osewalrus (osewalrus) wrote,

About that Libertarian thing

Allow me to elaborate a bit on my issue here, as it goes to the heart of one of the major issues in modern democracy.

1) Is there something _wrong_ with an ideological approach?

2) Does ideology influence the collection and interpretation of data.

I'm going to base this on my little debate on Friday rather than on anyone I know socially. So hope no one gets offended.

The P&FF folks, and most of the Libertarians I know, proceed from a basic premis that the role of government should be limited to two basic responsibilities: enforcement of contract rights and enforcement of property rights. This usually includes what we might otherwise call personal rights or civil liberties as a species of property rights. e.g., the right to not have people use high-power listening devices to hear what goes on in my house, or record my voice on the phone without my permission, can be characterized as a species of property right inherent in my person. Similarly, my right to be free from physical assault can be treated as a property right as much as it is treated as a basic liberty.

Following the Lochian model, most Libertarians agree that some form of taxation distributed equally among all people to pay for these shared services necessary to enforce basic rights.

I've simplified of course, because there is already some debate among Libertarians at this point as to the nature and origin of property rights and whether the government can create them. For example, should use of the electromagnetic spectrum be governed on a property rights model or without government involvement at all?

All of this is, of course, a matter of ideology. There is nothing inherently right or wrong with preferring a Lochian model to preferring a more elaborate form of social compact, or some other theory such as facism or communism.

Not surprisingly, we must therefore turn to two sets of principles. First is the question of economic efficiency. This is the Milton Freidman school. Libertarianism is the best approach because it provides the greates economic efficiency in the form of the greatest benefit to society as a whole.

The other set of principles is moral principles. It is simply wrong to compel one human being to pay for something against his will that will benefit another human being. (as opposed to those few matters in contract and property rights enforcement where all people benefit equally.)

Here is a simple thought problem to determine where you fall on the Libertarian scale. The economist Pareto (whose work was later coopted by the Italian facist movement) proposed a model of economic efficiency called "Pareto Efficiency." Pareto efficiency occurs where you cannot make someone better off without making someone worse off. For example, assume I have a license to use the electromagnetic spectrum (but am not allowed to make money from it). A technology comes along that allows others to use the spectrum on a non-interfering basis. As a matter of Pareto efficiency, we should permit the new technology. By contrast, if my license to use the electromagnetic spectrum is a property right, then even though permitting non-interfering uses increases Pareto efficiency, it violates a species of property right.

Where you are on the Libertarian scale tells you how to answer this question without recourse to any economic data (because I cheated fror the sake of my hypothetical and took value based on scarcity out of it). Most people, whether they have ever heard of Pareto or not, prefer to maximize Pareto efficiency regardless of property rights. By contrast, most Libertarians will prefer to protect property rights, even at the cost of Pareto efficiency.

I don't mind folks asserting moral values. What I do mind is people making sweeping assertions about economics when they don't have either the empircal data or the economic background to back up their assertions. This was my issue with Tom Lenard. He kept asserting that (a) municpalities did not make money providing broadband services, (b) therefore, the assets were misapplied to the detriment of tax payers. I responded that the experience of Cedar Rapids, Iowa, and Scottsburough, Indiana provide real world rebuttals. Cedar Rapids has experienced a fourfold growth in economic development as compared with its neighboring and identical city, the sole difference between the two being the presence of a municipal broadband system. This provides a broadly distributed benefit to the community as a whole as well as a return on investment to the municipality (through increased tax revenues) not measured by direct return on investment as measured by subscriber fees. Scottsburgh involved retention of the primary employer of the town by providing a broadband network.

As we can see, the question of where the "economic truth" lies has already become somewhat more challenging. The overall increase in tax revenue and overall increase in economic activity is a clear benefit and broadly distributed. At the same time, if the city were a private sector actor, it would be operating at a loss. (Although even this is not entirely true, as horizontally and vertically integrated businesses like cable and telephone providers routinely subsidize their broadband build outs with revenues from monopoly video and voice services). Now we throw in some additional issues. Most cities build networks to provide for health and safety, but they have huge excess capacity. Why shouldn't the city sell the excess capacity or make it freely available as a municipal broadband network?

Case in point, the City of New Orleans has built a wireless network for public safety (using unlicensed mesh nodes). It can make capacity generally avialable at about 600 KBPS, and still have plenty of capacity for its public safety needs. Why shouldn't it?

Because, answers Lenard, that will prevent private investment. So the city will be stuck with a crappy network. Common sense.

Ah, I aswer, but empirical evidence shows that this isn't what happens. A few studies by George Ford and Sharon Gillete of MIT show the exact opposite. Once people become accustomed to a base line service, those who can afford more gladly pay for more. As private networks are interested in selling higher-end more profitable networks, their market remains untouched. Ford's study of Florida muni systems show an increase in the number of private telecommunications providers in the presence of municipal telecom networks.

Ah, replies Lenard, but those are CLECs, not true facilities based providers. So you aren't getting real investment in infrastructure.

Not so, I reply, CLECs build infrastructure on top of the existing infrastructure, which they could not hope to build on their own.

Again, "economic empericism" is muddled. Should we only "count" infrastructure investment? Why? Why not?

So Lenard falls back to the basic argument that what is happening is a wealth transfer from one set of people (tax payers) to another (CLECs and users of the network) and that is wrong.

Which, to me, is back in non-economic ideological land. If the people of Lafeyette, LA vote 68% to 32% to fund a public broadband network by municipal bond, why is that wrong? Because the 32% who didn't want to go along? O.K., but that's not an economic argument, it is an ideological argument. Because Lafeyette must do a crappy job because it is a public entity? Again, barring empirical evidence, this is an ideological argument. Most municipalities provide some form of subsidized public transportation. This does not have negative impact on taxis or automobile ownership, as far as I cant tell, despite the fact that we use public dollars to subsidize the public transportation system (and use public dollars to subsidize the private transport, in the form of road construction and maintenance). If public trasnportation is not sufficiently innovative, opt out with private systems. We are seeing this later phenomena in the space industry, where inefficient public space systems are starting to be replaced by private systems.

My biggest problem, I suppose, is that the disciples of Milton Friedman continue to live in the 1960s where there was a very real concern that private systems of capitalism were on the verge of being replaced by socialist systems that were purportedly more efficient at distributing social benefits. But Friedman's demonstration of the power of private markets as opposed to state socialism is hardly a definitive proof against any form of state intervention. The engines of capitalism can be powerful drivers for the creation and distribution of wealth. But they can also produce disequilibriums or fail to produce valuable social and economic goods. Even the notion of a "market" that consist of a willing buyer and a willing seller setting an ideal price does not exist outside of Econ 101. The attempt to recreate it in the form of Ebay demonstrated the need for more complex systems. (Ebay, of course, is beloved of Libertarians because it recapitulates most of the innovations of government using a contractual model. As always, it fails to recognize that there is rather a difference between my voluntary participation in a system to sell a product or buy a product and the ability of such a system to cope with more complex markets where issues such as economies of scale, network effects, and access to essential facilities warp "pure" market dynamics.)

(No, actually I'll confess my biggest problem is that most folks I know just don't know beans about modern economics. (Sadly, this applies to most policy decision makers) If you think you do, please define the following commonly used economic terms (without using Google, Wikipedia or other internet research).

1) Switching cost.

2) Schumpeterian monopoly.

3) Duopoly. (Extra credit: distinguish between a true duopoly and a Steckelbergian Duopoly)

4) Network effect (as distinguished from economies of scale).

5) Explain the difference between market share, market power, and monopsony power. For extra credit, explain how a monopsonist determines efficient price point as opposed to a monopolist.

6) What do the Hirschal-Herfeandahl Index (HHI), Lerner Index, and Tobin Q measure? How do they differ? Bonus point- which is used by the Department of Justice Anti-Trust Division?

7) Substitutability. (Bonus, what does "Closely substitutable" as opposed to "non-closely substitutable" mean?)

8) Price sensitivity.

9) Transaction costs.

10) Rent seeking behavior.

If you can answer half of these, you probably have enough background to understand "real economic data" which is supposed to inform these decisions. If not, you are taking this on faith, because trying to understand real economic data is like trying to get the "real" meaning of the Bible from the King James translation. It works if you are an Anglican, but don't expect Biblical scholars to take you seriously.)

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