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  • Stephan Livera 7:30 AM on September 15, 2014 Permalink | Reply
    Tags: , Anarchy Unbound, Peter Leeson   

    Anarchy works better than you think 

    I recently read Anarchy Unbound: Why Self-Governance Works Better Than You Think (Cambridge Studies in Economics, Choice, and Society) by Peter Leeson and what an excellent book it is! Most people have a negative knee jerk reaction to the idea of anarchy, usually because they think anarchy would be a Hobbesian chaotic nightmare. Peter shows that this initial perception is not accurate using rational choice economic analysis of history and law, demonstrating many cases of self-governance: privately created social rules and institutions. These private arrangements were used to protect property, enable trade or create governance. In order to do this kind of analysis, we must distinguish between governance and government

    Anarchy Unbound

    One fascinating thing about the book is that Peter isn’t just considering the “easy” cases where most people think self-governance could feasibly work, but also circumstances where most people would think it couldn’t work. Examples include:

    • self-governance when populations are socially diverse
    • self-governance when self-governance when individuals face the risk of physical violence
    • self-governance in societies composed exclusively of “bad apples” – e.g. gangs, pirates

    Mechanisms of self-governance / private law can use internal enforcement or external enforcement. Some mechanisms are peaceful e.g. reputation, social shaming – while others are violent e.g. blood feuding, risk of physical violence. I liked the discussion on these concepts in the book:

    • The discipline of continuous dealings – as a response to the prisoner’s dilemma problem implied by Thomas Hobbes.
    • Coasian bargaining – as a way of reducing the social cost of plunder/theft.
    • Social distance and signalling – individuals can manipulate their social distance , thus signalling credibility to one another, and this separates ‘cheaters’ from ‘cooperators’, easing decisions of who to trade with, even in societies with heterogeneous groups.
    • Constitutions (Pirates, Gangs) – Creating consensus about an organisation’s rules, Regulating behaviour that is individually beneficial but harmful to the overall organisation, Generate information about member misconduct and coordinate enforcement of rules.

    Peter’s case for anarchy and self-governance is measured – its not suggesting that anarchy and self-governance literally work best in all possible cases. His analysis includes discussion of Somalia, and outlines useful ways of thinking about Somalia:

    • The importance of only examining the “current governance opportunity set” (rather than imagining ‘Unicorn government’ as a realistic possibility for places like Somalia).
    • We should compare like with like and compare “Low quality anarchy” with poor quality government, rather than disingenuously comparing “low quality anarchy” with high-quality western level governments.
    • Despite the existence of “low quality anarchy” in Somalia, it still performed better than many of its peers (neighbouring countries) on many human quality of life measures over the anarchy time period. See 2007 article, “Better off stateless: Somalia before and after government collapse”.

    What happens if a government cannot place binding constraints on political rulers? We’re likely to see government predation:

    We can apply this kind of thinking to governance opportunities in LDCs (least-developed country). If institutional condition (1) required for ideal political governance – binding constraints on political actors – isn’t satisfied, as it tends not to be in the poorest parts of the developing world, the second-best governance arrangement can be achieved only by departing from institutional requirements (2)-(4): government power to provide law, enforcement, and public goods. That is, conditional on government being unconstrained if it exists, welfare may be maximised if it doesn’t.

    The reasoning here is straightforward. If government is unconstrained, fulfilling conditions (2) – (4) enables predatory government – it creates the very means of such predation.

    This argument is used to show that low-quality anarchy will likely outperform predatory government. If implemented in countries with ‘high quality government’, instead of the “low quality anarchy” we saw in Somalia, I think we would instead see “high quality anarchy”.

    It’s only $14 for the Kindle version on Amazon, and I recommend the book to anyone curious about libertarianism, and also to any libertarians/anarcho-capitalists who want to gain a deeper appreciation for historical examples of self-governance. Absent the state, people can, have and still do cooperate peacefully and efficiently given the constraints they face.  After reading the book, you will gain a deeper appreciation of the concept that government is merely one type of governance.

  • Stephan Livera 6:43 PM on September 14, 2014 Permalink | Reply
    Tags: , roads   

    Muh roads 

    Reproducing a nice, pithy argument from the man, Robert Higgs:

    Muh roads!

    The orthodox argument for the necessity of government provision comes from the neoclassical economists, who maintain that the free-rider problem will prevent the creation of such projects. Yet countless historical examples, including (at least) hundreds of privately constructed and operated roads in the USA and elsewhere, show that the blackboard-economics demonstration is seriously deficient.

    If people genuinely value a good, such as the services of a road, and hence are willing to pay for its full (fixed and variable) costs, and if entrepreneurs have the ability to organize the supply of this good in a way that allows them to recoup its full costs, as the historical examples show to be the case, then the argument for the necessity of government provision boils down to either

    (1) a desire to have roads that people do not really value enough to pay for or

    (2) a simple preference for coercion rather than voluntary transactions.

    Muh market!


  • Stephan Livera 4:00 PM on September 13, 2014 Permalink | Reply
    Tags: ,   

    Liberty Is Diverse 

    A recent discussion about public schooling versus private schooling prompted this post. Going towards a free market in education may not necessarily mean all schools become more ‘relaxed’ in terms of rules,  because in a truly free market, freedom of association is also preserved.

    So let’s say one school decides that it particularly cares about keeping a good reputation for its students, and has a social media policy for its students to obey: e.g. “Don’t make racist comments on public social media posts.” It’s not necessarily anti-libertarian values for a school to have this policy, so long as it is agreed upon in advance between the parents/children and the school.

    With that said, it is fair for libertarians to point out the abuse of government monopoly power – where the government coercively acts to restrict other methods of schooling. Examples of these types of coercive interventions include:

    • Mandating that all children must attend either a state school or a school sanctioned by the state
    • Coercively redistributing funds away from other people (taxpayers) to fund its schools

    These interventions listed above artificially privilege government sanctioned private schools over any other private method of schooling that might otherwise exist. This makes it harder to ‘outcompete the state’. If any individual did the interventions above, we would rightly call that unjustified or wrong. Here are some examples spelled out:

    • If a person went around the neighbourhood, threatening to imprison people who did not run a school in the manner they mandated e.g. curriculum, timing, pedagogical methods – we would rightly say this was wrong.
    • If a person went around and siphoned other people’s money at their income source, without their prior consent, and then used this money to provide schooling for children in the area – we would rightly say this was still wrong.

    The deeper point to be made here is that liberty is diverse. Absent state interventions, we would likely see many different types of schools: home schooling, unschooling, schools that have ‘conservative’ values, schools that are very relaxed with rules and methods. Parents would select whatever school they felt best represented good value for money, whichever school they feel will best instill the values they want their children to be taught.

    This is not just true for education, but for all other markets also. A picture is worth 1000 words:


  • Stephan Livera 6:36 PM on September 12, 2014 Permalink | Reply
    Tags: , , ,   

    Of course we're getting less bang for our buck – consequence of fiat money 

    Want a quick lesson in proximate cause and ultimate cause? See: Are we getting a lot less bang for our buck? from

    You pick up something off a supermarket shelf and you swear it’s not exactly how you remembered it. But you brush it off; you’re probably being paranoid, right? Wrong.

    Brands have a history of shrinking the sizes of their products and hope you don’t notice.

    This is an entirely predictable consequence of using money that is being centrally inflated. Does it really make sense to blame the business? Or are they merely responding to the reduced purchasing power of the dollar?

    This is a clear case where as a result of not understanding economics as applied to fiat money – people blame the businesses, rather than understanding the true cause: reduced purchasing power of the paper money in the first place.

    The proximate cause: Businesses responding to incentives as they should.

    The ultimate cause: central banking, fiat money and the overarching fiat money system causing money supply expansion.

    What would the world / economy look like in a world without fiat money? The money supply would not be continually expanding based on politicians and bureaucrats, meaning your money would no longer be continually diluted. Thanks to technology, capital accumulation and free market competition, we would experience the opposite effect: steady deflation with goods and services becoming cheaper over time.

    Let’s not blame businesses for their reduced purchasing power, that is just shooting the messenger.

  • Stephan Livera 6:00 PM on September 12, 2014 Permalink | Reply
    Tags: ,   

    “What if we tried a libertarian society but then regressed back to the state?” 

    I can understand this type of concern, but I think it is kind of misunderstanding the problem to begin with. The problem is not necessarily that a government exists now, it is that an overwhelming number of people believe in the idea of a state as necessary. Whether they know it or not, they are believing in political authority, which libertarians argue does not truly exist. It is like a group hallucination.

    See Anarchist Strategy by Daniel Krawisz

    The state exists because people obey it, and people obey it because they expect everyone else to obey it. They obey because the disobedient are few enough that they put themselves in real danger from the ruling order by disobeying. This would be true whether the ruling order was a feudal serfdom, a military dictatorship, or a direct democracy. Furthermore, it is the only reason required. It is the necessary and sufficient condition to explain the obedience of the people and the adherence of everybody to the rules by which the state operates.

    Imagine that there is a group of people standing nearby to one another, each holding a stick. Every 10 minutes, they hit themselves in the face with their sticks. They also hit anyone nearby who did not hit himself, or who failed to punish someone who didn’t hit himself or who otherwise should have been punished. It doesn’t matter why they started doing this, but it is now habitual with them. Furthermore, they are all standing in a fog, so none of them sees that it is only the neighbors of a malefactor who enact the punishment. “There is a creature below the fog that punishes us if we don’t follow the rules about when and whom to strike,” they tell one another. That creature is the state.

    The way to stay secure in such a society is to harmonize with everyone else.

    This is one good reason why the libertarian movement is not a violent revolution. Reason being – the problem is not with the literal government that exists now, so stopping that won’t help. The true problem is our mindset towards each other. Let’s improve this mindset and stop trying to coercively rule over each other.

  • Stephan Livera 6:00 PM on September 11, 2014 Permalink | Reply
    Tags: ,   

    “But some foreign wars/interventions are justified” 

    Following from the last post about the Hayekian argument against intervention – there are some people who broadly accept this argument but make special cases for other instances. To this argument that some times “we” (but really, the government and the people who do the government’s bidding) should go and bomb some other country or try to take out some dictator to save the oppressed people – perhaps we should consider the dictum: First, do no harm.

    If you truly want to help those people, why not advocate open borders? Surely if they’re oppressed then at least giving them an option to escape to a civilised society would also be a great start at a solution to the problem of dictators. But alas, it seems that most of the developed countries in the world instead act to stop these refugees and tyrannized people from being able to help themselves. It’s not a position of “not conferring a benefit“, it is actively restraining them from helping themselves. All other things being equal, but given that we lived an open borders world, refugees would overwhelmingly be employable at some rate. They would be able to find some type of willing landlord and employer.

    For a great resource on open borders, see Open Borders: The Case. See Bryan Caplan’s paper, Why Should We Restrict Immigration? If your concern is that this would be a crazy policy with too many people coming in at once, see Bryan Caplan’s post: Crazy Immigration

  • Stephan Livera 6:00 PM on September 10, 2014 Permalink | Reply
    Tags: , david henderson, foreign intervention, , information problem, local knowledge,   

    The Hayekian argument against foreign intervention 


    I listened to an interview with David Henderson on the Tom Woods show (episode: Mind Your Own Business July 30th 2014) and I found a great argument against foreign intervention based on the insights of Hayek.

    See David Henderson’s speech here: An Economist’s Case for a Non-Interventionist Foreign Policy

    Hayek said that the information that matters most in a society does not exist in a centralized body but rather exists in little bits and pieces in millions of minds. And if we have central planning, we can’t get that information aggregated. And by the way, this was way before big computers. It doesn’t matter. Even with huge, wonderful computers, you’re not going to aggregate in a way where it’s useful. People have to be able to act on their own information. Modern scholars in the Hayek tradition call it “local knowledge.” Hayek never used that term but that’s what we call it.

    Now, there’s nothing in Hayek’s arguments to suggest that it applies only to central planning of a domestic economy. A government that wishes to intervene in another country’s affairs faces the same problem, possibly even magnified by the fact that the small number of government policymakers at the center have even less information about the foreign country than they have about their own country. The problem then becomes one of knowing which countries they should intervene in and, beyond that, even if they seem to have solid grounds for intervening, how to intervene. You might think it’s completely moral, and I might agree with you, to intervene in certain country’s affairs but that doesn’t mean you’re going to do it well and that doesn’t mean it’s going to work.

    Also, a blog post by David Friedman provides an excellent example of this. This section was written in the second edition of The Machinery of Freedom in 1989:

    Paradoxes of an Interventionist Foreign Policy

    The weak point in the argument is its assumption that the interventionist foreign policy will be done well—that your foreign minister is Machiavelli or Metternich. In order for the policy to work,you must correctly figure out which countries are going to be your enemies and which your allies ten years down the road. If you get it wrong, you find yourself unnecessarily blundering into other people’s wars, spending your blood and treasure in their fights instead of theirs in yours. You may, to take an example not entirely at random, get into one war as a result of trying to defend China from Japan, spend the next thirty years trying to defend Japan (and Korea, and Vietnam,. ..) from China, then finally discover that the Chinese are your natural allies against the Soviet Union.

    photo credit: kevin dooley via photopin cc

    • David Friedman 4:22 AM on September 14, 2014 Permalink | Reply

      Actually, the quote is from a chapter added in the second edition of The Machinery of Freedom, so only about twenty-five years ago.


  • Stephan Livera 9:55 PM on September 9, 2014 Permalink | Reply
    Tags: , ,   

    "Don't conflate lawmaking with violence" 

    The task of a libertarian is to show other people:

    1. why they are not consistent in the way they view the state’s actions and actions done by an individual
    2. why there is no legitimate justification for this difference (legitimate political authority doesn’t exist)

    Libertarians will typically object to government programs on the grounds that it results in unjustified violence on the part of a government (in cases where it would not be justified if done by an individual). The pro-government person may respond: “Don’t conflate lawmaking with violence”. Why do I think this is absurd? It is not seeing the forest for the trees.

    Libertarians are not objecting to the existence of rules and laws, they are objecting to certain rules and laws enacted by governments, and importantly – these rules and laws are imposed without consent, and enforced by governments under threat of violence and imprisonment.

    So the response here is: The objection is not just to the lawmaking part – it is to the way those laws are created and imposed on other people without their consent. The particularly absurd thing is, when laws are created, the people voting for and making those laws know full well that these laws will be enforced. Campaigning for government rules and laws, while being oblivious to enforcement of these laws would be like saying “Oh I was just pulling the trigger of a gun, I didn’t realise a bullet would come out of it!”.

    I think I know the real reason people make these absurd arguments: Their mind will not allow them to see the injustice for what it is, so they will just invent whatever justification allows them to dull the sting of cognitive dissonance.

  • Stephan Livera 6:00 PM on September 8, 2014 Permalink | Reply
    Tags: , ,   

    RBA Governor warns of housing bubble… that he helps create? 

    RBA Governor Glenn Stevens recently warned about asset bubbles being created as a result of the low interest rate. I want to show some analysis from the POV of the Austrian school of economics, as many things about his statements seem absurd.

    RBA governor Glenn Stevens warns of housing bubble risk

    “As for things that monetary policy should try to avoid, we are also cognisant of the fact that monetary policy does work initially by affecting financial risk-taking behaviour,” Mr Stevens said.

    Monetary policy by the state, along with the overarching fiat money infrastructure causes a race to the bottom in the type of money we use.

    Whereas on a free market there is a tendency for the best available products to be used, legal-tender laws combined with false certificates incite a race to the bottom. Since all money certificates are equal before the law, and because the legal tender provision overrules private contract, no money user has an interest in paying the higher price for a genuine certificate. And as a consequence no producer has an interest in fabricating such certificates; each one of them now tries to operate at the lowest possible costs. Sooner or later everybody pays with debased coins and fractional-reserve notes. Bullion disappears altogether from public use; it is held back—”hoarded”—or sold abroad. (Page 133 The Ethics of Money Production by Guido Hülsmann)

    So after the race to the bottom and once the government has created an unsound system where the money supply continually expands, we all see the results of this in the increased prices of the things we buy. This constant reduction in purchasing power combined with the ease of credit makes personal debt for individuals the best strategy given the situation we are in:

    In a certain sense, his debts and increased investment in the financial markets is beneficial for him, given our present inflationary regime. When the increase of the price level is perennial, personal debt is for him the best available strategy (The Ethics of Money Production by Guido Hülsmann)

    This is not a desirable scenario to create, and it explains why so many people go into debt: Because if they don’t go into debt to buy a house now – and if they instead try to save up cash first (the traditional way), the house they want to buy will cost more in nominal terms in the future, and their saved up pool of money will be worth less (as a result of inflation). So it is economically pushing people to go into debt to buy a house now – so they can repay it later with nominally the same amount of money, but less in real terms (thanks to inflation). So if anything, Glenn Stevens and the RBA are very much responsible for pushing people into debt.

    “In our efforts to stimulate growth in the real economy, we don’t want to foster too much build-up of risk in the financial sector, such that people are over-extended. “That could leave the economy exposed to nasty shocks in the future.

    “The more prudent approach is to try to avoid, so far as we can, that particular boom-bust cycle,” he said

    Seemingly unaware that keeping interest rates at record lows is part of the cause of that boom and bust problem. See The Truth About Central Banking and Business Cycles:

    For more discussion of this, see the Cultural Consequences of Fiat tag series.

  • Stephan Livera 6:00 PM on September 7, 2014 Permalink | Reply
    Tags: bastiat, , public choice   

    Bias towards the seen: how politicians exploit you 


    Few people have a good understanding of Frederic Bastiat’s “That which is unseen” concept, which could be alternately understood as foregone resources. Fewer still will go on to consistently apply this thinking to real world government projects. How many people will look at a given public program and think: “Hmm I wonder if society’s scarce resources weren’t spent to build this, what other things could have been created or funded?”

    This is one way public choice economics allows us to analyse the decisions that politicians face. Politicians are not incentivised towards policies that best benefit society, they are most incentivised to promote their own interests:

    What about the political leaders and campaign donors who, as I have suggested, really can influence public policy–do they have strong incentives to acquire political knowledge? Yes and no. They have strong incentives to find out which policies are in their interests to promote. A politician may have strong motives to discover which positions are popular among voters and campaign contributors. But this is quite a different matter from discovering which policies are truly best. – Michael Huemer “In Praise of Passivity

    So put yourself in the shoes of a politician: You have the choice to use public taxpayer funds for either fixing potholes in the roads, or you could spend money on big new bridges and highways. But keep in mind that as a politician, it’s easier to sell the idea that you “did something” if you can get a nice ribbon cutting ceremony at the opening of a new state built highway. If you instead spend the money on fixing potholes and other maintenance, you won’t get a ribbon cutting ceremony and hence won’t acquire as much political capital. Which project are you more likely to fund?

    Do I think the population will suddenly come to their senses and understand how they’re getting ripped off? No, but now – at least you do.

    photo credit: MSVG via photopin cc

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