Personalized Economics

Production and Distribution

They say that ‘money is power’. Actually though, this is only half the story. Money allows you to access a share of the goods and services produced in the market society in which you are situated. All the money in the world will do you no good if your market society doesn’t produce much at all, or doesn’t produce the things that you want to buy.

So actually, the saying should be ‘purchasing power is power’. The amount of monetary units that we have determines our share in the distribution of what is produced, but the amount that is produced contributes to determining the purchasing power of each monetary unit that we possess. In other words, distribution determines what percentage of the pie our respective slice with make-up, but production determines how large the pie will be in the first place.

Most people want as much purchasing power as possible. It is a fine thing being able to get people to willingly give you the useful or delightful things that they produce, or to get them to willingly do personal services for you. I certainly want as much purchasing power as possible for myself; it just opens up so many opportunities in life.

So we want purchasing power, and to have a lot of it we must see to it that: 1. Production in our society is high and, 2. Our share in the distribution of the total production is high. Let us discuss these two aspects in turn.

Production:

Efficient production relies on three main factors: 1. Producers being sufficiently incentivized to produce well. 2. The right people being selected for the right production tasks. 3. The proper allocation of productive efforts towards goals desired by the consumers of the products.

#1: The logic of economic incentives is simple: if producers are rewarded depending on how well they succeed at production, then the average level of production should be significantly higher than it would be if producers received the same reward no matter what. In the market society, having more money gives one access to a greater portion of the distribution of the total produce. Thus, it makes sense to incentivize producers by rewarding them monetarily, depending on how well they succeed at production.

#2: What’s the best way of determining who is better at the game of chess than others? By having them compete in chess matches with one another of course! Similarly, in the market society, economic competition is what enables us, the consumers, to determine who is best suited, at a given moment, to perform given production tasks for us. Who is the best person or group of people to oversee the design, production, and distribution of smart phones? Well, let’s let whoever has the resources and aptitude give it a go, and the consumers will select who they prefer by buying the products that they like, and not buying those that they don’t. Perhaps different consumers will have different opinions, in which case multiple ‘top’ smart phone organizations will emerge, as has happened with Apple, Samsung, HTC, etc…

#3: All these disparate people competing for the consumers’ money, does it not sound too chaotic? Don’t we need some mastermind directing the production efforts of the whole society, so that our efforts aren’t wasted on tasks that no one really wants done? In fact we don’t, and this is because a combination of monetary incentives and free competition will do the job for us. For example, what if lots of producers decided that they wanted to make refrigerators, but very few decided that they wanted to make dishwashers? Well, then each refrigerator, if it could be sold at all, would have to be sold for a lower price in order to induce consumers to buy it (perhaps as a second refrigerator in their house). On the other hand, consumers would be trying to monetarily outbid one another for the limited supply of dishwashers, which would cause their price to go up. Seeing this, a number of refrigerator producers would very probably decide to get out of this less-than-lucrative industry and move to dishwasher production instead, where the rewards promised to be much higher. The result would be less refrigerators produced and more dishwashers produced, a result that is better for the consumers in this case.

Such adjustments of production to the demands of the consumers (though much less dramatic) happen every day, spurred on by the profit motive, the desire of producers to earn monetary rewards for their efforts that exceed their cost of production.

Combination: These three factors are all present in good doses in the societal system of production knows as the free-market, or free capitalism. This is a system that revolves around the purchasing decisions of the consumers (ie. everyone with money to spend). For the producer, the ‘customer is always right’ and ‘the customer is king’. Producers compete with one another to best serve the consumers in a particular area and adjust their productive efforts if they believe doing so would better serve the consumers, all in pursuit of the monetary rewards that pleasing the consumers will bring.

Alternative: The only real alternative to this free-market system of production is a system of production based on the dictates of governmental economic planners. The planners assign an occupation and position in society to every individual (perhaps based on personality tests or aptitude tests), determine what is to be produced in what ways, and determine what material rewards every individual is to receive. The problem is that, whereas in the free-market the system is, in a sense, automatically coordinated by a combination of the purchasing decisions of consumers and the desire of producers for the consumers’ money, in the governmental system this coordination must be achieved manually via economic planning. To even approach the coordination that the free-market achieves automatically, the planners would have to be imbued with a superhuman amount of knowledge and foresight, given how devilishly complex modern economic systems of production are.

In addition, the planners don’t really have much of an incentive to cater to the desires of the consumers, because they do not rely on them for their monetary rewards as free-market producers do. Rather, the planners will try to structure production in a way that suits them, rather than in a way that suits the diffused consuming public. Moreover, whereas in the free-market, the individual consumers have a recourse if they grow annoyed or dissatisfied with one of their formerly favored producers (buy from someone else who is competing in the free competition), in the governmental system, switching ‘providers’ is not that easy, requiring either a majority of voters to change their minds (in a democracy), or a violent revolution (in a dictatorship). This lack of competition will result in even less of an incentive for the government to do a good job in the eyes of the consuming public.

Distribution:

So in general, allowing the free-market to run most aspects of the production show will result in a higher total societal production than allowing the government to meddle more than a small amount with production would.  Well and good, but our objective is to maximize our purchasing power, not to maximize the purchasing power of everyone in society, taken as an aggregate. So in addition to ensuring that production is high in general, we also need to ensure that our share in the production in high.

One way to get a good share in the production of the free-market is to be a successful producer yourself: to be a successful businessman or to possess labor skills that are rare and in demand. If you are such a person, or if you believe that there is a good chance of you becoming such a person in the future, than the free-market system of distribution should suit you just fine, without any modifications.

However, not everyone has the aptitude or the inclination to be such a successful producer. They might consider the alternative to being a producer: being a plunderer. There are two primary sorts of plunderers: first-hand plunderers and second-hand plunderers. First-hand plunderers actually grab other people’s material possessions or money themselves, using either stealth, physical violence, or the threat thereof.  Second-hand plunderers, on the other hand, throw their support behind an organization that plunders others for them, and receive a share of the plunder collected by this organization.

Nowadays, in most of the developed western world, the majority of first-hand plundering is done by governments, who don’t like it when others try it for themselves. Thus, for most people, first-hand plunder is now too risky of a strategy. Second-hand plundering remains a live strategy for many people though. Governments, especially democratic governments, rely on popular support for their power and legitimacy. Many people only support governments that promise to plunder others and give their supporters a share. These people can engage in plundering in a ‘legal’ and ‘respectable’ fashion, much less risky than gearing up and robbing a bank!

One must always be careful about plunder though: too much of it will kill the goose that lays the golden eggs, crippling the free-market system of production that works so well. For this system relies on the monetary rewards that consumers can offer producers. If producers are just plundered as soon as they receive these rewards, than they will soon lose their incentive to produce well and to use their property in a way that the consumers desire. The whole system will be compromised if this happens.

Thus, to get the benefits of second-hand plunder without sabotaging the future purchasing power of the money that we receive, we must leave the free-market system of distribution largely in place, just modifying it somewhat to make some room for second-hand plunder.

I submit that the best way to do so would be to have the government levy a 20% flat proportional income tax on everyone, and then to divide the resulting amount collected up equally among the whole population. This system would be relatively easy to administer, and should not harm production incentives too much, either at the top or the bottom of the income ladder. And everyone, no matter what, would receive a nice cheque entitling them to a share in their society’s large, free-market produced store of products.

Capital Accumulation and Allocation

Capital is formed when someone decides to use a portion of the fruits of a previous production process in order to advance another production process that will produce results in the future, rather than for the purposes of present consumption. In a monetary economy, this is accomplished by saving some of the monetary income that one receives, and then investing these savings, either directly in another production process, or indirectly by investing it in a productive organization (a firm/company), who will use it to fund their operations.

The more capital is accumulated and invested, the more complex or time-consuming production processes can be engaged in. For example, rather than employing a lot of laborers, armed with hand tools to create golf balls by hand, resources can be invested in the creation of productivity-enhancing capital goods, such as factory buildings and advanced machines, which can then be used to create golf balls more efficiently. Labor is still necessary, but now it is the labor of the machine operator and engineer that is required to engage in this more sophisticated production process, rather than the less-productive labor of manual golf ball makers.

Here, capital investment serves to make the labor of people involved in the golf ball industry more productive, which makes this labor more valuable to employers, which forces the employers to pay higher wages to secure this labor. It also forces employers in industries in the same geographic area, even if they have not used more capital goods in their production processes themselves, to pay higher real wages to their employees, in order to prevent them from jumping ship to the more advanced, and more lucrative, industries. This is how capital investment in a region serves to raise, on average, the wage rates of workers in the region.

Here, similar to general production and distribution, what an individual worker in a region needs to enjoy higher wage rates for their work is: 1. For a lot of capital to be accumulated in general, and 2. For a good share of the capital accumulated to be allocated to this region. We will discuss these in turn.

General Capital Accumulation

The most important factor that encourages capital accumulation is security of property rights. Someone will not save their resources for future production if they are uncertain whether those resources will be theirs in the future. Thus, whether it was medieval peasants faced with expropriation by marauding Viking bands, or modern businessmen faced with expropriation by socialistic nation-states, the threat of expropriation always induces less capital accumulation, while its opposite, the security of property rights, induces more.

As such, if you want to encourage capital accumulation, you should not support policies such as industry nationalization (the seizure of businessmen’s capital assets by the government), or inheritance taxes. Why not inheritance taxes? Because these taxes reduce post-death security of property. If the inheritance tax were 100%, then older people would be encouraged to consume all of their savings when they were approaching death, rather than maintaining part of their fortune in order to pass it down to their heirs. This would not only discourage capital accumulation, but would result in capital consumption, it’s opposite. Any inheritance tax rate below 100% would have a similar, though less intense, effect.

In addition, if you want more capital accumulation, you should refrain from supporting policies that make saving and investment less lucrative when compared to consumption. People save and invest in order to make a monetary return on their investment, otherwise they would just consume their resources or hoard money in stashes. Any policy that artificially reduces this rate of return will result in less capital accumulation. Capital gains taxes, taxes on dividends, and corporate taxes all have this effect, the more severe the higher the rate.

Capital accumulation is also tied to the distribution of income throughout society. The more income ends up in the hands of people who are more likely to save it and invest it successfully, the more capital accumulation there will be. In the conditions of the current world, these people tend to be relatively wealthy people who have had a history of successful investment. This is why any redistributive policy that especially targets people with high free-market incomes, especially the progressive income tax, tends to have a negative effect on general capital accumulation.

Finally, economic volatility tends to deter capital investment, as investors will be more afraid of losing lots of their invested money, and thus might prefer to consume it in the present instead. A certain degree of volatility is inherent in the free-market process itself, due to constant changes in consumer tastes, industry conditions, and technological innovations. But government policies, most notably the monetary inflation and credit expansion enabled by central bank monetary policy, but also granting subsidies/privileges to certain industry players and then withdrawing the subsidies/privileges, can add additional sources of volatility, and thus should be avoided.

Capital Allocation

So lots of capital has been accumulated by people within our country, but in order to benefit from it, we must try to ensure that a good share of this capital is allocated to the region in which we are working.

Luckily, a lot of the policies that encourage capital accumulation also, if adopted in the region, encourage capital allocation to that region. Respect for investors’ property rights, relatively low corporate tax rates, and a relative lack of economic and political volatility, are all factors that encourage investors to allocate capital to a region. In addition, other things equal, many investors prefer investing in their home markets with which they are more familiar, rather than foreign markets. Thus, a good portion of the capital accumulated by residents of a country will probably be invested in that country, making the encouragement of capital accumulation also, to some extent, the encouragement of capital allocation within the country.

Other factors encouraging capital allocation to a region include the relative lack of burdensome restrictive regulations, a skilled and conscientious workforce, relatively low wage rates, and a good supply of valuable land and natural resources. #1 is all based on policy, #2 an effective educational system could help with, #3 workers in a region obviously don’t want, even if it does encourage capital allocation, and #4 policy can do little about.

Some governments have tried to use the granting of special subsidies and privileges to select companies or industries as a way of attracting investment in their territories. The problem is that governments neither have the knowledge nor the incentives to choose the ‘correct’ people to privilege. Instead, government officials will likely use this discretionary power to advance their political careers by buying the support of the favoured industries/companies. Better then, if you are a worker in the region, to just forget about supporting subsidies and to support keeping tax rates low instead.

Income Inequality

Let’s say that you have managed to accumulate a decent amount of purchasing power, but you notice that there are other people who have more than you! What gives? Why should they have more?

Feelings of jealousy and envy naturally arise when we see that there are people who have more purchasing power than us whom we don’t think ‘deserve’ more than us. The question is: what should we do about these feelings?

One possible reaction is the egalitarian, levelling impulse; the urge to make everyone’s purchasing power more equal to one another’s. This is not a very beneficial impulse though, for the simple reason that the purchasing power that we have depends on the inequality of wealth and incomes in the market society. The possibility of having more purchasing power than others acts as a powerful incentive, an incentive on which the market economy, the most productive kind of economic organization, is largely based upon, as was discussed in Chapter 1. A bit of plundering and redistributing, if done in a limited and intelligent manner, will not harm the market economy too much, precisely because there will still be room for a lot of inequality of wealth and income.

Nevertheless, for all that, the unpleasant feelings of envy still remain. What is to be done about them? Some people try to consciously suppress such ‘unworthy’ feelings, but this kind of suppression rarely succeeds in any non-superficial way. A better strategy is to try to avoid stimulating these feelings in the first place.

In this case, there are two possible methods of doing so. The first is to try not to think about people who are richer than you. Direct your thoughts away from such people and towards those who have a bit less than you. By doing so, the unpleasant feeling of envy can be replaced by a pleasant feeling of moderate superiority.

The second method is, when you find yourself thinking about someone richer than you, to postulate all kinds of possible non-monetary shortcomings of the richer person, so that they don’t seem so well-off after all. That rich man over there, perhaps his marriage is loveless, his children dislike him, he has ulcers, his work is overly stressful, he does not truly appreciate the finer things in life, etc… Do this long enough, and soon you may find yourself pitying, rather than envying, this rich man. Whether his postulated shortcomings are accurate or not does not really matter, just believe that they are so and you will be rid of your unpleasant feelings of envy, without having to undermine your own purchasing power by supporting egalitarian political measures.

Pure Redistribution: The 'Share of Spoils' System

Leftists always say that they want to redistribute wealth from the rich to the poor. Thus you’d think that they would want the government to take money from richer people and give it to poorer people. And yet, what invariably ends up happening is that when the rich are taxed in the name of ‘redistribution’, the proceeds go to the government, which then spends it on some program or other. Some of these programs, such as public education and universal healthcare, are supposedly designed to benefit poorer people especially. But in order to conclude that funding these programs is a good idea, making the case for redistribution alone is not sufficient. One must also make the case that funding these programs is better than just transferring the money directly to poorer people, who could then spend it as they chose, something I would call ‘pure redistribution’.

What might an intelligent system of pure redistribution look like? In this article, I will propose an example of such a system.

I would call my system the ‘share of spoils’ system. The system has two components: the input, which I would call ‘the loot’, and the output, which I would call ‘the spoils’. Every citizen in the country with an income is to be looted by the government, while every citizen, including children, whether they have an income or not, is to share in the spoils. The looting is to be done by taking a fixed proportion of everyone’s annual income, let’s say 10% for now. But when distributing the spoils, each citizen is to receive the exact same monetary amount as one another, determined by dividing the amount of money loot by the number of citizens. For example, if the annual 10% income levy resulted in $150 billion of loot, and there were 30 million citizens in the country, than each citizen would receive $5000 for that year as their share of the spoils.

One of the main merits of this system is its simplicity. Relatively little bureaucracy is needed to make it work. The flat proportional looting rate keeps assessment relatively simple, the only thing that must be determined is the person’s income for that year, no messing around with income brackets or credits. For spoils distribution, no ‘needs test’ is necessary, and the same, standardized payment can just be sent to everyone in the country.

Besides simplicity, the flatness and universality of the looting rate and the spoils distribution amount also reduces, as much as possible, the negative effect on production incentives that any system of redistribution will necessarily have. With my system, there is no special disincentive to move up from one set income bracket to the next, as there is in most countries’ current ‘needs based welfare’ and ‘progressive taxation’ systems. The general production disincentive will of course remain, as the higher people’s income, the more monetary units will be looted from them. But as long as the flat proportional looting rate is not set too high, this shouldn’t be a major problem.

Why do I insist on calling the collection ‘looting’, and the distribution the ‘sharing of spoils’, rather than the more accepted labels ‘taxation’ and ‘transfer’? It is because I hate obfuscatory euphemisms. We already have a perfectly good word to describe the coercive seizure of people’s resources: looting. We also already have a perfectly good phrase to describe the act of distributing the proceeds of the coercive seizure of people’s resources among the accomplices to the seizure: sharing of the spoils. Arbitrarily using different words to describe these things when the government is doing the looting and distribution is designed to mislead, not enlighten. If you want nothing to do with a system of looting and sharing the spoils, then logically you should also want nothing to do with a system of ‘taxation’ and ‘transfer’, because they are in fact the same thing.

Now for the million dollar question: would I personally support such a system? Certainly I think it would be much better than the harmful, socialistic nonsense that is currently done in the name of ‘redistribution’. But would I include it in my ideal policy world? I’m going to break from libertarian orthodoxy here and say that, as long as I could be assured that the looting rate would never exceed 20% of annual income, I would support this system.  I appreciate the great things that richer people do for us as consumers, and thus I do sympathize with them, but I also sympathize with poorer people and, most of all, with myself. I would probably benefit from the system for the near future at least because I am just getting started with my career, and once I am established and well-paid, I probably won’t mind terribly much losing 20% or less of my annual income. As mentioned, if the looting rate is kept under 20%, the negative effects on production incentives and capital accumulation should not be too severe, and thus the general economy shouldn’t be harmed too much by this measure.

Returning to the issue I discussed at the start: why don’t leftists, who supposedly love redistribution so much, advocate such a system or one similar? It is because most leftists actually love increasing the power of the government more than they love redistribution. They say they want to help poorer people, but they don’t actually trust these poorer people to help themselves if given the resources. They would rather have government use the resources to ‘help’ poorer people according to the government’s own plans. This lack of respect for poor people is combined with an unwarranted distrust of free-market forces as coordinators of production and an unwarranted trust in governments as coordinators of production; that is, a belief in socialism.

Thus, don’t just swallow the whole package of mainstream leftist statism because you believe in redistribution. There are purer and less harmful ways of engaging in redistribution that don’t also involve statist paternalism and socialist economic management. I have outlined just such a method in this article.

Applying Occam's Razor

Occam’s Razor is an important principle of scientific epistemology. The Encyclopedia Brittanica explains:

“Pluralitas non est ponenda sine necessitate, ‘Plurality should not be posited without necessity.’ The principle gives precedence to simplicity; of two competing theories, the simpler explanation of an entity is to be preferred. [1]”

In this article, we will focus on a particular class of applications for Occam’s Razor: the class of applications where it is used to select the null hypothesis. The null hypothesis is the hypothesis on a question that we assume to be true, by default, unless an alternate hypothesis on the question is satisfactorily proven. To clarify this, let us proceed immediately to an illustrative example.

Illustration: The Veracity of Jack and the Beanstalk

You finish telling a child the story of Jack and the Beanstalk, a story involving giants, immense climbable beanstalks, geese that lay golden eggs, and other bizarre phenomena. The child asks: ‘Is that story true?’ How do you respond?

 Well, the veracity of the story is dependent on the source of the story. Did the story come from someone’s imagination? Or was it actually based on an eyewitness account of actual events? Thus, our question is: What is the origin of the Jack and the Beanstalk story?

Let us say that we entertain two competing hypotheses as possible answers to this question. They are:

1. The story came from the active imagination of a storyteller.

2. The events in the story actually occurred on another planet and the eyewitness account of those events was communicated to the originator of the story on Earth via interstellar, telepathic brain waves.

It is unlikely that we could satisfactorily prove either one of these hypotheses. If we treated both of these hypotheses equally, than our response to the child’s query would have to be: ‘I have no idea’. 

This is a highly unsatisfactory answer though because we do in fact have an idea: even in the absence of satisfactory proof, one of the hypotheses just seems a lot simpler and more plausible than the other, which is pretty outlandish. Applying Occam’s Razor, we select this simpler and more plausible hypothesis as the null, or default, hypothesis, and the other hypothesis as the alternate hypothesis. 

Our setup now looks like this:

Question: What is the origin of the Jack and the Beanstalk story?

H0 (null): The story came from the active imagination of a storyteller.

H1 (alternate): The events in the story actually occurred on another planet and the eyewitness account of those events was communicated to the originator of the story on Earth via interstellar, telepathic brain waves.

Because we cannot satisfactorily prove H1, H0 remains standing, and we can tell the child: ‘I strongly suspect that the story came from the active imagination of a storyteller, and hence isn’t a true description of actual events’. Much more useful and satisfying than just proclaiming utter ignorance!

Anthropogenic Climate Change

The proper selection of the null hypothesis is an important part of answering many scientific questions. One such question is that of whether human-caused greenhouse gas emissions could cause disastrous global climate change in the future if continued unabated. I would set up this question as follows:

Question: What was the primary cause of the global warming that the Earth has gone through since the 1970s?

H0: The primary cause was not human-caused emissions of greenhouse gases, but rather was a ‘natural’ cause or set of causes, that would have happened even without any human interference.

H1: The primary cause was human-caused emissions of greenhouse gases.

Why do I choose the skeptical position as the null hypothesis? Isn’t this just indicative of my particular bias? I do so because the ‘natural’ explanation of global climate change is in fact the simpler explanation of the phenomenon. This is because we know that the Earth’s climate has changed significantly and relatively frequently in the past, long before humans were in a position to emit any significant quantities of greenhouse gases. We also know that humans have been spuriously blaming themselves (or their sins) for negative changes in the weather since the beginning of human history. Thus, the simplest explanation is that this recent bout of global warming has a natural cause, and that humans are once again blaming themselves erroneously for changes in the weather, as has happened multiple times throughout the Earth’s and humanity’s history.

The selection of the null hypothesis for this question is very important, given how complicated the Earth’s climatic system is. Due to this complexity, I don’t think that any well-informed person can honestly say that either of these hypotheses has been satisfactorily proven. Treating both hypotheses equally is not a good option, because then we would be forced to say ‘I have no idea’, which is not a very useful response when deciding whether implementing anti-emissions policies would be a good idea or not. Setting up the hypotheses as I have allows us to say: ‘I suspect that most of the observed global warming has been due to natural causes, not human-caused greenhouse gas emissions, and hence we should not implement any anti-emissions policies for the moment. However, if more convincing evidence favouring the emissions hypothesis came to light, I would be willing to change my opinion accordingly.’

The Existence of God

Occam’s Razor can help us answer this age-old and much-discussed question. I would set it up as follows:

Question: Does God exist?

H0:  No, there is no omnipotent sky ghost (God) in existence.

H1: Yes, there is an omnipotent sky ghost (God) in existence.

Why do I set the atheistic position as the null hypothesis? The first reason is because, given our current knowledge about how the world works, it is the simpler explanation. We can already satisfactorily explain many seemingly mysterious phenomena by employing the principles and findings of physics, chemistry, biology, and other sciences. Given this, the simplest hypothesis is that there is an as-yet-undiscovered scientific, non-omnipotent-sky-ghost-dependent explanation for the mysterious phenomena that we still cannot explain satisfactorily.

The second reason is because it is impossible to prove a negative. If religious people had their way and the existence of God became the null hypothesis, it would be impossible to prove them wrong, no matter what evidence came to light. For this reason, it is infinitely fairer, for these kinds of ‘existence’ questions, to put non-existence as the null hypothesis.

In addition, if religious people insisted that the existence of God should be the null hypothesis, for consistency’s sake the same should apply to the question of the existence of other magical creatures. We would have to accept the existence of the tooth fairy, unicorns, talking garden-gnomes, leprechauns, and Santa Claus, for the simple reason that is impossible to satisfactorily prove that any of these things don’t exist.

A group of people called Agnostics think that the two hypotheses regarding the existence of God should be treated equally; neither should be the null hypothesis. The problem here is that a consistent Agnostic can never say that anything doesn’t exist, because it is impossible to prove a negative. To be Agnostic just with regards to God is arbitrary and illogical; to be logically consistent you have to be Agnostic with regards to any being whose existence cannot be satisfactorily proven, including the aforementioned other magical creatures, such as Leprechauns.

If you have no idea which, if any, of the scores of magical creatures that people have dreamed up over the centuries exists, how do you know which actions to take in regards to these creatures? Do you pray to God? Sacrifice to Poseidon? Pay homage to Vishnu? Follow rainbows in search of the Leprechaun’s pot of gold? In practice, most so-called Agnostics will take no action related to any magical creature, including God, and thus seem to assume, like Atheists, that these things don’t actually exist, unless proven otherwise. Agnosticism, in practice, usually proves just to be a more socially-acceptable form of Atheism, with little difference in actual content. This is for the best, as a consistent Agnostic, not sure which of the thousands of potential gods to pray to, or whether to chase rainbows and hunt Unicorns or not, would probably quickly go insane.

Government Intervention

We can apply Occam’s Razor to the desirability of political action as well. I would set up such questions as follows:

Question: Should the government engage in coercive intervention x?

H0: The government should not engage in coercive intervention x.

H1: The government should engage in coercive intervention x.

Why set non-intervention, the libertarian position, as the null hypothesis here? In a theoretically pure free-market society, every individual would be free from violent coercion or harassment when it came to taking the actions they deemed most conducive to their material and mental well-being. They would similarly be free to engage in voluntary exchange involving each others’ services or material possession, as long as the transaction was deemed beneficial and worth engaging in by both parties.

The simpler and more plausible general hypothesis is that this regime of individuals being allowed to pursue their own well-being in the best way they know how and of mutually beneficial exchanges with others will in fact be the regime most conducive to most individuals’ well-being. It is certainly simpler and more plausible than the other possible general hypothesis, which is that a regime where all individuals’ lives are completely controlled by a centralized, coercive power will be the one most conducive to most individuals’ well-being. This is especially true given the extensive and pretty one-sided empirical evidence we now have with regards to the negative effect of totalitarian regimes on individuals’ well-being.

Given this setup, if we cannot satisfactorily prove that the government intervention in question will increase the relevant individuals’ well-being more than it decreases it, we retain the null hypothesis and opt for laissez-faire in this instance.

But again; why the need for a null hypothesis at all? Why not just treat both hypotheses equally. Because either the government intervenes or it does not; there is no ‘neutral’, or ‘I don’t know’, option available. If you don’t take a position on the question at hand at all, then you’re basically just supporting whatever the majority of the more active people have decided.

The Standard of Proof

I have used the term ‘satisfactorily proven’ a number of times throughout this article, referring to what must be done in order to reject the null hypothesis and accept the alternate hypothesis in its place. The level of certainty of a proof for it to be ‘satisfactory’, or the Standard of Proof, is a subjective determination, and will vary person by person and instance by instance. For example, in criminal trials the null hypothesis is innocent, and in order for the court to accept the alternate hypothesis of guilt, it must be ‘proven beyond a reasonable doubt’. This strong standard of proof makes the null hypothesis difficult to reject. By contrast, in civil suits, the standard of proof is ‘balance of probabilities’, meaning that it doesn’t really matter what the null hypothesis is, because if there is even a shred more evidence for the alternate hypothesis than for the null hypothesis, the alternate is accepted.

How do we decide what standard of proof to set? This will depend on how much simpler and more plausible the null hypothesis is over the alternate hypothesis. It will also depend on how bad the consequences of erroneously rejecting the null hypothesis, balanced against the consequences of erroneously retaining it, would be.  

Conclusion

Null hypothesis selection using the principle of Occam’s Razor is an important part of the scientific method. For many questions, it is important to select the default hypothesis properly because we do not have the luxury of waiting for all possible evidence to be collected before making a determination. ‘I have no idea’ is a pretty useless position to take when it comes to deciding upon concrete actions. Often we must decide one way or the other without delay, and in the absence of sufficiently definitive proof one way or the other, this means relying on the default hypothesis.

  

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[1] http://www.britannica.com/EBchecked/topic/424706/Occams-razor

Legalize Prostitution

Anti-prostitution laws are inspired primarily by fanatical Christian moralism. According to Christianity, having sex outside of marriage is a ‘sin’, and paying for this kind of sex is even worse! Paying for foul sex with foul coin; surely the parties that engage in such an activity deserve an eternity in hellfire! No decent community could possibly tolerate such sinfulness; hence the activity should be illegal, punishable by imprisonment in this life, hellfire in the next.

The anti-prostitution laws are thus an unwelcome attempt by nosy fanatics to violently and noisily intrude into the lives of other people. The other arguments in favor of anti-prostitution laws mainly consist of ex post facto rationalizations of these laws that are seemingly less religious and moralistic in tenor. Like most rationalizations though, they are as flimsy as reeds, and can easily be disposed of. We will do so in turn:

1. Prostitution is inherently exploitative.

Prostitution is neither more nor less inherently exploitative than any other form of wage labour. Both involve selling a specific service which requires the use of a specific body part to perform. Whether it is a ditch digger selling the service of digging ditches which requires the use of his hands, or a prostitute selling sexual services which requires the use of her sexual organs, the nature of the two phenomena are fairly similar. It is prudish Christian attitudes about the sexual act and, more recently, a kind of spurious mysticism surrounding the sexual act, which leads many people to neglect the essential similarity between prostitution and other forms of wage labour.  

The Marxists hold a bizarre, yet consistent, position on this question. They consider both prostitution and wage labour to be inherently exploitative. The libertarians hold the other consistent position on this question, which is that neither prostitution nor wage labour, as long as they are voluntary, are inherently exploitative. If you think that wage labour is at all a good thing, then the libertarian position makes the most sense for you, which means that prostitution is not inherently exploitative.

2. Many prostitutes are trafficked or otherwise forced into the ‘profession’.

Forced prostitution and human trafficking should of course remain illegal, I do not dispute that. But prostitution that is voluntary on both sides is not an impossible, nor even an unusual, occurrence. If prostitution were legalized and became an above ground business, rather than an illegal, shadowy one monopolized by shady operators as it is currently, it would be much easier to identify and prevent instances of forced prostitution and trafficking than it is currently.

Pointing out the similarity to other forms of wage labour is again fruitful here. Forced labour and trafficked labour exist; we call it slavery and the practice is rightly illegal. The way to combat slavery is not to outlaw all forms of labour for hire; it is to identify and stop the practice of slavery exclusively, something that is much easier to do when the labour for hire market is above ground and relatively transparent. The exact same thing applies to prostitution.

3. Prostitution leads to the spread of sexually transmitted diseases (STDs).

As a general rule, people that engage in an activity professionally are able to perform that activity more safely than people that engage in an activity as an amateur. Prostitutes and brothel operators will probably be more aware of and cognisant of sex-related safety matters than amateurs. They will know better what preventative measures to take to avoid STD infection, and will know better how best to monitor sexual health.

As such, it is probable that having promiscuous sex with a bunch of amateurs would put you at greater risk of STD infection than having promiscuous sex with a bunch of professionals. Of course, having no sex at all or having non-promiscuous sex with only one partner would probably be safer than going to a prostitute, but this is not really a fair comparison.

4. Think of the children!

Anti-prostitution law advocates worry that if prostitution were legalized, children would see prostitutes in their neighbourhood and would see advertisements for prostitution. My response: so what? So children might learn (a little bit earlier than they currently do) that there are people who have sex with others for money, big deal! There’s nothing wrong with children learning things about the real world: they will eventually learn it anyway! Besides, it is only the religious notion that prostitution is inherently sacrilegious and shameful that makes people especially touchy about letting their children learn about this particular aspect of human life.

With these lame rationalizations out of the way, we can now discuss a number of ways in which a legalized prostitution industry could be especially beneficial:

1. Practice for young men (or women).         

Many young men, whether for social or natural reasons, are desperate to lose their virginity. They are also nervous about doing so though, for the understandable reason that they have had no practice engaging in the sexual act before. They desperately want to be able to ‘perform’ and not to ‘embarrass’ themselves on their first sexual encounter, for fear that if they do not, the woman they are courting will leave them in frustration and they will have to begin the long process anew. The problem is that, for men, this potent cocktail of desperation, nervousness, and inexperience will play havoc with their ability to ‘perform’ the sexual act effectively.

Here is where a safe, socially respectable prostitute could beneficially come in. This professional could kindly and patiently help the young man to lose the desperation of virginity, and to become more comfortable with and skilled in the sexual act. This would hopefully allow the young man to be less desperate and nervous, and more confident, when it came time to perform the sexual act with a woman he really cared about, an experience which would probably be a lot more enjoyable for both parties as a result.

This suggestion is nothing new; the practice has a very ancient pedigree, prominent in the time of the Ancient Romans, amongst other civilizations. It was only really the rise of the puritanical monotheistic religions that cast this reasonable practice into disrepute.

Please note that similar reasoning could well apply for young women and male prostitutes, but since I have never been a young woman, I will refrain from commenting extensively on the matter.   

2. Sexual outlet for people that are not conventionally-beautiful and for others who have a hard time finding a romantic partner.

Intimate/sexual companionship is, I suspect, for most people an important contributor to good mental well-being. Unfortunately, some people find it difficult to get this kind of companionship on a non-commercial basis, whether it is because they are not conventionally-beautiful or for any other reason. While probably not as satisfying as non-commercial companionship, many people will consider the occasional bout of commercial companionship to be better than nothing at all.

If prostitution were legal, above ground, and socially acceptable, these people would have a much appreciated, practical outlet for intimate/sexual companionship available. Only cruel Puritans would take pleasure in denying these people this.

 3. Break the Amateur Monopoly

Anti-prostitution laws and taboos create a strange kind of monopoly for sexual services: a monopoly by amateurs that excludes professionals. People that seek sexual companionship are only allowed to get it ‘for free’. The thing is though that sexual companionship is rarely actually given ‘for free’: it is often given only in exchange for being taken out on ‘nice dates’, or for pledges of undying love and commitment, or, sometimes, for a diamond ring and a marriage contract.

Now, don’t get me wrong, there is nothing wrong with going out on nice dates, or pledging love and commitment, or getting married. I just don’t think that it is ideal when one of the main motivations for doing these things is the satisfaction of sexual desire. In this case, the price for this simple satisfaction is a monopoly ‘price’, one that couldn’t be asked as easily if the anti-prostitution laws and taboos didn’t create the Amateur Monopoly in the first place.

With the professional option available in an above ground and socially acceptable fashion, people wouldn’t agree to pay such high ‘prices’ to amateurs for the simple satisfaction of their sexual desires. Rather, they would be more likely to make relationship decisions based on less superficial factors, such as compatibility and deep emotional attachment.  

In conclusion, the main argument for anti-prostitution laws and taboos is a fanatical religious/moralist one, and thus need not be taken seriously. The seemingly ‘secular’ ex post facto rationalizations for these laws are flimsy and easily disposed of, while there are some definite advantages to legalizing the practice. For all these reasons, I would be in favour of the immediate and total repeal of all anti-prostitution laws.       

30 Widely Accepted Falsehoods and Why They Are Wrong

1. Raising the minimum wage is an effective way of helping poor people.

            Actually, doing so causes increased unemployment amongst unskilled workers, chases away capital investment from the region, and tends to lead to higher prices for consumer goods, something which poor people are the most sensitive to. Giving poor people a direct cash subsidy would be much less disruptive.

2. Moderate inflation is much better than moderate deflation.

            Actually, moderate deflation caused by more goods being put on the market, so-called ‘growth deflation’, is an entirely benign, and actually a welcome, phenomenon. On the other hand, any inflation, moderate or otherwise, caused by monetary expansion always results in arbitrary, stealthy wealth transfers and economic distortions.

3. The familiar ‘business cycle’ phenomenon is an inherent offshoot of the capitalistic free-market.

            Actually, the business cycle is caused by monetary expansion via credit expansion, something which the government enables and encourages through its interventions in the monetary and banking system.

4. Government intervention is necessary to get an economy out of a depression or recession.

            Actually, even when we reach the ‘bust’ of the government-sponsored ‘boom-bust cycle’, the free-market is perfectly capable, if it is allowed to, of making the adjustments necessary to get out of a depression or recession. The ‘anti-depression’ government interventions usually just involve trying to spark yet another ‘boom-bust cycle’.

5. There is a certain class of economic goods called ‘public goods’ that only the government can provide effectively.

            Actually, the government has no rational way of determining whether ‘positive externalities’, the defining feature of so-called ‘public goods’, exist or what their magnitudes are. As such, it does not know whether its interventions in the provision of ‘public goods’, interventions which always involve the creation of ‘negative externalities’, will be beneficial or harmful on net. There are numerous voluntary, free-market ways of ‘internalizing’ the positive externalities involved with certain economic goods (such as bundling, contingent contracts, social pressure), thus enabling the effective provision of these so-called ‘public goods’ by free-market mechanisms.

6. Government regulations are necessary to solve the ‘tragedy of the commons’ problem.

            Actually, more often than not, the government, by refusing to recognize private property rights in these so-called ‘commons’, is responsible for creating the problem in the first place. Usually, a more complete and sophisticated structure of private property rights would allow the free-market to solve these kinds of problems in its usual manner.

7. Businessmen and capitalists are too concerned with the short-term, thus the government, which takes the ‘long view’, must intervene accordingly.

            Actually, private parties whose ownership of both the income and the capital value of a resource, parcel of land, or productive organization is recognized usually have an incentive to take a ‘longer view’ concerning their property than the government does. If they neglect the future too much, the capital value of their property will suffer accordingly. By contrast, democratic politicians do not own the capital value of the properties they are ‘regulating’. If they want to be re-elected, they are almost forced to narrow their horizons to the shorter-term in order to appeal to voters in the present.  

8. Government protects us from exploitation by private-sector monopolists.

            Actually, empirically, governments have created and encouraged monopolies far more than they have destroyed and discouraged them. It is very difficult for a free-market business to monopolize its entire industry, whereas it is quite easy for the government to create a monopoly. It just needs to pass a piece of legislation outlawing competition in that industry, something which governments around the world frequently do.

9. Government protects small businesses against big businesses.

            Actually, empirically, governments have tended to privilege big businesses at the expense of small businesses, not the other way around. The bigger a government becomes, the more resources businesses must devote to complying with complex regulations and to lobbying for special privileges or against specially harmful legislation. Due to their economies of scale, bigger businesses are generally better able to expend these resources in these areas than smaller businesses.

10. Governments socialize industries in order to help poor people get access to the fruits of those industries.

            Actually, if this were really the government’s main objective, they could just give poor people the money necessary to purchase the fruits of the industry on the free-market; there is absolutely no need to socialize the entire industry. In reality, industries are socialized in order to pursue egalitarian objectives and in order to give the government more control over the economy, even if this means the industry being made much more inefficient and much less consumer-friendly.

11. Without the efforts of the labour movement, working conditions and hours would be the same as they were in the 19^th century.

            Actually, increased productivity-raising average capital investment per worker leads to higher real wages, and many would opt to take these higher real wages in the form of better working conditions and shorter working hours, rather than purely in the form of higher weekly take-home pay. This phenomenon, even without the help of the labour movement, would be sufficient to ensure that working conditions and hours would not, in the modern day, be those of the 19^th century.

12. Government regulation is the only thing that can protect us from unsafe products.

            Actually, third party private safety certification agencies, combined with basic anti-fraud laws, would be sufficient to protect us from unsafe products, and would probably do so in a more effective and less heavy-handed way than the government.  

13. Selflessness is better than selfishness.

            Actually, everything that is pleasant in life can be pursued and attained effectively in a selfish manner (including the pleasure derived from helping other people). True selflessness is an absurd self-sacrificial attitude, suitable only for fanatics.

14. There is scientific consensus on the fact that human-caused greenhouse gas emissions, if maintained at their current levels, will cause catastrophic global warming within the next 100 years.

            Actually, there is only scientific consensus on the fact that the earth has been slowly warming for the past 30 years and that human-caused greenhouse gas emissions probably had something to do with it. There is still a lot of debate about whether natural causes may have been responsible for a lot of that warming and about the magnitude of the temperature-change that would result if humans continued emitting greenhouse gases at their current rate.

15. Gold or any other limited commodity could not possibly serve as the basis for an effective modern monetary system.

            Actually, this belief is tied to the belief that moderate inflation caused by monetary expansion is much better than the moderate ‘growth deflation’ we would probably get under a fixed commodity standard such as gold (see falsehood #2). This belief is fallacious, so a gold or any other fixed commodity standard would work just fine. In fact, with the increased importance that international trade is playing in our world, having a commodity-based, international monetary system is even more important to have now than it was before.

16. Fascism and communism are at opposite ends of the political spectrum.

            Actually, fascism and communism both involve authoritarian governments who strive to attain total control over the economy. Given these important similarities, they should be considered to be very close to one another on the political spectrum, whereas radical libertarianism would be at the opposite end.

17. There exists a universal standard of morality that every human being ought to adhere to.

            Actually, there is no good reason, besides broadly conceived self-interest, to do anything at all. Since following a universal standard of morality cannot, by definition, always be in every individual’s self-interest, there is no good reason why every human being ought always to adhere to one.

18. The interests of your ‘countrymen’ are necessarily more important than the interests of ‘foreigners’.

            Actually, you should feel free to put the interests of whoever you want before those of anyone else if doing so suits you, whether they are your ‘countrymen’ or not. No one has the godlike power to decree who you should or should not care more about.

19. Karl Marx was a great thinker.

            Actually, Karl Marx was a great botcher. His economic theories were fallacious and his theory of a necessary antagonism between workers and capitalists was thus fallacious as well. His prediction that ‘capitalism’ would impoverish the working classes more and more until the advent of socialism, proved to be spectacularly wrong. His ‘philosophy of history’ was overly simplistic and not very helpful, and his technological determinism ignored all of the complexities of humanity and human history. His theories led to rivers of blood being spilt in the name of absurd ideals and social systems. He truly turned out to be a plague on humanity’s collective house.

20. What we have now is free-market capitalism.

            Actually, what we have now is a mixture of interventionist crony capitalism, socialism, and some free-market capitalism. Many of the ‘evils’ that free-market capitalism currently gets the blame for can more correctly be attributed to government interventionism or socialism. 

21. Democracy is inseparable from personal freedom.

            Actually, some more authoritarian governments, such as Singapore’s, restrict their citizens’ economic freedom less than the governments of the western democracies do. Democracy and authoritarianism are political systems, while the amount the government restricts their citizens’ freedom is a policy decision that both of those political systems could potentially make the same way.

22. There are certain things, such as raw nature, that have intrinsic value.

            Actually, there is no such thing as intrinsic value. The value of something is always assigned by an individual, valuing mind. Without this mind, the concept of value does not make sense.

23. Taxation is not coercive.

            Actually, taxation is coercive by definition. People pay their taxes to the government with the knowledge that if they refuse, their assets could be confiscated or they could be thrown in jail by that government. If these credible threats did not exist, than the government would get its funding through voluntary contributions, not by taxation, and the government would be indistinguishable from a private charity, which is simply not true.

24. Voting in a democratic political election means that you consent to being governed by the resulting democratically-elected government.

            Actually, voting can best be seen as a form of self-defense. People know that they will be governed regardless, so given that unpleasant fact, it is better to try to pick the party that will prove, in government, to be the lesser of the two or three potential evils. Also, if voting is consent, than non-voting should mean non-consent. However, most people say that if you don’t vote, you are not even entitled to complain about any political outcome at all; the very opposite of non-consent!

25. Consuming your resources is better for the economy as a whole than saving and investment your resources.

            Actually, the very opposite is closer to the truth. Resources that are saved and invested contribute to raising the real wages of workers in the region where the resources are invested and to making the structure of production as a whole more productive in the eyes of people when they do eventually consume their resources. Consuming resources has no such general effect; it just benefits, in the short-run, the industries closest to the final consumer, at the expense of the industries more remote from the final consumer.   

26. If the economy grows, than governments can ‘grow their way’ out of deficits and debt.

            Actually, government debt is denominated in monetary, not real, terms, so even if the real economy did grow, if the money supply remained constant, it would be no easier for the government to balance its budget or pay off its debt. It would be more correct to say that the government could ‘inflate their way’ out of deficits and debt by causing (in the case of national governments) or waiting for (in the case of sub-national governments) more fiat money units to come into existence, with a more or less devastating impact on the purchasing power of its citizens, depending on how the real economy is doing.

27. John D. Rockefeller and Andrew Carnegie were good examples of ‘robber barons’.

            Actually, Rockefeller and Carnegie revolutionized the oil and steel industries respectively, and contributed greatly to making life significantly better for millions of present and future people who now had easier access to these products. They didn’t ‘rob’ anyone, nor did they even succeed in ‘monopolizing’ their industries, contrary to popular belief. They are examples of great benefactors of humanity; it is sheer unwarranted impudence to call them and those like them ‘robbers’.       

28. If the wealth and incomes of ultra-rich people were confiscated and distributed amongst poor and middle class people, the lot of these latter groups would improve considerably.

            Actually, if the saved and invested wealth of the ‘ultra-rich’ were distributed amongst the masses, most likely a significant fraction of it would be used for purposes of present consumption, and as a result the economy would soon become a lot less productive overall, thus soon impairing these same masses’ standard of living significantly. The fraction that remained invested after being transferred would probably be invested less skillfully in its new hands, also impairing the productivity of the economy. If only the income that the ‘ultra-rich’ used for luxurious consumption was confiscated, than when distributed amongst the masses, it would probably have an almost negligible effect on the masses’ average standard of living. But this action would significantly undermine the incentives of the ‘ultra-rich’ to invest and manage their businesses skillfully, which would have disastrous consequences.

29. Modern liberalism is a logical continuation of classical liberalism.

            Actually, classical liberals believed primarily in the free-market, limiting government, and laissez-faire. Their ideology was closest to that of modern libertarianism. Modern liberalism was created around the turn of the 20^th century when the Liberal political parties started putting more and more aspects of interventionist and socialist policy into their platforms. Presently, ‘liberalism’ stands more for government interference, whereas ‘conservatism’ leans a bit more towards laissez-faire (in the economic sphere at least), a complete reversal of the situation in the mid-19^th century when classical liberalism was at its peak.

30. Free-market economics relies on the unrealistic assumption that humans are motivated solely by material, especially monetary, objectives.

            Actually, sound free-market economics (ie. Austrian economics) relies on no such assumption. It is not a problem at all to include purely psychic motivations alongside material and monetary motivations in free-market economic theory; it is essential in fact, and the best economic thinkers (including Mises and Rothbard) have done so explicitly. Some unhelpful mathematical models of fanciful static economies constructed by neoclassical economists rely on the artificial assumption in question, but these models can be rejected entirely without doing any damage whatsoever to the main body of free-market economic theory.