no third solution

Blogging about liberty, anarchy, economics and politics

Economies of Scale, the Faustian Bargain

July 24th, 2008

Some people say that Wal-Mart does a good job providing low-cost goods, and its success is indicative of its superior ability to satisfy customers. But I can win any game, if I’m allowed to write and re-write the rules on a whim.

Consider that recently, Wal-mart favored the recent minimum wage hike. Already paying its employees significantly more than the minimum wage, Wal-mart had nothing to lose, but the effects of such legislation would be a blow to smaller competitors. The retailers and smaller stores on the margin, and the people who work at those stores were the ones who as a result, face artificially high barriers to entry. Even some of the bigger stores began automating processes previously performed by lower-wage employees.

This is but one solution to the challenges of a pseudo-market economy: grow a business that is so big that the government has to listen. And by “listen,” I really mean “steal money from productive people in order to prop up your Brontosaur of a business model.”
Aside from being plain fucking evil, it’s hard to do this unless you’re already pretty well-connected, or independently wealthy. Plus, whatever the government giveth, so too can the government taketh away. Many a company has fallen out of favor and become victim of the hand that used to feed it.

The “economies of scale” that we learn about in school are essentially a fiction. Step in to any big company and you’ll see the same thing: a handful of really talented people banging their heads against cubes, running into invisible walls erected by corporate culture, groupthink, and bureaucracy, tasked with creating synergy, or building efficiency, or improving processes, or some other made-up HBR newspeak.

Think “Six Sigma.”

There will be periodical discussions about how the large company can best share its resources and knowledge across its many disparate teams and departments, when the fact of the matter is that resources and knowledge distribution can’t be maximized in the absence of a market economy.

This is the case, always and everywhere, because “economies of scale” is really a euphemism for “special privileges and immunities.” A company can’t get economies of scale without paying a pretty hefty price. In return, the businesses have become tax collectors and watchdogs for the government, and most of what they produce is ultimately confiscated. Every aspect of what they do is monitored, reported, watched, scrutinized, regulated, legislated. The entrepreneurs and people who started a business for love of meaningful work, have more often than not, struck a terribly Faustian deal.

But Faust always had the opportunity to redeem himself, he just couldn’t believe it.

If we were to abolish all the massive government subsidies and benefits bestowed on large corporations, it’s really possible for a much smaller enterprise to be competitive. Small companies don’t have the political clout, the insider connections, or the money to make politics happen in their favor. This is why large companies are typically behind legislation in restraint of trade. Think of just about any major monopoly, and there’s a government behind it. How about AT&T, Microsoft, and Northern Securities, to name a few . Wal-mart is but a recent example.

There is another solution to the challenges of a pseudo-market economy, though: what if the smaller enterprise can find a way to evade the spiders’ webs of regulations and restrictions and taxes, it can provide greater value at lesser cost than the large, subsidized counterparts?

The Involuntary Contract: Comments # 22

July 24th, 2008

It’s Not Voluntary, And It’s Not a Contract shot up to #1 in terms of traffic to my site; in less than 24 hours it drove more than 300 page views. I have no idea what the referral source(s) for those are, but that’s huge.

There are a lot of comments:

csun said,

I rent my property by the year from my county government and each year the rent goes up without any input from me.If I refuse to “opt out” by not paying my rent i.e property tax,I will be kicked off my land and it will be sold on the courthouse square to the highest bidder.It makes absolutely no difference whether I can afford the rent or not, if I don’t pay I will get the boot from the benevolent overlord.We are all serfs renting our freedom by the year from a collectivist government.We can never own property free and clear of the threat of seizure by a fiscally irresponsible and corrupt government.

On the right we’ve brain dead denizens proclaiming”support the troops” and on the left we’ve doubly indifferent morons screaming “Bush lied , people died.”
The show goes on and the rent is always due.

And that’s really the issue – nobody actually owns anything. Not their land, not their belongings, not themselves.

Mike Gogulski comments:

Why the constitutional social contract idea is so popular is a bit beyond me. It’s obviously a fraud. The cleverer argumenters in support of it will sweep aside the word “contract” as sophistry, and say that what’s meant here is something more fundamental, a “higher” sort of contract, and then come up with all sorts of justifications to “prove” that you assented to it.

If they can do so after reading Spooner, though, my benefit of the doubt evaporates and I have to conclude they’re either insane, evil, stupid or some combination thereof.

I think Spooner’s “No Treason” letters were the clincher, haven’t looked back.

Kip, Esquire takes…

The next step is to read the first two chapters of Randy Barnett’s “Restoring the Lost Constitution,” in which he argues that a government’s legitimacy derives not from the existence of a “social contract,” but from recognizing the impossibility of a such a contract — which in turn requires the government to be as harmless and inoffensive as possible in order to make the governed comfortable with the (non-contractual) arrangement. The less coercion (i.e., the less deviation from a “contract”), the more legitimate the government becomes.

I’m confused. Government’s legitimacy derives from the government’s willingness to acknowledge that it is illegitimate and of no proper authority? Conceivably, if and only if a government were to handle everything with kid-gloves, tread lightly and carry no stick, it would be less illegitimate than it currently is. But it would still be illegitimate.

The conundrum seems to be that States follow something of a life-cycle. They expand, become increasingly belligerent, and then explode or implode. If you want a smaller government, you’re asking for a reprieve, when what you really want is a government that doesn’t govern at all. Of course, I’d be less dissatisfied with a smaller government, but I still wouldn’t be satisfied.

Azrael’s Judgement makes the comparison to competing criminal gangs.

Tumbleweed left a comment,

First he throws a bunch of logical fallacies and arrogance, then he acts like he’s already won the argument simply by saying something. I think I saw a straw man in there somewhere too. Some people.

Yeah. Go figure. And he had the nerve to suggest that we shared similar ideologies. I told him that there was no reason to patronize me; we’re not in the same ballpark, we’re not even playing the same ballgame. And on that note, Francois Tremblay says that he would’ve had some words for midwesterner, his reply would have been:

I don’t know who you’re trying to fool, midwesterner, me or yourself, but you’re no Anarchist. And you are insane if you believe that a piece of paper protects you from anything.

Finally, Ian at FreeKeene.com inquired as to whether I’m moving to New Hampshire:

Are you coming to NH? We’ve got a growing group of voluntaryists here in Keene.

At this point in my life, I’m not prepared to pick up and move on a moment’s notice, but I hear good things about New England, and New Hampshire would put me in closer vicinity to the mountains in Vermont (for snowboarding in the winter) and the coasts of Maine (for vacations in the summe, I also have a cousin there). Ian, the idea is certainly worth considering.

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Mike Gogulski reports of another Israeli atrocity:

To which I responded:

This doesn’t surprise me at all. Hell, they shelled a UN checkpoint without so much as an apology.

I was never much into Mid-East politics, until my brother loaned me his copy of Robert Fisk’s “Pity the Nation.” I read quite a bit more about the recent history of the Palestine conflict (as far back as WWI, when those arbitrary lines in the sand were first drawn up by the West). Israel’s track record with regards to human rights is abhorrent.

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I liked this article by Bob Muprhy at the Mises.org blog about the prevalence of mathematical modeling in economics.

The Misesian approach to economics does not rely on unrealistic formal models. Rather, praxeology — the science of human action — deduces necessarily true conclusions from the fact that people act.

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In Comments # 21, 1955Design says that some people might choose a boring job just to associate with other people. But he is inclined to believe that nobody would choose a hot, boring, monotonous job if given the choice. Francois Tremblay disagrees, pointing out that people might choose hot, boring, monotonous jobs if they paid more.

I think we’ve gotten off-track… In the absence of real freedom and opportunity, people will make all sorts of decisions we’d otherwise deem objectively bad. The point of the original post, Why I’m Glad Player Piano is a Work of Fiction, was that if people didn’t have to work (e.g., machines and computers provide for all of life’s needs), it’s extremely unlikely that they’d voluntarily associate in sweaty factories or cramped cubicles. I have no idea what they would be doing, but I’m reasonably certain of what they wouldn’t be doing: churning out widgets and TPS reports.

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In Reader Mail #60, FSK says that I made a huge error (FSK always says my errors are “huge” but I think generally they are purposeful omissions) in my previous post, What is Time Preference

Saving for the future is foolish when there are no safe investments.

He mentions that the Federal Reserve distorts the loan markets. I wasn’t discussing the Federal Reserve per se, but the concept of “time preference.” A lot of people have no idea what it is, or why it is. Really, the point of the post was not to talk about how the Federal Reserve robs us blind (NB: it does), it was to establish time preference as a fundamental and irreducible basis of interest.

Even with profoundly distorted capital markets, where the best “investments” yield negative real returns, it may be beneficial to save some money for future consumption, unless we’re experiencing the Flucht in die Sachwerte of hyperinflations, accounts of which can be obtained if you research the German interwar crises, or also what’s happening in Zimbabwe right now. If your paycheck loses 10% of its purchasing power before you can even take it to the bank cashier, you’ve, and another 10% before the weekend is over, you’ve got to spend every dollar on something, anything, which you can try and barter in the very near future.

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I liked this post about the letter V and the number 3, referred by FSK. No, it’s not Sesame Street.

Think of it as a freedom “gang sign”.

Now, go read all of it. You want to.

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I found this brief bio about Mises, it’s nothing that I didn’t know from my own research, schooling, and independent reading, but it concisely packs a whole lot of information into a relatively short article.

Comments on Comments #21

July 20th, 2008

shiva left a comment on Violence and Vandalism are Not Solutions, I agreed with Mike Gogulski who said that vandalizing property is counterproductive to the cause of liberty. Mike said that it was possible that people were lawfully evicted from the properties to make way for condominium development, since de facto eviction occurs whenever a landlord simply refuses to extend or renew rental agreements.

And what if you believe that the only valid “ownership” of a house is living in it, and therefore that no one has the right to evict anyone?

Rentiers are parasites and oppressors just as much as government is. Rent is extortion with threats of violence just as much as tax is.

What I’m not saying is that the current situation is ideal, or necessarily legitimate. I imagine that a free market would provide vastly different alternatives than those which we currently enjoy. The market is perveted in the sense that there are (probably) more absentee owners enjoying greater market power than they would in a truly free market, I’m with you 100% on this, if I follow you correctly. But unless you can demonstrate how a free market would eliminate entirely the market for rental, I’d say your belief is not entirely well-thought out. Certainly we can imagine short- and medium-term rental agreements as valid and legitimate instances of non-owner tenancy, and of (somewhat) absentee ownership. At what point, then, does a rolling short-term rental agreement become ownership in-fact? The idea is preposterous.

Anyways, when did two wrongs start making things right? The facts remain the same: people associate these acts with lawlessness and disregard for the well-being of others (rightly or wrongly). As long as they think we’re a bunch of hooded hooligans and arsonists, throwing shit-bombs on people’s cars, they’ll never take the movement seriously.

We can play at this game a little: the tenants were arguably the (mostly) rightful owners. Except for the native Mexicans from whom the land was stolen to begin with, and probably a series of unfortunate thefts and misappropriations in between, in reality even their claim to ownership by tenancy is based on a seriously clouded title. About 90% of the status quo is entirely indefensible, and that includes any discussion of current property rights/ownership, since a great deal of such titles (or claims thereto) are necessarily clouded by prior government action, and/or dependent on the state for any semblance of validity.

Mike Gogulski responded late, that there are certainly many “claims of property today existing which are unjust and which should be rightly dissolved,” but that truth alone is not sufficient moral justification for vandalism.

I agree that landlords in many circumstances are parasites and oppressors, but so is just about everyone (to one degree or another) with whom we interact, on a daily basis: the librarian who checks out our books, the old lady across the street collecting social security without having paid a thin dime into it, labor unions in certain states that have pushed for (and gained) legislation that denies men the right to work, etc.None of these people are the problem, all these things are symptoms of the government disease. Strike the root, and the branches will die on their own.

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Jeff Molby left a comment on Why I’m Glad Player Piano is a Work of Fiction, it seems, taking Vonneguts dystopic assumptions to heart:

I asked about such a scenario recently. I don’t see much discussion about this, so I welcome the opportunity.

In the absence of a need for hard labor, would we toil nonetheless?

In the collective sense, there might not be a “need for hard labor”, but that’s not necessarily true in an individual sense. If the owners of the world’s capital have no incentive to satisfy the needs of the proletariat, — and aren’t charitable enough to do it anyway — the proletariat will have to find a way to satisfy its own needs, probably through hard labor.

Specifically, Jeff asks:

About a month ago, I wondered about the end game of robotics. Given the current direction of things, it seems apparent that we will eventually arrive at a time where there will be a market for only the very smartest of human beings. The cream of the cream of the crop, so to speak.

…Does that scenario not shoot a gaping hole in libertarian philosophy? In that case, would the means of efficient production rest in the hands of a relatively small group of people, thus necessitating either drastic socialism or mass starvation?

Jeff, this is an interesting topic for discussion. I think there are a lot of assumptions in these questions, and I fear I’d be doing you a disservice if I attempted to respond to you in this forum. If you’d like to do some brainstorming, send me an e-mail [ david AT nothirdsolution DOT com] discussing this in greater detail and I’d be happy to contribute.

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1955Design left a comment on All of Our Productivity is Wasted:

Although your point is well taken, I think that there is perhaps one intangible that you are not factoring in: boredom.

Even the most unusual behavior (i.e. leisure activity) becomes commonplace if repeated often enough. You can only shoot so many baskets, or drink so much coffee on the patio, or fly off to Lake Como so many times…before your leisure activity becomes commonplace. And boring.

Agreed, but I’m not sure I would conclude from this, that labor, for its own sake, is a part of the solution. Labor has always been primarily a means to an end, and not an end of itself. People don’t enjoy their leisure because the rest of their waking hours they’re stuck in a factory, although they are able to enjoy it, because of and in spite of that. As stupid as man can be, they can be equally creative. In the absence of a true need to work (in order to provide for sustenance and leisure) I’d sincerely hope that man’s creative side could come up with a better cure for boredom than sitting in a cube or rolling parts of an assembly line producing profits for someone else…

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Joe McHugh also left a comment on All of Our Productivity is Wasted:

I quit my 10k/mo job to trade currencies, stay at home and it’s working out great. There’s true value in what you’re talking about here.

Would that everyone could enjoy early retirement! And thanks for the compliment!

David Gross mentions it in his post, that he quit a $100K/year job and does contract work from home. Joe McHugh quit his $120K/year job to chill out max and relax all cool…

If you’re making that much money, even for a short amount of time, it is relatively easy to buy your way out with a fair amount of security. To the average person who’s making $30k or $40k, they simply don’t have (or can’t imagine having) the financial wherewithal to break out of the rut. If you’re making $100K and you’re not saving money, you’re an idiot. If you’re making $30K, you’re not saving money probably because there just isn’t any left over at the end of the month.

I don’t want this to be taken the wrong way, even reading this, no matter how carefully I try to word it, sounds like I’m saying “David and Joe are hypocrites.” Please accept that I’m not trying to say any such thing, because I mean no harm. If you’re making $100k+ you’re in a very, very small minority, but I’ve noticed this sort of comment elsewhere in the blogosphere, and just wanted to point out that anyone making that much money has opportunities that most people will never have.

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John Robb left a comment on Scrip Currency is a Recipe for Disaster:

The scrip solution is a way to ameliorate the impact of a debased/unabailable national currency. It catalyzes economic activity locally.

Also, it’s not forced but an alternative means of exchange. Participants can save in the national currency.

The problem with placing one’s savings in the national currency, as Robb unintentionally alluded to in the above passage, is that the currency is continually debased through inflation. But local scrip currency is continually debased further, through some other fiat. What’s the difference? Both types of currency lose value rapidly, and as such are ill-suited to be media of exchange in a free market.

If the currency is not “forced,” then how do we propose to start paying people in it, if they don’t want it. And why would they want it? What’s the point of an “alternative” currency that is both tied to the national currency you’re trying to avoid, and at the same time, objectively worse at providing the functions of money?

Here’s a way to ameliorate the impact of debased national currency: stop using it. I have no qualms about trying to catalyze local economic activity, but I think this needs to be done with a legitimate, specie-backed currency.

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In Comments #20, Jeff Molby says:

Close, but not quite. [The thrill of gambling is] based on the belief of a non-zero change (sic) at actually winning.

I say it’s based on a non-zero chance of winning; the game is otherwise rigged.

Jeff says “no, it’s based on the belief that one has a non-zero chance of winning.” I’m not sure there’s as sharp a distinction as Jeff would have us believe; the current system is set up in such a manner that encourages deception and borderline fraudulent behavior on behalf of those who issue lottery tickets, because they are a quasi-governmental agency and free from any meaningful competition. In any event, I think we’re largely debating semantics here, and I’d prefer not to get into a fight about something that’s really of little/no consequence, we seem to agree on the issue.

In a free market, good trumps evil and there is diminished capacity for lottery-holders to outright cheat their patrons. The goal of cheating customers is to earn super-normal profits, or to compensate for being a shitty businessperson. Arbitrage drives profit down to so-called normal rates of return and ensures that bad businessmen are driven from the market. Anyone who routinely sold lottery or raffled tickets with no chance of winning the prize (i.e., after the prize had been won) would find himself out of business rather quickly. In truth, I’m not convinced that lotteries are a profitable business model in a free market. Maybe lottery-like games, in Casino environments or something, and certainly lotteries in the charitable sense, but I’m having a hard time imagining Mega-Millions in a free market.

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Orville Seymer is back, commenting on What Could You Do With Allodial Title?

What “Allodial Title” means in my mind, is the state does not the right to regulate your private property. So in other words, all of the Zoning laws and other restrictions on your property are unconstitutional. Of course you would have to convince numerous Judges of this, which would be very difficult if not almost impossible and it would take bundles of money to pay the Attorneys.

Orville gave a nice little lesson in American History to boot. I’ve read more about Allodial title and its legal basis. Some people say that Allodial title is only granted by monarchs. If this is the case, then it’s as fraudulent as any other form of property ownership, except there are fewer bases to challenge it, and is therefore a more perfected title.

Mike Gogulski thinks that Allodial title is a dead end:

But wait… the state granted it? What the state granteth, surely the state can take away… and where does the state get the authority to issue title to land anyway?

If we’re to acquire just and legitimate freehold, it’ll have to be done some other way. Some way that doesn’t involve states. Unless I’m missing something essential here.

I’m inclined to agree. Really it comes down to, “what if the State grants an Allodium, and then later renegs on the deal. To whom do you turn for arbitration?” Good luck. You can’t fight City Hall, as they say. It’s a fun thought experiment, but like anything the State does, it can also do the opposite: it can protect your property, until it wants to sell it. It can protect you, until you’ve dissented too many times. It can feed you, or it can starve you.

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perlhaqr left a comment on an old post, If You Don’t Like it, Get the Fuck Out!

ut, usually the people I’m telling to get the fuck out are trying to take away some freedom of mine!

(Most recently, in “discussions” of the Heller ruling. People lamenting that it was so horrible and we were all going to die because of icky guns.)

And seriously. There’s well over a hundred other countries where the people can’t have guns. America is nearly unique in this regard. Leave me and my hobbies alone.

Well then, that’s an entirely different position altogether! Like I said, who are they to tell me to leave? If they’re so unhappy with my choices, or the choices I want to make, why don’t they find somewhere it’s easier to ignore/avoid me. And if you don’t like guns, like perlhaqr says, there are plenty of countries willing to accommodate your irrational fear of inanimate objects.

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Some people liked The Truth About What Anarchists Want, which was a response post to the generally propagandist criticism: anarchists just want to tear things apart.

Danielo says, “The ‘you’re just a nihilist’ argument is perhaps the most common assumption I run into, & your notes here are succinct and clear.”

Francois Tremblay comments, toungue-in-cheek, that “Anarchists don’t want to TEAR shit up, want to BURN shit up. Duh.” He also notes that, in his experience, far more Statists are nihilists than anarchists.