Another Blind Spot of Neo-Classical Economics

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Neo-Classical economics attempts to add a layer of scientific rigor to a subset of the social science that has had a long history of utilizing verbal reasoning and observation as focal points of its methodology. While the modern-day intellectual progeny of  Alfred Marshall may enthusiastically advocate for the treatment of economics as a near-hard science, that does not mean there aren’t any detractors. The Austrian School of economics has been resolute in their longstanding criticism of Neo-classical methodology. It stands to reason that controlled models cannot perfectly mimic the dynamic conditions of economic exchange. Alone by holding the assumption of ceteris paribus economic models fails to accurately reflect realistic conditions. The cadence of bustling bazaar in Casablanca represents the ever-changing ebbs-and-flows of a complex system. A collective ecosystem of trade was a few variables that remain constant. Except for the informal norms of commerce and the locally enforced laws. Anything else cannot be predicted with absolute certainty and is subject to approximate in the face of uncertainty. Even an oversimplification in the form of an economic model cannot lead us toward any definite predictions. Rather provide us with a two-dimensional silver of the truth.

In chapter three of economist Robert Higgs’s seminal book Crisis and Leviathan delivers quite the blow to Neo-Classical methodology in the analysis of political ideology. In this chapter, Dr. Higgs strives to provide a framework for interpreting ideology and how it relates to the growth of government. Higgs particularly scrutinizes Mancur Olson (while a New Institutional Economist, he was very influential in the development of Public Choice Theory). Olson touches upon the free-rider issue of collective political action. The efforts put forth by one individual actor are relatively inconsequential when compared to the actions of the group. Higgs provides the example of an organized band of political activists writing to a congress about a specific issue. Odds are the elected official will respond similarly regardless of receiving one or hundreds of letters from these mobilized citizens.  A similar analogy can be made towards voting. The vote cast by an individual voter is merely a drop in the bucket (p.39).

From the standpoint of rudimentary economic calculations and reason, it would be rational to question if it is worthwhile to contribute to this political cause in any capacity. Any “collective-goods” spawned from political activism can be enjoyed with relatively little cost to most constituents (p.40). Making it irrational to be anything but a free-rider (p.40). Leading us to Olson’s Iron Law of Collective inaction. Per Higgs, there were only two exceptions to Olson’s law. These exceptions include the provision of an excludable incentive for participation and are coerced into directing efforts towards the collective good (p.40). Per Olson’s analysis anything outside of these two contingencies would not entice actors to avoid the spoils of being a passive advocate.

Olson commits some of the perennial sins that mar Neo-Classical analysis. The span of variables that can be plotted on a utility function provides us with a provincial view of all that can encompass an individual’s perception of well-being (p.41). Reducing all of the human desires into an oversimplification. Embodied in homo economicus the theoretical economic agent in all models. Who is oblivious to social graces and the finer nuances of the human condition (p.41). In terms of the political-economic analysis of the growth of government if the unquantifiable element of ideology would need to be linked to the utility function (p.41). There are purely qualitative motivations that guide our behavior that is not necessarily “rational” in the economic sense. We seek a group association. We tend to enjoy the epicurean delights a sitting outside with a glass of wine and watching the sunset over Cascade Lakes in the light breeze of the summer evening. Indulging our tastes for aesthetics and luxury. From the lofty vantage point of linear production models or the assumption of rational consumption cannot provide a complete explanation.

Ideology provides such a degree of satisfaction that cannot be forced into the mold of cardinal units for quantifiable analysis. Higgs mentions the characteristics of “solidarity” and “identity” being satisfied by ideological association (p.42). Referencing Russell Hardin’s example of young men during World War II joining the military. They made this tradeoff in a manner that would be concluded as irrational from the reasoning of Neo-Classical economics. Due to all of their cohorts joining the armed services and being deployed for combat in foreign theaters, making military service “.. the most important experience of their generation..” (p.42). Immortalizing the stoic image of the “silent generation’s” unwavering commitment to the war effort. Elements of group identity and social pressure which are conspicuous realities of political group membership are glossed over by dispensing of qualitative analysis.

Robert Higgs dives even further into the depths of group identity and ideology. Political party members and activists from communities of “like-minded” individuals. Through adhering to group norms and values they obtain “invisible membership cards” (p.42). For instance, even though gun owners are mostly like a subgroup of either Conservative or Libertarians, they tend to have their microcosm in the political sphere. Some individuals are one-issue voters, meaning they may not necessarily conform to either assumed right-wing ideology. However, the one issue voting gun enthusiast will be happy bedfellows with other pro-gun lateral Second-Amendment friendly camps. There are certain indicators of the group identity of gun advocates. They may be wearing an NRA t-shirt. Sporting tattoos depicting the phrase Molon Labe.  Even having witty bumper stickers denouncing gun control on the back of their cars and trucks. Typically, members of this political identity are well versed in the inner-mechanics of fire-arms. Also, surprisingly knowledgeable regarding local and federal gun laws. There are qualitative characteristics that define ideological groups and subgroups. These commonalities at times can present pressures towards conformity. On the flip side, they also foster a sense of community, bond, and camaraderie.  All are variable generally absent from the analysis of a  hard-nosed economist hell-bent on reducing all phenomena to quantifiable graphs and regressions. Endearing terms used to refer to in-group members such as Christians calling each other “brother” and Communists shaking hands with their “comrades” is lost in the mix (p.43).   

Is Fractional Reserve Banking Ethical Part V: Conclusion and Compromise

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Introduction:

The debate over whether Fractional Reserve Banking is ethical to proceed over approximately a decade (the late 1980s/ early 1990s to the early 2000s). Resulting from subsequent papers repudiating the previous claims over the researchers on the other side of the issue. It should be noted that in these series of retaliatory papers that technical arguments were presented in tandem with ethical justifications for or against this practice. For the sake of brevity, I chose to focus on the ethical considerations of the topic. However, this does not exclude a potential technical comparison of Fractional Reserve Banking in the future. 

To any reader who has never thoroughly examined nor given a second thought to Fractional Reserve Banking, I hope reading this series of essays was illuminating. Fractional Reserve Banking is arguably the most prevalent banking system globally. Yet, something that impacts our lives daily we never think to question its inner mechanics let alone whether it is ethical. The ethics of banking extend beyond whether the patrons are benefiting at the expense of someone else, either through easy access to loans or interest payment on savings. There are potential ramifications to the economy. 

Distortions in the credit market are precisely the impetus for business cycle calamities such as the cataclysmic burst of the Housing Bubble in 2007. Providing loans backed up by fiduciary media is nothing more than a house of cards waiting to fall done. Artificially manipulating factors such as prices, interests, and money supply can only facilitate the misallocation of resources. Such indicators operate as unspoken signals to consumers and entrepreneurs. Due to this fact, these distortions create an illusory image of the loan market and naturally economic agents respond accordingly (p.108). A fact that both George Selgin and Lawrence White are too quick to refute and dismiss (p.102). This carries the implications of defrauding the economy as a whole versus being isolated to the bank’s customers. Even if you are the type to limit all your transactions to precious metals or cryptocurrency, it is worthwhile to read up on this topic.

Summary of Compelling Arguments From the Austrian School:

It is difficult to say whether the Free-Bankers or the Austrians are on the right side of the debate. Both camps provided some truly convincing arguments. The Austrian opposition notes how ownership can only legitimately be taken on by one person and Fractional Reserve Bank obfuscates this immutable law of property ownership. From a contractual standpoint, that the agreements between banks and clients in such an argument are illegitimate. Since the terms are not only unclear to the typical layman but are a categorical misrepresentation. Presenting fiduciary media as actual money. The disingenuous nature of this faulty contract is only compounded by the fact that these claims for money are based upon the banknotes that are not back by currency or specie. Attempting to redeem them for actual currency is analogous to using a deed for a boat and attempt to claim ownership of a house. Also that it is a false analogy to argue that any devaluation of present money caused by the issue of fiduciary media is no different than an increase in the supply of a good due to protection or harvesting. 

This is because the increase in the supply of lumber from harvesting more oak trees is derived from legitimate market processes and in-turn does not seek to directly devalue anyone else’s property. Also, that in no way can Fractional Reserve Banking represent the Demonstrated preference of bank clients. Demonstrated preference can only be expressed with one’s property. Fractional Reserve Banking by its very nature disrupts this relationship.

Summary of Compelling Free-Banking Arguments:

The Free-Bankers also bring up some compelling moral defenses in favor of Fractional Reserve Banking. They are even bold enough to directly claim the practice is not fraudulent. Through a banking client electing to accept the terms of service regardless of their understanding, the contract is still valid. It would be one thing if these banks purported to practice 100 percent reserve banking, but function as a Fractional Reserve institution. These contracts are formulated between consenting adults, it would be antithetical to the principle of individual freedom to prohibit such arrangements. The real trouble comes from government interference. One only needs to look at the large array of protections awarded to backs through the FDCI to see the true culprit in shielding unsavory banking practices from insolvency or litigation. Also, the ignorance or the naiveté of the consumer is not a reasonable justification for banning a product or service. Even though the risk of a bank run is present, it is a relatively rare occurrence from a historical standpoint. If faced with a potential bank run the bank can issue an option clause suspending redemption, solving the issue through valid contractual recourse. Speaking of redeeming bank deposits. A customer assumes the risk of not being able to redeem money when they agree to open an FRB account. They assume the risk. In turn, for the opportunity cost of having their liquid money held and the potential risk of a bank run/ insolvency, they receive an interest payment. Overall, patrons must prefer Fractional Reserve systems to 100 percent reserve banking. There have never been any governmental decrees in modern history that all banking must be done via a Fractional Reserve System. Despite its flaws, ultimately, the people prefer being paid interest payments versus having to pay warehousing fees.

Can There Be a Compromise?

There are certain aspects of both arguments that appear to be flawed. The Free-Bankers are too lackadaisical when it comes to distortions in the credit structure enabled by Fractional Reserve Banking. The Austrians to some extent seem too rigid in their interpretation of property ownership. Under many of their arguments likening the practice to a Ponzi scheme. Yet, to be conceptually consistent would not these same economists also take issue with multi-level-marketing? Then again it could also be counter-argued that MLM schemes and Fractional Reserve Banking while present similar confusions, property rights have much greater degree clarity in MLM arraignments.

Back in 2000, the economist Jorg Guido Hulsmann wrote an article in the Independent Review refuting the Fractional Reserve practice of creating “money”. Hulsmann (see page 108) much like his anarcho-capitalist counterparts Hoppe and Block are opposed to government intervention. If FRB is morally and technically flawed how can we address the issue of it short-comings without introducing state involvement? In this twenty-year-old article, Hulsmann presents a summary of points previously made by Hoppe and Block that would alleviate some of the issues relating to the categorical confusion. It should be noted that Hulsmann in that these suggestions for informal rules and norms of banking presume no state involvement in banking. Also, the author details the intimate relationship between the FRB and the government. Going so far as to refer to it as a “handmaiden” of government (p.108). Making it easy to infer that Hulsmann believes that the intertangled marriage between Fractional Reserve Banking and government is an unbreakable bond. However, let’s take these suggested conditions as theoretical and contingent upon a banking system free of regulation. See his suggestions below:

“…Fractional reserve banks would have to use a different language than they commonly use because words such as “deposit” are deceptive. They would have to make it clear that money “deposited” with them is, in fact, a credit of unspecified duration. And the “banknotes” they issue would have to be presented not as money titles but as some sort of very liquid IOUs..”

            “..On the “FR notes,” one would have to find a promissory note of the following type:

 The FR Bank promises the holder of this note to try to redeem it out of its gold reserves. Because FR notes are not 100 percent covered by gold presently in our bank, in case we cannot redeem, the following rules apply. . . .  (p.108)”

Is Fractional Reserve Banking Ethical -Part IV: The Defense of Fractional Reserve Banking

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Part I: Click here.

Part II: Click here.

Part III: Click here.

It is quite clear at this point that followers of Austrian economics view Fractional Reserve Banking as nothing more than a Ponzi Scheme. However, proponents of the Free Banking School (arguably an outgrowth of the Austrian School) believe that this practice is legitimate providing there isn’t any government interference in banking. Even the uninitiated observer will admit that this contingency is a highly unrealistic one. In the modern era, banking continues to be a heavily regulated industry. Free Bankers may have a relatively cogent ethical argument from a theoretical standpoint. After all, it is the responsibility of a mentally competent adult to be aware of the terms of service for any product or service they choose to receive. Ignoring the fine is not an exculpatory factor. Either from a legal standpoint or from an ethical perspective. Also, to be conceptually consistent one should scrutinize multi-level marketing schemes. Such a business model mirrors similarities to Fractional Reserve Banking. Hence why opponents liken it to a Ponzi scheme or pyramid scam.

Argument #1: It Isn’t Fraud.

From the Free Banking perspective, Fractional Reserve Banking is not a fraud. If the banking establishment makes it clear that the services provided constitute Fractional Reserve Banking, then the arrangement is legitimate. This is because the terms of the contract were not violated (p. 87). It would be problematic to present your services as 100 percent reserve banking if it encompasses the practices of the Fractional Reserve System. Fraud would entail a misrepresentation of the bank’s services. 

Taking any measures to prohibit this system of banking is antithetical to the principle of individual freedom. Any such interference would  be obstructing an existing contract between consenting parties. Doing nothing more than disturbing the economic liberty of freedom of contract, which is a pillar of private property rights (p. 87). Individuals who oppose the practice find the freedom of contract argument to be farfetched as few patrons have a firm comprehension of what Fractional Reserve banking entails (p. 88). The naivete of the consumer does not sully the legitimacy of the arrangement. Even Murray Rothbard himself has stated that historically banks have rarely retained a 100 percent reserve system (p.88). Why? Most likely because the banks clients preferred a Fractional Reserve system. If customers prefer an interest payment on their savings versus a maintenance fee for warehousing, so be it (p.88). The market for banking services has responded accordingly.

Circling back to the issue of misrepresentation of services, even the hardline naysayers believe that such a banking system could be admissible under certain conditions. Most notably if there was the further elucidation of the specific details of fractional reserve services. A long-standing concern of economists such as Hans Hermann Hoppe and Walter Block being that such ambiguity makes the practice fraudulent. Creates categorical confusions between money and fiduciary media (p.20-28). Professor Block asserts that the redemption requirements need to be clarified to set aside the concerns of fraud (p. 89). Whereas Block’s counterpart Hoppe stresses that banking institutions should present a warning regarding the suspension of redemption. He analogizes this precautionary courtesy to an option clause. Unfortunately, this concern does not comport with the facts of history. As is evident by the Scottish period of Free-Banking in which specie payment was suspended for decades (p. 89-90).

Another argument that grapples with the question of whether FRB is fraudulent pertains to the ability of the banks to fulfill redemption obligations. Keeping low percentages of reserves on hand turns money redemption into a gamble. However, this concern is inconsequential. Historically even in the absence of government intervention few banks have failed to fulfill any redemption obligations to patrons (p.90). For one, solvent banks are not prone to bank runs. Even in the event, a solvent bank runs out of currency, they can issue an option clause to temporarily suspending redemption. Resolving the issue through contractual channels (p. 91).

Argument #2- The Concerns Over Third-Party Effects Are Not Substantial

The most salient third-party effect or “spill-over effect” confronting the practice of Fractional Reserve Banking is a decreased likelihood of successful redemption. Obviously, in a Fractional Reserve Banking system, the more money that is lent out the fewer reserves the bank will have on-hand. Resulting in adverse consequences for the individual demanding to withdraw money from their account. It should be noted that the depositor agrees to this argument upon opening a bank account. Therefore, by signing on the dotted line of the terms and services of the bank, they choose to assume the risk (p. 93). Despite the risks, bank patrons continue to bank with these institutions. Alone based upon the Rothbardian theory of Demonstrated Preference the individual bankers must benefit from this arrangement. After weighing the benefits concerning the costs (p.93). 

The spill-over effects of Fractional Reserve Banking are not solely confined to banking transactions. The practice has also been claimed to create other distortions throughout the economy. Through how loans are funded it compromises some say the credit structure is compromised. It should be noted that the risks are somewhat minimal. If anything it aides the economy by providing a larger stock of capital (p.94). The issue with this criticism is that much of the instability in the economy comes from the intervention of central banks and governments and not Fractional Reserve Banking. This form of banking is not prone to instability or “cylindrical over-expansion”(p.94). These claims underestimate the fact that the amount of “nominal money” issued offsets the “.. changes in the velocity of money..”. Fractional Reserve banking works to alleviate the disequilibrium and “ business cycle consequences”. Hoppe and the company also assert that any injection of fiduciary media will ultimately result in a business cycle. However, if the increase in fiduciary media is matched by demand a disequilibrium will not arise (p.101-103).

Argument #3: The Popularity of Fractional Reserve Banking.

The popularity of Fractional Reserve Banking is another factor to contend with. Banking customers have demonstrated their preference for FRB. Historically, few banks have remained a 100 percent reserve system. However, customers continued to do business with these institutions (p.95). Contributing to this popularity has been the incentive of banks paying interest on deposits versus requiring a warehousing fee (p.95). Banking patrons also held faith that their bank had sufficient funds to fulfill withdrawal demands. Bank runs were generally triggered by other factors signally insolvency to bank clients. Countries such as the United States with greater propensities towards bank insolvency tend to have many protective laws shielding the banks from market pressures (p.95-96). It should also be noted that back in the 1800s when banking legislation was being discussed in the press the banking system was openly described as a fractional reserve system (p.96). Not only fully informing the average constituent of the details of the Fractional Reserve system, even with this knowledge doing little to dampen its prevalence (p.96).

The use of Fractional Reserve Banking has never been compulsory. There has never been any laws or penalties compelling banking in the United States to levitate towards this specific banking system (p.97). Patrons voluntarily assume the risk of engaging in this variety of banking for the trade-off of being rewarded with an interest payment (p.97). The argument that clients are unwittingly tricked into patronizing an illusory form of banking is dismantled by the fact that banks compete for business. Nothing is stopping an enterprising individual from persuasively selling 100 percent reserve services (p.97).

Do We Need Laws to Force Us to Wear Masks?

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Ever since the number of COVID-19 cases began to grow in the United States the debate over whether to mandate wearing masks in public has raged on. Frequently devolving into a debate over political ideology rather than a discourse based on hard science. Naturally, those who believe mask-wearing to be an effective precaution against spreading the virus favor compulsory laws enforcing this practice in public. However, could it be possible that people still opt to take precautionary measures even in the absence of fine or other penalties? Better yet, couldn’t owners of private institutions such as stores, restaurants, and entertainment venues implement their preventive measures as conditions of patronizing their establishment? After all, the incentives are present to want to avoid any unnecessary risks and to keep their customers healthy to ensure a steady stream of business in these uncertain times.

In the state of Arizona, the issue of mask-wearing mandates has been left up to the local governments.  Most municipalities have opted to require masks while occupying indoor venues at the risk of facing a hefty fine. Back in June the city of Phoenix purposed a $250.00 for individuals repeatedly refusing to wear a mask. The suburb of Chandler, Arizona imposes a fine of $100.00 or 30 days in jail for mask-related infractions. Residents and visitors in the towns and cities located in Pinal County are not subject to mask requirements but are strongly encouraged to wear masks. One would assume that in these communities that are immune from such restrictions that the image of bare-faced shoppers must be a ubiquitous scene in the local grocery store. Such an assumption would be incorrect.

Even in the absence of formal constraints, most stores require that all customers wear masks. Generally, posting a sign on the front door forewarning prospective patrons of this precondition. Not only are the stores and eateries of the communities of towns such as Maricopa, Casa Grande, and so on filled with mask-wearing customers, but many establishments are taking measures not required by any municipality in the state. Employees are constantly cleaning. The local grocery store has never looked more pristine. Frankly, many of these changes in the cleaning and sanitizing schedules of the local business are long overdue. These shrewd business owners are proactively responding to the potential concerns of their clients. Anticipating that customers may avoid doing business if masks are at their brick-and-mortar location they have elected to require masks. In addition to urging patrons to wear masks, they also are making concentrated efforts to increase sanitation efforts. Even placing markers indicating the presence of six-foot gaps to maintain social distancing. The smell of bleach and other disinfectant products fill the entryway of the grocery stores. The local Walmart is even wiping down and sanitizing the carts! A sight that few would have ever predicted a year ago. All these preventive steps are taken without any laws, penalties, or ordinances. Completely implemented through apolitical channels.  

This micro-level self-governance on the part of local business propitiators and franchisees demonstrates the power of profit and loss mechanisms. Due to the business owners having a stake in the company they own and operate it is in their best interest to put the customers first. If the customers are comfortable, happy, and healthy it will be mutually beneficial for both parties. The customer will continue to obtain the goods and services they need and want. Simultaneously, the stores and restaurants will continue to receive business which will keep them afloat. Establishments that are insensitive to the needs of their customers will invariably see a dip in sales. This would hold even if we were not amid a pandemic. The entrepreneur must adapt to the present climate. That may mean investing in more cleaning supplies and sanctioning mask-wearing requirements for their establishment. Business proprietors who do not respond to customer concerns about the virus will be effectively punished by market forces. Through a sullied reputation, lackluster sales, and even insolvency. While constrained by federal, state, and local laws business owners by their possession of the enterprise still retain an immense amount of authority to create the rules governing their store. Having the ability to formulate the policies that govern the direction of the business enables them to better serve their customers. Displaying how to profit loss mechanisms can direct precautionary measures even in the absence of laws.

Business proprietors responding to these market pressures is an example of polycentric decision-making.  A system where multiple “decision-making units” with some degree of independent action subscribing to the same set of rules. Filtering the development of safety measures through the government attempts to use a one-size-fits-all approach to the pandemic. Whereas, individual shop owners can tailor their precautions to the specific concerns of their regular customers. Versus obtusely applying rules that may not even be effective or pertinent to how COVID-19 is impacting the region. Direct customer input about the absurdity of funneling customer traffic through two entries instead of three, can be an example of ground-level adjustments that can be made through business owner governed safety procedures when compared to those that are government-sanctioned. Avoiding the red tape and lethargic process of passing legislation or town ordinances provides fluidity that is necessary in dynamic times. A fluidity that is lost in the typical overarching and top-down approaches that are generally favored in regulations.  

Those cynical of the arguments that favor market pressure over formal regulation underestimates the power of the invisible hand. In jurisdictions where there are no regulations in forcing mask-wearing store owners not only require masks but are going the extra mile to ensure sanitary conditions for their customers. Most skeptical of the market being able to push such strives towards private solutions to the COVID-19 outbreak tend to cite avarice on the part of business owners. Without formal regulations, most will skimp on investing in extra precautionary measures due to the additional cost of enacting such changes. The willingness to make such changes is what separates a prudent businessperson from a fool.  The long-run profits from investing more in meeting alleviating the concerns of your customers will quickly outpace the minor cost.  Making a refusal to independently adjust to these changes shortsighted.

Is Fractional Reserve Banking Ethical Part II: Contract Theory and the Naysayers

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See Part I: Click.

Introduction to Part II:

The key arguments against fractional reserve banking being a moral system came from a 1998 paper co-authored by Austrian economists Hans Hermann Hoppe, Jorg Guido Hulsmann, and Walter Block. The white paper entitled Against Fiduciary Media was a response to a previous paper written by George Selgin and Lawrence H. White. Hoppe at al. crafted a repudiation against  Selgin and White’s 1996 paper In Defense of Fiduciary Media or, We are Not Devo(lutionists), We are Misesians. In which both scholars provide a normative and positive defense of fractional reserve banking. Even utilizing Murray Rothbard’s Title-transfer Theory of Contract to defend the practice. However, this application of the Rothbardian contract theory did not sit well with Hoppe and the company. All being devoted and unwavering followers of Rothbard believed that Selgin and White’s interpretation of Title-Transfer Theory of Contract to be incorrect. Making their justification of fractional reserve banking on grounds of contract theory to be inherently flawed. It is worth noting that Hoppe was a direct protégé of Murray Rothbard and even owed his career and position teaching at the University of Nevada, Las Vegas to the late Austrian economist.

Rothbard’s  Title-Transfer Theory of Contract:

Before claims that Selgin and White did not faithfully adhere to or misinterpreted Title-Transfer theory, it is important to thoroughly explain this concept. A reader without a firm comprehension of this idea cannot adequately determine if free-banking proponents of fractional reserve banking suffer from profound confusion. The proceeding section will provide a brief overview of this theory. Hereby providing the reader with the requisite background information to justly assess this debate.  

Before diving into Rothbard’s theory, it is important to note his ideological disposition.  Murray Rothbard was the modern father of an ideological subset of libertarianism known as anarcho-capitalism. Rothbard and his followers hold that there should not be limited government, but rather no government. All services and products can be produced by private industry with no necessity for government intervention. This even includes services that have been traditionally provided by the government. This includes defense/security services, law enforcement services, charity, resource management, infrastructure, private legal adjudication, and so on. Rothbardians even go so far as to assert that the government possesses a monopoly on such services. It is imperative to understand this aspect of Rothbard’s political economy and political philosophy. It illustrates the fundamental philosophical precepts that govern his theory of contract.

Rothbardian Contract Theory is expounded upon in his 1982 book The Ethics of Liberty. Rothbard derides that the concept that all contracts in a just society need to be enforced( P.133). He draws a sharp line of delineation between “promised” and “conditional” contingencies in matters of exchange. Per his logic, the utilization of legal channels to enforce a promise is wholly illegitimate. Constitutes the use of government force in a situation in which no property has been transferred. Making it equivalent to state enforcement of morality (p.133-134). The reason why the property needs to be involved for a contract to be valid pertains to the distinction between what is intrinsically alienable and inalienable to the individual. This has to do with the fact that a person cannot alienate their own will or relinquish control of their mind and body to someone else. Humans can quite easily dispense with tangible property, including money (p.135). Due to the fact enforcing a promise is a compulsion because it interferes with the free will of the individual. It is not technically a breach of contract. On the other hand, if the agreement included a transfer of property for non-compliance then it would be another story.

In instances of conditional contracts and agreements, noncompliance is equal to a form of theft.  One salient example Rothbard provides is the circumstances of service providers receiving advanced payment but never providing the service (p.137). For example, if I were to offer to paint your house and I received an advanced payment of $300.00 and never show up your house that is theft. One contractual contingency that can shift a promise to a conditional agreement would be a performance bond clause within the agreement.  For Rothbard’s example, if a movie theater has a meet and greet event with a famous actor, they can put into the agreement a clause where the actor agrees to pay the theater a sum of money for abdicating this obligation (p.137). Since a property can be transferred and not the will of the actor this is an ethically binding agreement. However, failing to fulfill a property-related obligation is not always necessarily deemed as implicit theft. In instances where a creditor provides immunity to a debtor who cannot pay their bill this is legitimate (P.144). Why?  The creditor reserves the right to forgive debts due to the fact they are the ones who transferred their property under the condition of repayment. Please note that this scenario details circumstances in which the credit lent out their funds.

It should be noted that a Rothbardian conception of contractual property rights does not preclude someone from selling off a portion of their property. For example, if I own 100 acres of land in Montana. It is well within my rights to transfer you 5 acres for $20,000.00. Concurrently, retaining my claim on the residual 95 acres of land. This does not mean that mean I in any way still own those 5 acres. Through the sale of this land, I have effectively transferred ownership to you. In turn, I have relinquished by entitlement to the lands sold.

Page 146:

“Another important point: in our title-transfer model, a person should be able to sell not only the full title of ownership to the property but also part of that property, retaining the rest for himself or others to whom he grants or sells that part of the title. Titles, as we have seen above, common-law copyright is justified as the author or publisher selling all rights to his property except the right to resell it.”

How The Free-Banking Argument For Fractional Reserve Banking Violates Contract Theory:

Selgin and White claiming that fractional reserve banking is consistent with Title-Transfer Theory suffer from some blind spots. Blind spots that are fully magnified by Hoppe et al. One of the fundamental chinks in the armor of the Free-Banking argument is that fractional reserve banking inherently violates Title-Transfer Theory. It assumes that two people can own the same piece of property simultaneously (p.21). By the very nature of how fractional reserve banking engages in lending, it creates ambiguity regarding ownership. Through issuing more promissory notes both the bank and the customer assume ownership of the same banknote, which is fraudulent by nature (p.22).  Creating more claims to money against the present supply of money will not create more money (p.22). Rather, will only serve to redistribute the present supply of actual currency from client to client without increasing the amount of money in the vaults (p.22). Effectively creating fiduciary media (money-substitutes issued by a bank that is not backed by gold or paper money) out of thin air without transferring assets or liabilities (p.22). As detailed in Rothbard’s theory, we can sell off a portion of our property. However, we relinquish our own once we transfer it to the party purchasing it.

This illusory arrangement also conflates property with property titles (p.23). Treating and categorizing banknotes( fiduciary media, money claims) as money (physical property). This only enables this fallacy to continue. Keeping in tune with the Austrian tradition the Regression Theorem states that all money had a prior use value (p.34-36). For instance, tobacco and nails at various times in human history have been used as money. Meaning that these banknotes cannot be money in the actual sense, but a claim or title to money. Through this categorical fallacy, the banks can divorce titles from ownership resulting in the redistributive practices of fractional reserve lending (p.23). Even going so far as to promising future entitlement to goods against present goods that may or may not be fulfilled. It would be honest to label these claims to future goods or debt claims, but not a claim to money (p.24).

An inquisitive observer may question why it is dishonest or even outright fraud to categorize future claims to money as money titles or even as money? Hoppe et al. frame this from the standpoint of we cannot claim or transfer ownership from a title to a car for anything but a car and the same applies to money (p.25). If we were using more precise language what banks and customers have truly agreed to is debate claims versus money titles. Per the authors of  Against Fiduciary Media Selgin and White adopted a hyper-subjective interpretation of contracts to side-step this discrepancy (p.26). The misrepresentation engaged in by practitioners of fractional reserve banking extends beyond labels of goods, but to actual quantities as well. By treating fiduciary media as money, it creates the false perception that clients own more than what they truly due on paper. The fabricated money quantities do not reflect the amounts present in the vaults of the bank (p.27). Free-banking proponents may believe that fractional reserve banking isn’t so much the problem, rather government intervention. As long as the withdrawal requests are fulfilled it cannot be tantamount to fraud. However, even without state interference, the transfer practices of fractional reserve banking blur the lines of definitive ownership (p.29). Making the system incompatible with upholding property rights or just contract enforcement.

Is Fractional Reserve Banking Ethical- Part I- An Introduction

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Introduction:

The norms of modern banking are something that most of us take for granted. Few ever question the inner mechanics of such transactions we engage in daily. However, banking has been steeped in a fog of mystery due to complex operations and seldomly failing to fulfill any obligated services. Beyond questioning the functions or internal workings of modern banking even fewer people recognize that most people are participating in a fractional reserve banking system. In a random survey of average people, you will be hard-pressed to find anyone aware of what fractional reserve banking entails nor any intimate understanding of its implications. That is to be excepted considering this is a niche area of expertise that is truly the domain of an economist, banking/ financial specialist. This assumption relieves us of any responsibility to cultivate a better understanding of these systems. After all, this is best left to the experts. How do we know whether there any inherent risks associated with fraction reserve banking? Do we just assume that due to the fact it is the most common banking system that it is the most effective and secure? Better yet, is it even a moral system of banking, or is deceptive by design and tantamount to fraud?

Over the past several decades, a controversy has been brewing among monetary economists concerning fractional reserve banking, Modern economic theorists of the Austrian School who are generally hard money advocates, find fractional reserve banking to illegitimate to its core. Equating it fraud and perceiving it to be antithetical to a free market in money. Whereas free-banking (an economic school that is arguably an outgrowth of the Austrian School) do not see fractional reserve bank as immoral. Rather, such institutions could not only ethically co-exist with 100 % reserve banks but also flourish. Any ethically questionable operations were the byproduct of government intervention and mutually exclusive from the banking practice (p.8). While their Austrian counterparts insist that the practice not only supports the monetary objectives of the state but owes its existence to the state (p.9, p.15-17).In this series of essays, we will examine the ethical arguments for and against fractional reserve banking. To present an unbiased account of the controversy.

What is Fractional Reserve Banking?

Before we can embark upon discussing the ethics of fractional reserve banking is important that we define what it is. On a high level, fractional reserve banking is a system in which banks are required to only hold a fraction of money deposited as reserves. This is done to enable banks to make loans. The recipient of the loan receives a transfer of deposited money upfront which they are expected to pay interest on. The bank customer who deposited the money that was lent out theoretically will receive the money-back in their account with sustained interest. This is done to expand the economy through “freeing capital for lending”. This is done without the depositor relinquishing their claim to this money. Effectively creating more money titles than physical money held on reserve at the bank (p.3)  The foundation of this banking system is fastened to the assumption that most customers with savings accounts will not simultaneously withdraw all of their savings at once. Otherwise, this could lead to what is known as a bank run. A phenomenon where the bank as completely depletes their liquid reserves. Since they are only mandated to hold a relatively small portion of reserves on hand.

Reserve requirements typically hovering around 10 % (presumably applicable to central banks).  Most reserve requirements are contingent on the bank’s size. Banks holding less than $15.2 Million in reserves are exempt from maintaining reserve minimums. The requirement of 10% reserves is applicable to banks holding over $100.2 million in deposits. Per the Garn-St Germain Act  banks are free from any reserve requirements for their first $2 million held. This legislation was initially passed by the Regan administration as a means of relieving pressure on banks as the federal reserve significantly increased interest rates. Banking institutions that hold excess reserves or amounts of deposited money above reserve requirements are entitled to interest payments. Under the Financial Services Regulatory Relief Act of 2006, these interest payments are allocated by the Federal Reserve.

As mentioned above fractional reserve banks issue more money titles than currency on hand. Through this process, they engage in form of indirect “money” creation. The loan itself treats the money titles as being equally as valid as actual currency notes. When the loan is issued the bank “credits” the borrower’s account with an amount equal to the loan, mimicking a transfer of physical cash. The methodology of money creation on the part of fractional-reserve banks has been distilled down to a science. Guided by the money multiplier principle. This concept broadly describes how “.. initial deposit leads to a greater final increase in the total money supply”.  More specifically how much commercial bank money ( demand deposits that can be utilized for credit and debit purposes, basically your residual after reserve requirements) using a defined unit of central bank money. Central bank money is any medium of exchange that these institutions acknowledge as being money. The correct proportion of “money” creation is determined by the below equation:

m=1/R

M=  Money Multiplier, R= Reserve Requirement

Why Are They Urging Us to Vote?

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The 2020 Election season will be historically noteworthy for several reasons. One characteristic that cannot be underscored is the aggressive voting campaigns. Celebrities have been demanding we all vote. Internet advertisements have been hounding us to vote. Campaigns at the state and national level have been emphasizing the accommodations made to enable near-effortless voting. Which is perceived as being particularly important with the looming specter of COVID-19 threatening to reduce voter turnout. Historically, voting rights and “get out and vote” initiatives have been the enterprise of left-wing political interests. Not that conservatives are inherently anti-voting, but due to the fact, right-wing populism is a new phenomenon.

Voter empowerment has always been a thinly-veiled attempt to pander to the average constituent. The aptitude of an individual vote holds little sway over the actual outcome of elections. Making the overall influence of a solitary vote is near-zero (P.603). The advocates urging the every-day citizen to vote side-step this issue through embellishing upon the impact of a single vote. One vote will not sway the overall aggregate electoral vote. That one vote is numerically inconsequential. Even on the microscopic scale of a small village of two-hundred residents, a single vote only 0.5 percent of the vote. Exemplifying the fact that the ruling power of voting comes from the aggregate voting power of various political coalitions. The collective-decision making power of organized political interest proves to be more effective than a single disorganized voter (p.54-56). The attempts to summon all eligible voters to do so serves as circuitous means of forming a like-minded voting bloc. The paradox being those who have an invested interest in promoting the institution of nominally democratic elections need to prey upon the illusion of every voting carrying weight in the polls.

Generally, the promotion of participation in the “democratic” process is purported to be for the “common good”. A profoundly ambiguous statement that could be applied in a litany of various subjective interpretations. What is advantageous for one person may be detrimental to another. Making claims of initiatives being in the name of the common good board-line spurious.  There is something of a gulf between the best interest of the individual versus that of society (p.284). Without a clear and concise criterion of what constitutes public interest, political pressure groups are enabled to take the reins and divert the cause for their purposes (p.283). The utilization of powerful imagery helps the invested interests mold public perception like clay. Conjuring apocalyptic images of a world with health care, social security, and other entitlements brought forth by a tyrannical despot. Allusions to tyranny captive the imagination of the American voter quite vividly due to the context of the nascent years leading to the Revolutionary War. Most of these claims are hyperbolic and are intended to urge the viewer to vote.  The foreboding catastrophe resulting from not casting your one measly vote may result in the demise of the republic.  Such tactics are nothing more than providing misinformation that is tantamount to psychological manipulation.

Aside from this exaggerated claim being cartoonish, they do not consider informal checks on power. By virtue of the median voter theorem, a true contender in a political race would not dare commit the cardinal sin of outright eliminating such programs. Some may discredit this argument as our current president is somewhat unorthodox. Even if the pressure of government agencies or constituencies does not hold, the pressure of lobbying groups will.  For example, the hyperbolic bombastic rhetoric of the Republican party overturns social security is laughable. Equal to political suicide. Seniors organizations such as AARP weld a significant amount of lobbying power. Could effortlessly embark upon a rapturous counter-campaign against the GOP. Potentially leading to a drastic drop in the senior vote, arguable one of the most active voter demographics in the country. The dystopian tone of these advertisements reflects a sensationalized depiction of political reality. A fabricated reality was political pressure groups have surrendered all of their political purchasing power to the voter. Which is a highly unlikely scenario. Especially when confronted with the fact that there is a plethora of perks and money to be made by lobbying. Only serving to solidify the fact that the myth of “every vote counts” is a pure illusion.

If the consequences of not voting are not as desirable as perpetuated by the media and the voter has next to no control over the result, what is the point in trying to mobilize voters? Stressing the moral imperative of arriving at the polls over hell or high water?  The observant reader probably notes how it was previously mentioned that voter empowerment was an enterprise of the left. Coupled with the storied history of left-wing media bias, the motives of the “get out and vote” campaigns become much more salient (p.49). There is a tightly woven network of celebrities, musicians, actors, and media personnel who operate as the mouthpiece for the moral imperative of voting. These de facto “Baptists” help paint the grisly picture of an America where the interests of the common person have not been represented. Doing all of the heavy lifting for the true beneficiaries. Those who stand to benefit politically from such initiatives. Democratic politicians, trade associations, administrators for entitlement programs, the community organizers who host and plan voting drives, and so on. Most of these interested parties stand to benefit through career advancement, increased job security, increases in social clout, etc.  All of these concentrated benefits were acquired without productively contributing to society. Textbook definition of rent-seeking. The morally suspect part of these unearned benefits is that isn’t obvious that these self-interested individuals truly haven’t contributed to society.  Due to the virtuous choir of the media mouthpieces creating the smoke-screen for the beneficiaries to hide behind, we are deceived into the belief they are working for our benefit.

It can be surmised that the reason for the upsurge in a panic regarding this election is based on the motive to oust Donald Trump out of office. I disagree with his politics. After all, I am a steadfast and unwavering free trader. The magnitude of moral indignation facing the president is unjustifiable. To genuinely believe that Joe Biden is the white knight who is going to save the United States from uncertain cataclysm, is comical. Neither man ideologically represents the correct direction for this country. Then again, that may precisely be the reason both are the premier candidates for the job.  Lobbyists and bureaucrats need elected officials they can bend for their purposes. Needless to say, the droves and networks of various spokespeople urging us to vote are not truly working in our interest. Despite whatever flimsy claims they make. Voting does have a valuable quality as a form of self-express, but that is about it. The odds of your vote deciding the next election is nothing more than pure fantasy.

Tocqueville on The South and Slavery

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Some of the keenest observations made by Alexis De Tocqueville in Democracy in America were made in his comparisons between the agrarian South and industrialized north. Tocqueville’s characterization of the two regions of the new American republic was so powerful they still passively influence regional stereotypes even in the modern era. The northern eastern United States is presented as a bustling hub for commerce and productivity. The south being caricatured as being rural, lackadaisical, underdeveloped, and board-line primitive. This may have been somewhat true in the 19th century. However, to hold such a view as being accurate today would be a gross demonstration of ignorance. Not too much it would require drastically underestimate the economic potential of cities such as prosperous Atlanta, Georgia, or the buzzing tourist town of Nashville.

In the nascent period of American history, southern states weren’t luring northern away from  Boston with low taxes and warm weather. The South was still primarily reliant on agriculture to fuel its economy. As we all know most of the labor was done by slaves. Tocqueville goes so far to point to the use of slaves in the south being the core differentiating attribute between the North and the South (p. 408).  Why? The practice of slavery in the south influenced many aspects of southern culture at the time. The absence of the practice in the north also helped shape the industrialized economy and culture of New England. Where the Weberian Protestant work ethic was very much salient. Through possessing a steadfast and unwavering focus on commerce the north ended up outpacing the south economically and technologically. Due to the lack of industrialization, much of the southern United States was less apt to become urbanized. However, considering the large plots of land required for agriculture lack of infrastructure and urbanization is understandable.

Farming is certainly a labor-intensive vocation. Requiring years of dedication spending engaging in hours of back-breaking working daily. How could we say that southerners of the 1800s did not possess a strong work ethic? The typical plantation owner did not do the work themselves. They had their slaves sweat and toil to produce the crops they sold. Making labor a necessity of the less fortunate. As ascribed by Tocqueville this subordination of work not only would be indicative of the luxuries of “idle men” (p. 407) but a more pervasive attitude towards labor. Relegating work to being only acceptable for the poor or slaves, it implies those above a specific status should not work. Especially when men of money have much more entertaining pursuits to indulge in. Such as hunting, gambling, socializing, womanizing, participating in local politics, etc. Drawing a sharp contrast with the self-made tycoons of the industrialized northeast. Where wealth was more of the byproduct of enterprising wit than old money or traditional social arrangements. Almost expressing a distant desire to return to the days of the monarchy. Where the slaving owning elites would either serve as the ruling class. Their slaves would be nothing more than captive constituents Analogous to the serfs of medieval. However, while the serfs were owned by lords only be being tied to the land and insurmountable debts. In the humid countryside of 19th century Georgia, the plantation owner possessed the land and the workers.   

Alexis De Tocqueville did point out that slave owners advocated for the continuance of the institution for the sake of profits. But rather to maintain their aristocratic lifestyles. To many unacquainted with the economics of slavery, this may come as a bit of shock. Tocqueville flat out declares slavery less efficient than free labor. A view is also expressed in the book The Real Lincoln by economist Thomas DiLorenzo. Tocqueville citing that the observation that paid workers tend to work faster than slaves (P.406). This being a core driving force of any economy. What Mr. Tocqueville is implying that the slave owners could not possibly be solely concerned about profits. If they were they would have switched over to paid labor. Due to the increase in efficiency and decreased production costs (food, room/board, and clothing for the slaves). In contrast, the profit-centric northern capitalists would see this transition as a no-brainer and a strategic shift in production methods. This would require the southern elites to become more involved in managing the process. Rather than have administrative and managerial matters handled by slaves that have proven themselves capable of such higher-level tasks. Hence, foiling the regal lifestyle fulfilled with entitlement, unearned honor, and leisure.

Bootleggers and Baptists XIII: The Dawes Act of 1887

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Frequently in public policy regulations that have nefarious intentions are obscured in a cloak of beneficence. Generally, the deeper you explore the history and the context behind the regulation or law its true purpose is eventually exposed. This is particularly true of many of the laws passed by the federal government intended to “help” Native Americans. Many of these paternal laws have done nothing more than subordinate the voluntary associate of tribal members to the authority of the federal government. I am not necessarily a proponent of the lofty, wide-eyed, and quixotic brand of social justice espoused by the contemporary left. But many of these laws impose notable restrictions on the natural rights of tribal members. Such as violating property rights, free association, contract enforcement, and even the right to self-determination. Regardless of the ethnicity of an individual, these rights should be upheld to all people. This isn’t so much a plea for equality of outcome, but rather a firmly held moral concern.  When the law is weaponized to legalize crimes against persons and property, the law has failed to achieve its ends.

One such act that codified a gross injustice against the native people of the United States was the Dawes Act of 1887. Colloquially known as the General Allotment Act. The legislation was sponsored by Massachusetts Senator Henry L. Dawes and was enacted in February 1887. The act provided the authority to the executive branch to allocate “.. portions of Reservation land to individual Indians..” for agricultural purposes. (p. 19-20) 160 acres would be provided to head-of-household and 80 acres to other individual tribe members.  The acreage was doubled if the land was only suitable for grazing (p.20). The aloof Baptists in this scenario justified this act on the moral grounds that this would help the native tribes in the long run. Alleviating the poverty tribal members experienced. Through providing land for cultivation the natives could be elevated to being a middle-class farmer and better assimilate to American society (p.19). If history is any indicator, good intentions and legislation have the propensity to result in tragic consequences for American Indians. Unwittingly, the good intentions of these nineteenth-century social justice warriors provided a moral smokescreen that allowed less sympathetic individuals to utilize the law for their callous benefit.

Land disputes between Natives and European settlers are nothing new. These disagreements date back to the early colonial period of America. Typically, the Native tribes received protection from the aggressive advances on tribal land by colonists from Britain. This is why during the revolution most tribes aligned themselves with the crown (p.10).  Then after the new republic was formed, the Articles of Confederation delegated the power of addressing Indian affairs with the federal government. This was done to preemptively avoid military conflicts with the tribes over land. Due to the financial stresses of the Revolutionary War (p.10). Under U.S. Const. Art I, Sec 8, Cl 3.  and Art II, Sec 2, Cl 2  congress was provided with the power to regulate tribal commerce and the President with the ability to make treaties with the tribes (p.11). All done in the name of stability. Placing the federal government in the precarious situation of balancing the interests of the Natives and settlers. Otherwise, the demise of the young republic may have been inevitable.

Fast-forwarding approximately a century, it clear there has been a long-established that many Caucasian Americans perceived tribal people as more of an obstacle than their indigenous neighbors. Making these individuals the proverbial bootleggers of the Dawes Act. Why?  What do the Americans vying with the Natives for land have to gain from this law?  The act was enacted in the absence of any consent requirements (p.21). Making it easy for the federal government to divide up the land without any tribal input.  To get the legislation to pass the law was amended to allow whites to purchase any remaining land. The result of the law being a drastic decrease in land ownership among tribal people. (p.21). Even worst, the land was not distributed in a manner that was logical to the needs of farming and grazing. Creating a  “checkerboard” pattern of “alternating white and tribal-owned land”. Making it impossible to utilize the land for grazing or farming (p.22).

 In the end, putting aside any good intentions, this policy only made matters worse. The policy not only was poorly implemented but was manipulated to benefit non-tribal members. Legislative rent-seeking at its finest!  Only provides further evidence that quite often all the downstream repercussions of regulations can rarely be considered. For a policy originally intended to lift Native Americans out of poverty did the exact opposite! Making this abject policy failure a shining example of what is referred to in the public policy as a cobra-effect. The Dawes Act only further deteriorated the economic quality of life of America’s Native people.  

The Anatomy of Lottery Revenue

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Few people like taxes. Most view them as a necessary evil. Some even view taxation as a form of theft. However, if we are going to levy taxes at the very least they should be effectual in generating revenue. Otherwise, the taxing of income, property, and inheritances are pointless. There must be some utility in this imposition for it to be justifiable. One salient target for raking in tax revenue is the taxable proceeds from gambling.  Which has served as the impetus for the liberalization of gambling regulations across the United States. Despite rates of taxation on lotteries and casinos being higher that of other industries gambling brings in only modest revenues. Rates on casino revenues ranging from 6.75 percent in Nevada and to the exorbitant rate of 50 percent in Illinois. Only $ 8 billion in tax revenue was collected by the states in 2011, this is out of an approximately $68 billion industry if the estimated revenues of tribal casinos are accounted for. If one was to consider the proportion of every dollar spent on lotteries that end up being recouped by the state, it would be tempting to assume that it was a better means of generating revenue. Especially when in 2018, $27.6 billion in revenue was generated by state and local lottery games.

Here’s a breakdown of how the portion of each dollar spent on lottery games retained in state taxes (Courtesy of the MERCATUS Center).

  • 20 % of every dollar spent is going towards administrative costs of maintaining and administrating the lottery.
  • 50 % is returned to the players in the form of prizes.
  • 30 % is retained by the state in the form of tax revenue.

P X L > C and Liability

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Law and economics would superficially appear to be two disciplines with little interdisciplinary overlap. However, the marriage of the two fields of study has proven to be invaluable in the process of gaining a better understanding of social and political institutions. While the Virginia and Chicago Schools of political-economic have cozy relationships with legal studies, neither were the first to incorporate law and economics. It was the New Institutionalists who first melded the two fields together. The New Institutionalists built upon the work of  Thorstein Veblen and Ken Galbraith with the powerful tool of Marshallian econometrics. Through adapting neoclassical methodology the New Institutionalists were able to provide simultaneously quantitative and qualitative analysis. Progressing both law and Institutional into the realm of the soft sciences.

Welding the overlay of neoclassical economics can legal studies apply equations and utility functions to make accurate decisions on legal issues? Quite possibly. Applying this method in both fields of study can lead to faulty conclusions. Economic modeling assumes ceteris paribus, “all things being equal”.  In other words, presuming all variables remain constant. Such conditions can only be truly held under experimental conditions. However, the resulted yielded may provide us with some important insights even if they do not perfectly mirror actual market conditions.

One nagging issue afflicting court decisions is determining liability in Tort law. Where does the responsibility of the litigant begin and the liability of the defendant end? Ascertaining negligence in many of these scenarios may not be clear cut without precise standards. Thankfully Judge Learned Hand devised an interesting solution that intertwines the methods of law’s sister discipline of economics. Back in 1947 (P.193), Judge Hand formulated an algebraic equation to assess blame in tort law. It is a relatively simple set of computations:

 P= “The probability of Injury”

 L=  “Extent of injury or loss”

C= “The Cost of implementing measures to prevent the accident”

The Equation fully expressed reads as  P X L > C (P.193). Per Hand’s equation, a business or individual is negligent and liable for damages “ if the probable injury to the victim exceeds the costs of avoiding the accident” (P.193).  This equation does condense the decision down to neatly packaged economic contingency. For that alone, this is quite the feat.  Even though I am a layman when it comes to law and economics, there are cases where I could see Hand’s formula failing to accurately assess liability. In terms of ligation for medical costs associated with foodborne-illness, this matter becomes much murkier. In some instances, such as the lawsuits laid against Jack in the Box in 1993, the question of probability is much more clear. Some of the individuals infected with E.coli were served undercooked hamburgers. Serving undercooked meat increases your risk of transmitting food borne-illnesses. Properly training your staff to thoroughly cook the burgers is relatively cost-efficient.

However, let’s consider an example of a food poisoning case whereby metric of Hand’s formula we may run into some difficulties.  For instance the 2009 case against Caudill Alfalfa Sprouts. Many people who consumed the produce cultivated by this company were sickened with Salmonella. How would this company have been able to prevent this outbreak of salmonella? Were officials at the CDC even able to pinpoint the source of the bacteria? Was it due to contaminated water from the irrigation system? Was it due to wildlife defecating on or near Caudill’s crops? When it comes to the ligation involving contaminated crops Hand’s formula is maybe too simplistic. If it is well-established knowledge that irrigation systems have a propensity for harboring salmonella, the accessibility of low-cost water testing procedures and filtration devices may place liability upon the company. How do you gauge salmonella bacterium getting into the water supply that irrigates the crops what if this occurrence is somewhat of an anomaly? Some would retort back stating that this would be weighted in the equation by the probability value.  Unfortunately, there are qualitative attributes specific to the context of the case that cannot simply be quantified.

Despite its faults, in most applications, Hand’s formula provides a reasonable approach to determining negligence.  In certain circumstances, I would be wary of applying the equation. However, in most instances such as a car accident or a slip-and-fall scenario, the formula should work swimmingly. Having devised this computational approach was quite innovative on Judge Hand’s part.

Bootleggers and Baptists Part XII: Dual-Role Actors on Both Sides of Proposition 205 (Arizona, 2016)

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Back in 2016, election cycle Proposition 205 (Arizona) sought to establish a regulated market for recreational Marijuana. The measure failed to pass by a slim margin. Expounding upon the strategic flaws of the ballot question has already been thoroughly exhausted by local commentators.  What truly is interesting in retrospectively analyzing this failed legalization campaign was the coalition building. These strategic alliances were forged on both sides of the aisle.  Everyone from puritanical prohibitionists to cannabis aficionados teamed up with orthogonal allies to hedge their bets on achieving their desired policy outcome. Naturally the formulation of such coalitions invariable leads to Bootlegger and Baptists policy dynamics. By the very nature of regulations and policy decisions, someone stands to gain and someone stands to lose. Government action is never neutral. Even inadvertently a policy can provide a downstream benefit to an invested interest group. Sometimes these concentrated benefits are nontangible. Such as a positive public image or gaining notoriety. As the great moral philosopher, Adam Smith reminds social incentives to present us with powerful motives.

One of the more predictable opponents of legalization would be manufactures of prescription painkillers. Insys Therapeutic donated $500,000.00 to the 2016 opposition campaign in Arizona. Insys is a well-known producer of opioid-based medications. Their true motivations are somewhat puzzling.  Medical Marijuana was legalized back in 2010 which would have been a golden opportunity time for funding opposition. This could potentially be a strategic form of revenge. A thinly veiled attempt at settling a score with the Marijuana dispensaries that cost them business.  Why? Because the medical dispensaries would be among the first economic actors to enter the recreational market. It would take much in the way of resources to make a transition to selling both medical and recreational cannabis. In theory, this institutional form of retaliation would provide the benefit of instinct satisfaction to upper management within Insys. This theory assumes little to no economic benefit from this action.

An alternate theory could be Insys does finically benefit from keeping recreational Marijuana illegal. This move could signify a circuitous acknowledgment of the black-market for prescription painkillers. Whether big pharma wants to admit or not, recreational users do make up a portion of their profits. Their main customers need to operate as mid-level distribution. Either through an unscrupulous physician prescribing opioid narcotics to recreational users or through patients reselling the medications on the secondary market. Through going attacking recreational Marijuana they can protect their indirect profits made through the demand on the illicit secondary market.  Opioids are already in competition with alcohol, tobacco, kratom, Salvia Divinorum, and potentially marijuana. By eliminating a whole category of legal and accessible options they gain a slightly larger share of the quasi-legal American intoxicant market.

The question becomes whether this specific economic agent is a Bootlegger or a Baptist. They are unquestionably both. The company possesses some sort of murky incentive for keeping recreational marijuana illegal. Making them a Bootlegger. They assume the role Baptist when publicly justifying their generous donation to the counter-campaign. Citing the danger of marijuana to children. Also, expounding upon the dangers of ingesting substances that do not have FDA approval. All of these are arguments are laughable when you think about the pharmacological risks of the products Insys manufactures. Regardless, assuming good faith on the part of the firm, it is still a moral argument. Which may or may not be factually accurate. For this reason, they are a Dual-Role Actor.

In this scenario, there is another Dual-Role Actor that is on the other side of the fence. That would be the media. Numerous publications pick-up with this story and ran with it. Function as a Baptist through exposing the callous self-interest of pharmaceutical companies. This provides the appearance of a moral crusader who is attempting to reveal how big business attempts to manipulate the system. However, this public service is not done out of pure altruism. Media organizations are frequently willing to dispense with accuracy to be the first outlet to break a news story. Editors often do not focus on important stories but rather those that captivate their viewers/readers. Making news outlets more of a vehicle for entertainment than obtaining information. The best means of gaining and retaining viewership in an age where mainstream media is currently on life support is through sowing outrage.  Exploiting the public’s salient bias against corporations is a great means of generating click-bait worthy headlines.  Utilizing this tactic becomes much more imperative when your industry is presently clinging to life on a shoddy ventilator. The Schumpeterian gales are presently gusting. The creative destruction of alternative media is drawing many viewers away from FOX News and CNN.

Bootleggers & Baptists Part: XI: CVS and Tobacco

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Back when I was a broke college kid and was still a tobacco consumer, few tobacco products provided a better value than Parodi cigars. Yes, they were machine-made. However, they were mechanically bunched and wrap with robust and smokey fire-cured Kentucky/Tennesse broadleaf tobacco. These rugged little stoogies wouldn’t get too far in a beauty contest, but they were solidly constructed. Mimicked the rustic tuscano cigars smoked in Spaghetti Westerns. There was only one brick-and-mortar locational locally that sold these drug-store treasures happen to be CVS. This all changed in 2014 when CVS elected to stop selling tobacco products altogether in the name of promoting health. Sure there was still the internet, with the complexities of shipping cigars across state lines (tax-wise and legally) it was far from an ideal option. I was far from the only one frustrated with this decision made by corporate. In 2015, CVS speculated a slight drop in sales was connected to the corporate ban on tobacco sales.

It is understandable for a firm to strive to convey a consistent message. There is a fair amount of hypocrisy in a healthcare store selling tobacco. Eliminating tobacco makes sense, only if you stop selling all the other unhealthy products sold at CVS locations. Examples ranging from soda, energy drinks, candy, and liquor. Also, one cannot forget powerful opioid narcotics. Granted, there is purportedly “safe” way to ingest such medications. Why not take a stand against the addiction crisis currently plaguing America if the company is so concerned about public health? Needless to say, there is certainly an asymmetry in CVS as a corporation’s advocacy for public health. Bringing the whole rhetoric of voluntarily choosing to stop selling tobacco into question. Even leading the incredulous skeptics among us to question the organization’s true intentions.

The murky intentions of CVS once again bring us back to the economist Bruce Yandle’s famous Bootleggers and Baptists hypothesis. In instances of this coalition-building dynamic, there are always the virtue signalers that provide us with the moral argument for a policy. The silent beneficiaries are known as the bootleggers. Individuals that purely advocate for the policy out of self-interest. Our Baptists in this scenario become apparent when you review the various organizations that provided praise to CVS for this move. Establishments such as the Massachusetts Medical Society and The Harvard School of Public Health. The Bootleggers benefiting from this shift in CVS’s business practices is clear as day, companies producing smoking cessation products. One of the most prevalent examples being Nicorette.

Where does CVS fall in the equation? Surely they either benefit from this change in-store policy or are expressing concern for public health?  I would argue CVS is an example of a dual-role actor. A dual-role actor in Bootleggers and Baptists coalitions are an economic agent or collective of economic agents that fill the role of Bootlegger and Baptist. They may have a genuine concern for the more implications of policy. However, they also simultaneously stand to gain from the purposed or implemented policy. For the sake of being charitable, let’s assume the initiative to improve “wellness” is sincere. Inconsistent, yet sincere. By exalting the virtues of not selling harmful products such as chewing tobacco, cigars, pipe tobacco, cigarettes, etc CVS claims the moral high ground, making them a Baptist. However, they also at the same time gain through accumulating social currency. From the standpoint of publicity, this is gold. The detrimental effects of tobacco use have been well documented and overall public perception of tobacco consumption is quite negative. These factors make tobacco low-hanging fruit in terms of formulating policy. Whether it is the internal policies of a private company or the stroke of a legislator’s pen, tobacco is an easy target. There is no quicker way to look like a hero than to stick it to Phillip Morris. However, why continue to sell soda and candy if you are concerned about fostering public health? Would the customer backlash be too strong? That said, it is difficult to quell my continued skepticism of CVS’s motives for this move. There is a high probability that CVS is operating as an advocate and a beneficiary.

Craft Beer and Creative Destruction

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Millennials are quite frequently criticized by older generations for a litany of various reasons. Some of these grievances vary from a  weak work ethic to having an unwarranted sense of entitlement. Many of these claims are squarely qualitative making it possible that many of these observations are distorted by bias. Since millennials have entered adulthood there have been some interesting shifts in consumer preferences. These characteristics of the Millennial generation can be more objectively measure through tracking sales.

Over the past decade articles reading “ How Millennials are killing ……. Industry” has proliferated throughout the internet. Millennials have chastised for being the death knell for industries ranging from napkins to chain-restaurants. Come on folks, was the food at Applebee’s ever any good in the first place?  All joking aside, this is truly a fascinating phenomenon.  One sector where the departure from traditional sensibilities has been the most pronounced is in beer. Yes, Millennials are trading up to craft beer slowly making the ubiquitous backyard barbeque with a cooler filled with Budweiser cans a relic of yesteryear.

Naturally, there are some sour grapes on the part of Gen-Xers and Baby boomers who are fans of the American adjunct-lager. The unprecedented growth of the craft beer industry coinciding with the late 2000’s early 2010s is not an accident. This is the timeframe in which many Millennials had reached the legal drinking age. Even as recent as 2019 the projected numbers for the growth of the industry have been looking strong.  In 2018, the craft beer market was valued at $108,912 million and was projected to mushroom to $186,590 million by 2025. Unfortunately, the advent of the COVID-19 pandemic has dampened someof the previously projected growth. It estimated that the pandemic has cut overall craft beer sales by approximately 20 percent.

Virus or not, odds are the established mainstay craft brewers with national followings like Dogfish Head, Sam Adams, Sierra Nevada, Stone, Rogue, etc. will weather the storm. Its more likely the regional and local favorites are the companies that are barely hanging on for dear life. The fears of macro breweries and their devoted fan base concerning the rise of craft beer epitomizes the process of creative destruction. An economic concept first devised by Austrian economist Joseph Schumpeter. This concept isn’t isolated to the shift in consumer preferences towards craft beer, but also the other industries millennials are “killing”. Creative destruction can be loosely described as the process of innovation in the market driving out previous products, services, and production methods into obsolesce. Therefore, these developments can fail the less innovative firms in the industry. When Schumpeter first synthesized the conceptual bones of the process he was referring to increases in productive efficiency (p.81-83).  

The production of craft beer if anything is far less efficient than the production of a standard adjunct-lager. Rather, the craft beer example is a different manifestation of creative destruction. Cost-efficiency and are no longer the name of the game. Consumers prefer more flavorful beer are willing to pay a premium for it. Due to this sway in consumer preferences, making hyper-efficient and economical beer is starting to become antiquated. Consumers are starting to become savvier when it comes to the intricacies of the brewing process. They are well versed in the subtleties and flavor nuisances in different hop varieties. The contemporary beer aficionado is looking for a beer that pushes the very boundaries of the definition of beer. Relishing the possibility of obtaining a bottle of the Sam Adams’Utopias beer. Clocking in at a staggering 28 percent alcohol by volume and aged in ex-cognac barrels paralleling a vintage port more than a beer. Demonstrating the dynamic essence of capitalistic markets, to quote Schumpeter :

“Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment that changes and by its change alters the data of economic action (Page 82).”

These innovations are merely an evolution of how we perceive beer. The efforts of craft breweries not only gives us a break from the monotony of drinking Coors Light but expands what was a previously narrow beverage category. Millennial beer drinkers have spoken in the democratic process of market exchange. They don’t want to drink the same beer their dad drank. If the bigger breweries do not adapt they will continue to lose business.  

Not so fast! It would be hasty to assume that millennials and their love of fancy beer are going to be the death of Miller, Coors, Pabst, and Budweiser. These companies and brands survived prohibition, surely, they have an ace up their sleeve. Especially considering they have considerably more capital and resources to invest in the brewing process than the smaller firms. They have found a way to continue to do what they do best and enter the craft beer segment of the market. One early attempt of bigger beer to get in on the craft beer action was in 1995 with the introduction of the wheat ale Blue Moon to their brand portfolio. Back in the mid-1990s, most Millennials were in Elementary School or Junior High School. The craft beer boom of the 1990s was minor in comparison to the current growth in the market. Other attempts of the big guys attempting to craft some suitable alternatives to craft beer have come in the forms of Michelob Amber Bock and Shock Top.

The current trend in big beer thwarting the present wave of artisanal creative destruction has been buying out existing craft breweries. As the old saying goes if you can’t beat them, join them. The phases of acquisitions began back in the early 2010s. The first notable craft beer acquisition by big beer was  AB InBev’s acquisition of  Illinois-based Goose Island back in 2011 for $38.8 Million. The acquisitions only continued throughout the decade. It started to be commonplace for big beer conglomerates to shell out millions of dollars to buy out established craft brewers. In all honesty, this was a very shrewd move on the part of big beer. Why? It is much more efficient to purchase an established brand that produces a good product and has a following. Versus spending millions more on R&D, marketing, packaging design, etc. 

It should be noted that this has been met with some backlash from craft beer consumers. Some IPA imbibers viewing these companies as “selling out” acting like their favorite underground hardcore band just inked a record deal with Atlantic Records. Ethical opinions aside, strategically this move makes good business sense for both parties. The big guys easily slide into the craft beer game and the owners of the bought-out brewery can either retire or pursue other, business interests, or get hired on an employee (the benefit is it can be less stressful than running your own business). Not every small-scale beer entrepreneur is celebrating the prospect of an acquisition. Veteran craft breweries Sam Adams and Dogfish Head completed a $128 million merger in May 2019. It can be strongly suggested that this merger took place partly to resist either company from being acquired by one of the macro beer conglomerates. After having read a few books written by DFH founder Sam Calagione it becomes quite clear he wouldn’t be one to sell his business. Displaying the fact there are hold outs. However, as the market becomes more concentrated will more craft brewers have to form alliances similar to that of  Sam Adams and DFH to stay competitive? Only time will tell. But if it wasn’t for the tides of the Schumpeterian gales constantly altering the dynamics of the domestic beer market this wouldn’t even be a concern. On the other hand, if it wasn’t for creative destruction we would all still be drinking the same beer favored by our grandfathers.

The Contribution of Beggars to Our Economy

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Panhandlers receive way too much derision and judgment from the general public. They have various stigma ladened insults hurled at them regularly. Constantly derided as “bums”, “beggars, and “mendicants. All terms lacking any sense of dignity. However, what true societal harm have panhandlers inflicted upon society through their attempts to cajoling passing motorists into parting with their spare change?  At worst panhandlers are a minor nuisance and their actions violate insignificant local ordinances. But I will have to draw the line at loitering on private property. From a property rights standpoint, that issue is much more problematic. Why as a society are we so repulsed by the notion of an individual asking for money? We as individual economic agents reserve the right to voluntarily decline to part with our spare change and continue on our merry way. Early this week I was grappling with this question and concluded that panhandlers aren’t a menace at all. That many of the local ordinance aiming to curtail the behavior is nothing more than an overaction to a victimless crime.

Upon stumbling across this idiosyncratic epiphany I naturally conducted a quick survey of the internet to see if any else shared my contrarian perspective on begging.  No other than the great Leonard Read wrote an article back in the 1950s arguing that panhandling was less harmful to the economy and society than taxpayer funding of government services. Read details how not only is the action of giving money to a panhandler voluntary but it does not damage the economy anymore so than an individual choosing to retire. It should be noted that again this article was written before the baby boomer generation retiring. The drastic increase in spending on Social Security and Medicare entitlements has made retirement much more detrimental to the U.S. economy. That point aside, Read mentions how government services assist in creating inflation while panhandling does no such harm. Anyone unacquainted with how inflation works may be confused by this statement. Essentially, he is implying that instead of raising funds through the politically inconvenient act of a tax hike, the government will merely print more money to fund whatever programs and services require allocations. Introducing more money into the economy naturally decreases the value of the currency causing inflation. Thus, making a strong case that panhandling is less harmful to society than government services.

However, I take one issue with this pithy and insightful essay penned by the founder of the Foundation for Economic Education. He describes panhandling in a quasi-neutral light. It doesn’t harm society, but also doesn’t benefit society. I would beg to differ on this point. I view panhandlers as being creative and enterprising individuals who have found a novel method of generating income despite their difficult circumstances. I would be so bold to assert that they resemble entrepreneurs. Perhaps and most likely the nature of panhandling has changed over the past sixty-plus years. To persuade to part with their money, beggars have over the years incorporated elements of entertainment in their persuasion techniques. I once saw a gentleman with a sign that read:

“ Too honest to steal, too ugly to strip”

Not only was this sign humourous but it also exhibits the wit of a talent marketing strategist. If wasn’t for his unfortunate shift in vicissitudes could have been quite the asset in the boardroom. Now he provides the service of entertainment to bored the bored motorists of Chandler, Arizona. Those who are amused by his witty sign, compensate him for his innovation. Another more risque example of panhandlers earning their money through entertainment was a witness at the very same traffic intersection. There was an attractive young lady who appeared to be well-washed and not homeless. Adorning a bikini top and short-shorts with her thong conspicuously exposed.  Needless to say, she was swiftly crossing backing forth between the median and the sidewalk of the intersection graciously accepting paper bills from male motorists. These fellows weren’t parting with mere pocket change! Another sign that I once saw that particularly struck me as clever read:

“ I bet you can’t hit me with a Nickle”

Before you are quick to pass judgment upon a panhandler remember this, it is a grind just like another vocation. It is merely an unorthodox means of earning an income. If anything, panhandlers contribute more to society than those on welfare who do not work. At the very least, beggars attempt to entertain, making them impromptu service providers. Good service demands just compensation.

Bootleggers and Baptists: Part XI: Workplace Diversity

Diversity awareness programs on their surface appear to be noble endeavors designed to provide equal opportunity employment to historically disadvantaged groups.  Over the years, there has been some controversy over the conclusive impact and application of workplace diversity programs. Due to claims of only marginal success in increasing the diversity of the workforce. One major shift has been to couple diversity with “inclusion”, having a diverse workforce is not enough. The company now needs to also provide a welcoming environment.  This is a profoundly difficult task considering the subjective evaluations of what is defined as “welcoming” may vary wildly depending upon the perspective of the individual employee. There is a growing prevalence of what is known as “diversity fatigue”. Many managers and H.R. personnel succumb to the stress of attempting to fulfill lofty and unstandardized goals.  Making the achieving the goals of diversity and inclusion an ever-present uphill battle. Especially with the hyper-dynamic and ever-changing trends in what is deemed as being politically correct by the intellectual upper crust.

The move for diversity for its very sake is not without adverse consequences. Beyond merely making aimless strides towards an arbitrary and idealistic goal. If mismanaged minority employees may feel alienated or there may be an increase in the incidence of conflicts between employees. Two downsides are often not accounted for in the application of diversity programs. Neglecting these variables not only determines the purported objectives of diversity programs but the inevitable flaws of human nature.  The old expression “… you can bring a horse to water, but you can’t make him drink…” comes to mind. Prejudice cannot be eradicated by the edict of corporate policy nor by the stroke of a lawmaker’s pen. Freewill and personal perception have a massive role in fostering and maintain prejudice. A naively wide-eyed and idealistic diversity awareness program provided by an employer will not inculcate the virtue of tolerance into their employees. These are conclusions that the individual must independently arrive at deep introspection.

These lofty expectations mirror the Holier-than-thou virtue signally exposited by contemporary Progressives. Modern Progressive has firm ideological roots dating back to the early 20th century. A careful examination of history will lead any thoughtful observer incredulous of the true aims of the diversity movement. Many of the moral objectives of the Progressive Era were nothing more than circuitous means of rent-seeking. Making the whole notion of workplace diversity truly about diversity dubious at best. Few employees ever question how their employer benefits from promoting diversity programs. A business enterprise exists to provide a product or service not to proliferate the virtues of tolerance. What do they stand to gain through attempting to cultivate a culture of hyper-tolerance?

What emerges from this situation is a potential example of  Bootleggers and Baptist coalition.  An internal coalition between the human resources department and upper-management. Typically, the individual representing the moral argument for a diverse workplace is the “Diversity Ambassador”.  A role within the company that carries quite a bit of prestige, yet how this position direct benefits day-to-day operations is questionable at best. Even when employees who are crucial to daily business are laid-off the Diversity Ambassador gets to keep his job.  Although such a role is nothing more than a luxury. This actor is undoubtedly our Baptist due to his incessant persistence in exalting the values of diversity and inclusion. His rhetoric comes just short of mirroring a political propaganda campaign. Boldly asserting that everyone possesses some degree of prejudice or implicit bias. His obtuse repudiations make countering his claims (regardless of the accuracy of his claims)  a futile endeavor. Below details a scenario witnessed by the author that demonstrates the zero-sum nature of the accusatory discourse of the typical Diversity Ambassador:

Diversity Ambassador:

“ I have conducted this exercise for over twenty years and not once has anyone ever mentioned that I was black. I told you all to list the inferences you can make from just looking at me. No one even mentioned the most obvious characteristic of me. I am black. Why is this? None of you have followed my instructions! Why?!

Audience Member (Attempting to answer his question):

“ Because none of us see color.”

Diversity Ambassador:

“ Don’t ever tell a diversity and inclusion coach that you don’t see color!!”

The above conversation between a corporate Diversity Ambassador and an hourly employee exhibits the perverse quiddity of this wanton advocating for diversity. This is not the tone of a man who wants to educate, but rather who wishes to indoctrinate. Pedagogically and condescendingly force-feeding us the moral imperative of admitting our own biases. Versus attempting to foster understanding or attempting to provide us with the genuine precepts for being more tolerant. The man was simply describing our sins without truly prescribing a means of reconciling them. Paralleling the fervor of an Evangelical preacher, we can do no right. We must fully accept that we are in the wrong with no hope of ever being right. Presenting a situation where the participant can only lose. Generating such a compelling moral narrative for the imperative to proselytize the virtue of diversity that it also doubles as an impenetrable smoke-screen that insulates the company from accusations of discrimination.

The Bootleggers in this dynamic are the individuals in upper-management.  There are two main benefits of this variety of moral rent-seeking are deflecting the possibility of having a hostile work environment and social currency for appearing to be forward-looking. Over the years the United States has become quite a litigious society. Considering the increased sensitivity towards various minority groups, the opportunities for discrimination lawsuits have only become expanded. Providing a sizable incentive for those at the helm of the company to avoid any transgressions against their employees that could be viewed as discriminating in nature. By painting the opposite picture, even if this image is illusory, diverts, or weakens claims of discrimination. Not only does promoting diversity and inclusion have monetary incentives, but it also fosters a positive image for the company. It creates the facade of being open, progressive, modern, and may lead to the company to earn accolades for their culture. All of which will benefit the company and make the jobs of the CEO, CFO, etc. more secure. The reputation of the company for inclusive will attract talented young professionals that will only add value to the organization. One only needs to look at the example of Google to see how company image matters when it comes to acquiring skilled employees. Work culture almost operates as a form of non-monetary compensation. It is another variable that may sway top-notch young professionals towards one company versus another. Merely operating to the benefit of those in the top-tiers of management.

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My Response to Bruce Yandle

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Dr. Yandle,

 

I greatly appreciate your quick reply to my previous e-mail.  I apologize for taking so long to get back to you. As an amateur blogger, I will most likely continue to explore novel applications of the B&B dynamic, both in regulation and in the mundane day to day examples. Not only will this provide me with an endless array of topics to write about, but it will also increase my understand of the B &B theory. I have to say there is something about framing behavior in the Bootleggers and Baptists context that never gets stagnant.  It will make writing about regulation to be dynamic for years to come.

 

Above all I appreciate your encouragement, I will proceed to navigate my way through the murky and convoluted world of regulation. Fully acknowledging that most regulation (if any) does not benefit the general public. Rather, it serves as a form of rent-seeking that is barely noticed by the average voter/ taxpayer due to the costs being distributed through higher consumer prices or taxes. Before familiarizing myself with Public Choice Theory I was already skeptical of regulation. Through theories like the Bootleggers and Baptists dynamic, I now have better precepts for refuting the validity of ineffective and self-serving regulations.

 

Again, Dr. Yandle, I appreciate you taking the time to respond to me. I will continue to expand my understanding of the political decision-making process. An election year is a prime time to do so! There will be a multitude of living examples of Public Choice concepts coming to life.  Animated by the all too human and fallible nature of politicians and interest groups.  I just wish I had been aware of this economic school of thought back in 2016. Considering the impending cataclysm that many pundits were speculating in the wake of the Trump Presidency. Which I can only see as being a form of rent-seeking either from the standpoint of increasing viewership ratings or maintaining the credibility of political factions that the mass media finds to be more favorable. Then again, Trump is awful on trade. However, I am still waiting for the apocalyptic dystopian future many of our friends in the media predicted nearly four years ago. It would be nice to have a more economically laissez-faire president that holds individual rights in high esteem. However, due to invested interests, current public opinion, and the nature of American politics such wishes seem likely a lofty pipedream.

 

P.S.: I also enjoyed your essay The Next Fifty Years: Optimistic or Pessimistic?, published in The Independent Review. Working from home has eliminated my 45-minute commute back and forth from work. Leaving me with more time for reading and research, last quarter I subscribed to the print edition of  TIR. That was a novel and interesting study you conducted. I am not sure if I have the faith to say the next fifty-years will be promising. I certainly believe that material comfort and convenience will only continue to exponentially improve with innovation. In terms of moral development, it is difficult to say. While technology has provided us with a lot of positive developments it has also been correlated with social decay. A steady decline in civility and decorum. Then again, correlation does not necessarily equal causation, having the third-variable problem rearing its ugly head. I could potentially be unfairly singling out the technology. The COVID-19 epidemic seems to have only compounded this issue as people are staying home and becoming more atomized. Don’t get me wrong, as a Classical Liberal/ Libertarian  I am all for individual rights. However, the paradox becomes as people become more individualistic they drift away from the private institutions that previously held communities together (such as church, I am personally not religious, but I have nothing against religious observance). The surrogate that fills this vacuum almost always ends up being government.  As we become more individualistic our affairs end up becoming more collectivistic. I want to remain hopeful that the human species flourishes not only materially but morally and socially. As a society, we need to figure out how to reconnect again.

 

Thank you again for your time Dr. Yandle,

 

Peter C. Clark.

 

 

Bruce Yandle’s Reply

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Yesterday, I received a response from the legendary Public Choice scholar, Dr. Bruce Yandle. There were three main takeaways from his response to my e-mail. Even through e-mail communications, Dr. Yandle exhibits all of the decorum and humility you would expect from a southern gentleman. It truly is a privilege as a nonacademic to be able to have such an exchange with one of my intellectual heroes.

 

 

Takeaway #1- He was Humbled by the Fact that His Theory Was So Influential Upon My Thinking

 

I was slightly surprised that he was humbled by the impact his theory has had on my thinking. He was particularly humbled by the fact that I find his theory to be a powerful means for explaining the world. I could not agree more. The Bootleggers and Baptists’ paradigm is not relegated purely to the sphere of politics and regulation. As he mentioned in his response you start to notice examples everywhere once you are familiar with the concept. That speaks volumes of the conceptual transcendents of the theory. Making all the more brilliant observations. Above all, I am glad that Dr. Yandle was able to see that his theory has influenced others. That it is a “living idea” not just a sterile postulation that is confined to dusty economic textbooks. But a profound theory that explains the world how it is. Not imposing value judgments of what should be.

 

It should also be noted that he did see some sound reasoning in equating  Bootleggers and Baptists to the Id and Superego. He also alluded to Adam Smith’s Theory of Moral Sentiment, citing that both roles also paralleled Smith’s” the man within the breast” and the “impartial spectator”.

 

 

Takeaway #2- Dr. Yandle conceptually finds the prospect of a Dual-Role Actor to be valid.

 

Dr. Yandle stated that he like the term “Dual-Role Actor” and agrees with it as a premise. Using the example of how Donald Trump as addressed immigration policy for how many times politicians fall into this category. Utilizing arguments around reducing crime from the standpoint of the moral high road. Then in the next breathe stressing the point of how immigrants take jobs from American citizens. Simultaneously appeasing the Bootleggers and Baptists  Making Trump’s clumsy balancing act a pure example of a “Dual-Actor” paradigm. He assures me that I am correct in my assumption that the B&B dynamic does not explain the origin of these coalitions, but rather the details of the occurrence.

 

Takeaway #3- Keep Writing and Thinking About Regulation.

 

Dr. Yandle also encouraged me by stating “I wish you well and hope that you will keep thinking and writing about regulation”. That is a suggestion I will certainly follow!