricants are not given their promised nirvana. Instead they are duplicitously decommissioned and recycled as a cheap source of protein to newly “manufactured fabricants.” The underground rebellion to the corporate state places its hope in the emergence of “free will fabricants,” in the story dramatized by sonmi-451. When sonmi-451 is given the “liberty to read,” she rejects the present bargain of indentured servitude in exchange for a future payoff of agency. This is before she learns that the promised future is actually a sham. The immediate consequence of her decision, of course, is her own execution7.

Just as “unpluggable” perhaps conveys more immediate meaning than any lengthy tome against the standard liturgy of political obligation, to those who insist on intoning the free market as some type of regulatory model, whether it be efficiency, trade deals or social justice, perhaps the best response is simply: sonmi-4518

1 economics is certainly useful as a positive science in describing observed patterns but I find it often suffers from an Is-Ought problem in making unjustifiable prescriptive statements. I believe this view is substantiated by Tullock’s little-referenced work, “Efficient Rent-Seeking: Chronicle of an Intellectual Quagmire,” which establishes the apparent quagmire of prescriptive reasoning in economics. As I would say, Free Trade is little more than a statement about “free agency” or “free will” and not a logical condition for any model outcome.

2 Absolute advantage/superiority of A over B in everything is not real-world. It is merely an illustrative device to demonstrate how opportunity costs trump the historical notion of “absolute advantage” in explaining trade patterns.

3 Freedom is understood to mean in the “liberal” sense.

4 Richard Stallman’s classic parable, “The Right to Read,” is an excellent example of this point.

5 Free Trade is contingent upon a free agency or free will. However, this should be distinguished from the libertarian meaning of “free will” in metaphysics, which is contingent upon path independency(in determinism, similar to mechanics in physics, knowledge of initial conditions of a path is sufficient to know the path at any future state). The question of whether one has a choice in preferring A to B is an interesting one, but not germane to the discussion. Free will in our discussion is perhaps better interpreted as “free preference,” i.e., the liberty to act according to preference.

6 The ideological party of this corporate state is “unanimity.”

7 The Buddhist-Existentialist theme of the story is that we are a product of each other’s stands that ripple throughout time, so the future consequence of her decision is a better outcome down the line within “the cloud.”

8 451 is obviously a nod to Fahrenheit 451, specifically the auto-ignition point of paper books.

Roberts Affirms the Total State Model

Yesterday, the Roberts court affirmed the Obama defense of the so-called “Affordable Care Act.” To me, it is not a particularly surprising result. Two years ago, I noted that the Obama Admin’s principal argument relied on the classification of the mandate as a tax and that the legislation–all 2000 pages plus–was carefully crafted to categorize any penalty as an excise tax. As I wrote at the time, Obama–his “socialist” caricature notwithstanding–wasn’t arguing the case by making appeals to the Communist Manifesto. He was merely relying on past American constitutional precedent. He had “the firm’s” legal team carefully draft the new rules of the health care political economy to pass compliance strictly with the firm’s monopoly power to tax.

And it passed the compliance test. Indeed, John Roberts used this decision to affirm the role of his court to be the adjudicators of compliance and not the arbiters of constraint. Really, the judiciary is the only possible monkey wrench in a model of total government by political competition/rent-seeking. Yesterday, Roberts proclaimed that the role of the judiciary is not to save us from democracy, which, of course, means “the firm.”

We simply pose a simple question to Mr. Roberts: who wrote that 2000 page piece of legislation? Who could compose an entire model of political economy from the mere power to tax in a fully “compliant” manner. Justice ain’t that blind, sir….

Incredibly, there are some so-called libertarians who are hailing this decision as a bulwark against the future regulatory State because of some speculative nonsense that Roberts has now taken the “commerce clause” off the table. Sheeeeyyyyyytttttt. The regulatory state ultimately derives from the power to tax. The Firm more or less is the regulatory state. It is not going anywhere.

Let us dispense with the romance and the delusion. Politics is a rent-seeking game. Richard Posner and the Chicago School had it wrong. It is not a game where nothing is being redistributed, that is, where outlays = rents. Tullock and the Virginia School have the better model but resorted to a ridiculous “inefficient market hypothesis” to try to save liberalism in a public choice context when it became apparent that rents >> outlays. Tullock, himself, in explaining why he couldn’t convert to the libertarianism, more or less admitted that he simply preferred the blue pill to the red pill–he was too married to the institutionalism he was critiquing to defect.

If we accept that firms can arise in a “free market” of horizontal trading partners because a hierarchy of economic governance can sometimes prove to maximize economic rents relative to a regime of horizontal trading partners–as a consequence of the frictional costs of bargaining–we have to accept the reality of “firms” in political competition. It is indefensible to hold a position of firms as a consequence of economic rent-seeking in a free market but no firms as a consequence of rent-seeking in political competition. Yes, we can think of political parties as “firms,” but the actual firm is the State.

Today we know(or we should know) that Madisonian Democracy is a horribly flawed political concept. The idea that high institutional frictional costs constrain political competition/rent-seeking is just wrong. On the contrary, the high institutional transaction costs are what actually guarantee the emergence of “the Firm.” Equal competitive agents(“gangs”) fighting over rents in a highly frictional environment can be literally infinitely wasteful. To avoid this, you thus have a type of hierarchical, economic governance that emerges–the Firm.

John Roberts, “evil genius,” I think not. I think the evil geniuses are these libertarian think tanks and mags that keep propagandizing “proper role of government,” “limited government,” and demonstrate infinite capacity to find “silver linings” in libertarian-conservative fusionism. You doubt the “State as Firm?” Well, sometimes you just have to actually give a demonstration of the empirical reality. Below is just the “legislative component” of “the Firm.” Do you see any silver linings, any evidence of limited government, any evidence that it matters one fuck whether it is the monopoly power to tax or to “regulate” regarding the ends of our Firm?

The House Legislative Component of The Firm

Committee Chairperson Ranking Member
Subcommittee
Agriculture Frank Lucas (R-OK) Collin C. Peterson (D-MN)
Conservation, Energy, and Forestry Glenn Thompson (R-PA) Tim Holden (D-PA)
Department Operations, Oversight, and Credit Jeff Fortenberry (R-NE) Marcia Fudge (D-OH)
General Farm Commodities and Risk Management Mike Conaway (R-TX) Leonard Boswell (D-IA)
Livestock, Dairy, and Poultry Tom Rooney (R-FL) Dennis Cardoza (D-CA)
Nutrition and Horticulture Jean Schmidt (R-OH) Joe Baca (D-CA)
Rural Development, Research, Biotechnology, and Foreign Agriculture Timothy V. Johnson (R-IL) Jim Costa (D-CA)
Appropriations Hal Rogers (R-KY) Norm Dicks (D-WA)
Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Jack Kingston (R-GA) Sam Farr (D-CA)
Commerce, Justice, Science, and Related Agencies Frank Wolf (R-VA) Chaka Fattah (D-PA)
Defense Bill Young (R-FL) Norm Dicks (D-WA)
Energy and Water Development Rodney Frelinghuysen (R-NJ) Pete Visclosky (D-IN)
Financial Services and General Government Jo Ann Emerson (R-MO) José Serrano (D-NY)
Homeland Security Robert Aderholt (R-AL) David Price (D-NC)
Interior, Environment, and Related Agencies Mike Simpson (R-ID) Jim Moran (D-VA)
Labor, Health and Human Services, Education, and Related Agencies Denny Rehberg (R-MT) Rosa DeLauro (D-CT)
Legislative Branch Ander Crenshaw (R-FL) Mike Honda (D-CA)
Military Construction, Veterans Affairs, and Related Agencies John Culberson (R-TX) Sanford Bishop (D-GA)
State, Foreign Operations, and Related Programs Kay Granger (R-TX) Nita Lowey (D-NY)
Transportation, Housing and Urban Development, and Related Agencies Tom Latham (R-IA) John Olver (D-MA)
Armed Services Buck McKeon (R-CA) Adam Smith (D-WA)
Emerging Threats and Capabilities Mac Thornberry (R-TX) Jim Langevin, (D-RI)
Military Personnel Joe Wilson (R-SC) Susan Davis (D-CA)
Oversight and Investigations Rob Wittman (R-VA) Jim Cooper (D-TN)
Readiness Randy Forbes (R-VA) Madeleine Bordallo (D-GU)
Seapower and Projection Forces Todd Akin (R-MO) Mike McIntyre (D-NC)
Strategic Forces Mike Turner (R-OH) Loretta Sanchez (D-CA)
Tactical Air and Land Forces Roscoe Bartlett (R-MD) Silvestre Reyes (D-TX)
Budget Paul Ryan (R-WI) Chris Van Hollen (D-MD)
Education and the Workforce John Kline (R-MN) George Miller (D-CA)
Early Childhood, Elementary and Secondary Education Duncan D. Hunter (R-CA) Dale Kildee (D-MI)
Health, Employment, Labor, and Pensions Phil Roe (R-TN) Rob Andrews (D-NJ)
Higher Education and Workforce Training Virginia Foxx (R-NC) Ruben Hinojosa (D-TX)
Workforce Protections Tim Walberg (R-MI) Lynn Woolsey (D-CA)
Energy and Commerce Fred Upton (R-MI) Henry Waxman (D-CA)
Commerce, Manufacturing and Trade Mary Bono Mack (R-CA) G. K. Butterfield (D-NC)
Communications and Technology Greg Walden (R-OR) Anna Eshoo (D-CA)
Energy and Power Ed Whitfield (R-KY) Bobby Rush (D-IL)
Environment and the Economy John Shimkus (R-IL) Gene Green (D-TX)
Health Joe Pitts (R-PA) Frank Pallone (D-NJ)
Oversight and Investigations Cliff Stearns (R-FL) Diana DeGette (D-CO)
Ethics Jo Bonner (R-AL) Linda Sánchez (D-CA)
Financial Services Spencer Bachus (R-AL) Barney Frank (D-MA)
Capital Markets and Government-Sponsored Enterprises Scott Garrett (R-NJ) Maxine Waters (D-CA)
Domestic Monetary Policy and Technology Ron Paul (R-TX) William Clay, Jr. (D-MO)
Financial Institutions and Consumer Credit Shelley Moore Capito (R-WV) Carolyn B. Maloney (D-NY)
Insurance, Housing and Community Opportunity Judy Biggert (R-IL) Luis Gutierrez (D-IL)
International Monetary Policy and Trade Gary Miller (R-CA) Carolyn McCarthy (D-NY)
Oversight and Investigations Randy Neugebauer (R-TX) Michael Capuano (D-MA)
Foreign Affairs Ileana Ros-Lehtinen (R-FL) Howard Berman (D-CA)
Africa, Global Health, and Human Rights Chris Smith (R-NJ) Karen Bass (D-CA)
Asia and the Pacific Donald A. Manzullo (R-IL) Eni Faleomavaega (D-AS)
Europe and Eurasia Dan Burton (R-IN) Gregory Meeks (D-NY)
Middle East and South Asia Steve Chabot (R-OH) Gary Ackerman (D-NY)
Oversight and Investigations Dana Rohrabacher (R-CA) Russ Carnahan (D-MO)
Terrorism, Nonproliferation, and Trade Ed Royce (R-CA) Brad Sherman (D-CA)
Western Hemisphere Connie Mack IV (R-FL) Eliot Engel (D-NY)
Homeland Security Peter T. King (R-NY) Bennie Thompson (D-MS)
Border and Maritime Security Candice Miller (R-MI) Henry Cuellar (D-TX)
Counterterrorism and Intelligence Pat Meehan (R-PA) Jackie Speier (D-CA)
Cybersecurity, Infrastructure Protection, and Security Technologies Dan Lungren (R-CA) Yvette Clarke (D-NY)
Emergency Preparedness, Response, and Communications Gus Bilirakis (R-FL) Laura Richardson (D-CA)
Oversight, Investigations, and Management Michael McCaul (R-TX) William R. Keating (D-MA)
Transportation Security Mike D. Rogers (R-AL) Sheila Jackson Lee (D-TX)
House Administration Dan Lungren (R-CA) Bob Brady (D-PA)
Oversight Phil Gingrey (R-GA) Zoe Lofgren (D-CA)
Elections Gregg Harper (R-MS) Bob Brady (D-PA)
Judiciary Lamar S. Smith (R-TX) John Conyers (D-MI)
Courts, Commercial and Administrative Law Howard Coble (R-NC) Steve Cohen (D-TN)
Constitution Trent Franks (R-AZ) Jerrold Nadler (D-NY)
Intellectual Property, Competition, and the Internet Bob Goodlatte (R-VA) Mel Watt (D-NC)
Crime, Terrorism, and Homeland Security Jim Sensenbrenner (R-WI) Bobby Scott (D-VA)
Immigration Policy and Enforcement Elton Gallegly (R-CA) Zoe Lofgren (D-CA)
Natural Resources Doc Hastings (R-WA) Ed Markey (D-MA)
Energy and Mineral Resources Doug Lamborn (R-CO) Rush D. Holt (D-NJ)
Fisheries, Wildlife, Oceans and Insular Affairs John Fleming (R-LA) Gregorio Sablan (D-MP)
Indian and Alaska Native Affairs Don Young (R-AK) Ben R. Luján (D-NM)
National Parks, Forests and Public Lands Rob Bishop (R-UT) Raúl Grijalva (D-AZ)
Water and Power Tom McClintock (R-CA) Grace Napolitano (D-CA)
Oversight and Government Reform Darrell Issa (R-CA) Elijah Cummings (D-MD)
Federal Workforce, U.S. Postal Service and Labor Policy Dennis A. Ross (R-FL) Stephen Lynch (D-MA)
Government Organization, Efficiency and Financial Management Todd Platts (R-PA) Ed Towns (D-NY)
Health Care, District of Columbia, Census and the National Archives Trey Gowdy (R-SC) Danny K. Davis (D-IL)
National Security, Homeland Defense and Foreign Operations Jason Chaffetz (R-UT) John F. Tierney (D-MA)
Regulatory Affairs, Stimulus Oversight and Government Spending Jim Jordan (R-OH) Dennis Kucinich (D-OH)
TARP, Financial Services and Bailouts of Public and Private Programs Patrick McHenry (R-NC) Michael Quigley (D-IL)
Technology, Information Policy, Intergovernmental Relations and Procurement Reform James Lankford (R-OK) Gerry Connolly (D-VA)
Rules David Dreier (R-CA) Louise Slaughter (D-NY)
Legislative and Budget Process Pete Sessions (R-TX) Alcee Hastings (D-FL)
Rules and the Organization of the House Rich Nugent (R-FL) Jim McGovern (D-MA)
Science, Space and Technology Ralph Hall (R-TX) Eddie Bernice Johnson (D-TX)
Space and Aeronautics Steven Palazzo (R-MS) Jerry Costello (D-IL)
Technology and Innovation Ben Quayle (R-AZ) Donna Edwards (D-MD)
Research and Science Education Mo Brooks (R-AL) Dan Lipinski (D-IL)
Investigations and Oversight Paul Broun (R-GA) Donna Edwards (D-MD)
Energy and Environment Andy Harris (R-MD) Brad Miller (D-NC)
Small Business Sam Graves (R-MO) Nydia Velazquez (D-NY)
Agriculture, Energy and Trade Scott Tipton (R-CO) Mark Critz (D-PA)
Healthcare and Technology Renee Ellmers (R-NC) Cedric Richmond (D-LA)
Economic Growth, Tax and Capital Access Joe Walsh (R-IL) Kurt Schrader (D-OR)
Contracting and Workforce Mick Mulvaney (R-SC) Judy Chu (D-CA)
Investigations, Oversight and Regulations Mike Coffman (R-CO) Jason Altmire (D-PA)
Transportation and Infrastructure John Mica (R-FL) Nick Rahall (D-WV)
Aviation Thomas Petri (R-WI) Jerry Costello (D-IL)
Coast Guard and Maritime Transportation Frank LoBiondo (R-NJ) Rick Larsen (D-WA)
Economic Development, Public Buildings and Emergency Management Jeff Denham (R-CA) Eleanor Holmes Norton (D-DC)
Highways and Transit John J. Duncan, Jr. (R-TN) Peter DeFazio (D-OR)
Railroads, Pipelines, and Hazardous Materials Bill Shuster (R-PA) Corrine Brown (D-FL)
Water Resources and Environment Bob Gibbs (R-OH) Tim Bishop (D-NY)
Veterans’ Affairs Jeff Miller (R-FL) Bob Filner (D-CA)
Disability Assistance and Memorial Affairs Jon Runyan (R-NJ) Jerry McNerney (D-CA)
Economic Opportunity Marlin Stutzman (R-IN) Bruce Braley (D-IA)
Health Ann Marie Buerkle (R-NY) Mike Michaud (D-ME)
Oversight and Investigations Bill Johnson (R-OH) Joe Donnelly (D-IN)
Ways and Means Dave Camp (R-MI) Sander Levin (D-MI)
Health Wally Herger (R-CA) Pete Stark (D-CA)
Human Resources Geoff Davis (R-KY) Lloyd Doggett (D-TX)
Oversight Charles Boustany (R-LA) John Lewis (D-GA)
Select Revenue Measures Pat Tiberi (R-OH) Richard Neal (D-MA)
Social Security Sam Johnson (R-TX) Xavier Becerra (D-CA)
Trade Kevin Brady (R-TX) Jim McDermott (D-WA)

The Senate Legislative Component of The Firm

Committee Chairman Ranking Member
  Subcommittees
Agriculture, Nutrition and Forestry (5) Debbie Stabenow (D-MI) Pat Roberts (R-KS)
Commodities, Markets, Trade and Risk Management Ben Nelson (D-NE) Saxby Chambliss (R-GA)
Conservation, Forestry and Natural Resources Michael Bennet (D-CO) John Boozman (R-AR)
Jobs, Rural Economic Growth and Energy Innovation Sherrod Brown (D-OH) John Thune (R-SD)
Livestock, Dairy, Poultry, Marketing and Agriculture Security Kirsten Gillibrand (D-NY) Mike Johanns (R-NE)
Nutrition, Specialty Crops, Food and Agricultural Research Bob Casey (D-PA) Richard Lugar (R-IN)
Appropriations (12) Daniel Inouye (D-HI) Thad Cochran (R-MS)
Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Herb Kohl (D-WI) Roy Blunt (R-MO)
Commerce, Justice, Science, and Related Agencies Barbara Mikulski (D-MD) Kay Bailey Hutchison (R-TX)
Defense Daniel Inouye (D-HI) Thad Cochran (R-MS)
Energy and Water Development Dianne Feinstein (D-CA) Lamar Alexander (R-TN)
Financial Services and General Government Richard Durbin (D-IL) Jerry Moran (R-KA)
Homeland Security Mary Landrieu (D-LA) Dan Coats (R-IN)
Interior, Environment, and Related Agencies Jack Reed (D-RI) Lisa Murkowski (R-AK)
Labor, Health and Human Services, Education, and Related Agencies Tom Harkin (D-IA) Richard Shelby (R-AL)
Legislative Branch Ben Nelson (D-NE) John Hoeven (R-ND)
Military Construction, Veterans Affairs, and Related Agencies Tim Johnson (D-SD) Mark Kirk (R-IL)
State, Foreign Operations, and Related Programs Patrick Leahy (D-VT) Lindsey Graham (R-SC)
Transportation, Housing and Urban Development, and Related Agencies Patty Murray (D-WA) Susan Collins (R-ME)
Armed Services (6) Carl Levin (D-MI) John McCain (R-AZ)
Airland Joe Lieberman (I-CT) Scott Brown (R-MA)
Emerging Threats and Capabilities Kay Hagan (D-NC) Rob Portman (R-OH)
Personnel Jim Webb (D-VA) Lindsey Graham (R-SC)
Readiness and Management Support Claire McCaskill (D-MO) Kelly Ayotte (R-NH)
SeaPower Jack Reed (D-RI) Roger Wicker (R-MS)
Strategic Forces Ben Nelson (D-NE) Jeff Sessions (R-AL)
Banking, Housing, and Urban Affairs (5) Tim Johnson (D-SD) Richard Shelby (R-AL)
Economic Policy Jon Tester (D-MT) David Vitter (R-LA)
Financial Institutions and Consumer Protection Sherrod Brown (D-OH) Bob Corker (R-TN)
Housing, Transportation, and Community Development Robert Menendez (D-NJ) Jim DeMint (R-SC)
Securities, Insurance, and Investment Jack Reed (D-RI) Mike Crapo (R-ID)
Security and International Trade and Finance Mark Warner (D-VA) Mike Johanns (R-NE)
Budget Kent Conrad (D-ND) Jeff Sessions (R-AL)
Commerce, Science and Transportation (7) Jay Rockefeller (D-WV) Kay Bailey Hutchison (R-TX)
Aviation Operations, Safety, and Security Maria Cantwell (D-WA) John Thune (R-SD)
Communications, Technology, and the Internet John Kerry (D-MA) Jim DeMint (R-SC)
Competitiveness, Innovation, and Export Promotion Amy Klobuchar (D-MN) Roy Blunt (R-MO)
Consumer Protection, Product Safety, and Insurance Mark Pryor (D-AR) Pat Toomey (R-PA)
Oceans, Atmosphere, Fisheries, and Coast Guard Mark Begich (D-AK) Olympia Snowe (R-ME)
Science and Space Bill Nelson (D-FL) John Boozman (R-AR)
Surface Transportation and Merchant Marine Infrastructure, Safety, and Security Frank Lautenberg (D-NJ) Roger Wicker (R-MS)
Energy and Natural Resources (4) Jeff Bingaman (D-NM) Lisa Murkowski (R-AK)
Energy Maria Cantwell (D-WA) Jim Risch (R-ID)
National Parks Mark Udall (D-CO) Richard Burr (R-NC)
Public Lands and Forests Ron Wyden (D-OR) John Barrasso (R-WY)
Water and Power Debbie Stabenow (D-MI) Mike Lee (R-UT)
Environment and Public Works (7) Barbara Boxer (D-CA) Jim Inhofe (R-OK)
Children’s Health and Environmental Responsibility Amy Klobuchar (D-MN) Lamar Alexander (R-TN)
Clean Air and Nuclear Safety Tom Carper (D-DE) John Barrasso (R-LA)
Green Jobs and the New Economy Bernie Sanders (I-VT) John Boozman (R-AR)
Oversight Sheldon Whitehouse (D-RI) Mike Johanns (R-NE)
Superfund, Toxics and Environmental Health Frank Lautenberg (D-NJ) Mike Crapo (R-ID)
Transportation and Infrastructure Max Baucus (D-MT) David Vitter (R-LA)
Water and Wildlife Ben Cardin (D-MD) Jeff Sessions (R-AL)
Finance (6) Max Baucus (D-MT) Orrin Hatch (R-UT)
Energy, Natural Resources, and Infrastructure Jeff Bingaman (D-NM) John Cornyn (R-TX)
Fiscal Responsibility and Economic Growth Bill Nelson (D-FL) Mike Crapo (R-ID)
Health Care Jay Rockefeller (D-WV) Chuck Grassley (R-IA)
International Trade, Customs, and Global Competitiveness Ron Wyden (D-OR) John Thune (R-SD)
Social Security, Pensions, and Family Policy Debbie Stabenow (D-MI) Tom Coburn (R-OK)
Taxation and IRS Oversight Kent Conrad (D-ND) Jon Kyl (R-AZ)
Foreign Relations (7) John Kerry (D-MA) Richard Lugar (R-IN)
Western Hemisphere, Peace Corps and Narcotics Affairs Robert Menendez (D-NJ) Marco Rubio (R-FL)
Near Eastern and South and Central Asian Affairs Bob Casey, Jr. (D-PA) Jim Risch (R-ID)
African Affairs Chris Coons (D-DE) Johnny Isakson (R-GA)
East Asian and Pacific Affairs Jim Webb (D-VA) James Inhofe (R-OK)
International Operations and Organizations, Human Rights, Democracy and Global Women’s Issues Barbara Boxer (D-CA) Jim DeMint (R-SC)
European Affairs Jeanne Shaheen (D-NH) John Barrasso (R-WY)
International Development and Foreign Assistance, Economic Affairs, and International Environmental Protection Ben Cardin (D-MD) Bob Corker (R-TN)
Health, Education, Labor, and Pensions (3) Tom Harkin (D-IA) Mike Enzi (R-WY)
Subcommittee on Children and Families Patty Murray (D-WA) Richard Burr (R-NC)
Subcommittee on Employment and Workplace Safety Barbara Mikulski (D-MD) Johnny Isakson (R-GA)
Subcommittee on Primary Health and Aging Bernie Sanders (I-VT) Rand Paul (R-KY)
Homeland Security and Governmental Affairs (5) Joe Lieberman (ID-CT) Susan Collins (R-ME)
Contracting Oversight (Ad Hoc) Claire McCaskill (D-MO) Rob Portman (R-OH)
Disaster Recovery and Intergovernmental Affairs (Ad Hoc) Mark Pryor (D-AR) Rand Paul (R-KY)
Federal Financial Management, Government Information and International Security Thomas Carper (D-DE) Scott Brown (R-MA)
Investigations (Permanent) Carl Levin (D-MI) Tom Coburn (R-OK)
Oversight of Government Management, the Federal Workforce and the District of Columbia Daniel Akaka (D-HI) Ron Johnson (R-WI)
Judiciary (6) Patrick Leahy (D-VT) Chuck Grassley (R-IA)
Administrative Oversight and the Courts Amy Klobuchar (D-MN) Jeff Sessions (R-AL)
Antitrust, Competition Policy and Consumer Rights Herb Kohl (D-WI) Mike Lee (R-UT)
The Constitution, Civil Rights and Human Rights Dick Durbin (D-IL) Lindsey Graham (R-SC)
Crime and Terrorism Sheldon Whitehouse (D-RI) Jon Kyl (R-AZ)
Immigration, Refugees and Border Security Chuck Schumer (D-NY) John Cornyn (R-TX)
Privacy, Technology and the Law Al Franken (D-MN) Tom Coburn (R-OK)
Rules and Administration Chuck Schumer (D-NY) Lamar Alexander (R-TN)
Small Business and Entrepreneurship Mary Landrieu (D-LA) Olympia Snowe (R-ME)
Veterans’ Affairs Patty Murray (D-WA) Richard Burr (R-NC)

Market Fundamentalism

I’m always amused by those who use the term “market fundamentalism,” particularly by those who have won Nobel prizes in Economics, when I suspect these debunking wizards not only can’t coherently define what the term actually means but also share the same underlying dismissive precepts in common with the thing they are supposedly ridiculing.

Let us define what “Market Fundamentalism” actually is. It refers to the 3rd Generational Chicago School(Lucas,Stigler,Becker, Posner, etc) that essentially displaced political economy from an encompassing Efficient Market Hypothesis model. Okay, so stock prices my follow a random walk, but should we believe that political lobbying is governed by an Efficient Market Hypothesis model, that policies that raise efficiency are likely to win out in the competition for political favors? Should we believe as Stigler wrote, in Law or Economics:

Tested institutions and practices found wanting will not survive in a world of rational people. To believe the opposite is to assume that the goals are not desirable: who would defend a costly practice that produces nothing? So I would argue that all durable social institutions, including common and statute laws, must be efficient.”

In the 90s, buoyed by roaring economies and financial secondary markets, this viewpoint certainly dominated the financial classes and was embraced, to a large extent, by the establishment political classes. It became the underlying ideology behind the “Washington Consensus.”

Now let’s look at the usual suspects who are “Straw Man” blamed for holding “market fundamentalist” views:

(i) Libertarians
While it is true that the 3rd generational Chicago School, that grew out of Friedman’s 2nd generational school, was associated with “libertarianism,” it was, nonetheless, a a distinct modern offshoot branch which flourished primarily in segments of academia, Wall Street and Beltway think tanks. Libertarianism historically proper is rooted in a profound critique of political economy. Political Economy is central, not an afterthought. In terms of modern academic literature, libertarianism is aligned with Public Choice, not Market Fundamentalism.

(ii)Adam Smith, Classical Economics
Anyone who has read The Wealth of Nations and The Theory of Moral Sentiments would laugh at the idea of equating The Invisible Hand with an Efficient Market Hypothesis in Political lobbying.

(iii)Ayn Rand, Objectivism
Anyone who has read Rand’s work would laugh at the idea of equating Objectivism with an Efficient Market Hypothesis in Politics and Law. Rand’s Atlas Shrugged and Stigler’s “Law or Economics” are in diametric opposition. In Stigler’s world, Wesley Mouch should be a hero.

(iv)Hayek
Hayek’s argument, in part, in the Road to Serfdom demonstrates how the worst rise to the top. It was not an Efficient Market Hypothesis argument that the most efficient rise to the top in political lobbying.

(v)Conservatives
Conservatives are supply-siders; they are not market fundamentalists. If they were, then we would have legal drugs and prostitution. In many respects, the application of an Efficient Market economic analysis to law is anathema to the conservative mind.

Frankly, these days, “market fundamentalism” as technically understood, is dead. No one takes seriously anymore an Efficient Market Hypothesis applied to political economy. Market Fundamentalism now only survives as a straw man term.

However, I can only point out those, such as Jonathan Chait, conducting their running libertarian diatribes are actually embracing the same principles of market fundamentalism, that is, the relative unimportance of political economy–political economy as an afterthought. For Chait, things like Social Security, The Earned Income Tax Credit, and Seat Belt laws demonstrate the unimportance of Political Economy. As Chait writes, if “regulations are captured, they will eventually be uncaptured.”

Writes Chait concerning Peter Orszag:

I don’t see any evidence that Orszag was corrupted by the prospect of private lucre during his tenure as Budget Director. His most important contribution to the Obama administration may have been a fierce insistence upon using health care reform to control the growth of health costs — a goal that serves almost no narrow private end and opposes many.

Compare that quote to the above Stigler quote regarding political lobbying and law. Not much of a difference, now is there? Fundamentalism, indeed…

Doing the Devil’s Work

I read this post, What Economists are paid to do that was linked to in the commentary of Yglesias’ post, Neo-Ricardian Notions. Now as a Georgist, I have written previously about the Neo-classical mistake of treating land like capital in terms of factors of production. From a political economy analysis standpoint, incorporating land into capital muddled the concept of economic rent. The Neo-classical treatment took the political out of “Political Economy,” leaving us with a faulty discipline of a science of “mere economics.” The problem of economic rent wasn’t restored until a number of generations later with the advent of “Public Choice.” But still, many economists remain fairly ignorant of public choice and economic rent. Just as I would say the work of of practicing physicist who had no knowledge of Newton’s laws of motion probably wouldn’t have much merit, the work/opinions of an economist who has little or no knowledge, or faulty knowledge, of economic rent is likewise devoid of much value(of course, there are disciplines in physics where Newton’s laws do not apply, particularly in the subatomic realm, but such specialization cannot occur without knowledge first of general principles. And while, say, a high-energy particle physicist might forget about Newton while studying the creation of exotic particles in high-energy collisions of subatomic particles, he is quickly reminded, nonetheless, if he stubs his toe on the floor).

The political discussions of equality and justice are best useless and at worst evil without consideration of economic rent. Now, the author of the first post in Yglesias’ comment section notes that Smith and Ricardo leads to Henry George and not Hayek. Well, I would say he is both correct and incorrect in such a conclusion. In the author’s linked post, he spends a few paragraphs propounding that the job of economists(what they are paid to do) is to explain away the role of economic rent in political economy. His conclusion in his post, however, is a type of Non sequitur, in that he pleads that Paul Krugman, Brad DeLong and Christie Romer are examples of economists who are not “bought off” and who are sufficiently concerned with the “public interest(they are doing the Lord’s work).” However, positive law redistribution via taxation on labor, capital, and support of such things likes tariffs does not follow from Ricardo’s Law of Rent. And, frankly, those economists positive law progressive views on re-distributive justice have nothing to do with analysis of economic rent. It would be absurd to advocate for deadweight losses from taxes on labor and capital, to promote dead weightlosses from tariffs, in order to correct the deadweigt losses of Ricardian rent. In political economy, taxes on capital and labor, and things like tariffs should be understood as economic rents.

The flaw of “progressivism” is the belief that “positive justice” corrects injustice. The author, who in Yglesias’ comment section stated that Ricardo/Smith leads to George but then in his post seemed to conclude that Ricardo/Smith leads to corporate liberalism, lacks coherence. George, perhaps, could be called a “progressive,” but in it’s original meaning of “reform,” not in today’s meaning. Georgist ground rents are restitution for Ricardian rent. Ricardian rent is economic rent but Georgist rent is not. If you fail to see that distinction, then you end up babbling about “taxes are the price we pay for civilization.” The actual translation of that statement should be, “economic rents are the price we pay for government.” But that statement doesn’t make much sense. What it really means is the “function of government is to extract economic rents.” Of course, this requires moral rationalization.

Bastiat wrote:

When plunder has become a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.

I leave as an exercise to the reader to conclude whether the rationalization of such moral codes is the Lord’s work or the Devil’s work….

The Economics of Fire Protection

Returning to the issue of “fire protection/suppression” which has now become a widespread topic in the blogopshere, I note that Arnold Kling has attempted to sketch out the economics of fire protection. He treats it as a club good, which is an excludable and non-rivalrous good, although congestion, which is a function of club size, can cause a certain degree of rivalry to arise in the consumption of it within the club. Kling applies a two-part pricing model typical for club goods which involves a fixed, up-front membership fee and per unit charges for use of the facility or resource. However’s Klings napkin calculations of this per unit charge for fire suppression would dissuade most from wanting to join this club. I don’t think his two-part tariff club good model is correct. And empirically, fire protection has not evolved from or into a two-part pricing club good model within liberal institutionalism.

A good paper I would recommend is The Economics of Fire Protection: From the Great Fire of London to Rural/Metro by Jennifer Anne Carlson, published by the British Institute of Economic Affairs back in 2005. Carlson chronicles the almost AnCap like private provision of fire protection/suppression services in London for almost two centuries after the Great London Fire of 1666. However, this good emerged as provision of competing insurance companies and not as a good from a private market of competing fire departments. But, as Carlson’s research indicates, the insurance companies were never able to enforce excludability of fire protection to policy holders(members). If you weren’t previously familiar with the anachronistic tradition of placing “plaques” on the front doors of homes/buildings indicating coverage, I’m sure you are by now(if you have read any progressive commentary). However, Carlson documents that, contrary to pundit opinion, the evidence contradicts the notion that the fire brigades of insurance companies intentionally allowed buildings to burn. This is attributed to the fact that the insurance companies had no natural monopoly in the provision of insurance. For example, people used different insurance companies to insure different things(property vs. valuables). Also the insurance companies, in the end, wouldn’t remove the plaques if the coverage had lapsed or been terminated because they were viewed as a valuable form of advertisement. The private fire brigades of these insurance companies ended up cooperating with each other to provide, more or less, a universal fire protection service to any in need. In some sense, an analogy can be made to today’s internet peering among network providers, which is “exchange traffic settlement free, derive revenue from customer base(with respect to our historical case, it would be extinguish fire, derive revenue from policy holders).” However, as Carlson notes, this model would break down eventually as the London Metropolis grew and became more complex. The problem is that the insurance companies were in the business of providing insurance and not providing fire protection divorced from insurance. In other words, they had no way to monetize a growing market segmentation in the demand for fire protection. This created a growing free-rider problem. By 1832, with the formation of the London Fire Engine Establishment, settlement-free fire extinguishment would be replaced by extinguish fire, settle later. This, however, was not particularly resilient solution, as it didn’t really resolve the free rider problem of the increased externalization of costs of fire protection to the policy holders. When a major fire event occurred a couple of decades later, huge premium increases would lead to an end of the private insurance provision of fire protection in London. It would be supplanted by Municipal provision.

In the United States, Fire Protection arose from more or less from a type of common-pool good model. It wasn’t a natural monopoly. The good was provided by volunteers; there was no excludability to members of the community, and a quite a few competing groups would form to serve the same community who were competing, more or less, on status. In a sense, to analogize to our current context, it’s similar in some respects to open source software. Over time, of course, fire protection in many areas would go to Municipal provision, although, still, the great majority of firefighters today are still volunteer, roughly 75%. And fire protection is hardly all municipal. In many rural areas, fire protection is provided by subscription or volunteer contribution. And there are more than just a few municipalities that have “privatized” provision. And it should be noted that non-municipal provision of fire protection/suppression does not follow Kling’s two-part tariff club good model. In the case of Rural/Metro, which is the largest private company provider, in some areas it relies on taxes to provide it’s services, but in other areas it relies on a subscription model. But it’s not the two-part tariff club good model. There are no per unit charges for subscribers. Nonsubscribers can receive the good if they agree to pay an hourly rate for use.1

As a side note, in a previous post, I referred to the “Brain Dead Political Left.” But since then, in watching and reading germane commentary, it’s clear they are making an argument that voluntary government is simply immoral. And I’m reminded of an earlier post, Libertarianism vs Social Democracy where I noted that in the original Tucker vs Shaw debate Tucker was making a moral argument against State Socialism and Shaw was making an economic argument against libertarianism. I then noted that today the tables have turned. It’s the libertarians who typically resort to economics and the Social Democrats who resort to moral appeals. Well, you won’t find a better example than this. And I’m sorry, but it’s not a moral crime to understand economics.

1 Do not conflate this as a libertarian endorsement of Rural/Metro

California Chamber of Commerce: Welfare Queens

Libertarians often champion economics, labor and property rights being private contractual matters and outside the legitimate domain of the public sphere. On these matters, libertarians are supposed to be in accord with conservatives. Well, except for one small problem: conservatives aren’t really down with the program. Case in point: The California Chamber of Commerce Opposition to Prop 19 on the hysterical basis that an “epidemic of stoned workers” would threaten the workplace safety of the group’s constituent member businesses. Oh yeah, it also feels it would imperil its members ability to land federal contracts.

You know, whenever I see “Concerned Mothers Against This” or “Concerned Families Against That” babbling on about whatever latest social epidemic, I come to the conclusion that there is indeed a social epidemic: namely a social epidemic of irresponsible mothers and families who are apparently incapable of parenting their children without the aid of the State. This is, no doubt, a welfare problem. And it seems to me that social conservatives are in continual need of such welfare.

So when I read the basis of the Cali Chamber of Commerce’s opposition to Prop 19, I sensibly come to the conclusion that the organization is plagued by irresponsible members who are apparently incapable enforcing their own workplace safety rules. We are constantly inundated about how sorry the business climate is in California. Well business is bad everywhere, but I can see why it is particularly bad in California if it’s primary business interest group is infested with irresponsibility and an overriding concern to suck off the teat of federal contracts. The Cali Chamber of Commerce is part of the problem. Laissez Faire, my ass….