Economic Sanctions - Failure in Theory and Practice

Imagine you are trying to change someone's mind. How would you go about it? What techniques would be effective? 

Imagine now you are trying to change a group of people's minds. The difficulty multiplies. 

Now imagine you are trying to get a group of people to change their behavior or worse yet to get them to make active changes in their own status quo implementing changes that put them at high risk or involve great hardship. 

For instance, suppose you are strongly opposed to abortion. You believe it is morally wrong--it is the taking of a human life. Suppose you took political power and while you could not yet overturn the legalization of abortion, you could impose sanctions on those who engage or enable it. To bring about change you would like to cut off access to credit for those who have been a customer of or worked for an abortion clinic. This can't be done, though, because you cannot identify those individuals nor can you legally target them. But you do find a technicality in the law allowing you to target an area that has an abortion clinic. All those who live and work in that area suddenly cannot access credit or the banking system. This is crippling.* 

Do you think this would be constructive to your ultimate cause? Think of those marginal or median voters. While they don't have a strongly-held position on abortion, they are not just caught in this crossfire--they are the target. You are aiming to harm them so as to bring about change. At the very least you are willingly harming them because the shotgun approach you are limited to forces the collateral damage.

If that is too politically charged for you, consider this. You are the mayor of Shelbyville. One of the things that really irks you is how many of your citizens root for the nearby town of Springfield's baseball team, the Isotopes. This isn't just a minor annoyance. Your administration is trying to support the local team and economy by building a huge new stadium complex for the home team. The lack of hometown support, though, is making this quite difficult. So what to do? You institute a blackout zone through an indirect tax. All broadcasters are subject to the onerous tax, $10,000/minute of broadcasting, for any broadcast of a sporting event of a team located more than 20 miles from the Shelbyville town center. Viola, problem solved, right? 

The desire to have people change what sports team they root for is not going to be solved by force. Many people who never watched a single game before are likely to take up the cause against you. 

Want to increase vaccine acceptance and injection rates? Well, you could . . . oh, we've been doing that experiment. I don't think it moved many needles [pun intended].

We can extend this hypothetical to all kinds of causes: disuse of fossil fuels, antipornography, zipper merging, etc.

The result is consistently and predictably emboldened and extended resistance. It is not human nature to succumb to external pressure. Any parent knows reverse psychology and distraction are the keys to getting a young child to change course. Tell them they can't, and the deviant battle begins. 

This thought experiment alludes to why economic sanctions applied by governments so often fail to achieve their desired ends. 

Setting aside all of the very important concerns about moral authority and moral culpability given who is actually harmed by sanctions, consider just if they should work to begin with. Stated differently, why do they so often completely fail? The do so because that's not how people change or how they are made to change.

So why do we do it? Partially it is action bias, the fallacy of . . . something must be done . . . this is something . . . therefore, do it!

Perhaps more importantly it relies on social desirability bias. It seems like a strategy that is more humane than active warfare. However, it is arguably much less noble and less morally defensible as it targets noncombatants attempting to turn them into double agents. In an age of high-precision bombs, economic sanctions are carpet bombing combined with landmines. 

*Arguably the linked (trucker convoy and Canada's emergency response to it) is an example of sanctions that worked! But only in the narrow sense of getting the result of disbanding the convoy. I am not sure it won any hearts and minds on net. Rather I think it turned a lot of people against the government of Canada. It also was an arguably more harmful action than simple police action would have been. The greater harm is in the threat and concern of it being used going forward as a regular tool. In this way the actions of the Canadian government are not analogous to economic sanctions but rather analogous to escalating hot-war conflict.

Resistance to Coercion versus Fighting for Freedom - Dimension Analysis

What do you do when confronted with someone wanting to have you do something you don't want to do? In fewer words, how do you respond to oppositional, hostile force? 

Of course, the force in question is probably a key to your response. Is someone trying to manipulate you into taking an unfair deal, or is someone trying to steal your car, or is someone threatening your life or way of life? Importantly your alternatives matter greatly as well. Can you delay, demur, deflect? Can you exit the situation with grace or perhaps with just some slight shame? Must you submit or resist perhaps with violence?

Let's focus on serious conflict where the stakes are relatively high if not exceptionally high. And in doing so we will think about situations from the standpoint of the victim or person under threat/attack. Therefore, this will be about degrees of losing where the best case outcome is the status quo.

I see the options being somewhere between resistance to coercion and fighting for freedom. In a sense this is passive versus active or reactive versus proactive. Take the recent actions in Ukraine with Russia threatening and then attacking. As I write on February 26, 2022, Russia has invaded and is actively attacking various areas within Ukraine including the capital city Kyiv. It is very ugly, as war always is, and the initial news is likely sketchy and subject to revision. 

That said, we can assume some basic facts to explore the implications. The Ukrainian government has not been friendly to Russia. This is a government the U.S. helped install and support going back to Obama administration. Long before that under the Clinton administration and then continuing into G.W. Bush's administration were numerous political moves and positioning to expand NATO including potentially adding Ukraine at some future date. Regardless of the likelihood of that officially happening, the support for Ukraine from NATO and its member countries as well as the outright enlargement of NATO to include former eastern-block nations in 1999, 2004, 2009, 2017, and 2020 have presented an expanding defensive/threatening position vis-a-via Russia. 

This is not an apology piece for Russia or especially Putin. It does potentially give us some understanding for what Putin is doing and how he at least tries to defend it. The Russian government is a threat to its neighbors and NATO interests. But from the standpoint of Russia, the same can be said of NATO and actions the U.S. in particular has pursued. What is interesting to me is how the perspective of both sides can be used in this dimension analysis.

As Russia engages in violent acts harming and killing people, one could label it as "fighting for freedom"--just not in the noble sense we typically use that phraseology. They have turned from resistance to coercion as an option to actively striking out (I very deliberately don't say "striking back" since Russia has not been attacked). 

Similarly the Ukrainian position has been resistance to coercion and especially the threat of future coercion by building an alliance with the West. Was this the only or best way to resist coercion? I would say probably not. Rather building ties economically and politically with Russia might have been a better strategy. In this I envision taking on an active Swiss-like neutrality while developing economic co-dependence through trade. NATO and the U.S. itself might have been much wiser to not expand NATO nor threaten to do so. Perhaps NATO should have deescalated following the fall of the Soviet Union in stages negotiating further and further withdrawal and peace leading potentially to eventually dissolving NATO altogether. This is my view, but this is not aimed at being an advocacy post nor a criticism. Rather I want to suggest that in light of these alternatives the geopolitical moves in Ukraine were in actuality fighting for freedom disguised as resistance.

Consider an analogy: A man and his family live and work in a dangerous community subject to high violent crime rates. While moving would be a great solution in theory, exit is not practicable for them. Whether they are correct or not, they feel trapped. Recently they have noticed that there are increasing incidences of violence in places they must frequent like the local grocery store and their workplace. So the man decides to start carrying a gun. Because he lives in a state that allows open carry, he can make visible his choice. [NB: This is not a post about the 2nd amendment, etc.] 

Carrying a gun in this case could be thought of as resistance to coercion, but it also can be escalatory. The thugs in the neighborhood also feel trapped--they can't take their violent ways to another place. This is where they "work". So the thugs now consider their options. They could increase their own muscle/firepower. They could target others who look less capable of defending themselves. They might even consider tactics that amount to negotiating territory and room to operate like co-opting the shopkeeper or threatening more while accepting less. 

But carrying a gun could also be fighting for freedom. The man is taking a stand and putting himself in harms way to the degree this act is escalatory or empowers him to take more risk. As an alternative or complement, he could advocate for more policing or security guards. If he didn't have an open-carry option, this advocacy might actually be more difficult if it puts him at greater risk when he carries a gun. Even if he can carry a concealed gun legally, the advocacy still pushes back on his own fighting for freedom option forcing him to be much more passive.

Sturdy doors with good locks, bars on windows, and burglar alarms are tools of coercion resistance for this family. But so too are guns, knives, big dogs, and baseball bats. The latter can easily become the tools of freedom fighting or outright aggression. The former might not have direct offensive capabilities, but they do invite suspicion as well as stronger opposition when opposition does come knocking. You're probably better off bringing no gun to a gun fight than bringing an unloaded gun and no ammo. 

The point I'd like to make with the analogy is that it is hard to see where the lines are between what is resistance and what is fighting. Active resistance (e.g., carrying a gun) can be a threat, and that can be good, justifiable, and peacekeeping. It can also enable a fight where flight would otherwise be the better course of valor.

While it might be socially desirable to align with fighting for freedom, this positioning is antagonistic with unintended consequences. While it might feel noble to claim the mantle of resistance to coercion, this can be a provocative self-deception. Think how many so-called freedom fighters were either defending a brutal regime or whose actions lead to tyranny. Consider how often a resistance movement became offensive destruction. Once put into motion, forces opposing change or pursing change can be very hard to control.

George Washington fought for freedom, but so supposedly did Che Guevara. Washington's legacy was not a fight for complete freedom (see slavery), but I think his value alignment was much, much closer to virtuous than was Che's. It is hard to know where freedom fighters might lead us.

There is no left or right monopoly with either resistance or fighting. Easily I can think of resistance to coercion as being a conservative position as when something is threatening the status quo or tradition. I can also see how people could decide to resist being victimized by traditional norms--for example, racism, homophobia, etc. Fighting for freedom is on the other side of the axis where "Hell no! We won't go!" becomes "Come and take it." with no natural political connotations.

Neither motives nor outcomes can be determined based on which of these strategies is employed. Both methods can have a claim on the moral high ground as well as disastrous pitfalls if not evil ulterior motives. The non-aggression principle (NAP), a founding concept of libertarianism and classical liberal philosophy, implies strong constraints on both ends of this spectrum lest we become that which we seek to avoid. 

Crony Capitalism (Vacation Rental Edition)

My wife and daughter just returned from a delightful long weekend in Santa Fe, NM. The entire family will return soon to Saint Francis's fine city where, as Hermann Banks reminds us, strangers are kind and beauty is overflowing and the local government is captured by crony capitalists. In fairness to Banks he never has said as much about local government, but I would imagine he wouldn't dispute it. 

Case in point:

A friend of mine has a vacation home there that he purchased a few years ago for both personal use and as an investment. Part of the investment is renting it out as a short-term vacation rental.

About six months ago I booked his place for my family's trip this coming April. In October I received an urgent text message from the rental property service directing me to check my email. Doing so I saw a short message stating that my reservation was no longer available, they were searching for a substitute property, and would be back in touch soon. I somewhat shrugged it off as being a mistake since I knew the actual owner well. But before I had a chance to contact my friend I received another email regretfully informing me that my reservation was cancelled with no substitute.

I reached out to my friend still thinking this was just a clerical error in their system. While a clerical error had occurred, it had a deeper problem behind it. My friend was somewhat upset but a lot calmer about it than I would have been. In fact I was livid for him and ready to go to the barricades. Not because of my vacation plans being disrupted but because of why this was happening and the implications it had for him.

The short version is this: The property management company had failed to make sure that my friend was current in his short-term rental permit with the city of Santa Fe (and yes, this is enough to get me to the barricades--the fact that a city government makes property owners get permission to use their property . . . but wait, there's more). The failure here was pretty significant in that it had expired the prior December 31st. Shame on the management company for sure. 

Should be no problem, though. Just refile as this should be a formality at this point. My friend does so starting a few days before my cancellation email by calling the proper city office. Keep in mind that my friend lives in Tulsa, OK; so all of this is out of direct control for what it's worth. I'm not sure if being able to go down to city hall would have made things better for him. They probably wouldn't have been better for me if I were in his shoes due to the whole ready-to-storm-the-castle attitude I have in these matters. Nevertheless . . . the city official looks it up and says, "Uh-oh, I don't think we'll be able to do this." 

[I swear this is the short version] It seems there exists another, current, valid in-the-eyes-of-the-Duke-of-Santa-Fe short-term rental permit for a property located within 50 feet of my friend's. You see kids, in America Big Hotel has decided that short-term rentals are a threat to their business. They've convinced well-meaning homeowners that people renting out their property could be scary. Soooo, rather than compete they've helped create rules to stop the madness. 

But this no-longer-short story doesn't end with just a Bootleggers and Baptists tale of the hotel lobby working hard to stifle competition along with the help of residents who think they should be able to dictate what happens on other people’s property. We get some government failure and unintended consequences to boot. 

My friend was taken aback at the news he couldn't get a permit because one nearby already existed (a new rule) but was immediately relieved relaying to the official, "Who has a rental? I know all my neighbors, and none of them rent." Upon further inspection, the city official realized that there are two roads with the same name in Santa Fe. The other permit is for a property miles away from my friend's. He could get it after all. Just need to have the local inspector swing by the next day to validate it all. Phew, that was close . . . but wait, there's more . . . as you probably suspect knowing what came next for me. 

The inspector comes out to my friend's house. Presumably begins checking boxes. Sees that there is another property located within 50 feet holding a short-term rental permit by looking it up just like the prior city official did. So he promptly denies the permit and goes about his day. 

This triggers a very fast and unforgiving process in the several rental property agencies my friend uses for his listing. Because I'm sure so as to not fall afoul of city governments everywhere and their crony capitalist controllers, they act swiftly to cancel all of my friend's future rentals. Remember this is October right before a busy Thanksgiving and Christmas season and he depends on repeat business as well as referrals. Along with all of these would-be customers, it is now that I receive a cancellation via email. 

At this point my friend was already on top of getting this reversed--I would not say satisfactorily resolved. He cleared it up with the city and over a LONG weekend was square to lease his property. Then came damage control. Many apologetic messages later with many discounts offered and still a large number of permanent cancellations foregone, he had done all he could to salvage some of his 9+ months of bookings.

It is hard seeing the system work the way it is actually, ultimately intended. It is harder still being a victim of it.

Summer Rental

What Does NIL Imply for Parity in College Football?

The evil empire known as the NCAA has now finally relaxed its rules on amateurism allowing college athletes to earn compensation off of their name, image, and likeness rights (henceforth, NIL). How sweet of them. It only took a rare 9-0 shutout loss at the Supreme Court to get them to change their ways. 

Cue the pearl clutching as the latest moral fear becomes a moral panic--God forbid someone in America would make money off of their talent.

Yes, times they are a changin', and for the better. There will be losers, though. Eventually, it is likely the ones losing advantage will be all of those who have been profiting off of players not being compensated. This list somewhat in order includes: coaches, administrators, athletes in all sports other than football and men's basketball (mixed bag here as there will be lots of NIL opportunities for many of them), fans, and the universities in general.

For this post I'd like to briefly discuss how this might affect competitive balance (aka, "parity") in college football and men's basketball. 

If by parity we mean anybody can beat anybody (i.e., "any given Sunday"), then the initial and perhaps enduring apparent result will be increased parity.*

If by parity we mean league continuity, then the apparent result will be decreased parity.

Let me explain. Allowing NIL compensation adds a dimension along which teams can compete. A classic analogy is when the CAB under the Carter administration ended price controls allowing airlines to compete on price. This was very good for consumers in the long run and very disruptive to airlines in the short run. 

In this same way NIL comp will add a competitive dimension to the competition for college athletes and thereby increase variance in those athletes' sports. An increase in variance means instability. That instability will have two features:

1. It will give new and added opportunities for lesser, secondary teams to challenge incumbent blue bloods. Potentially Oklahoma State now has more opportunity to challenge Oklahoma in football.
2. It will open up more risk of failure especially for lesser, secondary teams. This failure can be in the more obvious form of shutdown but also in the harder-to-perceive version of loss of status. Hypothetically the difference is Temple dropping football altogether or going down to a lower, true-amateur level versus Penn State falling from prominence. 

The first case will look like more parity. The second case will look like less to the causal observer. This is why I referred above to these being the "apparent result". I would guess that the second will come to dominate the narrative as many will long for the good old days when anybody could compete in college football and men's basketball. You know, back when Alabama always played Clemson for the national title . . .

*If you think complete parity is in any way desirable in sports, you don't understand sports in the least. Nobody gathers around to watch guys flip coins.

Trust Is a Fragile Fabric

https://en.wikipedia.org/wiki/Bayeux_Tapestry

Of the many, many lessons to be learned from the COVID-19 Pandemic, one that stands out to me is how important honest communication is. Honesty is a bedrock of trust. Trust is an essential quality for a thriving society.

While fear can enable a society to survive, it takes trust to allow it to flourish. Largely we are only surviving the most recent pandemic. There are many reasons for this from poor understanding and application of science to isolationist responses regarding testing and vaccination driven by nationalist pride (distrust!) to blatant failure to test to failure to properly quarantine to failure to experiment and on and on. Granted that many of these failures came about because we were starting from a poor state of trust, we did not do much to improve the arrangement. In fact we set it back meaningfully along the way.

Suppose we get another pandemic (we will, just wait). Suppose further that it is similar to COVID in terms of virulence and contagion. Perhaps it is dissimilar enough that we have a caught-off-guard type of reaction thus making it even more similar to COVID. But we do remember COVID, so we actually do have some improvements in societal and government response. For example, some communities, large business firms, perhaps the federal government wants to conduct wipe-spread, rapid testing. What might stand in the way of that policy being well received and complied with?

The people that would need to be getting tested would need strong assurance that a positive test would be met with reasonable consequences. What about our response to COVID would give them that assurance? Although people would definitely want to know if they were infected all else equal, pushing back against this desire would be multiple, reasonable concerns. Namely, that they would be subject to harsh treatment if positive (social stigma, rough or indefinite or otherwise undesirable detention, etc.) and perhaps more reasonably that they would be subject to involuntary quarantine, lockdown, social stigma, etc. even if they tested negative. 

Compounding this would be a distrust that they were getting the full story. Vaccination acceptance still suffers from the horrible Tuskegee Study crime. To a lesser degree dismissive elite responses to those with concerns about vaccination, as unfounded as those may be, also deters people from trusting authorities on vaccines. Being told masks are worthless and then that masks were essential sent a clear message--don't trust the authorities. This was one of many noble lies, a short-sighted concept that completely fails to ask the essential question: And then what?

The Chinese government lied to the world at the early stages of the pandemic. They have characteristically been very deceptive as the pandemic has unfolded including apparently not cooperating with the investigation of a lab leak cause. We should expect and demand better from our authorities. In the long run people respect the concept of 'we don't know' especially when coupled with transparent, honest, and updating 'here is what we are thinking'. The 'And then what?' from this approach is productive responsibility and fruitful experimentation. 

Most Charity is a Failure

I know you want to do good, and I know you want to think that wanting to do good combined with doing something results in doing good. Unfortunately, you are very likely and in most cases completely wrong. 

I suspect that most people will either reflexively disagree with and disregard my position on this or accept it at face value as a necessary consequence of human social failure. I also suspect that most people who have extensively studied this area as well as most people deeply involved in this realm will either strongly agree or disagree with me. 

For this post I imagine each of these four constituencies as potential audiences. 

First of all understand that charity isn’t always about doing good as Robin Hanson would tell us. Often it is a bundled good which combines a desire to dream altruistically and be recognized as altruistic with little connection to outcomes.

Second of all note that government action (i.e., forced collective action) is usually worse in all regards. At the very least with a failed charity we can more easily delude ourselves that what we are doing is on net beneficial and not resource or happiness destructive. And then there is the side benefit that we did it basically through voluntary agreement and persuasion rather than the threat of ultimately deadly force. 

Third of all let us distinguish between charity and other not-for-profits.* A charity is looking to benefit an underserved beneficiary. There are other not-for-profits that are actually just tax-favored gifts to one's own hobbies and personal enjoyments. The focus of this post is charities as commonly understood.

The problem with not-for-profits in general is that they are responsive to donors rather than customers as Arnold Kling elaborates. 

Donors and customers both have desires they want met. To understand if they are satisfied the donor is presented the answer while the customer largely gets to judge for himself. The marketing to donors strongly tends to be aspirational and promise-based whereas customers have to consider the actual outcome and experience. Additionally, donors have two biases at play further constraining their willingness and ability to be critical: selection bias (they already are supportive of the cause ex ante) and confirmation/endowment bias (they want to believe they made good choices).

Sam Harris makes great points in this podcast like how charities don’t stop existing often enough—they can be failing or have completely succeeded but they still are in operation, which implies they are wasting resources.

Just like in the fine art market where no participant has a strong reason to discover much less publicize a forgery and does have powerful incentives to suppress such information, participants in the not-for-profit sector are incentivized to self-promote and cross-promote the whole edifice as being successful. 

The challenge for charities are the classic problems of the seen versus the unseen, moral hazard, conflicts of interest, and the law of unintended consequences. 

This TED talk on African orphanages has elements of all four problems. 

ProPublica has been reporting for years on the failings of the American Red Cross.

TOMS Shoes has faced forceful criticism about its charitable program of donating a pair of shoes to a poor child for each pair of shoes purchased. In a rare case of reversal TOMS now donates 1/3 of its profits directly to "grassroots" efforts. This may be much better than their prior famous-cum-infamous program that had the unintended consequence of displacing development in poor countries. 

New York not-for-profit hospitals asking their patients for donations makes one wonder just how not-for-profit they really are. 

There are unintended consequences for heartwarming charities like Make-A-Wish, et al. When resources are directed to one thing, they cannot also be used in any other area. There are always tradeoffs.

Add to the classic problems listed above the simple element that good intentions are not sufficient for successful solutions. Case in point would be food drives where the obvious need is not the obvious solution.

It is possible to bring strong doubt to the ultimate value of any charitable organization. The fact is most do not stand up to scrutiny.

Yet we want to do good; so what is a good doer to do?

I am a weak proponent of effective altruism. It is a way to distinguish between what works and what does not. To quote admirable, strong effective altruism advocate Peter Singer, "Effective altruism is based on a very simple idea: we should do the most good we can." He goes on to explain:

Effective altruism is notable from several perspectives. First, and most important, it is making a difference to the world. Philanthropy is a very large industry. In the United States alone there are almost one million charities, receiving a total of approximately $200 billion a year, with an additional $100 billion going to religious congregations. A small number of these charities are outright frauds, but a much bigger problem is that very few of them are sufficiently transparent to allow donors to judge whether they are really doing good. Most of that $200 billion is given on the basis of emotional responses to images of the people, animals, or forests that the charity is helping. Effective altruism seeks to change that by providing incentives for charities to demonstrate their effectiveness. Already the movement is directing tens of millions of dollars to charities that are effectively reducing the suffering and death caused by extreme poverty.

Second, effective altruism is a way of giving meaning to our own lives and finding fulfillment in what we do. Many effective altruists say that in doing good, they feel good. Effective altruists directly benefit others, but indirectly they often benefit themselves.

Third, effective altruism sheds new light on an old philosophical and psychological question: Are we fundamentally driven by our innate needs and emotional responses, with our rational capacities doing little more than laying a justificatory veneer over actions that were already determined before we even started reasoning about what to do? Or can reason play a crucial role in determining how we live? What is it that drives some of us to look beyond our own interests and the interests of those we love to the interests of strangers, future generations, and animals?

Finally, the emergence of effective altruism and the evident enthusiasm and intelligence with which many millennials at the outset of their careers are embracing it offer grounds for optimism about our future.

It would be nice to have a roadmap and a good introductory guide. Given all of this, effective altruism seems like the way to go. So, why am I only a weak proponent?

Well, it turns out the world and its problems aren't quite so simple. Consider Peter Singer's famous thought experiment on the drowning child from his book The Life You Can Save (taken here from a Vox interview):

Imagine you’re walking across a park. Somewhere in that park there’s a pond. You know the pond is quite shallow, but you see something splashing in the pond. When you look closer, you’re shocked to find that it’s a small child who seems to have fallen into the pond and is flailing around because it’s too deep for this small child to stand. So, you look around for the parents or the babysitter, but there’s nobody. There seems to be only you and the child. Your next thought is, I better run down to the pond, jump into the pond, and grab the child. Not hard to do. No risk to me because the pond is shallow.

But then it does occur to you that [saving the child] is going to ruin your most expensive shoes. You’ll be up for some hundreds of dollars to replace them and other clothes you might ruin. So, you think, why shouldn’t I just walk away and not have to go to the expense of replacing my shoes? Now the question for everybody is: If somebody did that, would you think that was really the wrong thing to do? Would you think that you had done something seriously wrong in leaving the child very probably to drown? Most of the people who I ask this of say that would be an awful thing to do — it would be terrible to allow a child to drown because you didn’t want to go to the expense of buying new shoes, even if they were expensive ones.

The point of the thought experiment is to then switch to the situation that we really are in. We live in an affluent society where we often have considerably more than we need to meet all our basic needs, enjoy life, and make reasonable provision for the future. We also are living in a world in which there are millions of children who die each year from preventable causes and there are effective organizations that would gladly accept a donation from you that would increase their ability to save some of these children. So, if you’re not helping to save some of these children, then are you really all that different from the person who walks past the child in the pond?

This is a compelling story and a powerful argument in an of itself. However, there is something bigger going on here. Why is this child drowning? As an analogy for children suffering, dying in fact, on a daily basis, where are the parents? Why are these children dying when they could so easily be saved? Why are they repeatedly falling into the pond to drown? The deeper question becomes what is the institutional, societal, cultural failure that has brought this about. 

Effective altruism has a blind spot. It does not do much more to seek to correct the underlying causes of problems than do all the other naïve approaches to charity. It may have a better rate of attaching bandages to wounds, but they are still just bandages. 

Perhaps that is too uncharitable. I don't mean it to be so harsh. Yet the fact remains too often organizations that pass the effective altruism test are not addressing underlying causes of problems. 

I like Agnus Deaton's response:

It is an illusion that lives can be bought like cars. For a start, the evidence is nearly always in dispute. The alleged effectiveness of the Deworm the World Initiative—which, at the time of this writing, ranked fourth in GiveWell’s list of top charities—runs contrary to the latest extensive review of the evidence by the Cochrane Collaboration, an organization that compiles medical research data. Maybe Cochrane is wrong, but it is more likely that the effectiveness of deworming varies from place to place depending, among many other things, on climate and on local arrangements for disposing of human waste.

More broadly, the evidence for development effectiveness, for “what works,” mostly comes from the recent wave of randomized experiments, usually done by rich people from the rich world on poor people in the poor world, from which the price lists for children’s lives are constructed. How can those experiments be wrong? Because they consider only the immediate effects of the interventions, not the contexts in which they are set. Nor, most importantly, can they say anything about the wide-ranging unintended consequences.

However counterintuitive it may seem, children are not dying for the lack of a few thousand dollars to keep them alive. If it were so simple, the world would already be a much better place. Development is neither a financial nor a technical problem but a political problem, and the aid industry often makes the politics worse. The dedicated people who risked their lives to help in the recent Ebola epidemic discovered what had been long known: lack of money is not killing people. The true villains are the chronically disorganized and underfunded health care systems about which governments care little, along with well-founded distrust of those governments and foreigners, even when their advice is correct.

I consider effective altruism as a second-best solution. What would the first best be? Something as unpalatable to most as it is highly effective: economic growth through a pro-business environment that embraces free trade of all kinds and open borders in all places. 

Production vastly outworks charity. That is the way to escape poverty of all dimensions. 

It is a big world with complex and complicated problems. There is a role and a need for charity. Part of that is the moral and spiritual benefit bestowed upon the giver. Part of that is the actual good delivered to the beneficiary. 

We should strive for charity that is effective and efficient--that accomplishes the goal and does so without an unnecessary use of resources. A very big part of that is properly defining the goals long before and continually as we evaluate the options, analyze the progress, and retire the accomplished. 

The natural state of man is abject poverty. Charity does not and cannot solve that. Charity is funded from production to smooth out that which production illuminates as a temporary and undesirable shortcoming. Put another way: Charity fills the gaps we can at least hope to fill by virtue of production until production can eliminate them altogether. 

P.S. Alternatively, perhaps you're interested in ineffective altruism?

*In the debate between the terms 'not-for-profit' and 'nonprofit' I think I believe nonprofit (or non-profit) is the worse term as all entities earn profits, or at least they should. The critical distinction is what the entity can do with the profits earned and if profit is the ultimate goal.  A for-profit firm is and should be ultimately concerned with maximizing profit (we can litigate another day how Milton Friedman was completely right on this). A not-for-profit is not primarily driven to generate or maximize profit. It is driven to achieve outcomes but do so in an efficient manner (not destroy more resources than it creates). Being nonprofitable is prima facie bad since that organization is more explicitly in the pursuit of achieving particular outcomes without doing so profitably. 

You May Not Always Believe in Incentives, but Incentives ...

... believe in you.

Progressives are not hesitant to believe that McDonald's, for example, induces consumers to eat at McDonald's. They in fact will in many cases paint a picture whereby McDonald's is insidiously using some kind of mind-control secret sauce to force people to buy and eat lots more of its food than they would otherwise want to. 

What's more progressives tend to believe that many people can't or won't decide for themselves how best to choose something as important as education for their children--especially in a voucher/school choice system that funds students rather than systems. If left up to "them" (so the narrative goes), they would opt for a choice that benefited the parent even if it harmed the child. 

It seems that progressives believe many or most people are bad at making good choices for themselves and easily influenced by convenient temptations. Their worry often is that people will be hapless victims to manipulation in opposition to their own actual long-term interest. 

So why is it so hard for progressives to believe that government programs invite moral hazard and incite poor behavior and bad long-term choices? How is it that they can with a straight face claim unemployment benefits do not impede job search and acceptance? 

Megan McArdle illuminates the problem quite plainly. This is not a new problem with regard to unemployment benefits nor is it unique to it. There are many examples of this phenomenon. We saw the same obstinance the last time unemployment benefits were interfering with economic recovery. Progressives pushed back emotionally and strongly against arguments and evidence like that from Casey Mulligan.

It is as if progressives are not entirely consistent when it comes to believing in the power of incentives.

P.S. Veronique de Rugy was ahead of this problem over a year ago developing a straightforward and MUCH better method for unemployment insurance. From the linked piece:

Personal unemployment insurance savings accounts (PISAs) are designed to maintain a financial incentive to return to work as soon as possible. These accounts are individually owned by workers who, during spells of unemployment, can make orderly withdrawals to partially compensate for the loss to their income but can keep and build the balance during their regular times of employment. At the time of retirement, workers can use the balance in these accounts to bolster their retirement income or transfer to their heirs.

The incentive for workers to return to work is as strong as their desire to keep their own savings for retirement. It is thus a solution that solves the double bind of providing insurance and keeping strong incentives to return to work.

The Seductive Allure of Socialism

The more local something is the more essentially socialistic it becomes. I think the best way to describe this is that size/complexity has a positive relationship with the net benefits of the market (free market principles and market incentives, etc.) while size/complexity has a inverse relationship with the net benefits of socialism (yes, there are benefits). Simply put: the bigger or more complex something is, the more you want/need markets and not central planning to do the heavy lifting.

Intelligent people recognize that they know things and understand how to solve problems much better than most other people. They see this in action locally where it works or seems to at least. Thus, their belief is reinforced. This leads them down a bad path to an unreasonable conclusion that they can guide the world.

Keep in mind that what distinguishes a person as being "intelligent" can be local knowledge rather than pure IQ. Therefore, a local shop keeper may be orders of magnitude more intelligent about running her shop than would be a team of McKinsey consultants. 

Art Carden gives a model, salient version of this. For example, consider the family, the firm, and especially small and midsize towns. The local banking relationship in these places illustrates this nicely. 

The key skill of a banker today is not financial acumen. It was once upon a time at least to the degree of assessing credit risk. But large firms, algorithmic models, and risk spreading have largely supplanted that need. It is still important--vitally important for the bank itself--but it is not primarily dependent on the skill of individual banker. I believe financial risk assessment is a quality of secondary importance.

Rather the key skill of a banker today is relationship building. That is what makes a great banker. Hence, bankers are deeply involved in their communities. Again, this is not new, but it is now the primary attribute rather than a secondary one as it was in decades past.

It is strange then that a bank and its bankers, the stereotypical image of a capitalist (think of the board game Monopoly) are in fact the leading proponents of a road to local socialism. 

Here is how it unintentionally works. First, bankers are deeply interested in current customers' wellbeing and credit soundness. They have made loans, and they want them paid back. Second, they want to make future loans. These same customers would be the easy way to accomplish that goal. This gives them an all-too human impulse to favor the known and familiar as opposed to the new and (perceived) extra risky. 

Certainly bankers are interested in growth and new development. It is just that the unseen has a built-in bias against it. 

How is this a slippery road to socialism? I am not proposing that it formally leads to socialism, but it is central planning friendly. Most directly it runs the same risks of all central planning whether at the household, firm, or governmental level: decisions are made that suffer from the knowledge problem and are subject to the local maximum problem. 

Bankers are deeply imbedded within their communities for good reason: they want the business relationships and they want to stay close to the credit--all the better to monitor the risk. Yet this presents a sort of capture risk similar to formal regulatory capture. The bankers can easily be persuaded to support their customers' desires at the expense of their customers' competition. 

P.S. When I was in college I had a righteous disdain for kids wearing Che Guevara t-shirts, etc. They were "old enough" to know better. As the great P.J. O'Rourke explains, that is no longer true of kids these days, who are now the same ages as those who I rebuked back in the day.

P.P.S. Iain Murray's The Socialist Temptation explores this topic in depth. For a good discussion on it I recommend this recent episode of Jonah Goldberg's The Remnant. 

See this for more on the source for the above image and related story.

The Local Maximum Problem

Ever since being introduced to this concept, I’ve been intrigued by it and see examples of it more and more throughout life, business, and public policy. This is the problem that occurs when people get stuck in a situation that is the best near-term or near-possible outcome but is not the best possible yet reasonable long-term outcome. 

The analogy is to imagine four people playing a game that has them blindfolded and linked arm-in-arm in a square configuration. Each member of this team is responsible for one of the cardinal directions (north, south, east, and west). Their goal is to locate the highest point possible. They experiment by taking steps to see if a step in that direction is up or down. If the step is down, they don’t take it. If the step is up, they take it. They keep walking until none of the four can make a step that is in the upward direction. This point is the conclusion of their game by reaching the local maximum. However it is most likely not the highest point on the surface where they’re walking. They just can’t reach (or detect) a higher point by virtue of their own rules. 

I believe governments are particularly susceptible to this problem. The rewards for experimentation that drive one out of a local maximum are very dispersed or completely irrelevant to those bearing the costs of experimentation. This is more than just people not wanting their cheese moved or having their apple cart disrupted. This is the very legitimate concern that an ambitious idea is going to have significant negative outcomes or the potential rewards will not accrue to those bearing the risk. It is an acute combination of asymmetric risk-reward and principal-agent problems.

The many, many public and private failures in the COVID pandemic are vivid examples. Perhaps the most costly in the United States were the CDC and FDA's insistence on using their own developed testing (staying with the controllable and familiar) and as important if not more so the refusal to allow challenge trials to speed the vaccine development process. Sadly this list goes on and on from "pausing" the Johnson & Johnson vaccine to not approving AstraZeneca's. 

The position those in power have taken are understandable but completely inexcusable. And we have ourselves to blame as these mistakes are just the latest examples of how the FDA works against medical advancement and is a deep net cost to society. 

To be sure individuals, firms, and other organizations are also susceptible to the LMP. Notice, though, the degree to which these entities are somewhat or greatly better structured and incentivized to resist and correct it.  

As a general rule, the more insulated and protected an entity is from competition, the more vulnerable they are to a local maximum. Hence, traditional banks are more vulnerable than are start-up fintech firms. 

To whom a firm or organization is held responsive has strong implications for its fragility to local maximums. As a firm is more responsive to those who reap rewards proportional to risk taken, it will better prevent the LMP. Hence, non-profits (highly responsive to donors rather than customers) are more at risk than are profit-seeking firms (highly responsive to owners and customers). 

Within a firm the dominant force becomes existing and entrenched stakeholders who are in comfortable, conventional positions. Hence, no one in marketing will ever suggest the firm experiment by not running ads. 

The degree to which a person faces public scrutiny or cannot capitalize on public adoration, the more they will rest once finding the local maximum. Hence, a public figure with a lot to lose/little to gain will tend to play it safe. 

Risk bearing requires compensation in the form of return, and this risk-return should be commensurate, symmetrical, and willfully accepted. Those are tough hurdles to achieve. All the more so when we are relying on force rather than persuasion. 

P.S. I believe Arnold Kling deserves credit for introducing me to this concept.

I'm As Mad As Hell, And I'm Not Going To Let You Take This Anymore!

Partial list of difficult, unsavory (to the third-party at least), or troubling situations that third parties commonly attempt to help or "correct" but end up simply harming the people in the situation: 

• sex work
• organ donation
• child labor
• drug addiction and misuse
• pay-day lending
• immigrant smuggling
• sudden, high prices in the midst of emergencies - anti-price gouging laws
• high cost of housing - rent control
• low-productivity worker earnings - minimum wages

Simply trying to correct the situation by enacting prohibitions or strict limitations does not address the true problems, almost always causes significantly more harm than good, and tramples on the freedom and dignity of those the prohibition ostensibly aims to help.

It’s More Than Qualified Immunity

To truly help those suffering from poverty (poverty of justice, poverty of spirit, poverty of options, poverty of opportunity, poverty of consumption, etc.), we have to address all of the constraints and forces that are keeping people from being all that they can be. The police state abuses in general are an important aspect of this, but they are just a single portion of this plague. We must look deeper than these very important issues as they are themselves just symptoms of bigger problems. 

Qualified immunity is one particular, nuanced element in a much larger set of problems. The list of police and policing and prosecution reforms is deep:

1. End qualified immunity
2. End mandatory police unions
3. Require police to obtain individual liability insurance
4. Require body cams
5. End no-knock raids
6. Stop militarizing police
7. Implement substantial bail reform
8. End civil asset forfeiture
9. Reform plea bargaining to limit prosecutorial power
10. Strengthen the public defender process
11. We could go on and on.

But these alone are neither exhaustive nor completely sufficient. Broadly there are three additional major areas of reform that would start to help heal and to eventually enable tremendous growth in the communities that are suffering the most: 

1) Occupational licensure - Make no mistake about it. These are very simply anti-competitive policies to protect incumbents. They hide under the pretext of consumer protection yet operationally they are clearly a producer protection. The result is two groups of victims: the consumer generally and the weakest producers (competitors to the powerful vested interests). There is slow progress on this area, but much more is needed. 

2) Zoning and other forms of development restriction especially in housing - Zoning has racism at its origin. No, that does not imply it is still a racist policy in fact or in law, but it should give us pause in accepting it as innocuous. Zoning is still largely about keeping "them" out. Who "they" are varies. While a charitable reading leaves zoning as a plan to make the best decisions, it rests on a dubious logic that we can plan the future and government knows best. Housing unaffordability is a major obstacle to upward mobility for those in poverty (of all kinds). Barriers to opportunity are not a solution.

3) Most importantly the senseless, unjustifiable, and evil drug war - The drug war's biggest victims are those in the weakest position to fight back. Leave aside whether we have the right to punish people for doing things we wish they wouldn't but that otherwise only harm themselves. Leave aside the intentions of those who have promoted it. Prohibition does not work . . . no, it is worse than that. It very greatly harms. It must end if we are to build a world of justice and opportunity.

The Age of Fear

We live in an era characterized by fear as a dominating narrative and influence. The beginning of this era can be formally dated to September 11, 2001, but it began developing years prior. It continued and strengthened with the Great Recession. The fear of inequality drove both the Tea Party and Occupy movements. No proposed public policy solution escapes this phenomenon.  The Patriot Act, Sarbanes Oxley, the Affordable Care Act, Dodd-Frank, Trump's immigration actions and policies, are but some of the most notable examples. The Fed along with the macroeconomics profession and finance upper echelons has so feared inflation that we regularly get stagnant and slow recoveries.

At each turn we increasingly choose safety and security over the obvious risk and potential opportunity. Insurance in all forms is overvalued and desired especially at the expense of someone else. Bastiat's apt observation that "The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else" has evolved into the state as the fictitious entity whereby everyone's risk is absorbed and destroyed at the expense of no one.

Now COVID-19 dominates our decision making. And the opportunists are always there to fulfill their portion of the bootleggers and Baptists story. 

Tyler Cowen has seen this developing for some time. We are not the little engine that could. Where are the people not just chanting but demanding that "the show MUST go on"? 

I am not arguing that fear and risk should be ignored. And it is not lost on me that our growing wealth and well being has dramatically changed the risk calculus for society--this is a good thing. But all risk analysis must be properly constructed, weighted, and continually reconsidered. Otherwise, costly errors will occur and compound.

As always, the future belongs to those willing and able to take and bear risk.