Wage Mastery

Is there any possible way to justify putting a cap on CEO pay?

Should we be having this conversation or even be taking it seriously?

If your answer is no – that we should not be having this conversation or taking the idea of capping CEO pay seriously – what are some of the ethical differences between installing a minimum wage and installing a maximum wage that render the former a serious topic for conversation and the latter nothing but manifest class-jealousy? And what is the significant criterion that determines whether we should or should not take seriously attempts to legislate the wages that a private company can pay its employees?

Notice I’m not asking if we should put a cap on CEO pay: I’m asking if there are any legitimate ethical frameworks out there where capping CEO pay is even theoretically justified. Are there any legitimate ethical frameworks where we as a society – or even just a simple majority of us – can decide that a private company can pay its CEO only up to a certain quantity of ducats? That is, other than exercising our right as consumers to boycott any company we deem pays its CEO too much, can we legally compel a maximum wage for highly-skilled labor?

Many of you will probably say “no” to the questions above, perhaps especially those readers here who consider themselves libertarians.

But what if that company is one of those we will be required to purchase health insurance from? Or what if that company is one that has or continues to directly benefit from government subsidies, such as big banks or agribusiness or defense contractors? What about companies that benefit indirectly from government policies such as sugar tariffs or companies within formerly government-controlled industries that have been privatized?

Do we have the right to restrict CEO pay then, just as we can now restrict the salaries of Senators and Representatives and other emissaries of the government? If we do not have that right, then why don’t we have it? If we do have that right, where does that right end? Or does it all collapse to an ad hoc utilitarianism?

Or class warfare?

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413 thoughts on “Wage Mastery

  1. There is an entirely cynical justification for the increasing pay differential: the increasing role of the stock price as a guide to success.

    When companies were measured in other ways: sound balance sheets, product quality, their ability to attract and retain talent, customer satisfaction, brand loyalty and other such considerations, CEOs were motivated to invest in the future of the firm. Employees were, in those days, thought to be the brains and muscles of the outfit: they did the good work, they earned a good living — they were, after all “company men” (not many women back then but still…) and there was still some affinity between executives who provided strategy and the employees who provided the tactics.

    I can’t put my finger on exactly when this transformation began: your chart could be interpreted in several ways. One thing seems certain: when the stock price matters more than the balance sheet, when the Mitt Romneys can seize a company, load it up with debt and kill it for profit, aided and abetted by these corporate boards of directors, it will only get worse.

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    • I agree; I would much rather see the executives in my industry paid a 100x salary (if that is their proportional worth) with zero stock (other than that which they might buy, or own by virtue of the founding).

      My industry is high-tech, and I’ve witnessed the worst possible executive decisions driven solely by quarterly sales… in a company that nets 10% annual profit on $1B sales with $500M in the bank.

      I certainly understand the theory behind tying to stock-price, I’m just no longer convinced it benefits the shareholders, the employees, or the company itself.

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      • I have this previously said elsewhere: if workers had some representation on the boards of directors, the equations of power would be profoundly different. At present, the workers are only seen as overhead on the balance sheets.

        After several years of consulting for a Japanese firm, I found out my invoices were being applied to capital, as if I was creating a fixed asset. True, I was just converting their old software and writing lots of new stuff — but I was also training their engineers and in-house talent. They treated it as if Knowledge Transfer were a Thing, not merely so much overhead against a run of robots. Came as quite a surprise to me.

        I’ve been watching as American firms slow or stop their investments in pure research. IBM still does, to its credit. Microsoft says it does, but I’ve yet to see any fundamental breakthroughs from Microsoft Research. This is most clearly exposed in their title tag: “Turning ideas into reality.” No. Pure research goes in search of better ideas. The engineers will then turn those ideas into reality.

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        • I’ve read all the arguments about how CEO pay may be appropriate:
          1. That it is an efficient winner gets the brass ring game among the executives hierarchy.
          2. That it is like a superstar game where the finest individuals in the world compete for a few coveted super star slots.
          3. That CEO pay is nowhere near as outrageous as other superstar games like entertainment or sports.
          4. Where part of the pay is itself PR for the company (our leadership is so good he is worth x million).
          5. And that the CEO pay is totally irrelevant when it comes to corporate expenses — way below the stationary budget.
          6. I am also aware of the dangers of messing with market signals, especially when driven by opportunistic politicians seeking their own power by pretending to be against power.

          All that said. I still think there is something dysfunctional in the institutions of corporate pay. I think the boards have too much crony nepotism. You see boards made up of CEOs and ex CEOs all with the secret brother handshake.

          I am not sure what needs to be done, or how important it is to solve (not very though), but CEO pay needs to be revised as a part of the more important topic of proper corporate governance. I recommend suggested best practices be discussed and experimented with. I see no reason to expect current corporate governance is the apex of human cultural progress, and much reason to expect that we can discover improvements if we go about it the right way.

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          • CEO pay needs to be revised as a part of the more important topic of proper corporate governance. I recommend suggested best practices be discussed and experimented with. I see no reason to expect current corporate governance is the apex of human cultural progress, and much reason to expect that we can discover improvements if we go about it the right way.

            I agree.

            I think there’s some breakdown in linking value of a company to stock price that’s creating some of these negative feedback loops, as well, and the incentives are for short-term stock value, not building long-term value of the company.

            I wonder if anyone knows of a study comparing publicly-traded CEO pay with privately held CEO pay? Are such comparisons even possible?

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            • Sure

              Employing public and private firm CEO pay data made available through mandated SEC disclosures over the period 1999 to 2008, we first show that after controlling for firm and CEO characteristics, public firm CEOs are paid modestly more than private firm CEOs, with a pay premium of about 20%, and that public firm CEOs are given more on-going equity incentives. We then show that this public firm pay premium becomes economically small after adjusting for the risk premium associated with equity-based pay, or after accounting for differences in liquidity, dividend income, and CEO turnover between public and private firms. Finally, we show that both public and private firm CEO annual compensation is positively and significantly related to firm accounting performance, and that the pay-performance link is much stronger in public firms. Taken together, we conclude that U.S. public firm CEOs are paid efficiently.

              Which also demonstrates why publicly traded firms are guided by stock price and not by balance sheet fundamentals.

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              • From the get-go this is suspect.

                Employing public and private firm CEO pay data made available through mandated SEC disclosures over the period 1999 to 2008,

                Private firms, with a few exceptions such as private investment funds, are not required to file SEC reports.

                So I don’t know what they’ve based their data on, but if it’s what’s in SEC filings, they’re comparing the run-of-the-mill CEO of a public company to hedge funds, etc.

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                • From SEC:

                  Corporate Reporting

                  Companies with more than $10 million in assets whose securities are held by more than 500 owners must file annual and other periodic reports. These reports are available to the public through the SEC’s EDGAR database.

                  It’s hard to get to any size as a privately-held corporation without some sort of basis in securities and therefore, appearing in EDGAR. The SEC does allow private firms to do Reg D offerings but those are tricky. At some point, it’s just easier to do an IPO.

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                    • I don’t find any of this suspect. It does encompass the larger firms, which would have to file an S1. It’s extremely difficult to shop your corporate debt around on an Reg D and nobody over a certain size can avoid the problem. If you’re large enough to need the services of a real CEO and not Joe Public doing a Delaware C corp off LegalZoom, you’re large enough to appear in EDGAR.

                      Private firms pay their CEOs more because they don’t offer equity options. They’re private, after all. But a publicly traded firm will always offer the equity option because they need to get the share price up and that’s why they’re hiring this gunslinger.

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                    • Perhaps. Most of the companies I reported on with defense contracts suggest otherwise; but these still small compared large multinational corporations. From what I’ve see, the 500-investor limit generally forces a company to go public; and there’s a lot of effort to keep that from happening; it’s one of the pieces of leverage early-on investors have for a better exit from later investors. And it’s one of the reasons private firms don’t offer equity options; that’s what happened to Facebook; too many shareholders.

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                    • Well, you did ask — and this was as good a response as I could summon up. My initial point was this: CEO pay is increasingly driven by jacking up the stock price by any means, or, as with Bain Capital, looting perfectly good companies on behalf of the new stockholders whose only power arises from their ability to borrow the money to purchase the shares to do so.

                      None of this is illegal. Some CEOs come in and whip these firms into good shape, some are just predatory maniacs. Chris asks:

                      And what is the significant criterion that determines whether we should or should not take seriously attempts to legislate the wages that a private company can pay its employees?

                      Who are “we” in this context? “We” aren’t shareholders. “We” aren’t the board of directors or the employees or the beneficiaries of what these firms do. The “We” in these situations are the people who fly the flag of each of these firms and everyone who gets a pay check from the Corporate Payroll accounts, from the lowliest employee to the people who own the stock and mostly the boards of directors, who ought to be taking direction from more than the Bain Capitals of the world.

                      If workers were on the boards, there would be considerably more realism in corporate governance and the workers wouldn’t mind paying a CEO great money if he was the guy who also brought home the bacon to them and saved them from the corporate pirates of Bain Capital. Maybe they’d even install the wisest worker as CEO. Now that might be an interesting proposition.

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          • “That CEO pay is nowhere near as outrageous as other superstar games like entertainment or sports.”

            I’d say that there’s a big difference. Sports and entertainment are far close to a fair and free market system than CEO pay. If an athlete is paid a huge chunk of money, it’s because his agent and the owner’s agent negotiated it. If a CEO is paid a huge chunk of money, it’s probably by a board of directors who were appointed by that CEO, and some of whom are CEO’s of companies where the first CEO sits on their board.

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  2. I don’t think that many liberals and progressives are against high CEO pay per se. Most liberals and progressives in this country want to temper and regulate capitalism rather than eliminate it and replace it with an alternative economic system. What gets to liberals and progressives about high CEO pay is that we feel that a lot of it is at the expense of the salaries and wages of more ordinary employees and that much of is it underserved in that CEOs seem to find ways of rewarding themselves with high pay and benefits even in the company they work for is doing very badly. The objection isn’t so much the level of pay but whats being done for the pay and the perceived costs of the pay.

    I don’t think that most liberals and progressives would call for a cap on CEO pay. Thats much farther to the left than they want and also what could realistically be passed by Congress. If you listen to the complaints, its also not what bothers liberals. What bothers us is the ratio of pay between the CEO and the wages of an ordinary employee rather than how much the CEO is making.

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    • “I don’t think that most liberals and progressives would call for a cap on CEO pay. ”

      I hear a challenge.

      I would start by asserting that wealth and political power are directly correlated; the more wealth you have, the more influence and political power you have.

      It is entirely reasonable in my view, that wealth inequality at some point subverts the workings of the republic, becoming a direct threat to the liberty of those without wealth.

      Where is that point, and what mechanism could be used to counter it? I don’t know, but I believe there is an ethical framework for limiting wealth.

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      • True. You could argue that a CEO salary cap could cover the same functions as the income tax and estates taxes were created for, preventing the creation of aristocracy of wealth and political influence. The problem with creating a salary cap, as opposed to the income and estates taxes, is that how do you determine what should be the maximum pay and who should cap laws apply to. Is a person who makes a fortune for a lucrative cosmetic surgery practice less problematic than CEO and therefore entitled to a larger salary or should the salary gap apply universally?

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      • I would start by asserting that wealth and political power are directly correlated; the more wealth you have, the more influence and political power you have.

        The correlation between wealth and power is not as straightforward as that. The same wealth differential can yield very different power differentials in different systems. Constitutional limitations on government power limits the extent to which wealth can buy power because it limits the availability of power.

        On the other hand, a formal requirement that presidents have previously been in some executive control over more than $50 million works to give the wealthy more power.

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        • Based on American history, the idea that Constitutional limitations on government power limits the political power of the wealthy is highly debatable. During the Gilded Age, the wealthy were able to use government power to enrich themselves further, the land grants to railroad companies etc., and curb any attempts of workers to unionize and strike. The Federal government acted as strike breaker on numerous occasions during the 19th century, most famously during the Pullman Strike in Chicago. The constitutional limits of government power mainly frustrated the attempts of Middle Class reformers and workers to pass the laws they wanted, laws that would protect their rights and limit the power of the wealthy.

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          • All that means is that existing provisions did not effectively limit the power of the rich to take control of government. If you were to instead to place a constitutional provision that created a wall between business and state, it may reduce the interference that either could place on the other.

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            • “If you were to instead to place a constitutional provision that created a wall between business and state, it may reduce the interference that either could place on the other.”

              No, because the wealthy would use their Unicorn Flying Cavalry to go over that wall :)

              The point is that in a time in the USA when the federal government was far weaker than it is now, the wealthy were able to use that power to their advantage, to increase that power when it helped them, and to still keep the obstacles in the path of people they opposed. A prime example would be that the 14th Amendment was used in the most openly dishonest method possible to protect corporate interests, while not using it to protect people. For a century.

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              • Your argument seems to imply that the problem was weak government back then so the solution is strong government now.

                An alternative take on it was that what we had then was abuse within a smaller scope government. We now have different abuses within a much larger scope of government.

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        • General Electric has a knowledge monopoly that is relatively independent of governmental structures.

          Please try again. (note: no, it’s not an actual monopoly. but they are one of the big players in the knowledge market).

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      • Yes, yes there is. But the man like Carnegie, who grew up on the factory floor? He’s not the guy to watch out for. The vast rightwing conspiracy wasn’t run by someone who did a jot of work in his life.

        Not needing to strive, to get better, not ever having to worry breeds psychopaths like the Kochs, willing to bring a state to the brink of civil war in order to make a bit of petty cash (and that’s what they do in public view!).

        Just have a hefty enough estate tax. And a fair tax on ceos and entrepreneurs. They’re the folks good at bilking the middle class out of money, they can afford a bit shaved off the top.

        The problem is NOT wealth inequality. It’s the inability for people to rise in the system, and the wealthiest people turning into “risk-avoidant” folks.

        Entrepreneurs don’t bother trying to rig the political system (much). They just make a new company. Earn more money. Job well done.

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  3. I think you can package the concept better than “capping pay.” No one likes the idea that their pay might be capped; moreover it exposes one to the specter of socialism needlessly.

    Another way to argue the matter would be to emphasize that businesses are collective corporate enterprises and that the success of the enterprise depends upon the good work of all employees; therefore, Executive pay should be pegged proportionally to the average wage earner’s pay. Successful businesses will elevate the wages of all employees, less successful not so much. What exactly is proportional will depend upon the sector and what constitutes an average wage for their industry.

    It is effectively capping, of course, but it is capping via a cultural norm and allowing for profitable enterprises to increase CEO pay, but dampening the acceleration by forcing increases to carry the weight of all employees. This is something Liberal CEO’s could unilaterally do… presumably increasing the quality of workers they could recruit and increasing the competitive position of their project at the expense of executive pay. Once done, by virtue of the way executive compensation committees work, “conservative” Executive pay would decrease over time. As a traditionalist, I and mine would much rather see wealth shared justly at creation so that redistribution is more broadly sustainable and (hopefully) needed less.

    Argued thus, you would be able to gain conservative support (excluding the conservatives you were never going to convince anyway), and force opponents to justify an infinite expansion model vs. the common sense model you propose.

    Now, whether the new normal starts at 300x, I couldn’t say. But, capping by fiat… no chance.

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    • Another way to argue the matter would be to emphasize that businesses are collective corporate enterprises and that the success of the enterprise depends upon the good work of all employees

      This really isn’t true in general. Take Wal-Mart, for example. It succeeds despite a rather unexceptional workforce, presumably because of good management.

      Businesses don’t generally succeed or fail because they’re randomly blessed or cursed with particularly good or bad employees. Insofar as some businesses have better employees than others, it’s usually because management has made a conscious choice to spend the money to hire and retain better employees. But that’s not the only legitimate business model. Less desirable employees need jobs, too, and management that can get productivity out of them is no less important or valuable than management that can make good use of good workers.

      Blaming management for the low wages of low-skill workers is like blaming teachers for the poor outcomes of low-IQ students.

      As a traditionalist, I and mine would much rather see wealth shared justly at creation so that redistribution is more broadly sustainable and (hopefully) needed less.

      By “justly,” you mean according to some arbitrary formula that emotionally appeals to you? How is that more just than supply and demand?

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      • Walmart’s in a commodity space, it doesn’t invent anything. It doesn’t even innovate. Where it faces real competition, as in Germany, it doesn’t win. Walmart succeeds, not by better management but by squeezing its suppliers and employees.

        Walmart has no brand loyalty: Walmart is utterly dependent on the name brands it can stock. Many of those Name Brands won’t do business with Walmart any more.

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          • It’s not an assumption. It’s a fact. Walmart saw Sears Roebuck putting all its registers on a single image LAN and modelled their supply chain on it. Sears, a corporation which always snatched defeat from the jaws of victory, sold that infrastructure back to IBM, and never quite figured out what to do with Prodigy. IBM tried again, helping to create NSFNet, another precursor to the Internet.

            Sears had been an early backer of EDI. Now Walmart defines EDI: the Walmart EDI transactions have become the de-facto standards.

            No, Walmart didn’t innovate. It copied.

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              • Heh. Walmart never put a dime into any of its suppliers. You go to Bentonville, they’ll sit you in a nasty little cubicle and tell you how many widgets you need to produce and even give you a schedule of ever-diminishing margins for those widgets. That is not picking winners. It’s plucking chickens.

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                • Several years ago I picked up a load of stainless steel store fixtures from a small outfit in Kansas. While the truck was being loaded I struck up a conversation with the owner.

                  He told me that they had just emerged from BK from a deal where Wal-Mart just arbitrarily decided not to pay them for about a million dollars worth of fixtures. No reason given, just F*** O**, and they didn’t have the resources to fight them in court.

                  That’s their core business model. FYIGM at its finest.

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                  • That might be the case now that Walmart has radically disproportionate leverage. But that could not have been the model employed by Uncle Sam when the company didn’t have the leverage.

                    I’m not apologizing for Walmart here. Or praising it. But what the firm does now needs to be distinguished from what the firm did on the way up.

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                    • The model employed by Sam Walton was completely obvious and he used it from the very beginning. He only entered the commodity space, that is to say, the tail end of the marketing cycle, where money is made on volume: I do hope I don’t have to go through all that with you.

                      At the tail end, where your product has created a market for itself, you can drag things out a while, erecting barriers to entry if it can, some legal, some not.

                      You might face a copycat, say. If so, it can use brand loyalty with sponsorships and advertising where the up ‘n comer is just a store brand — and you’ll never see ads for that stuff. You’ve already got production lines, sales and distribution, vendor relationships, the copycat only has a me-too approach. You’ll never see an ad for Equate Shaving Cream and I’ll go on buying Barbasol.

                      It might compete on quality. That was Standard Oil’s approach on its way up: improperly refined kerosene for lamps would sometimes explode, so Standard Oil put out ads with a woman lighting a lamp in her drapery-festooned home. That’s the best way to escape the Commodity Trap, improve your product and thus your margins.

                      But once you’re in the Commodity Phase, you’re liable to become a victim of your own success. If you take the Big Order, for a Little Margin, you’re fucked. Your proverbial Lunch is being Eaten by your Customer.

                      For someone who’s neither praising nor apologizing for Walmart, you do seem to ask questions with awfully obvious answers, straight out of Marketing 101.

                      Walmart’s ability to screw its suppliers begins by forming a contract one price and so many units then arbitrarily reneges, changes its position, now you can sue Walmart, see how far that gets you. It fucks its suppliers because it can. Once you’re in the Walmart fold, they will briskly tell you how you’re going to outsource your product and even give you the paperwork to do it. That’s ruthlessness.

                      Woolworth did his deals directly with the supplier, cutting out middlemen. He was able to move a lot of product and everyone made money. Not Walmart. Walmart’s business model is absolutely dependent on crushing the life out of its suppliers.

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            • Having watched the rise of Walmart and the fall of Sears, it’s perfectly obvious Walmart didn’t innovate its way to success. The model for the commodity oriented Big Box store had been around since Woolworth. Sears and Montgomery Ward would eat their lunch with mail order business. Eventually Walmart ate what was left of Woolworth’s after the maniacs who ran Woolworth’s had pounded that corporation to a bloody pulp.

              Walmart invented nothing. It was just a tougher competitor. Where Woolworth’s had pioneered the direct buy and the open shopping concept, Walmart used its increasingly large shadow to crush its own suppliers. If that’s innovation, I’ll grant you that much. That was new.

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              • I’m not sure about that Blaise. Walmart records record profits (well, in the form of the wealth of the Sam’s heirs, anyway) because the firm does something that other firms weren’t doing previously. Mail order isn’t really relevant. And the suggestion that Walmart’s success reduces to better decision-making, or perhaps more ruthless decision-making, just begs the question. I mean, at some really narrow, microscopic level of analysis, not one ever invented, or innovated, anything. At the macro level, tho, it happens frequently enough that we’re justified in saying that some people/firms actually do.

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                • C’mon. I shouldn’t have even been as nice as to give you the crushing-the-supplier stipulation. Rockefeller was crushing his suppliers’ margins and his own workers. Fisk and Carnegie did it with their suppliers and their workers. All that was invented in the Gilded Age.

                  There’s nothing new in retail. Slavery became wildly profitable with the advent of the cotton gin and the sugar mill, to the point where it was profitable to work a slave to death. Most of retail’s fundamentals go back into antiquity. It’s a ruthless industry, especially soft goods. Little children are chained to carpet looms in Iran and Afghanistan. Soft goods pioneered the sweatshop and the sewing machine made it worse. With every single technological innovation, retailers have found a way to use it to squeeze every dime out of their producers and suppliers. At no point will a retailer willingly raise prices, once he’s in a commodity space. He will always default to screwing his suppliers and his workers.

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                    • A while back, a friend of mine worked for Nestle. He pointed out that Wal-Mart bought a very, very significant portion of Nestle products.

                      And Wal-Mart routinely violated the terms of payment. And generally Nestle salespersons let them get away with it, effectively allowing Wal-Mart net (competitors + N days for fairly large N) terms.

                      When you’re talking that level of volume, you’re effectively charging all of your other customers more than Wal-Mart, even correcting for volume differences.

                      Being the 900 lb gorilla means you get Soviet Russia rules, while everyone else plays by somewhat more normal vendor/supplier relations.

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                    • ” Wal-Mart bought a very, very significant portion of Nestle products.

                      And Wal-Mart routinely violated the terms of payment.”

                      And in the healthcare conversation, we call this “payment negotiaton” and consider the cost reductions that result from it a vital part of being able to pay for healthcare.

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                • I think the difference is customer service, Still.

                  You go buy a tool at Sears, at least a Sears-branded Craftsmen, and they’ll replace it forever if it breaks. A big part of their model was standing behind their products.

                  Go buy a tool a Wal-Mart, and it breaks first time out of the box, and sure, they’ll replace it, and their supplier will cover it. But they don’t stand behind it, so the tool can be ever-more poorly made. Wal-Mart innovated by convincing cheaper prices/declining quality could beat out quality as part of the brand.

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                    • Don’t be obtuse; you asked what their major innovation was, and offered one; it actually harkens back to the WoolWorth’s model, but with greater control over the supply chain.

                      Successful would be a host of things; the expansion of the notion of everything under one roof, supporting new stores with low prices until they’ve driven local competition out of the local market, limiting hours so that employees cannot qualify for health insurance. A big one, as BlaiseP has pointed out, is squeezing suppliers; start them off on a smaller contract just big enough to eat all their capacity so they have to drop other customers, and then squeeze them because they fear losing their only customer.

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                    • So, the reason they’re so successful is they played a shell-game and duped millions of people?

                      No, the reason they’re so successful is because they play a strong-arm game.

                      Repeatedly? Consistently? Over-and-overly?

                      I am having to make this point, repeatedly and overly and overly.

                      Really?

                      I’m afraid so. Walmart screws its workers and its suppliers. Yes it does.

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                    • Blaise, in order to screw you suppliers repeatedly, you have to have leverage over them. You seem to be arguing that at every point in the history of Walmart they had leverage over their suppliers and used that leverage to screw them over. I don’t see how such a firm ever gets off the ground, myself.

                      Maybe I’m wrong about all this. For example, I know that currently Walmart screws over suppliers on a regular basis. And they steal competitors intellectual property. And they purchase life insurance policies on employees likely to die. And they take advantage of government safety nets to pay people below market wages. And all sorts of wonderful stuff.

                      What I don’t know is that the only reason the firm rose to dominate certain retail sectors is because the have always screwed over their suppliers. I just don’t see that, to be honest. I don’t know how such a company could even get off the ground.

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                    • Okay, so is there any sane reason for anyone to buy, say, a hand-made high quality trashcan?

                      Walmart suceeds because it sells the crap that we buy for the least amount of money. Period. Whether some of its methods along the way to its current position of prominence were unscruppulous or whether its present methods continue to be unscrupulous does not alone account for its continued dominance of the cheap crap market.

                      Walmart sells crap for the cheapest, which is why it continues to sell us our cheap crap.

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                    • You’ve already stipulated to Walmart’s unscrupulousness, the ball is in your court to provide other reasons for Walmart’s continued dominance. As varies the size of a given competitor, so varies its pricing power.

                      Other competitors are undercutting Walmart in the crap commodity market: Dollar Tree is just one. They appear like a fungus, taking up residence in dead strip malls. They take advantage of real estate speculators.

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                    • Heh. Here’s a dollar store delivery service: hauling their recalled goods from the store to the dump. You wouldn’t believe how often they get caught out selling dangerous stuff. Even Walmart won’t touch that stuff, strictly on a liability basis.

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            • Don’t forget that a big part of Walmart’s success was in not putting Walmarts in cities, just small towns where they could wipe out all the less organized and efficient mom and pop retailers. That early growth in a huge niche gave Walmart the size and buying power to take on other major competitors.

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              • It’s not like the mom-and-pop retailers were all that good. They were playing the same bottom-feeding game that Wal-Mart was; they just couldn’t play as well because they weren’t as big.

                What Wal-Mart has shown us is that, all along, the cheap stuff subsidized the good stuff. The customers came in to look at the good stuff, but found its price tag too high and bought the cheap stuff (which was marked-up to the point where it gave you *more* profit than the good stuff.)

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      • Brandon, are you defining “Just” as whatever outcome happens?

        Or any outcome that happens, so long as it can be said to be produced by the marketplace?

        If the outcome is the result of a mixture of market forces, governmental regulation, union pressure, and consumer action, is that outcome “Just”?

        How would you define a “Just” ordering of wealth? That isn’t arbitrary or emotionally appealing, of course.

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        • I’m skeptical of the idea that there’s any such thing as a just ordering of wealth, or that we should be aiming for one. Justice isn’t a real thing. It’s just subjective judgments.

          Nor do I think that we should be aiming for a “just” ordering of wealth. The virtue of the market price system is not that it’s “just,” but that it sets up incentives properly. If you have a rare, valuable skill, you can command a high price for that. This gives people an incentive to acquire that skill and put it to use. A low wage indicates that a job has low marginal productivity, and encourages people in those jobs to acquire more valuable skills and use them to get higher paying jobs.

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          • Justice isn’t a real thing.

            Then how do you justify any of the arguments you make against government takings and taxes and so on? Somewhere in this thread you say that we ought to abolish Medicare and Medicaid. On what grounds?

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            • I would say justice and fairness can be applied to human action. To apply it to natural phenomena is a distortion of the term.

              Markets and hurricanes cannot be unjust. A judge can be. My mom can be. An official can be.

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                • Exactly.

                  If it’s human action that drives markets, then we must look at those actions and evaluate markets on those considerations. That means staying completely away from abstract discussions about “the market” or treating it as some act of nature. It also means focusing on specific kinds of markets.

                  It’s all well and good to discuss consumer finance and whether or not, for example, payday lenders that serve lower-income communities should earn an appropriate risk-adjusted profit for the services they offer. However, what does it to for either of us if you are discussing this market and you are pointing out the multitude of problems that exist in these markets?

                  If you and I ever discuss something like predatory lending and usury laws, I would much rather provide you with my opinions based on what I see in the consumer finance markets than simply assert that I don’t think it’s a good idea for government to set prices. Even if I believe that, it’s not a guideline for me, not rigid ideology.

                  That’s my general approach to any kind of market.

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                    • You don’t think there’s a natural order above human action at the level of markets?

                      What about morality then? Do you find it ridiculous to discuss morality as though it were natural phenomena?

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                    • Neither markets nor ethics are natural constructs. Every time I hear that word “natural” these days, I smell an indefensible axiom in the woodpile, some article of faith, usually misplaced.

                      Markets serve us by separating winners from losers. They break down all the time, market actors cheat every chance they get — the cheating only defined by the market rules.

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                    • Your explanation only makes sense if we’re all assuming that natural = good, which I don’t think anyone is saying here. Death and disease are both natural, and very few people would describe both as good all the time (that is not to say that death and disease are not sometimes “good”).

                      The point, really, of the notion that markets are natural, is that by stepping outside ourselves and trying to view the actions of the collective as essentially similar to the collective actions of termites or flocks of birds or any other “natural” system really, is that we can get beyond the “my values are this, so we should do this” discussion that often occurs and at least consider the important caveat that the system itself is fragile and our interference in it may not (probably will not) do exactly what we intend to do. Or it will do something else that we definitely don’t want it to do. Understanding markets as a system with properties analogous to known biological systems helps instill some of the humility necessary to avoid compounding policy mistakes.

                      There has been a lot of highly-regarded work on this in fact – an entire intellectual tradition even – that includes economists like Elinor Ostrom and Friedrich Hayek, as well as biologists like Brian Skyrms and John Maynard Smith. The field of evolutionary game theory exists solely to analyze the economy through the methods of evolutionary biology.

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                    • I’ve been round the block on both Elinor Ostrom and Friedrich Hayek. It’s sorta like the Bible and the people who interpret it, Christopher: Gandhi once said I like your Christ, I do not like your Christians. Your Christians are so unlike your Christ.

                      Elinor Ostrom’s point was completely contrary to what the Libertarians have made of her. Her point was completely obvious: let the people who face the problem solve the problem. I’ve brought up the example of the Inappropriate Well Drilling Effort before. Didn’t seem to make any impact on anyone, but it’s a classic Ostrom problem. Neither the State nor the Market could solve this problem but the old chiefs who understand how it would upset the Grazing Land commons, they can solve it. But that solution was not the result of collective action: it was the result of collective memory embodied in a tough old autocratic chief acting on behalf of his people and their cattle.

                      Markets are not natural. They are completely artificial constructs, as artificial as the rules of cricket or football. Such rules are established and modified, based on bad outcomes arising from what those rules permitted. There are no markets in nature. Animals don’t denominate their transactions in money. Let the Silk Road prove my point: without stable governments to keep its caravanserais safe, it died. It was never natural. The Ottomans tried to get it going again — and it worked for a while. But the Europeans understood they could no longer rely on the Silk Road and went to sea in search of other routes to the Orient.

                      Hayek: again, would that Libertarians read him more carefully. One of the core tenets of Hayek’s eonomics is a “natural” interest rate. Interest on what? Money, that’s what. Hayek never reached the conclusion that Money is how Power is denominated.

                      Hayek, like the aforementioned Jesus of Nazareth — and Marx — was an honest man. Nobody will gainsay his description of the problem. But his conclusions, more importantly, the conclusions of his followers, were not congruent with reality and it’s only gotten worse as his followers grow ever more doctrinaire. Hayek won his Nobel Prize for those descriptions, not for his conclusions.

                      History has passed Hayek by: he’s one of those interesting figures like Tycho Brahe, whose data would lead Copernicus in the right direction. But Brahe was an astrologer: he used that data to compose horoscopes. Again, great human being, important scientist — wretched conclusions.

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                    • Elinor Ostrom’s point was completely contrary to what the Libertarians have made of her.

                      What have libertarians made of her?

                      I ask that honestly. I don’t know what (other) libertarians make of her.
                      (FWIW, I wouldn’t classify her as a libertarian, although I’d say her work is libertarian friendly.)

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                    • If everything is nature (and I agree it is), at some point it becomes silly to talk about nature’s rules. There’s too much difference in nature to meaningfully say all of it follows the same (or even any one set of) rules. Obviously, we can insist that physics is physics everywhere. But you can’t get economics from physics. And it may be less of a stretch to think that you can get economics from biology, but you still have to describe the particular rules. It doesn’t all just follow from “It’s all Nature, so it all follows from Natures Rules.” Which rules? Are they really rules? How do they apply here?

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                    • @James: There’s this

                      Q: What’s your stance on privatization and property rights?

                      Ostrom: I don’t equate them. So, and in the Nobel speech I state this very clearly, at an earlier juncture we thought that property rights meant one right and only one right: the right to sell. That was what I learned in graduate school, and that was the dominant thinking. As we were doing massive analysis of what people were doing out there in the field, we found many people who did not have the right to sell but had managed well. Many groups are able—if they can have management and decide who is in and who is out—to do very well, even if they can’t sell. They still have property rights.

                      Q: And how would that relate to your position on privatization of common resources?

                      Ostrom: In some places, privatization has worked well. I’m not anti-it. I’m anti-it as a panacea.

                      Q: Libertarians have tried to co-opt your work by saying it shows the unsuitability of large-scale, top-down economic arrangements.

                      Ostrom: A question is: How do we change some of our governance arrangements so that we can have more trust? We must have a court system, and that court system needs to be reliable and trustworthy. The important thing about large-scale is the court system. For example, you would not have civil rights for people of black origin in the United States but for a federal court system and also the courage of Martin Luther King and others—people who had the courage to challenge, and a legal system where, at least in some places, the right to challenge was legitimate.

                      We have a colleague working in Liberia. You had thugs recruiting young kids until recently. Having a legal system that does not allow thugs to capture kids, torment them, and make them use weapons is very important.

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                    • Obviously, we can insist that physics is physics everywhere. But you can’t get economics from physics. And it may be less of a stretch to think that you can get economics from biology, but you still have to describe the particular rules.

                      Unfortunately, economists are more astrologers than astrophysicists. Hell, we can’t even get them to agree on what the word “Capital” means.

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                    • Hmmm, when Ostrom talks about courts and the rule of law, she’s not saying anything libertarians don’t generally like. In fact libertarians get criticized for placing too much reliance on legal rules like trespass and nuisance as a counter-method to command-and-control regulation. And notice that when asked about the large scale, she says “the important thing” at the large scale is courts, the legal system–she’s limiting her praise of the large scale to a functioning legal system, and thereby excluding other top-level arrangements. Not that she was opposed to all of them, but she was extremely skeptical. (I remember in her seminar, not long after 9/11, when someone asked her about the plan to nationalize airport security–she very bluntly said it was dumb.)

                      As to top-down economic arrangements, large-scale social planning, she definitely was against it in the great majority of cases. In her seminars she talked repeatedly about resource management institutions that had evolved over generations at the local level, and the damage done when governments intervened with top-down management systems.

                      As to property rights and privatization, her statement in that interview is precisely what she repeatedly argued in her books, seminars, and public talks. It works sometimes, so we shouldn’t have a knee-jerk reaction against it, but it’s not always the solution, so we shouldn’t have a knee-jerk reaction in favor of it, either. On that point she does differ with a lot of libertarians, but I don’t know that libertarians have actually interpreted her any differently. If they’re interpreting her to be avidly pro-privatization, they’ve clearly misread her.

                      But if they’ve interpreted her, as the interviewer suggests, as a skeptic of top-down regulation, that’s certainly not “completely contrary” to her views. As he and her co-authors note in the The Drama of the Commons,

                      “Scholars familiar with the qualitative case study literature in Africa, Latin America, Asia and the United States were beginning to point out that the policy reforms that transformed resources from governance as common property by local communities into state governance were actually making things worse for the resource as well as for the users.” (p.13)

                      And in Governing the Commons she critiques both the “Leviathan as the only way” (top-down) and “privatization as the only way” policy prescriptions, and proposes “An alternative solution” (but explicitly stated to not be the “only” way), that is based on local management and enforcement by stakeholders.

                      There may be some way in which libertarians have interpreted her in a way “completely contrary” to her actual views, but this would not be it, unless they in fact pose privatization as the only alternative to top-down, and argue that as her position.

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                    • Blaise,

                      Yes, Mercatus is a libertarian organization. What does Aligicia get “completely contrary”? It all looks pretty correct to me, and he correctly notes at the end that “Ostrom’s study of governance is not only a source of inspiration, it is also a challenge to libertarians.”

                      I’m afraid I’m really not seeing the problem, so far at least.

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                    • BP, what libertarians do you know who want to get rid of the Courts? From my perspective, “old”, crucial institutions like the Courts are valued more by libertarians than by those who think some arcane policy patch can solve our problems.

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                    • That’s perfectly fair, CC, but I’d just want to say that my point is that your argument around humans (& therefore economy) in/out of nature is similarly broad, so the work you’re trying to get it to do has similar problems with overbroadness. It’s just the same issue, in fact.

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                    • “On that point she does differ with a lot of libertarians, but I don’t know that libertarians have actually interpreted her any differently. If they’re interpreting her to be avidly pro-privatization, they’ve clearly misread her.”

                      JH,

                      I’m actually strongly opposed to privatization in most instances for largely “libertarian” reasons: the whole advantage the market mechanism supplies has to do with the fact that it develops in response to consumer demand. If something is privatized, necessarily, the only reason it exists in the first place is either because it was created by fiat or at some point in time it was deemed incapable of existing by itself in a private capacity. Selling such an institution to the highest bidder is more often than not anathema to libertarianism.

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                    • @James: is it an intellectual dodge for me to observe you’re not a terribly Orthodox Libertarian? At least I’ve prised the portcullis up far enough for you to give me the courts.

                      But from whence arises law? Representation, we should hope, consensus, the hashing-out of ideas at every level. Lycurgus snarls at the advocates of democracy in the city: “Go thou,” said he, “and first establish democracy in thy household.” .

                      You want good law? It might be best made from the bottom up. But that’s not the way it’s enforced. All rise, says the bailiff.

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                    • Blaise,
                      I know I’m not terribly orthodox (except about hockey–only the original 6 teams are acceptable), but my libertarianish views are not at issue here. What’s at issue is whether libertarians badly misinterpret Ostrom, perhaps using her for intellectual cover for arguments they make that she wouldn’t have.

                      I don’t think that’s impossible (nor, though it would disappoint and upset me, do I think it’s necessarily even improbable, people being as they are). I only say that I don’t know of any, and I’d like to see evidence. What’s been presented so far is not evidence of libertarians using her ideas in any way contrary to her own views, much less completely contrary.

                      Show me an example of where it’s actually happening, and I’ll be happy to condemn it.

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                    • The Ostroms did no such thing. They never advocated self-governance, as the quote from Ostrom herself reveals. Sorry, they just didn’t.

                      You must not have been in the seminars I was in then, because I have heard both Lin and Vincent advocate self-governance. I really have no idea where you are getting your information from.

                      You might also look at this article on “Self-Governance and Forest Resources,” by Lin Ostrom.

                      Ostrom didn’t argue that self-governance was the solution for each and every case, but to say she never advocated it is to demonstrate a fundamental lack of understanding about her.

                      I know we’ve gone round and round on this before, but I must say to you–the person who is always trumpeting his personal experience–that I knew Ostrom personally. She invited me–in-person–to apply for a post-doc at her research institute; I attended her fall and spring seminars; she attended my research talks; she published my dissertation in one of her books; we talked personally, both formally and informally; my wife worked for her and helped the institute in developing their on-line digital library of the commons. Elinor Ostrom was a friend of ours (one of three professor I’ve had who I count as friends).

                      In her books, in her seminars, and in direct talks with me, Elinor Ostrom advocated the values of self-governance, while not shying away from noting its limitations. In fact a good portion of her career was dedicated to defining precisely the conditions under which self-governance could thrive and be an effective solution to commons problems.

                      You are not talking to someone who just read one of her books in a seminar taught by someone else. And I tell you, sir, Ostrom strongly advocated self-governance.

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                    • Have it your way, James. You still haven’t answered Ostrom’s own response to the question of what the Libertarians made of her argument. Perhaps from your vast experience in her company, you can gainsay these bits, which I feel I must again quote for your benefit:

                      Q: And how would that relate to your position on privatization of common resources?

                      Ostrom: In some places, privatization has worked well. I’m not anti-it. I’m anti-it as a panacea.

                      Q: Libertarians have tried to co-opt your work by saying it shows the unsuitability of large-scale, top-down economic arrangements.

                      Ostrom: A question is: How do we change some of our governance arrangements so that we can have more trust? We must have a court system, and that court system needs to be reliable and trustworthy.

                      Elinor Ostrom you ain’t.

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                    • BP, would you be contented if we all agreed that sometimes LINOs call “privatization” what is really selling some undervalued public asset to their friends so they can make money?

                      Why are you insisting on continuing to equate privatization with self-governance?

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                    • Honestly, Blaise, I’ve got no idea what you’re trying to get James to acknowledge, and even less idea why it matters. You’ve provided an example of how you think libertarians misunderstand Ostrom’s work, and James has explained in detail why he finds your example unconvincing. He’s also made clear that if libertarians are reading Ostrom in the way you suggest, they are wrong, and has acknowledged that Ostrom herself was not a libertarian, though some of her work can be reasonably used to support some (though by no means all or even most) claims of libertarians.

                      To the extent you are insisting that Ostrom’s views were different from what James believes them to be – and while you seem to be saying so, I’ve yet to see you specify how James’ understadning of her views is incorrect- I think you have to at least acknowledge that James has a better idea what Ostrom’s views actually were than anyone on this site, and probably more than all but a handful of people on the planet.

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                    • No such compromise is possible. If the word Libertarian is to mean anything at all, it is based upon the axioms of voluntary association and individual liberty.

                      It’s like nailing Jell-O to a wall. Just how much of Bookchin’s argument about the Free Municipality are you willing to walk past? Or Walter Block’s kangaroo courts for the Statists? Or all that deregulatory idiocy from various and sundry, or the unscientific nonsense denying global warming from Cato? Live in your own private Idaho: the Libertarians need to come to grips with what Governance means and give us a definition. From thence you can work on Self-Governance based upon that definition, so we’re all on the same wavelength and compose an algebra for what might follow.

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                    • I am perfectly capable of reading Ostrom for myself. There is a difference between self-determination, which Ostrom did advocate, a position I hold myself — within the constructs of existing systems — and self-governance by Libertarian principles.

                      The growing theoretical consensus does not lead to a conclusion that most users utilising common-pool resources will undertake self-governed regulation. Many settings exist where the theoretical expectation should be the opposite. Users will overuse the forest unless efforts are made to change one or more of the variables affecting perceived costs or benefits. Given the number of variables that affect these costs and benefits, many points of external intervention can enhance or reduce the probability of users’ agreeing upon and following rules that generate higher social returns. But both social scientists and policy makers have a lot to learn about how these variables interact in field settings and even how to measure them so as to increase the empirical legitimacy of the growing theoretical consensus. Many aspects of the macroinstitutional structure surrounding a particular setting affect the perceived costs and benefits. Thus, external authorities can be effective in enhancing the likelihood and performance of self-governing institutions. Their actions can also seriously impede these developments as well….

                      Ostrom has specifically laid out the case against self-governance. She has merely pointed to the obvious, as I laid out in my statement about how the Libertarians got it backwards. I don’t deny the need for a Government of the People. The current extinction of rhinoceroses and elephants will only be solved by a top-down force which can shoot poachers.

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                    • 1. I’m not saying not to have your own reading of her work. I’m saying to keep in mind that James is no neophyte here and has an understanding of Ostrom’s work that has little to do with ideological affinity.

                      2. There may well be a difference between self-determination and governance by libertarian principles. But James has repeatedly acknowledged this, and has gone so far as to say that libertarians who think Ostrom’s work proves libertarianism as correct, full stop, are completely wrong. What else do you want out of him?

                      3. But by the same token, none of that means that some of Ostrom’s work can’t be used in support of some specific libertarian proposals. There’s no reason there can’t be overlap.

                      4. In all honesty, it seems like you’re saying that, because Ostrom was not herself a libertarian and rejected libertarianism on some issues, none of her work may be used honestly in support of any libertarian inclination. This is no different from the opposite.

                      Ultimately, though, I’m just having a hard time understanding where you’re trying to go with this, and why it matters.

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                    • I did answer that, Blaise. I’m sorry you didn’t read the response.

                      And, yes, I will have it my way. Look at her bibliography and see how many times the phrases self-governing or self-governance appear. Look at this press release about renaming the research institute in honor of her and Vincent, and note that “The central themes of its research include self-governance, democratic reform and collective action in the context of sustainability” (emphasis added).

                      No one could spend any serious amount of time around Lin Ostrom, or around the Workshop, or actively read her publications, without becoming aware of the central role of self-governance in her world view. So at the risk of coming off as too boastful and self-congratulatory, I just cannot allow such a serious misrepresentation of what she stood for stand unchallenged and uncorrected.

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                    • I’m perplexed, myself. I made my point clear enough. Christopher brought Ostrom up in the context of markets vis-à-vis biological systems, along with Hayek and others. I was having a polite enough discussion, going on about how markets are rules-based and if they evolve, they do so on the basis of how actual human games evolve, dispensing with the biological analogies.

                      And lo, Hanley comes in ask what Libertarians have said of Ostrom. Too polite to point him in the direction of Carr himself, who was trying to buttress his argument by the mention of that august social scientist, I dug about and found a few references.

                      It’s all fun until someone gets their eye poked out. And here it comes: she’s limiting her praise of the large scale to a functioning legal system, and thereby excluding other top-level arrangements.

                      I know Ostrom well enough to know she didn’t exclude other top-level arrangements, that in fact the Libertarians did have it backwards. And I quoted her to that effect. Ostrom isn’t a Chinese buffet for the dilettante political scientist and I’ve quoted her entirely too often for this little exercise in futility. As with Hayek, the Libertarians like exactly half of everything their philosophers propose, disposing of the rest.

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                    • BP,

                      Don’t feel you’ve “dispensed” of my argument that markets are like biological systems.

                      The point still stands. I can send you a link to a course syllabus if you like.

                      Know also that in “dispensing” with my analogy, you’ve also “dispensed” with much of what we “know” about the origin of life: the idea of an RNA world is based on game theory, which itself derives deductively from microeconomic observances.

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                    • I’d be interested in that syllabus, CC, and I’d also be interested to know if the course instructor, if she goes into affirmative argumentation at all, makes claims about human economics “following rules” derived from biology or just says things about deriving insights, identifying tendencies, etc.

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                    • James, I have already addressed this by saying I’ve been round the block on both Elinor Ostrom and Friedrich Hayek. It’s sorta like the Bible and the people who interpret it, Christopher: Gandhi once said I like your Christ, I do not like your Christians. Your Christians are so unlike your Christ.

                      I will stick to what Elinor Ostrom actually wrote, as I confine myself to what Gandhi and Jesus actually said, not what their acolytes have made of them. You are entirely within your right to say you knew Elinor Ostrom. That does count for something. But I will reach my own conclusions, based on what she wrote and what I’ve quoted here. Ostrom is a huge problem for the Libertarians yet they continue to cling to the parts they like. It’s a problem you acknowledge.

                      I do not believe you are arguing dishonestly. But I simply cannot proceed farther until we arrive at some consensus on what’s implied by Self-Governance. That, I think, is the essence of our disagreement.

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                    • The growing theoretical consensus does not lead to a conclusion that most users utilising common-pool resources will undertake self-governed regulation. Many settings exist where the theoretical expectation should be the opposite. Users will overuse the forest unless efforts are made to change one or more of the variables affecting perceived costs or benefits. Given the number of variables that affect these costs and benefits, many points of external intervention can enhance or reduce the probability of users’ agreeing upon and following rules that generate higher social returns. But both social scientists and policy makers have a lot to learn about how these variables interact in field settings and even how to measure them so as to increase the empirical legitimacy of the growing theoretical consensus. Many aspects of the macroinstitutional structure surrounding a particular setting affect the perceived costs and benefits. Thus, external authorities can be effective in enhancing the likelihood and performance of self-governing institutions. Their actions can also seriously impede these developments as well….

                      [BP] Ostrom has specifically laid out the case against self-governance.

                      No, that is not a case against self-governance. That is a poor reading, one abstracted from the entirety of what it came from. She’s talking about the theoretical consensus that has developed among political scientists, economists, and public policy folks that mostly stems from Garret Hardin’s defining “Tragedy of the Commons” essay. It is those people who argue that self-governance is not possible. But Ostrom spent most of her career working against that consensus, as noted in the Nobel Prize announcement itself.

                      Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.

                      Get that? “better than predicted by standard theories,” i.e., the theoretical consensus. She “challenged the conventional wisdom.” You, sir, are repeating the conventional wisdom–it seems like common sense to you, as it does to so many other people. But Ostrom and her research colleagues have rebutted that conventional wisdom. So when you say she did not advocate self-government, you are arguing the conventional wisdom in direct contrast to her challenge of that conventional wisdom. You are the one making a point “completely contrary” to what Ostrom argued.

                      Please allow me to quote her directly, at length.
                      From Governing the Commons, pp. 182-183:

                      If this study does nothing more than shatter the convictions of many policy analysts that the only way to solve CPR (common pool resource) problems is for external authorities to impose full private property rights or centralized regulation, it will have accomplished one major purpose….What is needed is further theoretical development that can help identify variables that must be included in any effort to explain and predict when appropriators using smaller-scale CPRs are more likely to self-organize and effectively govern their their own CPRs, and when they are more likely to fail.

                      “Shattering convictions” of the conventional wisdom that either privatization or centralized regulation is necessary, and understanding the conditions in which self-governance can be effective and when it cannot.

                      From The Commons in the New Millenium, p. 337:

                      Research regarding CPRs appears to give two different answers to the pertinent question of survival of such resources in the new millenium. One the one hand, multiple studies tell the same old stories. Central governments initiate the dismantling of local, well-functioning and self-governing systems, leading to governance failure at the coarser scale. The introduction of private property and market economy leads to the deterioration of common-pool resources and communities. … On the other hand, a most interesting line of research paints an alternative picture, that of sustainable management of natural resources, over centuries and years, despite such restructuring on the macro level.

                      Self-governance often works. Sometimes it works despite changes in higher levels of governmental structure and policy, and sometimes it is overborne by those changes, often (although not always) resulting in worse outcomes than produced by self-governance.

                      From Rules, Games, and Common-Pool Resources, p. 328:

                      Our analysis of successful self-organized CPR institutions makes us optimistic about human capacities to overcome the “social dilemmas” they face.

                      From “Design Principles in Long-Enduring Irrigation Systems” in Polycentric Governance and Development (edited by M. McGinnis), p. 84:

                      Slogans, such as “privatization may mask important underlying principles rather than providing useful guides for reform….On the other hand, authorizing the suppliers and users of irrigation water to have more voice in the design of theri own systems…is a feasible reform within the broad institutional frame of many countries. If those involved are authorized to devise their own rules and are encouraged to learn about how others have successfully overcome difficult design problems, we can expect that many of those who are most motivated will find solutions to the highly salient problems that they face.

                      Note that she doesn’t think central governments are all bad; she frequently argues that they can play an important helping role by providing technical expertise and other resources that assist locals in self-governance. But–given certain conditions for CPRs–she is more optimistic about self-governance that is supported by centralized governments than she is about direct central government management and regulation. Among those crucial conditions are size (the larger the CPR, the harder self-governance is, because of difficulties in communication and trust among stakeholders), clearly defined boundaries of the CPR, and capacity to monitor stakeholders’ use, to detect and punish cheaters (which can, but does not require, central government sanctioning–sometimes public disapproval is all that’s necessary, and sometimes, as in the case of collective irrigation systems where there is the ability of other users to divert water away from the cheater’s fields, individuals can effectively apply the sanctions).

                      So there’s really no solid basis for a claim that she opposed self-governance, and much documentary evidence for her interest in and support of self-governance. She traveled the world advising local groups and national governments on the value of self-governance. But she also did not see it as a panacea, applicable to all situations, and she worked diligently to discover the conditions that made it more or less likely to be an effective solution, so that it could be applied when appropriate, but not relied upon when it was not appropriate.

                      For anyone who’s read this far, let me say one final thing. This is not about arguing with Blaise nearly so much as it is about making sure anyone who’s waded through this leaves this conversation with an appropriate understanding of Lin Ostrom’s work, and its meaning. Burt posted about heroes at NaPP the other day, and I responded that I don’t do heroes. But Lin Ostrom…well, I damn near have hero worship for her. And I think her work is hugely important, because I consider myself an environmentalist, so I want it promulgated correctly.

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                    • James, I can’t speak for everyone who might be reading this trainwreck of a subthread of course, but I’ll say this: nothing Blaise has said has given a false impression of anything Olstrom was saying or arguing.

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                    • Stillwater,

                      Blaise has said Ostrom did not advocate self-governance. That is a false impression of what Ostrom wrote, as I believe I have demonstrated. If you believe that he is correct that she did not advocate self-governance, then I am sorrowful that at least one person has been led to a badly erroneous understanding of her life’s work.

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                    • Stillwater,
                      Oh, ok. Sorry about that, and thanks.

                      I know I go on a bit on this topic, but it’s as though someone argued that Einstein rejected relativity, or Adam Smith thought we only got our bread through the baker’s benevolence. Or as though someone tried to claim that the first weekend of the NCAA tournament wasn’t the greatest 4 days in sports.

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                    • Kook, or The Kook are fine. I am trying to retire the use of my real name on the Internet for various reasons.

                      Let me start over on fairness and justice. From scratch. Totally.

                      I think that each of us has opinions on whether the rules of the game are fair or not. I do not believe that fairness or justice are metaphysical absolutes that emerged in the Big Bang. Fairness is the name for our evolved ability to judge whether we are treating each other in an unbiased, consistent and reliable way. It is a useful human perspective ability.

                      Although we share a common evolved heritage and thus share a sense of fairness, it is a fairly plastic sense and can differ in details between individuals. It is possible that what you see as fair or just is not the same as what Brandon sees. Thus it is a real thing, but is subjective in terms of it being defined somewhat differently by individual. The topic is further complicated because we can differ how we emphasize procedural fairness and fairness in outcome.

                      Fairness and justice can be considered subjective ideals. Perfectly fair systems may be practically out of our reach, but each of us can choose more or less fair systems. However, we may disagree on which system is more fair or just*. One may have procedural fairness, another may lead to fair outcomes, and these two do not always align.

                      Markets are institutional systems which operate on certain rules. It is therefore possible for someone to view the institution as fair or just or unfair and unjust.

                      My suggestion to deal with this is to allow people to choose the rules they operate under. If a group of people want to volunteer to operate under different rules then they should do so with those that agree with them. I understand the conflicts this runs into. Again my suggestion is an ideal, and one which we are probably at best centuries away from achieving.

                      * I understand that justice and fairness are not the same thing but am choosing not to “go there.”

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                  • “Elinor Ostrom’s point was completely contrary to what the Libertarians have made of her. Her point was completely obvious: let the people who face the problem solve the problem.”

                    Letting the people who face the problem solve the problem is probably the core ideal of libertarianism.

                    What you’re talking against is market fundamentalism, something different. I agree with your analysis of Hayek to some extent, but I think you’re having trouble separating Hayek’s politcal views from his economic ones, and given the fact that he wrote at a time when aggressive promotion of capitalism seemed more important than it does now, I want to say this is uncharitable, but I’ll stop short of that, since I disagree with Hayek in the same fashion as you do.

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            • Well, mostly I was giving Zic a hard time for her silly assertion that government subsidy of medical care is a subsidy to soda manufacturers, rather than to the individuals who get the medical care. If it’s really corporate welfare, surely we can all agree that it should be abolished, right?

              In general, though, I oppose redistribution because it’s anti-growth. It takes resources that could be devoted to investment and shifts them to consumption. Some kinds are worse than others, of course. For example, I think that subsidization of prescription drugs is relatively benign, because most of the per-unit cost of patented drugs goes to the patent holder, and thus increases the returns to developing new drugs, and does so proportionally to market demand. Research funding tends to be relatively benign as well, though there’s always the danger near-certainty that priorities will be set politically rather than according to actual usefulness.

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              • But ultimately, you have this vision of what constitutes a just ordering of society; one where individual liberties are protected, I’m assuming.

                Is that more or less arbitrary, and emotionally appealing, than the religious argument about human dignity and the essential equality of all people?

                In your argument, as with Roger’s below, it seems like there is this assertion that the most efficient allocation of resources via pricing is somehow the highest goal, the most desired outcome.

                Is market efficiency the goal, regardless of all other considerations? Or should the market be nothing more than a mechanism we use when it suits us, and override when it doesn’t?

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              • You’re getting warmer. Just not all the way to capitalism yet. Capitalism is about everyone makin’ enough money to buy all this wonderful stuff. See, if you want to sell all these wonderful things, you have to make sure people have the money to buy them.

                But like I said, you’re freeing yourself this feudalism mode, that’s a good sign. We don’t want some Lord of the Manor handing out freebies to his serfs, just giving them things. The next step is to let the serf or the wage slave manage his own affairs and make some real money — that way, he can buy stuff.

                But while we continue to say low wages only reflect marginal utility, we’re still stuck in the feudal model, where lords don’t have to pay serfs. If mopping a floor is necessary, why do some people get all hostile when it’s pointed out the mopper needs to eat and ought to be paid enough to buy his food?

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                • Heh. What he doesn’t seem to grasp is how any sort of subsidy warps the redistributive power of capitalism. Of course society needs a safety net: beggars are bad for business and history shows they become ugly mobs, given half a chance.

                  These Banana Republicans, all upset about redistribution, I’m not convinced they’re really capitalists. For all their praise of it, they don’t understand how it really works, Zic. The power of capitalism is almost beyond reckoning, it’s the greatest force for good ever invented. There’s absolutely no excuse for extreme poverty or privation anywhere in the world. Granted, there won’t be much equality, capitalism does reward risk-takers. But it’s as Marx said, all those years ago:

                  A house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut. The little house now makes it clear that its inmate has no social position at all to maintain, or but a very insignificant one; and however high it may shoot up in the course of civilization, if the neighboring palace rises in equal or even in greater measure, the occupant of the relatively little house will always find himself more uncomfortable, more dissatisfied, more cramped within his four walls.

                  It’s one thing to complain about such whining and apparent injustice when everyone has a house and a pot with which to throw piss out the window. It’s another to complain about a system which could, if it were given half a chance, give everyone a house.

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                • Your corrected version was essentially the same fallacy as the original version, so I just kind of shrugged and moved on. Even if you’re complaining about subsidizing medical care of soda-drinking diabetics through your insurance premiums instead of through taxes, you’re still subsidizing the soda-drinking diabetics, not the soda manufacturers.

                  Of course, there’s a solution to this problem: Allow insurance companies to charge actuarially appropriate premiums.

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                    • Being unable to charge actuarially appropriate rates is one of the standard market failures of insurance. Insurers lack perfect information. They are always going to be charging actuarially inappropriate rates.

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                    • It’s wilful blindness, a cheap trick. Insurers do have the data. They jealously guard it as trade secrets. They have millions of lives in their own pools. They do know the probabilities. They just won’t apply them to each insurer/insured.

                      A few semesters of statistics and some exposure to actuarial will cure all such delusions. Not only do the insurers know, they will lie to your face and tell you they can’t figure it out. Anyone capable of running a Poisson Distribution knows these insurance companies are purposely hiding data from the insured in the calculation of insurance rates, a fact I find highly annoying when told the solution is to allow insurance companies to charge “actuarially appropriate” premiums. People who say such things should be frogmarched into an actual Re-Education Camp and only discharged when they can successfully run a Poisson Experiment.

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                    • “Being unable to charge actuarially appropriate rates is one of the standard market failures of insurance.”

                      Of course insurers lack perfect information — perfect information would require omniscience. I am not sure why you are calling this a market failure though.

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                    • I wish I had known that back when I was directly responsible for the design and implementation of rates countrywide for ten different lines of insurance.

                      I should have just demanded that my teams of actuaries whip out their perfect information with probabilities applied down to the level of the individual and make an endless stream of perfect filings.

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                    • I have absolutely no idea how to compute a poisson distribution. I have never done it in my life.

                      So you are arguing that the ability to compute poisson distributions provides the ability to have perfect actuarial insights on expected pure premiums down to an individual level?

                      Please enlighten me.

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                    • Roger,
                      Okay, so what the hell did you do in insurance?
                      I grok what blaise did, he wrote models.
                      I get models, I’ve done ’em myself (not much insurancewise, granted).

                      Hell, I know what a poisson distribution is, and how to approx one.

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                    • Don’t you dream of lecturing me about Perfect Information or telling me about your Insurance Industry experience again, Roger. Ever.

                      Now here’s the reason a large life pool premium costs less than a small life pool: as varies the pool of lives, so converges the sample average with expected value. You don’t need perfect information. You just need lots of good sample data.

                      With auto insurance, we have external datasets to consider. That’s why girls get cheaper auto insurance than boys of the same age and married men lower than single men. It’s also why you don’t get auto insurance through your employer.

                      But with health insurance, no such public datasets exist. They’re all privately held, the crown jewels of that industry.

                      The health insurers pretend they don’t have hundreds of thousands of insured to consider in their life pool. They grin at the employer and say, “life pool of five, not enough convergence and therefore we can’t compute the odds of your employees getting sick. And if one does get sick, we’re going to jack your rates up accordingly.”

                      Which is pure statistical bullshit. They already know the odds based on their entire pool of lives, across all their insured. They’d have even more convergence if their datasets were pooled. But we can’t force them into it, as we can with Department of Motor Vehicles data.

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                    • My early career I was responsible for underwriting, usually for a state or group of states. Later I became responsible for price and underwriting. This involved teams of people, some of which were actuaries.

                      Then I moved to marketing and led innovation and product development. We designed new products and features, tested them with consumers and then implemented them.

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                  • “It’s wilful blindness, a cheap trick. Insurers do have the data. They jealously guard it as trade secrets. They have millions of lives in their own pools. They do know the probabilities. They just won’t apply them to each insurer/insured.”

                    So insurers could charge actuarially appropriate “higher” rates but they choose not to out of the goodness of their hearts?
                    They have the data, they know how much to charge, but they willfully lose money in deference to the common good.

                    That is your argument?
                    Oh, and everyone else simply doesn’t have the mastery of statistics possessed by Blaise. Are you now a licensed actuary as well? Is there anything on which you are not an expert? Can you provide a list of courses we can all take to become as omniscient as yourself?
                    Maybe you are a god, and we should just stop wasting our time and anoint you “dear leader” of the world so that you can deliver us all to blaisetopia!

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                    • Yes, in point of fact. My stuff lies at the heart of Blue Cross / Blue Shield’s underwriting policy. Also GE Capital. Also USDA’s loan system. Also options pricing for Daiwa Capital Markets.

                      My first recommended text is Probability and Random Processes by Grimmett. You little blowhard, just take a seat and get your temper under control.

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                    • Yes, What? You are a licensed actuary, you are a god?
                      You have not answered the question. Why do these insurers charge less than the actuarially appropriate rate?

                      Why does BC/BS charge less than the actuarially appropriate rate when they have employed an Adonis, a genius, a god like yourself?

                      Was it the evil bureaucrats that lead you to design software that undervalued the cost of those insured?

                      I can actually buy that.
                      I can see how your “everyone except me is a f*cking idiot” strategy could backfire.

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                    • Run along now, Pete, my boy. All I do is AI and modelling.

                      Now I’ll tell you a little story about BCBS of North Carolina. They had a contract with the state employees’ union, large life pool. Now there’s a difference between a non-profit and a not-for-profit. If BCBS were able to convert to a for-profit entity, they could break their contract with the state employees’ union they could turn around and pick up those same insured at four to five times the premium per life. North Carolina got wind of that and shut down that little scam before it got started.

                      I am growing increasingly tired of your stupid questions. Matter o’ fact, I’m getting tired of all the stupid questions I’m being asked on this subject. You need to purchase Grimmett on Probability and work through it, you innumerate jackass, before you ask another question on this subject.

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                    • Dave,
                      You can delete all of my comments if you desire.
                      I have been reading this blog since the original Canadian, I believe his name is Scott, posted here.

                      I have no need for echo chambers and “arrogant pricks.”
                      That about sums up what is left.

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                    • You can delete all of my comments if you desire.

                      There’s no need so long as the parties involved back off. There’s been too much BS here lately, but I’d rather not see commenters have to take matters into their own hands.

                      I have been reading this blog since the original Canadian, I believe his name is Scott, posted here.

                      Scott Payne was one of the originals here. Great guy. I miss him.

                      I have no need for echo chambers and “arrogant pricks.”
                      That about sums up what is left.

                      Me neither, but I still think this community is beyond that. In my experience, active enforcement of the commenting policy goes a long way to getting people in line, especially when I’m the one doing it. ;)

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            • Brandon: ” Justice isn’t a real thing.”

              Stillwater: “Then how do you justify any of the arguments you make against government takings and taxes and so on? Somewhere in this thread you say that we ought to abolish Medicare and Medicaid. On what grounds?”

              I’m waiting for a reply; I’m afraid that when a reply comes it’ll be some variation on ‘that’s different!’ or ‘governments are less efficient than the free market’, which suffers from two different assumptions.

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      • BB, I can only assume that you are defining management down to include what I would call a mere employee… when I use the term Managerial Class, I’m talking about the officers of the company that comprise the bulk of the Executive team. If you think that a company like Walmart does what it does because the Executive team wills something and it magically happens around the globe, then I’m shocked. So yes, Walmart does depend upon the good work of its employees to do what it does.

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    • I love this idea. Don’t put an absolute ceiling on pay, just say that the highest-paid person in a business can’t make more than, say, 100x the pay of the lowest-paid person. That still enables some pretty extraordinary levels of pay ($2 million for a top executive if the lowest-level workers are paying minimum wage), but it reduces the split between them.

      And I also suspect it would keep businesses rather smaller than is currently the norm, which is a plus – more small and midsized businesses means more competition, rather than a couple of huge companies dominating a market, and it also means more variety and choice for consumers.

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  4. I don’t think there is a moral argument for limiting CEO pay directly. I do think that certain restrictions which would indirectly constrain it can be justified (at least in principle). One is your example above: insurance companies. If government has the right (for whatever reason!) to mandate floors on loss ratios, that would indirectly constrain CEO pay rates. The argument wrt insurance companies, however, isn’t ad hoc. Presumably, it’s justified by compelling evidence, clearly specified goals social goals, etc.

    An argument in favor of regulating firms that receive special benefits (like protective tariffs) or subsidies, or who are entrenched in profitable public-private partnerships, is based on the idea that simply because those companies generate profits derived from favorable government policy treatment, government has a right to dictate the internal decision-making of those firms. I don’t think that’s a good argument, myself. But it’s different than an argument justifying regulating medical loss rations in health insurers. It begins with the premise that a sufficient condition for government regulation is that those firms derive profits from governmental policy, whereas the justification for regulating private health insurers is the provision of a public good.

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  5. Couldn’t Congress instruct the IRS regarding their “reasonableness test” for evaluating deductions of employee compensation as business expenses? Legislate that total compensation above a half-million dollars (to a full-time employee, and pro-rated for others) is to be judged as unreasonable and disallowed as deductible expenses. Inflation-adjusted, of course. If businesses want to compensate individuals at excessive levels, that’s okay, but let it come out of their post-tax profits rather than be subsidized (a form of “tax expenditure” imho).

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    • They did just that back in 1993, although they set that deductibility cap at $1 million. That’s part of what led to executives being paid with stock options rather than cash.

      That said, the idea that removing this cap would constitute a subsidy is just plain wrong. Employee wages are in generally fully deductible because wages are expenses, and expenses aren’t profits. If you pay an employee $100,000, that’s a $100,000 expense for the firm. The firm no longer has the money, and as such it can’t reasonably be considered profit. Capping the deductibility of salaries doesn’t close a loophole—it imposes a huge penalty on wages above the cap, as they’re taxed once as corporate income (even though the firm doesn’t actually keep the money), and then again as the executive’s personal income.

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      • A deductibility cap on compensation is more than a deductibility cap on wages, of course. The reasonableness test already must be applied to claims to deduct a business expense, so I’m only suggesting the Congress mandate a rule–a cap–regarding this test as applied to employee compensation levels. Unreasonable expenses are not deductible by law today–for tax purposes, these are profits that have been spent, not expenses, and they are taxed as profits. Compensation packages deemed unreasonable are taxable as profits. The IRS is very generous when defining reasonableness, but they do use it and follow the law. Agree?

        I agree that the result would be a very high marginal tax rate (LBJ-like) on compensation paid/received above a deductibility cap. It’s a way to discourage businesses from paying very high compensation levels (rather than outlawing them as suggested by this posting).

        As for my remark about subsidies and tax expenditures, sorry, it’s my way of conveying a common guy’s perception that tax deductions by businesses for executive perks and unnecessary spending are okay to politicians and economists, whereas any tax deduction for a laborer is up for discussion if not elimination.

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        • There are good reasons for the reasonable test, none of which apply to cash or equity compensation. The reasonableness test is needed to prevent straight-up tax loopholes, where personal consumption is fraudulently written off a business expense and thus never taxed at all. For example, you could knock $50,000 off an executive’s salary, and in exchange buy a house with a $60,000/year mortgage and let him live in it, then write off the mortgage as a business expense. You don’t pay taxes on it because it’s a “business expense,” and he doesn’t pay taxes on it because it’s not his house. So that’s $60,000 that nobody pays taxes on. Hence the reasonableness test.

          None of this applies to cash or equity compensation, though, because whatever money the firm deducts as compensation shows up on the executive’s tax return as personal income. A cap on deductibility of wage expenses is just double taxation.

          The cap passed in 1993 exempts qualified performance bonuses, defined here.

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  6. Rather than an outside body setting maximum pay maybe what is needed is to reinvigorate the idea that shareholders are the employers of directors and get to decide what to pay them. Instead of a remuneration committee composed of other business leaders setting the pay and letting shareholders approve it, possibly after a lot has already been paid, you have to stand up at the AGM and say “How much do you think I’m worth?”

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    • Wouldn’t this require that stock-ownership be much more individualized rather than through mutual funds or corporate ownership of stocks through holding companies. Wouldn’t this also require that the CEO and other members of the Board can’t own stock in their own corporation to avoid a conflict of interest?

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      • Fund managers are managing money on behalf of their clients. Since they’re usually paid a performance bonus, they have an incentive to make sure that the money they manage is put to good use. Individual investors usually have jobs to go to, and very few have enough invested in any one company to make it worthwhile to attend shareholder meetings. My suspicion is that more institutional investment means more shareholder oversight, rather than less.

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  7. “But what if that company is one of those we will be required to purchase health insurance from? Or what if that company is one that has or continues to directly benefit from government subsidies…Do we have the right to restrict CEO pay then….? If we do not have that right, then why don’t we have it? If we do have that right, where does that right end?”

    Forgive my editing, but I wanted to address this great discussion point head on. As I wrote above, I too think something is amiss with CEO pay. But I want to clarify that I totally reject the “right to set wages” argument.

    The reason is that the argument against setting wages or prices isnt a matter of do we have the right. It is a matter of do we have the knowledge. And the answer is no. I have no idea what the right wage is, and neither does anyone else. Setting minimum and maximum wages and prices is folly twice over. First it assumes someone knows the proper price, and is smarter than the market. But complex adaptive systems can and often are smarter than anyone. Indeed if the market is truly free (an assumption I do not share) then any wage other than the one set by supply and demand is likely wrong.

    Second prices and wages and profits are not just outcomes, they are also signals within the system. Any time you interfere with these signals you disrupt that markets ability to solve the problem of allocating resources efficiently.

    Putting two and two together. I believe CEO pay should be addressed by experimenting with ways to improve corporate governance. This may lead to lower pay. Or not. My guess is it would. This is a decentralized process that does not suffer from the conceit of the annointed.

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      • I don’t have any ideas. Do I have to solve everything around here?

        Seriously though, I agree with experimentation with better board structure and management. I will leave the details of that experimentation to others. I just encourage it.

        Bravo experimentation with better corporate governance!

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        • The better board structure you’re looking for is one with a worker or two on it. Saves time and trouble, eliminates management-workforce friction and therefore the Satanic Unions you guys hate so much. It works in Germany. Their economy is strong, the strongest in Europe. Japan, you can’t tell the workers from management, their workers do go into the corporate suites and make noises. Everyone’s on the same team. They’re all out to make money. If the firm isn’t making money, everyone has to take a pay cut, some folks might have to go. If the corporation is doing well, hey, the workers made those products, they get raises. Or maybe the corporation could invest in its own future. Now there’s a thought.

          Does that sound even remotely reasonable to you?

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            • And when all’s said and done, if the CEO turns out to be a champion for his workers, he damned well deserves every penny he’s paid. Believe you me, workers can and will exhibit loyalty to anyone who proves he or she is worthy of that loyalty. Doesn’t take much, really.

              All this statist talk about putting a cap on CEO pay disgusts me: it’s just so much revanchist swill, straight out of the Communist cookbook. I’ve said at turns “for the poor to rise in the world, the rich may have to become astronomically wealthy” If the world was run according to my lights, nobody would have to live in poverty: nations would invest in their own people, cut down all these obstacles to progress.

              And the first obstacle I’d tear down would be the wall dividing the bourgeois from the proles. In a capitalist society, if they get pay checks from the same firm, they ought to act like they’re on the same team. Other nations manage this and for all our “innovation” we still act like it’s the Gilded Age. We haven’t evolved.

              Tell you why the Capitalists of his day hated Marx so much: Marx understood capitalism rather better than they did. In an era of instant communications, fresh salad in plastic bags, sushi in Des Moines, Iowa, don’t tell me we can’t eliminate the inefficiencies which bedevil management and workers alike. If we don’t get back on track here, the USA will turn — hell, IS turning — into a Banana Republic.

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              • It’s fairly easy to include workers in management/CEO discussions. How to get management to actually turn the ears on is a completely different problem.
                To have managers actually wade ankle high in the weeds to be less disconnected with the clockworks of the company is yet another. Its much akin to herding cats across a river.

                Good managers/engineers are as rare as hens teeth in this country.

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                • I disagree. I repeat myself in saying any such discussions revolve around mandate and power. The executives are ultimately responsible to the boards of directors. Unless worker representatives appear at that level, it’s as you say “how to get management to turn the ears on is a completely different problem.”

                  It’s like the old guy trying to sell a mule to the preacher. Old guy says, “All you have to do is whisper in his ear and he’ll take you anywhere.” The preacher climbs on, whispers in the mule’s ear “Take me to First Baptist Church.”

                  Mule sits there, won’t do anything. The old guy picks up a length of two-by-four, fetches the mule a whack in the side of its head, mule staggers around a bit. “Try it again” says the old guy.

                  Preacher whispers “Take me to First Baptist Church”. The mule’s ears stand straight up, mule starts galloping down the road toward First Baptist, preacher hanging on for dear life.

                  The old guy yells after the preacher, heading down the road “Just remember, you have to get his attention, first!”

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  8. Notice I’m not asking if we should put a cap on CEO pay: I’m asking if there are any legitimate ethical frameworks out there where capping CEO pay is even theoretically justified. Are there any legitimate ethical frameworks where we as a society – or even just a simple majority of us – can decide that a private company can pay its CEO only up to a certain quantity of ducats?

    Corporations are not individuals. They’re not natural persons naturally entitled to rights. They are a kind of virtual machine created by governments through the force of law. To be sure, they’re owned by individuals, but they take their form and operate under rules established by the governing authority that enables their existence.

    If by some bizarre turn of events, the State of Delaware were to cease to exist tomorrow morning, all the thousands upon thousands of corporations chartered in that state would also effectively cease to exist since the governing authority that authorizes their existence no longer exists. (In real-life situations there’s always a “new boss” to take over from the “old boss” so this doesn’t actually happen.)

    So in my mind, there’s no more ethical concern over a State taxing or regulating corporations than there is in my compelling my TV set to display a particular channel. After all, you’re not limiting the right of the CEO, a natural person, to earn more money–after all, he can get a second job like the rest of us; you’re limiting the ability of the Corporation, an artificial person existing as a construct of law, to pay more than an amount certain.

    None of that speaks to whether it’s a good idea, just whether it’s ethically justifiable. Deontologists need not apply.

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  9. I believe intervening in the price system by directly capping pay is a terrible idea. I also feel the same way about minimum wages. The price mechanism is incredibly complicated, and little good can come from messing with it.

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    • I find this attitude curious. Do you apply this principle to other areas of life?

      “The human body is incredibly complicated, and little good can come from messing with it. Therefore, I eschew all medical science.”

      or…

      “Botany is incredibly complicated, and little good can come from messing with it. Therefore, I reject all products of modern agriculture.”

      I strongly suspect you don’t (obviously, you’re cool with physics, or you couldn’t communicate over this medium), so I’m genuinely curious why libertarians insist upon segregating our social interactions, including the economic sphere, into this ghetto of non-interference, where we’re not supposed to utilize our powers of rationality to improve upon the natural state of affairs.

      I mean… sure economics is complex. Lots of moving parts and feedback loops, and intervention over here can produce unexpected, and perhaps undesirable, effects over there. But none of that is particularly unique to that field of human endeavors. Drugs save lives, but they can also have side effects. That doesn’t mean you don’t go to the doctor if you’re sick, right?

      Is it a religious thing, like the Amish? Or is it just a kind of fatalism?

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        • But you don’t really believe that, do you, Jaybird? Historically, coercion is a pretty darn natural feature of human interaction. As is murder, assault, rape, theft, slavery, etc. I assume you’re fine with using force to counter-act those innate impulses in the interests of creating a more peaceful and prosperous society, right?

          Even something as foundational as property rights is a major modification of the natural order of things, which is more along the lines of might makes right.

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          • Even something as foundational as property rights is a major modification of the natural order of things, which is more along the lines of might makes right.

            Wow. Well said. Really well said. I mean, that’s exactly right. This sentence slices in a lot of different directions, all of which cut across the idea that government is *the* problem wrt liberty.

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          • Sure. But when murder, assault, rape, theft, slavery, etc is government policy… then what?

            There are a lot of examples that we could give of these things being policy and it’s not a coincidence that their bodycounts dwarf the bodycounts of “crime”. Even “good” governments like our own incarcerate millions and millions and create new and downright insane forms of injustice not only for those incarcerated but for those formerly incarcerated.

            I mean, seriously, if I were to write a short story about how the criminal justice system worked in the US, it’d read like dystopian fiction.

            As such, holding the leaps and bounds we’ve made to get to exactly where we are doesn’t strike me as human progress as much as making me wonder if we’ve learned anything at all except many of us resent those who are not grateful.

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            • If you’re allergic to violence there’s never been a time in human history better to live in than the present. From an essay, A HISTORY OF VIOLENCE by Steven Pinker:

              In sixteenth-century Paris, a popular form of entertainment was cat-burning, in which a cat was hoisted in a sling on a stage and slowly lowered into a fire. According to historian Norman Davies, “[T]he spectators, including kings and queens, shrieked with laughter as the animals, howling with pain, were singed, roasted, and finally carbonized.” Today, such sadism would be unthinkable in most of the world. This change in sensibilities is just one example of perhaps the most important and most underappreciated trend in the human saga: Violence has been in decline over long stretches of history, and today we are probably living in the most peaceful moment of our species’ time on earth.

              It’s hard for me to pick out just a few relevant quotes from the essay, but across all time scales, all species of violence committed by all actors, private and state, has declined steadily from our pre-state ancestors.

              Seriously, dude, read the essay and get back to me. Overall, modern governance is a force for good, despite the shortcomings we both acknowledge.

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                • Indeed. From the essay I linked:

                  At the widest-angle view, one can see a whopping difference across the millennia that separate us from our pre-state ancestors. Contra leftist anthropologists who celebrate the noble savage, quantitative body-counts—such as the proportion of prehistoric skeletons with axemarks and embedded arrowheads or the proportion of men in a contemporary foraging tribe who die at the hands of other men—suggest that pre-state societies were far more violent than our own. It is true that raids and battles killed a tiny percentage of the numbers that die in modern warfare. But, in tribal violence, the clashes are more frequent, the percentage of men in the population who fight is greater, and the rates of death per battle are higher. According to anthropologists like Lawrence Keeley, Stephen LeBlanc, Phillip Walker, and Bruce Knauft, these factors combine to yield population-wide rates of death in tribal warfare that dwarf those of modern times. If the wars of the twentieth century had killed the same proportion of the population that die in the wars of a typical tribal society, there would have been two billion deaths, not 100 million.

                  Interesting, huh?

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                    • I mean, here’s part of the essay (which I read because it was not too long):

                      Meanwhile, according to political scientist Barbara Harff, between 1989 and 2005 the number of campaigns of mass killing of civilians decreased by 90 percent.

                      What happened in 1989? Why begin the count there?

                      Is the answer related to a certain kind of government?

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                    • The only thing I can think of that ended in 1989 was the Soviet war in Afghanistan, which did indeed result in way too many civilian deaths. And 2005 was when the civilian death rate in Iraq began to spiral out of control.

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                    • What happened in 1989? Why begin the count there?

                      You have a real talent for being disingenuous when you get on a roll, don’t you?

                      Zooming in by a further power of ten exposes yet another reduction. After the cold war, every part of the world saw a steep drop-off in state-based conflicts, and those that do occur are more likely to end in negotiated settlements rather than being fought to the bitter end. Meanwhile, according to political scientist Barbara Harff, between 1989 and 2005 the number of campaigns of mass killing of civilians decreased by 90 percent.

                      And that passage was a continuation of a riff on the fractal nature of the reduction in violence, starting at the scale of millennia, then centuries, then decades, and finally the most recent history.

                      You should be more charitable to those that don’t read, given how much better your arguments work against the uninformed.

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                    • Rod, it seems to me that “after the end of the cold war” is a minor handwave there. I mean, I could argue that there was a degree of central planning that was abandoned and then, when this degree of central planning was abandoned, peace broke out.

                      It wasn’t a case of our technocrats finally learning how to run things.

                      It was a case of technocrats finally stopping to try to run things.

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                    • I could argue that there was a degree of central planning that was abandoned and then, when this degree of central planning was abandoned, peace broke out.

                      Sure. That’s called “a dispute”. You have one view, Rod has another, the two views are inconsistent. What settles the matter? Well, one thing that doesn’t settle it is merely asserting that you *could* make the argument. You need to actually make it. And that’s where things get dicey, it seems to me. If your view is that the state is the *primary* cause of violence deaths and more specifically that reductions in the exercise of state power over time is the primary cause of lower death rates per capita, then you’re led to some paradoxical conclusions given Pinkers data.

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                    • There is a lot of people talking past each other on this violence subthread. Here are my summary notes of Pinker’s 700 plus page argument explaining why violence is at the lowest level ever…

                      Reasons:
                      1) the rise of literacy and the ability to experience other people’s viewpoints
                      2) interdependency and the extended networks of market economies and massive telecommunications.
                      3). Monopoly of coercion in state is aimed at using coercion only to suppress coercion.  This changes the payoff of exploitation and violence and replaces amplifying feedback loops of revenge and status displays
                      4) intelligence and the Flynn effect and the correlation with planning for the long term and repressing impulsiveness. 
                      5). Enlightenment philosophy and emphasis on rational utilitarianism. 

                      I think he missed a few or under emphasized a few things such the role of property rights and common law at reducing destructive squabbles. That said, there is nothing in his book which disputes classical liberalism, and lots which reinforces it. It could be used a an argument against anarchy, but to my knowledge we have no anarchists here.

                      One final point. Pinker’s book was my first intro to Fiske’s ideas of a hierarchy of cognitive ways of relating. The apex of which is called Market Pricing view of relationships which is sometimes defined as thinking like an economist or a libertarian. Over time, there is the possibility for cognitive and cultural advance to more sophisticated ways of viewing relationships. Fiske may be wrong, but I suggest everyone be familiar with his arguments.

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        • You mean you’re idealogically opposed to the Fed changing interest rates? To the Pure Food and Drug Act? (After all, it tells economic actors what they are and aren’t allowed to do)

          We — humans — have meddled in the economy since, well, it started. We just use finer tools these days — less of wage freezes and price settings and outright nationalization, and more of interest rates and regulations and whatnot.

          As for CEO’s — they’re not worth what they’re paid, that’s pretty obvious. I’m sure one o two might be mega rock-starts of business, but well — upper management (and that runs all the way to the board) doesn’t seem to be any ‘smarter’ than the production folks, at any company I’ve ever worked at, from big to small. Same distribution of genuises and idiots.

          I admit, I couldn’t do their job — not much for schmoozing and deal-making and tedious negotiations. But they couldn’t do mine either. But I don’t get paid tens of millions even as my decisions drive the company down the crapper.

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          • You mean you’re idealogically opposed to the Fed changing interest rates? To the Pure Food and Drug Act?

            I’m opposed to the Fed keeping them artificially low. I think that, in a few years, you’ll find out that you should have opposed the Fed keeping them as low as they did, as long as they did. As for the Pure Food and Drug Act, I think that we could have quite a conversation about the utility of the FDA.

            Perhaps this is just one of those things where I keep looking at stuff like (do you really want me to list a half-dozen Supreme Court cases?) and you’re asking me if I hate the Supreme Court.

            Given the number of times that the wrong thing had been done in the name of doing something, I think that doing nothing is usually a better course of action in a huge amount of cases and holding up the potential best case scenario as counter-argument strikes me as less persuasive than actual realized worst (or very very bad) case scenarios.

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            • a half-dozen Supreme Court cases

              Out of how many? 10,000? (I really don’t know. Teh Google was unhelpful in determining a number.) So, six wrong decisions out of let’s just say 10,000 is why you reject government? A .0006 likelihood?

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              • I think that those cases provide a good reason to be skeptical of the institutions being so much more awesome than nothing.

                How many court cases would it take to make up for Plessy?

                Does Brown v. the Board of Education get us there? Loving v. Virginia?

                I’m willing to bet that if you show me 10 “This was an *AWESOME* decision on the part of the Supreme Court” cases, 8 of them will be overturning a previous one that is probably still haunting us on one level or another.

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                • Um, we’ve SEEN nothing. You know what nothing looks like?

                  Well, without the Fed — inflation/deflation cycles, rampant boom/busts (leading to Depressions, not recessions). Complete banking and economic collapse.

                  See, here’s the thing — there’s a reason the FDA exists. Why the Fed came about. Why we started making those regulations. And while you can sit there and say “I’m not sure it’s better than nothing” I can only assume it’s because you haven’t actually thought about what “nothing” is.

                  It’s historical, is what it is. You can look it up. That’s what your “nothing” gets us — contaminated food, depressions, currency runs, bank runs….

                  Government regulation didn’t arise in a vacuum. I understand some people find it..idealogically convienent to assume all government regulation comes from villianious bureacrats and politicians increasing their fiefdom — but you and I both know that’s not the case.

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                  • Well, without the Fed — inflation/deflation cycles, rampant boom/busts (leading to Depressions, not recessions). Complete banking and economic collapse.

                    Keep watching.

                    (Though I honestly suspect that what’s going to happen in Europe will be blamed on the Austrians rather than on the Keynesians.)

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                    • You and Kim should get internet-married, because your comments are equally likely to be crazy red herrings thrown out after expressing suppport, sometimes implicitly, for pretty much indefensible positions,

                      I’d love to see you two bicker about something. I can only imagine…

                      Kim: You didn’t let the cat out.

                      JayBird: But what is a cat, really?

                      Kim: I have a friend who uses poisoned tipped knives to let the cat out. So I don’t see why you can’.

                      JayBird: Did the liberal let the cat out when he was supposed to?

                      Kim: Liberatarians like you are 63% more likely to be composed of cheese and shards of the Dark Crystal.

                      JayBird: Isn’t it hypocritical to criticize the libertarians for not letting the cat out, given that liberal cheeses never get critcized? And how do we define “cheese.”

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                    • My position isn’t indefensible. As I said, you guys get to hold up the theoretical best case scenario as evidence that we should do what you want and you get to dismiss my “this is something that actually happened!” evidence as being an insufficient defense. Indeed, my positions even become “indefensible” in the face of the glorious future you have centrally planned.

                      So when I point out stuff like Buck v. Bell or Plessy v. Ferguson or Dred Scott or Wickard or Warren v. District of Columbia and say “you guys are far, far too much in love with the idea of The Right People Making The Right Decisions”, the comeback is always “so you’d get rid of the FDA? You’d get rid of the Supreme Court???”

                      And even pointing out stuff like current major failures of the FDA (false positives, false negatives), the question always comes “so you’d rather we go back to the 1930’s???”

                      Additionally: if you want to insult me, insult me. Please don’t insult other folks on the site in order to better insult me. Thanks.

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                    • Europe? The monetarists probably, with their obsession on inflation targeting.

                      On the original topic: So if doing nothing is preferable in “most cases” to doing something, what are cases where doing something is preferable?

                      Let’s note that some of the examples you brought up (re: Buck v. Bell, Plessy, Dred Scot) are at least examples where doing nothing was the solution arrived at when faced with a potential injustice. It was people deciding that when faced with whether the federal government should intervene viz things being done by state governments, the answers were “nah, they know better.”

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                    • Eh. When asked to pick between the rights of the individual and the state having the power to wield over individuals as it will, the SCotUS tends to take the latter. There are a handful of exceptions… Roe is a big one. Citizens United is another (remember: that was a case about the government censoring a PPV movie).

                      It’s about the exercise of authority and upholding it. Hell, even Lawrence said that the state could pass and enforce these laws so long as the laws didn’t discriminate.

                      The government shouldn’t have half of the authority it claims.

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                    • I think you’re shifting goal posts here by saying that. It’s one thing to say that doing nothing in the case of a problem is a preferable solution. It’s another to argue that cases of actually doing nothing by one entity (federal government) is tantamount to claiming authority by a nebulous “government” in the abstract. That’s a different argument.

                      I think that public choice theory essentially negates the notion that there’s some nebulous, monolithic entity called “government”. There’s an odd tendency among people opposed to “government” to on one hand suggest and place the problems of state and local jurisdictions onto the federal government, and on the other simultaneously argue that localism is somehow a panacea to the problem of government centralization and authority.

                      It seems to me that the history of regional governments, particularly in the US show that central authority is one of the few things that can effectively curtail abuses of citizenry that arise from localism. Everything from the Jacksonian rejection of central banking and specie circulars to slavery and Jim Crow to sodomy laws are all at root, ills that come from devolution.

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                    • Nob,

                      The rationale for distributing powers between levels of government is obvious and one which I am sure you are well aware of. Your examples are great but lop sided — presenting only half the situation.

                      Part of the rationale for most governance being local is that it allows experimentation and variety rather than a single solution. For example, some states started without slavery, some with. Some had Jim Crow laws and some didn’t. Some have Open Shop laws and some don’t. In some cases, the proven success of those states cemented the argument for forcefully overriding the aberrant states.

                      Another way to say it is that you can’t assume that if we did things ONE way, that it would be the right way, and that as conditions changed it would stay right. We could have started and stayed slavery for example.

                      This isn’t anti government or devolutionary. It is specifically designed to make governance more adaptive and better at experimentation and learning.

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                    • Erm… no. The entire country was safe for slavery at its founding. Even provides for how to count them in the census. They weren’t equal.

                      What is this “proven success” business? That’s just not going to work. The proven successes were at Vicksburg and Gettysburg and Atlanta and Columbia and Appomattox Courthouse. Because we weren’t willing to address slavery as a nation, we were obliged to run a few interesting experiments, all right. Battlefield surgeons had plenty of test subjects. Believe me, battlefield medicine improved. So did mortuary science.

                      What is it with this “Experiment” line of argument about? Ever read about Lincoln’s House Divided Speech? We ran the experiment, the slavery proponents bullied the Framers in 1789, they bullied them right up to the 13th Amendment, they bullied the nation right through the Civil Rights Era and I’ll be damned if that little turd Antonin Scalia isn’t still making noises on this subject.

                      No. Our government is not a Fifty-State Experiment. Your solution isn’t even an framework for an experiment. It is a framework for anarchy, a political solution with surprising appeal to some well-intentioned people. There are also people who keep alligators and cuddly Burmese pythons in their homes. They, too, are running little experiments. If snakes and alligators do not change their natures, slavery and sweatshops don’t change their natures either.

                      Unless, of course, you want us to “adapt” to slavery and sweatshops again.

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                    • Blaise,

                      It may be best if we don’t have this discussion. I have noticed a past pattern that you and I are unable to see eye to eye on the process of what Jared Diamond calls “intermediate fragmentation.”. For the first year or so, I took it as a challenge to improve my ability to explain my views. However, none of these ended well. Indeed most ended with one of us calling the other names and accusing the other of things they never said.

                      I am going to assume this exchange will end similarly.

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                    • It seems to me, when you encounter a framework where you don’t want to acknowledge the track record of history, you resort to this Experiment line of rhetoric.

                      Examine what I’ve said about putting workers on boards of directors — once again, you want some Experiment — when the experiment has been run and a workable solution has been found. You complain that I’m demanding a solution from you.

                      I don’t have any ideas. Do I have to solve everything around here?

                      It’s true, you don’t have any ideas. But you do have lots of questions. You just don’t like the answers you get. You like the idea of hitting the Reset Button, assuming we could re-run the experiment and get different results in each of the fifty states. Science doesn’t work that way. We know the universe obeys the same rules everywhere. There are no exceptions. Nothing is going to make sweatshops any better in 200 years than they were 200 years ago.

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                    • Well, I guess you could choose to come to that conclusion. Connecting it to the discussion on justice and fairness, an alternative explanation is that I do not believe you play fair. It may not be your answers I reject, but your methods and the constructiveness of the process.

                      Food for thought….

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                    • Well, to use the distinctions made between Bowers v. Hardwick and Lawrence v. Texas, I’d say that the argument that the government has the jurisdiction to tell two people that they shouldn’t engage in a beej is a government claiming a certain amount of authority and jurisdiction.

                      That is: it has both the authority and the jurisdiction to tell two persons, in a locked house, that they cannot legally engage in some light head bobbery.

                      Bowers v. Hardwick argued that, yes, these laws are totally appropriate. Lawrence didn’t argue “these laws are totally inappropriate”. Lawrence instead argued “you can’t pass laws saying two guys can’t do this. You have to pass laws saying two *PERSONS* can’t do this.”

                      So when you ask “On what view of “shouldn’t”? On what view of “claims”?”, I find myself taken aback. It seems that the burden of proof needs to be that the government *SHOULD* have jurisdiction over fellatio between two people. As to your second question, given that the majority of arguments I’ve seen defending Lawrence is some variant of “it’s not like the government is going to enforce this law anyway” which seems to be a tacit admission that the law is claiming jurisdiction that it has no stomach to enforce (though, for some reason, Lawrence stood in the dock anyway).

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                    • It is my answers you reject, Roger. When I start in demolishing your assertions, using the battering ram created by those answers, then you get annoyed. Then you vent at me, as if denying your assertions is somehow a personal affront? It’s called argumentum ad temperantiam. No, I’m not going to compromise on my conclusions any more than my facts. I have to do my homework. Now you do yours.

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                    • Which “the government”? In neither case is the central government oppressing people. Once again, Bowers said “none of our business”, where Lawrence went further and said “at least you can’t single that group out”. And in the latter case, the principled, constitutional argument, I’ve often been told by distrusters of centralized power, was Thomas’s dissent that it’s a bad law but it’s still none of our business.

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                • Plessy wasn’t the central government making things worse; it was the central government refusing to use its power to make things better. Likewise, Dred Scott wasn’t the central government creating slavery or even inventing the obligation for free states to return escaped slaves; it was the central government refusing to resolve the contradictions of half-slave and half-free by imposing any additional (let me say it again: additional) restrictions on slavery. None of Brown, Loving, Gideon, Miranda, Griswold, Brady overturn decisions where previous courts had destroyed existing protections. Liberals get accused of loving the federal government too much. To the extent that’s true, it’s because we recall what state governments do when allowed to.

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      • Yeager answers your question here… (wages are a type of price)

        https://mises.org/journals/rae/pdf/rae7_2_5.pdf

        “Let us review what economic calculation means and what functions prices perform….

        Ultimately, additional units of any product cost foregoing other products or benefits that might have been chosen instead. Technology and the scarcity of resources pose the need to choose among alterna- tive patterns of production as rival and practically unlimited desires compete for those resources. The other side of the same coin is choosing how to allocate scarce resources among different lines of production.

        How might a definite plot of city land be used most advanta- geously-as a wheat field, a parking lot, a site for a swimming pool or hotel or office or apartment building, or what? By the logic of the price system, this resource goes under the control of whoever will pay the most. In bidding for its use, business firms estimate how much it can contribute, however indirectly, to producing goods and services that consumers want and will pay for. How much value it can contribute depends not only on physical facts of production but also on the selling price of each of the possible final products, and this price depends in turn partly on opportunities to produce the product in other ways. Wheat grown on cheaper land elsewhere would keep anyone who wanted to use city land to grow wheat from affording to bid highest for it. Not only natural resources but also capital, labor, and entrepreneurial ability thus move into lines of production where they contribute most to satisfying consumer needs and wants, satis- factions being measured by what consumers will pay for them.

        Another example concerns public transporation in a particular city. Should it be supplied by buses burning gasoline, by electric streetcars, in some different way, or not at all? The economically efficient answer depends on more than technology and the physical availability of inputs. It depends also on substitutabilities and complementarities among inputs, on alternative uses of those inputs, and on consumers’ subjective appraisals of various amounts of the various outputs of those alternative uses, as well as on appraisals of various amounts of various kinds of public and private transportation. The economically efficient answer even to the relatively simply question of local transportation depends, in short, on unimaginably wide ranges of information conveyed, in abbreviated form, by prices.

        Ideally, in a competitive economy,the price of each product meas- ures not only how consumers appraise it at the margin but also what the total is of the prices of the additional resources necessary to supply an additional unit of it. These prices, in turn, measure what those resources contribute at the margin to values of output in their various uses (AS ultimately appraised by consumers) and so measure the values other outputs sacrificed by not using the resources for them instead. Prices therefore tell the consumer how much worth of other things must be forgone to supply him with each particular product. With necessary alternatives brought to his attention in this way, each consumer ideally leaves no opportunity unexploited to increase his expected total satisfaction by diverting any dollar from one pui-chase to another. In this sense consumers choose the pattern of production and resource-use that they prefer. Ideally, their bidding sees to it that no unit of a resource goes to satisfy a less intense effective demand to the denial of a more intense one.

        Economic calculation takes physical relations into account, and far more besides. It takes into account the available quantities of various resources and possibilities of expanding them, the technol- ogy of input-output relations, and the physical complimentarities and substitutabilities of various resources in various lines of production. But it also takes into account the subjectively per- ceived unpleasantnqsses and amenities of different kinds of work, changes in the perceived disutilities of work and in the utilities of goods and services as their amounts increase, and complementarities and substitutabilities of various goods and services perceived by consumers. Ideally, the result of successful economic calculation- which, to repeat, takes all sorts of subjective as well as physical considerations into account-is a state of affairs in which no further rearrangement of patterns of production and resource use could achieve an increase of value to consumers from any particular good at the mere cost of a lesser sacrifice of value from some other good.”

        That is the long answer. Short answer is that interfering with prices makes the feedback mechanism of resource allocation less efficient. It usually does more harm than good.

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        • TL:DR

          I hope you didn’t waste a lot of time digging that up. I know this may come as a shock to you, but I actually am fairly well schooled in economic theory, at least at the primary level that passage appears to come from based on a quick scan.

          Also, I’m not advocating a cap on CEO wages. I’m just not convinced that the current crop of CEOs are a hundred times as effective as the CEOs that were running companies back when I was a kid (’60s). But if you’re convinced that what we’re seeing now is just the result of natural economic forces pricing executive labor, then that’s the conclusion you’re forced into.

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            • Too Long; Didn’t Read

              It’s just tedious the way libertarians always assume that anyone that disagrees with them about matters of economics is just uninformed. You’re about 40-yr old, right? That means I was studying Econ in college when you were in grade school. My professor for the Money and Banking course tried to talk me into switching majors from Engineering. Probably should have listened to him.

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              • No, I knew a girl in one of my classes and we went on a date and, in discussion, she pointed out that she didn’t read much.

                She seemed to communicate this with a tone that was less than apologetic. Like, she wasn’t saying “man, I’ve been studying so hard that I haven’t been reading”. She was communicating that there were people that read and people that didn’t, and she was one of the latter, dangit.

                Her signal was received differently than she intended to send it in that case as well.

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                • There are people who have treat economics as a religion, people who treat is as an exact science, and people who treat it as a social science, that is, a useful set of generalizations well short of truth. The first two can quickly get tedious.

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              • Rod,
                You started the discussion with your comment on what’s the big deal about messing with complex systems. I assumed you were serious and gave a serious answer. In addition several others joined in and accused faith in prices as being a religion. Fair enough.

                This answers the objection for those interested in a serious discussion.

                Sorry if the answer is too long. You can easily skim it for highlights.

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                • I’m always interested in a serious discussion with you. And to show that seriousness I went ahead and read the passage. And… it’s nothing I haven’t known since my first course in Macroeconomic theory–probably ’79, maybe ’80–I forget exactly now, but I believe it would have been my sophomore year.

                  If you would read my posts a bit more carefully you would note that I did NOT advocate arbitrary income caps. And for that matter I’m not a huge fan of minimum wages either. Or taxes. Or regulation as normally conceived.

                  But I also don’t understand this seeming obsession some have with the idea that the outcome of a free-market pricing and allocation mechanism is “right” or “correct” in some cosmic sense. Or that economic efficiency, apparently defined tautologically as the outcome of the free-market pricing mechanism, is a primary moral value.

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                  • Rod,
                    It’s all good,

                    I think it is an interesting discussion. I think you asked an intelligent and subtle question, which requires a real discussion, not the frequent one liner snarking that passes for discussion with some.

                    You original question was why an economist (James) would recommend not interfering with the pricing mechanism. You pointed out that we obviously are comfortable messing with other complex systems, and then you asked if it was some type of religious faith.

                    I read your statement to be an argument for rational interference in the setting of prices and wages, or at least consideration for interference. I see now it is more subtle.

                    Here you are clarifying that your objection is over a seeming obsession that the price is right or correct in some cosmic sense… That we are treating it as a primary moral value.

                    Again I think this is an awesome question. My too lengthy prior response clarified in detail that what the pricing mechanism does is allow us to discover the way to arrange the unimaginably complex relationships between resources and efforts to deliver consumer value. It works like an algorithm at ordering market affairs. You clarify that you know this and agree.

                    Of course you are also right that efficiency of resource allocation is not the only value humans can have. I agree 100%. Thus the argument shifts to one of whether it is wise to sacrifice efficient resource allocation for other values.

                    That is a great topic. I will just add the lives and prosperity and futures of seven billion people an all our descendents depends upon the efficiency of this algorithm. If we choose to override the system, we can, but we will not be able to judge how much less effective we make the system.

                    I would say we should be very careful, deliberate and cautious before destroying one type of good for another. And my experience is that most of those that do argue for minimum wages, wage caps, profit caps and such do so with complete ignorance of the algorithm which they are hobbling.

                    Others feel free to join in…

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                    • This is what I was aiming at above- that there are things that most societies place value on that are more valuable than market efficiency.

                      I can’t even think of a society or culture which doesn’t have as its foundational premise, a list of things that are considered sacred.
                      The human body, family structure, order and peace; although mostly honored in their absence, these sacred things are the ultimate goal.
                      Concepts like democracy and personal liberty, are almost always just means to that end, not ends in themselves.

                      When I read things by libertarians, it does seem as though individual liberty and market efficiency are somehow self-evidently good things, regardless of the outcome.

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                    • can’t even think of a society or culture which doesn’t have as its foundational premise, a list of things that are considered sacred.

                      Sure, but a lot of those are irrational, or useful only in circumstances that no longer apply today. You understand that when it comes to certain traditional conservative values, right?

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                    • My list of the sacred only varies slightly from the social conservatives- e.g., marriage IS in fact every bit as sacred as NOM says it is; which is why it is so important that gay people should be included in it.

                      What I am trying to focus on is what is sacred to libertarians- what things are the ultimate goals and ends by which we can measure our progress?

                      I sense mostly skepticism about the whole concept of sacredness; And that seems remarkably radical to me.

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                    • Values are heterogeneous. What is sacred to another person may be unimportant, or even profane to another. It’s really not my place to tell people what they should consider sacred.

                      Personally, though, I want people to live long, prosper, and mind their own business.

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                    • So the value claim “people should mind their own business” is not objectively true, nor in any way a fact? It is just your subjective opinion?

                      The more and more I meet conservatives and libertarians, the more and more I think there is a link between moral relativism and the denial of liberalism. You would think we hippy liberals should be the relativists, but actually liberals are usually some sort of utilitarian (possibly with Kantian or contractarian leanings, too).

                      Are you a moral relativist and a relativist about principles of justice Brandon?

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