The Big Ripoff

While reading a recent newspaper article I was struck by how economically naive a large part of the population is. The article was in reference to recent high gas prices. After rising to record high prices, oil finally started to drop. It was a great relief to drivers, but there was a week or so delay between the drop in oil prices and drops at the pump. Apparently, according to the article, there were some petrol stations which lowered their prices slower than others.

So far so good; sounds like different areas of Sydney have slightly different factors of competition and availability which makes such large swings in prices noticeably uneven. Pretty simple supply/demand type stuff. What bothered me about the article is the way it referred to these higher prices with sentences such as “motorists being ripped off by major petrol companies,” “many motorists were still being ripped off,” and “motorists would continue to be ripped off.” This phraseology betrays a complete misunderstanding of the operation of the market.

It’s one thing to state that the high prices are a “rip off” if there are lower prices elsewhere. This colloquial use of the term simply indicates that a smart shopper should look elsewhere. But that’s not the way it was used; it was used in the sense that denotes a fraud or a swindle. I’m assuming that these “ripped off” motorists were fully aware of the price when they entered the stations, the price that was posted on signs and pumps was the price that they paid, and no one threatened to harm them if they didn’t purchase. So wherein lies the rip off?

Nowhere, that’s where. Those higher prices were not ripping off consumers any more than the higher prices of designer handbags rip off fashion consumers. People paid higher prices because they were not willing to find or patronise stations with lower prices, plain and simple. The owners offered a good a certain price and people chose to buy of their own free will.

Now, there’s a whole other argument buried in there about free competition and government intervention in the petrol market, but we’ll leave that for another day (I’m sure you can guess where I stand on that issue). But the end result of this is that I’m now slightly more saddened about the state of the world. When simple economic concepts are complete voodoo to supposedly educated people like professional journalists it doesn’t bode well for the future of the nation, or the world.

The Third Wave

I’ve been thinking recently about Alvin Toffler’s seminal book The Third Wave, which I read several years ago. The basic idea of the book is that we are now entering the third wave of societies. The first wave was agrarian, the second industrial, and the third informational. The question I’ve been wrestling with is where does a voluntary society sit in this continuum?

I often hear the argument that voluntary societies can’t exist because they haven’t existed. This is obviously a very weak argument if you take it at face value. But I think that the argument is actually quite a bit deeper and more nuanced than that. What they’re really saying is society always forms into some form of coercive government because that is the only thing that can work. In other words, voluntary societies have been discarded by societal evolution. A society of one person (let’s assume that “society” is the right word here) is obviously voluntary. A society of two is likewise voluntary unless one of them uses force on the other. A society of three the same, and so on. Eventually someone uses force and a government is formed in response, and since this has always happened at some point in all societies, it must mean that the voluntary society cannot work.

I’m of the school that this is partially true. Voluntary societies couldn’t have existed in the past. A truly voluntary society must be built on a framework to support it. Much like computers couldn’t have existing 200 years ago because it took time to develop all the necessary pre-requisites; voluntary society requires that some groundwork be laid. This brings us back to The Third Wave. It’s instructive to consider the political structures that existed, primarily, within each of the waves.

Agrarian societies had very tall and rigid hierarchies. Birthright was paramount and the sovereign was usually ordained by God. Classes were very strictly enforced and mobility between them was rarely achieved.

Industrial societies changed that by flattening things out. Contrary to what socialist apologists would have you believe, the industrial revolution was more to the benefit of the working poor than the capitalised rich. Mass production was the order of the day, and that included mass production of political power. Democracies sprang up as fast as shareholder-owned corporations. To be certain, there was still a hierarchy, but it was shorter and wider. Mobility between classes became a reality, if a relatively uncommon reality. Classes themselves became less distinct, and based more on achievement than birth.

What about informational societies? That question has yet to be answered. I believe we are still only at the very earliest beginnings of the informational shift. It seems that most post-industrial societies are moving toward socialism, that is certainly true in the United States and Europe. But I contend that this move isn’t a furtherance of drive toward informational society, but is instead a reaction of that drive. It’s the outgrowth of the conflicting pull between the two types of societies. The real trend will be to continue the flattening of hierarchies and even more massification of production. But massification in a different way. Industrial societies were about increasing the amount of production. Informational societies are about increasing the amount of producers.

Another great read on the topic is The Long Tail: Why the Future of Business is Selling Less of More by Chris Anderson. The world is moving to a mass of producers, as evidenced primarily by the entertainment industry. No longer is television dominated by a handful of national networks. Now there’s cable, on demand, Internet video, DVDs, video games, and a host of other options available to consumers. This new trend of massification applies to everything, even, the seats of power. Exactly how this will play out is yet to be seen, but I believe that eventually the great monolithic government will go the way of the birthright ordained monarch. In its place will be a society based on individual choice, and a total decentralisation of power. But it won’t be without a fight, and we can expect those who have attained power will try their damnedest to maintain it.

Sadly for them, like the Luddites of days gone past, progress will march on regardless of how they try to stop it.

Does Might Make Right?

Quite often when discussing voluntaryism with people, I get this question: “So, are you saying that might makes right?” I get this question because these conversations typically boil down to conflict resolution. When two parties are in conflict over something, such as property rights, which cannot be resolved through any amount of arbitration (neither side needs to recognise an arbitrator’s decision, after all) the “winner” will be the one which can garner the most outside support. One party may have an insurance or security company who will drop them because they refuse to follow the arbitrator. Or one party’s security company may be so much larger than the other as to make enforcement against it too risky.

In essence, when an intractable conflict occurs, might will always be the final arbiter.

This frightens people, and understandably so. Most people have been taught that might doesn’t make right, that the little guy can still win against great odds, that society protects the interests of the weak. Unfortunately, none of this is actually true. In reality we’ve been indoctrinated with blinders to not see that the above scenario is exactly how it works today. Might is still the final arbiter. What makes it hard to see is that the “might” is all held by one company, the government.

There’s no more reason for a person to accept the ruling of a government court than there is for the person to accept the ruling of a private arbitrator. That is, except for the might wielded by the court’s enforcement arm, the police. In a voluntary society, just like in a government one, I protect my property exactly the same way: with the might of those who agree that my property should be protected. The market will do an excellent job of finding the balance between these conflicting centres of “might” because people will be able to move freely between them as their needs or circumstances change. Unlike the single centre of might we have today, which is controlled by a small group of people.

So, when asked this question I usually respond, “Not any more than you do.” As a further illustration I ask them to consider why it is that the current government is in charge. In the US, for example, why is it that the United States government runs the country and not the British? Or a Mexican or Spanish or Japanese or German, or especially Native American government? What allowed it to rise to dominance? The answer is simple, the United States government used its might to defeat all existing and potential competition for governing the country. Might has made right, for all intents and purposes.

Let me also add, that I don’t like the phrase “might makes right.” I prefer the phrase “might makes moot.” Not only is it a nice alliteration, but it also is more accurate. Might in no way makes someone right, but it does make it irrelevant who is. You may be right in crossing at a marked crosswalk, but the 10-tonne truck bearing down on you makes your “rightness” completely moot. The loser of a government court case may still be right, but it doesn’t much matter when the police come to take their property.

For better or worse, might will always be the final decision maker in conflicts. Acknowledging that fact is one of the first steps to accepting a voluntary mindset. Being afraid of it doesn’t make much sense when we live with the fact every day, no matter how well hidden by our training.

The Myth of the Common Good

I keep hearing about the Common Good™ as though it is an obvious and useful way to measure public policy. It’s found neatly in the middle of the utilitarian creed: “The most good for the most people.” I have a problem with this idea of the common good. Not that I think there’s anything wrong with the utilitarian ideal as a personal goal; I think anyone who lives their lives that way has their heart in the right place. I have a problem with the idea as a method of driving policy. My main problem with the Common Good is that it cannot be measured.

Of course it can be measured, you may say to yourself, it’s possible to measure whether something is good or not. Of course good can be measured in isolation. A policy to feed homeless people can be measured to determine if any homeless people are dying of starvation. What can’t be measured, however, is the opportunity cost. Opportunity cost is essentially what is lost when resources are allocated. Since money, time, and effort don’t spring forth from nowhere, they must all be taken from another use. Using money to feed homeless people means that the money isn’t doing something else.

Consider a drug trial. Testing drugs is not simply about how well a drug does in curing a patient, but also how little harm a drug causes. A drug that cures headaches 90% of the time isn’t a success if it causes heart attacks 95% of the time. If a trial for a drug didn’t take into consideration the negative side effects of the drug then it’s not possible to determine if the drug actually worked. The same is true with policy intended to help the common good. If you can’t measure the opportunity costs then you can’t be sure if the policy is working. You’d have to take it on faith.

This isn’t to say that all opportunity costs can’t be measured. Of course some of them can. The opportunity costs you can measure are those which you take yourself. When you decide to use some of your own resources, you are the only one who can decide if the opportunity costs are worth it. Only you can decide if it’s worth the time to watch a movie, eat dinner, volunteer at a homeless shelter, etc. When you decide to take those resources from someone else, though, you can’t possibly know what they would have done with them.

The socialist minded person would probably think that taking money from rich people is okay because they weren’t going to use it to help the common good, but that betrays a naiveté about both human nature and economics. Perhaps the rich person would have left the money in the bank and done nothing with it. But money in the bank isn’t static, that’s the money which is used to finance home loans and business expansion. Perhaps the money would have been used to support some charity had it not been taken. Or it may have been used to buy gold faucets and larger stereos. But someone had to make those faucets and stereos. Those businesses employ people and there are more businesses which support those. About the only truly worthless use of money is to put it in a mattress and sleep on it, and I’m betting that’s a pretty rare occurrence.

It seem easy for some people to convince themselves that they know better how to use other people’s money; that *their* particular use of the money alone serves the common good. They may be right, perhaps their plan does increase the common good. But there is no way to prove it. They are, in essence, asking the rest of us to take it on faith that their plan is better because the are unable to show that the alternate use of the money is worse. There are some things that I’m not willing to take on faith, and this is one of them. I’m not willing to cross the line of taking money by force because one group of people “believes” (not knows) that by so doing the common good is served. The common good is best served by letting us each find our own way to serve it.

The Trouble with Voting

I recently heard an interview with the author of the book, “The Myth of the Rational Voter” and it got me thinking. What is it about voting that slowly brings about bad government? Why does the electorate seem to give up a tiny piece of their essential rights every election (or follow a one step forward, two steps back cycle)? I’ve got the book on my reading list, so one day I’ll be able to match my theory up with what the book says. For now, though, I’ll just have to speculate.

I thought back to the book, “The Wisdom of Crowds” which talks about group decision making to find part of my answer. You should read it, if you haven’t already. The book contained many examples of groups making decisions, making very good decisions, even though few of the members of the group were experts in the area. What’s the difference between these group decisions and voting?

One difference is cost. The good decisions that groups were able to make always entailed some form of expense to the decision makers if they got it wrong, or a reward if they got it right. Whether it was trying to guess the weight of a bull at a county fair to win a prize (the example the book opens with) or betting against Morton Thiokol in the Challenger shuttle disaster on the stock market; the quality of the individual decisions had a direct link to a reward or expense. Isn’t this also true with voting?

No, it isn’t. Because while in voting the decisions are made by the individual, the costs and rewards are spread over the group. That is, if you vote and get it “right” it won’t affect you at all unless you’re on the winning side. Likewise, if you vote and get it “wrong” it won’t you personally, but everyone. This causes a slight shift in the definition of “right” and “wrong” in the election process.

The meaning of right and wrong change from “selecting the best choice” to “selecting the winning choice.” It’s a subtle change, because quite often those are the same. Consider an election on whether to commit national suicide via drinking poison Kool-Aid. In this case (I hope) the winning choice is also the right choice. But it isn’t always so.

There will be times, however infrequent, that the best choice doesn’t appear to be the most popular one. In that case, when enough voters shift sides because they want to be on the “winning” side of an election, the wrong choice is made. Since this doesn’t happen every time, it explains why voting is a slow slide into fascism and socialism. Even more perverse is the idea that the winning side may not actually have been the most popular, but was portrayed as such by the media; becoming a self-fulfilling prophecy.

You can see this shift in action every time someone tells you that you’re “wasting your vote” by selecting candidate X because they can’t win. The only way such a vote is wasted is if the goal of voting is to predict the winner, not to vote for the most capable person.

Voting has the inherent flaw that it does not scale well. There are times when it is an effective way to judge the interest of a group (where should we have lunch today?) but quickly breaks down as the size of the group grows. If you feel like your vote has no impact on the outcome, but you’re going to be subject to its decision, what’s the point in trying to vote well?

Voting is a topic I will visit again, as I think an understanding of its flaws is critical to breaking the official myth that Democracy = Freedom.

Modular Units

I was driving home from a dentist appointment the other day when I heard a piece on the radio about a proposal in the federal Parliament. The proposal is to require grocery stores to post unit pricing for every product in addition to the total price already published. As the MP who was talking put it, “This is a no-brainer.” Is it really? I’m not so sure about that.

To be sure, this isn’t the biggest, most earth-shattering law government can devise, and it does have a good ring to it: Giving the Australian family a little bit more information in the constant battle with their grocery bills. But, like all laws, there is a dark side. And it’s an excellent example of why good intentions aren’t enough.

First, like all regulation, this is one more expense which will be passed on to consumers. So, while it may help some customers to pay less, we’ll all pay a little bit more which will mitigate it some. Not to mention the extra cost for the government, which will be seen in our tax bills. What’s worse, in my opinion, is that this regulation will make it even more difficult for a small company to enter the market, keeping the large companies that much further from competition. Regulation’s deep dark secret is the power it gives to large companies to abuse their market positions. It’s not much, I know, but it’s one more cut added to the other 999.

Second, what will happen if this actually works and consumers start buying the cheaper items? Since the overall demand for certain products won’t actually be changing, just shifting from one to another, it’s going to cause the lower priced items to increase in price. I’m already smart enough to bring a calculator with me to the store, so I know unit prices. It will mean a price increase for those of us who already shop smart. That doesn’t exactly tickle me. But it will probably be mitigated by the third item:

It’s probably not going to affect many shoppers. The unit price is already available for anyone who knows how to divide two numbers. Many stores already display this information (Aldi, for example, does this). Are consumers presented with this information more inclined to use it? Some, perhaps. But the barrier to getting this information is already very small, so eliminating that already tiny barrier isn’t going to cause a flood of people to change the way they shop.

In the end, this law is just one more (albeit small) example of government wasting its time in a place it doesn’t belong. Why is this even on the radar of government anyway? Is it really the intention of the government to round off all of the corners in the world to create utopia? I can’t see good things coming from this constant accretion of micro-management layers.

The Lust for Power

I recently read the following in an e-mail exchange with a left-leaning friend of mine:

Free market theorists seem to say that the only true incentive is money. I disagree with that.  There also exists incentive for the common good. And whereas that may not be as strong an incentive to many, that virtue is mitigated in a free market system by the idea of profit, which is itself the built-in inefficiency of the free market.  This is one place where a government system has a completely non-theoretical advantage over a free market system.  Also in a public system, there is less incentive to bilk, manipulate, monopolize, defraud, or otherwise make choices that antagonize the common good.

I get the feeling that the above is a common way of thinking for many (if not most) of those on the left of the political spectrum. The idea that a profit motive is very corrupting and should therefore be avoided if possible. Implicit in this is the idea that any organisation which claims to not be motivated by profit will not be subject to the corruption that the profit motive brings, and is therefore preferable. I have a problem with this way of thinking.

First, no one is really motivated by making money. Money is a means to an end; people are motivated by what money brings them. It would be better to say that people are motivated by power. Power over their own lives, the lives of others, the environment, etc. That’s really what money brings a person so the people who run these potentially corrupt companies are really seeking for some form of power. Indeed, I would say that everyone is motivated by power, to some degree or another. Even someone who espouses something as noble as feeding the poor is looking for power over hunger. Power is what drives us all.

Money is not the only way to achieve power, there are many other ways including politics and religion. Taken in this context it really highlights the problem with this way of thinking. The idea that the public sector doesn’t have a “power motive” and that gives it an advantage should make even the most jaded of us smile at its absurdity. Of course the public sector has a power motive, and that power is no less corrupting there than it is in the free-market. It doesn’t really matter why you seek power (for the common good or for your own) it’s the power itself that is potentially corrupting.

I would think it safe to say that political leaders are just as corrupted by their lust for power as business leaders, if not more so. A profit motive is nothing to be feared, it’s something to be understood. We all have a profit motive (we just all have different definitions for “profit”) and that’s not going to change, because it’s a part of human nature.