A nice summary of the rise and fall of the Swedish welfare state, “the capitalist welfare state” to the author. The book covers the “golden years” approximately 1870-1970 and discusses how and why Sweden could go from being one of the poorest to one of the richest countries in the West – while supporting an expanding welfare state. He also discusses how everything got messed up in the two decades 1970-1990, and why the welfare state as well as Swedes’ relative prosperity could not survive this institutional change. Overall a thoughtful and nice summary of the rise and fall and renaissance (?) of the Swedish welfare state – and what are the reasons for its relative success.
On Santesson-Wilson & Erlingsson’s “Reform”
A nice collection of essays summarizing the cutting edge political science institutional research on what drives political change. As a rather new-born economist, I can’t help thinking that research in political science often tends to become more of a narrative than a structured pursuit of knowledge – and that this sometimes (as was the case in a couple of the essays) makes the analysis a bit shallow. Some of the points were well taken, some conclusions – especially when connected to the historical evolution of the institutional framework of political rule – were very interesting and enlightening, whereas some essays were purely descriptive and in lack of analysis. Overall a nice collection of essays trying to summarize the institutional study of political change; it may be[come] a nice starting point for future research.
On Menger’s “Principles of Economics”
Mises supposedly said that Carl Menger’s Principles was still (at the time) the best introduction to Austrian economics. This is certainly true, but I would go further than that. The Principles is not only an introduction to Austrian economics but a great introduction to sound economic thinking. Whether you agree with “Austrians” or not, and whether you have successfully finished a graduate degree in economics or not, you will still learn a lot about economic reasoning, the logic of social relations, and – especially – the economic way of thinking.
Menger’s treatise is a very easy read, is exclusively written in beautiful prose (no math), and focuses on understanding how the market functions through first understanding how and why individuals choose to act. But it is not simply an overview of concepts; it is a thorough analysis of the bases and starting points for economics as well as the understanding that necessarily follows. [Read more…] about On Menger’s “Principles of Economics”
Why Economists’ Predictions are Always Wrong
[ad]The general conclusion at the moment seems to be that there is a need for a new set of theories of the market and economics – “crisis economics.” The reason for this need is the fact that “no one” predicted the current downturn and crisis, and that the predictions made turned out as wrong as they could possibly be. In fact, many economists predicted increased growth and continued prosperity while the true future held an economy in freefall with a number of imploding industries and sectors.
In an opinion piece in the National Post the obvious question is asked: Why Do We Have Economists? The question had to be asked, especially since there has been no real “blame game,” no real and public debate on why all predictions turned out wrong, and no consequences for the economics profession. After all, economists often stress the fact that action is taken under rational assumptions of consequences and that all actions have consequences of some form. The army predicting economists is obviously an exception to that rule.
As some sociology professors frequently joking: say what you will about economists, but you will always get a straight and precise answer – and you always know that it is wrong. So the question asked by the editor of the National Post should be well taken; it is an important one. Why do we have economists?
But there is a question that is more important, especially for the professional economists who make all these “always wrong” predictions, and that is what makes the predictions always turn out wrong? The answer to this question lies in the error of Milton Friedman in his now famous (should-be infamous) article “The Methodology of Positive Economics” and the people who followed him (and still do).
Economics prides itself of being a deductive science, i.e. that new knowledge is deduced directly and logically from true premises or assumptions. Friedman argued that it doesn’t matter if the assumptions are wrong as long as one can extract general rules from which one can make predictions that are somewhat reliable and come close to the truth. What he spelled out was a theory of economics aiming to be a natural science, where exactness is both important and possible. In economics, however, we should learn that exactness is neither important nor possible.
In order to provide a positive, rigorous science that can produce exact predictions, one has to through out all understanding (in the Weberian verstehen-sense) and rely solely on cold data. One cannot make predictions unless that which is studied is perfectly observable and with clear boundaries. But what if we apply this line of thinking on human action, which is the core of what is studied in economics. Are the causes, nature, and consequences of human action perfectly observable and have clear boundaries? How do we measure the causes of an individual’s actions? His choice of action? The action itself? Its consequences?
The latter comes closer than the former, but it is still not even close to having the properties of the objects studied in the natural sciences. Mixing x grams of A with y grams of B may always create the substance C, and exposing D to E or F may always show exactly z – but doing m to one individual does not necessarily create the same effect as doing m to another. People are not simply responding perfectly and blindly to exogenous influences, there is a whole lot of other things going on that are at least as important as certain influences. Some call it “free will,” but you don’t have to go as far into metaphysical or religious pondering to realize that people are neither rocks nor [simpler] animals.
The problem of economic prediction is just that underlying assumption that we can “easily” predict the outcome of numerous people through meddling with some of the variables that affect people’s choices. It is simply not the case that different individuals choose to act the same way when exposed to (or influenced by) the same stimuli. Our bodies may – may – react in the same way, but our minds do not.
To this some might retort: thanks to the law of large numbers we can generalize our conclusions despite individuals not being alike. When the law of large numbers is applicable, we can simply assume that if we just have a sample large enough all potentially skewed or unrepresentative data will even out and we will find The Truth about human beings. But this does not change the problem at hand – we are still generalizing in the same way, but only with more data and more individuals.
Even if we accept the law of large numbers as a sufficient reason to use statistics to understand people, we will have to face the problem with their not being the same. That people, being boundedly rational, would always choose more over less (which necessarily follows from the definition of choice) does not mean they will choose a particular outcome over another in every situation. Each individual will make a subjective assessment of his preferences and rank them, then make a choice based on what he knows of his ranked preferences (this is the decision process, whether it is carried out consciously and reflectingly or not). But the ranking may change depending on circumstances as well as what the individual has learned.
Making perfect predictions the way Friedman proposed means we must take the quality of being human out of every individual, or at least “even it out” in order to calculate precise predictions. What do we learn by knowing that people without personalities and without “inner depth” (some call it soul) would necessarily act according to our the predictions? Probably not much.
Furthermore, the predictions are based on extrapolating well beyond what is reasonable. Establishing one person’ s assessment of everyday risk and the costs he accepts to take care to avoid this risk, and translating it into dollar amounts, does not necessarily give us monotonous knowledge of this individuals preferred choices. It does not follow that he would accept a high risk to lose his life if he was paid some muliple of the cost he was willing to take on for smaller risks.
Predictions simply do not cut it. So why do we have economists?
The answer to this question is that we do not need most economists, but we do, at the same time, need economists more than ever. The reason for this is that the economists working on predicting the exact outcome of hundreds or thousands (or millions or billions) of individuals’ simultaneous choices are worthless, their methodology is fundamentally flawed and they are nothing but frauds. And they should be treated accordingly.
While we think of what to do with the predicting economists we need to find the real economists, the people who understand the market and can tell us how it functions and what is required for it to function well. Very few economists understand what the market is about and how the emergent order arises, subsists, and what it effectuates. These economists were able to say a long time ago that we were heading towards a meltdown, and they did. They even published these warnings, but nobody listened or wanted to hear about it. “Nobody” here denotes the prediconomists and the political elite that [usually] hire them.
Economists need to do what businesses did a long time ago: go back to basics. There is no need for armies of economists trying to predict the exact results of public policy, of interest rate changes, or monetary policy, etc. The use of prediconomists is not to learn about the future or politics, but as “useful idiots” disguising blind, naive, and ignorant attempts to regulate people’s choices through granting the commandeering of society an air of scientificity. And they serve well as scapegoats when their predictions turn out to be wrong and the people in charge can hide behind their “good intentions.”
What there is a need for is real economists who do not engage in futile attempts to “scientifically” make exact predictions of people’s future choices. We need people to tell us how the market works so that we can reap the full fruits of our hard work and profit from the risks we take.
On the Recent Piracy Trial
[ad]As some of you may know, the “piracy” trial ended with the conviction of the administrators of the web site The Pirate Bay to one year in jail as well as (for Sweden) record-high damages to the entertainment industry. Whereas it is not clear if they have committed a crime – hell, it isn’t even clear that a crime has been committed – some interesting facts about the trial have emerged.
The courts in Sweden are highly politicized. As is common in civil law countries (like most Western non-anglo-saxon countries), the Swedish court system is not based on principles such as the courts or judges discovering law (which is, originally, the case in common law countries) – they but enforce the law as decided by The Ruler, be he king or a faceless parliament – and trial by peers (the jury system).
The courts do, however, have a pseudo-jury system where a judge runs the show but a number of people are chosen to assist the judge in finding the defendant guilty or not guilty of crime. These people are appointed by the political parties with representation in the parliament. In other words, there is a kind of political jury system where the political elite gets to appoint who will make sure justice is upheld. That the same elite enacts the law that is tried in the courts is not a problem to most Swedes, it seems.
In this particular trial, a high-profile trial with international coverage, the politicization of the Swedish courts is extra troublesome. The road to the trial has been paved with scandals, where the entertainment industry’s organization Antipiratbyrån not only has done the police’s job at raides against private web hosting firms, but they have worked closelly with the police investigators and even hired or paid a number of them. Furthermore, the U.S. government has pressured the Swedish government into taking a number of actions that are not necessarily allowed in the Swedish system of “justice” – sometimes even outright prohibited.
This has not stopped the investigation, however, which is still partly based on what was found or interpretations made based on the illegal investigations. The propaganda war is also an important part of the story, where the public obviously supports and engages in file sharing (both the legal and the copyright-violating kinds) while the political elite is whole-heartedly on the side of the industry. In fact, the political elite has been enacting a number of laws significantly reducing the rights and privacy of Swedish citizens only to get to the small number of illegal file-sharers.
It is in this context that a trial with a judge and politically appointed judge assistants (nämndemän) is highly problematic. But, as I have already mentioned, this seems to not be a big problem in the Swedish public debate. The special interest owns the political elite, and the political elite both enacts and enforces the law.
Furthermore, the trial has been tragicomic. The defendants’ lawyers have very frequently objected to the prosecutor’s use of evidence not previously shown to the court. There are transcripts from the courts showing how one of the defendant’s lawyer objects saying the prosecutor is “doing it again” and that he “did it yesterday” and “will you never learn?” The court never disallowed the evidence even though the defendants had to react without any preparation whatsoever.
Also, the court has consistently misunderstood what the technology does. The prosecutor has repeatedly made statements about the “copyrighted files on the Pirate Bay server,” whereas anyone who has the slightest knowledge of the bit torrent technology knows that there should be no such files. The Pirate Bay had only a torrent library – a type of links that any search engine also has (but torrent/file links, not web links).
These problems set aside, what has caused a debate after the conviction is that new information about the judge has surfaced. Not only is he ignorant of this particular technology and allowed the prosecutor’s consistent use of procedurally prohibited conduct. He is also a member of the Swedish Organization for Copyright. In other words, he is a member of the organization that promotes copyrights and has done so since 1954.
Does this mean the trial is dismissed and needs to be done all over again? Not necessarily – the court could decide that his membership further his knowledge of the issue rather than makes him biased. And it is likely that the request for appeal from the defendants will generate exactly this assessment.
How, then, would the appeals court assess the fact that this same judge asked (asked, not ordered) one of the politically appointed assistants to step down and leave the court due to probable bias because he was a musician and member of the same organization? It would probably think this is a separate issue and that it was the correct call by the judge…
The fact is that this is a minor issue considering what has been going on for a long time during the investigations. Police investigators have been contracted by the Antipiratbyrån and then, when/if fired from the police, hired by them. The Antipiratbyrån folks have been assisting the police during raides even though it is strictly illegal to do so – yet the politicized system of “justice” has not reacted. The Swedish government has broken its own laws to please the U.S. government and a U.S.-based industry that is way off track and unwilling to change its business strategies despite the technological advances. And the entertainment industry has received legal privileges to take actions that not even the police has the right to take.
There are simply so many strange things going on that undermine the court system, the government legal system, the legitimacy of enactment and enforcement of laws for the sake of protecting a relic of intellectual property, that this doubtlessly will be known to future generations as something to be truly ashamed about. That is, if you are a statist. If you are not, then this was expected; what was not expected is that this has been going on without even trying to cover it up.
Why Do Economists Sympathize with the Right?
[ad]This is a legitimate question even though it doesn’t necessarily imply that economists (American such, at least) in general are Republicans. But it is a fact that economists in general tend to be to the “right” (according to the common understanding of the political right) of e.g. sociologists and political scientists. It is also a fact that you will find more libertarians in this discipline than in virtually any other such in academia. Why is this so?
The general leftist might not find this question troubling, since the “obvious” answer is that economists work with money and capital and therefore have a natural and benefiting relationship with capital owners in our capitalist economy. This may be an answer that explains some individuals’ actions and convictions, but it is hardly the reason economists in general – theoretically or in reality – tend to have free market ideals. But it may be an easy way of avoiding over-simplifying and over-politicizing the issue.
Some may argue the other side of the simplified leftist coin: that there is a “selection bias” and therefore that people who like money and capital(ism) are more likely to choose to work with and study money and capital. This too may explain why some of the individuals in economics feel they belong on the right. But it doesn’t explain why virtually a whole discipline identify with the “right” side of the political spectrum.
The real answer should be based in simple economic theory: the theory of incentives, or, rather, the assumption that people do what they have an incentive to do. This is a core understanding in economics of the true nature of human action. People do what they have an incentive to do, and understanding this may lead the individual economist researcher to the solution to many a problem. Understanding that people do what they have an incentive to do explains virtually any social standards or institutions.
What this means here is that economists think this way and therefore necessarily think this way also with respect to politics and the organization of government. Seeing that individuals in government are acting on their incentives means seeing all the possible problems with government. For instance, take any democratically elected parliament taking the proposed budget to a vote. If the members of parliament would pay whatever is spent themselves they would have a great incentive of minimize the budget, make sure that it is spent and distributed efficiently, that only projects with great chances of success and with real benefits would see the light of day. But this is not the case; politicians choose what to spend other people’s money on.
Imagine what this screwed up set of incentives would mean in another setting, e.g. a common grocery store. We know that the owner or manager of the store makes sure to hire those he can trust to sell (and not steal) the groceries and he will only buy those groceries he knows people will buy. Why? Because his ass is on the line – if he spends most of the budget on groceries nobody wants he will lose customers and therefore his own money…and perhaps the whole store.
Now imagine the same situation but where the owner or manager can decide how much money he gets to spend through simply taking other people’s money. Whoever lives in the area has to pay whatever percentage of his income to the owner of the grocery store so that the grocerer can buy goods to offer his customers. Now what are the incentives for him to buy only good products, only products people will like, and hire people he can trust? It makes more sense to buy the cheapest groceries, no matter if people like them, and hire the people he likes or people he feels sorry for or people he wants to do a favor.
It is not necessary to ask which grocery store will be of greater utility for the customer, even if some of the groceries in the “political” grocery store are for free.
This is how any political parliament works: politicians claim they are limited by their budgets, but they get to decide the size of the budget (and take the money necessary) and even if they should stay within the budget. It is often the case that they spend way more than they take from people, thereby not only spending people’s earned incomes but also the money they will earn in the future. So any political organization is, in terms of incentives, totaly screwed up. Or, to translate it into economic lingo, the incentives between the principal (voter) and agents (politicians) are misaligned.
So it makes sense for economists to identify with whatever politician that seems to understand more (read: seems to be less ignorant) about these things. And these people, at least rhetorically, are often found in the political right. I say rhetorically, since it is pretty obvious to whoever understands politics that in the choice between Bush and Obama neither one understands the first thing about economics. But Bush was able to make it sound like he had a fraction of a clue.
The interesting point is not really that economists identify with the political right, but rather why they do not follow their theoretical understanding all the way through and demolish the State – at least in their thinking. Some of them clearly do (I am one), but not very many.
So what we have here is really a whole academic discipline that understands, or supposedly understands, economics and therefore can identify the lack of aligned incentives in political organization – but don’t do so all the way. Economists either do not fully believe economic theory or they do not believe government is what it is (and claims to be). Which is it?
Some clearly do not understand and do not wish to understand economic theory nor apply it on other things than their precious formulas and functions. Such economists will never find any truth and will not produce anything of value to anyone. But what about the rest? It is clear that many economists live in symbiosis with the State and therefore do not wish to think about it in less positive terms. After all, the government employs a lot of economists and economists find it very prestigeous to work for the people with political power. So they simply neglect to apply their economic understanding on the organization they wish to serve.
So how about the rest, i.e. economists who do understand economic theory and wo do not find it necessary to lie to themselves in what regards the State? The answer to this question is what is very sad. It should be the case that economists who end up identifying with the political “right” while supporting government simply do so because they are as brainwashed as most people. Despite being scholars in economics they have learned throughout their lifetimes that there is no way to survive without government.
Economists (many of them) may not like government, but they accept it and even support it. And they use their sound theories to make government more efficient and effective – simply because they have been taught that there is no other way. To a free-thinking individual with economic understanding this is of course the same as saying that a certain industry “must” function like the “statist” grocery store mentioned above – but that we need to make its wasteful operations as efficient and effective as possible not to get “too much waste.”
Anyone understanding the competitive market understands that waste is not acceptable, that waste is minimized automatically through the profit motive and the pressure from competition. The problem here is not only that government is a monopoly and that the profit motive is nonexistent. The problem is also that it is an organization that can “legitimately” force its customers (and non-customers) to pay for its costs while it can supply whatever it wishes at whatever cost it finds most appropriate.
Government, in other words, is an organization that is much much worse than any monopoly mentioned in economic theory – it is a monopoly cubed, judging from the weird incentives it creates and the effect it has on the market. There is therefore no way of understanding economists’ support for government other than that they have given up in the sense not applying what they know to it. Brainwashing works, even on those who have dedicated your whole professional lives to learning the truth – and when the truth speaks out clearly against government.
Starving Politicians
[ad#righthandside-tall]When starved people find food they tend to desperately swallow everything and not take time to chew the food properly. We’ve all felt the same thing: when we’re really, really hungry and finally get that so desired meal our heartrates go up, we feel stressed, and we eat as quickly as we can without really knowing why. In a sense, we give in to the beast within, the stoneage man who thinks only about survival and reproduction. When food is scarce, which is what hunger means to us, we devour as much as possible to make sure we survive.
Of course, in our modern and civilized society, at least in the so-called West, there’s almost no reason to quickly devour the food. There’s plenty of food and plenty of time to eat it, and eating too fast is usually a bad thing – our bodies tell us to slow down. But the instinct is hard to overcome, since it is and has been so fundamental for our survival as species for three million years.
So when we’re really hungry and are served food we basically give in to the caveman withing – we forget everything that is civilized and expected of us only to get those calories our bodies need to continue functioning.
The same seems to have been the case in politics in this century. Just like people used to eating a lot easier get hungry, politicians learned in the 20th century that they had a lot of power within their grasp. In fact, their powers increased greatly during the last centry, often as a product of unnecessary (the propaganda somehow left out the “un” of the word) wars fought only to increase the powers of the State. With such an appetite built up by the political class, we’re bound to see a quickly growing State – and thus to see our liberties being quickly undermined and taken away.
Then came the crises in the 1970s and the following credit-based “glorious” 1980s, and with them came a change that the statists on the left are still talking about: the so-called revolutions of Thatcher in the UK and Reagan in the US. These were not regimes as great for individual liberty as statists on the right often claim they were, but they nevertheless to some degree forced back the State in certain areas. In other words: political power was forcefully decreased – mostly in rhetoric, but also to some degree in reality. A new trend was seen in the Western world, where the State was slightly pushed back in order to utilize the enormous wealth producing potential of the market.
Politicians, often in the statist left, loudly complained about sometimes fictional and sometimes obvious injustices caused by these new economy-supporting (big business fascist) polices. The so-called globalization that this caused has since been a bad word for leftist statists.
Politicians on the statist right enjoyed their time in the sun, since they rhetorically are advocates of a less restricted economy and therefore in the minds of people were the creators of the new economy and the great prosperity it generated. (How politicians can be thought of as creators of something good in any normal sense of the word is completely incomprehensible – they are at best relatively harmless parasites.) But the statist right soon found that a somewhat liberated people and economy is much more difficult to command – while they had gained and strengthened their power as the economy seemed to be booming (in pre-inflation numbers, of course) they were losing power at a fast rate as people got richer.
In some sense, but hardly in general terms, the powers of the State were somewhat more restricted compared to what it had been before. Or rather: the steady and ever increasing rate of bigger government in the Western world throughout the 20th century had somewhat declined. And, as we know, with a learned habit to consume large volumes of wealth comes a great appetite. This appetite could not be satisfied, and so the politicians suffered.
It was not until the terrible events on 9/11 that the trend could be reversed. President Bush and his hungry lackees quickly seized the opportunity and played on people’s fears to gain support for radically strip Americans of their rights and freedoms while starting wars in order to further keep the people in the dark and make them agree to support “temporarily” established torture champers, to not mind thousands of dead soldiers in foreign lands, to approve of increased taxes (mostly indirectly through government debt), and to accept the “need” for government to seize totalitarianism powers domestically.
Bush and his league of starved, power-craving parasites took advantage of the situation and did what any starving caveman would at a table filled with foods: they devoured anything they could get their hands on, and they did it quickly – possibly (hopefully) more quickly than they should’ve.
As soon as cavemen (politicians) around the world learned of this opportunity they set out to do the same thing. After all, they too were starving for greater powers and unrestricted possibilities of growing their supply of it. And so countries all over the world have adopted the “anti-terrorism” laws that fundamentally restrict the domestic populations and strip them of any rights against the government that they supposedly used to enjoy. That these laws do not target terrorists or even people the State would consider terrorists (i.e., people not paying “enough” taxes) to the same degree they are all directed towards the domestic population.
Surveillance and control hardly ever target such things terrorists would be likely to use (the government doesn’t have such great imagination); they only target what most people use or do most of the time. We now have large-scale phone and e-mail surveillance, video-monitored public places, and a large number of authorities that need to approve of our intention to do certain things. Who can truthfully say they believe politicians sincerely thing they will stifle terrorism through listening in on your aunt’s phone calls or monitor her actions while riding the subway or buying groceries?
The new powers established by and for the State are even more ridiculous considering where these measures have been taken. For instance, Sweden will shortly allow its military to routinely save and catalogue all e-mail and phone traffic at any point transmitted across the national border. Now who would’ve thought that Sweden, the cowardly State not even brave enough to take a stand as the Allies were winning WWII, would be a target for terrorists? The fact that all parties unreservedly support this large-scale surveillance should tell us something – it is so obviously in the political powers’ interest to have this infrastructure of surveillance that they don’t even bother to make it seem like there are differences between the parties.
What we’re seeing is simply starving politicians devouring everything they can get their hands on. And they will be at it for as long as people let them, since there are of course no real restrictions on government. They are in power and they make the restrictions; they can at any time repeal or ignore these restrictions if it is in their interest.
I, for one, hope they devour our liberties so fast they choke to death – or at least get a really bad stomach ache.
The Tragedy of Wikipedia
A well-known problem in philosophy and political economy since the time of Thucydides and Aristotle, and in modern economics since 1968, is what Garrett Hardin termed the “tragedy of the commons.” The classic example is that of an “open” village pasture equally available to shepherds. It is, unless the villagers somehow agree to regulate the use for the sake of their common good, inevitable that the pasture will be destroyed and that the destruction process will begin almost immediately.
The reason for this is that each herder will recognize that the cost of adding one more animal to the pasture is zero to the individual herder, whereas the benefit is great. He will also realize that if he does not take the opportunity to put the additional animal on the pasture someone else will. The benefit will thus be reaped by someone, the question is but by whom.
So in order not to be beaten to it by the others, each herder will rush to maximize their benefits through adding as many animals as possible to the pasture. This will soon degrade the land and make it unusable due to the excessive overuse caused by the rational benefit-seeking herders. The more obvious the profit, the faster and more devastating will be the overuse.
The same type of problem is haunting the Internet, since the Internet technology makes a number of activities almost or totally free. The very structure of Internet builds on the free transmission of data on any suppliers’ networks, which means it is an easy target for anyone who can make a profit out of its use.
Spamming is the most obvious “tragedy of the commons” problem. Since e-mailing is virtually free, anyone can contact anyone else with an e-mail account at no cost – and it does not cost more to send one million e-mails than it costs to send only one or two. Radically increasing the volume is therefore “free,” which means that anyone who can make money out of sending e-mails will tend to do so. This is why so many spend hours of their potentially productive time clearing their inboxes of numerous unsolicited and anonymous e-mails with misspelled offers of Viagra, penis enlargements, and women “for sale.”
The problem of spamming is further increased by the Internet making it possible – indeed, even easy – to send such e-mails anonymously. The structure of the Internet allows for far-reaching privacy through hiding one’s whereabouts, and it is also an open system, which makes it easy to pretend to be someone else. The result of a commons that allows its users anonymity is obvious: it will suffer from hyper overuse.
Another problem on the Internet, which is not as commonly identified, is so-called trolling. This phenomenon is often described as people using commons such as Internet discussion forums to post irrelevant, offensive, and possibly harmful messages in great quantities. The obvious reason for such anti-social behavior is to disrupt and destroy the discussions (or the web site), but it is also the case that these so-called “trolls” find pleasure in being seen (however anonymously so).
Trolls haunt practically any setting on the Internet that supplies a costless framework for discussion or sharing, and since the Internet is built on the principles of freedom, gratis, and anonymity it has proven very difficult to be successful in charging for such services. Thus: discussion forums and other such “collective” free services develop different methods to keep trolls in check and minimize their damage. Such methods include anything from moderating and surveillance to blocking of IP addresses and users. But since it is easy for a troll to, e.g., simply create a free e-mail account and re-register, most measures taken to get rid of trolls are rather ineffective.
The trolling problem is increasing all over the Internet and it has lately become a rather great problem with the world’s largest encyclopedia: Wikipedia. With its success it has become increasingly important for the organizations and people with “articles” on Wikipedia to make sure they look good and that the articles do not give them bad will. In other words, it has been noted that e.g. the CIA has routinely edited articles that are of interest for the United States government – the government wants to keep sensitive information (about its illegal and oppressive policies) out of the Wikipedia and far from common people’s knowledge. Also, it has been discovered that the Vatican is also editing Wikipedia entries in order to hide not-so-beneficial details of its past and present.
Of course, big business has also recognized that they can lose a lot of the goodwill they might have in the market place through letting people write “anything” in “their” Wikipedia entries.
Part of the negative information added to the Wikipedia articles might not be true and some might even be slanderous. Since the Wikipedia allows anyone to update and edit articles, one would think that the positive and negative extremes would even out so that most information in the articles are true or mostly true. This is however not the case, partly because of the commons problem, which is why the Wikipedia has appointed volunteer editors and even hired people to check the quality of entries.
But the problem with Wikipedia is greater than a lack of quality. It is easily targeted for campaigns due to its nature of being a “commons.” There are a great many trolls out there, and they seem to have a lot of time on their hands.
For instance, it has been noted that pro-global warming trolls are very active in changing Wikipedia entries on scientists who are skeptical towards the “imminent man-made catastrophe” scenarios. They therefore edit entries as part of their campaigns or even delete entries they are not very fond of. The National Post wrote about the scientist Fred Singer who, the Wikipedia entry said, believed in Martians.
The NP writes, for example, on U.K. scientist Benny Peiser:
Wikipedia refused to accept Peiser’s critique, or his interpretation ofhis own views, or an account of his views that he had provided to me, or an account of his views published in a peer-reviewed journal, or an account of his views published in The Wall Street Journal, or an account of his views published by the U.S. Senate committee on environment and public works.
Instead, the Wikipedia trollers insisted that all of the above sources were disqualified or irrelevant under Wikipedia rules, and that the trollers’ own understanding of Peiser’s views trumped all others.
The trolls are numerous and they are always there, which makes it very difficult to make sure the truth is kept for long in the articles. This is a problem for a great many people who are slandered on Wikipedia and cannot seem to have the slanderous remarks removed. Others have entries added only to see them be deleted over and over again even though they seem to comply with Wikipedia policies.
In this case, scientifically proven truths are tested by popular vote. If a sufficient number of people editing Wikipedia consider it important to have only one view on global warming on Wikipedia, then it seems this will be the case. But scientific truths aren’t subject to popular vote; on the contrary, it is science that is supposed to challenge our faulty world views through offering new theories and empirical proof that we are, indeed, wrong.
After all, if science was subject to popular vote, then we still wouldn’t have begun using the wheel and we certainly wouldn’t have adopted the view that the Earth is round – not flat. Popular belief 500 years ago was that the world was the center of the universe and that it was flat – that one could fall off if traveling too far in one direction. Was the discovery that the earth is indeed round a step forward, or would we be better off with the popular view?
I am myself a victim for such a trolls’ campaign on Wikipedia as described above. The last few years there has been an article on me emphasizing my anarchist views and political writings. But beginning the summer of 2007 there were constant “flags” on the article stating that it was up for deletion. The reason? I’m not “notable” enough. This may be true, I don’t know, but it seems strange to me that I was notable for three years or so before anyone questioned my notability – and that notability became an issue only after I had become somewhat known for my writings. Or was it an issue because I had become “notable”?
I tend to think the latter, since my views are hardly respected by most – and I have even received quite a few death threats, which would prove that some people aren’t too accepting of my views.
I’m personally not very interested in whether I’m on Wikipedia, but it was fun to see how the article evolved. It is not allowed for the person to edit articles on him-/herself, so I stayed away – but I checked it a little now and then and was amazed about how people could keep track of my views, my background, my whereabouts, and my ideological evolution. Most of it, I must say, was absolutely correct – even dates and places were correctly noted in the article.
An article was also added on the web site I started back in 1999 (or was it 1998?), Anarchism.net. But as soon as the article on Per Bylund was flagged or deletion, so was the article on Anarchism.net. A debate followed on the Wikitalk pages, and it was repeatedly decided that the article on me should not be deleted. But just like it isn’t possible to keep politicians at bay through clearly advising them against their wishes in a referendum (have you noticed how they always seem to hold another referendum soon after the first one if they aren’t pleased with the outcome?), one cannot beat trolls in a democratic vote.
The article on Per Bylund was kept the first, the second, and – I think – the third times it was up for deletion. Between each “flagging” it was updated by people who had more references and information, so the article quickly grew. This was not enough, however. The trolls finally won the battle through being more persistent than the anti-trollers, and both the articles on Per Bylund and Anarchism.net are now deleted from Wikipedia.
The interesting thing in this “war” on Wikipedia was that as soon as a deletion “flag” had been removed, another one was added. And there were only two or three people adding the deletion flags every time, at least one of them being a Wikipedia editor (with rights to make the final call to delete or keep). They obviously had a strong interest in not having these articles on Wikipedia. One would think nobody should think it important whether there would be an article on Per Bylund on Wikipedia, but obviously a couple of people thought it extremely important not to have it there.
I was continuously updated on what was going on by people with an interest in editing articles on Wikipedia. It was an interesting experience, to see how some people so eagerly invest such enormous amounts of time into having an article on someone so insignificant as myself removed from a free, online encyclopedia. I hope their gain, which I suspect is at best “feel-good,” was worth the trouble.
These are just a couple of examples, on that I experienced first-hand, of the tragedy of the commons problems on Wikipedia. The solution for Wikipedia is of course the same as for any such problem: adding cost to the use (and especially abuse) of the resource. Paying as little as 1/10 cent for editing a page would keep all or almost all trolls away. They are, after all, only doing it because it is at the expense solely of others.
In a sense, these trolls are unsuccessful politicians. Whereas politicians manage to get their hands on power and enrich themselves through making use of the that great [force-based] commons called the State, the trolls on Wikipedia and elsewhere don’t get further than their personal computer. But they have a lot in common – both thrive off the use of commons and eagerly invest in other people’s misery.
The Savior Complex: Economics Amateurs and Health Care Policy
As a Swede, i.e. a native from the country of the greatest (biggest) welfare state in the world in terms of services and expenditure per capita, I am amazed by all the people so consumed by the thought of “free” health care (or free whatever). It is true that these people have some kind of Savior Complex, as I call it – they want to save the world from whatever horrors they identify. The problem with this approach is the attitude that they can save people through forcing a system upon them, and that they actually believe that this coercive system is a solution to the problem.
The latter is interesting, since it seems to apply to almost anybody – and it absolutely applies to most politicians. Having spent ten years as an activist, political leader, and elected to local parliament, I know for sure that politicians are no doubt some of the dumbest people on the planet. They are the true victims of the Savior Complex: they do not only believe they have the ability to save people from themselves and the world, but also that they have the right to use whatever means necessary to accomplish these ends – and they expect gratitude, money, and more power in return.
Ignorance should therefore be a large part of what these people are about.
But politicians aren’t the only people who suffer from the Savior Complex, even though they are the ones most heavily addicted to the feel-good of being do-gooders (at other people’s expense). Most people, I would say, are to some degree victims of or ready to become victims of this complex. The reason I say this is that anyone who is “awarded” a little power, especially in the power rule system we call democracy, pretty much immediately leap into being totally consumed by it.
Let’s have a look at health care policy as an example of this complex, and how it makes people totally ignorant of economics (assuming they knew anything about it to start with). Who is against “free” health care? Most people are not, even though some conservatives talk about it probably being a bit better if private corporations supplied the services rather than an outright government monopoly (they still support “free” health care policies if asked, though). Why is that?
The reason for nationalizing health care is often a function of both health care services being a “very important” service and the costs being too high for “common people” to afford. Since it is important to everybody – nobody wants to be sick, and we all want as close to eternal life as possible – many conclude it is a “right” to have it: if it isn’t a right, they rightly conclude, everybody wouldn’t get it. So in order to save people from how the world works (meaning, if you can’t somehow pay for it yourself or provide your own health care – somebody else must be forced to pay for it) the obvious conclusion is to make it mandatory for all suppliers to make it available to anyone who “needs” it. (Notice how easily the Marxist term sneaked in to the mainstream vocabulary?)
So there is an obvious political demand for “free” health care services just like there is for promising any other kind of “free stuff” – only health care is by most people considered a lot more important than chocolate bars, cars, or even houses, which means politicians gain a whole lot more offering “free” health care than “free” chocolate bars.
One might wonder what made politicians get all the health care they so eagerly promise people. After all, most people in Congress and the White House don’t own hospitals or are even MDs – so where does the health care come from? As everybody knows, you cannot give people what you don’t have. If you do, then you would commit an act of either fraud (if you deceive the recipient) or theft (if you steal it from someone else to give it to a third person). Politicians have no problem with either of these “qualities” of course and often do both, but they tend to do a lot more of the latter than the former.
So we can safely conclude that politicians, when promising “free” health care, steal it directly from the suppliers or steal money from people to pay for it. In any case they do steal to provide people with what they don’t have. As anyone with just a fraction of economic understanding knows, there ain’t no such thing as a free lunch so someone has to cover the costs somewhere, somehow. In the case of “free” health care, which, by the way, seems to be called “universal” health care nowadays after people got a bit troubled by it suddenly being “free” through some act of political magic, the cost of it ends up with you and me and every other taxpayer. In other words: taxes increase.
This doesn’t seem to be a big deal for some people, since they might argue that they would gladly pay a couple of extra dollars to provide for the poor. That may be the case, but somehow these “friendly” people never got to giving the poor even one cent’s worth of health care prior to it being mandatory. One might wonder if these people are so good if they simply refuse to do it unless forced to.
That obvious contradiction of the do-gooders’ mentality set aside, how many dollars would they, now as tax payers, have to pay to provide health care for the poor? Probably not very much if they would support only vital health care, which is sometimes the case when buying health insurance – the insurance company dedicates part of the premium to supplying health care for those in need. But the problem is that a government program does not easily target certain illnesses – and it certainly doesn’t have a restricted budget (after all, if the money available isn’t enough they just go get more). Also, government is not an actor with a clear and controlled purpose (which is usually the case for a company) – so government is victim of both fuzzy, incomprehensible goals and a huge principal-agent problem (people acting on behalf of government aren’t controlled or controllable, and they have no incentives at all to act morally as agents of government – they act in their interest instead).
How often haven’t I heard physicians in Sweden claim “we might as well do this too, since you are here” while adding “there’s no cost to you, of course, since we have free health care”? All too often, and hardly anyone would say no to further tests or treatments even though they aren’t necessary or even recommended. Had it been at your own expense you would probably first have asked about the cost, and then considered if it is “worth it.” If it is free, then go for it!
This is the rational way to think about it, so I blame no one for accepting “extra” treatment. The people paying for it are unknown to you and you will never meet them or be held responsible – and since you dutifully pay your taxes you have the “right” to get “your share.” So people tend to consume more. Sounds familiar? If you pass someone handing out free stuff, would you then get more than if you would have to pay for it?
I’ve conducted a couple of experiments of this myself, while I was in politics. In a local high school we tried to “sell” our ideas through handing out stuff with our party’s logo etc. When we offered free stuff, even if they were only bumper stickers, everything would be gone within seconds – people eagerly grabbed tens if not hundreds of stickers even if they didn’t at all sympathize with the party.
Stickers are expensive, so we tried to limit it to “one free sticker per person.” This worked in the sense that all the stickers weren’t gone in seconds – it took minutes. At one time we tried limiting this very costly campaigning strategy through offering all stuff – stickers, socks, coffee mugs, and even t-shirts – at a very limited cost. We set the price at around $0.10 per item. After a whole day’s campaigning we would go home still having almost all the stuff we brought! Nobody wanted these things (and I don’t blame them) since they had to pay – even though it was only $0.10!
I admit that this political merchandise is totally worthless to people – who wants a pair of socks with a political logo? A t-shirt with an enormous party logo? Unless you are an active member it has literally no value (maybe negative).
Now apply the logic of the worthless political stuff to the “very important” health care. Of course, the demand for health care would sky-rocket to levels never anticipated by even the most pessimistic politician. And the costs would follow. The normal government reaction to this is to make sure to limit the cost for the program (they never ever consider abolishing a program that voters may “like”), often through setting a ceiling to how much certain treatments may cost. So they hire an army of bureaucrats to calculate the “true” market price (this isn’t doable, but government does it all the time) and how much it “may” cost – and then they limit the amount government pays for the certain treatment.
This is what the Medicaid is all about. Government says a kidney transplant is worth $X and therefore pays that much. In theory (if we for the moment pretend to be very ignorant) this should limit the costs. The problem is that bureaucrats have no idea – and some of them probably cannot even spell to “transplant.” So they have to ask the suppliers how much it would be. The first estimate may be fairly accurate, but as time goes by people learn that the government bureaucrats – in order to avoid being scammed by suppliers of health care services – set the ceilings at only part of what they claim the real costs is. So they have an incentive to push prices upward in order to cover costs and – possibly – make a profit. If bureaucrats calculate ceiling prices to 90 % of reported costs, the reported costs will be at least 110 % of the real costs. Also, they will charge private customers less than they charge the government, since private customers (and insurance companies) cannot afford to pay much whereas government has no clue – and will only reach deeper into people’s pocket books if they run out of money (or print more of it).
When the bureaucrats understand this (which could, admittedly, take some time) they retaliate: they say they will only pay the real price, not the charged price. So they will require health care providers to either report all their transactions to the newly established authority for health care services market price estimations or offer only fixed prices. The latter might not sound like a bad idea, but the fact is that health care providers often would charge poor customers less than rich customers for the same purposes that insurance companies give free health care to poor – charity because it increases the firm’s market value and creates a competitive advantage.
Also, health insurance companies would have discounts for promising certain volumes to the health care providers. The “fixed price” demanded by government bureaucrats now pushes average prices up, since any offered discounts mean less money from the authorities for delivered services. This hurts, of course, people who are poor or have health insurances.
The effect of this is that poor people who somehow aren’t covered by the rigid government program no longer stand a chance – they cannot get health care at all unless they find someone who can pay the overprice on their behalf. Also, insurance premiums go up, since there are no longer any discounts available and prices tend to move quickly upward to cover possible cost increases. A fixed price needs to cover the risk of increased costs in a way variable prices do not – in the latter case, if costs go up prices will too (and the same if costs go down) while in the former case government will only allow for price increases under certain circumstances and at certain times. So prices are continually adjusted upwards.
So the effect of this “excellent” government program is sky-rocketing demand and prices rapidly increasing.
Politicians are of course totally surprised by this result – they thought they would do good and provide “free” health care for everybody at the costs when the program was established and with the demand at that same time. Now they learn that demand and prices are increasing so rapidly that the program always runs out of money – and this makes people real angry when government isn’t able to give them what they promised. So they add more money to the program budget and perhaps more restrictions, again causing higher prices.
Another common measure is to include more people in the program, since a lot of people suddenly cannot afford the health care they once were able to get for their hard-earned money. So the program is enlarged to cover everybody in “need,” which of course creates the same kind of problems again – only to a much greater degree. (But it is too optimistic to conclude politicians understand this; they won’t.)
It is at this time the people suffering from the Savior Complex once again step forward and sees opportunity. They offer new and far more extensive programs to make sure people get health care even though they can’t afford it – they high prices are publicly condemned as results of “corporate greed” or perhaps described as a “market failure.” The new program, perhaps a “nobody left behind” or “universal” program to finally solve the problem, is a great way to get elected. After all, most people don’t have the economic understanding nor the insight in the horrendous government systems to figure out what is going on.
This is one of those excellent games that would go on even if politicians were wise enough to understand what is going on (and they’re not). After all, everybody loses while the politicians win – they get more power, bigger government, and more friends get to be hired in another fancy government authority. This would give them enough incentive to act against the public interest, which is of course what they always do.
But what if they would for some reason understand the effects of their program? They would still go through with it, even if they would find the effects somewhat unfair. The reason? Simply to satisfy their egos. They are, after all, victims of the Savior Complex. They are addicts to being seen as do-gooders; they want appreciation – they want to look like they do something. That makes them dream sweet dreams every night. While you and I pay the terrible and enormous costs of these self-absorved petty good-for-nothings.
For more on the Swedish welfare state, please see How the Welfare State Corrupted Sweden. For articles where I briefly discuss the Savior Complex (or Messiah Complex, which I used to call it), please see Saving the World Through Saving Yourself and A Strategy for Forcing the State Back.
Are All Capitalists Communists?
[ad]I have followed the discussion on the Federal Reserve lately, not only how it is meddling with the currency and thereby trying to push the market in one direction or another. My interest has been mainly in the arguments for and against “the Fed,” i.e. reasons it exists and results of its existence (and meddling).
The proponents of a central bank claim there is a general need for a centralized power to create stability in the market and counteract the boom and bust cycles that we’re experiencing. The proponents of a market freed from a central bank claim the exact opposite: that the Fed through its meddling with the currency and interest rates create the boom and bust cycles. So how are we to find out which of these parties has got this right and which is utterly confused?
One way is to think about it for a minute or two. It isn’t too hard to realize what underlying philosophies make people take these two positions. In the former case, the market itself is unstable and needs to be corrected. So it is saying that there is some kind of friction or instability in the market that it cannot sort out itself, and therefore we need political instruments to take care of it. Sounds like a reasonable conclusion given that the premises are correct.
So let’s have a look at the premises. Why does the market fluctuate in big wave-like motions up and down, in which everybody frantically collectively buy everything or sell everything? Marx claimed it was the underlying contradiction in capitalism that caused these booms and busts. Because of oppression and the ongoing class conflict between the propertied and unpropertied (proletarian) classes there is tension, and the exploitation of labor workers makes capitalists literally go “wild,” which in turn makes the market unstable. (This is a very simplified version of Marxian business cycle theory, of course.)
What these booms and busts really mean is that people tend to act “like one” and therefore when someone starts buying everybody starts buying – and when someone starts selling everybody starts selling. This might seem intuitive, but since we know everybody in the market is trying to make a profit this simply cannot be the case. There are panics, of course, when the market is already going up or down very rapidly. When you realize something strange is going on and that you are about to lose all your money, you might panic. But that still doesn’t explain why the market goes down before people panic.
Let’s think about it, when the market is going up at a modest rate, why in the world would a lot of people suddenly sell all they have and leave the market? If the market is going up we would of course have some people selling to realize their profits, but there is no reason to not invest more or stay in the market with some investments when it is going up. It simply doesn’t make sense for everybody to collectively sell everything they have and put the money in a bank account instead of taking advantage of the economic growth.
The same thing is true for the opposite situation. In a market with falling indexes there is no reason for everybody to collectively and suddenly start buying and thereby change the direction of how the market develops. If people really did collectively make a decision – wouldn’t we know of it? Wouldn’t we have a huge information problem to solve first? And if everybody follows a leader, wouldn’t we know who that leader is? Wouldn’t we be able to identify him or her? (After all, we are parts of the market.)
No one working in the financial markets will tell you they are but sheep following a leader or that they are acting collectively on some kind of invisible command. They might tell you that they could panic in certain situations and at that time act like sheep or follow someone’s lead. But then we’re back at the same problem again: the panic doesn’t arise out of thin air, it is caused by something – and it is usually caused by drastic change in the markets. Now, if everybody is acting on drastic change – where the hell does the change come from? “The market,” after all, is but an abstraction of all the people and transactions out there – drastic change cannot happen in the market before people act [on it], because such a change is the result of their actions.
This cause of the problem is what Marx tried to explain with the “inherent contradiction” in capitalism, even though I don’t think he did a very good job (at least not if this theory is applied to the concept of the market in general). However, most people working in the financial markets have adopted this Marxian view of what they are doing. This is evident from how they view the Federal Reserve: most financial analysts claim, and they do so sincerely, that the Fed is necessary to counteract the booms and busts. So they seem to believe that they aren’t able to trade with each other using reason and acting upon it – they can only act collectively and irrationally, and therefore they are doomed to create these booms and busts.
I doubt anyone working in and with the markets would choose to tell you they are all brainless drones acting collectively without ever thinking of what they are doing. On the contrary, many of them spend most of their time analyzing facts trying to make as fact-based and rational decisions as possible.
Now, even if Marx was wrong – this is surely a contradiction. These people claim there is a need for a centralized power counteracting the effects of their collective and irrational actions in the market place whereas they also claim to invest based on as thorough rational analysis as is possible given the ever existing constraints in supply of time and money. We can only conclude these people are wrong in one of these claims: either they are just trying to cover up their “sheepness” through faking analysis, or they are not normally acting like sheep.
The proponents of a market free from the Fed and its meddling with the currency and interest rates claim there are no natural boom and bust cycles in the market. People do panic when the market suddenly and drastically changes, but these sudden and drastic changes are in turn caused by over- and underinvestment triggered by attempts to artificially make capital cheaper and more expensive through meddling with currency and interest rates. What they are saying (and my use of the word “meddling” should give me a way as one of them) is that the boom and bust cycles were originally caused by the central bank trying to politically increase (politicians hardly ever want to decrease) growth through artificial measures.
They lowered interest rates (the price of capital) to spur investment or printed more money in order to “invest” in wars or welfare systems and other benefits to get re-elected. What would such a shock to the market system result in? The obvious answer is that when the price of capital suddenly and somewhat drastically goes down a lot of business people act on this incentive – they get their hands to this money and make investments they otherwise wouldn’t make. Why wouldn’t they make these investments otherwise? Because they make the investments they can afford, and they choose the ones they believe are most profitable – when the price of capital is artificially lowered they can suddenly afford the more risky and less “safe” investments and do so in order to maximize profits.
You can’t really blame people acting in their own interest and acting as they have always act. The reason they make these extra risky investments is because someone lowered interest rates to a level the market itself doesn’t consider reasonable.
The extra investments cause a boom, of course, since investments increase dramatically. And the extra investments, since they are riskier, tend to be bad investments much more often than the investments that were made with capital at market price. It is also important to realize that this “stimulation” of the market usually is a one-time thing – the state does not have any reason to always keep interest rates low (which is very costly – for everybody), they only do this as a way to win the election.
So what happens when the investments start failing (and a lot of them will)? The market is pushed downward at a rate not possible were it not for the artificially cheap investment capital that a lot of people took advantage of. After having spent all money available on investments people tend to underinvest – they have already invested as much as they dare (even considering the cheaper capital). So they start to cut back, especially when they realize some of the extra investments were in fact not very good. So we have a recoil to the artificial boom – a bust.
How does the state, through the Fed, react to these cycles? Just like they react right now: “oh my god, there is a lot of bad investments out there, a recession is coming – we need to lower interest rates to get the market going again.” Well, this might work a couple of times – but it creates but another boom before another bust, and each time the Fed needs to use more drastic measures (i.e., lower the interest rate more or print even more money) to really change things.
Anybody see an evil circle? Anybody see who’s the culprit? Yep, the Fed.
So we have these two positions, and they both are available in a number of different versions, that either the Fed helps a market that cannot take care of itself or it causes the problems it claims to fix.
One can only ask: how come anyone survived before the Fed was founded in 1913? The history books should be brimful with depressions much worse than the one starting in 1929. After all, in 1929 we had the Fed to save us.