Quotulatiousness

April 24, 2020

Prizes, patents, and the Society of the Encouragement of Arts, Manufactures and Commerce

Filed under: Britain, Business, Economics, History, Technology — Tags: , , , , , — Nicholas @ 03:00

In the most recent Age of Invention newsletter, Anton Howes explains why the Society of the Encouragement of Arts, Manufactures and Commerce (now the Royal Society of Arts) wasn’t a fan of the British patent system and preferred to award prizes in areas that were unlikely to generate monopoly situations:

The back of the Royal Society of Arts building in London, 25 August 2005.
Photo by C.G.P. Grey (www.CGPGrey.com) via Wikimedia Commons.

… the Society’s early members had an aversion to monopolies, and patents are, after all, temporary monopolies. But there was actually a more practical reason to not give rewards to patented inventions. In fact, quite a few active members of the Society were themselves patentees, and patents for inventions were not generally lumped together for condemnation with practices like forestalling and engrossing. The practical reason for banning patents was that there was no point giving a prize for something that people were already doing anyway. Patents were expensive in the eighteenth century — depending on how you account for inflation, it could cost about £300,000 in modern terms to obtain one — so the fact that there was a patent for a process was a clear indication that it might be profitable. The Society, by contrast, was supposed to encourage things that would not otherwise have been done.

Thus, when a patent had already been granted for a process the Society had been considering giving a premium for, it purposefully backed down — not because the prize would infringe on the patent, but because its encouragement was no longer necessary. And so the effect of the ban on patented inventions was that the Society received, even unsolicited, exactly the kinds of inventions that there was less monetary incentive to invent. Occasionally, this meant trivial improvements — minor tweaks, here and there, to existing processes. An engineer might patent one invention, but not see it worth their time patenting another — through the Society’s prizes, they might at least get a bit of cash for it, or some recognition. The improvement would also be promoted through the Society’s publications. Or, the Society received inventions that were far from trivial, like the scandiscope for cleaning chimneys [here], but which were not all that profitable: inventions that saved lives, or had other beneficial effects on the health and wellbeing of workers and consumers. And finally, the Society received innovations that could not be patented, such as agricultural practices and the opening of new import trades. In the early nineteenth century the Society awarded its prizes to a whole host of naval officers, including an admiral, who came up with flag-based signalling systems between ships — early forms of semaphore.

Another effect of the ban on patents was that the Society also attracted submissions from different demographics. Many of its submissions came from people who were too poor to afford patents, as well as from those who were too rich — wealthy aristocrats for whom commercial considerations might seem vulgar. The poor would generally go for the cash prizes, and the aristocrats for the honorary medals. And the prizes were used by people who might otherwise be socially excluded from invention. In 1758, for example, the Society instructed its members in the American colonies to accept submissions from Native Americans. It also allowed women to claim premiums (just as it allowed them to be members). My favourite example is Ann Williams, postmistress at Gravesend, in Kent, who won twenty guineas from the Society in 1778 for her observations on the feeding and rearing of silk-worms. She kept them in one of the post-office pigeon-holes, referring to them affectionately as “my little family” of “innocent reptiles”. Unlike other elements of society, the Society of Arts accepted, as she put it to them, that “curiosity is inherent to all the daughters of Eve.”

The Society thus encouraged the kinds of inventions that might not otherwise have been created, and catered to the kinds of inventors who might not otherwise have been recognised. Rather than competing with the patent system, it complemented it, filling in the gaps that it left. The Society operated at the margins, and only at the margins, to the better completion of the whole. It found its niche, to the benefit of innovation overall.

April 13, 2020

James J. Hill, US railroading’s premier “market entrepreneur”

Filed under: Business, Government, History, Railways, USA — Tags: , , , — Nicholas @ 03:00

Dane Stuhlsatz outlines the story of US federal government subsidies and other interventions into the 19th century railroad industry and the one tycoon who avoided the lure:

Postcard photo of the Great Northern Railway’s “Empire Builder” streamliner between Everett and Seattle, Washington, circa 1963.
Great Northern Railway postcard via Wikimedia Commons.

Burton W. Folsom, Jr. outlined this story in his book, The Myth of the Robber Barons, identifying two models of entrepreneurship; the “political entrepreneurism” of lines like the Union Pacific and Central Pacific versus the “market entrepreneurism” of James J. Hill and his Great Northern Railway.

Canadian-born James J. Hill (1838-1916) in 1914.
Photo from Famous Living Americans, edited by Mary Griffin Webb and Edna Lenore Webb via Wikimedia Commons.

As Folsom details, the former chased government largesse, ultimately in exchange for loss of control of their business, while the latter chased profits through prudent business decisions. Hill’s success juxtaposed with UP’s and CP’s failure is due in no small part to his steadfast refusal to accept any federal subsidies. In short, UP’s and CP’s government subsidized incentives were vastly different from Hill’s profit driven incentives, which lead to vastly different outcomes.

Federal subsidies incentivized speed, not efficiency. The subsidies were paid in the form of both land grants and direct payments. For each mile of track laid, the UP and CP would receive 20 acres of land and either $16,000 (for track on flat land), $32,000 (for track on hilly terrain), or $48,000 (on mountainous terrain). This incentive for speed resulted in winding, inefficient, routes built with inferior materials, ultimately culminating in a federal price tag of 44,000,000 acres and $61,000,000 (astronomical sums in the 1860s-70s). Despite all this federal assistance, shortly after the golden spike was driven on May 10, 1869 at Promontory Summit, Utah, the UP and CP were nearly bankrupt and required further assistance to stay afloat.

The lines which were born and brought up on federal aid needed federal aid to continue. This led to the passage of the Thurman Law in 1874 which forced UP to pay 25% of its earnings a year to pay its federal debt.

UP’s profitability decisions were also subject to government approval. Branch lines — smaller lines off the main line into rural communities — which could have helped UP’s bottom line, were often not approved by federal bureaucrats. Additionally, the federal Bureau of Railroad Accounts required constant checking of UP’s books. All these measures stifled the ingenuity that UP so desperately needed to make its line profitable. UP quickly found out that the power to subsidize was the power to destroy.

Hill’s line on the other hand was methodically surveyed and built, on the shortest routes possible, with the least gradient possible, and using the best steel and other materials on the market at the time. Rather than political largess, Hill made his decisions based on profit and loss. But, for all the efficiency that Hill built into his line — he was able to transport across the country faster, cheaper, and with less maintenance costs than could the UP and CP — arguably the most important aspect for the viability of his business was the freedom to conduct business untethered by the strings that accompanied government subsidies.

While Hill was free to build when and where he wanted so long as he reached voluntary agreements with landowners, consumers, and employees, UP was tied up in red tape. As Hill’s line grew evermore profitable and reliable for customers, the UP and CP struggled along on federal aid, until they ultimately went bankrupt in 1893.

For his part, Hill’s line was the only transcontinental railroad to never go bankrupt.

Route map from the Great Northern Railway, circa 1920. Red lines are the GN route; dotted lines are other railroads. Created from the Map Maker at nationalatlas.gov and routes drawn in, using a 1920 map as a reference.
Map by Elkman via Wikimedia Commons.

March 16, 2020

QotD: Company incentives to prevent sexual harassment

Filed under: Bureaucracy, Business, Politics, Quotations, USA — Tags: , , , , , — Nicholas @ 01:00

One of the predictions I’m seeing everywhere, for instance, is how now Human Resources will need a lot more power over companies to prevent more #metoo incidents of sexual importuning of women.

The funny thing about this is that anyone with two eyes and a modicum of understanding of the world knows that this is not where the crazy is headed. As the attempt to drown out the legitimate cases of harassment — mostly by leftists, in leftist-dominated institutions — by claiming #metoo and that all men were essentially harassers becomes more frantic, it has become obvious that any man can be accused of harassment at any time by anyone.

So, here is a genuine prediction: I predict that instead of giving HR more power, this will give companies pause before hiring women, which will lead to a lot of decent and qualified women being left unemployed.

The second-order effect of that, for companies that can’t avoid hiring women, is two-fold: they’ll either hire women to “make-believe” positions, in which they interact only or primarily with other women, creating a drain on the bottom line, or they will allow a lot more work-at-home by both men and women. I predict we’ll see a great move towards that in the next year. Sure, it’s still possible to claim someone is harassing you via the phone, but one-party consent states at least will allow men to record everything in order to defend themselves.

Weirdly, I believe the long-term result of this will be the dismantling of the daycare and child-warehousing practice which has led to a lot of the left’s ascendency in education.

This is because no matter how much you wish to wishful think that companies will just give Human Resources more power, people who actually live and work in the world know this isn’t likely. Human Resources would mostly just make it impossible for anyone to get any work done.

Sarah Hoyt, “Nobody Expects These Predictions”, PJ Media, 2017-12-31.

March 15, 2020

Those damned unintended consequences

Filed under: Economics, Europe, Government, USA — Tags: , , , , , — Nicholas @ 05:00

Sarah Hoyt on the differences between intention and the real world:

Unintended consequences are the bane of social engineers. They are why the “Scientific” and centralized method of governance never worked and will never work. (Sorry, guys, it just won’t.)

Part of it is because humans are contrary. Part of is because humans are chaotic. And part of it is because like weather systems, societies are so complex it’s almost impossible to figure out what a push in any given place will cause to happen in another place.

This is why price controls are the craziest of idiocies. They don’t work in the way they’re intended, but oh, they work in practically all the ways they’re not. So, take price controls on rent. All they really do is create a market in which housing is scarce, landlords don’t maintain their property AND the only people who can afford to live in cities that have rent control are the very wealthy.

BUT Sarah, you say, aren’t rent controls supposed to make them affordable. Yeah. All that and the good intentions will allow you to go skating in hell on the fourth of July weekend.

Let’s be real, okay? I saw rent control up close and personal in Portugal. Rents were controlled and landlords were penalized for “not keeping the property up”.

In Portugal at the time, and here too, most of the time from what I’ve seen, the administration of property might be some management company, but that’s not who OWNS the damn thing. The owners are usually people who bought the property so it would support them in old age/lean times.

To begin with, you’re removing these people’s ability to make money off their legitimately owned property. And no, they’re not the plutocrats bernie bros imagine. These are often people just making it by.

Second, people are going to get the money some other way, because the alternative is dying. And people don’t want to die or be destitute. So they’re going to find the money. I have no idea what it is in NYC, etc, but in Portugal? it was “key buying.” Sure, you can rent the house for the controlled price, but you have to make a huge payment upfront to “buy the key.” From what I remember this was on the order of a small house down payment. And if you couldn’t do that, you were stuck getting married and living with your parents. And if you say “greedy landlords” — well, see the other thing you could do was leave the lease in your will. So the landlord didn’t know if they’d ever get control of their property back, and they needed to live off this for x years (estimated length of life.) So, that was an unintended consequence. The kind that keeps surfacing in rent-controlled cities in the US.

The same applies to attempts to “help” the homeless. Part of this, as part of all attempts to “fix” poverty is that the people doing it, usually the result of generations of middle class parents and strives assume the homeless and the poor are people like them.

To an extent, they’re correct. The homeless and the poor are PEOPLE. But culture makes a difference, and culture is often based on class and place of upbringing. And the majority of humanity, judging by the world, might be made to strive but are not natural strivers. Without incentive, most of humanity sits back, relaxes and takes what it’s given.

December 27, 2019

QotD: The perils of tax reform

Filed under: Economics, Government, Politics, Quotations, USA — Tags: , , , — Nicholas @ 01:00

Deductions are the Cheez Doodles of tax policy: Everyone likes them; everyone who studies the matter knows they are not good for us; and nonetheless, most people will get very indignant if you attempt to replace them with something more wholesome.

This is why deductions rarely go away, no matter how stupid and detrimental to the fiscal and economic health of the republic. For example, virtually every wonk in Washington, from radical libertarian to fervent socialist, can agree upon at least one thing: the tax deductibility of employer-sponsored health insurance is a terrible idea. On the one hand, it costs the government a packet of money every year, money that has to be raised by higher taxes on someone else. On the other hand, it encourages employers to load as much compensation as possible into the health benefit package, which distorts our economy and contributes to ballooning costs. There is nothing nice to be said about this particular tax deduction, except that it undoubtedly seemed like a good idea during World War II.

And yet, when it comes time to, say, pass a major health-care reform, or reform the tax code, do our nation’s legislators start with the obvious, and get rid of this egregiously stupid deduction? I regret that there is no way to convey my hollow, despairing laugh in pixel form. Of course they don’t touch it. The very egregiousness of its immense costs, the massive distortions it has induced in American consumption patterns, mean that getting rid of it would be far too disruptive.

Megan McArdle, “Republicans Turned the Tax Code Into a Weapon”, Bloomberg View, 2017-11-03.

December 25, 2019

Repost – The market failure of Christmas

Filed under: Economics, Government — Tags: , , , , — Nicholas @ 03:00

Not to encourage miserliness and general miserability at Christmastime, but here’s a realistic take on the deadweight loss of Christmas gift-giving:

Christmas gifts under the tree.
Photo by Kelvin Kay via Wikimedia Commons.

In strict economic terms, the most efficient gift is cold, hard cash, but exchanging equivalent sums of money lacks festive spirit and so people take their chance on the high street. This is where the market fails. Buyers have sub-optimal information about your wants and less incentive than you to maximise utility. They cannot always be sure that you do not already have the gift they have in mind, nor do they know if someone else is planning to give you the same thing. And since the joy is in the giving, they might be more interested in eliciting a fleeting sense of amusement when the present is opened than in providing lasting satisfaction. This is where Billy Bass comes in.

But note the reason for this inefficient spending. Resources are misallocated because one person has to decide what someone else wants without having the knowledge or incentive to spend as carefully as they would if buying for themselves. The market failure of Christmas is therefore an example of what happens when other people spend money on our behalf. The best person to buy things for you is you. Your friends and family might make a decent stab at it. Distant bureaucrats who have never met us — and who are spending other people’s money — perhaps can’t.

So when you open your presents next week and find yourself with another garish tie or an awful bottle of perfume, consider this: If your loved ones don’t know you well enough to make spending choices for you, what chance does the government have?

December 12, 2019

“Socialism” and “Capitalism” in the United States

Filed under: Economics, Government, Politics, USA — Tags: , , , , , , — Nicholas @ 05:00

Antony Davies and James R. Harrigan look at the supposed conflict between sharing, caring socialism and raw, heartless capitalism in the context of the American political theatre:

These terms were once very clearly defined. Socialism is state control of the means of production. The intent is that these means are to be used for the public good. By contrast, capitalism is simply private ownership of the means of production. The intent is that these means are to be used to advance the interests of those who own them, which will in turn create conditions of general prosperity that can be enjoyed by all.

When polled, Americans express relatively well-defined views on both. And while nowhere near a majority of the American electorate favors a completely socialist system, a recent Gallup poll indicates that more than four in ten Americans think “some form of socialism” is a good thing. But what is “some form of socialism?” A society is either socialist or it isn’t. The state either owns the means of production or it doesn’t. There is no middle ground. Even our openly socialist politicians rarely advocate anything near as drastic as government control of the means of production.

[…]

And just as transferism is not actually socialism, the system against which transferists rail isn’t capitalism, either. When they think of “capitalism,” transferists imagine a monied class that defrauds customers, pollutes the environment, and maintains monopoly power, all because the monied class is in bed with government. But capitalism is simply the private ownership of the means of production. What people are actually describing is something more appropriately called “cronyism,” which can manifest in a socialist system as easily as in a capitalist one. Cronyism isn’t a byproduct of the economic system at all; it is a byproduct of politics.

For current examples, one need look no further than North Korea, Cuba, and Venezuela. Socialists say these aren’t examples of “real socialism,” and they’re not. There was a time when these countries were indeed socialist, just as there was a time when the United States was capitalist. But cronyism has overtaken these countries’ economic systems, just as it did in humanity’s grandest socialist experiment: the Soviet Union. Life was simply different for inner-party members than it was for workers. This is the real danger that all countries face, regardless of the animating principles of their economic and political structures.

[…]

We need to answer the core question: how much transferism do we want?

In order to figure this out, we need to come to terms with the fact that any transfer is a confiscation of wealth from the people who created it. That confiscation will decrease wealth creation in the long term by decreasing an important incentive to take the risks necessary for creating wealth. Second, we have to recognize that transferism is addictive. No matter how much we transfer, people will always want more. The United States’ $23 trillion debt, the largest debt the world has ever seen, has come about because of American voters’ voracious appetite for transfers combined with politicians’ obvious incentive to provide them.

The solution politicians have found is to pass off the cost of the transfers to taxpayers who haven’t yet been born by borrowing the money, thereby leaving to the next generation the problem of repaying the debt or enduring unending interest payments. It’s a house of cards to be sure, but from their perspective, it will be someone else’s house of cards.

In the end, we have polluted our political discourse with two words that no longer have much meaning: socialism and capitalism. In the process, we don’t call the animating principle of modern American politics what it actually is: transferism. The only winners have been the politicians who manage to gather votes by keeping the electorate in a near-constant state of friction. And they keep winning if people keep thinking in categories that ceased to have any real meaning years ago.

November 19, 2019

The “Carbuncle Cup” is good, but we need mandatory demolition because name-and-shame hasn’t worked

Filed under: Architecture, Britain, History, Media — Tags: , , — Nicholas @ 03:00

I like the cut of Peter Franklin‘s jib:

Centre Georges-Pompidou (no, this isn’t an under construction image … it’s from 2017)
Gerd Eichmann photo via Wikimedia Commons.

The Nobels, the Oscars, Pipe Smoker of the Year: glittering prizes all, but I prefer the Carbuncle Cup, which is awarded annually to the “the ugliest building in the United Kingdom completed in the last 12 months”.

Organised by the magazine Building Design, it has (in my aesthetic judgement) produced a worthy shortlist and a worthy winner every year since its inception in 2006.

But there’s a big problem with the prize — not its subjectivity, but the fact that the winning buildings still exist. Indeed, buildings like them are still being built. Name-and-shame is not working.

There’s an argument to be made that things are getting worse. We’ve swapped the horrendous, but interesting, brutalism of the post-war period for the offensively bland spreadsheet architecture of the 21st century. In an age in which Jane Jacobs has won the intellectual battle against Robert Moses, we really ought to know better. Yet we continue to fill up our towns and cities with inhumane, alienating architecture.

Philharmonie at the Parc de la Villette, Paris.
Photo by Zairon via Wikimedia Commons.

It might seem paradoxical, but to end the cycle of destruction, we need to accelerate it. Every year, there should be a public vote to choose the worst new building in the land. The winner wouldn’t get a cup, but a wrecking ball. Yes, that’s right, it would be physically demolished — immediately and without compensation. Indeed, the owner would be required to foot the bill for the building’s de-construction (though they would have the option of suing the architect and the planning authority).

This would concentrate minds wonderfully. Instead of competing among themselves to épater les bourgeois, starchitects would need to design with due regard to the common good. Meanwhile, developers whose sole objective is to squeeze as much profitable square footage into any site they can get their hands on, would have to contend with the possibility of financial (as well as literal) ruin. The planners would come under immense pressure to do a better job too. At the cost of sacrificing one new building, development across the land would be greatly improved.

Cumbernauld Shopping Centre, voted as Britain’s most hated building.
Photo by Ed Webster via Wikimedia Commons.

H/T to Colby Cosh for the link.

October 8, 2019

Anton Howes on innovation

Filed under: Britain, History — Tags: , , , — Nicholas @ 03:00

Anton Howes publishes a newsletter on the Age of Invention (I just signed up to start receiving it). Here’s an older article from the newsletter on innovation:

The Industrial Revolution was caused by an acceleration of innovation. But how was that acceleration caused? Most theories of the acceleration’s causes assume that innovation is in human nature, that it has always been around.

So, they might argue:

  • Property rights became better enforced so budding innovators felt more secure to make themselves known.
  • Patents appeared so innovators could reveal their secrets and still profit from them.
  • Brits were particularly skilled or well-educated so innovators could more easily get their innovations implemented.
  • British society started to accord dignity or honour to innovation so innovators felt motivated to have a go.
  • Demand increased so innovators had a big enough market to begin selling their innovations.

And so on. All of these arguments assume the same thing — that innovation is a part of human nature, a choice that has always been recognised. Their implicit claim is that, other than in mid-eighteenth century Britain, save for a few short-lived cases, choosing innovation was simply just not worth it.

I disagree.

The more I study the lives of British innovators, the more convinced I am that innovation is not in human nature, but is instead received. People innovate because they are inspired to do so — it is an idea that is transmitted. And when people do not innovate, it is often simply because it never occurs to them to do so. Incentives matter too, of course. But a person needs to at least have the idea of innovation — an improving mentality — before they can choose to innovate, before they can even take the costs and benefits of innovation into account.

An illustration: at a conference I was at last month the attendees wore lanyards with name tags, which listed their names on one side. Over the course of the conference the tags would inevitably flip over, hiding the names. People would, when introducing themselves, periodically check each other’s tags, flipping them the right way around. But only one person — one single person, of attendees in the hundreds, had the ingenuity to write their name on the other side. To my shame, it wasn’t me.

Everyone at that conference had an incentive to do that innovation. Everyone was there to meet one another, so the innovation helped achieve that goal. And the cost of the innovation was negligible. It took a couple of seconds to whip out a pen and scribble a name. It simply did not occur to them to innovate. Innovation can be extraordinarily rare — despite the opportunities, despite the incentives.

September 26, 2019

QotD: Preventing “price gouging” is counter-productive in an emergency

Filed under: Business, Economics, Government, Quotations — Tags: , , , — Nicholas @ 01:00

During an emergency like a hurricane, many different categories of goods and services experience supply-demand shocks. The shock may be because of a fall in supply (e.g. oil companies can’t get gasoline into the area) or a spike in demand (e.g. for generators or plywood) or a combination of both. In a free market, prices will rise to help match supply and demand. Higher prices cause people with less valuable or more frivolous uses of the scarce goods to defer purchase, and can cause suppliers to expend extra effort to get product into the area, even diverting supplies from other areas.

When the government institutes price gouging laws in an emergency, the supply-demand mismatch that leads to the rising prices isn’t magically eliminated. First, without higher price incentives, all the incentives to get more supply into the area are lost. Supply and demand under these regulations can only be matched by rationing demand, and typically this is through queuing and increasing search costs (e.g. driving around all over the place looking for a station that is open and has gas). People who gain the limited supplies in this regime are thus those with a lot of time on their hands, where the marginal cost of queuing and driving around does not impose a lot of cost. Think about a roofer scrambling to repair roofs after the a storm — do they have time to have their trucks and crews sitting dormant in gas lines? Thus, price gouging laws tend to ensure that scarce goods in an emergency flow to those with the least use for them.

Warren Meyer, “Price Gouging Laws: Allocating Goods in An Emergency To People Who Have Nothing Much Valuable to Do”, Coyote Blog, 2017-08-26.

September 17, 2019

QotD: Rent-seeking

Filed under: Economics, Government, Quotations — Tags: , , , , , , — Nicholas @ 01:00

[Progressives] should also be delighted by public choice scholars’ development of the theory of privilege-seeking (or “rent-seeking“). It’s an old observation, really: when the state’s personnel have favors to dispense, people in the private sector will invest resources to obtain them. Such favors are by nature impositions on third parties. They may take the form of cash subsidies, taxes and regulations that hamper or quash competition and raise incomes in a non-market manner, and other devices. But the principle is the same: private- and government-sector individuals collude to use the state’s coercive power to obtain what they could not obtain through voluntary exchange for mutual benefit. It’s a theory of exploitation the good-faith left should embrace.

By the same token, the state’s personnel, seeing opportunities to sell favors, are just as likely to initiate the privilege-seeking process. In this sense, public choice scholars are right when they see the political arena as a series of exchanges. The big difference with the marketplace, however, is that in the political arena the largest group of people is forced to participate.

The bottom line on privilege-seeking, which should interest the left, is this: the people with the greatest access to power will not be those the left cares most about, but those who run Boeing and ExxonMobil and GE and Lockheed Martin. Wealth transfers will tend overwhelmingly to be upward.

Sheldon Richman, “TGIF: What the Left Should Like about Public Choice”, The Libertarian Institute, 2017-07-28.

August 1, 2019

QotD: Small government provides little scope for special interest lobbying

Filed under: Economics, Government, Quotations — Tags: , , , , — Nicholas @ 01:00

When a government is small, it can provide very limited benefits to special interest groups, so there is a small incentive for special interest groups to lobby the government. The successes of those that do lobby the government will cause the government to grow. This occurs because the great majority of voters and taxpayers are rationally ignorant about most government activity, making it easy to increase everybody’s taxes a small amount to provide a sizable benefit to a few. Most people do not have an incentive to investigate in detail the allocation of their tax dollars, but the special interest groups with the sizable benefit will repay the representatives with political support. Thus, special interest groups cause government growth.

The growth of government, in turn, raises the payoff available to special interest groups. With a higher payoff to special interest groups, this encourages the formation of new special interest groups to share in the payoff. A larger government can support a larger number of special interest groups. Thus, as government grows, more special interest groups form. The formation of special interest groups in turn increases the demand for special interest legislation, cause a further growth in government spending.

Randy Holcombe, An Economic Analysis of Democracy, 1985.

July 25, 2019

In British Columbia, “butthurt” damages can exceed $75,000 under Human Rights legislation

Filed under: Cancon, Law, Liberty — Tags: , , , — Nicholas @ 05:00

In the Post Millennial, Jordan Schroeder illustrates how BC human rights rules have created a new class of tort:

I would argue that the issue is not with the BC Human Rights Tribunal itself, but with the perverse incentive of litigating for profit that is created by the BC Human Rights Code. The BC Human Rights Code creates this incentive through a type of damages called “injury to dignity, feelings, and self-respect.”

This head of damages is harmful to human rights law in BC. It is unfair to the defendants, and it incentivizes predatory litigation. All of this causes British Columbians to lose trust in the important role that the tribunal can play in redressing wrongs.

Section 37 of the BC Human Rights Code allows the tribunal to make an award of damages to a complainant for “injury to dignity, feelings, and self-respect”. The tribunal is permitted to award any amount for this that it sees fit.

By the admission of the Human Rights Tribunal [PDF], the awards for this type of damages is high and is “trending upwards.” For example, in the Oger v Whatcott case, Whatcott was ordered to pay $35,000 for discriminatory speech against Morgane Oger. Whatcott had made critical comments about Oger based Oger’s transgender identity. In the same case, the tribunal cited $5,000 awards as “lower” awards. Other cases have seen awards of up to $75,000.

Awards for hurt feelings are unique to human rights law. Damages awarded in every other area of law are based on the principle that the award should only make the complainant whole. A complainant should never be better off after receiving the damages award.

For example, consider if a company leased a concert hall to a business that wanted to use the space to put on a production. Imagine that business stood to make $50,000 in profit from a sold-out production.

If the rental was cancelled by the company leasing the concert hall in breach of the contract, that company would have to pay the other party $50,000, representing all of the profit the other party could have made. The other party is not better off after the award. They are only made whole.

In contrast, awards for hurt feelings undoubtedly put the complainant better off than they would have been had the human rights violation not occurred in the first place. It is self-evident that an award in the tens of thousands of dollars outweighs any injury to feelings caused by the discriminatory speech or action.

Why is it a problem to have an award that amounts to more than what the complainant actually lost? Obviously, there is the problem that it saddles a defendant with a massive financial burden that doesn’t reflect the damage that they caused. A woman starting a small business who is ordered to pay a “small” award of $5,000 dollars would likely find it ruinous.

July 7, 2019

Cancelling student loans would be a really, really bad economic move

Filed under: Economics, Education, Politics, USA — Tags: , , , , — Nicholas @ 03:00

Art Carden explains why cancelling outstanding student loan debt — despite its huge popularity on the campaign trail — would be a very bad idea:

University College, University of Toronto, 31 July, 2008.
Photo by “SurlyDuff” via Wikimedia Commons.

It’s one of the rules of electoral success: advocate policies that concentrate the benefits on an easy-to-identify interest group (preferably one that is sympathetic in the public eye) and disperse the costs onto the entire electorate. It’s how we get Coke sweetened with corn syrup rather than actual sugar. It’s also how we get proposals to cancel student loans. As my AIER colleague Will Luther points out, the fact that two of the Democratic frontrunners have made debt cancellation such an important part of their campaigns suggests that the issue is going to be with us for a while.

But would it be a good idea to cancel student debt? And importantly, how does even the prospect of canceled student debt affect people’s incentives?

Regressive Tax

First, let’s consider the quality of the policy. A lot of commentators are pointing out that it’s fundamentally regressive, meaning that we’re basically taxing the poor to pay the rich. As economist Alexander William Salter puts it in the Dallas Morning News, it’s

    a transfer of wealth to those with relatively high levels of expected lifetime income, at the expense of those with relatively lower levels of expected lifetime income.

The idea might have some merit, but it will make wealth and income inequality worse rather than better.

Even saying that the idea might have some merit is perhaps too charitable. In 2011, economist Justin Wolfers called it the “Worst. Idea. Ever.” in a Freakonomics post. Why? First, there’s the distributional effect. If we’re going to have policies that transfer wealth from one group to another, it doesn’t make much sense to transfer wealth from taxpayers generally to high-income college graduates. As Will Luther and so many others have pointed out, a college degree brings spectacular financial returns. As a group, college graduates aren’t “needy” by any reasonable definition.

July 6, 2019

QotD: How to learn

Filed under: Books, Economics, Education, Quotations — Tags: , , — Nicholas @ 01:00

I can imagine an economics professor reading through The Literary Book of Economics in search of things he can use in his teaching. But I find it hard to imagine anyone else doing so on his own initiative, merely because he enjoyed reading it. There is a reason why a book is the length it is; a novel is not, with rare exceptions, a series of short stories. I conclude that most of the people reading [Michael] Watts’ book, most of the people it was written for, will be students reading it because their professor told them to. And, judging by my experience of students over the years, many of the students told to read it won’t.

That fits the pattern of most modern schooling at all levels. Someone else decides what you should learn, tells you what you must do to learn it, and makes some attempt to make sure you follow his instructions. It is not a model I think highly of. A much superior model in my view, if you can pull it off, is to get someone to learn something primarily because he finds it interesting. The best way of doing that is to provide students with things to read that are worth reading on their own, not things they read only because they are ordered to. Not even things they read only because they think the labor of reading them will pay off in future benefit.

That view of education is why both children of my present marriage were unschooled. It is also why all of my nonfiction books, with the partial exception of Price Theory, were targeted at the proverbial intelligent layman. They can be, and sometimes are, used as textbooks, but they were written with the assumption that if the reader did not find a chapter worth finishing he was likely not to finish it.

David Friedman, “Thoughts on Literature, Economics and Education”, Ideas, 2017-05-01.

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