March 03, 2006

John Stossel on Education and the Free Market

Syndicated columnist and ABC news reported John Stossel has an editorial at (HT: WorldMagBlog) on the benefits of introducting free market competition to the primary/secondary education system through a voucher-type system. Most of the points he makes are obvious - as economists say, idealized free markets lead to Pareto-optimal states, and competition brings a system that much closer to the idealized free market - but the article is nevertheless worth a read. In short, under the competitive system "Bad schools will close and better schools will open. And the better schools won't all be the same." Stossel points out that no one can predict exactly what will happen in a free market, but we do know that the best ideas win out. He also gives some helpful real world examples of things that have already been tried. Check it out.

Posted by kpearce at 01:53 PM | Comments (0) | TrackBack

February 20, 2006

Libertarianism and Corporations

One of the key problems of strict (non-consequentialist) libertarianism is how the state is to successfully perform its function of protecting citizens from force or fraud without the funding acquired from confiscatory taxation schemes. The problem is that libertarian commitments in the region of political morality do not permit the government to violate the private property rights which individuals have in the hypothetical "state of nature," and in the state of nature individuals own all of their income, not just what's left after taxes. The government exists to enforce these property rights. Robert Nozick believes (see his book Anarchy, State, and Utopia) that the libertarian state is in fact itself a sort of business, the "dominant protective agency" in a given region. He argues from economic principles that an Adam Smith "invisible hand" process will lead to the existence of exactly one protective agency in any given geographic region, where a protective agency is a company whose sole or primary purpose is to enforce the (negative, libertarian) rights of its clients. Of course, such a company's clients must voluntarily choose to pay it for its services - the agency may not coerce this payment from anyone who doesn't wish to purchase its services. Nozick has a lengthy discussion of just what happens when an individual living within the protective agency's bounds chooses not to purchase its services. The short version is that Nozick believes, not implausibly, that the protective agency may prohibit people before the fact from performing "risky procedures" - that is, from doing things that have a high risk of violating the rights of its clients - rather than merely exacting punishment afterward, provided it gives just compensation to the affected party for the disutility it causes him. So, for instance, if we prohibit blind people from driving cars because there is a high probability of them injuring people other than themselves, we must compensate them for any disutility associated with the prohibition. (Of course blind people presumably wouldn't gain much utility from driving cars, since they would probably die.) Now, on the same grounds, the state may prohibit non-citizens from using risky procedures (or procedures it doesn't know to be safe) for determining the guilt or innocence of its clients and subsequently punishing them. For instance, if I am a client of the protective agency and you are not, and someone steals your television and you determine by reading tea leaves or chicken entrails that I am the guilty party and attempt to punish me, the protective agency may prevent you from doing so without first determining whether I am, in fact, guilty, but it must first compensate you for any disutility associated with this prohibition. The most sensible way for the state to do this is to agree that, although you are not its client and do not pay its fees, it will enforce your rights whenever they are violated by its clients (if you are violated by another independent or by a foreigner, you are on your own, unless you decide to pay the protective agencies fee).

Now, this model works, more or less, but there are a number of things that libertarians agree with everyone else are good that it is very difficult to accomplish on this scheme. For instance, it is good to preserve some wildlife habitats, it is good to provide education to everyone, it is good to end racial discrimination, it is good to break up or eliminate abusive monopolies, etc. In general, however, libertarians are quite adamant that these things are not the job of the government, and can be acheived in a "free market" sort of way, if enough people care, and of course they are right. That is, if enough people care, we can set up private foundations to preserve wildlife habitats, we can create private schools with scholarship systems for poor children, etc. Most people are (rightly) skeptical of the claim that this would actually happen, human nature being what it is, but the libertarian responds that the fact that people would not voluntarily give their money to these causes only strengthens his claim that it is wrong to take their money by force.

What I wish to examine here is the question of a particular way in which a libertarian state might justly acquire surplus wealth, and what it might justly do with it. My discussion will center around the concept of the limited liability corporation.

In the state of nature, there are no corporations. The defining feature of a corporation is that it is a "legal fiction" in which a company is treated as if it were a person. In the state of nature, all companies are sole proprietorships, unlimited liability partnerships, or joint-stock corporations (the latter two needing only contracts between the owners to work, no government cooperation is required), and the owner or owners (or perhaps in some cases some or all of the employees) have complete legal responsibility for all actions of the company. There is no distinction between company assets and individual assets. After all, companies are merely figments of our imagination, and the actions are in fact taken by people. (These considerations have the interesting consequence that on the Nozick model we can imagine a protective agency being a sole proprietorship, and thus we in fact have the theoretical possiblity of a libertarian dictatorship! Although he frequently uses the phrase "protective agency," as I have been, Nozick seems to favor the idea of a "protective association" where we all come to one another's aid, and the idea that this might grow into a case where we all put some money into the pot and hire police, etc., with it, which gives us the more familiar libertarian democracy.) Now, the protective agency, or rather, its members, may enter into contracts, as anyone may, on the libertarian understanding. Suppose the protective agency creates a class of contract called Type C contracts, that look like this:

Any group of people jointly owning a company (an unlimited liability partnership or joint-stock corporation) may apply to enter a contract of Type C with the state. Such a group of people will be called "stockholders." Henceforth the state will treat the company as though it were an individual person, giving the company the ability to own property, be a party to contracts, and so forth. The state will hold the company responsible for its actions and contractual obligations, the stockholders having no liability in such matters.

May the libertarian state do this? It seems so. But what about the independents (i.e. those who are not clients of any protective association)? Suppose a corporation violates the rights of an independent. The independent is not a party to the contract forming the corporation, and so from his perspective his rights were violated by an individual - the corporation does not actually exist. The state, however, prohibits him from punishing the individual who violates his rights. The state, in exchange for his observation of the prohibition has agreed to enforce his rights for him. On the other hand, the state has an obligation not to hold the stockholders liable for the corporations actions. So the state must then confiscate the corporation's property, and not the stockholders' individual property, and thus force the corporation to make restitution to the individual. It may be further necessary to punish the corporation somehow. The independent should be satisfied with this provided that (a) his property is restored, or he is justly compensated for the violation of his rights, and (b) the individual who is actually guilty is seen to be punished in the course of the punishment of the corporation.

Now, what if the corporation is unable to make restitution; that is, what if it is bankrupt? The state's contractual obligations prohibit it from exacting punishment on any of the individual stockholders for the corporation's actions; it may not confiscate the stockholders' personal property to pay the corporation's fine, but it must nevertheless see that restitution is made to the independent. Where is the money to come from?

In order to avoid this situation, the state might require, as a term of the contract, that corporations carry liability insurance, which they might purchase from the state (since it is, after all, the state who is required to come up with the money to make restitution to the violated independent), or another corporation, or a private individual (provided the corporation or individual were capable of making the relevant gaurantees). None of this necessarily occurs if the violated individual is a client of the state, because in this case that individual is a party to the contract and has agreed to treat the corporation as a person; thus, from his perspective, he was violated by the corporation, not by an individual, and if the corporation is bankrupted and ceases to exist it is as though the individual who violated him has died, leaving no estate and having no heirs. He cannot justly expect to receive any restitution. Of course, I say necessarily. The state could, and probably would, define the contract with the stockholders, and also its contracts with its individual clients, such that its clients received the same or better treatment, as compared to independents.

What this discussion points to, to me, at any rate, is that it is the state that creates corporations and thus the state may define the contract which corporations must accept in any way it chooses without violating anyone's libertarian rights (provided it keeps its obligations under the contracts it has previously been a party to). Suppose, therefore, that the state says, "in order to enter this contract, the corporation must pay X% of its profit in taxes each year." If people don't like the terms, they will not form corporations. If, however, very large and profitable corporations DO form, the libertarian state - which, you will recall, does nothing other than protect its citizens from force or fraud - may find itself in possession of a great deal of money. Now, since the state is making an offer to potential stockholders of corporations, and can make whatever offer it chooses, it could do lots of other things as well. In an extreme case, it could reserve the right to change the contract whenever and however it saw fit. Presumably no one would sign that contract. Perhaps instead the state would specify that when it makes such changes a limited liability corporation may choose to revert to a joint-stock corporation rather than accept them. If the government changed its offer over time without changing old contracts, it would have the effect of putting corporations formed at different times on different footing, which would have interesting (probably bad) economic effects.

Suppose the government wanted to institute in this way some of the things libertarians complain about most; say, income tax and affiirmative action. Of course, in this case the government wouldn't technically be taxing an individual's income; rather, it would be taxing the corporation on its pay to employees. In the affirmative action case, again, the government would merely say "if you don't want to treat people of various races equitably (according to our definition of equity) don't accept this contract." No one's rights are violated, per se. Most libertarians can be expected to respond with the charge of reverse discrimination, but, of course, the government could just as easily require corporations to treat races unequally. This would be an injustice in some important sense (as would reverse discrimination), but the government would not exceed its authority or violate anyone's libertarian rights. Moreover, we must remember that the government we are discussing is not the titanic state common today, but rather small and limited in power. Presumably if the government enforced unfair hiring practices on corporations, principled people would not form them. Since sole proprietorships would not pay the same kind of additional taxes corporations did, they might be on equal footing. However, if there was a serious social problem, our hypothetical government might try to address it by this sort of means, just as real governments have sometimes begun by enforcing standards on their own hiring practices, rather than on the hiring practices of everyone in their country. I'm not completely convinced one way or another as to whether the government ought to do such things, I'm simply arguing that its doing so would violate no one's libertarian rights.

Now, in addition to the extra power the government has gained by being able to define the agreements which form corporations, the government has gained a great deal of money. Whatever it does with this money, if it behaves just as any group of people is permitted to behave, and it honors its contractual obligations, it will violate no one's rights. The government could enter competition with private businesses in various industries, it could start it's own schools, it could offer scholarships to private schools, and so forth. These would violate no one's libertarian rights. The government could also help the poor, or set up orphanages, or other similar social programs, or depending on exactly how it was constituted it might distribute the surplus back to its clients equally. In the case of the familiar libertarian democracy, the clients of the protective agency would also be joint owners of it, and so any profit it did not reinvest would go to them. As has been previously mentioned, there's no reason on Nozick's system why private ownership of the government would violate anyone's rights. Of course, I think that it would be a very rare individual indeed who could convince people not to opt out of such a government. I think some of the tiny principalities in Europe have extremely popular royal families who might perceivably get away with such a thing.

Of course, if the government used its excess money or its power to define the corporation to do things that someone strongly disagreed with, or if its activities "on the side" caused it to become less effective in performing its primary function as the dominant protective agency, people would begin to opt out in large numbers, and might eventually form a rival protective association, leading to a possible war. (Nozick envisions that one reason the market would lead to a single protective agency in a given area is that if there were more than one they would sometimes disagree on whether a given person was guilty, and they would fight wars as a result, with one side trying to punish him, and the other to protect him. Since the protective agency that most often won battles in a given area would, ipso facto, be better able to enforce rights in that area, it would win in the market as well as on the battlefield, and the lesser agency would go out of business, or be restricted to a different area.) This would result either in the serious diminution, or the complete overthrow of the formerly dominant protective agency.

I suppose that, at bottom, the most important point made by the above considerations is that according to libertarian theories of political morality (at least on the Nozick model), present day governments violate individual rights not because of the way the system is set up per se but, first and foremost, because the individual has no ability to opt out of the system. His options are (a) pay the government to protect him from events such as, say, someone kidnapping him and holding him against his will, or (b) being kidnapped and held against his will (by the government, in prison). In this way, libertarians hold, present day governments are not terribly dissimilar with mobsters who collect "protection" money - if you don't pay for protection, you will need to be protected from the so-called protectors! This, above all, is the nature of the libertarian objection.

Posted by kpearce at 12:50 PM | Comments (1) | TrackBack

January 20, 2006

On Public Education

In the comments to this post on recent attempts to insert intelligent design into public high schools as philosophy, Ed Darrell and I have been having a discussion about more general questions of public education. I thought it would be a good idea to write a piece about my general view of this subject here, since the discussion is looking like its about to get quite long and detailed.

As I see it, there are two issues here: the government's use of tax money to fund education, and the government's exercise of power over how education is done. Furthermore, there are two facets to each of these issues: the legal question (does the US Constitution grant the government this authority?) and the theoretical issue (should the government have this authority?). This makes a total of four topics for discussion. First, however, let's look at a more general question about taxation and the moral justification of government.

Mr. Darrell recently commented, "Paying taxes to education [of] children is not confiscation. Government by consent of the governed is not despotism. Democracy is not dictatorship." Now, there is a sense in which all of this is true. That is, there is a real difference between having your money stolen and used for private purposes for the benefit of the thief, and paying taxes to government which are used for the general benefit of society. There is a real difference between a government "of the people, by the people, and for the people" and a despot who holds power by force. There is a real difference between power being vested in the people, and power being vested in a single man.

However, I believe there is also another sense in which these distinctions are not so pronounced as people generally think. If we choose not to pay for the education of others, we are thrown in prison. In this sense, this type of taxation IS properly described as confiscation; the government applies coercive force to get our money and give it to someone else. "Government by the consent of the governed" is a misnomer: many years ago, the people of this country willingly established our government, but people today are not permitted to "opt out." If someone attempts to remove himself from the social contract (as people, in fact, have), the government applies coercive force to them. I, personally, were I offered the choice, would choose the US government as it is presently constituted over anarchy (although I see much room for improvement in the present government). However, the fact that I would give you money if asked gives you no right to steal it without asking. My rights are violated simply because I have no opportunity to make the choice of whether to give it to you or not. Not ALL of the governed consent. Absolute democracy has been called "the tyranny of the majority," and it might as well be called "dictatorship of the majority." This is why we have a constitutionally limited republic instead. Only those constitutional limitations ensure that our democracy is better than dictatorship. Democracy can, in fact, be worse than dictatorship, because the mob has no direction. It is entirely unpredictable and sways back and forth depending on the mood of the moment. Dictators tend to at least pursue definite ends (although, of course, this can make them worse rather than better, if those ends are evil), rather than to act completely at random. It is the constitutional limitations of our republic, protecting unpopular opinions and limiting what the majority may dictate, that ensures the superiority of our form of government over ditatorship.

Back to the issue at hand. Public education is obviously a good thing. That is, it is good for just anyone to be able to go get an education, and not only the rich. But in this country when we speak of "public education" we don't just mean education available to anyone, we mean socialized education. There are other ways of implementing public education that don't invovle government control, as for instance scholarships offered by private universities and independent charities. These have existed on the primary and secondary education levels as well. However, they have never been good enough to make education truly public, as the socialized system has. I believe that they could be good enough in a culture that placed enough value on education that many many people gave to these charities, but they never have been. As such, I want to make clear that, despite the discussion below, I wouldn't want to suddenly abolish the current system. However, I do think that it is deeply flawed, both in areas of legality and in areas of political morality. Let us discuss the issue at each level off government at which it might be addressed, in turn.

First, the federal government. The federal government has only the authority explicitly granted to it by the Constitution (as the 9th and 10th amendments make clear). The Preamble to the Constitution does not give the government an unlimited power to, for instance, "promote the general welfare." Rather, it merely states that the founders believed that by organizing the government in the way they do in the main body of the Constitution they could "promote the general welfare" and acheive the other ends listed in the Preamble. The subtext, it seems to me, is that if they have failed in these ends, they invite us either to use the amendment process, or to get rid of the Constitution and start over. The Preamble is merely a statement of purpose. Nor does the federal government have unlimited power to make laws which it deems "necessary and proper" - if this were the case, Art. I Sect. 8 of the Constitution would be unnecessary. Rather, Art. I Sect. 8 Para. 18 says that the legislature may "make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof." (emphasis added.) That is, it may make the laws that need to be made in order to make effective use of the powers given to the federal government elsewhere in the Constitution. In a recent marijuana case, Justice Scalia, who has a very conservative (not in the sense of Republican, but in the sense of restricted) reading of this section in general, ruled, for instance, that prohibiting the transport of marijuana across state lines was part of regulating "interstate commerce," and that, because the government could not easily do this without prohibiting marijuana altogether, prohibition of marijuana was "necessary and proper" to "regulation of interstate commerce." But the necessary and proper clause doesn't just say the the government can do whatever it deems necessary and proper. It must be necessary and proper to the exercise of some authority the government has elsewhere.

Now, there is no mention of education in Art. I Sect. 8. I therefore conclude that, on the legal issue, the federal government has no power to give money to education or to regulate it in any way, except of course for regulations on interstate commerce, which may cover "distance learning" programs where the student and the university are in different states, or boarding schools paid for by parents living in another state, or similar circumstances.

Now, how about the moral issue? One person is forced to pay taxes to finance another's education. I see no moral justification for this whatsoever. Sure, I ought to be willing to voluntarily assist with the education of others, but this doesn't justify the government in forcing me. Furthermore, education, especially at the primary level, necessarily involves some degree of indoctrination, and government control of how children are indoctrinated is a serious violation of the rights of parents, especially when the governnment requires children to attend school. Since the No Child Left Behind Act took effect, the federal government does exert a degree of control over primary and secondary school curriculum, and this is a bad thing.

On to the state level. The 10th Amendment makes it clear that the state governments have powers which the federal government does not. As such, it may be the case that a state is legally justified in running a public education system, depending on how its constitution is written. Nothing in the Federal Constitution seems to prohibit this, as long as it cannot be construed as depriving anyone of liberty, which would make it run afoul of the 14th Amendment.

As for the moral issue, I don't see how it is any different on the state level than the federal level, so I must continue to, in principle if not in practice, oppose (socialized) public education, even if it takes place entirely at the state level.

Finally, what if education was handled on the city level? This, I think, would be a great improvement. In fact, most control over education is on this level, and much of it is funded by property tax levys. If a person doesn't like living in a city, there are many states, especially in the western US, that have large areas that are not governed by any city council. This gives the "implicit social contract" argument real application in this situation.

Suppose public education was controlled and funded entirely on the city level. Here I believe that, because of the extra strength granted to the "social contract" argument by the possibility of "opting out," the system could have moral justification. If you don't like what one city does, there are many cities and there are areas that are not in a city. Furthermore, cities could choose whether or not to admit people who do not live in the city and do not pay property taxes. Some cities who were feeling charitable would no doubt admit everyone. Others might not admit outsiders, or might charge them tuition. This would also create better free market competition between schools, since every one could do essentially whatever it wanted. They would all want to have better placement records in colleges and jobs, and parents would want their children in the best one. Schools would be free to innovate in order to acheive this end. This, I believe, would be much better than what currently exists certainly morally, and possibly also practically.

Posted by kpearce at 12:10 PM | Comments (4) | TrackBack

January 10, 2006

Smoking Bans, Private Property, and the Free Market

Hammer of Truth reports today that New Jersey has been added to the list of states banning smoking in "public buildings." Washington is also one of these states. Philadelphia tried to pass a city ban some time ago, but I believe it failed (I'm not entirely sure). Now, there are two things I want everyone to know about these smoking bans: (1) they are unjust, because they violate the private property rights of restraunt and bar owners, and (2) they are unnecessary because, to the degree that people actually want non-smoking establishments, the free markent provides them.

I do not have a problem with prohibiting smoking on public property, such as streets and public parks. If we-the-people own the land, and we-the-people don't want to inhale smoke when we are walking around on it, then we-the-people should prohibit smoking there (but how does the government come to acquire land justly?). So far so good. But, in general, we-the-people do not own restraunts! Restraunts are owned by private individuals, very much the way you own your home. We-the-people don't get to take a vote on what you can do in your home, because it's your home, not ours. We write, for instance, indecent exposure and obscenity laws regarding public streets, because we don't want ourselves or don't want our children to see certain things. We don't tell you what you can or can't wear, not wear, or say in your home. If we did, it wouldn't be your home. This kind of distinction has been wearing away for some time in this country, but it is not altogether gone, and it must be revived if we are to retain any of our liberties. Restraunt and bar owners have the right to decide whether they will allow smoking inside their establishments, and if you don't like it you have the right to leave. Period.

Now, most of the discussion on this subject has centered around not the consumers, but the employees who are required to breath second hand smoke as part of their job. To them I say, if you don't like it, you have the right to quit. This sounds callous, I know, but the real issue is this: you are a bartender in a bar that permits smoking and you make, say, $10/hour (I have no idea how much bartenders actually make). This means that someone values an hour of your work serving drinks in a smoky room at $10. If you accepted the job, then you must believe that your life breathing second hand smoke in a bar while mixing drinks and making $10/hour is better than your life without this job (or with any other job you were offered), so, by offering to let you breathe second hand smoke in his bar, the bar owner improves your life, according to your own standards. What are you complaining about?

Now, I mentioned that the free market takes care of these things. First, let's look at it from the perspective of consumers. Many restraunt goers don't want to inhale second hand smoke. Some people won't even go to a restraunt that smells like smoke. Many more will prefer a non-smoking one over a smoking one, and perhaps even be willing to pay more for the non-smoking restraunt. As a result, before the issue was ever regulated there were many non-smoking restraunts, and non-smoking sections in larger restraunts. This has not been the case with bars. As far as I know (I don't go to bars) there are very very few non-smoking bars in the world. Apparently, there is much less demand for non-smoking bars than for restraunts. If 51% of all bar-goers wanted bars to be non-smoking, there would be all kinds of non-smoking bars out there! In fact, there are only a few. This indicates that most bar-goers don't mind the smoke, and many of them even want to be able to smoke while they drink in bars, so in these bans we must have a bunch of people who don't even go to bars legislating what people who do go to bars can and can't do when they get there. Lovely.

Now let's look at the employees perspective. As I mentioned, the employee believes that his life is better with the job than without, even if the job requires inhaling second hand smoke, or he wouldn't have taken it. It seems perfectly possible to me that in some localities the free market determines higher pay for waiters in smoking establishments compared to non-smoking establishments, because most waiters would prefer not to breathe the smoke. However, some waiter may decide that he prefers the extra money to his health. We might chide him, and say that this decision is unwise, but he nevertheless believes that his life is better facing the health risks and receiving the extra cash than not breathing smoke and getting paid less. Who is the government to tell him how to live his life and what risks he may take? If just as many people would go to restraunts and bars if they were non-smoking, and those people would pay and tip just as much, there would be very few (or no) restraunts or bars that allowed smoking, because no one would be able to make a larger profit by permitting it (since there certainly are some people who won't go if the restraunt/bar permits smoking). That means that permitting smoking in some establishments increases the number of waitresses and bartenders who are employed, and the total amount of money paid to waitresses and bartenders in this country. Perhaps many of them think that it isn't worth it to inhale the smoke. If this is the case, then they will choose to accept lower pay from non-smoking establishments rather than work in smoking establishments, which will reduce the profit margin of the smoking establishments, compared to non-smoking ones. If enough employees think this way, it will become unprofitable to permit smoking, thus creating a de facto smoking ban. On the other hand, the restraunt and bar workers could unionize and make these demands about working conditions. (Ignore government recognition of unions, because when the government recognizes them they become EVIL. Our good union uses strikes and negotiations with management, not government coercion, to get its way.) If they were able to maintain solidarity, they would win. But if some people preferred to work under the poor conditions, or if the restraunts found it was more profitable to just hire and train new waiters and bartenders, they would lose. This is the way capitalism works. We all get to use our money and our time and our assets to influence the marketplace according to our preferences. We don't use our votes to do so. THAT is socialism, and it is the end of freedom.

Posted by kpearce at 12:36 PM | Comments (0) | TrackBack