Knowledge Problem

Virginia’s recent New York Times column includes an interview with my friend and mentor Joel Mokyr, who recently edited the Oxford Encyclopedia of Economic History, which was published last fall. It’s a masterful work, with over 900 entries (complete with references) on a vast array of topics. For example, I wrote three entries for the encyclopedia: the history of energy regulation, contract enforcement through history, and Adam Smith.

Virginia’s column highlights the themes that emerge from taking such an extensive look at economic history:

Some consistent themes emerge from the many and varied entries. One is the importance of technological innovation in raising living standards.

Despite all the differences across time and space, Professor Mokyr says: “There are certain unifying themes that you see everywhere. People have to make a living. People would rather have more than to have less. On the whole, they don’t behave stupidly. They do as well as they can under the circumstances. The variation is in the circumstances, in the richness and diversity of human economic institutions that have emerged over time.”

This witty little article from the Clarion-Ledger in Mississippi recounts how the author and her sister, as an antidote to five ceaseless days of college football, curled up on the sofa and watched all six hours of Pride and Prejudice.

Instead of nachos and chili, we had mimosas and brunch. In lieu of recliners and remotes, we had a comfy sofa and shared a lap blanket. Rather than yell the team on, we kept quiet enough to catch their charming English accents, thinly veiled put-downs, deft verbal sparring and elliptical flirtations. We didn’t want to miss a single raised eyebrow or brooding stare.

Very funny. And hitting just a wee bit to close to home …

I should add, both for those unfamiliar and for full disclosure, that John Perry Barlow founded the Electronic Frontier Foundation, of which my husband and I are members.

In cleaning house today I’ve updated the blogroll to reflect changes in my reading patterns, and I encourage you to visit folks such as Rand Simberg/Transterrestrial Musings, CrumbTrail, and Professor Bainbridge, if you don’t already.

And I am thrilled, just absolutely thrilled, to be able to add John Perry Barlow to my list. I have devoured his writings over the past decade, and much of it gives me hope and enlarges my already substantial optimism about humans, technology, and creativity. It also aids my confidence in being a renegade to the extent that I am. Please wander over and give him a big welcome.

And thanks to Glenn Reynolds for the pointer. Hey Glenn, now that I’ve linked ya twice today, can you please update your link to me on your roll? Thanks, buddy!

Lots of interesting commentary on the recent 30th birthday of the Endangered Species Act. Let’s start with Juan non-Volokh at the Volokh Conspiracy, with a post chock-full of good links to follow with more information on how miserably the ESA has failed to meet its objectives. One of the most important observations from Juan’s post is:

McCloskey’s second faulty premise is more serious – and far more widespread. Implicit in his argument – and much of the environmental policy debate – is the notion that the only way to be “pro-environment” is to support expansive federal regulation, and the Republican commitment to environmental protection can only be shown by embracing the federal environmental regulatory apparatus. This is silly.

Indeed. In fact, there are a lot of us out here who devote our personal and professional lives to showing the many, diverse ways that being pro-environment and pro-market are exceedingly compatible, and that being pro-environment does not necessitate drinking the federal regulatory kool-aid on the subject.

Juan also links to Karl Hess’ study on the black-footed ferret, which is a thorough and well-research analysis with lots of useful references. Hess’ study suggests that the near demise of the BFF was the consequence of federal land use policy, implying that the ESA’s saving of the BFF was a rectification of a problem of the government’s own creation.

Much of the other discussion out there has gone into detail on the DDT topic, and the extent to which DDT is or is not harmful to humans and other animals. See, for example, this Crumb Trail post and this Insults Unpunished post. Links included therein are helpful and informative.

Reason has another article on the ESA by Ronald Bailey, colorfully titled “Shoot, Shovel, and Shut Up”. Convenient, as that is the precise phrase I used in introducing this idea to my students yesterday.

For an in-depth policy analysis of the ESA, see this PERC policy study by Rick Stroup. He concludes

In summary, any reform of the Endangered Species Act should have as its goal making endangered species the friend, not the enemy, of landowners. This can be largely accomplished by ending the Fish and Wildlife Service’s power to control land without compensation.

Several results will stem from such a change. Landowners will no longer fear finding endangered species on their property and will become much more cooperative. The Fish and Wildlife Service will go “on budget.” Its goals will be weighed against other desirable goals, and it will have an incentive to husband its resources, try out creative approaches, and establish priorities.

I also cannot recommend highly enough the work of my friend and former colleague Michael DeAlessi on this subject. Michael had a Washington Times oped on the subject last week (which was reprinted in the Rocky Mountain News):

For starters, the ESA has done precious little to help endangered animals. Since the act’s passage, seven American species have gone extinct. Meanwhile, while over 1,260 species have been listed as “endangered” or “threatened,” only 10 North American species have “recovered,” often due to efforts unrelated to the ESA.

Based on the assumption that species are threatened as “a consequence of economic growth and development,” the ESA gives the authority to limit activities on both public and private land. This misguided notion – that conservation and commerce are incompatible – has dominated the application of ESA since it was passed in 1973.

He then goes on to mention the whole Tellico dam snail darter episode, which Glenn Reynolds also mentioned in his post on the subject. But the most interesting ideas contained in Michael’s oped come from his August 2003 Reason/Pacific Research Institute study of Earth Sanctuaries, Ltd., a private organization in Australia whose core business is conservation of endangered native species. ESL is publicly traded, and although they face substantial challenges because of the difficulty of valuing their asset portfolio of species, they are succeeding.

By selling shares and offering shareholder-only discounts and weekends at their sanctuaries,ESL encourages investors who simply want to fund effective species conservation. ESL also created the Earth Sanctuaries Foundation,a non-profit organization separate but complementary to ESL. …

ESL,on the other hand,proved that turning species and other environmental amenities into tangible assets is a sound path to stewardship.The results cannot be denied and for legislators and policymakers,the lessons are clear.Private conservation works and should be the keystone of policy for protecting endangered species in Australia,America,Africa,and around the world.

I strongly encourage reading Michael’s study, which is fascinating and indicates how effective private conservation approaches can be at preserving species, in contrast to the failed control-and-manage approach embodied in the Endangered Species Act.

A third post that intrigued me was Bill Cholenski’s post at Catallarchy on the PBS history reality shows. Bill’s list of the free-market/Austrian/Hayekian principles that people would learn from these experiences is good:

1) They allow one to observe the subtle changes in the way a person thinks and acts when placed in a different environment. (Maybe that’s the same thing).

Forced to grow their own food, and live in relatively harsh conditions, with scarce resources, a family in Frontierhouse needed to prioritize, and decide how to spend their time, labor, and resources. Since there were several families, they were able to trade with each other (and a simple trading store 10 miles away) for resources, products and services. Importantly, they then had to live with the consequences of their actions. While no-one starved, choosing poorly, or making mistakes, meant the difference between a plentiful and varied diet, or a monotonously deficient one.

I’d put it differently: faced with scarcity and a constrained set of tools with which to address that scarcity, these people get the benefits of experiential learning about trade, creativity, entrepreneurship, technological change, and reciprocity in a repeated-interaction community. And I think Bill hits the nail on the head about how there’s no one there to bail them out of the consequences of their choices.

One other post that caught my attention is Kevin Brancato’s observations on gasoline price controls in Iraq:

I found out that not only is the price ceiling set really low, there is a state monopoly on retail gasoline stations.

Kevin’s lesson in basic economics is important: an artificially low price for a scarce good, and monopoly control over its supply chain, is a recipe for shortages. Furthermore, as Kevin says, the black market is not causing the shortages, but may indeed be helping to alleviate them by serving those willing to pay black market prices.

But what’s really interesting in Kevin’s story is the fact that the gasoline scarcity is not the binding problem (although price differentials have been causing some outflow of gas to Turkey, where the price is above the regulated price in Iraq + the transport costs and risk premium to get it there). The binding constraint is the infrastructure — the lack of pumps and gas stations. These stations are run by the Iraqi government. And as Kevin suggests,

[O]pen more pumps! Or better yet, permit competitors to open pumps, negotiate their own deals with foreign suppliers, and create their own supply chains.

Why might the Iraqi government not wish to do that? Are there some current and/or expected future rents that the government might earn from monopoly ownership and operation of gas stations? Are there corruption and side payment issues? I suspect there are, although it’s only a suspicion.

Yet another thing that should be privatized and open to entry in Iraq: gas stations!

While we’re on the subject of Iraqi petroleum, Vernon Smith’s WSJ commentary on the “Iraqi People’s Fund” came out while I was on my self-imposed (and, for once, enforced! with the help of my husband) hiatus, so I missed my chance to encourage you all to read it. In my stead, Alex Tabarrok at Marginal Revolution gave a great summary and set of excerpts to showcase the main argument, that

This action would launch the new Iraqi state as one based on individual human rights, and the rule of law, and anoint it with rock-hard credibility by giving every citizen a stake in that new regime of political and economic freedom. The objective is to undermine any citizen sense of disenfranchisement in the country’s wealth, economic and political future, and to galvanize citizen support for a democratic regime. Now is the time to act, before post-war business-as-usual creates de facto foreign and domestic spoils-of-war property right claims, leaving out a citizenry brutalized enough by a totalitarian regime, and in sore need of empowerment in their own future.

At around the same time, I found this Reuven Brenner article from the Asia Times, advocating a similar approach to achieving civil society in Iraq:

A possible solution is to first offer each Iraqi citizen an immediate stake, by committing to distribute a fraction of oil revenues, an equal sum to every Iraqi man, woman and child, with the remaining funds being managed by a properly structured trust fund. This idea roughly follows the very successful Alaskan model. Once this is done, powers can be delegated to lower, tribal levels. This sequencing gives a greater chance for rebuilding Iraq and the Middle East on sounder foundations. By looking at a sequence of historical events, we’ll see why.

Oil money sustains both dictatorships and much outdated institutions and character traits. This is why the crucial first step in achieving stability in the Middle East is to disperse the funds among people living within the now recognized borders, rather than let it flow through the hands of unaccountable and corrupt rulers and governments. Unless the people within the present Iraq borders are given such tangible stake in the future, “democracy” and “constitutions” will become nothing but empty promises and worthless pieces of paper, with the vast majority of people mired in poverty and ignorance.

Brenner’s piece has a lot of good historical discussion in it, material that resonates with me right now because I’m reading David Fromkin’s A Peace To End All Peace, about World War I and the construction of the modern Middle East. It’s an extremely good book, very well written and full of information and analysis that enables the reader to think about the interwoven personal and geopolitical relationships involved. I just finished reading a section where Fromkin talks about political movements based on theories of nationalism in the late 19th century, so when Brenner says things like “ambitions based on nationalist principles are in conflict”, it really fits with my reading of Fromkin. I recommend both works.

Carnival of the Capitalists, hosted this week at A Special Kind of Stupid, highlights a lot of the interesting posts during my absence. Of particular interest to me is Steve Verdon’s post on highway congestion pricing, an idea that has been way, way too long in coming. Steve spends a lot of the post delving into some specific problems he has with the way Mark Kleiman puts his argument, and I’d like to take issue with some of Steve’s issue-taking, just to (hopefully) clarify the matter.

First, the claim that highways are, as Mark put it, “the classic example of the commons problem”, where a good is rivalrous but where access to it is not governed or excluded. This is correct, and I think Steve’s taking issue by saying “either a good is rival or it’s not” is only partly true. Rivalrousness of a good is a matter of degree; a purely nonrival good is, for example, broadcast communications, and a purely rival good is, for example, an article of food or clothing. But there are a host of goods on the continuum between those two endpoints, so saying “either a good is rival or it’s not” is not entirely correct, and misses a lot of the interesting goods over which we have lots of policy wrangles, including highways. Steve is right to say that you’re still consuming the good even when congested, but the important point is that you are paying for it through your time, and not through some mechanism that does a better job of prioritizing the use of scarce resources, such as prices.

But this conversation between Steve and Mark creates an opportunity to highlight something that is often overlooked in the policy consideration of highways. They are open access by choice, not by any technological or cost feature. Certainly not in this era of infrared toll-collection devices, which make the “the transaction costs of toll collection outweigh the congestion reduction benefits” argument completely specious.

For highways as for many goods, we choose to govern them as a commons to some degree (in the case of highways, usually as open access, with the resulting overuse and necessity of pricing their use through time instead of through prices). This decision is at least in part a function of the costs and benefits of defining and enforcing the property right, defining and enforcing the exclusion. Technology has reduced these definition and enforcement costs. But the existence of incumbent interests (hey! We’ve never had to pay for the roads before! I’m not gonna do it now!) and the political obstacles to implementing a toll that would be high enough to remove the congestion make it difficult to achieve the benefits of defining and enforcing the right to make highways an excludable good.

Of course, if congestion gets bad enough and people get fed up enough, then perhaps attitudes will change.

On the policy front, my former colleague Bob Poole heads up the Transportation Program at Reason Public Policy Institute, and has been a pioneer in innovative approaches to surface transportation and highway congestion. One of Bob’s great ideas is HOT lanes, high occupancy toll lanes. The idea is this: if you are a high occupancy vehicle, you can use the HOT lane without charge. If you are a single driver, but are in a total rush to pick the kids up from soccer or some such thing that makes the value of your time at that moment extremely high, then you pay a toll to use the HOT lane. This system reduces congestion in the regular lanes, gets you to where you need to be on time, and generates revenue to support the business end of the system. Bob’s done a recent study of HOT lanes and the pilot implementations of them, summarized here. See also this oped in the Atlanta Journal-Constitution by Benita Dodd of the Georgia Public Policy Institute, where she notes that

Happily, when time is money, many Americans reconsider the perception that HOT lanes are “Lexus lanes” to benefit only the rich. That’s when they see the advantages of what Poole calls “congestion insurance.”

“Whether you’re a single mother with a child in day care facing late fees and you would love to pay $5 in order to avoid a $12 late fee; the electrician needing to get in one more appointment for the day; . . . when you’re going to the airport, might miss your plane, or have a very important meeting to get to — you don’t have that choice.”

These examples of thinking creatively about how to use pricing to prioritize the use of highways illustrate the variety of approaches that can improve congestion and the daily lives of commuters without building more highways.

It’s bone-numbingly cold here in Chicago today; at last report the temp was still in the single digits and the wind chill was hovering around -10F. And the reason I came back from the ASSA meetings in San Diego was … ?

At least we finally have some snow, and may have a fresh layer for pulling out the x-c skis this weekend.