First, cause no harm

To my The golden rule of liberty post, Wally asks a great question:

Freedom to choose how we live our lives is certainly something we value as a culture with a strong individualist current. But what if we’re wrong?

It think it’s a great question because the answer is a key reason I appreciate liberty. My answer to Wally’s question is that if we’re wrong about liberty, we haven’t caused direct harm.

This point is overlooked in greater-good cost-benefit analysis. Interventionist and non-interventionist actions are both treated as causing an outcome. But, I don’t believe the liberty-minded action causes anything. We only imagine it does through a trick of the tongue.

Consider these two statements:

1. If we raise the minimum wage, that causes some folks to have a harder time finding a job and some folks to get paid more than they otherwise would.

2. If we don’t raise the minimum wage, that causes more people to be able to find jobs, but at less pay than they otherwise would.

What’s the difference? In #1, some people are made worse off for the supposed benefit of others.

What about #2? While minimum wage advocates want us to bite on the idea that we are standing in the way of some unfortunate souls making more money, the truth is we’re not leaving them any worse off than they were before. We’ve done them no harm.

In fact, we’re not even preventing unskilled workers from earning as much as minimum wage advocates want them to. After all, nothing is preventing minimum wage advocates from hiring unskilled workers at the wage they prefer, is there?

In case that example doesn’t work for you, try this one:

1. If we pass each other on the street and you give me a dollar that you took from another passerby, you make me richer and the other guy poorer.

2. If we pass each other on the street and you don’t take a dollar from another passerby to give to me, you keep me from becoming richer.

In #1, you’ve caused harm to some else, even though it was offset by the benefit to me. In #2, you did not cause harm to me by not causing harm to someone else. You caused me no direct harm.

The Government Subsidy Fallacy

No Federal Department Left Behind

Just because you don’t think the government should do it, doesn’t mean that you’re against it.

David Henderson points out a Bastiat insight in this blog post that I, as well, find frustrating.  This is from Bastiat’s What is Seen and What Is Not Seen:

When we oppose subsidies, we are charged with opposing the very thing that it was proposed to subsidize and of being the enemies of all kinds of activity, because we want these activities to be voluntary and to seek their proper reward in themselves.

Henderson then shares a technique he uses in his economics class to illustrate this:

When I teach this article in class, I ask the students, who are almost all American, how many of them favor having government subsidize religion or requiring that people be religious. Typically no one raises his hand. Then I say:

Wow! That’s really something. I’m going to go home tonight and say to my wife, “Babes, I have a class of 25 people and all of them are atheists.” Did I get that right? Am I leaving something out?

The classic example of this is the Federal Department of Education.

Mention that we should get rid of it and — despite the fact that since its establishment per student, inflation-adjusted spending on public education has tripled while declining in quality, despite the fact that DC driven education accountability has proven not work (not under this guy, that guy, or that one) and the best accountability is parents, despite the common sense view that sending our money to Washington to have bureaucrats give it a hair cut and then send it back to our schools doesn’t make sense — you will likely be accused of being against education.

When actually, it’s just the opposite.

Will donations create jobs?

I picked up the brochure on Starbucks new job creation donation project.

The brochure explains that donations will be used to give grants to community development organizations that loan money to community oriented businesses.  For a $5 donation, a community development organization can lend $35 to a business.  And you get a bracelet that says “Indivisible”.

Hmmmm…

The project sounds great.

It took me a little bit to figure out the logical flaw.

But, it occurred to me that this is a version of the Broken Window Fallacy.

It took me a little bit to recognize it since there is no destruction (breaking of windows) here.  But the Broken Window Fallacy isn’t about breaking windows.  The fallacy lies in not considering what would have happened anyway.

What would have happened if I spent the $5 on something else, like more coffee beans? How many jobs would have been created from that?

Probably about the same, or more, as what’s created from the $5 donation.

Starbucks’ efforts isn’t really about creating jobs.  Starbucks’ efforts are about creating seen jobs so it can tell you stories about them to make you feel like you are doing something good.  Their efforts ignore that you are doing just as good by spending or otherwise investing that $5, but the problem is that good is unseen and harder to tell a story about.

So, technically, yes, donations will create jobs.  It’s just not clear if they create any more jobs than if the money been used for something else.

Education: It Doesn’t Need to be One-Size-Fits-All

While watching my kid with his gymnastics teacher last weekend it occurred to me how much my child has learned from private education:  preschool, gymnastics, swimming lessons, soccer league, story time and reading programs at the local library (though technically public), youtube, wikipedia, internet games and even the Wii (which has helped learn how to play real games like bowling, golf and tennis).

All of these classes and activities were relatively inexpensive, yet valuable.  I could see that my kid learned things.

It made me think of how we’ve standardized one model of K-12 education throughout our country and I wonder if that really is such a good idea.  That model is based primarily on the preferences of a group of experts for college prep education that may or may not be good.

Realizing how much my kid has learned through private activities that exist on the periphery of public education makes me wonder what would emerge if the K-12 model wasn’t thrust upon us by the experts and their tight grip over how our property tax dollars are spent on education.

Before I go on, it’s important to understand my underlying belief.

I believe that much of the improvement in our lives result from innovations discovered from trial-and-error experimentation.  I also believe that many of the best innovations result from accidental and often failed experiments (that is they failed to do they thing they were intended to do, but someone discovered some other use for it).

I believe this is true for all areas of our lives.  The classic business example is the 3M Post-It Notes which resulted from a failed attempt to make a super strong adhesive, but the weak, non-residue-leaving adhesive was discovered to be quite useful for other things.

We all experiment nearly every day and sometimes find things that improve our lives, even when we didn’t expect it.  The experiment might be as simple as trying a new product or recipe. Sometimes we find things we like and we continue to use (success) and sometimes not (failure). Often those experiments occur by accident or at random.

We can all probably think of something we do or use that we discovered by accident.  I once had a hard time running. The pounding hurt my legs. I bought a pair a shoes for general use once that happened to be on sale and discovered that I could run in them without pain.  I’ve been running ever since using that same model (currently the Asics GT-2000 series).

Further, not every innovation works for everyone.  The Asics running shoe works for me, but it may not for others.  There’s no reason to limit all running shoes to the model I prefer. Yet, that’s what we’ve done with public education. We’ve basically said that we should have one model of running shoe, even if that doesn’t work for every one. Some might say that we have experimented with the education model a little and it is not one-size-fits-all.  To me, that’s like saying that we’ve made the one running shoe model available in different colors. The variations are cosmetic, not fundamental, because ultimately the educational experiments also have to adhere to the standards that have been pre-decided.

To sum up I think there are two key advantages to experimentation: innovation and evolution of variations that better serve our individual tastes and needs.

A key upside to providing universal education is everyone has access.

Downsides include that it’s more-or-less a one-size-fits all model with very limited experimentation to drive innovation and discovery of variations that might better meet everyone’s specific needs and preferences.  It’s no wonder to me that we haven’t seen significant innovations in the classroom for decades and we have groups of people who say public education doesn’t serve their needs.

I think we are seeing some experimentation with charter schools, but that’s very limited and contained to variations of the existing K-12 model since charters have to meet standards created by the same people who run public schools.

The result might be that we find better ways to manage the existing model, but that also limits us to that model and doesn’t allow for much experimentation of other models.  Which means that it will remain to be unseen what we’re missing.

As I was writing this blog post, I came across a related post on Matt Ridley’s Rational Optimist blog which discusses one educational innovation.   The excerpt below demonstrates how embedded the one-size-fits-all model is in our thinking:

Everybody knows that the Internet will transform education, but nobody yet knows how. Most of the models sound like dull attempts to reproduce, at a distance, the medieval habit of schooling—one teacher telling a bunch of children what to think. Now, though, I think I have glimpsed a better idea: the self-organized learning environment (SOLE).

Perhaps SOLE is a better idea than our current model, or perhaps its a better idea for some people and not for others. Our problem with education is that as soon as we see promise in something like this, we want to scale it to everybody.  The iPhone, while a remarkably successful product, does not meet the needs and preferences of everybody. Other phones are selling fine for those who have different tastes.

If we want to improve education, I recommend that we remove barriers to experimentation and allow different variations to emerge to meet varying tastes rather than trying to find the next one-size-fits-all solution.

Do No Harm

An interesting thread came up on this blog post on Cafe Hayek.

One commenter, JohnDewey, defended government agencies calling it unfair to say that government agencies do not add any value.  He admitted that agencies like the USDA may not operate as efficiently as a private solution, but it’s still better than nothing and therefore it adds value.

I disagreed.

Dewey used an example of an untilled field.  He said a man and horse-drawn-plow adds some value to the field.  Maybe not as much as a man and a powered tractor, but let’s not forget it adds some value.  In his example, government agencies were the man and horse-drawn-plow.

I disagreed as did others.  A commenter known as vikingvista pointed out that Dewey lacked the imagination to consider what Bastiat wrote about in the 1800s as the unseen, or how much different and potentially better things could be without government involvement.

I agreed.  But, this is a difficult point to grasp because it’s abstract.  It’s difficult to imagine how things might be different.  That’s because most good things are a result of accidental innovation.  None of us can really imagine the unseen because that would require us to be able to predict something we can’t predict — which accidental experiments will be successful.  If you could predict such things, you should do very well investing in the stock market or directly in business start ups.

But, I wanted to try to bring this abstract point home.

I wrote to JD that he was using the wrong reference point to determine if the horse and man add value.  He was using “nothing” or an untilled field as the reference point. Certainly, a horse and man can produce more crop than an untilled field.

But, the untilled field is not the correct reference point.  It ignores opportunity cost.  A better comparison is the powered tractor field because powered tractors are readily available an in use these days.  The horse and man will produce less per unit of input than the tractor and man.  Even if the man can’t afford to buy the tractor, he can afford to buy crops grown by other people with tractors.  So, it’s not worth his time to try to produce crops with his horse.

JohnDewey disagreed.  He still contended that man/horse added some value.

I used one more example.

I appointed myself his new manager at work and declared that I didn’t trust any technology that’s been developed in the last 40 years, so he and his co-workers must carry out their work with tools and methods that have been around longer than that.

I imagine when my superiors experience my team’s productivity sinking to a fraction of what it was before, they wouldn’t buy JohnDewey’s argument that “it’s better than nothing.”  Neither will shareholders.  They’ll correctly compare our new output to what it could be using modern tools and methods and fire me because they will have correctly viewed that I damaged, rather than helped, the team.

Unfair Trade Practices

Don Boudreaux of Cafe Hayek wrote a letter to the Milwaukee Journal-Sentinal about Senator Russ Feingold’ statement that “unfair” trade practices have led to the destruction of 64,000 jobs in Wisconsin.

Nobody thinks 64,000 people losing jobs is great.  But, what people like Feingold don’t consider is that there’s a positive offset to that which is much greater.  The problem with the offset is that it’s unseen, while a worker losing his or her job is easy to visualize.

What if Feingold said we have lost 64,000 jobs in the buggy-whip industry because we have allowed folks to purchase automobiles?

While this statement is essentially the same as Fiengold’s statement, it wouldn’t carry nearly as much punch for two reasons.

First, my statement identifies the workers as buggy-whip makers.  Second, it identifies the benefit as something people can clearly see as a positive trade-off.  We get cars at the expense of the of a few buggy-whip making jobs?  I feel bad, but I’ll take the car, thank you.

Boudreaux does an excellent job at identifying the workers and making folks think about the unseen effects that offset the 64,000 lost jobs in the last paragraph of his letter:

So Sen. Feingold’s accusation that freer trade is “unfair” simply because freer trade results in some workers losing particular jobs means that he must also regard as “unfair,” say, anti-smoking campaigns.  After all, such campaigns tempt consumers away from buying cigarettes and, sadly, result in job losses among tobacco-industry workers.

I would have changed “anti-smoking campaigns” to “anti-smoking laws”, which I think are more analogous to “unfair” trade practices.

Similar to the buggy-whip example, most people intuitively make the trade-off when presented with more information, even those with what Thomas Sowell calls the unconstrained vision.  Oh.  If we have to give up a few tobacco industry jobs to save a few lives, so be it.