Posts filed under ‘Classical Liberalism’
Does Sarbanes-Oxley Reduce Innovation?
| Peter Klein |
Thanks to Sarbanes-Oxley, Apple customers can’t take advantage of faster wi-fi cards without paying an extra fee. That’s Apple’s explanation, anyway:
With a quick software update from Apple, customers’ “g” machines would become “n.” Voila, a surprise instant upgrade that means happy customers and good karma for Apple. . . .
According to Apple, however, accounting rules have complicated matters. . . . On the one hand, if it had announced that its computers were shipping with n-capable cards that would be activated later, it would have had to wait to record some of the revenue garnered from each computer until it actually activated the feature. That would have been an accounting nightmare. On the other hand, not having acknowledged the feature when the machines first shipped, Apple can only count it as a valuable feature if it charges users for activation. That way, the original product was “complete,” and accounting rules let Apple count all of the revenue when the machines were sold — the intuitive, straightforward accounting approach that a reasonable observer would expect. . . .
The rule that made Apple’s mess predates Sarbanes-Oxley — but Sarbox’s stiffened penalties may well have changed Apple’s calculus.
This is from a piece in the current issue of American.com. Writer Jerry Brito also quotes Jim Clark’s letter resigning from the board of Shutterfy:
Sarbox dictates that I not Chair any committee due to the size of my holdings, not be on the compensation committee because of the loan I once made to the company, not be on the governance committee, and it even dictates that some other board member must carry out the perfunctory duties of the Chairman. . . . What’s left is liability and constraints on stock transactions, neither of which excite me.
Schumpeterian Competition and Economic Growth
| Peter Klein |
Nobel Laureate Michael Spence writes about sustained high growth in today’s (gated) WSJ. Focusing on Botswana, China, Hong Kong, Indonesia, Korea, Malaysia, Malta, Oman, Singapore, Taiwan, and Thailand, Spence notes:
While each instance of sustained high growth is to some extent idiosyncratic, they share certain features. In all cases, there is a functioning market economy with its price signals, incentives, decentralization and enough definition of private property ownership to enable investment. All attempts to circumvent this necessary condition through central planning have met with major misallocations of resources and failure.
Isn’t it wonderful that the Austrian and public-choice critiques of central planning are so well-known that invoking them seems almost, well, trite?
A key feature of sustained high growth, Spence adds, is resource mobility:
Contrary to the image that sometimes comes from a macroeconomic overview, productivity growth at these rates is not achieved by having everyone do what they were doing before, but a little bit more efficiently. The portfolio mix of economic activity changes very rapidly. This is what Schumpeter called “creative destruction” and Paul Romer calls “churn.” . . . This movement of people geographically and across sectors is not an ancillary side effect of the growth process, but rather the essence of it.
Incidentally, Schumpeterian competition is not always easily discernible at a microeconomic level. Paul Vaaler and Gerry McNamara find mixed evidence for increasingly “dynamic competition” in the US technology sector. (See also the essays in Paul’s book with Lee W. McKnight and Raul L. Katz.)
Carl Schramm on Ethics
| Peter Klein |
Kauffman Foundation president Carl Schramm doesn’t like legislative solutions to business-ethics problems:
The emergence of statutory standards of ethical commercial behavior reflects a belief that fundamental human behavior in the marketplace can be better ordered by government than by honoring and enforcing absolute ethical, shared standards as reflected in the common law. In fact, the substitution of statute and regulations for self-imposed absolute standards may invite further corrupt behavior as statute and regulations tend to parse broad ethical concepts into the minutiae of elements of violations and to articulate the lowest standard of acceptable conduct, if not explicitly, then by means of obfuscatory language.
This from Schramm’s “The High Price of Low Ethics: How Corruption Imperils American Entrepreneurship and Democracy” in the current issue of the Journal of Markets and Morality. (The journal’s site is gated, but a pre-publication version is available here.)
The Case for Killing the FCC
| Peter Klein |
Jack Shafer has a very nice piece in Slate on the Federal Communications Commission:
Although today’s FCC is nowhere near as controlling as earlier FCCs, it still treats the radio spectrum like a scarce resource that its bureaucrats must manage for the “public good,” even though the government’s scarcity argument has been a joke for half a century or longer. The almost uniformly accepted modern view is that information-carrying capacity of the airwaves isn’t static, that capacity is a function of technology and design architecture that inventors and entrepreneurs throw at spectrum. To paraphrase this forward-thinking 1994 paper (PDF), the old ideas about spectrum capacity are out, and new ones about spectrum efficiency are in.
As every freshman economics student knows — but most regulators (and ecologists) do not — the degree to which a particular resource is “scarce,” in the economic sense, depends on consumer preferences and the state of technology. Oil was not a scarce resource until people learned how to refine it into useful products like kerosene and gasoline. The supply of a given resource, like spectrum, is not fixed, but varies with our knowledge of how, and for what, to use it.
Shafer also points out that the FCC has been not an enabler, but an obstacle, to technological advances in telecommunications. The Commission “stalled the emergence of such feasible technologies as FM radio, pay TV, cell phones, satellite radio, and satellite TV, just to name a few. As Declan McCullagh wrote in 2004, if the FCC had been in charge of the Web, we’d still be waiting for its standards engineers to approve of the first Web browser. ”
Update: James Delong likes it too.
Ode to the RIAA
| Peter Klein |
Regular readers will know that we are not entirely sympathetic to the concept, let alone current legal treatment, of intellectual property (1, 2, 3). Fellow IP-skeptics are sure to enjoy David Pogue’s “Ode to the R.I.A.A” (Recording Industry Association of America), to the tune of the Village People’s “YMCA.” (more…)
Do Multinationals Restrain the State?
| Peter Klein |
I referred early to Ralph Raico’s essay on the European Miracle, the unprecedented, long-term rise in living standards that began in late-medieval Europe. As discussed there, the consensus of mainstream scholars such as Rosenberg and Birdzell, Mokyr, North, Landes, and Weingast is that Europe grew rich because unlike more centralized Eastern civilizations, European political and social life was controlled by a complex, decentralized mosaic of institutions and organizations, each of which placed limits on the other.
The most important of these institutions was the transnational Church. The concept of the sovereign as subordinate not only to a Higher Law, but also to a higher earthly authority, located outside his realm, was unique to European politics. State power was thus restricted by horizontal competition among sovereign states and complex vertical relationships between church and state.
Today, of course, the Catholic Church no longer plays this limiting role. However, there are other multinational and transnational institutions that place powerful limits on state power. These include charitable and relief organizations such as the Red Cross or Doctors Without Borders, religious movements and groups, the news media (we bloggers especially!), and other voluntary associations. But the most important of these institutions is the multinational or transnational corporation. What role do multinational firms play in limiting the power of the state? (more…)
The New Model CEO
| Peter Klein |
The firing of Home Depot’s Robert Nardelli, whose Saban-esque compensation package was a flashpoint of controversy during his six-year tenure as CEO, dominates the front page of Thursday’s WSJ. Alan Murray’s column, “Executive’s Fatal Flaw: Failing to Understand New Demands on CEOs,” neatly summarizes the New Corporate Governance:
What Mr. Nardelli missed . . . is that in the post-Enron world, CEOs have been forced to respond to a widening array of shareholder advocates, hedge funds, private-equity deal makers, legislators, regulators, attorneys general, nongovernmental organizations and countless others who want a say in how public companies manage their affairs. Today’s CEO, in effect, has to play the role of a politician, answering to varied constituents. And it’s in that role that Mr. Nardelli failed most spectacularly.
Here’s the problem: Do we really want CEOs to be politicians? If we accept Hayek’s argument that in the political marketplace, the worst get on top, what kind of leader becomes our New Model CEO? (more…)
NASA Didn’t Invent Tang
| Peter Klein |
Or velcro, the microwave oven, teflon, or nylon, not to mention semiconductors, microprocessors, or the internet, to name just a few innovations falsely credited to America’s giant, bloated, and highly inefficient space bureaucracy. Tim Swanson reminds us of all this, and adds:
In the end, regardless of what the state did or did not fund or invent, the take-away principle is the unseen. While everyone with a TV has been able to see the hordes of chemical rockets dramatically blast into the cosmos over the past decades, they were similarly unable to see the productive opportunities foregone and ignored via the reallocation of scarce resources.
The perceived benefits of a vain, nationalized space program include, among others, the fallacious need to fight the mythical shortage of scientists and engineers. Whereas in reality, it has stymied private tourism, exploration, and research for nearly half a century.
Tim also notes that during the Space Shuttle’s development, NASA engineers regularly testified before various appropriations committees that the Shuttle’s estimated failure rate was 1 per 100,000 missions. The actual failure rate has been 1 in 50.
Putting “Corporate Scandals” in Perspective
| Peter Klein |
Enron, WorldCom, Arthur Andersen, Parmalat. . . . The list goes on and on. Maybe you didn’t hear about this one though:
The largest employer in the world announced on Dec. 15 that it lost about $450 billion in fiscal 2006. Its auditor found that its financial statements were unreliable and that its controls were inadequate for the 10th straight year. On top of that, the entity’s total liabilities and unfunded commitments rose to about $50 trillion, up from $20 trillion in just six years.
If this announcement related to a private company, the news would have been on the front page of major newspapers. Unfortunately, such was not the case — even though the entity is the U.S. government.
This is from a letter by the US Comptroller General appearing in the 24 December Washington Post (via Don Boudreaux). See also James Sheehan’s prescient 2002 article, “Real Accounting Fraud,” about the post-Enron frenzy in Washington, DC. “It is particularly frightening that a group of people skilled mainly at feeble speechifying and crass fund-raising would consider itself qualified to stand in judgment of corporate accounting scandals. All members of Congress are direct participants in the biggest accounting fraud going — the federal government — and have never lifted a finger to bring it under control.”
Kleins in the News
| Peter Klein |
As noted previously, Ronald Coase has serious disagreements with UCLA economist Benjamin Klein. A few years ago, Coase and I had an extended, and pleasant, conversation about his work. He concluded by announcing, with evident satisfaction: “I see all Kleins are not alike.”
Indeed, I tend to disassociate myself from some Kleins, but am enthusiastic about others, such as George Mason University economist Daniel Klein. Dan has done outstanding research on the ideological profile of university professors. Dan’s work is challenged in the current issue of Public Opinion Quarterly by sociologists John F. Zipp and Rudy Fenwick, who deny the existence of “liberal bias” in the academy. Dan and Charlotta Stern have written a reply, currently under review at the same journal. Here’s the abstract:
In a recent Public Opinion Quarterly article “Is the Academy a Liberal Hegemony?,” John Zipp and Rudy Fenwick pit themselves against “right-wing activists and scholars,” citing our scholarship (Klein and Stern 2005a; Klein and Western 2005). Here we analyze Zipp and Fenwick’s characterization of our research and find it faulty in three important respects. We then turn to their “liberal v. conservative” findings and show they concord with our analysis. If one feels that it is a problem that humanities and social science faculty at four-year colleges and universities are vastly predominantly Democratic voters, mostly with what may called establishment-left or progressive views, then such concerns should not be allayed by Zipp and Fenwick’s article.
A New Institutional Thanksgiving
| Peter Klein |
Tomorrow we Americans celebrate the traditional Thanksgiving meal. As we gather for family, feasting, and fellowship, let us remember the real leitmotif of the Thanksgiving drama: property rights.
As Ben Powell reminds us:
Many people believe that after suffering through a severe winter, the Pilgrims’ food shortages were resolved the following spring when the Native Americans taught them to plant corn and a Thanksgiving celebration resulted. In fact, the pilgrims continued to face chronic food shortages for three years until the harvest of 1623. Bad weather or lack of farming knowledge did not cause the pilgrims’ shortages. Bad economic incentives did.
In 1620 Plymouth Plantation was founded with a system of communal property rights. Food and supplies were held in common and then distributed based on “equality” and “need” as determined by Plantation officials. People received the same rations whether or not they contributed to producing the food, and residents were forbidden from producing their own food. Governor William Bradford, in his 1647 history, Of Plymouth Plantation, wrote that this system “was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort.” The problem was that “young men, that were most able and fit for labour, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense.” Because of the poor incentives, little food was produced.
Faced with potential starvation in the spring of 1623, the colony decided to implement a new economic system. Every family was assigned a private parcel of land. They could then keep all they grew for themselves, but now they alone were responsible for feeding themselves. While not a complete private property system, the move away from communal ownership had dramatic results.
Tom Bethell, author of the highly recommended The Noblest Triumph: Property and Prosperity through the Ages, provides a more detailed account here.
Update: Don’t miss Murray Rothbard’s typically insightful and engaging account, from volume 1 of his Conceived in Liberty.
More on Economics and Ideology
| Peter Klein |
Henry at Crooked Timber asks if economics is a form of “right-wing indoctrination.”
Democracy Explained
| Peter Klein |
My student Christos Kolympiris sends along a version of the heaven and hell joke in which the protagonist is a US senator. The punch line: “Yesterday we were campaigning. . . . Today you voted.”
I personally like the definition — often attributed to Benjamin Franklin, probably mistakenly — that “democracy is two wolves and a lamb voting on what to have for dinner,” while “freedom is a well-armed lamb contesting the vote.”
If you like political cynicism, it’s hard to top this passage from the great H. L. Mencken, writing in 1920:
The larger the mob, the harder the test. In small areas, before small electorates, a first-rate man occasionally fights his way through, carrying even the mob with him by force of his personality. But when the field is nationwide, and the fight must be waged chiefly at second and third hand, and the force of personality cannot so readily make itself felt, then all the odds are on the man who is, intrinsically, the most devious and mediocre — the man who can most easily adeptly disperse the notion that his mind is a virtual vacuum.
The Presidency tends, year by year, to go to such men. As democracy is perfected, the office represents, more and more closely, the inner soul of the people. We move toward a lofty ideal. On some great and glorious day the plain folks of the land will reach their heart’s desire at last, and the White House will be adorned by a downright moron.
If At First You Don’t Secede, Try, Try Again
| Peter Klein |
We referred earlier to some interesting work on the natural boundaries of states. Today I learn that a majority of my Scottish kinsmen want to secede from the United Kingdom. The Scottish National Party (sorry, in Gaelic: Pàrtaidh Nàiseanta na h-Alba) is gaining ground on Labour and threatens, if it takes power, to hold a referendum on Scottish independence.
As Mises wrote in his great 1927 book Liberalism:
The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars.
The Intellectuals and Socialism
| Peter Klein |
Why do academics lean left? This is been a frequent topic here at O&M (1, 2, 3, 4, 5). My own modest contribution to this debate appears as today’s Daily Article at Mises.org. Comments are welcome below or at the Mises blog.
Science and Public Funding
| Peter Klein |
As discussed previously on these pages, the relationship between scientific research (basic and applied) and public funding is more subtle and complex than is usually assumed. The current issue of the Independent Review features an article by William N. Butos and Thomas J. McQuade, “Government and Science: A Dangerous Liaison?”, exploring this relationship in detail. Write Butos and McQuade:
There are serious reasons . . . for thinking that the liaison between government and science carries with it unrecognized dangers for the functioning and integrity of science as a reliable generator of knowledge. It is not so much that government seeks to exert a blatant and crude control over the content and direction of scientific inquiry — although such heavy-handed intrusion has precedents, most notably in the USSR — but that the structure and conduct of seemingly benign and generous government funding of science has side effects that generate instabilities in scientific activity in the short run and corrode the structure and adaptability of the system of science itself in the long run.
Dan Klein’s fine EconJournalWatch has published two recent pieces on the effects of public funding on research in two branches of applied economics, by Larry White on monetary economics and E. C. Pasour, Jr., on agricultural economics.
Election Day
| Peter Klein |
Today is election day in the US and, like a majority of my fellow American citizens, I’m exercising my cherished right not to vote. Unlike most Americans, however — but like Brian Doherty — I’m proud, not ashamed. “Don’t vote,” I say. “It only encourages them.”
Just to show you that economists have a sense of humor, let me share these pictures of my office door, decorated by my colleagues in 2004 in a vain attempt to shame me for not voting. (Don’t miss the Dr. Seuss-inspired poem.)
Some good non-voting resources: this piece in Slate and this archive. I think Tyler Cowen gets it right: “Overall I view voting as a selfish act, usually done for purposes of self-image…. I fondly recall Gordon Tullock’s point: ‘The paradox is not why people vote, but why everyone doesn’t vote for himself.’ “
Was Coase Right About the Lighthouse?
| Peter Klein |
A few years ago I attended a Liberty Fund conference on the private provision of public goods. In preparation for the conference I re-read Coase’s classic 1974 article, “The Lighthouse in Economics,” for the first time since my graduate-school days. I recall being surprised how much weaker the argument was than the way I had remembered it. Far from showing that British lighthouses were “private” — as the paper is widely thought to have demonstrated — Coase’s analysis shows simply that public goods can be financed through user fees, rather than general tax revenue. But, in the case of the British lighthouses, the user fees were compulsory, government-enforced levies on ship owners, not voluntary market transactions. The British lighthouses were government-granted monopolies, more like the East India Company or a local public utility than “free-enterprise” institutions. (more…)
Salvation Through Corn?
| Peter Klein |
I enjoyed this rant against agricultural subsidies by Kyle of Impudent Domain. Kyle is mostly on target (though E. C. Pasour provides a more systematic overview of the relevent issues here and here). The best part is the closing line, on the ethanol boondoggle, which echoes William Jennings Bryan. I say, you shall not crucify American energy consumers on a cross of corn!
American Economists: Not So Free-Market After All
| Peter Klein |
I’ve blogged previously about Daniel Klein’s work on the political identities and policy views of economists and other academics (here and here). A new paper by Klein and Charlotta Stern surveys American Economic Association members on various policy issues, finding that “about 8 percent of AEA members can be considered supporters of free-market principles, and that less than 3 percent may be called strong supporters. . . . Even the average Republican AEA member is ‘middle-of-the road,’ not free-market.”
Why are economists almost universally perceived as strong supporters of the free market? Klein and Stern offer several conjectures. One is that economists tend to be strong supporters of (international) free trade and at least partial liberalization, making it look like economists support free-market principles more generally. Another is that most academics in the social sciences and humanities are strongly opposed to the free market, making economists look like radical free-marketeers by comparison. Yet another is that most of the strong supporters of the free market (in academia) are economists, leading to the mistaken inference that most economists are strong supporters of the free market.
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