Free Markets, Limited Government, and the Arab World

Today is the second day of the Economic Freedom of the World network meeting in Beirut, at which Cato has an international presence. (The conference is organized by our good friends at the Fraser Institute of Canada and the Jordan office of Germany’s Friedrich Naumann Foundation.)

My colleagues Ghaleb Hijazi and Fadi Haddadin brought from Jordan the beautifully printed and bound full Arabic edition of the Economic Freedom of the World report. The Arabic edition (which will soon be available online) is beautiful and really impressive. They also distributed for the first time the new brochures for Misbahalhurriyya.org, Cato’s Arabic libertarian website and publishing service, as well as other products for Arabic readers. We got a preview yesterday of a series that they helped to produce with Al Jazeera on examples of successful free-market entrepreneurship in the Arab world. They’ll be run on television over the next month.

One of my colleagues gave a really interesting presentation that looked at the roots of Arab economic stagnation, during which he used data to show that it’s not religion, it’s not ethnicity, and it’s not even oil — it’s state-owned oil monopolies that have been responsible since the 1970s for lagging economic performance in the Arab world. (In particular, his data on the difference between Arab OPEC members and Arab non-OPEC members were quite interesting.)

A number of foreign participants, as well as a lot of the Lebanese participants – notably the government ministers – had to cancel their participation in the conference due to security concerns, but for those who did come, it all seems rather peaceful. (On the other hand, given the recent attempts to bring down the government through extra-electoral means, if I were a Lebanese minister, I might not go to a lot of public events, either.) Today’s sessions are focused on auditing the performance of Arab governments and identifying and reducing or eliminating barriers to trade, obstacles to entrepreneurship, and so on.

I walked with some of the other participants (from Turkey, Poland, Russia, Georgia, Jordan, and Canada) to visit the Hezbollah camp in front of the prime minister’s office last night. It was quite an interesting experience. (I posted some photos on my personal website of posters with Hugo Chavez and Hezbollah’s Nasrallah, which seemed popular there.)

This afternoon and over the next few days my colleagues and I will be meeting with newspapers and publishing houses.

Why Rawls is Great!

A few friends and colleagues have asked me why I think Rawls and not, say, Nozick, was the best political philosopher of the 20th Century. What kind of libertarian am I to think that? Well, I certainly think Nozick gets the conclusions right. But I truly think A Theory of Justice is an incredibly rich and profound book that lays out an extremely compelling method for evaluating the moral desirability of basic social and political institutions. Nozick’s Anarchy, State, and Utopia is in my opinion one of the most, if not the most, compelling, creative, and pyrotechnically brilliant pieces of extended reasoning in all of 20th Century philosophy. But it famously begins with an unsupported assumption of John Locke-style individual rights. If you don’t accept the assumption, the argument just doesn’t get going.

Rawls, I think, offers a compelling way of justifying something like rights as side-constraints. Now, I don’t think many of Rawls’ conclusions follow from his intermediate premises. For instance, Rawls’ does not take sufficiently seriously his own claim for the moral priority of his First Principle of Justice, “each person is to have an equal right to the most extensive basic liberty compatible with a similar liberty for others,” over his Second Principle, that inequality in the “distribution” of “primary goods” is justified only if it benefits the least well-off class of citizens. Additionally, even if one accepts Rawls’ second principle (I think it is too strong), his conclusions about how it justifies certain institutions of the modern welfare state don’t follow, given what is known, empirically and theoretically, about economics and political economy. Nevertheless, I think Rawls’ theoretical framework is very close to the right one, and that is an enormous achievement. My own view is very close to that of Richard Epstein in his remembrance of Rawls in the National Review:

The great irony here is that the Rawlsian construct in the end supplies, I believe, the strong intellectual foundation for a political system with which he had only scant affinities: classical liberalism, with strong property rights and limited government. The irony is even greater when Rawls’s work is conjoined with Nozick’s, for the latter recoiled from the formal procedures so championed by Rawls, and used ingenious, if intuitive, arguments to defend the primacy of individual autonomy and private property even though, with the benefit of hindsight, these are more strongly defended by an astute application of the veil-of-ignorance technology.

I think Epstein (and most everyone) over-emphasizes the importance of the “veil of ignorance” in Rawls’ system, but I think he’s close to the bullseye.

It’s worth noting that Hayek himself endorsed the broad outlines of Rawls’ basic theoretical framework. From Law, Legislation, and Liberty, Volume 2: The Mirage of Social Justice, p. 100, Hayek writes:

… there unquestionably … exists a genuine problem of justice in connection with the deliberate design of political institutions, the problem to which Professor John Rawls has recently devoted an important book. [Vol 2 of LL&L was published in 1976.] The fact that I regret and regard as confusing is merely that in this connection he employs the term ’social justice’. But I have no basic quarrel with an author who, before he proceeds to that problem, acknowledges that the task of selecting specific systems or distributions of desired things as just must be “abandoned as mistaken in principle, and it is, in any case, not capable of a definite answer. Rather the principles of justice define the crucial constraints which institutions and joint activities must satisfy if persons engaging in them are to have no complaints about them. If these constraints are satisfied, the resulting distribution, whatever it is, may be accepted as just (or at least not unjust).” This is more or less what I have been trying to argue in this chapter.

Hayek’s claim that the idea of “social justice” is a kind of category error is right on. The pattern of holdings that arise from voluntary cooperative exchange according to just rules is not itself a subject of moral evaluation, and the attempt to “correct” the pattern according to some moral principle requires rules of social interaction that are unjust–a point Nozick makes with great force and lucidity in his section on “How Liberty Upsets Patterns” in Anarchy, State, and Utopia. Rawls’ waffles on this point, distinguishing between “distribution,” which he takes to be the emergent outcome of interaction according to the rules of the “basic structure” of a society’s institutions, and “allocation,” the coercive redistribution of holdings. Rawls claims to be concerned with distribution in this sense, but it’s pretty clear he’s often attempting to justify broad “allocative” powers for the state.

Nevetheless, the depth and scope of what Rawls gets right is incredible. Join that to the fact that his later major work, Political Liberalism–a profound and innovative meditation on the meaning of liberal neutrality in pluralistic societies–has a fairly straightforward libertarian reading (despite his protestations to the contrary), and I think Rawls takes the laurels. Of course, these judgments are complex and depend on how heavily one weighs various valuable aspects of philosophical works, so others might reasonably come to different conclusions. But I think my judgment here is on pretty solid ground.

Special bonus! Who are the greatest political philosophers of the past few centuries, according to my idiosyncratic judgment? 19th C.: Herbert Spencer (maybe the most unjustly maligned thinker ever) by a hair over J.S. Mill and Henry Sidgwick. 18th C.: David Hume over Adam Smith by a nose. 17th C.: Thomas Hobbes by a nose over John Locke, for reasons similar to Rawls vs. Nozick. I also think the Rolling Stones were better than the Beatles.

Lou Dobbs Watch

The “Lou Dobbs Tonight” show on CNN long ago ceased to be a serious news program and has become a nightly screed against free trade, immigration, and a competitive, market economy. The opinions expressed by Lou Dobbs, his “correspondents,” and the large majority of his guests are typically based on questionable and selective facts that miss the real story.

Consider a “Lou Dobbs Tonight” segment the other night on how a “flood” of imports into the United States has caused “the incredible deterioration of the manufacturing industry.” The program’s anchor that night, Kitty Pilgrim, blamed the development on “the commitment of successive administrations to so-called free trade policies.”

The segment featured two biased CNN correspondents plus three guests who are all professional critics of trade: Alan Tonelson of the U.S. Business and Industry Council, an organization of generally declining, protectionists industries; Robert Scott of the Economic Policy Institute, a labor-union backed research group; and Bob Baugh of the AFL-CIO, the largest union umbrella organization.

As for the facts, nowhere in the segment was it mentioned that American factories are producing more goods than ever as measured by inflation-adjusted volume. U.S. manufacturing capacity and production have actually increased by 50 percent, in real terms, since the early 1990s, when such important trade agreements as the North American Free Trade Agreement and the Uruguay Round Agreements Act went into effect. Domestic output of automobiles and parts, a special focus of the CNN segment, is also much higher than in the earlier, pre-NAFTA, pre-WTO days.

As Cato research has shown, imports of manufactured goods and domestic output of manufactured goods tend to rise and fall together along with the overall health of the U.S. economy. When we prosper, we trade; when we trade, we prosper.

Apparently the “Lou Dobbs Tonight” program won’t let a few basic facts get in the way of a sensationalized story. Perhaps CNN should change its name to the Cable Opinion Network, or CON for short.

Do We All Support Market Education Now?

Alan Bonsteel, president of California Parents for Educational Choice, has an interesting op-ed in the OC Register today arguing that the only folks still defending the government school monopoly are those who have a financial stake in its perpetuation.

I’m not quite convinced – I could name quite a few advocates of centrally controlled state schooling outside the government school employee unions – but he makes some thought provoking observations.

Brookings Panel on SCOTUS and Global Warming

On Monday, I participated in a panel discussion at the Brookings Institution on the Massachusetts v. EPA case. Other participants were Stuart Taylor; David Doniger of the Natural Resources Defense Council; David Sandalow of Brookings; science journalist Gregg Easterbrook; and environmental transaction lawyer Robert Reynolds (of Alston Bird). A transcript (uncorrected) of the discussion is available here. The discussion turned out to focus less on law, my particular expertise, than on environmental policy, but I found it worthwhile nonetheless. Note there is a discussion of Pat Michaels’ climatologist amicus brief for the EPA at the very end of the transcript, during the Q&A period: the “speakers” in the brief exchange over that brief are David Doniger and me.

Cavalcade of Risk #14

Greetings, risk-seekers. We’ve got a smorgasbord of entries for the 14th occasional Cavalcade of Risk blog carnival. I received 24 entries, many of them actually related to the topic of risk.

Lacking Confidence in Confidentiality

Leon Gettler at Sox First reports on a study concerning the risk that companies will compromise confidential data about their customers. That study found that “one-third of senior executives don’t trust their own companies to handle this kind of information.” Tune in to see which industries are trusted least.

In a later post, Gettler looks at the “private equity frenzy,” whose risks he likens to that of the dot-com bubble.

Sympathy for the Investor

Long or Short Capital blogger Mr. Juggles — fresh from a signing ceremony with the Prince of Darkness — explains the profitability of the infotainment industry in four easy-to-understand squares.

Born to Insure

In an interview at RDoctor Medical Portal, Dr. Aleksandr Kavokin gets InsureBlog host Hank Stern to bare his soul (sort of) about “testing positive for insurance sales,” employer-sponsored health benefits, and government regulation of insurance premiums, among other things. Watch Stern give a shout-out to his “brilliant, trophy wife and equally brilliant and lovely chillun.”

Then watch the warm fuzzies continue as Stern, this time from his home base of InsureBlog, shrugs at technology that would allow him to monitor the driving habits of his two trustworthy teenage daughters. Insurers apparently haven’t started offering discounts to families that use these chips — but my guess is that as the market evolves, the discount will be greater for families with teenage sons.

Who’s Your Agent?

Jay of Colorado Health Insurance Insider fame picks up on two themes raised by Stern: that health insurance is about managing risk, not prepayment of care, and that employer-sponsored coverage is nutty. He argues that health savings accounts (HSAs) can help end the madness. I mostly agree. But if Jay can find a health insurance policy that “cost[s] the employer more than 2x what a similar individual/family health insurance plan will cost,” he either must be suuuuper healthy or have really sick co-workers.

Thanks, Pal

As a guy who’s about to undergo surgery (albeit minor), I just don’t need reminding about the rates of medical error in the United States. Nevertheless, Healthcare Economist Jason Shafrin is all too happy to remind me anyway, noting that medical errors kill an estimated 50,000 to 100,000 patients per year. He discusses one organization’s efforts to promote medical practices that will reduce some of the most common forms of medical error.

I’ll See Your HSA Deductible, and Raise You …

My Cato Institute colleague Arnold Kling takes on fellow blogger Ezra Klein’s argument that HSAs won’t do much to reduce health care spending. Arnold draws from his book Crisis of Abundance, where he argues for some real catastrophic coverage.

Insurance Is Dead. Long Live Insurance.

In what I found the most intriguing submission to this Cavalcade, Jon Coppelman of Workers’ Comp Insider writes that we may be seeing a fundamental change in the nature of insurance since insurers now have the data mining tools to limit their risks dramatically. He foresees that as the concept of pooling evaporates, the number of losers is likely to exceed the winners.

This echoes a phenomenon I see frequently in the area of health insurance. (You might want to read Coppelman’s post before continuing here.) Insurance is a tool for dealing with uncertainty (i.e., by subsidizing uncertain losses). How do we know that? Because people generally don’t buy actuarially fair insurance to pay for certainties. When additional information moves a potential loss from the “uncertainty” to the “certainty” end of the spectrum, people understandably decry the loss of that subsidy. But I find it bewildering when some call that “the end of insurance” or a market failure. First, unless we’re close to eliminating uncertainty, we will always have insurance. Second, in cases where uncertainty is reduced, insurance markets are doing exactly what they should: replacing the subsidy with some very valuable information. Finally, just because the insurance subsidy is gone, that does not prevent society from subsidizing those losses in other ways. I’d be interested to hear from Coppelman and others on this.

Okay, off my soapbox.

Hard to Joke about This One

Meanwhile, Joe Paduda of Managed Care Matters provides evidence that the insurance industry is not heartless.

GRxvy Train

In (at?) the wake of torcetrapib, Wenchypoo prescribes a serious dose of cynicism for those seeking to understand clinical trials for pharmaceuticals. Wenchypoo provides my favorite quote from this week’s submissions: “I suppose when you’re dying, the last thing you worry about is who’s profiting from keeping you alive a few more weeks.”

Libertarian Roundup

And finally, here at my home of Cato@Liberty, you may peruse my colleague Sigrid Fry-Revere’s libertarian perspective on genetic engineering, as well as Arnold Kling on why libertarians have a lot of work to do on health policy.

The Risible Hand to Meddle further in NY Higher Ed?

Newsday reports that the visible – and clumsy – hand of government is poised to interfere in NY’s burgeoning for-profit higher ed. market. But the Board of Regents’ impending move to impose strict new regulations on for-profit colleges is the wrong solution to the wrong problem.

If students at these colleges were paying their own way, the state would have no compelling interest in regulating them. The only reason the state presumes to interfere is that funding from New York’s Tuition Assistance Program goes to these schools, and it wants more oversight over how that money is spent. Rather than impeding market forces and freedoms by trying to inject central planning into a promising and dynamic part of the higher education sector, New York should replace its current Tuition Assistance program with a system known as “human capital contracts” or “equity loans,” in which the amount paid back by students subsequent to graduation is contingent on their earnings. These loans allow students to finance their own higher education, eliminating the need for the state to intrude in the market process. It’s a better, cleaner solution.