I gotta read Matt Ridley’s new book, The Rational Optimist. He’s going to be on the Reason/TSI Cruise in January, and here’s a snippet Arnold quoted from the book:
Empires, indeed governments generally, tend to be good things at first and bad things the longer they last. First they improve society’s ability to flourish by providing central services and removing impediments to trade and specialisation; thus, even Genghis Khan’s Pax Mongolica lubricated Asia’s overland trade by exterminating brigands along the Silk Road…But…governments gradually employ more and more ambitious elites who capture a greater and greater share of the society’s income by interfering more and more in people’s lives as they give themselves more and more rules to enforce, until they kill the goose that lays the golden eggs. There is a lesson for today.
This is exactly my view of history, the one you can find in Mancur Olson, or applied to the USA in Rauch’s book “Government’s End”. The normal mode of government is to parasitically waste more and more of society’s resources, until there is a phase shift (collapse, revolution against government, revolution of colony against empire, etc)[1]. The US and Europe have, in my opinion, moved from the middle stage of this process towards the end stage. They have only decades remaining in their current form. If you want to personally influence the future, you should be watching this trend and asking yourself – what comes next? How can the transition be as painless as possible?
The sad thing is, a lot of people are wasting a lot of time and resources on trying to cure this metastasized terminal cancer. There don’t seem to be that many people who are, like we at this blog (and my professional work at TSI), working on figuring out the next stage. I really wish there were more serious alternatives (real options with real transition plans – not utopian hopes) being proposed, and more resources behind all of them. I’m biased, but I don’t think it’s just that. This is serious, folks.
Although…much less serious than past collapses. I don’t think there will be much starvation or bloodshed. Paying attention to your own life and letting societal re-organization take care of itself is eminently reasonable, this time around. I don’t fault anyone for doing that. But I do fault those who act without careful analysis, and so make poor use of their resources. Ah well – took me many years to see the light.
Anyway, just wanted to make sure everyone knew that current socialist western democracies are in a slow collapse, in case you hadn’t gotten the bulletin yet :).
[1] To be honest, I must admit that I’ve only studied this phenomenon in the context of democracy, so while I am inclined to believe it is more generally true, that could just be my prejudices speaking.
Does Majoritarian Democracy Systematically Result in Moral Hazard and Financial Industry Irresponsibility?
“In this crisis, average Americans have sent hundreds of billions of dollars to some of the richest people in human history.” Russ Roberts
Roberts’ quip (from his excellent article “Gambling with Other People’s Money”) above explains why Americans across the political spectrum are disgusted. A few hundred individuals in the financial services industry who might otherwise have been worth tens of millions of dollars managed instead to get their hands on hundreds of millions of dollars as they destroyed our financial system. Now we are all suffering higher taxes, higher unemployment, fewer new business starts, tighter capital markets, and lower rates of charitable giving so that a few hundred individuals can buy larger islands and bigger yachts. It is a disgusting sight, inconsistent with all moral codes and political philosophies.
What if, instead of being a surprising one time disaster, this outcome was a predictable and routine outcome of our political process? Future economics Nobel laureate Paul Romer explains:
“If you think of the financial system as a whole,” Mr. Romer said, “it actually has an incentive to trigger the rare occasions in which tens or hundreds of billions of dollars come flowing out of the Treasury.”
Romer should know. He and actual economics Nobel laureate George Akerlof published a brilliant analysis of the S&L crisis of the 1980s, titled “Looting: The Economic Underworld of Bankruptcy for Profit” which analyzed how some wealthy executives extracted tremendous sums of money from the S&Ls that they “led” while knowing that their decisions would lead the companies to bankruptcy. Romer and Akerlof conclude:
“Bankruptcy for profit occurs most commonly when a government guarantees a firm’s debt obligations.”
If our best economists knew in 1993, in a widely published article that bankruptcy for profit could occur when government guarantees a firm’s debt obligations, why is it that the U.S. government continue to guarantee debt obligations? Indeed, not only it continued the guarantees, but it expanded them – by means of numerous actions supported by both Democratic and Republican Congressmen expanded the scale of its debt obligations through the deliberate growth of Fannie Mae and Freddie Mac. And note that bankruptcy for profit is merely the most extreme case of moral hazard due to government guarantees; there are plenty of deep moral hazard issues due to government guarantees that could lead to similarly catastrophic outcomes well before we get to the case of outright looters. (See both Roberts and Macroeconomic Resilience, a brilliant anonymous blogger he cites; see the analysis here, here, and here).
Akerlof and Romer ask the key question at the end of their 1993 paper:
“The S&L fiasco in the United States leaves us with the question, why did the government leave itself so exposed to abuse?”
They then get part of the answer right:
“Part of the answer, of course, is that actions taken by the government are the result of the political process. When regulators hid the extent of the true problem with artificial accounting devices, when congressmen pressured regulators to go easy on favored constituents and political donors, when the largest brokerage firms lobbied to protect their ability to funnel brokered deposits to any thrift in the country, when the lobbyists for the savings and loan industry adopted the strategy of postponing action until industry difficulties were so large that general tax revenue would have to be used to address problems instead of revenue raised from taxes on successful firms in the industry-when these and many other actions were taken, people responded rationally to the incentives they faced within the political process.”
If Akerlof and Romer saw so clearly that looting had taken place because “people responded rationally to the incentives they faced within the political process” did they then recommend a dramatic re-evaluation of the political process to prevent a similar financial catastrophe from happening in the future? Unfortunately not; rather than question the political process, they succumbed to wishful thinking:
“The S&L crisis, however, was also caused by misunderstanding. Neither the public nor economists foresaw that the regulations of the 1980s were bound to produce looting. Nor, unaware of the concept, could they have known how serious it would be. Thus the regulators in the field who understood what was happening from the beginning found lukewarm support, at best, for their cause. Now we know better. If we learn from experience, history need not repeat itself.”
Here we are, twenty years later, with a much larger and more damaging catastrophe. Although he was not a regulator, David Andrukonis, Freddie Mac’s chief risk officer, warned of the dangers that Freddie Mac was taking on in 2004 with a remarkable level of detail and foresight:
In an interview, Freddie Mac’s former chief risk officer, David A. Andrukonis, recalled telling Mr. Syron in mid-2004 that the company was buying bad loans that “would likely pose an enormous financial and reputational risk to the company and the country.”
– and support for him was so “lukewarm” that he was let go. As Arnold Kling points out, Syron, the Freddie Mac CEO, has close ties to Barney Frank, the relevant committee chairman. Why, exactly, would Akerlof and Romer believe that people like Andrukonis would be treated differently the next time around? Why should any of us believe that future Andrukonis will be treated differently twenty years from now?
Arnold Kling, Russ Roberts, and other economists are pointing to the government guarantees as the essential problem that must be removed in order to prevent a similar recurrence of financial catastrophe. Ron Paul promoted such a policy move in 2003, with remarkable foresight and wisdom:
Today, I will introduce the Free Housing Market Enhancement Act, which removes government subsidies from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board. . . . Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market.
Had Paul’s proposed bill been passed into law, we would still have a reasonably stable economy and those jerks would be having to get along with merely tens of millions rather than hundreds of millions of dollars. Recently Orin Hatch, joined by several other Republicans, opposed the financial regulation bill because it didn’t address the issue of Fannie Mae and Freddie Mac (which represent only a portion of the government guarantees). Why is this perceived as a partisan issue?
Public choice theory has been well-known in the economics community for fifty years now, with thousands and thousands of scholarly papers published on it. At a minimum, the possibility that government will result in outcomes in which “people respond rationally to the incentives they faced within the political process” ought to be taken seriously by all policy makers everywhere.
At what point do we conclude that:
- A. Our best economists are not taking the implications of public choice theory seriously enough?
- B. Our political process is deeply flawed and must be re-evaluated at a fundamental level?
Do we have to wait another twenty years, provide a few thousand more of the richest people in history with more islands and yachts with our tax dollars, and watch the U.S. itself go bankrupt before we take these issues seriously?
If our best economists all acknowledged that moral hazard through government guarantees was a serious problem, would democracy “work” in that a bi-partisan consensus would develop to eliminate government guarantees?
Or is the more likely conclusion that even if a bi-partisan consensus developed that eliminated all government guarantees in 2010 in a high profile demonstration of civic responsibility, a few years later they would sneak back in, one way or another?
Is the ultimate problem majoritarian democracy itself?
Choosing Your Government Service Provider
Tyler Cowen linked to an interesting Middle East peace proposal:
An even more radical idea has been put forward by Swedish diplomat Mathias Mossberg and UC-Irvine professor Mark LeVine. They do not believe giving settlers Palestinian passports would solve anything. The two propose creating overlapping states between the Jordan River and Mediterranean Sea, delinking the concept of state sovereignty from a specific territory. There would be an Israel and a Palestine, but rather than divide the land, the two states would be superimposed on top of one another. The plan would permit individuals to live where they wish and choose their political allegiance. This, they argue, would resolve the seemingly intractable questions of how to divide the holy city of Jerusalem and whether to allow Palestinian refugees “the right of return” to their old communities.
Tyler thinks this polycentric order will deteriorate for lack of any credible means of resolving disputes. For any law firm or arbitrator specializing in adjudicating these conflicts, it’d be a tough market to enter. Prejudice, bias, culture and a history of vengance–it’s hard to see how an arbitrator could build trust on this foundation.
On a related note about overlapping jurisdictions in general, Arnold Kling writes:
The key, I think, is to transfer people’s emotional attachment from their government to something else, like a religious sect, ethnic identity, or a sports team. You can have Yankee fans and Red Sox fans living next door to one another without infringing on each others’ rights. It’s when people give their emotional loyalty to government that you get friction.
For all sorts of reasons, it’s very difficult to disentangle this emotional attachment, particularly when a perceived moral authority is tied to specific territory. To separate church and state, it took a bloody century or two of reformation and counter-reformation in Europe, plus a mass migration of persecuted sects to North America. Still, despite these difficulties, freedom of religion was established. We now take it for granted that the moral authority of religion is non-territorial. It took a little rule innovation by William Penn to get there, but the upshot is a workable polycentric religious order. By analogy, I think a feasible polycentric legal order will only emerge in a market for governance. People who migrate to a new place are much more likely to accept the rules of their destination than stationary folk who have long labored under the tired old ways.
Attack of the Deracinated Unencumbered Selves
Communitarian Patrick Deneen says contemporary liberalism–by which he means autonomy, individualism, and free-willing–is a dead end. (His phrases, one and all.) At Cato Unbound he writes:
The contemporary Right — most often the defenders of free market capitalism — aid and abet the destruction of civil society by advancing the liberal anthropology through its individualistic economic assumptions, while the contemporary Left defends radical individualism in its defense of “lifestyle” liberalism through an equally ferocious defense of individual rights. In both guises, the defense of anthropological liberalism in the economic or personal sphere requires a corresponding displacement of inherited or cultivated loyalties and commitments to intermediary commitments in the civic realm — family, neighborhood, community, Church, fraternal order, guilds, unions, and so on. Both require a re-education program that renders us mobile and relatively uncommitted, regarding the ties of family and community as obstacles to fulfillment of the self, whether economically or toward the end of “autonomy” or “self-realization.” Both encourage the ethic of “voluntarism” and “preference neutrality,” defining us most fundamentally as individuated selves, and displacing the central role of civil society in fostering a more expansive conception of the self, one interpenetrated and defined by relationships and thereby fostering an ethic of mutuality.
Why does liberalism require any of these things? Sheer nonsense. It says simply you are free to pursue them or not. For example, it doesn’t require a re-education program hostile to family, as Deneen fallaciously accuses. It is silent on the role of family–whether that bond be an obstacle or a nurturing spring. What it says is that it is for you to decide these things. The State may be modeled on “preference neutrality,” but you as an individual are not. The authority of that moral judgement ultimately resides in you. It’s called thinking for yourself.
If, as Deneen says, liberalism encourages “voluntarism,” I wonder what the opposish has going for it–coerced membership? Deneen accuses liberalism of requiring displeasing and repugnant things, but what does his own messianic obligation of self-sacrifice require? He doesn’t come out and say it because he knows it wouldn’t go over well. Distilled, his philosophy is some mixture of the following:
- You ought to have no choice over what community you’re a part of because you’ll have a more fulfilling and enriched life. (i.e. it’s in your interest)
- You ought to obey and stay because it’s in the general interest.
- You ought to obey and stay because the Great Fraternal Chain of Being represents the highest spiritual development of man.
Deneen wants to portray left wing collectivism and libertarian free willing as two sides of the same assumptions. Together, he claims this axis of freedom (again, his phrase) destroys the “ethic of mutuality” that supports civic society. But 19th century American history belies his assertion: community flourished in the U.S. when the power of exit–and entry, for that matter–was at its zenith. The deracinated selves from the East Coast found community and mutuality on the Western frontier. Deneen’s right about collectivist left wing buncombe. “If you don’t do it, the government will” is a guarantee that destroys civil society. So much the worse when government can’t even deliver on that promise. But the ethic of freedom–“If you don’t do it, no one will”–is the great community builder. Call it the existential imperative. In fact, de Tocqueville pointed this out himself:
Amongst democratic nations, on the contrary, all the citizens are independent and feeble; they can hardly do anything by themselves, and none of them can oblige his fellow-men to lend him their assistance. They all, therefore, fall into a state of incapacity, if they do not learn voluntarily to help each other.
A.J. Ayer says political philosophers claim to be interested in answering one question: What is the moral authority that makes political obligation binding? But while philosophers pay lip service to this high ideal of moral inquiry, Ayer concludes they’re really just ad men, advocating their preferred form of government. He offers a handy summary of the answers given by the “greats”:
- You ought to obey because you are forced to. Hobbes.
- You ought to obey because you have promised to. Hobbes, Locke, Rousseau and other believers in the Social Contract.
- You ought to obey because it is in your interest. Plato, Hobbes, Bentham.
- You ought to obey because it is in the general interest. Locke, Rousseau, Mill, Green.
- You ought to obey because it is you who are giving the orders. Hobbes, Rousseau, Bosanquet and other believers in the General Will.
- You ought to obey because God wants you to. Mediaeval writers.
- You ought to obey because the Sovereign is God’s anointed. Absolute Monarchists.
- You ought to obey because the Sovereign is descended from someone who had the right to be obeyed. Legitimists.
- You ought to obey because your government exemplifies the highest point yet reached in the spiritual development of man. Hegel. This can hardly be true of all governments.
- You ought to obey because your government has history on its side. Marx. Again, this may not be true of all governments.
- You ought to obey because you ought to obey. Some English moralists.
- You have no obligation to obey. Anarchists.
Since obeying is by nature low status, and giving commands is high, most contemporary answers to this question will devise clever frames to cajole adherents into believing obeying is not low status. For example, I would say that 9 is ascendant today, where “the spiritual development of man” is understood as man’s ability to reason and argue, in a vogue word, to express “voice” and participate in democracy. Here obedience is portrayed in the grand fashion, full of high status pomp and dignity. In reality, it’s nothing but a honey trap. Deliberative democrats go one step further and combine 9 and 5 in their marketing pamphlets, in the hopes of raising their own status by convincing you of the illusion that you are raising your own.
Notice that many of these answers dissolve if we think in terms of competitive government and the power of exit. To get a feel, add “stay” to every answer. Answer 1 becomes “You ought to stay and obey because you are forced to.” Ummm, no thanks. Answer 9: “You ought to stay and obey because your government exemplifies the highest point yet reached in the spiritual development of man.” Yawn. No thank you, guvnah! They have better accommodations down the way.
Change Incentives, Not Minds
As I’ve written elsewhere, in the ancestral environment, conversation was common and technology was almost non-existent. Therefore the way to change people’s actions was to talk to them and to convince them. The tribe was likely governed by consensus, and so the way to change tribal policies was through politicking.
In the huge modern world, however, societies have millions of people who interact in complex and highly structured ways using a variety of technologies. The benefits of direct persuasion are lower, because each of us can only persuade a small fraction of society. And the benefits of changing incentives (often through technology) are much larger, because incentives reach everyone, and we each operate in a far more complex web of incentives than before. This is not to say that persuasion is useless. Ayn Rand and Milton Friedman, for example, have had a major persuading impact. But they are the exception, not the rule.
With this framework in mind, let me relate one frustrating incident and one inspiring. First, the frustrating one, which was the recent EconTalk with Don Boudreaux on Public Choice. Now, you’d think that a public choice EconTalk would take the position that there are systemic flaws in our current form of government and so we need to find ways to improve our systems to remove the flaws.
Instead, Boudreaux’s position, as far as I could tell, was “Well, there are systemic flaws in democracy…so let’s educate people about them”. It’s a complete non sequitur, which I found very frustrating, because someone who understands public choice ought to be able to see the glaring flaw in this strategy. It’s like saying: “In a democracy, voters are rationally ignorant…so let’s educate voters about rational ignorance to fix it.”, or “In a democracy, concentrated interests with lower transaction costs tend to win in the political marketplace, so let’s teach people this to fix it.” I heard no mention of changing the rules so as to change these incentives. Incentives are like the laws of physics – they work whether or not you believe about them, and whether or not you know about them.
For example, discussing earmarks and pork-barrel politics:
Don Boudreaux: “And the only way they’re going to be prevented, or have any hope for preventing those activities, is if people more widely understand what the true nature of those activities are”
Russ Roberts: “And one of the ways to reduce, in my opinion, to reduce those kind of opportunities, the people who exploit those opportunities is shame. Shame is an under-appreciated social force.”
Can you imagine an economist saying that instead of increasing the price of water in a drought (change incentives), we should educate people about how their water is underpriced and tell them it’s shameful to waste it? That’s the argument that Russ Roberts is making here – shame people into not doing things they have incentives to do, rather than changing the incentives. And Boudreaux argues that education is the answer:
Boudreaux: Because the popular mind so celebrates democracy and has what I’m quite sure is a mistaken notion, a far too romantic view of democracy’s workability, it’s incumbent upon us, again, to show that democracy – or government in general – democracy in particular – has certain flaws that most people are unaware of, and being made more aware of those flaws is important for good public policy analysis.
This would make perfect sense if the “certain flaws” in democracy were “democracy produces bad policy because people aren’t well-informed enough about public choice theory”. But while public choice theorists are saying the answer is teaching public choice theory to the public, public choice theory doesn’t say anything of the kind! Instead, it shows how high coordination costs and low personal benefit lead to voters failing to protect their own broad interests. I’m shocked, frankly, at the size of this blind spot. Public choice is about incentives, education does not change those incentives, and we are not going to get better government unless we get better incentives.
Later, Boudreaux explains how he likes the Constitution of 1787 because he wants to see government restricted. To like the Constitution while liking limited government is rather akin to someone who wants to see alcohol disappear liking the 18th Amendment. Prohibition’s stated intention was to eliminate alcohol use, but it clearly and dramatically failed at this. The Constitution’s stated intention was to restrict government, but it clearly and dramatically failed at this. We can’t simply wish for things to succeed at their stated intentions – if history shows some method didn’t work, then those who support it’s goals should now be *against* the method – and for trying something else. Unless they have a damn good reason why things will be different this time – and I haven’t heard anyone put forth a reason why the Constitution will work better in 2010 than 1787, let alone a good reason.
(I apologize in advance if Boudreaux & Roberts came around to a more reasonable position later in the podcast – I found it so frustrating that I turned it off after 20min to lower my blood pressure).
Now, let me give you an example of a more realistic strategy. Last weekend, I met Greg Lukianoff, president of FIRE, the campus free speech organization that challenges unconstitutional speech codes, and he told me about a very exciting strategy they are pursuing. One of the reasons why universities are so anti-free speech is that the politically correct activists and the lawyers (worried about lawsuits for hate speech or whatever) are on the same side, telling administrators to crack down on anything potentially offensive.
Right now, the administrators have “qualified immunity” against liability for their censorship, as they are acting in good faith, not knowing that these speech codes are unconstitutional. However, since almost every speech code challenged in court has been struck down, it is not actually reasonable or in good faith for administrators to create or enforce these policies. At least, if they understand the legal landscape. Which is why FIRE has sent a detailed explanation of the unconstitutionality of these speech codes by certified mail to 300 schools. Now the administrators are provably informed, which removes their immunity and renders them personally liable for their unconstitutional actions. Thus dramatically changing their incentives. Now that’s fighting for freedom with the power of economics!
It’s remarkable how unoriginal most political philosophers are. In a design space that offers a multitude of possibilities, we find a lot of conflict over a handful of shopworn issues. Many purportedly respectable philosophers spend whole careers on adding the tenth decimal place to already existing views. How come there are so few bold philosophers? And how come so many tow the line rather predictably?
The philosopher John Rawls is perhaps the most famous political philosopher of the last century. And yet his most well-known ideas offer nothing new in the way of design. Indeed, they are the most elaborate and sophisticated post-hoc rationalization for the welfare state to date. His philosophy–and all its accoutrements, the “veil” and the “difference principle“–are nothing but an echo of the institutions and policies already put in place in the U.S. and elsewhere (most notably, Sweden, the geographic lodestone for Rawls’s disciples). First came the New Deal, then came a Theory of Justice. Not vice-versa. This is odd to me–he is famous for offering a justification for old models, not for innovation. It’s as if Harvard decided to honor Walter Mossberg over Steve Jobs.
On the other hand, uneducated, illiterate pirates of the 18th and 17th century were better constitutional innovators than any of the philosophers of that period. Why are we, as Nassim Taleb said in an EconTalk, better at acting and doing outside the box, rather than thinking outside of it? Take a look at this list of unsolved problems in philosophy. You’ll notice an absence. Evidently all the hard problems in political philosophy have been answered.
The truth is that academic political philosophy is not about political philosophy. It is about pleasing superiors. Like other academics, political philosophers start out as undergraduates grubbing for grades. Without creative thinking or ingenuity, they are rewarded for how well they can parrot and please their professors, the gatekeepers whose “recommendations” carry more weight than any other item in their grad school application. As a career progresses, the filters of ideological conformity only strengthen, particularly all the worse for political philosophy, since there is no empirical check on its practitioner’s biases. Why propose an idea that might undermine your career? Better to discuss footnote 124 in the Theory of Justice. Like the cops in the Wire, your overwhelming concern is the chain of command. Instead of generating ideas about how to design better political systems that people may actually want to live in, you live year after year in peer review servility, obtaining credentialist pats on the head.
Writing on Elena Kagan’s SCOTUS nomination, David Brooks similarly laments:
About a decade ago, one began to notice a profusion of Organization Kids at elite college campuses. These were bright students who had been formed by the meritocratic system placed in front of them. They had great grades, perfect teacher recommendations, broad extracurricular interests, admirable self-confidence and winning personalities.
If they had any flaw, it was that they often had a professional and strategic attitude toward life. They were not intellectual risk-takers. They regarded professors as bosses to be pleased rather than authorities to be challenged. As one admissions director told me at the time, they were prudential rather than poetic…
I have to confess my first impression of Kagan is a lot like my first impression of many Organization Kids. She seems to be smart, impressive and honest — and in her willingness to suppress so much of her mind for the sake of her career, kind of disturbing.
Universities are uni-bot replicators, even more so at their highest levels. Political philosophers write and think to gain membership in an institution, not to design government rule-sets that people want to live under. Academic political philosophy is so useless because it rarely creates something people want. Which is why we should expect a market in governance to provide more innovation, more bold and new ideas in governance, than any university department could. Markets are good at giving people what they want–a thought philosophers by nature will all recoil at. But so much the worse for them!
Hat tip to Don Boudreaux for this chilling endorsement of “an ecologically minded Lenin,” in a Paul Greenberg review of a recent book by Bill McKibben at the NYT,
“But many of these proposed solutions inadvertently resemble the list of things Christian Lander lampooned in his 2008 best seller “Stuff White People Like”: “farmer’s markets,” “awareness,” “making you feel bad about not going outside,” “vegan/vegetarianism.” It’s not that these things aren’t important. But in the absence of some overarching authority, a kind of ecologically minded Lenin, they will remain hipster lifestyle choices rather than global game changers.”
I keep thinking that maybe the sick romance is finally over, but it keeps coming back again and again.
Of course, if we get “a kind of ecologically minded Lenin” at the global scale, we can forget about the possibility of letting a thousand nations bloom.
Would that more people took seriously John McCarthy’s notion that “ideological menaces” are a far more dangerous threat to human survival than are environmental or technological menaces. Given the scale of destruction caused by such ideological menaces, why are more of us not terrified by them?
Why Democracy is Always Unfair
Believe it or not, that’s the New Scientist’s headline, not mine. I guess it depends what you mean by fair. In the April 28th edition, Ian Stewart lays out a good summary of all the different problems intrinsic to democratic voting procedures. Arrow’s Impossibility Theorem, Condorcet‘s theorem, the Alabama Paradox, and gerrymandering, among other ballot box nettles, all make an appearance. Stewart’s intro:
Ensuring a free vote is a matter for the law. Making elections fair is more a matter for mathematicians. They have been studying voting systems for hundreds of years, looking for sources of bias that distort the value of individual votes, and ways to avoid them. Along the way, they have turned up many paradoxes and surprises. What they have not done is come up with the answer. With good reason: it probably doesn’t exist.
The many democratic electoral systems in use around the world attempt to strike a balance between mathematical fairness and political considerations such as accountability and the need for strong, stable government. Take first-past-the-post or “plurality” voting, which used for national elections in the US, Canada, India – and the UK, which goes to the polls next week. Its principle is simple: each electoral division elects one representative, the candidate who gained the most votes.
This system scores well on stability and accountability, but in terms of mathematical fairness it is a dud. Votes for anyone other than the winning candidate are disregarded. If more than two parties with substantial support contest a constituency, as is typical in Canada, India and the UK, a candidate does not have to get anything like 50 per cent of the votes to win, so a majority of votes are “lost”…
Brits Flee Onerous Taxes; Switzerland Tempts
A 50 percent income tax on top earners is causing a wave of human capital flight from merry olde England:
Swiss government officials and Geneva-based financial advisers have come to London to lure rich residents with glowing descriptions of the country’s low taxes, safe streets, private-banking options and convenient ski weekends. “We are here to make it easier for you to come to Switzerland,” says Martin Meyer, head of economic development for the Swiss canton of Valais, which borders Lake Geneva, Bloomberg Markets reports in its June issue…
Fed-up financial professionals say they’re ready to quit the U.K. because of a lethal combination of high taxes, looming European regulation and public anger toward bankers following taxpayer rescues of some of Britain’s biggest lenders. London’s highest earners must now pay a 50 percent tax on incomes above 150,000 pounds ($227,200) that came into force on April 6, replacing a 40 percent top rate…
As the taxman’s take grows larger, Switzerland is shaping up as the most-welcoming alternative for British exiles. Light- touch regulation and the willingness of cantons, as regional governments are called, to negotiate special tax rates for both individuals and businesses have prompted at least 30 London hedge fund managers to consider moving to Geneva in the past year, says Shelby du Pasquier, a Geneva-based partner at Lenz & Staehelin, a Swiss law firm.
Investment management and advisory services aren’t regulated in Switzerland, apart from anti-money laundering rules, and the federal government and several cantons last year reduced taxes on dividend payments for entrepreneurs, including owners of hedge fund firms, he says…
Read the whole thing. Hat tip, Dan Mitchell
Let A Thousand Nations Bloom 