Lighten Up

I was published (sort of) for the first time today. An article that I wrote over the summer while interning at the Mackinac Center for Public Policy was posted to their site as the article of the day. You can read the original here: www.mackinac.org/10858.

Who’s to Blame in Smoking Argument?

The typical argument against smoking bans is that the market is capable of deciding where smoking should or should not be allowed more easily and smoothly than any bureaucrat. Such is the current debate in the Michigan Legislature, where several competing bills call for everything from a complete workplace ban to a nearly complete workplace ban with exceptions carved out for Detroit casinos and tobacco shops, regardless of the preferences of private business owners and those who choose to patronize them.

For example, comedian Heywood Banks performed two shows on Aug. 1 in Bay City. The first show was smoke free, while the second show allowed smoking. Ticket buyers were fully aware of the options, but many legislators would have denied them, and Banks, the option of the second show. This would needlessly hurt his profits when clearly the only people attending the second show were those willing to tolerate the smoke. Likewise, business owners will prohibit smoking on their property if people dislike the smoke enough to hurt their profits.

This argument is unconvincing to legislators who advocate a total smoking ban. After all, why should a non-smoker have to depend on a decision of Heywood Banks in order to see a show without having their bodies invaded with unpleasant and harmful chemicals? As Arthur C. Pigou, who developed the concept of economic externalities, pointed out in 1912, it may not be a good idea to trust the market to produce a desirable outcome when an action affects outsiders. Since smokers don't need to be concerned with the external costs of their smoking that others must pay, they must be constrained in some way.

This type of thinking, however, has been disputed for nearly half a century, most notably by Ronald H. Coase, Nobel Prize winner and noted University of Chicago economist. As Coase said, the Pigovian approach is to consider a case where A harms B, and then ask: "[H]ow should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A?"

Those who use a Pigovian argument to defend a smoking ban neglect the externality inherent when non-smokers are allowed to prohibit smokers from enjoying a cigarette at little to no cost — forcing the smoker to foot the bill for the non-smoker's comfort.

While one could ask which harm is greater and should be avoided, the point is that even if a smoking prohibition eliminates a certain harm, it ensures that another harm is unavoidable. Supporters of a total smoking ban need to give a defense of their preference of one abuse to another, and cannot claim to prevent wrong from being done.

Coase even went so far as to say that considering either A or B as responsible for the harm is unproductive and inappropriate since, while there certainly wouldn't be any harm done to bystanders if there were no smoker, there likewise would be no harm done were it not for the presence of the bystanders themselves should they be near a smoker.

Coase strips a common sense picture of aggressor and victim to a reciprocal interaction, devoid of responsibility or blame. This view can, however, be very unsavory, especially if misapplied to cases of intentional damage, arguing for example that a victim of battery is to blame for being in the way of his assailant's fists.

While it may seem shocking to refrain from pointing fingers when there clearly is damage done, perhaps it does make sense to think of second-hand smoke with this strange view of reciprocal harm, since there are two things that set it apart from cases of intentional damage. First, the smoker has no reason to think that, because of him, bystanders are sacrificing their health in tradeoffs they see as harmful overall, since plenty of people tolerate second-hand smoke without complaint. The smoker even has a reason to think that he is hurting no one, since one with a strong preference against the smoke is not forced to be in a privately owned establishment — such as a bar or restaurant — in which the owner has decided to allow smoking.

This is another difference between second-hand smoke and intentional harm — there is reason to believe that the person affected should have expected to be around the smoke, while we would not say that a victim of battery should have expected to be around flying fists.

Rather than allowing our legislators to see themselves as preventing an insidious invasion of rights in which the justification for their use of force in its solution is a given, they should be seen as meddling in a reciprocal interaction between people where the justification for picking one side over another is the pivotal contention.

The Universe: Now in 3D!

I recently stumbled across an amazing youtube video, and decided to share it with whoever stumbles across this.

Some things to keep in mind:

• For the Hubble Deep Field (HDF), the Hubble telescope was staring at a patch of sky the size of a tennis ball 100 meters away.
• The original paper written on the HDF was cited over 800 times in scientific journals by 2008.

• The Hubble Ultra Deep Field (HUDF) is a picture of a patch of sky smaller than a 1 mm by 1 mm square of paper held 1 meter away.
  
• This is roughly one thirteen-millionth of the total area of the sky.
• In this tiny part of the heavens, enough galaxies were discovered to account for around 1 quadrillion stars: about the number of pennies in this picture.
  
• The HUDF is looking back nearly 13 billion years ago, at some of the first galaxies to exist.
• Both of the fields strengthened belief in the cosmological principle - the premise that the earth is in a typical, insignificant position in the universe - an idea that was unthinkable 1,000 years ago.
• It's quite possible that there are many more galaxies farther away than the most distant specks seen in the HUDF, but the universe is too young for their light to have reached us by now. In fact, many cosmologists believe that, were the actual universe many times larger than the part of it we can see, this would solve many perennial problems in cosmology.

Note: in layman's terms, the last link is basically saying that cosmology has determined the observable universe to be almost perfectly flat. But this didn't have to be the case; in fact it requires a seemingly improbably set of circumstances, and an even more unlikely set of circumstances to have been the case at the beginning of the universe for it to be flat today. One well accepted solution to this problem is that the universe is not flat; it is curved, but the observable universe is such a tiny part of the whole universe that even the most precise, expensive scientific instruments read it as being nearly perfectly flat - sort of like how your backyard looks flat even though it's part of a large sphere.

Notes on Regulatory Capture Speech

Well, today was the big day that I gave my speech on Regulatory Capture Theory at the Mackinac Center for Public Policy. It went better than average - though I'm abysmal at public speaking. Well at any rate, somebody asked me for my notes after the speech, so I figured there might be someone else out there who would also be interested in them:

Regulation almost always produces “winners” and “losers” (broadly, those who are better with the regulation, and those who are worse off). What determines who wins and who loses?

The two views of regulation

• Public interest theory posits that regulation comes into existence when the general public recognizes an inefficient or inequitable allocation of resources (aka market failure), and desires this failure to be corrected. Then, the political system responds to this desire by enacting regulation in the benefit of the public.
  
  
  
  • For example, people's awareness of spilled costs caused by incompletely defined property rights was a proximate cause of the formation of the Clean Air Act and the Environmental Protection Agency
    
  • Regulation serves the public interest, and is enacted for this reason.
    
  • Assumes: Markets are fragile and require outside, top-down planning to correct errors that will naturally occur.
    
    
    
    • Politicians are neutral and entirely other-serving.
      
    • Either the general public, the politicians or the members of the firms being regulated have perfect knowledge, since the regulation is unlikely to result in a net-gain otherwise.
    
    
  • Problems: Does not give a rich or detailed account for the process of how regulation is formed.
    
    
    
    • If markets do not require extensive top-down corrections, this can be an objection. i.e. it assumes that a solution is possible for this problem.
      
    • Many industries which are not natural monopolies and do not have large spillover costs cannot be accounted for by this theory, since they are heavily regulated, such as taxicabs, bars, and trucking industries.
    
    
  • This theory does not see much support because of these and other problems.
  
  
• Capture Theory treats regulation as a good that is supplied by politicians and demanded by those who are affected by it.
  
  
  
  • The good in question is the ability to legitimately coerce, which makes it a very unique good, which is held by a monopoly.
    
    
    
    • It is desirable to consumers in the industry because they can correct the market failure or force the industry to offer lowered prices.
      
    • It is desirable to the firm because they can create barriers to entry (such as licensing fees) which protect them from costly price battles by preventing entry of rivals.
    
    
  • The group that the regulation will end up favoring (the “winner”) will tend to be the group that has the highest per-capita stake in the matter. This is because the individuals in this group have a higher demand, and so are likely to make more productive investments than the individuals in the other group. And if the group with the lower per-capita stake has a higher overall stake in the matter, this would mean that there are more individuals in this group, and so even though efficiency would necessitate that they be the “winners,” transaction costs in the form of collective bargaining barriers will prevent them from acting decisively.
    
    
    
    • So, even if the regulation was created with the vague intention of the greatest good for the greatest number, it will end up being captured by the high per-capita stake group, which almost always be the business owners, for obvious reasons.
    
    
  • Another barrier to the low per-capita group is that they have a knowledge problem – they don't know who to direct their rent-seeking behavior towards. This is precisely because they are the low per-capita stake group, since it isn't worth it to invest the time to gain knowledge about who's in charge and how the system works.
    
    
    
    • On the other hand, people working in the industry will know a lot about the system and who's in charge. There are two reasons for this. One is that it is worth it for them to make the investment to understand the system. There was a lobbyist who says he didn't fail to read a single bill in his career until Obama's stimulus bill.
      
      
      
      
      
      • Tullock gives a speech to a crowded room, person leans over and tells him they're almost all lobbyists.
      
      
      • And second, because, in the supply of regulation for industry X, who is most likely to make a compelling argument as to what the problems are in industry X and how to solve them most efficiently? Who has comparative advantage in the supply of this regulation? People from the industry. This creates a revolving door between industry and government, so that people from industry X know a lot about the regulation process, and people from the regulation process of industry X know a lot about the industry. (Timothy Geithner, for example, has worked in government and in the private sector back and forth.)

This bill has potential for regulatory capture

• On June 30th, Treasury Department today released draft legislation outlining a central pillar of the Obama administration’s financial regulatory overhaul: the creation of the Consumer Financial Protection Agency (CFPA), an independent regulator with broad authority over “any financial product or service” used by consumers.
  
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  It's mandate is to promote transparency, simplicity, fairness, accountability, and access in the market for consumer financial products or services.
  
  

• In The Theory of Economic Regulations, George Stigler says that, though subsidies are the most obvious political benefit, they are not the most desirable. This is because it is extremely difficult (if not impossible) to exclude the entire industry from receiving the subsidy, so not only does it not give individual firms advantages over their competitors, but it may even lure in additional competitors. As the number of people in the market grows, the individual firm's share of the subsidy money may decrease over time, as well. The most desirable political good is exclusion of competitors, which saves them from harmful price wars.
  

• This is frequently done by barring competitors from starting up a firm by creating barriers to entry, such as through licensing fees.
  
• Another means is to pass a regulation which restricts a certain kind of action, or changes the rules of the game in some general way so that it appears to apply uniformly, when in fact their competitors will be unevenly affected. For example, walmart is supporting Obama's health care plan because target has more expensive health care coverage, and Dow supported the cap and trade bill because they are relatively clean polluters.
The CFPA will have the tools to severely restrict the business of certain firms, especially those deemed risky, since it has the ability to, “Prescribe rules and issue orders and guidance as may be necessary or appropriate to enable it to administer and carry out the purposes and objectives of [its] title,” with the objectives being:



• consumers have, understand, and can use the information they need to make responsible decisions about consumer financial products or services;
  
• consumers are protected from abuse, unfairness, deception, and discrimination;
  
• markets for consumer financial products or services operate fairly and efficiently with ample room for sustainable growth and innovation; and
  
• traditionally underserved consumers and communities have access to financial services.
One power the agency will have is to gather and compile information, “regarding the organization, business conduct, and practices of covered persons” (sec. 1023). There also is a confidentiality clause, that The Agency has free reign to determine what information it discovers will be made public and what will not, and it has full right to keep it public.



• This is information that it uses to construct its vision of how customers are being serviced, and this view is what will determine the rules and regulations it will issue – so it has the ability to keep completely private as to what the motivations for it's restrictions are. Even if this doesn't result in The Agency not telling that it is making a rule in order to elicit a bribe, it means that it could allow for a greater disparity between it's intents for creating a rule, and what the public would find a satisfactory justification/what the public is told is the reason, by leaving out relevant findings.
Furthermore, lobbyists will have a much easier time lobbying to this agency, which is a sort of a one-stop-shop for lobbyists, since consumer financial regulation is currently divided between the Federal Reserve, FDIC, Office of Comptroller of the Currency, Office of Thrift Supervision, Federal Trade Commission, and National Credit Union Administration. Another objection: of the 5 members, 4 appointed by the President and confirmed by the Senate, and 1 the Director of the National Bank Supervisor, so they will not be biased towards the industry. Yet President Grover Cleveland appointed a railroad ally named Thomas M Cooley as the first chairman of the ICC (a classic example of Regulatory Capture).



• First, simply rubber-stamping railroad industry decisions. Then, after the turn of the century, when the ICC began actively discouraging competition in the railroad industry. The ICC had the power to decide when new firms were allowed to enter the railroad industry, and by the 1920s, the FCC was actively working to discourage competition and push up railroad rates.
One objection that could be raised to this approach is that, if the regulation will benefit the high per-capita stake business interests, why are financial industries objecting vehemently to the CFPA act?



• One answer is that Capture Theory does not need to say that regulation begins with the purpose of benefiting the high per-capita group. This group may appear to be the losers when the regulation is first introduced. The reason for this can be understood if the suppliers of regulation (politicians) are seen also as demanders of it, since they stand to benefit from its passage in the form of votes. To this end, they will want it to at least appear as if the bill is going to benefit the largest number of people, which almost always is the consumer.
  
  
  
  • However, Capture Theory does necessitate what will happen to this regulation after its passage – it will begin to work for the members of business, almost certainly at the expense of the consumer, since it could involve choking out competitors who can satisfy consumers more efficiently.

Why this is bad

• Rent seeking diverts resources away from wealth production and towards the transfer of wealth – it has an opportunity cost.
  
• It means the agency will be difficult to get rid of, since those who have captured it will want it around even when it is obsolete by the standards of its intended purpose. The ICC is an example of this, which continued to exist with a "regulated monopoly" structure, even after 1920 when trucking and air-borne freight became competitors of the railroad industry.

Suggestions to fix it

• Remove the confidentiality clause
• Remove the ability to exempt firms from mandates by the CFPA and any other consumer protection law.

Why Ninja Gaiden (NES) is Awesome

Last year, I spent a good chunk of my free time playing the first Ninja Gaiden (1988) for the Famicom system. It's known as one of the hardest games ever made. When I first beat it, I jumped and screamed and punched like I had won the superbowl (without the exercise). I celebrated countless weekends by giving it a play through, eventually beating the entire game without dying. It has a sort of a soft spot in my heart. But, for some strange reason, I never bought the other two games in the trilogy until a few weeks ago. Now that I've played through the entire saga (almost - the third one is nigh impossible), I can safely say it's one of the best man-made adventures you can embark on. So why is it so awesome?

1) You're fighting against evil. There are far too many games where you kill enemies just because they're between you and the end of the level, or because you want to see some blood. In Ninja Gaiden, you never forget that you're fighting to save the world from an eternity of darkness and demons. There's no mistaking what's good, what's evil or which side you're on.

There is one problem, to this regard, however. There tends to be a view of evil as simply being evil in-and-of-itself. It's not that a certain type of action, or character, or idea is evil, but that evil is a seperate entity, whose essence is purely evil (sort of platonic, in a way). You get bad guys saying things like, "We'll find out whether light or darkness is more powerfull," but we don't have much of a reason to root for light other than ... well you don't want to root for darkness, do you? This has been a common error since the advent of story telling, and it's one of the most dangerous plot devices ever conceived. It simplifies, trivializes and cartoonizes evil, allowing people to fall prey to brain washing (especially in the form of religion) and traits that are truly evil, since nobody jumped out and explicitly called it "darkness." No Nazi ever said, "Good can never stand up to our powers of evil!" They thought they were fighting for the good, which happened to be gaining power for the Aryan race in their view.

2) Other than spider-like demons and a sword made out of dragon bone, the main antagonist is the sly, deceiving and coercive government. I don't really think I need to say more here.

3) The controlls are smoother than a baby's bottom. You may throw your controller across the room because a bat spawned as you were jumping, or the same eagle reappeard five times, but you'll never get angry because the controls didn't do what you expected them to, or were delayed. You can be precise as a surgeon, pulling off pixel-close moves just as you wanted them to unfold. For people who don't play many video games (especially of the old school variety), this is a big deal. It's like drinking a bottle of premium aged bourbon that goes down smooth and has a full bodied, earthy finish every time you load it up.

Why Ninja Gaiden is Awful
1) Demon dogs, jackals, eagles (including all colors and robo-eagles) and bats will be the first to taste hot lead when I finally snap.

Cap and Trade

First of all, note the new name. I thought the other one seemed a little too pretentious. And pretentious sounding material is enough for me.

Anyway, here's a letter to the editor I wrote about a month ago and was never published.

According to Investors.com¹, not only did Dow Chemical support the Cap and Trade bill that passed in the house last week, but they also founded USCAP, a coalition of environmentalist organizations and corporations. Why would a company with such a bad track record with progressives be so in favor of environmental regulation? Surprisingly, the answer is that the regulation hurts polluters. The key is that – as any economist worth his weight in salt will tell you – it doesn't hurt polluters uniformly. Cap and trade is designed to hurt inefficient polluters more than others – inefficiency here meaning how much output you can produce per unit of pollutant. Dow supports the bill because they realize that the uneven blows of cap and trade will land in their favor. So any progressive that is eager to create new tools of manipulation must realize that there will be a greedy, polluting corporation that is just as eager to come along for the coercive ride.

I find the view that I take in this letter especially interesting since it bears a striking resemblance to something out of Regulatory Capture Theory, a topic which I've been researching lately (and which I may make a future copy-and-past post on in the future); yet I hadn't even heard of the theory until a week after writing this.

1http://www.investors.com/NewsAndAnalysis/Article.aspx?id=479598

Aesthetic Laziness

Acid Rain
Crank Dat (Soulja Boy)
Why would anyone listen to the latter when the first song even exists? Most people I've run in to most likely say that they would listen to Acid Rain if they were in the mood for an intellectual, conscious musical experience, but they're just listening to "Crank Dat" because...X. (X being the beats, the whiny, prepubescent vocal stylings, etc.).
If you asked most people my age if their organized sound of choice was art, they'd laugh. And most of them would probably admit that it doesn't even qualify as music. It's just what they use as background sound. What they don't seem to notice is that, even if it isn't art, it still has a quality of being art in so far as it alters your mood and gives you spiritual energy to get through the day - things that are actually required for human life, in my opinion. But, since their "music" is deliberately chosen and enjoyed unconsciously, they don't know how it's altering them, and this seems very dangerous.

Of course, going through an extensive process of reasoning and introspection every time you choose a track would be impractical and impossible. Most of the choices we make need to be done without a perfectly sound and elegant proof of their justification, there just aren't enough hours in the day to do otherwise. But the way to avoid this isn't by taking the drug addict's way out and picking whatever yields the most raw satisfaction at any given time (which very well may be "Crank Dat"), but by establishing a principle of action that can be used as a basis of action without going through its verification every time it's used.

And that's just what's going on when I choose to listen to Liquid Tension Experiment (a classical piece would have probably demonstrated this a bit better, but I happen to be a metalhead). People who wheel their ipods over to Crank Dat never established a principle for why it would be in their interest to listen to rap (as evidenced by the fact that their listening to it in the first place) because they think there's a safe alternative to living consciously. But, thankfully, there isn't.

Equality of Luck

Suppose there are two farmers, Robinson and Friday. There are two distinguishing features of the farmers: Friday drinks beer all day and farms occasionally while Robinson works hard all day and reaps twice as much. Most people would say Robinson's extra earnings are just, since he is rewarded for working twice as hard or because his mind is twice as clear or brilliant. Even though Robinson has more resources than Friday, this also seems fair, since the laws of reality that reward labor and value are applied equally. But let's say that Friday also happens to be lazy, and throws all his empty beer cans onto a heap in the corner, and one day the price of aluminum skyrockets, putting Friday's earnings far above Robinson's. The situation remains fair, since the laws of reality continue to apply equally to each - the price of alluminum was the same for both farmers - even though the outcomes were different. It also remains just, since the rewards for labor and value dictated by the nature of reality remain upheld. Unfortunately, this law does not always operate smoothly. Sometimes there is an element of luck involved which gives outcomes the appearance of injustice and unfairness. This can have a crippling affect on individuals; it shows them that their carefully calculated formulas for estimating the rewards of labor and value were wrong - shattering their entire view of reality and replacing it with an irrational, unpredictable view that is inhospitable to human life. Unfortunately, the only way to sterilize this dangerous and immoral facet of reality would require redistribution, injustice and unfairness, and so we are doomed to cope with and overcome this property, and hope this doesn't involve holding a malleable, uncertain view of reality.