Everyday Economics: Bioshock Edition

On my recent trek between Virginia and Massachusetts (and back), I listened to an audio version of the book Bioshock: Rapture by John Shirley (If you’re looking for something light to take your mind off of things, this is a good book).  The book details the rise and fall of Rapture, a massive underwater city built by Andrew Ryan (a not so subtle jab at Ayn Rand) to escape the “parasitic” governments of the world and build a society dedicated to freedom and free markets.  While the initial goal of Rapture may have been freedom and free markets, as the novel (and the video game that the novel is based on) details, Rapture becomes a totalitarian police state with an extremely wealthy (and often sadistic) upper class, and extremely poor low class, and no one in between.  Some see Bioshock as a refutation of Randian philosophy, however, I will not address that here as I am no expert in Ayn Rand (for an excellent discussion, see The Value of Art in Bioshock: Ayn Rand, Emotion, and Choice by Jason Rose).  I’ll leave that to people far smarter than I.  Rather, I want to address the economic situation of Rapture and discuss, briefly, how that contributed to the downfall.

A few quick disclaimers before I begin:

  1. As far as I know, Bioshock: Rapture is not canonical.  However, it is the only detailed source I can find thus far on the days of Rapture that take place before the video game (which is canon) so I will operate on the assumption that my source material is canonical knowing full well everything I write here could become completely worthless insofar as discussing canonical information (the lessons gleaned from this book are still important, however).
  2. Nothing in this essay should be taken as implying the rise or fall of Rapture is purely economic.  There are many other factors involved (social, political, medical, psychological, etc).  I skip or gloss over these not because I think they are unimportant (quite the opposite, really), but because I simply lack the expertise to discuss them with any confidence.
  3. I will be avoiding using direct quotes in this version of this essay.  The reason for this is simple: I have the audio book, not the book itself.  I can’t easily do verbatim quotes and attribute them to proper pages for citations.  Therefore, the reader should be aware that I am doing this partly out of memory (although I did scribble some notes) and further the reader should assume that whenever I describe what’s happening in Rapture, that is a reference to the work of Mr. Shirley.  The only original material will be my analysis.  Any inaccuracies, either to details or analysis, belong to me and me alone.

The short version of what follows: Rapture cannot be classified in any meaningful sense as a “free market.” It suffers from several deficiencies that prevent us from labeling Rapture as a free market: lack of property rights, lack of free trade (autarky), lack of labor mobility (autarky in the labor market), rejection of altruism, widespread and institutionalized fraud (this issue is speculative based off of interviews with characters within the book but not substantiated by details), and censorship (indirect at first, but more direct later).  In Andrew Ryan’s Rapture, “free market” and “laissez-faire” were not much more than dishonored buzzwords.  It can best be described, in the words of James Buchanan, as “moral anarchy,” (see Moral Science and Moral Order, especially page 190 and Limits of Liberty, especially Chapter 7).  These factors, coupled with other psychological, social, and other factors, lead to the decline, civil war, and eventual fall of Rapture.  Continue reading

Institutional Magic

Don Boudreaux and Bryan Caplan have an interesting exchange regarding Caplan’s question on why no libertarian/Progressive alliance has formed on key issues of agreement.  Caplan’s original post is here.  Don’s comment is here.  Caplan’s reply to Don is here.

Both Don and Bryan are people who, when I disagree with them, I think long and hard about why.  Bryan never hesitates to put his money where his mouth is and Don’s reputation of being a careful thinker is well-earned.

That said, I wonder if there isn’t an explanation that is compatible with both their arguments as I understand them.  That explanation comes from magic.

Gordon Tullock explains:

Most traditional institutions are surrounded with what anthropologists call “magic.”  They are thought of in unrealistic terms, the lack of realism having the effect of making us more satisfied with our environment by convincing us that it is better than it really is.  the courts are no exception.  The view that an outcome of the judicial process is “true” is widely held.

The above quote comes from The Logic of the Law as reprinted in Volume 9 of the Liberty Fund’s Collected Works of Gordon Tullock, page 39.

I wonder if it is possible both Don is right that Progressives don’t necessarily see/believe in spontaneous order and that Bryan is right that Progressives see the value, but don’t like the corruption and whatnot that spawns.

Using Tullock’s language from the above quote, I wonder if Progressives are more susceptible to the “magic” of government, seeing it as better than it truly is and are less susceptible to the “magic” of markets, seeing it as worse than it truly is.  And the same is true of libertarians: they see markets as “magic” but government as less so*.  As such, Progressives may be more likely to oversell the benefits of government and the flaws of markets and undersell the value of spontaneous order, even if they know it is there.  Conversely, libertarians may oversell the benefits of markets and flaws of government and undersell the value of government, even if they know it’s there.

I wonder if, at the extremes, Don is right (extreme Progressives, being completely absorbed with the “magic” and seeing spontaneous order as the antithesis of government, completely reject the notion of spontaneous order (and vice versa for libertarians)), but the more moderate/intellectual in both camps see the benefits of each but are still under a “magical spell”.

Perhaps the issue here isn’t that Progressives are simply anti-market or that they simply do not see the benefits of spontaneous order.  Perhaps the issue is the two groups simply have different kinds of magical attunement.

*For the record, I don’t think either Don or Bryan are under such magical spells.

A Presumption of Competence

Why free markets?  Why am I prejudiced toward emergent order vs imposed order in economic matters?  Why is my default position against government involvement?  Why do I invoke such a high standard before justifying active government involvement in the economy?

Because the presumption of competence that is prevalent throughout a free society should be applied to economics as well.  The American civil legal system and the concept of Justice, at least in theory, have presumptions of competence built in.  Parties may contract with one another, with only the need for an arbitrator if there is a disagreement or fraudulent behavior.  They don’t need government to direct their contracts; each party is assumed to understand the deal.

Other freedoms are the same way: the freedom of speech presumes that the speaker is competent and that his audience is capable of choosing whether or not to listen.  Freedom of religion presumes each person is capable of finding their own belief system (or not).  Freedom of press assumes each reader is competent to understand ideas.  Freedom to marry presumes each person is competent in choosing a life-partner.

Economics is the same.  When two people complete a transaction, the presumption of competence is with both: each person trades knowing, to the best of his ability, how to improve his situation.

What about externalities?  Externalities may require necessary government involvement, but the presumption of competency still stands.  People in groups are quite clever.  The market institution does an amazing job channeling resources to reducing all costs, not just private costs.  A presumption of competence allows the market institution to work.

Unfortunately, most economic policies (especially the interventionist ones) rely on a presumption of incompetence.  Tariffs, punitive taxes, many kinds of regulations, et cetera all contain a presumption of incompetence: these regulations must be passed because at least one party (typically the consumer) is incompetent for one reason or another to make his/her own choices.*  The justification is usually “the consumer can’t act in his own best interest.”

I defer to the emergent order because of the knowledge problem.  Without overwhelming evidence to the contrary, the presumption of competence on the parts of the actors (and incomplete information on the part of the observer) should be observed.

*A potential objection an interventionist might raise is that these regulations are necessary because of a lack of information on the part of consumer.  For example, FDA regulations and testing are necessary because otherwise firms will just try to pass off placebos or post biased results.  However, prima facie this justification doesn’t make sense for an interventionist policy, rather than an advisory policy.

Make Sure the Cure Isn’t Worse Than the Disease

TANSTAAFL.  Every action taken has costs, and sometimes those costs are borne by those who had no say in the matter (“negative externalities” to use the technical term).  The existence of externalities is often used to justify government involvement in markets (pollution tends to be the common example).  Lately, however, protectionists scarcityists have begun using that argument to promote their policies, noting job loss as an externality.  Some, more generally, claim “practical people not tied to free trade dogma understand that trade sometimes is good and that it’s bad other times.”

It certainly is possible that, any given transaction, may have enough unforeseen negative consequences as to have negative net benefits.  However, the bar needed to justify government action is high:

From a purely economic perspective*, protectionists have two tasks before them:

1) Prove that imports cause greater net harm than domestic production

and

2) Prove the proposed solution minimizes the net loss (or, inversely, maximizes net benefits). This is where comparative institutional analysis comes in.

The mere existence of condition (1) is neither necessary nor sufficient to justify government intervention. If the cost of government intervention exceeds the benefits therefrom, then even though the free market option has a net loss, it is the optimal solution because the resulting intervention would make matters worse!

The existence of condition (1) may require collective action to solve, but it may be more cheaply solved via non-government collective decision making (ie, a firm).**

There may be cases where government decision making is the lowest cost option.  However, it is very much a case-by-case basis.  Blanket legislation (like a tariff) does not allow for the necessary flexibility to make such decisions.  In order to minimize costs (and thus maximize net benefit), freedom must be given first preference, with the burden of proof upon protectionists.

*There could be many other arguments for protectionism, such as legal, or national defense.  I shan’t get bogged down in a discussion here.  I’ll leave that to the experts.

**For a more in-depth discussion on this point, read The Calculus of Consent by James Buchanan and Gordon Tullock, in particular Chapter 5.

Today’s Quote of the Day…

…is from Robert Tollison’s forward for the Liberty Fund edition of Jim Buchanan and Gordon Tullock’s classic work, The Calculus of Consent:

“Politics and the market are both imperfect institutions, with the least-cost set of institutions not being obvious in any real case. The moral: We must better understand how institutions work in the real world to make such choices intelligently.”