02 Nov 2019

Murphy Triple Play

Shameless Self-Promotion 12 Comments

==> My article on Bitcoin’s 11th birthday.

==> My IER post on Sweden’s carbon tax. (I have some graphs in here that might surprise you.)

==> Another in my Austria vs. Law & Econ series. This time, I critique Armen Alchian’s arguments about air pollution. An excerpt (and note that I’m not changing the formatting, but the below is a quote from my article):

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The Manne seminars featured big guns, including Paul Samuelson (so they weren’t all right-wingers) but also those skeptical of typical business regulation, such as Milton Friedman, Harold Demsetz, Martin Feldstein, and Armen Alchian. For our purposes in the present article, I want to focus on this portion of the Vox interview:

Dylan Matthews

You had some really eye-popping examples in the paper about pollution.

Suresh Naidu

Yeah, and it kind of reveals…sometimes when you take economics too literally, it leads you into kind of very sociopathic ways of thinking about things.

We have quotes from Armen Alchian, who said, “Give me a capsule that will magically clean all the air in Los Angeles….Beg me to crush it….I won’t crush the capsule. Because if I do, poor blacks will have to pay $20 a month more for land rental….The black in Watts, already used to living with bad air, loses his discount for doing that.”

And that’s just this idea that if you clean up the pollution, more people will want to live there and that will drive up the housing prices, making the people that are already used to pollution worse off.

I think that’s the kind of reasoning you’ll find in a lot of what the Manne teachers were teaching, as well as, “Here’s why a lot of regulation by the EPA [Environmental Protection Agency] might not be the most efficient way of reducing environmental damages…and maybe people don’t value environmental damage that much anyway.”

The above Alchian anecdote is a perfect illustration of what I meant in my earlier article when I said that the Law & Econ scholars sometimes make deliberately “shocking” arguments. They no doubt do this in order to capture the attention of students (or readers in the case of written material), but the strategy backfires if they offend the non-economist while getting the economics wrong. In that case, the shocking (and erroneous) argument only serves to confirm the average Joe’s suspicion that these right-wingers aren’t really principled, but instead are just mouthpieces for big business.

In other words, it’s ironic when the Law & Econ scholar deliberately picks an example where the average person will think, “That can’t be right!” when the average person is correct—in this case, Alchian’s argument isn’t right.

12 Responses to “Murphy Triple Play”

  1. Major_Freedom says:

    I’m sorry for any militant atheism rudeness I posted here all those years ago.

    Bless.

  2. Harold says:

    Hi MF. Are you OK? I don’t think you need to apologise for anything you posted here. Whilst I did not agree with much that you said, everything I saw was always reasoned and civil and has no need of an apology. Blessings to you.

  3. Harold says:

    The magical cleaning up of pollution would be a net gain. Sure, there would be some losers in the short term, but overall there are more winners than losers. Kaldor-Hicks efficient. Is this the point you are making? Austrian economics does not seem to be required. It does seem likely that the economic argument from whatever school would be to crush the capsule.

    There are reasonable arguments to be made that Kaldor-Hicks is not always the outcome we should want. Maybe the negative effects on the losers should count more for some reason, but that is a different argument more about politics than economics. There are many politicians who may argue not to crush the capsule, but I suspect not many economists. Maybe I am wrong, but an interesting point for discussion.

    This is approximately the same argument made for immigration. Economists say free exchange of labor is good, and overall people benefit. Some individuals will lose out, and some argue that we should care more about these individuals, so we should limit immigration. These people do have a point. There are many other aspects to society such as equality and inclusion that we need to consider. These are sometimes hard to express in economic terms, but not impossible.

    “The standard Austrian approach is to define ownership rights, and how to handle situations where (say) someone’s smoke particles cross onto another’s property, where concepts like “invasion” or “aggression” are not so clear-cut as in the case of a person driving his car into your porch.

    Since MF has contributed here, it seems reasonable to ask why concepts such as “invasion” or “aggression” are not so clear cut? Either we have principles or we do not. Saying these are not clear cut for soot is just diluting the argument. If I have a property right that absolutely allows me to prevent trespass, then this should apply to soot, particles, gas molecules or radio waves. If we say these do not count, where do we draw the line? Are we to have an arbitrary decision based on a majority choice?

  4. Harold says:

    The message from Sweden is that economic growth is not tied to CO2 emissions, which is an argument made by a great many deniers. Cut CO2 and you condemn everyone to poverty, so the argument goes. This does not have to be the case.

    • Andrew in MD says:

      Maybe. But “cut CO2” is not a thing we can choose to do in isolation of everything else. You need a specific policy proposal. And when people come up with specific policies, the response is then, “This policy will hurt the US in this way and will provide marginal benefit in terms of CO2 emissions.”

      The problem with implementing CO2 regulations in the US and the UK is that our countries are relatively green already in terms of CO2 emissions. So cutting our output creates economic hardship without getting much bang for our buck. Meanwhile, developing countries like China have outsize CO2 emissions (and all kinds of pollution for that matter) and very little interest in going green themselves.

      The issue that the climate change alarmists refuse to acknowledge is that we still don’t have a realistic policy proposal that would actually address the problem. The proposed policies sound like, “Shoot ourselves in the foot and hope the rest of the world follows suit.”

      • Harold says:

        “Meanwhile, developing countries like China have outsize CO2 emissions”

        Data from world bank – CO2 emissions metric tonnes per capita: USA = 16.5 China = 7.5.

        Hardly outsized.

        There are other ways to view it. Historical contributions has USA way out in front. Historical contribution per capita has UK in front and USA second. Consumption footprint has USA at 20.1 and China at 4.6.

        Whichever way you look at it, USA is a big contributor.

        I find it amusing that many who say USA and developed economies should do nothing because their contributions make little difference overall are the very same people who denounce Al Gore and the like for having a large carbon footprint. It is really not hard to see that if the wealthiest and historically biggest polluters do nothing, then those much worse off will be very reluctant to make any effort.

        • Andrew in MD says:

          Can you at least see that the way that you’re couching your argument is going to make rational people skeptical? You’re not saying, “This policy implemented by the US would solve X% of the problem.” You’re saying, “Historically, the US polluted more than these other countries,” and, “Other countries will be reluctant if we don’t act first.”

          I’m not saying those are bad arguments but they’re not good arguments either. Because you aren’t saying, “You’ll have to feel some pain but it’ll solve a problem.” You’re saying, “You’ll have to feel some pain but you deserve it and people who are acting worse than you right now are watching.”

          I’m glad you’re amused, at least. Personally I haven’t had anyone convince me that we should either “do something” or “do nothing.” “Nothing” just happens to be the status quo. And “nothing” has already lead to a large reduction in air pollution in the US over the decades. Al Gore can do what he likes but it is surprising that an international conference that’s primarily concerned with climate change caused by CO2 emissions would not be held online.

          • Andrew in MD says:

            Al Gore did invent the Internet after all!

            X-D

          • Harold says:

            Your comment about rational people is a very interesting one. Bob himself has pointed out that a rational person in a series of 1000 games of prisoner’s dilemma will defect on the first turn. I believe the logic is impeccable. Normal people do a lot better by cooperating for many rounds.

            Global problems are similar.

            In PD, the rational person is assumed to be only interested in maximising their gains from the game. Yet even with this restriction, we find that gains may be greater if we take a more collaborative approach.

            there are parallels with global issues. One can maximise your own gains by cooperating compared to taking the apparently rational approach of defecting at every opportunity.

            “You’re saying, “Historically, the US polluted more than these other countries,”

            I am saying that, but I am also saying Americans pollute more than Chinese right now.

            America is actually large enough that USA emissions do make a significant contribution to world CO2, but that is not really the point. We could sub-divide forever and say that my country / state / city / personal contribution is small so why bother?

            ““You’ll have to feel some pain but you deserve it and people who are acting worse than you right now are watching.””
            No, you may have to feel a little pain, but people who are acting better than you right now and have not had the benefits of historical emissions that you have had are watching.

            Just as with PD, it is a matter of encouraging cooperation so everybody can maximise gains. if you defect at the first opportunity you prevent the possibility of further cooperation.

            • Andrew in MD says:

              Okay, so you agree that the rational basis for strict carbon controls in the US are weak and that the argument in their favor is largely about providing a positive role-model for other countries.

              I’m not sure how you can claim (imply?) that the US is a worse polluter than China right now. I guess we are just looking at different sources of data but it seems pretty difficult to imagine, just given the stage of economic development and regulatory structure in China versus the US.

              It is interesting that “normal people” (as you call them) do frequently cooperate in experimental settings. It makes me wonder where these experiments have been conducted and how much cultural variability there is in the results. You could use that information to predict what countries would do better at protecting their own interests versus working toward global interests. There’s probably an optimal balance here such that you don’t want to be so cooperative that you get steamrolled by more savvy competitors and you don’t want to be such a defector that you close yourself off to every mutually beneficial opportunity.

              • Harold says:

                “I’m not sure how you can claim (imply?) that the US is a worse polluter than China right now. ”

                Data from world bank – CO2 emissions metric tonnes per capita: USA = 16.5 China = 7.5.

                It is not that difficult.

                “Okay, so you agree that the rational basis for strict carbon controls in the US are weak ”

                Not really. It somewhat depends on what we mean by “rational”. Pure game theory dictates that in iterated PD always defect is the best strategy. It may be considered rational to follow pure game theory. However, it is not superrational. A superrational player assumes other players are also superrational, and will start by cooperating. A rationally self interested player would start by defecting.

                Is the argument for superrationality weak? No, I don’t think so. In competitions, algorithms do much better if they are superrational than if they are rationaly self-interested.

                There are 4 conditions required for an algorithm to be succesful in these competitions:
                1. Nice – it will not defect before its opponent does.
                2. Retaliating. It must not be a blind optimist and must retaliate when an opponent defects.
                3. Forgiving. It must allow a pathway back to cooperation, even if this means a small local loss.
                4. Non-envious. It must not strive to score more than its opponent.

                These strategies will maximise the benefits for that player. In individual rounds some other players will get more, but over many rounds these strategies will win.

                That is not weak evidence at all. There is strong evidence that these strategies will benefit the USA most, and as a welcome side effect the rest of the world benefits also.

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