Topic: Political Philosophy

Nobel Winner Phelps on Dynamism, Enterpreneurship, and Justice

By
Will Wilkinson

This year’s newly minted Nobel Prize winner in economics, Columbia University’s Edmund Phelps, has a wonderful essay on the difference between the American economic model and the various forms of European social democracy in today’s Wall Street Journal.

Phelps says the difference is the exceptional “dynamism” of the American free enterprise system:

[T]he free enterprise system is structured in such a way that it facilitates and stimulates dynamism while the Continental system impedes and discourages it.

Drawing on Hayek and Polanyi’s ideas about “personal knowledge” and entrepreneurship, Phelps explains how greater dynamism encourages a greater degree of innovation. Under capitalism, Phelps writes,

the financier and the entrepreneur do not need the approval of the state or of social partners. Nor are they accountable later on to such social bodies if the project goes badly, not even to the financier’s investors. So projects can be undertaken that would be too opaque and uncertain for the state or social partners to endorse.

Consequently, the U.S. has a remarkable record of innovation that much of the rest of the world, including the European social democracies, relies upon to maintain their own standards of living. This is a crucial point to hammer home when American statist liberals point to what they see as the success of the Western European institutions: the viability of European social democracy depends in part on the ability to, as Phelps puts it, “sail in the slipstream” of American innovation.

But the most fascinating part of Phelps’ essay is his attempt to justify capitalism in terms of John Rawls’ political philosophy. As one of a handful of classical liberals who think that Rawls identified something close to the correct method of political justification, I found Phelps’ appeal to Rawls darn interesting, even if he does slightly misinterpret him.

Like Rawls and Amartya Sen, Phelps denies that material resources alone are sufficient for well-being, and, again like Rawls and Sen, he leans heavily on the importance of self-realization through the exercise of our intellectual and creative capacities. Phelps notes that a higher degree of economic volatility is a pretty straightfoward consequence of a dynamic system in which enterpreneurs are free to shake things up without having to get buy-in from the state and all the veto-happy “stakeholders.” But if dynamism buys us higher productivity and higher incomes across the distribution, volatility will turn out to be a far cry from economic insecurity or precariousness. (Jacob Hacker, listen up.) And, Phelps thinks, more importantly, once we’ve passed a threshold of economic sufficiency, the concern for more profound matters such as self-realization becomes paramount. Capitalist dynamism offers greater opportunities for self-realization through challenge and the engagement of our higher capacities. And this is so not only for the enterpreneurs who are shaking things up, but for workers inside firms who are faced with the constant, stimulating challenge of creatively adjusting when things get shaken.

Instituting a high level of dynamism, so that the economy is fired by the new ideas of entrepreneurs, serves to transform the workplace–in the firms developing an innovation and also in the firms dealing with the innovations. The challenges that arise in developing a new idea and in gaining its acceptance in the marketplace provide the workforce with high levels of mental stimulation, problem-solving, employee-engagement and, thus, personal growth.

Now, Rawls’s standard for a just set of institutions is that it be the best feasible alternative in terms of the welfare of the “least advantaged.” In Rawls’s philosophy, advantage is understood in terms of “primary goods,” the necessary basic means to any meaningful and fulfilling human life. In addition to material goods, Rawls adds our moral rights, the availability of opportunites, and “the social bases of self-respect.” In justifying his theory, Rawls leans heavily on the the importance of “the Aristotelian Principle” that other things equal, we are better off if we engage our distinctively human capacities at a higher level. So it is not technically true that, as Phelps writes:

In the classic case to which Rawls devoted his attention, the lowest score is always that of workers with the lowest wage, whom he called the “least advantaged”…

The lowest score is always that of those who have the least primary goods, whatever those might be. But Phelps is right that most discussion of Rawls proceeds as if was talking about the distribution of money. So it turns out that Phelps’ self-realization-based argument for dynamically entrepreneurial capitalism is truer to Rawls than Phelps seems to think.

In an economy in which entrepreneurs are forbidden to pursue their self-realization, they have the bottom scores in self-realization–no matter if they take paying jobs instead–and that counts whether or not they were born the “least advantaged.” So even if their activities did come at the expense of the lowest-paid workers, Rawlsian justice in this extended sense requires that entrepreneurs be accorded enough opportunity to raise their self-realization score up to the level of the lowest-paid workers–and higher, of course, if workers are not damaged by support for entrepreneurship. In this case, too, then, the introduction of entrepreneurial dynamism serves to raise Rawls’s bottom scores.

If Ayn Rand and John Rawls had a love child, isn’t this what he’d say?

Topics: 
General, Political Philosophy

Rock Against Intolerance

By
Tom G. Palmer

The Washington Post recently ran an inspiring article, “Rock Star Rattles Radical Islam,” about Ahmad Dhani and the Indonesian popular music group Dewa. Their popular song “Warriors for Love” is a counter to radical political Islamism and a call for peace and social harmony.

Dewa work closely with an outstanding group based in Indonesia, LibForAll. They have published in Bahasa Indonesia a book on Islam, the State, and Civil Society. My colleagues at the Lamp of Liberty are working with LibForAll to produce a full edition in Arabic, thus taking an Islamic message of toleration and freedom from Indonesia to the Arab world.

Topics: 
General, Political Philosophy

Harvard Lawyers Soon to Know Even Less

By
Jim Harper

I’m fond of my law school (which wasn’t Harvard) and proud of having gotten a legal education, but I am keenly aware of what they didn’t tell me in school. My training was noticably light on constitutional doctrines like separation of powers and federalism — protections of liberty as important as the Bill of Rights. (I had to go and learn them myself. Got a little help from an outfit called the Cato Institute and papers like this one.)

Indeed, I recall a college pre-law class where I was taught the “swirl cake” theory of federalism. ”Sure, there are layers of government, but they mix and overlap in mysterious ways.” Utter claptrap. ”Swirl cake” federalism obscures the workings of government from the people, allows politicians to avoid accountability, and fertilizes the growth of over-large government at every level.

Now comes news (via the Volokh Conspiracy) that Harvard is going to “overhaul” the education first-year law students get. Rather than basics like contracts, torts, property, civil procedure, and criminal law, they’ll learn such things as policy and international law.

In other words, Harvard-trained lawyers will know more about politics and less about law. A step backward for the legal profession and probably for many Harvard lawyers themselves. 

As a law review editor-in-chief, I was aware that many top journals had wandered away from doctrinal work that actually advances law. Maybe the whole legal academy is following suit.

Topics: 
Cato Publications, Law and Civil Liberties, Political Philosophy

Democracy vs. Innovation

By
Will Wilkinson

Over at the Library of Economics and Liberty, Duke political science chair Michael Munger has a real gem of an essay lucidly explaining why democracy, which caters to the median voter, won’t produce innovation, which is created by bets with long odds by risk-takers on the fringe.

For political decisions, “good” simply means what most people think is good, and everyone has to accept the same thing. In markets, the good is decided by individuals, and we each get what we choose. This matters more than you might think. I don’t just mean that in markets you need money and in politics you need good hair and an entourage. Rather, the very nature of choices, and who chooses, is different in the two settings.

That part’s not very funny, but most of the essay is. So if you like your political economy at once weird and crystal clear, do check it out.

Topics: 
General, Political Philosophy

Islam and Enlightenment

By
David Boaz

Let me start by saying that I was not and am not a supporter of the Iraq war, and personally I’m an old-fashioned skeptic about religion. But I was appalled to hear Seyyed Hossein Nasr, a leading Islamic scholar, declare on an NPR interview show on Tuesday that the Pope’s statements “themselves are acts of violence.”

Interviewer Diane Rehm wanted to make sure what she’d heard. She asked him, “You’re saying that the language itself is an act of violence?” “Of course it is,” Nasr replied. Discussing the violent reaction to the Pope’s quotation, he declared, “He who uses the sword shall perish by the sword.”

Later in the show, Rehm read a quotation from a column by Anne Applebaum, who wrote that westerners of all political stripes “can all unite in our support for freedom of speech - surely the Pope is allowed to quote from medieval texts - and of the press. And we can also unite, loudly, in our condemnation of violent, unprovoked attacks on churches, embassies and elderly nuns.”

Asked for his reaction, Nasr said that such violence was “not unprovoked–it is provoked.” “Because words are violence?” asked Rehm. “Of course,” replied Nasr, “of course.”

I want to be careful not to pick out obscure members or adherents of any philosophy and draw large conclusions from them. But Nasr is not so obscure. He’s a distinguished professor at a leading American university. He holds a Ph.D. in the history of science and philosophy from Harvard and is the author of more than 20 books, from publishers including Oxford University Press. His university held a conference honoring him, titled Beacon of Knowledge. The website of the Seyyed Hossein Nasr Foundation declares him “one of the most important and foremost scholars of Islamic, religious and comparative studies in the world today.” So it seems fair to say that Nasr is not an oddity; he’s a recognized Islamic scholar.

And that’s why it’s so shocking to hear the claim that words “are acts of violence” from such a distinguished scholar. A scholar, we might note, who teaches at George Washington University, named in honor of the great Enlightenment statesman. I don’t want to believe that we are faced with a clash of civilizations, much less World War III. But if Islamic scholars who teach at great American universities believe that violent attacks “on churches, embassies and elderly nuns” are “provoked” by the words of a religious leader in a university speech a thousand miles away, then we certainly have a clash of world views.

The west went through the wars of religion and emerged with a modern understanding of toleration. We have learned through bitter experience that we can worship God without forcing everyone else to worship in the same way. We allow our neighbors to practice their religion, we practice our own or none at all, we criticize views we deem unsound, and we accept that our own views and faith will also be subject to criticism.

What we forswear is violence in response to words. In the present crisis we should seek peaceful dialogue between Muslims and Christians, not to mention Jews and freethinkers and all the others who share our world. But we who live in Enlightenment societies should not apologize for the fact that freedom of thought and freedom of speech sometimes lead to hurtful words.

Instead, we should reaffirm our own commitment to free speech - “hate speech” laws, anyone? - and urge Muslims to appreciate the benefits of liberal values, such as liberty and prosperity and social harmony. And we should hold Muslim leaders to the same standards we expect of western leaders, both civil and religious: we expect them to condemn, yes, “unprovoked” violence.

Cross-posted from Comment is free.

Topics: 
Foreign Policy and National Security, General, Law and Civil Liberties, Political Philosophy

Klein on Medicare Meets Mephistopheles

By
Michael F. Cannon

No one is going to accuse the American Prospect’s Ezra Klein of being a libertarian.  (Oh, wait.  I think I did once.) 

Which makes it all the more impressive that he was able to say such kind things about the Cato Institute’s latest health policy book, Medicare Meets Mephistopheles:

[T]he book is actually quite good. I’d happily recommend it to anyone with a basic grasp on health care and a desire to learn a bit more about Medicare. Hyman is a felicitous and fun writer, and he conveys an impressive amount of history and data in as accessible and absorbable a manner as one could hope. I know how tricky it is to make health care a quick and gripping read, and I tip my hat to anyone who is capable of enriching the debate and educating readers by doing so.

Full disclosure: Klein was less enamored with Hyman’s analysis and recommendations.  (Readers can find those comments in Klein’s post over at Tapped.)  Hopefully, Klein will raise his concerns at the Medicare Meets Mephistopheles book forum this Thursday.

Topics: 
Cato Publications, General, Health Care, Political Philosophy

More on the Ideological Neutrality of Behavioral Economics

By
Will Wilkinson

Below, Mark links to a fascinating-looking paper pointing out that government regulators are human, too, and therefore subject to the same cognitive foibles as the rest of us.

It might seem pretty surprising to Cato-style classical liberals that this sort of application of behavioral research didn’t immediately leap out to researchers. But on reflection, it makes sense that the first bunch of policy implications to be suggested from a new area of research will tend to reflect the ideological preferences of the investigators. This need not imply any kind of willful axe-grinding bias. This kind of unwitting bias, in fact, illustrates a few of the main points of behavioral economics: We don’t have unbounded cognitive capacities, the mind uses lots of quick and dirty rules of thumb, and we can’t count on those speedy cognitive tricks to conform to canonical standards of rationality. Even brilliant economists and sage government regulators simplify the complexity of the real world by passing it through sometimes shoddy ideological filters — even while attempting to draw out the implications of that very phenomenon.

Here are a couple more examples of papers drawing on behavioral research that don’t have an obvious ideological tendency. In a paper under review at Public Choice, “Behavioral Economics and Perverse Effects of the Welfare State” [doc], Bryan Caplan and Scott Beaullier write:

Critics often argue that government poverty programs perversely make the poor worse off by discouraging labor force participation, encouraging out-of-wedlock births, and so on. However, basic microeconomic theory tells us that you cannot make an agent worse off by expanding his choice set. The current paper argues that familiar findings in behavioral economics can be used to resolve this paradox. Insofar as the standard rational actor model is wrong, additional choices can make agents worse off. More importantly, existing empirical evidence suggests that the poor deviate from the rational actor model to an unusually large degree. The paper then considers the policy implications of our alternative perspective.

The policy implications would make Charles Murray smile. And here is a working paper by Daniel Benjamin, Sebastian Brown, and Jesse Shapiro showing that

… higher cognitive ability — especially mathematical ability — is predictive of much lower levels of small-stakes risk aversion and short-run impatience. For example, we calculate that a one-standard-deviation increase in measured mathematical ability is associated with an increase of about 8 percentage points in the probability of behaving in a risk-neutral fashion over small stakes (as against a mean probability of about 10%) and an increase of about 10 percentage points in the probability of behaving patiently over shortrun trade-offs (with a mean of about 28%).

And what are we to make of that? The authors somewhat tepidly suggest that better education might improve poor cognitive ability a bit, though they recognize that differences in ability run deeper than differences in schooling. More intriguingly, their results go to the heart of the currently raging inequality debate. Because the more “cognitively able” are less likely to make errors relative normative standards of risk and expected utility, they’re likely to do better at choosing the elements of an investment portfolio:

Our results also suggest additional reasons why the overall returns to cognitive ability may be underestimated by focusing solely on the labor market returns … we might conjecture that a one-standard-deviation increase in cognitive ability is worth about 0.3% of lifetime wealth due to improved portfolio allocation alone. Since portfolio choice is only one of many important household decisions that are affected by cognitive ability, the total value of cognitive ability’s effect on decision-making could be quite substantial.

If changes in the economy have increased the payoff to the decisions affected by cognitive ability, that might explain some changes in wealth inequality.

Behavioral economics done right is just good science. The real peril is in the transition over the gap from psychology to policy. Big philosophical and ideological assumptions lurk in the gap. It’s very important to make those assumptions explicit, and defend them. Unfortunately, that’s too rarely done

Topics: 
General, Political Philosophy

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