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Thursday, July 31, 2003

Parfit for a King 

posted by Alan

I’ve read the first chapter of Derek Parfit’s Reasons and Persons, and it indeed lives up to the back-cover praise. Nonetheless, a little dissent never hurt anyone. So at the risk of challenging an intellectual Goliath without a slingshot, here goes.

Parfit writes, “Suppose that we all believe C [Consequentialism], and all have sets of motives that are among the best possible sets in Consequentialist terms. I have claimed that, at least for most of us, these sets would not include being a pure do-gooder. If we are not pure do-gooders, we shall sometimes do what we believe will make the outcome worse. According to C, we shall then be acting wrongly.”

This means, in Parfit’s terms, that C is “indirectly collectively self-defeating” – “if several people try to achieve their [C]-given aims, these aims will be worse achieved.” He mentions a few ways in which the motive to make overall outcomes as good as possible can have sub-optimal effects. One is that overall happiness, a large part of good outcomes, will decrease when pure do-gooders act against or suppress desires such as love and personal ambition. Another is that pure do-gooders will likely often do things in the name of consequentialism, such as kill, that will actually worsen overall outcomes. Perhaps it is, therefore, better if certain “severe” actions such as deception, coercion, and killing were, for the most part, off-limits to consequentialists. As intuitive as this may seem, keep in mind that it would also obviate many cases of deception, coercion, and killing that would actually lead to overall good. Needless to say, these failures to deceive, coerce, and kill would be wrong in consequentialist terms. But might they be blameless wrongs? Might it be a greater wrong to cause oneself to lose the aversion to deceiving, coercing, and killing in ordinary situations?

Along the same lines, Parfit offers the following example: “Clare could either save her child’s life, or save the lives of several strangers. Because she loves her child, she saves him, and the strangers all die.” Consequentialism dictates that Clare save the strangers. However, according to Parfit, she could reply, “I had no reason to believe that my love for my child would have this very bad effect….And causing myself to lose this love would have been blameworthy, or subjectively wrong. When I save my child rather than the strangers, I am acting on a set of motives that it would have been wrong for me to cause myself to lose. This is enough to justify my claim that, when I act in this way, this is a case of blameless wrongdoing.” She could add, “I could not possibly have lost this love with the speed that would have been required….It would have been wrong for me to try to lose my love for my child. If I had tried, I would have succeeded only after the strangers had died.”

Parfit goes on to claim, “We could imagine that our love for our children would ‘switch off’ whenever other people’s lives are at stake. It might be true that, if we all had this kind of love, this would make the outcome better. If we all gave such priority to saving more lives, there would be few cases in which our love for our children would have to switch off. This love could therefore be much as it is now. But it is in fact impossible that our love could be like this. We could not bring about such ‘fine-tuning.’”

Or could we? I think this last assertion illustrates the indispensability of science to moral philosophy. Since the dawn of moral philosophy, its practitioners have made factual claims, often about human nature (e.g., just about any social contractarian), upon which much of their philosophical ones rest. I am by no means implying that disciplines such as evolutionary psychology have directly normative implications. Rather, I am simply pointing out that ignoring such sciences is inconsistent with the pursuit of objectivity, truth, and other philosophical aims. The intersection of science and philosophy should not be limited to metaphysics and debate rounds involving Phil Larochelle. Moral philosophy, in all its talk of “ought” and “is,” cannot afford to ignore the latter.

So what does science say about love for one’s children? In short, natural selection favors organisms that maximize the reproduction of their genes. Since Clare shares approximately fifty percent of her genes with her child, and, odds are, far fewer with the strangers, she is inclined to save her child. Needless to say, such “kin selection” is instinctual, not conscious. But so are many other natural drives that are bad for society. Rationally and morally, most of us care about the entire morally considerable universe, but biologically, we are not inclined to short-change ourselves for the good of the group. Although the cumulative affects of individual selection are sometimes beneficial to groups, species, societies, and even the world, natural selection almost never occurs on such levels; the differential reproduction of entire, discrete groups is a rare event, indeed. Thus, our “altruistic” instincts largely take the form of kin selection, as aforementioned, and “reciprocal altruism.” An example of the latter is taking a minor risk to save a stranger’s life in return for the stranger’s help in the future; both parties’ reproductive success is increased. In our formative environment of small, closely-knit societies, reciprocal altruism was much more realistic. (The stranger’s incentive to “cheat” and fail to reciprocate, and the ensuing biological arms race to gain the upper hand, is arguably the primary impetus behind the evolution of many of our social and moral behaviors, such as deception, self-deception, and the punishment of “cheaters,” as well as the emotions and social intelligence that enable and motivate such behaviors. For more, see this paper.)

As rational beings, we seek, in a sense, to “escape” our nature. We enact laws in order to directly reap group-level rewards (e.g., preventing the tragedy of the commons) that our instincts alone could never sow. Is Clare’s dilemma any different? Arguably, familial love is uniquely rewarding, a good consequence in itself. But it seems even less clear that it would take the loss of familial love to motivate Clare to do the right thing. Clare’s dilemma seems to be less about the “fine-tuning” of a disposition, and more about the everyday weighing that consequentialism demands. In the same way that Clare might be motivated to save the strangers if her child were extremely dangerous or evil, the fact that there are multiple strangers should weigh on her conscience. True, the former factors arguably diminish love, whereas the latter counterbalance it, but is this a relevant distinction? If anything, counterbalancing implies that Clare can maintain her love for her child. Moreover, she could surely derive some deep personal satisfaction from the fact that she did what she believed to be the right thing instead of giving into her nature. It is unlikely that this satisfaction would ever outweigh the loss of a child, but who said being good was supposed to be easy?

Wednesday, July 30, 2003

Wham, Bam, Thank You PAM 

posted by James

[update: Glen Whitman makes essentially the same point at Agoraphilia]

I was going to write an angry, incredulous post about just how unfair most criticism of the Policy Analysis Market (PAM) has been, but it looks as though James Surowiecki has already done a pretty good job over at Slate. Slate is perhaps redeeming itself; yesterday it ran a frustratingly inconclusive piece by Daniel Gross, many of whose questions are answered by Surowiecki. The idea behind PAM is fairly simple; it's a market in which you invest in “futures” that pay off depending on certain events in the Middle East (assassinations and political intrigue, as well as mundane things like economic growth). The government would monitor the market and use the information to prevent certain things (presumably the assassinations) and ameliorate others (economic slowdown). In fact, the program sparked a political firestorm, and has been canceled. I expect Democrats to use the program as a rhetorical punch line whenever they criticize Bush's foreign policy. It's too bad, because PAM might well be among the better ideas Bush's team has come up with.

There are some good reasons to think PAM is a bad idea. One is that it depends on people profiting from tragedy; exactly how big a problem this presents has been discussed over on Muxalicious. Additionally, like any market PAM would be subject to manipulation. Since the market would automatically feed back into US policy, it could become a self-fulfilling prophecy, and it might even destabilize political regimes by amplifying any bad news. I'll examine some more shortcomings, but first I should explain why it's such a beautiful idea in the first place.

One principle objection raised against PAM is that terrorists would benefit by gambling on a bombing, and then carrying it out. As Surowiecki points out, though, any action on the market conveys information to everyone else (including the CIA). This is why the market would work; market profits would constitute a powerful incentive to share all accurate information, and the information is then available to the United States. People with no sympathy for us and no inclination to help our cause would nonetheless help us merely by pursuing their own self-interest. Terrorists who attempted to profit off their attacks would essentially be begging the US to anticipate and foil their plans. In reality, terrorists would probably go to great lengths to assure that no one with knowledge of their plans participated in PAM.

The chief objection I've seen to PAM is that it would be self-defeating once the CIA started to take action based on the information. Daniel Gross concentrated on this in his piece in Slate. For instance, if the prices showed that a lot of people were betting on an assassination, and the CIA prevented the assassination, the market would obviously no longer be rewarding accurate information.

This would only stop the markets from functioning properly if every piece of accurate information were acted upon perfectly by the CIA. It's easy to see that no one will bet on a bombing if the very fact of betting precludes the bombing. However, imagine that the CIA is only 90% effective when it gets the information. Now, most terrorist activities are hugely unlikely ex ante. I would expect that short-term futures on assassination would be quite cheap, because assassinations are rare. Thus, you could get very good “odds” for most drastic terrorist activities. Now, you should make a bet if its expected value is positive. In a market like PAM, this means that you multiply the probability that an event will happen (p) by the amount you stand to make if you win. Then you multiply (1 – p) by the cost of the bet, and if the expected gains outweigh the expected losses you take the bet.

Thus, if the CIA is only 90% effective, p will be quite low. Nevertheless, because of the great odds that you can get on unlikely events, this high probability can be overwhelmed by the high ratio of returns to initial money down. Of course, eventually the odds will be driven to the point that the bet is no longer profitable. This will often happen too late, from the terrorists' point of view, because the CIA will be tipped off by the very fact that the odds are shifting in favor of whatever the event is. Note that it's not so much the collected wisdom of thousands of minds that will provide the real information bonanza; it's the ability of people within terrorist organizations to exploit their "insider information" that brings the really sensitive information to market.

Of course, the CIA wouldn't be the only group watching the market. One disadvantage of a market like PAM is that it makes all the information public. Terrorists would know everything the CIA would know about the market, and thus they would be able to see how the CIA responds to different knowledge. The terrorists, if they were well-organized, could then manipulate the markets to paint the picture they wanted the CIA to see.

One final objection might prove to be the best. Fighting terrorism isn't just a matter of killing bad people and stopping attacks. It also depends on the political will and social cohesion of the United States. A program like PAM, while probably effective, might unleash cynicism and disillusion within America, ultimately sapping morale and undermining the war on terrorism. Regardless of the actual morality of PAM, its usefulness could be destroyed by its perceived immorality. It is probably this consideration that has scuttled a program that showed unexpected cleverness from an administration not noteworthy for its economic acumen.

Applying Economics to Champerty 

posted by James

One perennial question is how much light economics can shed on legal issues. I happen to believe that it can be quite illuminating, but my viewpoint is far from universal. Champerty provides a good case study, partly because the analysis is accessible, but also because I think it is an example in which the economic analysis doesn't provide a conclusive answer. I started thinking about this after reading about a debate round on Phil's blog. It occurred to me that the round could probably have benefited from some economic analysis (although, who knows, you can't explain much in eight minutes without graphs). All of the following economic analysis comes from a lecture by Professor Nicholson at Amherst College.

Champerty is trading the right to sue for a particular harm. So, if I'm injured because of a faulty part in my car, for which the car manufacturer is liable, under champerty I can sell the right to sue to a third party. That party (probably an attorney or a law firm) would pay all the costs of bringing the case to trial, and would keep the entire payment in the case of victory or a settlement. A separate issue, which I might address later, is selling your right to sue for harms that haven't happened yet. That's distinct from champerty, though.

Clearly, the most a company will pay for the right to a suit is the expected value of that suit. Furthermore, the only reason a plaintiff would ever sell a suit for less than its expected value is if he is risk averse. Thus, other than a sort of insurance market, there doesn't seem to be much room for profitable exchange.

This ignores something called the “agency problem.” Specifically, most plaintiffs don't have a lot of legal expertise. A plaintiff has to depend on a lawyer to represent him as well as possible. The lawyer, on the other hand, is merely trying to maximize profits (within ethical guidelines). Consider a plaintiff who is bringing his suit to trial. He wants the lawyer to spend effort on the suit, but how much effort? If he has to pay his lawyer by the hour, he won't know how many hours to “purchase.” A right answer exists: he should purchase the amount of effort that maximizes the profit, which is the difference between the total cost and the total expected returns from the case.

One common arrangement is a “contingency fee,” in which the plaintiff pays his lawyer a share of the winnings in the case of victory, and nothing otherwise. We might ask the question, does this give the lawyer incentives to invest the right amount of effort? This is easy to illustrate graphically.
[note: Blogger wants to sell us an upgrade, so they've set it up so that the free version can't display images. At least, that's my theory right now; if anyone knows how to display images (which we've uploaded to a different website), please let me know. Sorry about the inconvenience of having to click to see the graphs.]

Graph 1

Graph 2

The first graph shows the expected value of the case as a function of how much effort the lawyer expends. The curve illustrates diminishing returns. The curve representing the lawyer's costs is linear. The lower curve represents the amount of the winnings that would go to the lawyer; in this graph it is 30% (usually lawyers aren't allowed to set contingency fees higher than 40% or so).

The second graph just shows the vertical distance between the different curves. The upper curve shows the overall profits for the plaintiff (overall profit – costs); the lower curve shows the share of those profits that go to the lawyer under a contingency plan (30% of overall profit – costs). Now we can easily see that contingency fees do not maximize profits. The lawyer will choose to exert the amount of effort that corresponds to the peak of the lower curve. This isn't nearly enough effort to maximize overall profits (which happens at the peak of the upper curve).

Now, consider a lawyer who has purchased a case through champerty. Since he gets all of the profits, his incentives are represented by the top curve. He will thus invest the optimal amount of effort, maximizing profits. We can now see why champerty might do more than create an insurance market for plaintiffs: by solving the agency problem, champerty increases the expected value of each case, so that the buyer gets more than the seller gives up. Of course, the insurance effect still exists, increasing the profit potential even further. Champerty also increases the incentives for companies to make safe products; an increase in the expected value of a case must come from a higher probability of victory or a higher payout from the defendant. This in turn will increase the desire of the company to avoid lawsuits in the first place.

Of course, there's no free lunch. While the attorney's incentives might be improved by champerty, there has to be a mechanism to ensure that the plaintiff will cooperate by testifying as if it mattered. Further, juries must be willing to give the same verdict regardless of who gets the money, which will be difficult for some jurors (even though ultimately a well-functioning champerty system primarily benefits plaintiffs).

Another objection is that plaintiffs will be somehow exploited. Note that this would be difficult to judge ex post; a large verdict might seem disproportionate to the price the plaintiff received, but ex ante it might have been perfectly fair. Perhaps plaintiffs will be poorly informed and easily fooled. This seems unlikely, if only because tort law is an incredibly competitive field. With so many bidders, it's difficult to imagine any significant market power being used. However ignorant of the law a plaintiff might be, he ought to be able to identify the highest bid and accept it.

Ultimately, though, the question can't be answered in merely economic terms. The question is whether it can be answered satisfactorily without reference to economics. In the case of champerty at least, economics is crucial to a complete understanding of the issue. This suggests that someone who wants to understand the complexities of law must first learn some economics.

Friday, July 25, 2003

Wealth and History 

posted by James

Brad DeLong, a "saltwater" economist who served in Clinton's Treasury Department, has a great post with some very striking graphs. It's worth thinking about how much better our world has gotten in the last fifty years. The term "saltwater" refers to economists in Cambridge and California, as opposed to the more conservative economists in Rochester and Chicago. Professor DeLong teaches at Berkeley.

Thursday, July 24, 2003

Black, White, & Brown 

posted by James

I took a class on constitutional law my senior year at Amherst. It was my first serious exposure to Brown v. Board, although of course I knew about the aftermath. Many things about the case surprised me, but most striking was the analysis of various constitutional scholars. Those who adhere to particularly austere interpretations found themselves struggling to come up with a justification for the ruling, and apparently this was a major source of frustration.

Certainly it must continue to be a major source of frustration for various legal scholars who seek to serve in the judiciary (I'm thinking here of Bork, except that he found a way to justify Brown). After all, to admit that you think the ruling in Brown was wrong is to abandon all hope for approval by the Senate. Similar, if less intense, pressure awaits anyone who disagrees with Griswold v. Connecticut (contraception), and perhaps someday the same will be true of Lawrence v. Texas (sodomy).

This is deeply ironic precisely because the results aren't supposed to matter, at least to someone who interprets the Constitution strictly. If the strictly interpreted Constitution tells you to let states segregate their schools, but you sympathize with the desegregationists, guess which way you're supposed to vote? This is fine, and in fact I think anyone would go along with the general notion that judges should transcend their personal politics. The problem is that this kicks responsibility up one level, not to the ruling in a particular case, but to the choice of judicial philosophy.

This isn't so much a problem for adherents of other judicial philosophies, such as pragmatism, in which the results are allowed to matter. It's very funny, though, to see people who claim that the results can never matter squirming to find ways of achieving the right results. The more successful they are, the more dubious is their claim to be able to provide convincingly “correct” answers to judicial questions, for their success illustrates the malleability of their method.

Of course, a serious defender of strict interpretation of the Constitution can simply say that Brown was wrong, that the public shouldn't expect the Supreme Court to fix its social problems by fiat, and that judicial appointees shouldn't be disqualified because of their opinions on a particular case. The truth is, though, that not only would such scholars never be appointed to federal court, they would have trouble getting the rest of us to take them seriously. No one wants to live in a world where Brown v. Board was decided the other way.

Wednesday, July 23, 2003

Pardon Me? 

posted by Alan

As you probably know, state governors and the president can unconditionally pardon or commute the sentence of any convicted criminal. I’m well aware of the tremendous good pardons can do in a justice system plagued by racism, classism, unjust laws, and overburdened courts, but I couldn’t help but notice that the power to pardon seems inconsistent with democratic legitimacy.

Basically, political power in our republic derives its legitimacy from the will of the people, expressed through elected representatives. In order to check governmental abuse, power is separated among the legislative, executive, and judicial branches. The president can veto a bill, for example, but a two-thirds majority of Congress can override his veto. But even this supermajority isn’t home free; the Supreme Court can strike down a law as unconstitutional. If that is the case and the people really want their law, though, there’s always the constitutional amendment process. Ultimately, then, power is in our hands.

So where do pardons fit in? Or do they? Unlike every other formal power in our government that I can think of, the power to pardon is utterly unchecked; it sidesteps the authority of the other branches. Supposedly, only the judicial branch has the authority to try and sentence criminals – processes, unlike pardons, governed by laws of evidence, testimony, juries, appeals, and the like. However, these processes are costly and time-consuming, so unlimited appeals are out of the question. But this shouldn’t make pardons any more attractive. The implicit reasoning “12 citizens and two appellate courts found this guy guilty beyond a reasonable doubt and the law properly applied, but maybe they’re wrong, so let’s give him one last chance” is misguided idealism, along the lines of “But come on, we all know OJ is guilty!” If we truly value procedural justice, why allow executives blanket discretion to pardon? Judges shouldn’t be allowed to rule in favor of their friends; neither should presidents and governors.

This leads me to some practical arguments about pardons. Despite his sea of bureaucrats, the president cannot effectively have a new trial for every criminal he’s considering pardoning, not to mention that he probably lacks the qualifications of a judge. Realistically, pardons are based on things like political pressure, one-sided evidence, and friendship; only the rich, famous, and well-connected even get their cases considered. It flies in the face of our court system to allow such concerns to trump a series of actual trials. In the eleventh hour of one’s presidency, he shouldn’t have the option of throwing a bone to his white-collar-criminal cronies and campaign contributors.

Of course, the substantive justice of pardons, like jury nullification, may simply outweigh everything I’ve argued so far. There are people on death row, for instance, whom we reliably know are innocent victims of racism, incompetent public defenders, and unjust limitations of appeals. Nevertheless, the discretionary executive pardon strikes me as a qualitatively different form of political power than anything else in our government, and as such, it deserves some scrutiny.

Wednesday, July 16, 2003

My Organs, My Property? 

posted by Alan

No one, I think, would seriously question my right to sell my hair, especially given the prevalence of baldness. But losing one’s hair is nothing compared to losing a bodily organ; there is no equivalent of a toupee for one’s missing kidneys. So should the market be given a chance to solve?

Rather than boring you by focusing on the stock arguments I presume kidney-selling cases have generated (fortunately, I have yet to hit one; I had Marcus remove his from his “Wheel of Legality” before our round at Brown last year), I will consider the question I think is at the heart (no pun intended) of the matter: What are the implications of consistently treating organs as property?

A host of issues spring to mind concerning organs-as-assets. Before addressing these, it is worth noting that the law currently allows one to donate an organ to a particular person under certain conditions, but prohibits donation limited to recipients of particular racial, ethnic, or social groups. Thus, if I am only willing to give my kidney to someone who hasn’t run a case about kidney-selling, I may be inclined not to donate at all. Curiously, then, the law of organ donation sometimes favors the preferential distribution of benefits to the absence of benefits, and sometimes it doesn’t; for some reason, preferring a friend or a family member is legally legitimate, but preferring young people and nonsmokers isn’t.

That said, it appears that putting bodily organs on the same economic plane as their church counterparts has a number of interesting consequences, some of which are quite counterintuitive. First, suppose I lose a civil suit and cannot afford to pay the damages. My wages are likely to be garnished, and my assets are likely to be sold off. If I am in good health, should these assets include one of my kidneys? Similarly, what if I’m poor and I can’t pay a fine? Second, suppose I stipulate in my will that, after I die, any viable organs of mine are to be preserved only in case my immediate family needs them. Should these organs, along with the rest of my estate, be taxed? Third, should the government be allowed to declare eminent domain on people’s organs? This concern may be absurd, but it logically follows from treating organs as property; in the case of eminent domain, particular property is needed and the government cannot be paid off. Fourth, if organs are property, the government cannot mandate donation after death (even in the case of executed prisoners) or presume consent to donate. Fifth, if I am deemed mentally competent, should I be allowed to commit suicide and sell all of my organs? Sixth, might creating a market for organs raise not only organ supply, but also the cost of transplants, thereby shutting out more poor people? Perhaps the inequity would outweigh the efficiency. Seventh, will families be tempted to have their relatives denied medical care in order to profit off of their organs? Will families fail to uphold wills asking for cremation or “proper” burial and instead sell their relatives’ organs? Eighth, many poor people will sell their kidneys out of desperation, hardly the epitome of a voluntary transaction. In addition, the loss of a kidney, as opposed to periodically selling blood, can have serious long-term health consequences, including, ironically, the need for socially-costly dialysis. This is especially true of the poor, who generally have worse health care and less healthy lifestyles.

Of course, there are some very persuasive arguments in favor of the sale of non-essential organs. Nevertheless, treating organs as property across the board has its difficulties.

Tuesday, July 15, 2003

Epistemology and Duties 

posted by James

This post actually isn't about epistemology; in fact, all of the epistemological issues will be assumed away. The result is (hopefully) an intriguing economic thought experiment (told to me by Professor Irons, who taught me macro and positive political economics). Before we get to the thought experiment, though, I should explain a few simple economic concepts.

Taxes, while necessary, have the unfortunate tendency to distort incentives and thus impair efficiency. For instance, a tax on income has two effects. The substitution effect refers to the tendency of people to substitute other activities for work when work becomes less profitable. The income effect refers to the tendency of people to work more when they have less money. These two effects are partially offsetting, but it's widely believed that the substitution effect predominates in an economy like ours. What this means is that income taxes reduce the productivity of our workforce (hence an argument to reduce income taxes in the name of efficiency; this argument is fine so long as it isn't accompanied by outlandish claims about being able to increase tax revenues at the same time).

As a side note, while most taxes distort incentives somehow, this isn't inherently inefficient. Pigovian taxes are taxes that move incentives toward an efficient level, typically because the original incentives didn't take into account third-party effects (i.e., externalities).

Now, imagine that we got rid of our progressive tax system, in which you pay a certain amount of tax on each dollar earned, depending on your tax bracket. We could replace it with a system in which each person pays a set amount of money, equal to the total budgetary needs divided by the total number of tax payers. Thus, the amount of tax you owe has no relation to the amount of income you earn. We have done away with the substitution effect, so we now expect people to work harder.

The problem, of course, is that such a system would be horribly unfair, since we would demand that poor people pay more than they can afford (in many cases, more than they earn). Now, imagine that we know exactly what everyone would earn next year under the current tax code (this is where we have to ignore the epistemological issues). Would it be a smart idea to tax only the income that would have been earned under our current tax law? Thus, a person who would earn $100,000 next year paying regular taxes would pay taxes on the first $100,000 he earns next year, and then no taxes on any additional income. Note that this would effectively eliminate the substitution effect, without losing any tax revenue, and arguably without sacrificing fairness. The result would be more wealth for society, without any loss of government revenue (the usual result of lowering marginal taxes). You would have to be sure that people couldn't game the system; you can picture a rich person somehow setting it up so that you expect him to earn $2 next year, then earning millions. This probably means that you couldn't do it many years in a row, but I'm not sure how that would work anyway.

Of course, this sounds too good to be true precisely because it is; we've been skirting the question of how to determine next year's effort. Now let's examine a policy area in which governments seem to think that they can make such a determination. Ireland started putting duty-free stores in its airports a few decades ago. The idea was that people were leaving the country; they had already spent all they were going to spend. It was the equivalent of having earned all they were going to earn in a year; at this point taxation could be dropped, mutually beneficial agreements reached, and overall wealth increased. The idea spread just about everywhere, so that duty-free shops are ubiquitous in international airports.

The problem should be obvious. The duty-free shops worked as long as no one knew about them, but once they became general knowledge, people were smart enough to wait until the airport to buy Irish whiskey or whatever. It's the equivalent of gaming the system by convincing the IRS that you will earn $2 next year. I don't know what other arguments can be brought forward in support of duty-free shops, but it seems to me that the traditional one fails for the same reason the income-tax dropoff concept fails.

The world of economics is awash with proselytizers who grasp onto a concept and keep prescribing it no matter how the world changes. Some are cranks; others are well paid for their loyal advocacy to causes that benefit the wealthy. The people who came up with duty-free shops were probably neither, so one wonders why they didn't anticipate the flaw in their reasoning. Maybe this post is about epistemology after all, and the policymakers who can't tell the difference between imagining and knowing.

Monday, July 14, 2003

Religion and Science: A Doomed Friendship? 

posted by Alan

What little I've read by Richard Dawkins so far (The Selfish Gene is on my list) has intrigued and satisfied me. The witty evolutionary biologist and athiest is not shy about touting his worldview, and I recently came across a couple excellent articles of his. The first, "The future looks bright," from "The Guardian" of June 21, 2003, concerns a clever and much-needed attempt to raise social consciousness and acceptance of atheism. The second, "When Religion Steps on Science's Turf," from the Spring 1998 edition of "Free Inquiry," notes, among other things, that many religions make unscientific claims about the physical world, even to justify their ethical teachings, which are ostensibly in a different domain. Before you respond, keep in mind that one of qwantz.com's daily dinosaur comics is with Dawkins on this one.

Sunday, July 13, 2003

Framers’ Intent: Infamous, Indefinite, and Irrelevant 

posted by Alan

Note: additions (made the night of 7-14 prior to reading comments) in brackets.

Many people, some federal judges sadly included, unreflectively throw around the term “Framers’ Intent” as if it is some repository of objective value, a panacea for the caprice of judgment. As the title of this post indicates, that’s a load of shit. I’m going to keep this short and sweet, which means, for better or worse, debate mode. (Note, however, that the following arguments would make for a terrible, tight case.)

First, Framers’ Intent is an inherently flawed concept. It makes no sense to speak of the Framers as one entity with one set of intentions. The Framers were 55 individuals, not some collective mind with a clear and timeless understanding of the Constitution. Each delegate had his own reasons for supporting and opposing provisions of the Constitution – reasons we usually cannot discern. Sure, it’s pretty safe to say that Hamilton had a National Bank in mind when he supported the Elastic Clause, but such examples are few and far between. Our records of the Framers’ debates are incomplete, and even if they were, speeches and voting alone cannot reveal intentions. Perhaps some Framers supported particular provisions as a matter of political bargaining (e.g., vote swapping) or appealing to their local constituencies. Perhaps some Framers’ changed their minds after they gave their speeches. And what about the Framers who didn’t speak on a given issue? Similar examples abound; the point is, by and large, Framers’ intentions were private and variable, and often had more to do with politics than principles. [Therefore, when a judge speaks of Framers' Intent, what he is really referring to is something else, such as an individual Framer's intent, the intent of a group of Framers, or simply his assumptions of what the Framers thought based on historical context, biographies, and the like. It is a myth that Framers' Intent and objectivity go hand in hand.]

Second, an individual Framer’s intent, on the rare occasion that we can reliably speak of it, should carry no special weight. Unless you believe that an appeal to authority is a valid type of argument, why should the fact that a constitutional interpretation came from Hamilton instead of Posner matter? Ideas should be evaluated according to their merits, not their authors. The Framers simply formulated the Constitution, which the people, through state legislatures, ratified. The people consented to a text, not the manifold, contradictory, and ambiguous reasons why a bunch of rich white guys approved of it. If anything, then, it is the ratifiers of the Constitution whose intent should be revered, because it is they who gave the Constitution the force of law. Needless to say, all of the other problems with intentionalist reasoning still make this a bad idea.

Third, judicial deference to Framers’ Intent is contrary to the purpose of Constitution. The Constitution is filled with vague principles that should, via judicial interpretation, reflect evolving technology and values. For example, the firing squad may not have been “cruel and unusual punishment” during a time when painless lethal injection was impossible, but it may be today. Of course, one can respond that the intent of the Framers was, in fact, for judges to interpret constitutional principles in light of contemporary developments, but such a conception of Framers’ Intent renders it an impotent and superfluous middleman. Framers’ Intent, to have any purpose at all, must be restrictive – and therefore, problematic. [Judges' are already constrained by precedent and the language of the constitution. If you are inclined to restrict their judgments further, ask yourself if Framers' Intent doesn't actually open the door for more judgments (as aforementioned) - judgments about opinions that, as much as we honor them, should carry no legal authority.]

It is for these reasons that I am proud to…blog.

Fast, Cheap & Out of Control 

posted by James

a documentary by Errol Morris

I should start by issuing the usual warning about spoilers, although I think in this case the spoilers are somewhat unusual. “Fast, Cheap & Out of Control” is a documentary, and while it is full of surprises, they aren't exactly plot twists. The “problem” is that it is a very thought-provoking movie. My fear is that if you watch it having read my ideas, it will affect the framework in which you organize your own thoughts, and perhaps stifle something really imaginative. So, go watch the movie, then come back and read the rest of this post. As a side note, it's a hard movie to find, be prepared for some frustration at your local movie rental.

The subject matter of “Fast, Cheap & Out of Control” seems rather eccentric and arcane at first. It's fun to watch naked mole rats climb over each other, but it doesn't seem to have much to do with the average person. I think that's a serious misunderstanding of the movie, though. Each specialist says many particular things about his own field, but the theme of the movie, the cohesive element, is that each specialist is really talking about us. The questions the movie asks us are simple: are we lions, or are we shrubs shaped like lions? Do we resemble more closely naked mole rats from Africa or robots from MIT? How have we become who we are, and which specialist knows our destiny?

Rolling in Feces to Smell the Same
the naked mole rats

The first thing we learn about naked mole rats is that they are special – their existence proves that mammals can live in what are usually considered insect societies. Their behavior is unwaveringly communal; if a mole rat is attacked by a snake, the others don't try to rescue it. Instead, they seal it off to protect the nest. Mole rats are viciously dedicated to the good of the nest, killing babies if it's necessary to prevent starvation. The entomologist contrasts this to human societies, which would rather starve than take such drastic measures.

The real comparison, though, comes when he discusses the way that mole rats identify each other. If a mole rat encounters another mole rat from another nest, it attacks it without hesitation. The rats presumably identify each other by scent, and this scent is inculcated by rolling in feces all the time. Baby mole rats beg for feces to eat.

The analogy, while not perfect, is clear. Perhaps mole rats are not so special. In human societies we use all sorts of arbitrary identifying behavior. The clothes we wear, the music we listen to, the way we talk, and countless other social norms are used to differentiate ourselves from the “other.” Even a little thought reveals that these standard are arbitrary, but nevertheless they are routinely attacked or defended with vehemence bordering on religious fervor. More importantly, they are used as subtle or not-so-subtle ways of invoking our fear of people from different “nests,” as when President Reagan fabricated a story about a “welfare queen.” Our willingness to ingest the most mediocre forms of pop culture suggests that we long for ways to connect to each other, often by establishing aesthetic standards to which we adhere in groups. This is not so far from the strange desire of the baby naked mole rats.

”Physically, There's No Way to Stop Them, Except to Bluff”
the lions

The contrast that we see again and again in the account of the lion tamer is between the magnificence and power of the lions and their humiliation at the hands of a relatively puny man. In the few encounters in which lions actually tried to fight him, the lion tamer sustained serious injuries. Nothing stood between the lions and the destruction of the lion tamer but their ignorance of their own power. Easily distracted by the four legs of a chair, the lions' overwhelming size and resounding roars stood in stark contrast to their utter lack of control of their lives. The mighty beasts wobbled around on barrels while the weak man strutted and cracked his whip.

This calls into question the barriers that we perceive. How many such barriers are artifacts of our psychology, and how many are real? Is it the case that a person freed from perceived limitations would be like a lion suddenly aware of its immense physical power? One shudders at the thought of past and future geniuses, plagued by self-doubt, giving up and falling far short of potential. On a broader level, what social goals are ignored because our institutions are hampered by blind spots and inherent prejudices?

”It's Just Cut and Wait, Cut and Wait”
the topiary gardens

Early in the narrative of the topiary gardener, we learn of a woman (the owner of the gardens?) who fell in love with one particular man. Having failed to marry him (for undisclosed reasons), she determined never to marry. This sort of rigidity and singularity of purpose dominates the portrayal of the topiary gardens. The shrubs are shaped into graceful animals and geometric forms through an extremely gradual process of growth and selective amputation. The fragility of the process is demonstrated by the weather's impact on the garden, and by the gardener's explanation of his preference for traditional rather than electric tools. One slip with electric shears, and an animal might lose its ear forever.

Here the analogy to human life is clear and painful. We begin our lives with a great deal of flexibility, like a shrub whose branches have not yet matured into their final positions. We gain our uniqueness by growing and then excising those parts of us that we no longer want. We lose our flexibility, so that our branches can no longer be re-shaped into a new form. By virtue of our specialization, our fragility grows. The accidents of life leave permanent scars that cannot be healed, and eventually we are broken by the elements.

”The Sort of More Radical Hypothesis”
the robots

The image that we get of robotics is one of a very practical engineering aesthetic, Roman rather than Greek, evolutionary rather than designed from the top down. Robots achieve complex goals by stringing together simple processes. They respond to the rules of the system in which they function, so that their explicit programming is not the sole determinant of their behavior.

The robotics specialist makes explicit comparisons among robots, insects, and humans. He seems interested in the mental processes with which we function, and his radical hypothesis is that we are simply the aggregation of thousands of simple mental processes handed down by evolution.

The implicit comparison is just as radical. Again and again we hear that robotics is not something that is done all in one step. Little tasks are analyzed and methods are found to get the robot to accomplish them. Individual robots are not aware of the global system in which they function, but its rules allow the system to work nonetheless. Complexity is achieved through the accretion of adaptations to specific problems.

The market system of economic organization closely resembles the world of robotics. Individuals don't intend to move thousands of tons of minerals from one place to another, they merely seek to fulfill their own demands by satisfying the demands of others. One thinks of a coffee grower in the tropics, who neither knows nor cares about the consumption patters of coffee in North America, but rather the price at which he can sell his product. Nevertheless, the price sends the correct signal; if North Americans are drinking more coffee, the price will tell the grower to produce more. The de-humanizing aspects of this process are well illustrated; a plan to launch thousands of robots at a planet instead of one big one (so that any one robot is dispensable) is voiced over an image of paratroops dropping onto a battlefield. The evolution of old concepts to serve new ends is aptly illustrated in the law of deodands (see Richard Posner, The Problems of Jurisprudence, p. 17). Deodands, or inanimate causes of death, were originally seized and destroyed. As the conceptual framework underlying this law dissolved, the law of deodands evolved to allow the seizure of a ship belonging to someone who had done damage to another person's property. The global system of legally regulated markets is advanced by incremental adaptations that work cooperatively only from a very distant perspective.

Intentional Confusion

I noted earlier that the question the movie poses is which account of humanity is accurate. Morris brilliantly suggests the possibility that all are valid by confusing us. He overlays the video of one subject with audio from another, so that an expert seems to be commenting on someone else's specialty. Concepts blur (e.g., the distinction between robots and insects), and points are taken up by different specialists at different times. Thus the entomologist describes the fascinating ability of a mole rat to change its role in the nest from worker to queen, while the topiary gardener notes the glacial rate of change in shrubs. In a movie about the ambition to understand the non-human world, Morris forces us to open our minds to a richer conception of humanity, despite (or because of) the contradictions he lays bare.

Saturday, July 12, 2003

Rights: A Useful Legal Fiction at Best? 

posted by Alan

Rights, writes philosopher Ronald Dworkin, are “political trump cards held by individuals.” Thus, the Ace of Utility is beaten by the 3 of Rights, which, in turn, is beaten by the 4. But how should one decide which rights appear on which cards, much less which claims should count as rights to begin with? Rights, unlike most-wanted Iraqis, do not exist within a convenient hierarchy.

In fact, rights do not “exist” at all. Nothing tells me that it would be wrong to kill you for money if no one would find out…except for my intuitions about suffering, the value of continued existence, and reciprocity. In other words, nothing a priori establishes that no benefit whatsoever can justify the intentional taking of your (hopefully) innocent life; rather, intuition favors killing under certain conditions, such as self-defense. Note that self-defense is not an issue of conflicting rights; I have no positive legal right to life. Self-defense, then, creates an exception to the right to life, similar to clear and present danger and the right to free speech. The intuitive utility of victims’ lives and safety trump the rights in question, without being members of the trump suit themselves – it’s as if the Ace of Utility beats a Rights card under certain circumstances. But if utility can sometimes justify the infringement of rights, rights are not really trump cards. Rather, there’s really only one suit – rights operate as useful shorthand for general utility. For instance, life is generally intuitively worth respecting, and we don’t want courts or philosopher kings ruling on claims such as “I stole his liver because he was just a bum and this AIDS researcher needed it!” We use rights to limit such case-by-case decisions to extremes such as “national security,” in order to reduce the dangers of subjectivity.

But what if we had a utility machine – a machine that could perfectly predict the future and assign util values to every possible discrete action (I'm not sure where these values would come from, but I don't think that's relevant here)? Shouldn’t the language of rights go out the window? Thanks to the machine, all cases would be as clear-cut as national security and free speech.

Of course, one can object to my formulation – why not say that the Supreme Court’s ruling created a positive right to be free from clear and present danger caused by speech? Two responses. One, it seems pointless to invoke the language of rights in such a way. Analogously, one could say that Peter Singer is a rights theorist because he implicitly argues that most animals have a right to have their utility considered, but why? Two, even if I accept a positive-rights formulation, the question of what to do when rights conflict remains.

Superficially, some rights trump others simply because they are “natural” or “inherent in human dignity.” But such standards seem to be nothing more than wordplay – phrases used to highlight the intuitive precedence of certain rights. Life isn’t more valuable than free speech because it is God-given or otherwise inalienable; death is simply a worse fate than silence. Once again, if some sort of intuitive utilitarianism is the measuring stick of rights, legal functionality seems to be the only reason to invoke them.

Is there nothing else to be said for rights? Just how utilitarian are our intuitions, anyway? I’ve found that the following three examples raise some interesting difficulties with the “utility machine is law” conclusion that seems to be a logical extension of the current legal treatment of rights. First, is the utility of rape morally relevant? If the utility machine determines that a rapist derived more utility from his act than his victim lost, is the rape justified? Moreover, how should the law under the utility machine treat degrees of disutility from similar acts? Should the thief who really craved a candy bar be punished less than the one who filched for the hell of it? Second, it seems that the law of the utility machine would create an untenable positive obligation on the part of every individual to increase overall utility as much as he can. Perhaps the machine would somehow only demand one’s “best effort” to maximize overall utility, but, needless to say, we’d all still be criminals. Don’t some people deserve at least some of their wealth because they earned it, even if their wealth would be more valuable in the hands of others? Shouldn’t social safety nets be reasonably limited – by negative rights – to providing for basic needs and basically equal opportunities? Third, is it justified, much less obligatory, to punish an innocent bum in order to provide closure for the victim’s family, avert deadly and destructive riots, create a climate of safety, and deter crime? Does desert/retribution matter naught?

In light of these examples, my moral intuitions (surprise, surprise) seem incoherent. I believe rights ought to be infringed for the sake of extreme utility but not lesser utility, and yes, I can’t draw the line between “extreme” and “lesser.”

A Great Krugman Essay 

posted by James

I am a big fan of Paul Krugman, not just because he is a powerful critic of the Bush administration, but also because of his remarkable grasp on a wide range of economic issues and his clarity in explaining them. It's rare to see an economist who is a brilliant theorist but is still highly conversant with the details of the real economy, and Krugman is such an economist.

Anyway, while his everyday writings are usually well worth reading, one essay stands out in my mind as the best (in his non-academic work). It is an essay about the methodology of economics, but it also addresses the broader issue of rigor in academics. If you read it, please let me know what you think (jamestmcdonnell@yahoo.com). The essay is called "The Fall and Rise of Development Economics."

Thursday, July 10, 2003

The Use of Economics in Law: An Application 

posted by James

In the fall semester of my last year at Amherst, I took a class on law and economics. The class seemed full of ideas for debate, but I had trouble turning them into workable cases. One case that I ran a few times, producing absolutely awful rounds, was essentially Laidlaw v. Organ. I recently revisited the case while doing some reading, and I was stunned at how badly I had missed the actual crux of the analysis. The analysis, while it seems obvious in retrospect, is quite elegant, and it illustrates some of the shortcomings of traditional legal thought. None of it is original; I rely primarily on Law & Economics, by Robert Cooter and Thomas Ulen, pp. 272-274, and on Economic Analysis of Law, by Richard Posner, pp. 109, 111, 128 for the rest.

The Facts

At the end of the War of 1812, New Orleans was under a British blockade, and the price of tobacco was significantly depressed. A man named Organ heard of the Treaty of Ghent, which would of course result in the lifting of the blockade. Organ signed a contract to buy a lot of tobacco from the Laidlaw firm, which hadn't yet heard of the treaty (the information was not public). The next day, the news became public, causing an upward spike in tobacco prices. Laidlaw sued, arguing that the contract should not be enforced.

Intuition Gets Us Nowhere

The challenge is to come up with a legal doctrine that will yield correct judgments in similar circumstances in the future. Specifically, the question is whether courts should enforce contracts in which one party has relevant knowledge but doesn't share it with the other party. This is difficult because our intuition gives different answers depending on the circumstances. In the case of insider trading, we would like to invalidate the transactions (and punish the culprits). On the other hand, if I develop a model to predict the weather, and I find that it's going to be a good year for a certain crop, our intuition (or at least my intuition) is that it's okay for me to buy and sell futures without disclosing the results of my computations.

This means that we can't issue a very simple rule, such as “never enforce contracts in which one party withheld relevant information from the other.” It also seems inadvisable to leave the decision up to the intuition of the judge in any given case, since such intuitions are likely to vary widely. Often, a rule's clarity and consistency are more important than its holding in any one case (a clear rule can prevent litigation in the first place).

Simplistic Economic Analysis Is Unsatisfactory


In trying to devise a good rule, I originally concentrated on a rather simplistic economic concept, one that had little intuitive appeal and made debate rounds miserable. The idea was that allowing one party to benefit from asymmetric information in a contract provided incentives to acquire the information and bring it to market. In my example of the weather forecasting model, society benefits when it has good forecasting models, because it can allocate resources more efficiently (say, eating more now in anticipation of plenty in the future). One objection would be that sharing the model is precisely not what I'm doing; I'm hiding it from my contractual partner. This objection misses the impact of the contract; the information gets to market, because my activity drives prices in the correct direction.

The same argument applies to insider trading, except that only the second effect is produced. The price is driven in the correct direction, but only because of fortuitous information, not a model that is the result of effort. Of course, there's no need to reward good fortune, but it still makes sense to reward the bringing of information to the market. Note, though, that we've come to the conclusion that such contracts should always be enforced, even in the case of insider trading. This is very unappealing, but can we explain why this doesn't sit right?

Thorough Economic Analysis Illuminates

The key to finding the optimal (i.e., wealth-maximizing) rule is to consider the ways in which people gain wealth. One way is to produce it. This could be as obvious as building your own house, or raising crops, but it could also consist of buying low in one place and selling high in another (moving resources to increase their value counts as wealth production). The other way to get wealth is to take someone else's. This could be stealing, or government-sponsored redistribution, or winning at cards.

To maximize overall wealth, we would like people to put their effort into production of wealth, not redistribution. Redistributive effort by definition produces no wealth, and what is worse, it usually spurs the other party or parties to expend resources defending their wealth, which is also wasteful from society's perspective. This is not to condemn all redistribution, but in general we want to use as few resources to redistribute wealth as possible.

Now, we can analyze the incentives to find and use information in contractual settings. Some information is productive. For instance, a good weather forecasting model could produce considerable wealth, and allowing the information to be profitable creates incentives to develop and use such a system. On the other hand, some information is primarily redistributive. If the cost of acquiring such information (including the defensive expenses that its potential use will motivate) is higher than the gain in wealth when the information is brought to market, overall efficiency will be improved by invalidating contracts in which one party withheld such information.

A good legal rule is now easy to derive, if somewhat difficult for judges to apply. Enforce contracts whose net effect is to bring productive information to market, invalidate contracts when this effect is overwhelmed by costly investment in redistributive information. We can see why insider trading might be illegal (although it is also possible to see circumstances in which it could be efficient). Can we justify the ruling in Laidlaw?

Non-Economic Reasoning, Inefficient Rule

In fact, the court found for Organ, upholding the contract and setting the precedent that such contracts should be upheld in the future (so long as one party didn't “impose on” another; the whole opinion is available on Lexis-Nexis). Clearly, this rule is inefficient. It coincides roughly with the simplistic economic analysis that I presented above, although the judges steered well clear of economic argumentation. It has the benefit of being fairly clear (assuming “imposition” is somewhat comprehensible). It is easy to apply. For all I know, it's the best that could have been done at the time.

Still, with the benefit of a little economic analysis, we can see why the finding is socially inefficient. In the case of Laidlaw, the information came to market only one day earlier than it would have otherwise. This can't have led to much productive activity; the only possibilities I can think of is that the higher price would have convinced people to take good care of their tobacco (people might dump wares during a blockade), or that it would have alerted planters to go ahead and plant. On such a short time scale, these activities can't have been significant.

Moreover, the rule generally leads to over- investment in information that is largely distributive rather than productive. The opinion (or possibly the argument of counsel; apparently published opinions were much different back then) makes frequent reference to classical authority (Cicero, Florentinus, St. Thomas). This shows a familiarity with philosophy that can clearly benefit legal analysis greatly (if not in this case). I hope that advances in economic thought and shifts in attitudes toward rigor will make it respectable to cite economic theory in law cases beyond anti-trust, where it has always been welcome. A judiciary that is economically literate will shape the law to serve society in a way that the judges of Laidlaw could not, however much Cicero they had read.

Wednesday, July 09, 2003

Welcome to Cooler Heads 

posted by James

Alan and I hope to make this a “thinking blog,” almost entirely dedicated to examining and debating ideas. We'll probably focus on economics, evolutionary biology, law, and philosophy, since those are our chief interests. Please feel free to weigh in or to suggest topics of interest. Right now we don't have comments, so please e-mail us (jamestmcdonnell@yahoo.com or adlawn@amherst.edu) if you have anything to say. We'll add comments soon. Enjoy!

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