Tuesday, 22 July 2014

Worker (and other) cooperatives

As I have posted before on when worker cooperative may be a viable governance structure, and when they won't be, I thought I would take a look at just how large a force they are in the economy. Data is a bit hard to get but I did come across this from the US Federation of Worker Cooperatives
Though we lack comprehensive data on the nature and scope of worker cooperatives in the U.S., researchers and practitioners conservatively estimate that there are over 350 democratic workplaces in the United States, employing over 5,000 people and generating over $500 million in annual revenues.
Given the size of the US economy, 5000 people is not many.

However if you look at all cooperatives things look a bit different. The International Co-operative Alliance states that there are
30,000 co-operatives [which] provide more than 2 million jobs
Of course cooperatives being big employers is nothing new for New Zealand given the size of Fonterra (17,300 employees as at 2012). But to put this into perspective Wal-Mart alone employs around 2.2 million people world-wide.

EconTalk this week

Chris Blattman of Columbia University talks to EconTalk host Russ Roberts about a radical approach to fighting poverty in desperately poor countries: giving cash to aid recipients and allowing them to spend it as they please. Blattman shares his research and cautious optimism about giving cash and discusses how infusions of cash affect growth, educational outcomes, and political behavior (including violence). The conversation concludes with a discussion of the limits of aid and the some of the moral issues facing aid activists and researchers.

A direct link to the audio is available here.

Monday, 21 July 2014

Why not worker control?

This question is asked by everyones third favourite Marxist Chris Dillow at his Stumbling and Mumbling blog. Chris writes,
"Workplace autonomy plays an important causal role in determining well-being" conclude Alex Coad and Martin Binder in a new paper. This is consistent with research by Alois Stutzer which shows that procedural utility matters; people care not just about outcomes but about having in having control, which is why the self-employed tend to be happier than employees.

This implies that a government that is concerned to increase happiness - as David Cameron claims to be - should have as one of its aims a rise in worker control of the workplace.
The first question you may ask is, If workers control is so great why does it need government help? If it really can out perform other governance structures it should be able to dominate these other structures without any government help. In fact doing so would prove that it is a better form of governance. A second question to ask is Why, if worker cooperative are so great, are there so many conversions to investor ownership?

But let me give an answer to Chris based on my paper Simple Models of a Human-Capital-Based Firm: a Reference Point Approach which is forthcoming in the Journal of the Knowledge Economy. The abstract of the paper reads,
One important feature of the knowledge economy is the increased importance placed on human capital, especially when dealing with the firm. We apply the reference point approach to contracts to the modelling of a human-capital-based firm. First, a model of firm scope is offered which argues that the organisation of a human-capital-based firm depends on the “types” of human capital involved. Having a firm based on a homogeneous group of human capital leads to a different organisational form than that of a firm which involves a heterogeneous group of human capital. Second, a simple model of a human-capital-based firm is discussed. Three organisational forms are considered: an investor-owned firm, a labour-owned firm and a market transaction involving the use of an independent contractor. Results are given that show when each of these forms is optimal. The effects of a firm’s size and scope on organisation are considered as is the question of why are there conversions from worker to investor ownership.
My basic argument is that worker control can work when the labour force is homogeneous but is less likely to work when the labour force is more heterogeneous. Let me illustrate the idea with an example from the conclusion of the paper. One place you may expect to see labour ownership is in situations where the skills of the work force is the major, if not the only, source of value added. An example of this is pirates. I write,
The labour-owned firm is more likely to be formed when the human capital is relatively homogeneous in its characteristics and faces a common set of incentives. The pirate example at the beginning of the paper is an (unusual) example of this
In the introduction to the paper I say,
To illustrate how having a firm based on knowledge workers—human capital—rather than physical capital can change the structure of the firm, consider the example of pirates (a human-capital-based firm) versus privateers (a more physical-capital-based firm).

Lesson (2009) argued that given the economic environment and incentives faced by pirates a “worker cooperative” type organisational form was found to be viable for “pirate firms” (ships), but as he also notes one size does not fit all and thus worker-owned firms are unlikely to be an exploitable organisational form for all firms, in all situations. Leeson’s point about different economic contexts resulting in different organisational forms for firms can be illustrated by comparing the organisational form of the privateers with that of pirates and considering the role that non-human capital (or the lack of it) plays in determining that form.

An important difference between privateers and pirates is that although they both practised maritime plunder, privateers were state-sanctioned. That is governments would commission privateers to attack and seize enemy nations’ merchant shipping during times of war.The most obvious piece of non-human(physical in this case)capital for both pirates and privateers was their ship. The role of investors in providing this capital was important to the organisational form that the pirates and privateers developed. Pirates had no investors; they simply stole the capital they needed. Privateers, on the other hand, as legal enterprises could not just go out and steal the capital they required; they needed external financiers to supply their capital requirements. This difference in capital supply resulted in very different organisational forms, the privateers having a more autocratic management system than pirates. Pirate crews were equal contributors and part owners of the firm they worked for. Having no need for investors, pirates did not need to develop mechanisms to protect the interests of the firm’s financiers as the privateers needed to do. This meant that incentive problems could be dealt with by developing a worker-owned firm with the crew (usually) sharing equally in “profit” and electing their leaders and having power dispersed among multiple members of the crew such as the captain and the quartermaster. In contrast, the privateer had investors and a management system designed to protect their investments. The investors appointed privateer captains and developed an organisational scheme that in some important respects mirrored the managerial organisation of (also investor backed) merchant ships.
Chris's point seems to be that we would be happier and more productive if we were pirates.

Well may be not I argue. In the conclusion I go on to say,
Another (more usual) example of a human-capital based “firm”, but one where labour-owned firms are seldom, if ever, found, is that of the professional sports team. The models developed above can explain this. Here we have a situation where human capital,talent at playing a particular sport, is the basis for the “firm” but ownership by the human capital, the players, is extremely rare since a worker-owned team would be at a disadvantage relative to a player-as-employee-based team.

Heterogeneity in playing talent—playing talent being the human capital here—and thus in earning potential is a disincentive to the formation of a worker cooperative, an organisation which normally involves (rough) equality in payment, 25 since those players with the greatest earning potential, the largest outside options, will transfer away from the cooperative to maximise their income stream. Thus,a worker-owned team would have few, if any, star players, a handicap in the winner-takes-all world of professional sports.

Another issue for a cooperative sports team is that while the star players may leave the team too soon, the “average players” may stay too long. The average players will have smaller outside options and thus less incentive to leave but as they are also owners of the team it would be more difficult to get rid of those who are not performing. It would be easier for an employee-based team to remove under performing players as they are not owners of the firm.

Also, to the degree that exit barriers are entry barriers, a worker-owned organisation is at a disadvantage. Such an organisation could hinder rapid transfers between clubs. Problems with transfers could arise, for example, if the conditions under which a player can exit the team have to be negotiated with the remaining player-owners at the time of exit. Or the remaining owners may be unable or unwilling to buy out the exiting player—under a “right of first refusal” or “right of first offer” scheme—or any of them could veto an incoming replacement player-owner. Also, there is the question of the value of a player’s interest in the team as well as the question of the time period over which an agreed upon value would be paid. These costs make exit more difficult than it would be under an employment contract and thus tend to lock-in the player-owner to the team. Such lock-in is a disincentive to forming, or joining, a labour-owned firm, especially for the best players. Many of these problems can, to a degree, be contracted around but this imposes additional negotiation costs at the time of entry into the team, which again is a disincentive to forming a worker-owned team. Utilising a worker-owned organisation would result in additional haggling costs, either ex ante or ex post, relative to a player-as-employee team.

Put simply, an employee can leave an organisation more quickly and easily than an owner and in the case of professional sports, transfers between teams, or at least a credible threat to transfer, are particularly valuable to the best players. Therefore, a player-owned team would be at a competitive disadvantage compared to teams comprised of employee players.

In the model in the section “a simple model of a human-capital based firm”, an independent contractor contract implies giving control over production decisions (choice of the widget in the model) to the consultant which in the sports team example would mean giving control to the players. This would create at least some of the same problems as player ownership. If the consultant’s (player’s) contract restricted the amount of control that players have, then it’s not clear what the effective difference between the independent contractor contract and an employee contract would be.
An alternative interpretation of the results in the paper is to say that they show that organisational form depends, in part, on the relative mix of the inputs used in production. For a largely human-capital-based firm, some form of labour-ownership may be feasible while for a firm with a greater (relative) use of non-human capital, a capital owned organisation is more likely. If you increase the relative importance of the non-human capital compared to the human capital, i.e. increase the amount of non-human capital the knowledge worker needs to be productive, you increase the ability of the non-human capital owner to "shade" and thus his ability to impose welfare losses. What we see is that when the firm is homogeneous in its inputs, in the sense that they consist largely of the efforts of the knowledge worker some form of worker-owned organisation is feasible. But as the relative importance of the non-human capital increases the firms begins to look more “traditional” in its input mix and thus begins to look more traditional in its organisational form in that a capital-owned firm becomes increasingly likely. If you are a computer scientist using a PC to design small business accounting software, then your firm being a partnership is feasible whereas if you are writing software for a super-computer you are more likely to be an employee of whoever owns/rents the computer.

So the argument which is based around the "reference point" approach to the theory of the firm suggests that when a firm's human capital is homogeneous, and thus there is little reason for "shading", worker ownership may work but when the human capital becomes heterogeneous or non-human capital starts to play a big role in the production of the firm, investor ownership becomes more likely.

I would suggest that the general thrust of my argument is similar to that of Henry Hansmann's discussion of worker cooperatives and why we see so few of them. Hansmann, for example writes,
[t]he most striking evidence of the high costs of collective decision making [for employee-owned firms] is the scarcity of employee-owned firms in which there are substantial differences among employees who participate in ownership. Most typically, employee-owned firms all do extremely similar work and are of essentially equivalent status within the firm. Rarely do they have substantially different types or levels of skills, and rarely is there much hierarchical authority among them.
and
[t]he preceding evidence implies that employee ownership works best where the employee-owners are so homogeneous that any decision made by the firm will affect them roughly equally, or where, though the employees differ in ways that cause the burdens and benefits of some decisions to be shared unequally, there is an objective and widely accepted basis for making those decisions. That is, employee ownership is most viable where either no important conflicts of interest exist among the employee-owners, or some simple and uncontroversial means is available to resolve the conflicts that are present

Sunday, 20 July 2014

Arnold Kling on macroeconomics

From Kling's blog askblog,
I remain concerned that macroeconomists have very elastic theories and empirical methods that can be used to confirm almost any story.

Saturday, 19 July 2014

Interpreting the "representative firm"

Marshall's notion of the representative firm is an idea I have never really understood. But, to be fair to me, I'm not sure anyone else understands it either. Take, for example, Michel Quere (Quere 2006) who has written
The representative firm is a key analyical device in Marshall's Principles of economics.
and compare this with Lionel Robbins's view that the representative firms was,
Conceived as an afterthought ... it lurks in the obscurer corners of Book V [of Marshall's Principles] like some pale visitant from the world of the unborn waiting in vain for the comforts of complete tangibility.
Its difficult to see how the notion can be both a key device and a pale visitant from the world of the unborn.

In fact it was Robbins along with Piero Sraffa who are largely to blame, or who deserve most of the credit, for the controversy that lead to the replacement of the representative firm with Pigou's equilibrium firm.

One of the problems with the representative firms is that it has at  least two interpretations. Quere writes,
On the one hand, long-run equilibrium and free competition have been mainly associated with static equilibrium and perfect competition. In line with this interpretation, Sraffa [...] demonstrated the inconsistency of the representative firm as an equilibrium firm, due to the role played by internal and external economics. However, as became clear afterwards, the originator of the representative firm as an equilibrium firm was Pigou [...] and not Marshall [...]. To put it more precisely, increasing returns (resulting in economics of production on a large scale) are incompatible with the requirements for the supply curve. Their effects are either too wide or too restricted. For example, internal economics can be seen as excessive because they rapidly become incompatible with competitive conditions. On the other hand, external economies are inconsistent with the conditions of the particular equilibrium of one commodity. In order to be compatible with the laws of returns, the representative firm requires a very particular context, namely one in which external economics are 'those economics which are external from the point of view of the individual firm, but internal as regards he industry in its aggregate' [...]. But that context is likely to be rather useless as 'it is just in the middle that nothing, or almost nothing, is to be found'[...]. Therefore, the likelihood of supply curves showing decreasing costs can only be very low. Moreover, Robbins [...] complemented Sraffa's attack by showing that the concept of a representative firm was inappropriate to a proper distribution theory, and very misleading. Thus, when Keynes arranged for the 1930 symposium, this interpretation of the theory of the representative firm was brought to an end, despite Robertson [...] - and, to a lesser extent. Shove's [...] attempt at a defence. In the end the symposium fully legitimated the importance of a framework of monopolistic competition.
So by around 1930 Marshall's representative firm was no longer represented in economic theory.

But in the 1950s there was a renewal of interest in the idea. But with this new interest came a new interpretation of the notion. Here the representative firm is seen as a device to blend theory and facts in a proper fashion. Quere again,
First, the representative firm is a central device for bridging the contents of Book IV and Book V of the Principles. It also has a pivotal role in reconciling static equilibrium and evolution [...]. Second, thanks to the representative firm, an industry supply price can be downward-sloping but compatible with equilibrium, as the supply curve is not expressing the marginal costs of production for various firms in the industry, but 'the prices at which particular quantities demanded will be supplied in equilibrium' [...]. In other words, 'marginal' cost in Marshall's wording is something to be applied to aggregate values; that is, to the shape of the supply curve for the whole industry. It is a means of expressing the fact that cost lies on the marginal short-period cost curve but is conditional to any movement along the long period unit cost curve. As pointed out by Frisch [...], Marshall focused his attention much more on the nature of marginal production than on that of marginal cost. Therefore, a marginal cost curve for the individual firm is not meaningful. With the representative firm theory, Marshall was providing the best approximation he could find to solve the difficulty of making long run evolution compatible with equilibrium analysis.

Third, beyond the issue of costs, the representative firm theory also expresses the need to deal with the structure of industries. This is where I think Marshall's economics is still very relevant. With respect to this, it is especially essential to highlight two central issues: one is the heterogeneity in the organization of industries, the other is the importance of market imperfections with regard to the dynamics of industries.

The representative firm theory legitimates the importance of the concept of industry, which can he defined as a set of producers, a group of various firms significantly affected by any decision of one of them [...]. Wolfe insists on the usefulness of that Marshallian definition, which frames 'a theory [of the structure of industries] much more complete than any competitor' [...]. Moreover, the representative firm theory is a means of reflecting about the variety of firms' behaviour and performance (weak, average, strong) within an industry. Due to internal economics, firms in the same industry do not command the same technological and organizational resources. The representative firm theory is therefore an attempt to take into better account not only the structural variety among producers hut also their various reactions to changes and shocks in their environment. Both differ substantially from industry to industry: the representative firm theory is a means of expressing how industrial contexts are differently organized, sensitive, and reactive to shocks. By doing so. Marshall provides the best possible way of applying his constructive work philosophy lo the problem of the organizational diversity of industries.

The second issue is the importance to be given to 'market imperfections', to use the modern phrase. Free competition requires that internal economics do not lead to a permanent monopoly. This is only possible because of the twofold importance of innovation and market imperfections. Innovation brings about the weakening of temporary monopolies, but this point is not really considered in Marshall's analysis, which is mainly concerned with 'limited dynamic change' [...]. But a free competitive context also requires the existence of market imperfections; that is, of all kinds of frictions in the working of markets. Without the latter, an individual firm experiencing increasing returns would come to monopolize the whole market and increasing returns would then be incompatible with competitive equilibrium. Connections between producers (taking care of a whole 'supply chain oligopoly') are very influential in determining the price that will prevail at equilibrium. Now, if market imperfections are essential for understanding Marshall's dynamics, their critical importance cannot be really acknowledged within the frame of the Principles, at least with regard to the representative firm theory. Finally, despite the richness of the latter, one has to remember the prominence of Marshall's machinations at Cambridge to establish economics as a profession, and the role played by the Principles in establishing marginalism as the dominant paradigm.
While there was this renewal of interest in the representative firm it largely came to nothing. The mainstream theory of the firm remained the equilibrium firm up until the 1970s (and in textbooks even to today) when the Coaseian approach to the firm began to be developed by people like Oliver Williamson.

So what is the representative firm? Damned if I know. But even if I did I'm not sure it would matter for understanding the modern theory of the firm.

Ref.:
  • Quere, Michel (2006). 'The representative firm'. In Tiziano Raffaelli, Giacomo Becattini and Marco Dardi (eds.), The Elgar Companion to Alfred Marshall (pp. 412-7), Cheltenham, U.K.: Edward Elgar.

Friday, 18 July 2014

Do patents stifle cumulative innovation?

This important question is ask by Joshua Gans at the Digitopoly blog. The question is whatever other benefits and faults there might be with the patent system, a fault that really matters for the operation of the system and for growth prospects is how patents might stifle cumulative or follow-on innovation. Gans writes,
The standard, informal theory of harm here is that follow-on innovators, feeling that they can’t easily deal with the patent holder on the pioneer innovation, decide that the risks are too high to invest and so opt not to do so. To be sure, this ‘hold-up’ concern is not good for anyone, including possibly the patent rights holder who loses the opportunity to earn licensing fees from applications of their knowledge. Suffice it to say, this has been a big feature of the movement against the current strength and, indeed, existence of the patent system.
Now I'm not sure this really is a hold-up problem in the Goldberg sense, it looks more like a barrier (or a delay) to entry problem. Either way if innovation is affected then the cost could be high. A problem, however, with dealing with this issue was that the evidence on the impact of patents on cumulative innovation was weak. Gans continues,
At the NBER Summer Institute a new paper by Bhaven Sampat and Heidi Williams [...] actually found a way to examine the impact of patents on follow-on innovations themselves. Their setting was to look at precisely the area of the Myriad case. They utilised the human genome and the fact that genes that were sequenced could be patented. What’s great about this setting is that the gene itself has a unique identifier that the researchers can use to identify whether it is subject to a patent claim (and indeed a patent application that may be accepted or rejected by the USPTO) and then also identify whether that gene was the subject of publications and clinical trials. This is as good as it gets for the measurement of innovation.

But how do you find a way of comparing what happens if there is a patent on a gene sequence versus if there is no patent? After all, there may be no patent because no one things that gene is important which may also be the reason why there is no follow-on research. That means you have to find some relatively independent reason why a patent may exist or not. Sampat and Williams exploit imperfections at the USPTO that can be themselves identified to obtain that reason.

They use several methods that all give the same answer but let me explain the best one. Patents are examined by examiners that are essentially randomly assigned.
Examiners are also identified and thus it is possible to look at their history and work out if they are tough or lenient. Gans again,
The researchers worked out that this characterisation was unrelated to other things and so could use it to identify patents that might have otherwise been accepted but were given to a tough examiner and the reverse. That is not perfect but is a fairly convincing way to measure and incorporate randomness to assess causality.

Prior to this paper, had you asked the 200 economists in the room at the NBER what they thought the outcome would have been, it is fair to say, all of them (including myself) would have predicted that patents would have a negative impact of at least 10 percent. This probably included the authors. As it turned out, the paper showed that those magnitudes in reduction could be rejected statistically. But more to the point, the paper presents pretty convincing evidence that you cannot reject zero as the likely prediction. That is, the effect patents on follow-on research appears to be non-existent.
So the impact of patents on cumulative innovation may be zero. But is this surprising? If the patent holder and the follow-on innovators both gain from allowing innovation, a Coaseian bargain should be able to be agreed to which allows innovation and makes both parties better off.

Brazil and tourism during the 2014 World Cup

Victor Matheson at the Sports Economist blog writes,
According to a statement by Aloisio Mercadante, Brazilian president Dilma Rousseff’s chief of staff, “We lost the trophy, but Brazil won the World Cup. He said that according to figures released this week by Brazil’s federal government, the World Cup was a triumph for the country’s transportation and tourism industries.

As reported by CNN, “according to government figures, 1 million foreign tourists visited Brazil during the month-long event, far exceeding its pre-Cup projection of 600,000 visitors coming to the country from abroad. About 3 million Brazilians traveled around the country during the event, just short of the expected 3.1 million.”
The devil here is in the details and whether when we get to see the details the numbers quoted hold up. One would be surprised if they did since as Matheson goes on to say,
If this is true, this would be unprecedented increase in tourism due to a mega-event. Brazil only welcomed 342,000 foreign visitors in total in June of 2012, so an increase up to 1,000,000 would be huge if the data holds up. By comparison, South Africa experienced about a 200,000 increase in international visitors during the 2010 World Cup, Germany experienced an increase of 700,000 overnight stays in 2006, and no effects on tourism could be identified for France in 2008. For the Summer Olympics in Beijing and London, overall travel to Beijing and the UK actually fell during the month of the games compared to the previous year.
Matheson also notes that while Brazilian government has been quick to announce their news, they have been much less forthcoming with the actual source data. I wonder why. Matheson then points out that the annual tourism data for Brazil is only available in a form that allows decent comparisons to past periods up to 2012 and so far the World Cup data is only available in limited press releases. Time will tell if the government's enthusiasm will last. But I'm not betting on it.

Thursday, 17 July 2014

Forum on McCloskey

The Liberty Fund via its Online Library of Liberty site hosts a "Liberty Matters" forum which currently consists of a discussion of Deirdre McCloskey's two recent books Bourgeois Virtues (2006) and Bourgeois Dignity (2010). There is a Lead Essay by Don Boudreaux, "Deirdre McCloskey and Economists’ Ideas about Ideas", and comments by Joel Mokyr and John Nye, and replies to her critics by McCloskey.
The key issue is to try to explain why “the Great Enrichment” of the past 150 years occurred in northern and western Europe rather than elsewhere, and why sometime in the middle of the 18th century. Other theories have attributed it to the presence of natural resources, the existence of private property and the rule of law, and the right legal and political institutions. McCloskey’s thesis is that a fundamental change in ideas took place which raised the “dignity” of economic activity in the eyes of people to the point where they felt no inhibition in pursuing these activities which improved the situation of both themselves and the customers who bought their products and services.
The conversation following on from the lead article and comments is available here. All interesting stuff, well worth the time to read.

Audio of a discussion about the economic necessity of sweatshops

Dr. Ben Powell, author of Out of Poverty: Sweatshops in the Global Economy, appeared on BBC World Service as part of a debate on the economic necessity of sweatshops in developing countries.

You can listen to an audio of the full debate here.

Wednesday, 16 July 2014

Interesting blog bits

  1. Konstantins Benkovskis and Julia Woerz, on Lower import prices = 100% welfare gains? Not necessarily: don′t forget the impact of consumer taste and product quality
    Import price statistics may not be a reliable indicator of welfare gains. They must adequately reflect the fact that consumers value variety, and that consumer tastes and product quality change over time. This column evaluates existing findings, and introduces new results for the four largest EU economies – including evidence of higher consumer welfare gains than suggested by official import prices for the period from 1995 to 2012.
  2. Susan Ariel Aaronson on Why the US and EU are failing to set information free
    The internet promotes educational, technological, and scientific progress, but governments sometimes choose to control the flow of information for national security reasons, or to protect privacy or intellectual property. This column highlights the use of trade rules to regulate the flow of information, and describes how the EU, the US, and their negotiating partners have been unable to find common ground on these issues. Trade agreements have yet to set information free, and may in fact be making it less free.
  3. Nico Voigtländer and Mara Squicciarini on Knowledge elites, enlightenment, and industrialisation
    Although studies of contemporary economies find robust associations between human capital and growth, past research has found no link between worker skills and the onset of industrialisation. This column resolves the puzzle by focusing on the upper tail of the skill distribution, which is strongly associated with industrial development in 18th-century France.
  4. Don Boudreaux on Cool!
    2014 is the centenary of an unusually large number of regrettable events. But some good things also happened that year – for example, 1914 saw the first installation in a private residence of air-conditioning.
  5. Art Carden on Should Your City Run More Buses or Build Light Rail? Cato's O'Toole Says More Buses
    If your city doesn’t have a light rail system, someone in town probably wants to build one. If your city already has a light rail system, someone in town probably wants to expand it. According to a June 3 Policy Analysis by the Cato Institute’s Randal O’Toole, this would be an expensive mistake.
  6. Peter Boettke on The Good, the Bad, and the Ugly ... of crony capitalism?!
    Paul Rubin is an economic thinker I respect tremendously, but I am not sure I agree with him here. I do agree with live in the 2nd best (at best) world and thus it is a mistake to use 1st best theoretical ideas to guide practical affairs of public policy. I prefer instead to think of institutional robustness, rather than ideal welfare economics.
  7. John Taylor on New Legislation Requires Fed to Adopt Policy Rule
    A lot of research and experience shows that more predictable rules-based monetary policy leads to better economic performance—both in terms of price stability and steadier-stronger employment and output growth. But in practice there have been big swings in Fed policy between rules and discretion, with damaging results as in the 1970s and the past decade of a financial crisis, great recession and slow recovery. This experience—especially the swing from rules to discretion in the past decade—demonstrates the need for legislation requiring the Fed to adopt rules for setting its policy instruments.
  8. Bryan Caplan on Ownership for Cartoonishly Nice People
    The noble and prolific Jason Brennan has just released Why Not Capitalism?, a short book replying to Gerald Cohen's Why Not Socialism? Outstanding work, as usual. For me, the highlight is Brennan's explanation for why even cartoonishly nice people would want to own private property. It's easy to see why cartoonishly nice people - classic Disney characters like Mickey and Minnie Mouse - would want other people to own private property. But why would the nicest people imaginable want to claim ownership on their own behalf?
  9. Art Carden on Intolerant Socialism
    As Jason Brennan writes, capitalism is preferable to socialism because voluntary socialist experiments like utopian communes and socialist camping trips are possible in a world with private ownership of the means of production. Capitalism tolerates socialism. Socialism does not tolerate capitalism.