Archive for July, 2009

Venture Law
July 30, 2009

At Let A Thousand Nations Bloom, Mike Gibson writes a perfect sentence:

Rules are a form of technology. But unlike iPhones, a set of rules is not subject to the constraints of scarcity. In fact, they break them. So not only should we aim to spread superior rule sets–since we lose nothing in the spreading–we should also try to innovate better rule sets. & faster. We need a Silicon Valley for innovating rules.

Monitoring as a Virtue
July 27, 2009

Through a public choice approach to authoritarian law, Bruce Benson emphasizes the hazards that may result from inappropriately structured monitoring systems, particularly those defined by high cohesiveness & low norms:

Peers can be a source of monitoring. Most governmental institutions have established self-monitoring systems & have actually discouraged (& in some cases even prevented) monitoring from external sources. Police departments have their internal affairs divisions, for example, & court systems have judicial review boards. But such monitoring is not likely to be very effective. No matter what the goal of a government official might be, he has strong incentives not to expose corruption or inefficiencies within his governmental unit.

Today at Unclaimed Territory, Glenn Greenwald befittingly examines recent interaction between TARP’s Special Inspector General, Neil Barofsky, & officials in the Treasury Department. Since Barofsky issued an approximation of the risk inherent in bank bailouts for taxpayers, officials are disgruntled by Barofsky’s unfettered commitment for his duty, despite whether it is politically affable.

Continuing from the previous excerpt, Bruce Benson recognizes:

It is not surprising, therefore, to find that in the few instances in which an official has reported corruption he has generally been ostracized by his colleagues & superiors, denied promotions, & ultimately forced to resign.

Indeed, in the same post, Greenwald points to an article indicating that officials have withheld documents from Barofsky & sought a ruling from the Justice Department to restrict his independence.

Barofsky’s obstinacy is an exception to the rule, but the recent petition submitted by economists in support of preserving the independence of the Federal Reserve suggests there are some who believe otherwise. Nevertheless, clinging to autonomy as a sufficient mechanism for objective decision making is futile in a politicized framework. There is simply too much impetus for collusion. Without reserve, Robert Higgs properly exposes the petitioners’ wishful thinking:

All in all, the economists’ petition reflects the astonishing political naïvité & historical myopia that now characterize the top echelon of the mainstream economics profession.

In the face of great adversity, Barofsky’s devotion to transparency & accountability is admirable precisely because it cannot be expected. Rather than signing perfunctory requests for unrealizable independence, economists would do well to redirect their attention toward principal-agent models — seeking to understand functions that facilitate the disclosure &, most importantly, prevention of misconduct.

Paul Romer Supports a Cambrian Explosion in Government
July 23, 2009

Paul Romer begins with fundamental questions, such as:

What’s the underlining dynamic of rules? Why do rules sometimes get better in a way that makes everyone better off, & why do rules sometimes trap us in a way that seems so harmful to all?

He acknowledges the crucial requirements for growth in markets, including new entry, copying, & reallocation, then contends that the same conditions must exist in government in order that society may progress. Of course, these ideas are not new (see here, here, & here), but Romer is merely remaining true to the theory by “entering, copying, & reallocating” the concepts offered by the aforementioned advocates.

The talk is profoundly interesting throughout, but the most vital insights can be seen in this clip:

(access the full presentation here)

What’s more, it appears The Economist recognizes the merits of these proposals. As it recently reminisced:

There is no perfect model of government: it is America’s genius to have 50 public-policy laboratories competing to find out what works best—just as it is the relentless competition of clever new firms from Portland to Pittsburgh that will pull the country out of its current gloom.

It is extremely unfortunate that policymakers no longer approach decision making in this manner (consider the aggressive actions of the Obama administration to implement nationwide health care reform & its absolute lack of regard for experimentation at the state level). It makes little sense to push a “one size fits all” agenda in such a diverse & dynamic world.

Unfavorably, the theory does include an element of social engineering, & history has displayed grievous consequences for such a fragile process when accessed by evildoers. Therefore, careful consideration of implementation will involve an extensive analysis of citizens’ ability to exit.

With all this said, it is a pleasure to see such ideas reaching larger audiences. Romer has considerable influence in the field of economics; only time will tell if people accept his reasoning as luminary or reject it as lunacy–even as pundits claim that the world is on the verge of global governance, I certainly have great hope for the former.

UPDATE: Romer is so confident in his ideas that he has resigned from his academic position at Stanford & will proceed to persuade nations to adopt this process of innovation.

Brutality & the Rise of Authoritarian Law
July 22, 2009

In The Enterprise of Law, Bruce Benson notes:

The Norman kings also brought the concept of felony to England, by making it a feudal crime for a vassal to betray or commit treachery against a feudal lord. Feudal felonies were punishable by death, & all the felon’s land & property were forfeited to the lord. Soon felony began to develop a broader meaning: “Again royal greed seems to be the best explanation for the expansion of the concept of felony. Any crime called a felony meant that if the appellee was found guilty his possessions escheated to the king. The more crimes called felonies, the greater the income, & so the list of felonies continued to grow throughout the twelfth century.”

The Natural State
July 11, 2009

Douglass C. North is a master on the value & development of institutions.

Institutions are the formal & informal rules of the game, including their enforcement mechanisms. Organizations are the players of the game, including those who make, interpret, & enforce rules. Governance is how the game is played. Public policy is the outcome of the game.

On Institutions, Institutional Change, & Economic Performance:

Institutions exist, (North) argues, due to the uncertainties involved in human interaction; they are the constraints devised to structure that interaction..

Eureka!