Tracing consequences both seen and unseen.
Wirkman VirkkalaTwo Words for Capitalism
Posted at 8:51 pm on April 16, 2010, by Wirkman Virkkala

A number of writers from across the political spectrum have been writing about the word “capitalism” recently. What does it mean? Do we have what it signifies? Does talking about such a seemingly vague thing increase our understanding?

John Stossel argues that we don’t live under capitalism, unless you modify the word to mean “crony capitalism.” His essay “Let’s Take the ‘Crony’ Out of ‘Crony Capitalism’” makes a very familiar case:

The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways.

The truth is that we don’t have a free market — government regulation and management are pervasive — so it’s misleading to say that “capitalism” caused today’s problems. The free market is innocent.

But it’s fair to say that crony capitalism created the economic mess.

This is all very well and good. Accurate in its own way. But I am not sure we should give in to either libertarians who want to defend free markets or statists who want to bury them in red tape. “Capitalism” isn’t a word that means just one thing, just as “democracy” isn’t a word that means just one thing. One usage isn’t obviously better than another. Thackeray’s coinage serves more than one master.

I support laissez-faire. It’s a great and noble — and ultra-civilized — policy. But laissez-faire isn’t the only form of capitalism. (more…)


Filed under: Economic Theory, Regulation
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Wirkman VirkkalaThe Logic of Self-Medication
Posted at 3:25 am on April 5, 2010, by Wirkman Virkkala

I may disapprove of what you take, but I’ll defend till your death your right to take it.

The same sort of values and reasoning that support the right of free speech supports, also, the right of self-medication.

Because we have had free speech rights, but have lacked the right to self-medicate, the two rights seem (to many) the most distant of cousins, if not warring foes. To most folk, the idea of self-medication? Heaven (or the state) forbid: We must always be guided by doctors, who know better!

(more…)


Filed under: Drug Policy, Nanny State
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Wirkman VirkkalaThe Giffen Weed
Posted at 12:27 pm on March 24, 2010, by Wirkman Virkkala

John W. Payne’s contribution, yesterday, on this very blog, “More Bans Won’t Deter Use, but Will Increase Costs,” raises a serious issue directly tied to the theme of this blog. The issue is Supply and Demand — that is, the working out of incentives and disincentives throughout the vast network of individuals that makes up society.

People sort of understand that if you raise the price — or, by legal interdiction, radically increase costs — of a good, use of that good should go down.

This is, after all, a standard economic notion. Very basic.

So, what is working against this? I mean, in the case of marijuana we have an economic good that could be nearly free (it grows easily almost anywhere; it requires little complicated processing — even stoners can learn how to nurture and harvest the psychoactive agents in the plant) but has been raised in price because of legal actions by the federal government and all of the states. Still, despite the vast network of state agents directed against the plant and those who use it for pleasure, usage has remained fairly steady, and, by long trend, has grown. Why?

The cost rises and the usage rises? This defies economic law, you might say.

Mr. Payne writes as if it were obvious that this should be the case. And he has reason to: Experience. This has been the modern experience, and not just with marijuana.

But what of economic theory?

The standard answer is that marijuana is an inelastically demanded good. That is, it is so high on some people’s value scales (demand schedules, if you must) that increases in cost to obtain the good do not deter consumption. Indeed, marijuana may be that much-discussed rarity, a Giffen Good, an economic good that, with increases in price come increases in purchases.

Giffen goods, an anomaly in simple price theory, occur because of income effects. Limitations of income (or , more broadly, resources) mean that, if a highly valued good increases in price, lower valued goods must be forgone to maintain satisfaction from that higher-valued good.

The trouble with understanding such goods is psychological. Most of us do not attribute as much importance to the good in question as some few do. I, for instance, drink less alcohol as the price goes up. I like my whisky, anisette, port, and the occasional glass of wine. Sure. But not enough to continue to buy them in the same amounts when their prices rise. I prefer a cold Diet Coke™ or a cool glass of water. And when my income goes down, I swap the Coke for more water. A standard behavioral scenario.

And most people are like me. They cannot imagine buying more of a luxury like a psychoactive pick-me-up (or put-me-down) like alcohol or marijuana, and so they continue to give credence to the idea that prohibition of such goods makes sense.

But prohibition does not make sense if they are, in fact, Giffen goods. Not to everybody, but some.

And then we hit some interesting social factors not often discussed in economics: The divergence of markets by social stratification. Making a good illegal puts merchants and purchasers of the good outside the law, outside of “polite company,” so to speak. In the black market, trades are more dangerous, risk is everywhere, and representatives of law tend to be nowhere in sight.

This divorces illegal drug users from normal society, and puts them in a complete different social world. Expectations about behavior begin to change. Violence is just one aspect of this world. It is often not pretty.

And it traps some of those who enter it. They sometimes find it increasingly difficult to navigate normal society, find it harder to maintain an honest job, for instance.

But just the Giffen Good aspect has notorious side-effects. If you buy more drugs because the drugs have increased in price (because of the War on Drugs), then your income does not allow many other things. Like, perhaps, good food. Or toothpaste. Or a car. With fewer resources, you can be increasingly trapped from any possibility of upward mobility.

This scenario helps explain some of the horror we see regarding meth addiction. But, of course, to it we must add the sheer power of meth: It is the ultimate “Giffen Pleasure,” robbing other pleasures of their purchase in the human soul . . . and since life proceeds on little pleasures and little pains guiding our prudential action, those who partake of this drug can quickly ruin their lives. They don’t maintain the pleasure mechanisms that allow the rest of us to brush our teeth, comb our hair, bathe, and go to work. All the little pleasures have been burnt out.

Marijuana, on the other hand, is a much more mild psychoactive substance, though heavy users tend to reach a point after many years that mildly mimics the downward spiral often seen in meth addicts. Still, most users are moderate users.

And yet moderate users still use it, despite the possibility of getting caught. Indeed, people in all walks of life use it. What gives?

Here we have a market maintained, I think, by a core set of people who treat it as a Giffen Good. This market allows those who treat it more casually to continue to use it. (This works rather like Early Adopters who “subsidize” tech development: Their enthusiasm for new devices funds efforts to improve technology so that, as each tech device develops over time, and prices drop, others can afford it. Similarly, core marijuana users have maintained a market, against the official suppression, allowing casual users to access it for occasional purchase.)

Apparently, the only way to eradicate the market is to eradicate availability of the plant, as meth has been mostly eradicated in Oregon, according to the drug warriors most enthusiastic about Oregon’s full-scale war on the production of same (by stringent regulation of Sudafed, a key ingredient).

Not likely, for marijuana. It hasn’t happened yet, except for short, dry periods in some cities.

To summarize: The widespread use of marijuana by enthusiastic users and casual users alike challenges the most simplistic formulations of economic theory. But economics can still, I think, explain what is actually happening, and why simplistic formulations of supply and demand are inadequate to predict the outcomes of legal suppression of drug usage.

Further, it’s worth bringing up a point outside of economics: Widespread marijuana usage by both enthusiasts and casual users, in the face of both legal and illegal violence and risk, suggests that the right to self-medicate is a “right retained by the people.” The Ninth Amendment should surely apply here.

There is an old rule of Jeremy Bentham’s that would help de-inkblot America’s Constitutional interpretation on such matters. If you cannot, without enforcement, get at least 80 percent (Bentham may have said 90 percent) compliance on a rule, then the rule is wrong, not the people. Both utilitarianism and the American Constitutional tradition suggest that marijuana prohibition is a horrendous injustice put upon American society.


Filed under: Drug Policy, Economic Theory
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Wirkman VirkkalaA growing incredulity
Posted at 7:27 pm on March 23, 2010, by Wirkman Virkkala

The passing of the Democrats’ medical institution reform package, by clever and opaque political maneuvering, has angered many people. Though all ancient sages unite to advise us not to lose composure about things we cannot change, I, too, have been a bit angry about the recent events regarding what is popularly (and nauseatingly) called “health care reform.”

But what interests me at the moment is how risky the Democrats’ maneuvers are. We often say that politicians can’t accomplish much. Washington is riddled with gridlock; its prime movers are not merely dishonest and petty, but unable to take stands.

Here, however, regarding the nationalization of medicine in the United States of America, the Democrats have taken a daring stand. They are bucking the growing incredulity amongst Americans that government can solve our problems by taking control. For the past few decades, the long-term trend has been towards skepticism about large-scale government efficacy.

But this long-term trend has had its set-backs. The three biggest counter-trends to growing anti-statist opinion have pertained to

  1. War — There was a lot of support, early on, for the conquest of Iraq;
  2. Anthropogenic Global Warming Catastrophe — There was a huge surge, in recent years, in the belief that there had been recent global warming, that this was in some sense unique, that human civilization had caused it, that this would only grow more dangerous, and that government could (and must) solve it; and
  3. “Health Care” — A rising number of people had begun to see rising costs and spotty insurance for medical care as a problem requiring a national solution.

In each of these three counter-trends to the rising general incredulity over government efficacy, the wave of pro-government sentiment has recently waned. Spectacularly.

Regarding the advisability of conquering Iraq, the widespread support for this had ended before the end of George W. Bush’s final term in office. Even Republican legislators, today, are almost unanimous in realizing that the war was a mistake. The general consensus, now? War and conquest and remaking other polities is tough work, and we should always be super-cautious about engaging in such action.

AGW catastrophism hit its peak popularity in 2008, and is now in steep decline. The leaked emails from Britain were in no small part responsible for this. Careful criticism also had an influence. And, finally, the silly folk sayings confirming global warming itself probably did the most to undermine the position. People can only speak risible nonsense so long before laughing. (Al Gore and media folk were largely responsible for encouraging the idea that every storm, every heat wave, and every exceptional weather event provided “more evidence” that global warming was happening. Record-breaking cold spells and blizzards heralded as signs of “global warming” became a popular folk joke in 2009 and 2010.) The hard rhetorical barrage Americans had been hit with for years — from scientist-advocates, media folk, popular entertainers trying to look serious, and Al Gore — appeared to toughen them up, not convince them.

Finally, support for new national programs for medical insurance peaked last year. By the beginning of this year, popular support had dropped to below 40 percent.

And here’s where courage comes in. It is now risky for Democrats to unite around an unpopular issue.

What could they be thinking? I mean, we expect politicians to rally around popular causes, not unpopular ones. Politicians have demonstrated a rather consistent desire to get re-elected. So what gives? What do they hope for?

I can think of a few possibilities:

  1. Democrats hope that, like Social Security, the new program package will grow in popularity over its first 20 years after implementation. Social Security became the infamous “third rail” of politics, which one dare not be seen to criticize, from the ’60s though the ’80s and beyond. They hope for a similar effect with health care regulation and nationalization.
  2. Democrats know that they have only a limited time in majority, in united government, and feel they have to do what their core constituency really wants, before they lose control. They are hoping that it will be harder to repeal the medical reform package than it was to pass. (It is harder, in America, to repeal programs than it is to create them. This is fairly well established.) Think of it as their “Final Solution.”
  3. They know that it will likely be struck down in courts, and that this will rally their supporters to take on a new, bigger fight, which they can make hay over for years.
  4. They really are (or, perhaps more likely, want to be seen as) ideologues, to appeal to their core supporters in the government unions, people who by their nature think that government is the key to all progress (the sole sense in which they can be called “progressives” . . . that is, they believe only in the eternal progress of increasing size, scope, and efficacy of political and bureaucratic governance).

In these four scenarios, they come out as risk-takers. People of courage.

But, when you look at the hodge-podge of proposals that make up the reform package, they come off as something else again. I’ll let the reader name that “something else.”

Republicans have a huge opportunity for a comeback, here, but only if they stick to the theme that nurtures Americans’ justified incredulity. And the only way to make this stick is to attack the package not for such things as Death Panels and Abortion support — proof positive that Republicans tend to be a rather brain-dead group, so off-point are most of these issues — but for its long-term and wide-spread negative consequences.

This is hard work. I have not done it here. We have only just begun. Thinking “beyond Stage One” (as Thomas Sowell puts its), identifying the “unseen” as well as “the seen” (as Frédéric Bastiat put it), striving to discover the long-term effects as well as the near-term effects (as Henry Hazlitt put it) — these critical modes of thought aren’t easy. They require effort. They rub against the grain of enthusiasm. They seem treasonous to people who demand symbolic action, and identify themselves chiefly by the “good deeds” they do by merely supporting a political party.

Ah, and there’s why we don’t see Republicans normally taking to this agenda. The technique of honest and thorough social thought cuts both ways. It cuts against the right as against the left. It makes hash of simplistic arguments for war as it does against simplistic arguments for government handouts and regulations.

But there is one thing we, who try to practice economic criticism, can take solace in: Our agenda may not be the mainstream political agenda, but it does fit in, very nicely, with the common sense of the American people. Americans’ native skepticism over government may be superficial, but it is strong, and it is growing.

By applying economic thinking, and publicizing this thought, we strengthen the growing incredulity to statism in American culture, and prepare the way, perhaps, even for an eventual political success.


Filed under: Health Care
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Henry Hazlitt"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."
Henry Hazlitt, Economics in One Lesson
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