15 July 2009

Original Appropriation

Over the past few days, I’ve been reading some of the work of Peter Vallentyne [1], a Professor of Philosophy at University of Missouri-Columbia. One particularly interesting piece is On Original Appropriation [2], in which he analyses the basis of property rights. He concludes that self-ownership doesn’t imply any system of property rights, beyond the requirement that one person doesn’t violate the self-ownership of others by forcibly taking from them items which they have in their physical possession.

Of course, that isn’t to say that systems of absentee ownership of items, concepts, etc. are not morally justifiable; many of them are promoted on the grounds of utilitarianism, contractarianism (the approach I tend to take) or a belief that it is morally right to give people exclusive rights over the fruits of their labour. What Peter Vallentyne’s work shows is that any attempt to derive other property rights from the right of self-ownership is bound to fail, as they are two independent concepts.


13 July 2009

The Elitist Core of State Socialism

Over at the Tax Research Blog, having pretty much argued that the only way to make the world better is to increase government debt in order to increase the size of the state and been unable to effectively refute the opposing arguments, Richard Murphy has resorted to accusing people who don't want a massive state of being “socially violent” [1].

It’s an interesting piece, because it highlights what a nasty, arrogant and pessimistic creed state socialism is, particularly the version promoted by Richard Murphy. There is an unspoken belief that people are inherently evil and without the state controlling our behaviour, we’d have no consideration for each other. The unlegislated convention of queuing must be incomprehensible to the big state mentality and the existence of an institution such as the RNLI, entirely voluntarily funded, must be absolutely inconceivable.

Another aspect of state socialism, which seems to be particularly prevalent in the British approach, is the paternalism which assumes that, if the state is redistributing wealth, it must spend it too, rather than giving the recipient a choice. Contrast the approach with the education system in Sweden, a country often held up as a model social democracy. Education is state funded, but the system allows parents, if they wish, to obtain a voucher equal to the amount spent on a state school place and use it to pay for a place at a privately operated school. The desire to ensure a certain level of provision isn’t used as an excuse to centralise decision making in the same way it is in the UK; the public are treated, at least in this area, as intelligent individuals who are capable of making their own decisions.

The state socialist approach is built on a foundation of elitism. It assumes that, as an ordinary person, you are so selfish and callous that the only circumstance in which you will help your fellow human being is if you are forced to by those more caring than you. It also assumes that you are too stupid to make your own lifestyle choices and need the state to buy a whole range of goods and services on your behalf to protect you from the effects of the stupid purchases you would make if left to your own devices.

The implicit assumption is that the state socialists who will be doing the forcing and choosing don't suffer from the same flaws as us mere mortals. They have declared themselves morally and intellectually superior and therefore fit to rule over the rest of us with a rod of iron. Quite frankly, anybody with that level of arrogance is the kind of person I least want in a position of power.

1. http://www.taxresearch.org.uk/Blog/2009/07/13/naming-libertarians-for-what-they-are/

04 July 2009

The National Express Issue

As far as I can see, the problems surrounding National Express’s operation of the East Coast rail franchise stem from two basic issues:

1. The bidding process will necessarily result in the most optimistic bidder obtaining the franchise, so there is always a possibility that the franchisee will have overstretched itself in making the bid and may be unable to fulfil the contract. That in itself isn't a major problem; the potential for failure is part of what makes markets more responsive than state monopoly control, but it does mean that, if the government wants a continual service in all circumstances, it needs to consider the possibility of failure at the outset and allow for it.

2. Perhaps more importantly, the contracts are static whereas the economy is dynamic. If the contracts don't allow for the possibility of a recession occurring during the term of the contract, there is always the possibility that a bid which seemed reasonable at the outset will turn out to be non-viable in a downturn.

One possible way around point 2 and possibly point 1 as well, would be to apply the same methodology I’ve outlined in the past as a potential system for self-assessed land value tax. In simple terms, the potential franchisees would bid at the outset for the right to run the service, knowing that while they hold the franchise, they will be required to pay an annual fee equal to a percentage of their own estimate of the resale value of the franchise (say 15%), knowing that, if another operator agreed to meet that valuation, the franchisee would be obliged to sell to them.
That way, in a downturn, the operator would be able to reduce the valuation, rather than going through the upheaval of giving up the franchise only for it to be re-auctioned at a value likely to be far lower than the original.

Obviously, there would be a lot of detail to work out, but I think the idea has potential.

02 July 2009

The Economics of Illegal Activity

I find that the general understanding of economics is disappointingly low, but when it comes to the economic impact of illegal activity, it seems to be almost non-existent. Take the following claim from the trial of a man who was prosecuted for selling set-top boxes which allowed people to access scrambled cable TV without paying [1]:

Ari Alibhai, prosecuting told Liverpool Crown Court that the fraud deprived the industry of millions of pounds and caused customers to pay higher monthly charges.

That kind of claim is likely to go unchallenged and gradually become received wisdom, but I think the higher monthly charge claim can quite easily be shown to be the opposite of the reality of the situation.

The claim relies on an unspoken assumption that when a business operates, it sets out to make a fixed amount of profit and if it doesn't make it from one customer, it will make it from another. That is, of course, complete nonsense; almost every profit making business will seek to maximise its return, not just hit a target and go no further. The reality, as anybody with the most basic knowledge of economics will tell you, is that prices are set by supply and demand.

A cable TV supplier will generally set the price at a level which, in the long run, will maximise profit, which will be determined, in simple terms, by the number of customers multiplied by profit per customer.

So, how does the availability of illegal set-top boxes impact on the price? It suppresses demand, by providing cheaper competition. The box will be cheaper, but it will also bring with it the risk of prosecution, so, each customer who is prepared to use one of the boxes is faced with a simple decision - is the saving worth the risk of being prosecuted? As the difference between the price of a legal box and the price of an illegal box becomes greater, more people will say yes and opt for the illegal choice. What the illegal box does is introduce a reduction in demand for the legal product, which should, in theory, result in a reduction in the price charged.

To some that may sound counter-intuitive or even nonsensical, but there are examples of the effect in practice; for years the music industry claimed that copying music pushed up prices, but when file-sharing emerged as a technology which allowed people to easily share perfect copies, the cost of CDs fell.

Of course, none of that impacts on the guilt or innocence of the accused in a court case, but in the interests of economic accuracy, it would have been nice to hear the defence responding to the prosecution by saying "This kind of fraud deprives the industry of millions of pounds, but it keeps prices down for everyone else!"