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

Toward a Better World

According to the organizers of Earth Day: “Education is the key to advocacy and advocacy is the key to change.”  I agree.  Toward that end, allow me to explain why free markets, and in particular secure private property rights, help make the world a better, cleaner, and more environmentally friendly place.

Property rights are important because they encourage the owners of that property right to maximize the property’s uses.  Property rights do this by having the owners incur the costs of their property (its upkeep, its development, etc), but also confers the benefits onto its owner; in other words, the greater concentration of costs and benefits means each person’s success is dependent on his/her activities.  As such, the property owner is incentivized to minimize costs and maximize benefits over the life of the property.

While there are many kinds of property rights, the type of right matters for environmentalism.  Contrary to many popular claims, public ownership of natural resources (national parks, nature preserves, and the like) may be counter to the goals of environmentalism; in other words, state-produced environmental efforts may make the situation worse, not better!  The reason for this is the incentive may not be as strong to maximize effort on the part of the property owner.

Allow me to explain by way of paraphrasing an example Armen Alchian gives in his 1965 Il Politico article Some Economics of Property Rights:

Suppose there is a community with 100 people in it, and 10 enterprises.  Further suppose that each person, by devoting 1/10th of his time to some enterprise as an owner, he can generate a gain of $1,000 for the enterprise.  If ownership of each enterprise is divided equally among the populace (that is, all the enterprises are “publicly owned,”), then he will produce a gain of $100 for himself each day (1/100th part owner and 10 firms) and the rest of his product ($9,900) going to the other members of the community.  If the other 99 people in the community act the same way, he will get $9,900 from them, bringing his total wealth gain to $10,000.

Now suppose that each person owns 1/10th of a single enterprise.  The individual now works to produce $10,000, of which he keeps $1,000 and the other $9,000 goes to the other owners.  If the other owners do the same, all end up with $10,000.

If we go to the extreme end and each enterprise is owned by a single person, then he gets to keep all $10,000 of his own hard work.

As we can see, in each case above, the reward to the property owner depends partly on his own effort and partly on the effort of others (except the last option).  In the first of the cases, the incentive for him to maximize his efforts is minimal: no matter how hard he works, he’ll only get $100 direct benefit from it.  The other $9,900 must come from someone else who may or may not have the same work ethic as him.

So, if a person is most incentivized to act when s/he absorbs the costs and the benefits, how will that help the environment?  Well, it’ll help by incentivizing the person to keep their property in working order.  A person who owns a home will do her best to keep the house neat, to keep the fixed costs (heating, cooling, water, etc) low.  They may, if they have time and money, plant a garden or maintain a yard in order to keep the house pretty.  Larger groups with common goals could pool money to maintain a park.  Firms, seeking to minimize their costs, are constantly looking for ways to reduce waste and increase output.  Owners of farms, of mines, and the like are always looking for ways to extend the life of their sources of wealth.

In short, people will look to take care of their own little plot of the world.  Environmentalists often urge us to “think globally, act locally.”  I can’t think of anything better than property rights to accomplish this task.

There are objections some might raise to the above discussion, and those I will address in another post as this one, at nearly 700 words, is already too long.

Today’s Quote of the Day…

…is from pages 5-6 of Frederic Bastiat’s 1850 essay The Law (Mises Inst. Edition):

But [man] may live and enjoy, by seizing and appropriating the productions of the faculties of his fellow men.  This is the origin of plunder.

Now, labor being in itself a pain, and man being naturally included to avoid pain, it follows, and history proves it, that wherever plunder is less burdensome than labor, it prevails; and neither religion nor morality can, in this case, prevent it from prevailing.

When does plunder cease, then?  When it becomes more burdensome and more dangerous than labor.

As with anything, people will choose the least-costly option for their actions, in this case in the trade off between labor and plunder (Bastiat uses the phrase “plunder” here meaning the legal appropriation of one’s property by the state to transfer to another person).  As the cost of labor rises (or the cost of plunder drops), the attractiveness of plunder increases.  Things like occupational licenses, tariffs, and even progressive taxation all increase the costs of labor, and thus make plunder more attractive, which in turn leads to more lobbying and resources spent to get a share of the plunder.

Respect for the law cannot long be preserved when the law becomes a tool for plunder rather than preventing it.

In Defense of the Law

The great French economist and philosopher Frederic Bastiat wrote in The Law:

The mission of law is not to oppress persons and plunder them of their property, even thought the law may be acting in a philanthropic spirit. Its mission is to protect property.

The law is justice — simple and clear, precise and bounded. Every eye can see it, and every mind can grasp it; for justice is measurable, immutable, and unchangeable. Justice is neither more than this nor less than this. If you exceed this proper limit — if you attempt to make the law religious, fraternal, equalizing, philanthropic, industrial, literary, or artistic — you will then be lost in an uncharted territory, in vagueness and uncertainty, in a forced utopia or, even worse, in a multitude of utopias, each striving to seize the law and impose it upon you. This is true because fraternity and philanthropy, unlike justice, do not have precise limits. Once started, where will you stop? And where will the law stop itself?

Bastiat’s point, that the law exists to serve justice and nothing more, is the essence of the rule of law.  The rule of law is the idea that no one is above the law, but also no one is beneath the law.  Many people remember the first part, but conveniently forget the second.

Over the past few years, and especially since the election of Donald Trump, the law has come under attack, both by those on the Left and the Right.  Both want to carve out exceptions to the law, either by eliminating protections under the law for disliked groups (the Left for the alt-right, the Right for immigrants and Muslims) or by giving themselves greater share of “legal plunder” (tariffs, welfare, subsidies, etc etc).  As a classical liberal, it disheartens me to see my country, one founded on (if not always practiced) the ideals of justice, liberty, and the rule of law so willingly and vehemently attack these very ideals for the sake of political virtue-signalling or simple spite.

Justice is blind.  That means she sees not the devils nor the angels of our nature.  She hears only the circumstances, and defends the wronged party.  Whether that party is black, white, Hispanic, Republican, Democrat, Christian, atheist, Muslim, of the “right” mind, of the “wrong” mind, it doesn’t matter.  Justice defends them all.  This must mean that, yes, we must give the Devil himself the benefit of the law for the sake of justice.

A couple of examples.  First, here is a NYT story explaining the jubilation many had after Richard Spencer (the notorious neo-Nazi) was attacked.  Second, this story from Reason responding to the Republican (and sometimes right-libertarian) argument that immigration should be restricted because immigrants tend to vote Democrat.  In both cases, we have an ‘in-group’ trying to carve out exceptions to the law (in the first case freedom of speech, in the second case freedom of migration and protection under the law) for an ‘out-group’ who thinks differently from the in-group.  In both cases, the in-groups are making a mockery of the law.

As a classical liberal, I will defend the rights of both out-groups, indeed all out-groups, because Justice cares not whether one is in or out, and the law shouldn’t either.  I will defend them, not because of any sympathies to neo-nazis (of which I have none) or particular love of immigrants but for my own safety’s sake.  If we weaken the protection of the law for out-groups, what happens when we find ourselves the out-group?  To borrow the language from A Man For All Seasons, if we cut down every law to apprehend the Devil, what will protect us when the Devil turns on us?  Yes, I would give the Devil the benefit of the law for my own safety’s sake!

Tyrants rarely run roughshod over the law, but rather use precedence set by those before them (this precedence, although itself a mockery of the law, gives the illusion that the tyrant’s actions are lawful).  Exceptions to the law, granted by angles to pursue angelic ends, then become the tools of the devil to pursue devilish ends.  Vast presidential powers, handed over by Congress to the Executive Branch, now lay in the hands of Trump.  A vast regulatory government, once in the hands of relatively moderates now exists in the hands of an ignorant, egomaniac populist.  When the moderates were in power and wanted more and more leeway, the classical liberals objected; like More in the clip above, we refused to cut down the law to pursue the Devil for the exact reason that now is in our face: the Devil has turned ’round upon us and many laws have been cut down.

We must defend the rule of law and its protections for all people, including the Devil himself.  Once the door is opened that people who have “wrong” opinions do not deserve the same protections and liberties as people with “right” opinions, then it’s damn near impossible to close that door.

The Importance of Well-Defined Property Rights

Resources are scarce. This inevitably means conflicts will arise.  Here is one such example following a snowstorm in Boston.

In this case, the property right is well-defined.  The “space-saver” has no right to the space: “Space savers are prohibited in the South End [of Boston].”  He has no right to prohibit use of the space to other people; in fact, the other person has the right to sue the space.  Should the space-saver make good on his threat, he would rightfully be punished.

However, if there were no property rights, or if they were ill-defined, then the conflict could and likely would persist if not escalate.  Would the space-saver be in the right to defend the space?  Or would he be in the wrong?  Lack of any kind of guidance on the issue would prevent the creation of more parking spaces (which Lord knows Boston needs).

There is another element to this story I’ve not explored.  This whole time, I’ve assumed that the legislation governing the allocation of parking space property rights aligns with the law of parking spaces (that is, the customs governing their use).  If this is not the case, however, we see how legislation can actually make a conflict worse.  Let’s, for the sake of argument, assume this situation now.  Let’s say the space-saver is acting according to the law, which is whoever places something to save a space prior to a snowstorm can park in that space after/during (I know this is the unspoken, but very real, rule in North Boston). Therefore, the space-saver was acting within his expectations of a right.  In the eyes of the law (again, not legislation) he was in the right!*  The legislation, then, is attempting to override the law, which can create more conflict, rather than eliminate it!  Legislation is not the only way to define property rights.

One final parting thought: This conflict between the space-saver and the driver who parked there may be indicative that the current property right regime is inefficient for the current situation.  We may have institutional failure.  However, one should not try to read too much into the situation from this one conflict.  Institutions can and should be difficult to change, and there will always be scofflaws.  No system will eliminate conflicts, but when conflicts arise it may be an indication of the need for institutional change.  But the presence of conflict is not sufficient reason alone to change.

*His behavior is over the top, to be sure

Trade, Tariffs, and Property Rights

In my post earlier today, I wrote about how tariffs affect the value of different resources.  I promised a follow up post on attempting to determine whose value should take precedent, the producer’s or the consumer’s.  This is that post.

Tariffs increase the value of the producer’s property while deceasing the value of the consumer’s property.  All actions have this sort of mirror effect: when I choose to buy my groceries at Giant as opposed to Safeway, the value of Giant’s supplies marginally increased by the $X I spent there and the value of Safeway’s supplies fell.  This is simply the nature of living in a world with scarce resources.  So, how can these conflicts be resolved?  Simply by the assignment of property rights.  By determining how property rights are allocated and assigned, then conflicts can be avoided.

For most of our commercial society (that is, the aspect of our interactions concerning commercial activity), property rights of income are generally assigned to the consumer.  No producer can compel any consumer to purchase his goods/services.  In fact, compelling the purchase of goods and services is illegal.  Further, producers cannot require all other producers in an area to sell at a given price (again, that is also illegal).  This rather simple examination of property rights tells us that, generally speaking, the consumer is sovereign. Property rights of income, we can say, are assigned to the consumer.

Bringing this back to our conversation in the previous post, who has the proper property claim right?  The producer whose goods are lowered in value pre-tariff or the consumer whose value is lowered in value post-tariff?  I think, judging by the above analysis of property rights, the claim rightfully belongs to the consumer.  Therefore, the tariff, insofar as it is currently constructed (a tax on the buyer, not seller) is a violation of those property rights.  The value of the consumer is protected and the producer must find some other way (other than tariff) to seek redress.  He has no legal claim to the consumer’s income stemming from competition.*  I argue that the existing property rights regime requires tariffs be rejected, and the implementation of such is a violation of the property rights regime, thus weakening both property rights and the rule of law.

A larger point I want to make in conclusion: the assignment of property rights, and more importantly their consistent enforcement, will go far in reducing or eliminating conflicts that will arise simply from the fact of scarcity.  Without property rights, economic well-being cannot be enhanced.

*I can even cite legal precedence, see “Illinois Transportation Trade Association v City of Chicago”, where the judge ruled: ““Property” does not include a right to be free from competition. A license to operate a coffee shop doesn’t authorize the licensee to enjoin a tea shop from opening. When property consists of a license to operate in a market in a particular way, it does not carry with it a right to be free from competition in that market.”*

Trade, Tariffs, and Value

One of the glorious things about trade is it increases the value of resources.  Let’s say I earn $10.  With that $10, I can consume 3 apples.  The value of my labor is 3 apples.  Now, let’s say that trade opportunities arise.  Via trade, I can now consume 6 apples with my $10 worth of labor.  The value of my labor has doubled!

Now, let’s say local apple growers, angry that more apples are entering the market, successfully lobby for a tariff on apples.  The effect of the tariff means I can now only consume 4 apples.  The value of my labor has fallen!*  Tariffs (and taxes in general) from the prospective of the consumer are value destroyers.  Tariffs, in this manner, are akin to a disease destroying apple crops (or, perhaps more accurate, bandits constantly raiding apple crops).

Let’s look at the mirror image here – the same situation, but from the producer’s point of view:

In autarky, the value of apples are $3.33 per apple.  Following the opening of trade, that value falls to $1.67.  With the implementation of the tariff, the value rises to $2.50.  From the prospective of the producer, tariffs are value creators.

In an upcoming blog post, I will be writing about some rules of thumb I think (with the help of Armen Alchian) are helpful in determining whose value perspective should prevail.  However, I wanted to emphasize the value-changing nature of tariffs in this blog post, so I will end it here.

*To the untrained eye, one might argue “You were consuming 3 apples.  Even with the tariff, you’re consuming 4.  You still are made better off!  So why not enact the tariff?”  While it is true that one is better off in this tariff-trade scenario than in autarky (no trade), we must look beyond the seen effects for the unseen effects.  One would be considerably better off (to the tune of 2 more apples) without the tariff.  The negative effects of the tariff, while unseen, are very real.