09 Aug 2009

Attacking Anarchy

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My former star pupil Gennady Stolyarov II repays my kindness by criticizing Rothbardian anarcho-capitalism (what I call “market anarchy” [.pdf]). In the below article, guest blogger Edward Gonzalez also takes me to task. I would be nervous, if I weren’t right.–RPM

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Questioning Market Anarchy
by Edward Gonzalez

After a seven month tour in Iraq fighting an insurgency, it became obvious to me that much of what I had been taught in school about government, law, and economics was utter nonsense. I returned home with a simple model in my mind and began picking up books, trying to find academics whose theories matched what I had witnessed. It took a while but I eventually found the Austrian School and have been a self taught student this past year. I will admit that I am a novice and do not fully understand all the intricacies of the theories, but so far, everything I have read by Ludwig von Mises holds true to the reality that I witnessed. Much of what Murray Rothbard wrote also holds true, but not all of it. I have recently read Rothbard’s “Anatomy of the State” and For a New Liberty, and Robert Murphy’s Chaos Theory [.pdf]. Here I will point out where I agree with the theory of market anarchy but also where I believe the theory departs from the reality of human nature. I hope to give specific examples of why I believe the theory is flawed and give Dr. Murphy a chance to correct me if I simply do not understand the theory in full.

First, I concede to all the economic theories and arguments. The free market is certainly the most efficient way to provide goods and services to people. However, the utilization of force against human beings is different and to treat it like any other service in the market economy is contrary to human nature.

In “Anatomy of the State,” Murray Rothbard said,

One method of the birth of a State may be illustrated as follows: in the hills of southern “Ruritania,” a bandit group manages to obtain physical control over the territory, and finally the bandit chieftain proclaims himself “King of the sovereign and independent government of South Ruritania”; and, if he and his men have the force to maintain this rule for a while, lo and behold! a new State has joined the “family of nations,” and the former bandit leaders have been transformed into the lawful nobility of the realm.

I can personally attest to the reality of this scenario. In one town I operated in, all doings were under the control of an Iraqi Police Colonel. In the first year of the American invasion, that small city was thrown into chaos. There was a great deal of crime, vendetta killings, etc. A former sergeant from the Saddam era Iraqi Army was the toughest criminal around and, one by one, defeated the other gangs until he controlled the area. He declared himself in charge and saw fit to promote himself several times, and when I met him he was a self declared Colonel and ran the town.

The people of the town did not like this man. However, he was a strong man and a dominant leader that most people seemed to accept as a lesser evil than the chaos they had experienced immediately following the war. To use praxeology, the majority of people saw their acceptance of this self appointed Colonel as an improved condition over the constant criminal attacks, murder, and street fighting that accompanied the post war chaos. Obviously, there were many problems with his method of leadership. He dominated local business and extorted money from numerous people. There were several attempts on his life in the few months I was around. I have no doubt that a tougher tyrant will one day replace him.

This brings me to my first question regarding market anarchy: Why didn’t voluntary exchange services of defense arise during this post war chaos? Both Robert Murphy and Murray Rothbard claim that voluntary organizations of defense will emerge in a free market. This state of anarchy certainly provided the opportunity for these services to arise, but they didn’t.

My answer to this question is that like every other form of specialization in a free market, people will naturally seek out what they enjoy and what they are good at. In a total anarchy, the individuals who become the strong men are not only good at using force on other people, but they enjoy doing it and will seek to employ their specialized skill often. A farmer or fishermen has no desire to test his fighting prowess against a professional initiator of force, so they submit to his rule. Hence, if we are to achieve true liberty, services that involve using force on other human beings must be treated differently than all other services provided in a market economy.

I would love Dr. Murphy or any other theorist comments on this topic.

I also spent time in a much smaller farming and fishing village. This village had no local strong man. Al Qaeda insurgent cells did operate in the area, and anyone who had spoken out against them had met with death, and usually the death of whatever family members happened to be in the house with them at the time of the murder. People were scared, kept to themselves, and were not producing much of anything for trade. Again, my question is why didn’t voluntary exchange defense services arise in this environment? The Al Qaeda cells had no permanent presence in the village so an individual looking to start a protection service would have been able to do so.

My answer is that when most libertarians discuss liberty vs. security it is always discussed with only the individual in mind. In practice, people’s children and loved ones are at the forefront of their minds when making decisions regarding liberty, security, and force. Would you start a business whose failure would result in the immediate execution of your children? Would you employ an individual or company whose competitor would murder your family if you gave him your business? Maybe for some the answer is yes, but for most the answer is no. People will give up many things, including individual liberty, if the result is that their children are free from harm. It is human nature to do so.

How does market anarchy address this?

Most importantly, the greatest chink I see in market anarchy would be its inability to deal with revenge killings and blood feuds. My last mission in Iraq, I was required to oversee the security of the Hajj, the religious trek Muslims make to Mecca. The year before religious extremists had removed twenty people on the trek from their bus and executed them. This spurred revenge killings that resulted in mass sectarian violence that claimed over a thousand lives in a matter of weeks. The reason blood feuds are so dangerous is that without a strong judicial authority dealing out punishments, people feel honor bound to exact revenge themselves. Hence, if two young men argue and one kills another, the family members feel honor bound to avenge the young man’s death. In practice, there is a multiplier effect where if a person is killed in your family, usually you go and kill two or three from the other family and back and forth it goes. This may seem surprising to those living in the United States, but revenge killings are something we had to deal with often.

The market anarchy idea of monetary damage as the only method of punishment does not abide by the laws of human nature as I see it. If someone raped and murdered your child, would you be content to a cash settlement and the knowledge that person is off living their life somewhere? For a select few the answer may be yes, but for most the answer is that if someone does not harshly punish the murderer, they will do it themselves.

A strong court and police force can deal with rape, murder and prevent blood feuds. Has this been considered in the theory of market anarchy?

Please do not mistake my arguments for support of our current system. Our system is full of problems that need serious correction. What I am saying is that to treat the use of force like any other service in a market economy would be a mistake. I believe that Ludwig von Mises has the model for government, economy, and law that is most in line with human nature.

There was a village in Iraq that emerged from the chaos of war as a free society, but I will save that and the system they arranged for another essay.

Edward M. Gonzalez is a graduate of New York University and served on active duty in the United States Marines Corps from January 2004 to August of 2008. He is currently a Captain in the reserves and works for a private school in San Jose, CA. The views expressed in this article are not necessarily endorsed by the United States Marine Corps.

09 Aug 2009

P.J. O’Rourke (and Me) on Government Motors

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I think I got this link from Chris Brunner… In any event PJO has some pretty good lines in here. E.g. in referring to the politicians taking over the financial sector, he says (paraphrasing) “That’s like when the father burns dinner, and then putting the dog in charge of the cooking. In other words, the one creature in the house you know is going to do a worse job.”

Also, yesterday my Townhall column dealt with the cash-for-clunkers craziness.

09 Aug 2009

Amongst Other Gifts, God Gives Us Objective Truth

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Perhaps seeing that I do not restrict my self-important ramblings to merely economic matters, lately Scott Sumner (the Little Professor Who Could, who is now receiving NYT coverage) has branched off into philosophy. In a recent post he wrote:

What we are doing in physics is constructing models that can predict, and that therefore are very useful. But we shouldn’t kid ourselves that we are doing any more than that. This doesn’t mean that prediction is the only way to test a new model. In earlier posts I argued that the more elegant model often proved superior in the long run, and thus by induction we can infer that this might be true of future models as well.

The problem with debates over objective and subjective beliefs is that we have no God-like entity to referee the debates. So all we can do is muddle through on our own. Science can make a lot of neat predictions, and hence is very useful, but only for our purposes….

The scientific community is full of people who think religion is bunk and the humanities are not providing “real knowledge,” but rather just some light diversions to keep us entertained. OK, so then where does ethics come from? I suppose scientists might say it develops through evolution (evolutionary psych) or they might attribute it to the forces of culture (a mere social convention.) But even evolutionary psychologists like Stephen Pinker say that just because we (men) have evolved to think a certain way about violence and rape, doesn’t make it right. And most people would also say that merely because a culture is bigoted against a minority group, doesn’t make it right. So where do our moral intuitions come from? Science is unable to answer that question in a way that doesn’t sound like we are describing morals as “mere social conventions.”

So when the Alan Sokal’s of the world sneer at those who think Newton’s laws of physics are mere social conventions, I could sneer back at those in the scientific community by asking whether they regard our abhorrence at genocide as a “mere social convention.” So how do we resolve this? One way is through religion. Perhaps religion provides objective truth about ethics. But my solution is to meet the problem head on, and admit that everything we believe in both science and ethics is a social convention. Instead, let’s contest Sokal’s use of the term “mere.”

A lot of scientists suggest that it is immature to rely on religion as a crutch. I won’t take sides in this dispute. But if being grown-up is realizing that we have no one to fall back on but ourselves, then in what sense can we say there is a distinction between what we believe to be true (i.e. what predicts pretty well) and what is objectively true? Who will tell us when we are wrong?

As with his views on inflation, here I commend Scott for taking his position to its ultimate conclusion. Without a God (not necessarily the Christian God of course), your own worldview should make you wonder if the very notion of “truth” is simply a useful trick that humans invented at some point during our evolution.

I remember when I was an atheist (in college) and my Christian friend gave me a C.S. Lewis book; I think it was The Abolition of Man. Lewis had an argument trying to show that if you subscribe to the Darwinian account (at least the philosophically-charged account, that says it was random mutations on which natural selection acted), then you had no basis for trusting the conclusions of your brain.

At the time I thought that was a goofy argument, because whether you’re a Christian or an atheist, it is a separate question whether you think “Truth with a capital-T” exists, or whether there is a meaningful distinction between objective and subjective statements.

Yet now I understand Lewis’ point, especially when I read thoughtful essays like Scott’s. In the Christian view, if the story is true, then you have a reason to trust your intuitive feelings on things. For example, the reason “A is A” seems like it must be true, is that it is true–objectively–and God equipped us with the ability to discern truth.

But on the strictly evolutionary account, there is no way to know. The story is consistent with truth really being true, versus merely appearing to be true. (It’s like saying, “Is a leaf really green, or is that just an evolved perception?”)

I’m sure some of the hardcore Austrians who read this blog, think that Sumner’s epistemological musings just show what a nihilist monetary crank he is. But I think that’s unfair. Given his premises, I think Scott has reached the logical conclusion.

And just as his opinion that Bernanke was too tight in the fall of 2008 is–for me–damning evidence that something is horribly wrong with his framework, so too does his opinion that morality and scientific propositions are social conventions, constitute damning evidence that there is something wrong with atheism.

08 Aug 2009

My Lucas Critique

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Over at the Mises blog–and note that the Mises blog is different from the Mises Daily article–I have a short post about Robert Lucas’ defense of mainstream economics. Lucas basically argued that nobody could have predicted the housing crash, because if they had predicted it by the day before, then it would have happened the day before. And so on. I wrote:

This is far too clever and slippery. Someone can evaluate a situation as unsustainable (or poised in an “unstable equilibrium”) without being able to predict exactly when the break will occur….

Also…I’m starting to think the efficient markets hypothesis is a state of mind, a consciously chosen way of looking at the world. I’m not sure what it would mean to really falsify it. It seems that any attempt to test it would rely on assumptions about seemingly random events, which in the final analysis would mean you weren’t really testing the efficient markets hypothesis alone.

In the comments Troy Camplin argued that, contrary to Lucas, the existence of price bubbles obviously shows the Efficient Markets Hypothesis (EMH) is false. I responded:

Troy,

Your understanding of what the EMH is, is obviously different from Lucas’. Lucas obviously is aware of what happened to housing prices, and he doesn’t think it violated EMH.

This is partly what I was getting at in my post. I’m pretty sure that Lucas thinks the housing market was hit with a really big shock in 2006, and that made prices fall.

Lucas knows it must have been an unexpected shock, because…(you fill in the blanks).

So my point is that Lucas thinks he just empirically tested whether EMH held up during the housing boom and bust, and he thinks it passed through with flying colors. Yet what wouldn’t pass with flying colors?

Don’t misunderstand, I’m agreeing with you: The housing bubble is a great reason that I personally don’t endorse the EMH. But technically speaking, the EMH is consistent with what just happened. So Lucas isn’t wrong, he just doesn’t realize how a priori his worldview is.

08 Aug 2009

An Odd Comment From Geithner

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Treasury Secretary Timothy Geithner has urged Congress to raise the federal debt limit, currently chafing the administration at a measly $12.1 trillion. But as Robert Wenzel noted, Geithner’s reasoning is odd:

“It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations,” Mr. Geithner said in a letter to lawmakers.

When somebody owes you money, do you feel reassured when they say, “It’s fine, I’ll pay you back. I just got a new credit card.” ?

08 Aug 2009

Krugman the Scientist Explains the Elderly Rioters

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From his latest NYT column:

But while the organizers are as crass as they come, I haven’t seen any evidence that the people disrupting those town halls are Florida-style rent-a-mobs. For the most part, the protesters appear to be genuinely angry. The question is, what are they angry about?

There was a telling incident at a town hall held by Representative Gene Green, D-Tex. An activist turned to his fellow attendees and asked if they “oppose any form of socialized or government-run health care.” Nearly all did. Then Representative Green asked how many of those present were on Medicare. Almost half raised their hands.

Now, people who don’t know that Medicare is a government program probably aren’t reacting to what President Obama is actually proposing. They may believe some of the disinformation opponents of health care reform are spreading, like the claim that the Obama plan will lead to euthanasia for the elderly. (That particular claim is coming straight from House Republican leaders.) But they’re probably reacting less to what Mr. Obama is doing, or even to what they’ve heard about what he’s doing, than to who he is.

That is, the driving force behind the town hall mobs is probably the same cultural and racial anxiety that’s behind the “birther” movement, which denies Mr. Obama’s citizenship. Senator Dick Durbin has suggested that the birthers and the health care protesters are one and the same; we don’t know how many of the protesters are birthers, but it wouldn’t be surprising if it’s a substantial fraction.

If you’re curious as to Krugman’s evidence for this, he actually resorted to an a priori deduction (he must have been reading Mises). I think Krugman’s argument goes like this:

(1) The people say they are afraid of government taking over health care.
(2) The government already has taken over health care, and that’s nothing to be scared about. Therefore the rioting seniors don’t really mean it when they say (1).
(3) The only other explanation is that they’re racists.

Go ahead and read Krugman’s column if you think I’m being unfair.

08 Aug 2009

My Radio Interview in the Bahamas

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Here it is [.mp3]. I went in to the studio to do the “Jeffrey Show.” This aired live on June 19, 2009, during rush hour traffic in the Bahamas (Nassau).

This was definitely something different, but the TV show I did was really a new experience. (I don’t have the DVD yet, but it’s coming.)

I got my confidence with the Bahamians when I realized that my accent alone made me interesting. The unorthodox, yet strangely compelling, economic analysis was just gravy.

07 Aug 2009

Glenn Beck Brigades Are Loose!

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This is so ridiculous. Paul Krugman has a post called “Rioting Against Health Care Reform.” I only watched the first 2:30 of this, but it hardly looks like a riot. If Krugman actually listened to Glenn Beck, he’d know that Beck’s fans like to quote the Federalist papers. I’m not saying Glenn Beck’s growing popularity is A-OK, I’m just saying the people in this video–I’m assuming this is the same town meeting that I heard people calling Beck about–are mad because union people were allowed into a back entrance to fill up the hall before the angry mob could storm the gates. Those people had a right to be furious.

(Again, I only watched to 2:30. If something awful happens afterward, then point it out and I’ll retract my criticism of Krugman.)

UPDATE: Just look at this sentence from Krugman: “By all accounts, many if not most of the rioters were elderly.”

He has to be kidding, right? I mean, go read the whole post, and you’ll see that no, it’s a serious Krugman statement.

But what I mean is, no one can possibly write the sentence quoted above, and actually take himself seriously.

Krugman has been kidding all along. He might not say it in those words, but he knows.