Grant Babcock

Flash Mobs, Disobedience, and Democracy

by Grant Babcock on July 28, 2011

in Culture, Sanctimony, Zeitgeist

What is the role of community spaces in the democratic process? Which is better at producing good community spaces: civil society and the market, or government? Many people see community spaces as essential facilitators of the dialogue needed for a healthy democracy, and look to government to maintain such spaces. For these people, private control eliminates the fundamental character of a community space, turning it from a civic to a commercial purpose.

Naomi Klein characterizes the anti-globalization movement as about reclaiming public spaces overrun by privatization.

The spirit they share is a radical reclaiming of the commons. As our communal spaces—town squares, streets, schools, farms, plants—are displaced by the ballooning marketplace, a spirit of resistance is taking hold around the world. People are reclaiming bits of nature and of culture, and saying ‘this is going to be public space’.

At the end of July, I attended a seminar put on by the Institute for Humane Studies, where GMU economics professor Daniel D’Amico argued that the opposite is the case. Where Klein sees venal commercial interests, D’Amico sees civil society. For D’Amico, and for me, it is wrong-headed to think that the best way to maintain community spaces is to have government control them. While people do debate about government, government is not about debate. Government is about force.

This difference is sharply seen when we look at what happens when people misbehave in government-controlled “public spaces” as opposed to places of commerce.

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Legislating Morality

by Grant Babcock on July 26, 2011 · 5 comments

in Culture, Odds & Ends, Zeitgeist

I recently watched the Cato Institute’s interns take on the Heritage Foundation’s interns in a debate on conservative vs. libertarian philosophy. [Cato does not currently have an archived video on their site.] Many aspects of the conservative/libertarian conflict were discussed, but one point, I think, deserves special consideration. A key point of difference between conservatives and libertarians is the matter of “legislating morality.”

We’ve seen this debate before — the libertarians say that the conservatives’ project of trying to legislate on drug use or sexual ethics is meddlesome and unwarranted if not downright dangerous. The conservatives retort that libertarians want to deprive the law, nay, society itself, of any ethical character or foundation. The team from Cato was far to quick to concede this point, saying that rights were logically prior to ethics, the implication being that rights claims are not ethical claims. This is not entirely accurate, illustrating a fundamental misunderstanding many libertarians have about libertarianism.

This misunderstanding is that libertarianism implies a separation of law and ethics. Certainly, there are some libertarians who advocate this. They tend to take a Hayekian approach to law, arguing that the American legal system is derived from English Common Law, an example of spontaneous order without a designer and not reflecting any certain conception of justice. John Hasnas would be a modern example of someone who thinks this way. However, you don’t necessarily need to believe the law ought to be completely amoral to be a libertarian, and I will argue that there are good reasons to believe law is an ethical matter.

Somewhat ironically, those libertarians who do believe in a strict separation of law and ethics are that much closer in philosophy to conservatives like Edmund Burke. Both argue that we ought to preserve existing institutions even if we do not have a philosophical proof that they are good. The relevant criterion is whether the institution is “time-tested,” whether it “works.” This belief is in direct tension with the moralistic paternalism conservatives argue humans require of government. This becomes apparent when we ask what it means to pass or fail the test of time, to “work.” Why do some institutions persist, and others wither away? The only answers I can see are (1) utilitarian superiority, (2) divine guidance, (3) some other reason lacking ethical significance.

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BitCoins: Four Objections

by Grant Babcock on June 6, 2011 · 51 comments

in Economy

In response to my recent blog post about BitCoins, several commenters offered responses to my objections. Today I will address these considerations as well as others I came across during my research.

Objection: My refutation was circular or my refutation was just an assertion that BitCoins are worthless.

This isn’t the case. I suspect many people interested in BitCoins may have some training in computer science, so I’ll use an analogy from that field to briefly restate my argument. If you aren’t familiar with computer science, feel free to skip ahead to the next paragraph. The value of a currency can be thought of as the result of a recursive algorithm, where the value on day n depends on the value on day n-1, with some adjustments. The problem with BitCoins is that there is no base case because BitCoins have no use outside of being traded around. This means that existing BitCoin “prices” are essentially arbitrary numbers with no grounding in anything real, mentally or physically.

I am not asserting that BitCoins are “worth nothing.” It would be more accurate to say that BitCoins are nothing. Government fiat monies can get away with this for reasons I describe below, but none of these considerations apply to the case of BitCoin for the very same reasons that BitCoin is intriguing, i.e. that it is without a central managing authority, that people don’t have to use it if they don’t want to, etc. More on this below.

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BitCoins: All Buzz, No Substance

by Grant Babcock on June 3, 2011 · 69 comments

in Economy

Recently there has been a bit of buzz surrounding an electronic currency called BitCoin. I was intrigued because BitCoin is based on a combination of technologies — peer-to-peer networking and public-key cryptography — which yield a highly resilient, secure, private infrastructure for exchanges. Despite these advantages, there are several fatal flaws with BitCoins that will make them a very poor currency.

To explain why, we need to understand something about how something becomes a money.

Imagine three of us are stranded on an island. Each of us specializes in producing a different good. I catch shrimp, you harvest coconuts, and the third resident of the island (let’s call him George) weaves baskets.

Now, I would very much like to trade my shrimp for George’s baskets, but there’s a problem: George is allergic to shrimp. Am I cursed to forever remain basketless? No. I know that George likes your coconuts, so the next time I see you, I trade for more coconuts than I plan to use myself. I can now offer George something he wants, coconuts,  in exchange for a basket.

A transformation has taken place. Whereas originally coconuts were desired only for their use value, the value they have because people can use them to satisfy hunger, for instance, and their exchange value, the value they have because people think other people will accept them in a trade.

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Saving for Retirement? Mission: Impossible

by Grant Babcock on April 4, 2011

in Economy

Too often we forget that inflation has a human cost. When I think of inflation, I am typically thinking about business cycles and Cantillon effects. But as a recent Wall Street Journal article remarks, inflation can spell doom for retirees.

As of January, the average interest rate paid on relatively safe vehicles such as short-term savings accounts, time deposits and money-market funds stood at only 0.24%. That’s one-tenth the level of late 2007 and the lowest on records dating back to 1959. Such depressed rates don’t come close to compensating for inflation, which was running at an annualized rate of 5.6% in the three months ended February.

“Americans who have done everything right, have worked hard, saved their money and stayed out of debt are the ones being punished by low interest rates,” says Richard Fisher, president of the Federal Reserve Bank of Dallas and a voting member of the Fed’s Open Market Committee. “That state of affairs is not sustainable for a long period of time.”

There is a large moral hazard here. If we want people to save for their retirement, that needs to be a realistic possibility. Thanks in part to the Bernanke and Greenspan Feds, it increasingly isn’t. People get squeezed at both ends. High inflation eats away at the buying power of retirees’ savings, and low interest rates mean those savings earn little interest. The picture looks even grimmer when you realize that only looking at “core” inflation is an obfuscation. EuroPacific’s Michael Pento remarks:

If you talk about the grand sweep of Fed policy, it’s fairly easy to fix the onset of our current monetary period with the onset of the dot.com recession of 2000. To prevent the economy from going further into recession at that time, the Fed began cutting interest rates farther and faster than at any other time in our history. During the ensuing 11 years, interest rates have been held consistently below the rate of inflation. Even when the economy was seemingly robust in the mid years of the last decade, monetary policy was widely considered accommodative.

Over that time annual headline Consumer Price Index (CPI) data has been higher than the Core CPI 9 out of 11 years, or 81% of the time. Looking at the data another way, over that time frame, the U.S. dollar has lost 20% of its purchasing power if depreciated year by year using core inflation, and 24% if depreciated annually with headline inflation. The same pattern held during the inflationary period between 1977 thru 1980, when the Fed’s massive money printing sent the headline inflation rate well above the core reading. The empirical evidence is abundantly clear. When the Fed is debasing the dollar, headline inflation rises faster than core. The reason for this is clear. Food and energy prices are closely exposed to commodity prices which have a strong negative correlation to the falling dollar that is created by expansionary policies.

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How Do Unions Work — Trade or Theft?

by Grant Babcock on March 7, 2011

in Employment, Features, Labor, Personal Liberty

Post image for How Do Unions Work — Trade or Theft?

In his work The State, sociologist Franz Oppenheimer draws a distinction that has been widely adopted among libertarian intellectuals. Oppenheimer outlines two methods of acquiring wealth (and here we mean not just wealth narrowly construed, viz. money, but broadly construed — “welfare” would be close in meaning). On one hand, we have production and exchange; on the other, theft and extortion. The first method Oppenheimer terms “the economic means,” the latter he calls cheekily “the political means.”

The economic means constitute a positive-sum game. When two parties engage in a trade it is because each judges that they stand to gain. The distinguishing features of the economic means are peacefulness and mutuality. The political means are at best a zero-sum game. One party’s gain can be produced only by another party’s loss. The distinguishing features of the political means are predation and antagonism.

By now I’ve treated the political means with enough scorn that it should be clear which of the two I feel is a more appropriate principle to govern human interactions. However, it probably won’t do to assert so without argument — although I think preferring the economic means should have a certain intuitive appeal. Fans of utilitarian/economic arguments should note that it is only through the economic means, and only with the exclusion of the political means, that a Pareto optimum is attainable. We might also employ the more obvious ethical arguments against theft and violence, and remark that at the heart of many of our ideas about ethics, consensuality seems to be central.

I gloss over these considerations because I am concerned primarily here not with teasing out all the ethical implications of economic/political distinction, but in determining which classification describes union activity.

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Blogger Kareem Amer Missing in Egypt

by Grant Babcock on February 9, 2011 · 2 comments

in International, Personal Liberty

Kareem Amer, noted Egyptian blogger and democratic activist has not been heard from since 11 PM on February 6. Recently released after four years of imprisonment, Kareem was last seen leaving Tahir Square, the center of the anti-government protests. His friends fear he may have been ambushed and arrested or kidnapped by supporters of Mubarak.

In a recent interview with CyberDissidents.org, Kareem remarked:

America must stop protecting the Egyptian regime. Don’t be fooled by Egyptian propaganda which suggests that the regime opposes Islamist extremism. In fact, fundamentalism is secretly supported by totalitarian regimes in the region, foremost among them Egypt. This is in order to say to the West, “Look, there are these fundamentalists, and our stable secular dictatorship is the only alternative.”

Islamic fundamentalist terrorism is the number one enemy of the United States. The primary driver of this radicalism, and what most increases their numbers, is the absence of freedom — social freedom, political freedom, freedom of speech, etc. People will take various routes to escape oppression, and one of the most dangerous routes is that of religious radicalism, especially since religion in our society is so deeply entrenched in popular culture…

…I totally disagree with the idea that the only alternative to the Egyptian regime is a warmongering theocracy that would threaten other countries such as Israel. The world shouldn’t be fooled by Egyptian propaganda produced for Western consumption that suggests that the current regime is, for example, the only one capable of protecting Israel.

As protests in Egypt grow, there will be temptation to say that Mubarak needs to remain in power until an orderly transition can take place, so as to avoid chaos ans a potential theocratic takeover. Nothing could be further from the truth. Kareem’s disappearance is evidence that rights abuses will continue until Mubarak is out of power. Moreover, negotiations with the Mubarak regime would be a tactical mistake for democratic forces at this point. In his book From Dictatorship to Democracy, Gene Sharp has a chapter about the dangers of negotiating with dictators. Here is an excerpt:

The offer by a dictatorship of “peace” through negotiations with the democratic opposition is, of course, rather disingenuous. The violence could be ended immediately by the dictators themselves, if only they would stop waging war on their own people. They could at their own initiative without any bargaining restore respect for human dignity and rights, free political prisoners, end torture, halt military operations, withdraw from the government, and apologize to the people.

When the dictatorship is strong but an irritating resistance exists, the dictators may wish to negotiate the opposition into surrender under the guise of making “peace.” The call to negotiate can sound appealing, but grave dangers can be lurking within the negotiating room.

On the other hand, when the opposition is exceptionally strong and the dictatorship is genuinely threatened, the dictators may seek negotiations in order to salvage as much of their control or wealth as possible. In neither case should the democrats help the dictators achieve their goals…

…The call for negotiations when basic issues of political liberties are involved may be an effort by the dictators to induce the democrats to surrender peacefully while the violence of the dictatorship continues.

As the continuing oppression in Egypt makes clear, “basic issues of political liberties” are exactly what is at stake here. Open and honest elections will only be possible after the Mubarak regime has been put out of power.

Socialist and theocratic elements will indeed pose a threat to the possibility of a free Egypt, and I don’t have any easy answers about how the U.S. might minimize their influence. But what stands to be gained, what Kareem hopes for, is too great of a possibility to let these dangers lead us to coddle Mubarak: we’re talking about a secular democracy in the Middle East, achieved through internal change, without the need for military intervention.

For years, the U.S. has supported monarchs and dictators in the Middle East as a “second best” option. With Mubarak’s repressive regime teetering on the brink of collapse, there can no longer be a humanitarian or a pragmatic argument for endorsing it.

To learn more about Kareem’s disappearance, and what you can do to help, read Urgent: Egyptian Blogger Kareem Amer Missing at CyberDissident.

FCC Net Neutrality: Some Networks are More Neutral than Others

by Grant Babcock on December 22, 2010

in Regulation, Tech & Telecom

I often have trouble explaining exactly what the problem is with the government mandating net neutrality. Luckily President Obama’s statement on the FCC’s recent decision on the matter has done most of the work for me — I just have to help him be more explicit about a few things. Words in brackets are my additions.

Today’s decision [by FCC bureaucrats] will help preserve the free and open nature of the Internet [as defined by the government] while encouraging innovation [as directed by the government], protecting consumer choice [as circumscribed by the government], and defending free speech [as approved by the government].   Throughout this process, parties on all sides of this issue – from consumer groups to technology companies to broadband providers – came together to make their voices heard. [In fact, the government always listens to the people's complaints, even when it isn't politically expedient.] This decision is an important component of our overall strategy to advance American innovation, economic growth, and job creation. [Because no one will innovate, the economy won't grow, and no jobs will be created unless we, the government, have an overall strategy to make sure that all those things happen.]

I am reminded of a one-liner I once heard about Apple Computer: “Apple offers the best in user-friendliness. User-friendliness, of course, is defined as ‘what Steve Jobs thinks you should find intuitive.’” That’s basically the problem with net neutrality. Sure, a lot of it makes a lot of sense. That doesn’t mean it makes sense for everyone, nor that it will continue to make sense indefinitely. The tech sector evolves by the minute. The FCC? More like a decade. Codifying a certain type of content delivery strikes me as the height of folly, and has led to stagnation in the telecom sector in the past — no one talks fondly of the “Ma Bell” era. So why do so many people want to head back that way?

It seems to me that the likely result of mandatory net neutrality will not be a vibrant, free Internet, but instead a politicized mess where instead of treating all types of traffic equally, it will be the case that some types of network traffic are — to borrow Orwell’s well-known phrase — more equal than others.

For more on network neutrality, check out my colleague Ryan Radia’s piece, “Video: The Open Internet and Lessons from the Ma Bell Era,” and from the Progress and Freedom Foundation’s Berin Szoka and Adam Thierer, check out “Just say no to Ma Bell-era Net neutrality regulation.”

Obama’s Speech to AMA on Healthcare Misses the Point

by Grant Babcock on June 15, 2009 · 2 comments

in Healthcare, Nanny State, Personal Liberty, Regulation

In a speech before the American Medical Association on Monday, June 15, President Obama pitched his plan for heathcare reform. The main thrust of the speech was that his plan would be “deficit neutral” and would not interfere with people’s existing healthcare arrangements, while expanding coverage and offering public alternatives to existing private systems.

Underlying the Obama plan is the same hubris that underlies all schemes to take decisions out of the hands of everyday people and instead entrust them to central planners: the belief that the government knows what you need better than you do. Driving it is a belief that there is only one test of an equitable system: outcomes. “We need to give doctors bonuses for good health outcomes,” said the President, “so that we are not promoting just more treatment, but better care.”

President Obama asserted several times in his speech that he does not seek to establish a “government-run” health care system, and that anyone who claimed otherwise is incorrect. It seems that the President has a poor understanding of his detractors’ complaints. Obama is not in favor of a euphemistically named “single-payer” system, no — but he is in favor of making some Americans pay for others’ health care, and for establishing a “Health Insurance Exchange” that would include a “public option.” Obama said that, “to help ensure that everyone can afford the cost of a health care option in our Exchange, we need to provide assistance to families who need it.”

Who is “we?” It is the taxpayer.

The establishment of a “public option” in heathcare will do what the establishment of a “public option” did to housing markets: create massive economic distortions, misallocate resources, and drive participants (in this case, patients and doctors) out of the private sector. You can’t keep your doctor and current health plan, as Obama promised would be the case, if your doctor decides to close up shop or if your private health plan is distorted by “competition” with publicly-funded government agencies.

“Because our health care system is so complex and medicine is always evolving, we need a way to continually evaluate how we can eliminate waste, reduce costs, and improve quality,” said Obama. This is precisely the argument for a free market solution. Doctors and patients must be allowed to apply the specialized knowledge they have about their particular conditions and resources, free of government meddling. Markets eliminate waste, reduce cost, and improve quality; firms that fail to do so are quickly replaced by others who succeed. Obama, it seems, doesn’t understand this, given that he reached the opposite conclusion, saying “I am open to expanding the role of a commission created by a Republican Congress called the Medicare Payment Advisory Commission – which happens to include a number of physicians.”

Americans should not be fooled by Obama’s misleading assurance that healthcare reform will be accompanied by a reduction in paperwork. Government-enforced busywork is a problem, and reform in that area is always welcome, but it cannot hope to offset the bureaucratic nightmare that will result from expanded government reach into the medical profession. Healthcare becomes more expensive every time the government digs its fangs in deeper, and Obama has concluded that the problem is the fangs aren’t long enough.

In addition to the economic problems associated with an expanded government role in medicine, Obama’s plan includes a massive expansion of the surveillance state. Discontented with merely monitoring your phone calls and forcing the states to issue a national ID card, the Feds now want your medical records.

“[Patients' medical information] should be stored securely in a private medical record so that your information can be tracked from one doctor to another – even if you change jobs, even if you move, and even if you have to see a number of different specialists,” said Obama. This proposal calls for a central database of citizens’ most private information. The potential for abuse is astronomical and certainly outweighs any gains that might be made under such a system. Moreover, the system would be government-mandated, and therefore government-controlled. How long would it be before the same body that passed the PATRIOT Act without reading it completely dissolves doctor-patient confidentiality in the name of national security?

Obama assured the AMA that his plan wouldn’t mean government would be “dictating what kind of care should be provided.” It is unclear how it could do anything else. A “public option” would have to be subject to public scrutiny to prevent abuse. For doctors delivering care under the “public option,” the kind of care provided would absolutely be dictated, by the establishment of quality standards and guidelines. These standards would lead to the poorest Americans receiving the worst care, while new, cheaper treatments languish in regulatory purgatory. Essentially, the problems created by existing government regulations would be magnified, especially for the poor.

The president recognized these problems when he pointed out that the FDA does a poor job of approving generic drugs, and that millions of dollars could be saved by streamlining the process. Streamlining or abolishing regulatory processes would do more to improve healthcare than anything else the President proposed.

And then there’s the cost. Some of the plan would be paid for through Medicare reform, but most would come from “raising revenue by doing things like modestly limiting the tax deductions the wealthiest Americans can take to the same level it was at the end of the Reagan years.” Obama recognized the need to put the cost of his plan in perspective, saying:

“There are already voices saying the numbers don’t add up. They are wrong. Here’s why. Making health care affordable for all Americans will cost somewhere on the order of one trillion dollars over the next ten years. That sounds like a lot of money – and it is. But remember: it is less than we are projected to spend on the war in Iraq.”

It is unclear why the cost of the war in Iraq should serve as a benchmark for anything, let alone a national healthcare program, and to his credit, Obama did also compare the cost of his proposed reforms to the cost of maintaining the current system. What he did not do, and what must be done, is to consider the cost of not rolling back existing programs and letting medicine be what it once was-a matter between patients and doctors.