David R. Henderson  

Free Markets to the Rescue

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One of my biggest disagreements with fellow libertarians is on the issue of optimism versus pessimism. I tend to be an optimist, while some fellow libertarians--I have in mind my friend Robert Higgs as an extreme example--tend to be pessimists. So, for example, in observing the same glass with water up to the halfway point, he will notice that it's half-empty and I will notice that it's half-full. Of course, that's not a difference in our observation of a factual issue--it's a difference in how we talk about it and what we emphasize.

But there is one other factor that makes me an optimist that is not just a matter of perception and observation: the fact that free markets and the innovation that they lead to often undercut and counteract the oppressive state.

One example from a few years ago before I get to an example involving the federal government's intrusive surveillance of our private lives.

A few years ago, I was going through the TSA line at the Los Angeles International Airport. There was a well-dressed Japanese couple ahead of me. The man in the couple took out a beautiful jeweled lighter to put in the tray. A TSA employee spotted it and I swear his eyes lit up. He confiscated the lighter. The man who had just had his lighter filched looked crestfallen. My guess is that the lighter was in the TSA guy's house that evening.

I had a thought: wouldn't it be a good idea for UPS or FedEx to locate a box right near the TSA line so that if you arrive at the line and realize you have something valuable that the TSA workers are going to grab, you could instead FedEx or UPS it to yourself. Only months after that thought, sure enough, I started seeing such boxes. Not everywhere, to be sure but, still, in some airports.

You probably have to have lived under a rock not to know that the federal government has been aggressively invading in our phone calls and e-mails since Bush Jr. was president and continuing on through Obama's presidency. Parenthetical note: wouldn't it be great if we had a president who understood the Constitution from, say, having taught Constitutional law at one of our major law schools? Oh, wait.

Probably, when you hear about this overreach, one of your reactions is a feeling of helplessness. Some of us might forget about saying anything confidential on a phone or in an e-mail. But free markets are coming to the rescue. There are already technologies out there, and widely available, to make it harder for the federales to violate your privacy. Here's a blog post that reviews them.


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COMMENTS (18 to date)
Alexandre Padilla writes:

David,

These are indeed a good example of profit-seeking entrepreneurs coming to the rescue but the problem with that it is inefficient. Because the government is abusing its power, you are diverting resources to protecting yourself from government's abuses. The resources you could have used for other things are being used to protect yourself against you are not supposed to protect yourself against given that the government is supposed to protect you against this type of "violence."

Isn't it one of the arguments in favor of government when you read Buchanan or Olson's theories of government. If you didn't have the government (a stationary bandit), you will dedicate an excessive amount of resources to protect yourself against roving bandits to the point that you are not producing anything because the costs of protecting what you are producing will far exceed the net benefits of producing the goods.

Let me take another example. According to the law & economics literature, blackmail should be illegal because it's inefficient because the resources you are spending in protecting yourself against blackmail shouldn't be spent protecting yourself against blackmail (whether it's paying bribe or hiring people to maintain your privacy) and blackmail itself involves using resources to try to discover people most intimate secrets to blackmail them.

I most certainly oversimplify my analysis but the point being that the fact that the free market comes to the rescue to government's abuses (meaning not the government but some people working directly or indirectly from the government) is not source of optimism, it's only source of concerns because an increasing amount of resources are being diverted to protect ourselves away from the people who are supposed to protect us or not to steal away from us (I am referring to the lighter example). I am not concerned about the fact that entrepreneurs have the ability to find profit opportunities, I am concerned about the fact that these profit opportunities are "artificially" created by the government. There are tons of examples of businesses making profits as a result of such examples. Last Fall, there was an article in the New York Times about some NYC's public schools banning cell phones. Guess what? A business "came to the rescue" offering children to store their cellphones outside the school while they were in school and students can retrieve it: http://www.huffingtonpost.com/2012/06/18/new-york-student-cell-phone-ban-boon-to-storage-businesses_n_1606141.html

You are right, some will see such creativity of markets as a source of optimism; from an economic viewpoint, I am not as optimistic as you seem to be.

All of this being said, I might be totally wrong.

David R. Henderson writes:

@Alexandre Padilla,
I think you're right and you said it well. It is a loss. My point is that we lose less freedom and less wealth than an analysis that assumes no creative response would show. But you're absolutely right that we lose both freedom and wealth. And I see now that I didn't make that distinction carefully.
Thanks for helping me think through this.
One area where I might disagree, though, is on blackmail. Walter Block has written on this and, while I'm not totally persuaded, I'm more on is side of things than I would have ever expected before reading him. His argument is that blackmail shouldn't be made illegal.

Omegaman writes:

David write in part --
I had a thought: wouldn't it be a good idea for UPS or FedEx to locate a box right near the TSA line so that if you arrive at the line and realize you have something valuable that the TSA workers are going to grab, you could instead FedEx or UPS it to yourself. Only months after that thought, sure enough, I started seeing such boxes. Not everywhere, to be sure but, still, in some airports.

_________________________________
Probably not as good as it sounds.
In general, the category of what you cannot put in a fedx drop-box is rather extensive, to include jewerly and other valuables.

Frankly, I'm a little surprised that TSA would allow an unattended drop-box in a concentrated public setting, such as an airport, to be a collection point for unchecked items. Someone could drop incorrectly packaged dangerous goods in the box or something worse.

A better idea would be for that particular airline to provide better customer service, and set up a collection point per flight, and then the airline could inspect, and provide a receipt for those items in question, move those items on the same flight as the owner and return the valuables to their owners upon arrival at destination.

If the items in question are restricted, then the passenger/owner can't simply drop them in a fedx drop-box anyway.


Hazel Meade writes:

That is very sad. Ihate thinking that such corruption is so openly occuring with our police and security officials. I myself have lost items at TSA checkpoints, such as pocket knives I forgot were in my backpack or purse. But never anything as valuable as a jeweled lighter (which was probably worth a few hundred bucks). Moreover, I am not sure that lighters are even forbidden. I'm certain I've mistakenly carried a few through airport checkpoints.
Anyway, every time I have had something conficated, the security always told me that I could FedEx it back to myself. That was long before there were FedEx boxes that you mention.
So it seems obvious that in the incident you mention, the TSA guy was blatently filching the lighter.

I've heard of similar things happening during the Iraq war. US soldiers stealing the family's stash of jewels or cash that they had kept (it being the middle of a war, one might want some liquid assets handy) while on house raids.

It's quite depressing that this kind of corruption is being openly tolerated nowadays. I once had an experience where Portugese officals were clearly expecting me to bribe them when I was travelling to the US, and I hope we never get to that point in the US.


Chris Koresko writes:

David Henderson: ... wouldn't it be great if we had a president who understood the Constitution from, say, having taught Constitutional law at one of our major law schools? Oh, wait.

I think you were probably being mostly sarcastic here, but it's worth noting that, creepy as it is, it isn't obvious that what's going on (or rather, what's been admitted to) actually violates the Constitution. See this article by John Yoo.

Roger Sweeny writes:
wouldn't it be great if we had a president who understood the Constitution from, say, having taught Constitutional law at one of our major law schools?

No, it wouldn't. What you learn if you look at the history of Constitutional law is that the interpretation of the Constitution changes depending on what the members of the Supreme Court think. To put it in the worst possible way, what you understand is that there is no Constitution, just interpretations. So if you are sophisticated and clever and smart, you won't feel bound by interpretations that push you toward places you don't want to go. You will feel that your interpretations--which, surprise!, line up with your politics--are the ones you should follow.

David R. Henderson writes:

@Chris Koresko,
Yes, I had read John Yoo's piece and found it, as you might not be surprised to learn, unpersuasive. And I really did read it, even putting aside my repulsion when I think about how he said it might be alright for the president to order the crushing of a two-year old's testacles.
This doesn't go to the constitutional point, but it is interesting how Yoo twisted words in the following segment from the article you cite:
We shouldn’t expect any measured response to the Obama administration’s program from the usual libertarian critics, should we? When news broke in 2006 that the National Security Agency had been collecting phone-call metadata, Senate Democrats called for President Bush’s censure or perhaps impeachment, New York Times and Washington Post editorial writers attacked Bush as a violator of the Constitution, academic leaders such as Yale law-school dean Harold Koh called it “quite shocking” and without judicial approval, and Senator Patrick Leahy had a hearing where he yelled “are you telling me that tens of millions of Americans are involved with al-Qaeda?”
How does Yoo avoid responding to actual libertarian critics? By ignoring them and labeling statist Democrats as libertarians.
@Roger Sweeny,
Touche.

Chris Koresko writes:

@Roger Sweeny: Good point. Some politicians study the Constitution like burglars study locksmithing.

@David Henderson: That paragraph (seemingly equating liberals with libertarians) struck me as strange, too, but I suspect it's more a matter of poor writing or editing than a deliberate twisting of words. Yoo's point that some of the same voices that lambasted Bush are giving Obama a pass may be valid, though.

The bit about the president being within his rights to order the crushing of a two-year old's testicles sounds implausible to me, and extremely disturbing if true. Can you provide a reference, please?

David Friedman writes:

Re Blackmail

Walter's argument, as I remember it, has two parts:

1. The fact that the victim pays shows that he is better off paying than having the information revealed. The blackmailer is obviously better off. Since both of them benefit by the transaction and nobody is hurt, there is no reason to ban it.

2. Blackmail functions like a private law enforcement system. Potential blackmailers search out evidence that other people have done bad things and impose a fine on them in the form of the blackmail demand, thus punishing, hence deterring, the doing of bad things.

It may occur to you that the second argument destroys the first. If the potential gains from blackmail act as an incentive to search out negative information about potential victims, it follows that the victim need not be better off because blackmail is legal--with luck, if it were illegal, nobody would ever have detected his misdeeds and he would neither have to pay nor be publicly shamed. As best I can recall, Walter nowhere in the article I read mentioned this problem.

The strength of his second point depends on the assumption that facts that the victim doesn't want revealed are the result of acts he ought not to have committed. That's plausible but not necessarily true. To take one obvious example, someone might be blackmailed with evidence that he had evaded taxes, which I do not think is an activity that Walter wants to deter. He might, at least as of a few decades ago, have been blackmailed with evidence that he was gay. A woman with evidence that she had had an affair--and the threat to send it to the man she hoped to marry.

Other examples readily available.

So although I don't think it is clear that blackmail ought to be illegal, I also don't think that Walter's article (assuming he hasn't written another one since the one I read) is an adequate argument to show that it ought to be legal.

David R. Henderson writes:

@Chris Koresko,
That paragraph (seemingly equating liberals with libertarians) struck me as strange, too, but I suspect it's more a matter of poor writing or editing than a deliberate twisting of words.
No way. Yoo is way too crafty to have blown it that way.
Will find reference to the 2-year old. I have it the 20-second segment on my iTunes. It's from a debate some years ago.
@David Friedman,
You're reminding me about why I wasn't totally convinced by Walter's argument.

David R. Henderson writes:

@Chris Koresko,
Here it is.

NZ writes:

@David Friedman:

You are (or, Walter is) basically positing blackmail as a kind of useful social mechanism that benefits everyone involved and/or keeps people from doing bad things. To my eyes this interpretation makes blackmail seem kind of like it serves the same function as a lawsuit settled out of court.

Yet people still get blackmailed in spite of our legal system's broad accessibility. To explain this it might be useful to point out two differences between blackmail and lawsuits:

1. People who engage in lawsuits are sometimes shady characters in their own right, but not quite shady the way people who engage in blackmail consistently are. If somebody engages in blackmail rather than go through socially accepted legal pathways, he himself probably has something to hide.

2. While lawsuits are intended to make whole people who were wronged at the expense of those who wronged them, blackmail tends to be carried out by a third-party "scavenger" to the situation. If A was wronged by B and B is blackmailed by C, A usually doesn't benefit in the end. Not only that, but B's being blackmailed could make it harder for A to collect recompense.

Additionally: if you agreed to pay off a blackmailer to, say, protect your reputation, your reputation probably ought to be worse than it is being kept. So, blackmail actually creates a market inefficiency by putting information into the market that is worse than imperfect. Thus, even in a stateless society I'd bet blackmail would be treated as a crime and a taboo.

Tom West writes:

So it seems obvious that in the incident you mention, the TSA guy was blatantly filching the lighter.

I'm not certain that I'd call it blatant.

After all, "I swear his eyes lit up" is a judgement call of the agent's intent on David's part (which is fine). However, I don't think he was making a claim of blatant corruption (more like suspicious behaviour) and in my book, "blatant corruption" requires a higher standard of proof.

I do like the work-arounds David mention. If society seems to (mostly) have accepted the travails of airport security, at least let the inconvenience be minimized - and be rewarded for that minimization.

Chris Koresko writes:

@David Friedman: Walter's argument, as I remember it, has two parts:

1. The fact that the victim pays shows that he is better off paying than having the information revealed. The blackmailer is obviously better off. Since both of them benefit by the transaction and nobody is hurt, there is no reason to ban it.

But wouldn't this argument hold for mugging as well? After all, the person being mugged is better off handing over his wallet than getting injured or killed, and the mugger is better off with the wallet, no?

Chris Koresko writes:

@David Henderson: Here it is. (referring to a video clip)

Thanks for the link. I watched it a couple of times. But it's hard to tell what it means. It's only a 25-second exchange, in which most of the talking is done by someone questioning Yoo, and includes what sounds like only the introductory sentence of Yoo's reply.

I noticed a video on the same page, titled "John Yoo: A President Can Nuke the US" That one is a longer exchange with an audience questioner who concludes by calling Yoo "an open war criminal."

I'm going out on a limb here, because there just isn't enough info to be sure. But my impression is that Yoo is describing the legal limits on what a president can do as commander-in-chief, and basically saying there aren't any... and this is being interpreted as if it were a statement about morality by people with a huge axe to grind.

Is this not correct?

Tim Worstall writes:

"So, for example, in observing the same glass with water up to the halfway point, he will notice that it's half-empty and I will notice that it's half-full."

And then of course there's the drinking libertarian. One who has been in enough pubs to know the correct response.

"That's not my glass. No, I had a pint. And it was full, new. Of gin."

Bob Lince writes:

"[T]he issue of optimism versus pessimism."

The famous movie director Billy Wilder was an Austrian Jew who worked as a newspaperman in Germany before the rise of National Socialism led to his emigration to the U.S. In 1945 he returned to Germany with the U.S. Army in order to supervise the German production of a film on concentration camps.

Wilder's mother, grandmother, and other family members died in the camps. He is quoted (in a book reviewed here: http://lareviewofbooks.org/article.php?type=&id=434&fulltext=1&media=#article-text-cutpoint) as somberly remarking:

“You’ve got optimists and pessimists. The first died in the gas chambers. The others have swimming pools in Beverly Hills.”

It's my guess there is no correct solution to the "half-full glass" problem.

MingoV writes:

The free market, in response to governmental misuse of power, makes big profits stapling plastic sheets over our broken windows. If the free market came up with solutions that prevent government workers from throwing rocks (such as abducting and imprisoning the politicians and agency heads who hire the throwers), then it would be generating an economically sound solution (instead of counterproductive workarounds that reduce the outrage against the government).

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