Information Landmine

"The Americans keep telling us how successful their system is. Then they remind us not to stray too far from our hotel at night." - An un-named EU trade representative quoted during international trade talks in Denver, Colorado, 1997.

Wednesday, November 22, 2006

There's no stuff like free stuff...

Someone's posted up that Friedman played am important role in abolishing the draft, and then talks about the fact that Democrat Representative Charlie Rangel wants to re-intorduce the draft now, saying that "There's no question in my mind that this president and this administration would never have invaded Iraq, especially on the flimsy evidence that was presented to the Congress, if indeed we had a draft and members of Congress and the administration thought that their kids from their communities would be placed in harm's way." I have no idea what Steve thinks of this, but it seems to me to get to the heart of the problem with liberalism, both in the political sense of the liberal democracy, and the economic sense of free markets. The central idea behind this is that people are smart, know what they want and will do what's in their best interests: democracy and markets are thus the best ways to organise people, because those methods of organisation give people the freest range in exercising that spectacular rationality and the economic case, this adds up to something. Friedman's a particularly shining example of a guy who believed strongly in this; wherever possible, he wanted to let people make their own decisions and keep the government the hell out of it, both because governments are clumsy and slow, and because they can be corrupted.

The first problem with this is what you might broadly term the information problem: even if people ARE smart, rational actors who will always try to do what's in their best interests, they may not have all the relevant facts available. This worries everyone from Noam Chomsky (the mass media skew people's idea of their political interests) to Joseph Stiglitz (information in the market doesn't come for free - someone has to find out stuff like pricing information and that has a cost, even if it's sometimes not that big) to a whole generation of Marxists who talked about ideology. This is more of a technical problem, in that, if we could find some way of getting all the information to people at no cost (or practically no cost) we'd have solved the problem. This, incidentally is why so many liberal types (Lessig, Benkler etc.) are so interested in the internet - it has the potential to solve a lot of those information problems - at least for anyone who can get themselves online.

The second problem, however, is a little bit bigger: quite often, people aren't that smart, don't behave rationally and seem to act against their best interests (or at least their best interests as liberalism generally thinks of them) in the full knowledge of what they're doing. This can be anything from staying up playing video games when you know you should be studying, to dying for something you believe in - from the point of view of maximising the goodness available to you, both of those things are irrational, but people do them surprisingly frequently (obviously no-one dies for something they believe in more than once - what I'm saying is that there doesn't seem to be any shortage of people willing to do it). There are a lot of attempts to rescue the idea of the rational individual, mainly by declaring anyone who deviates too strongly from its tenets to be either mad, depressed, brainwashed or otherwise not fit to make decisions for themselves (behavioural economics, which posits a sort of "patterned irrationality" for everyone, is another interesting take on this), but the problem remains: a lot of people who you'd allow to vote and own a company are still quite likely to over-invest in insurance, eat too many cakes, and pay for gym membership that they don't use.

Both of these first two are problems with the model, or more precisely, with the guy the model's built around - you might call him either "the liberal subject" or "homo economicus", depending on who you were trying to impress. He (and as any good feminist will tell you, he's historically very likely to be a he) is pretty much your typical rational actor doing his thing in your typical model of market-democracy. If he wasn't an abstract model of how an economically rational human being should behave, he'd be an accountant.

There's also a slightly different problem, which is market failure: even when populated with ever-so-liberal subjects, markets just aren't very good at doing some things. In particular they suck at providing public goods. A public good is something that, if you pay for, other people are going to be able to enjoy the benefits of (actually the definition's a little more technical, but you get the picture). The paradigmatic example is national defence, where, no matter who pays for the defence of the country, it's the country as a whole that benefits (I'm going to leave out the obvious cracks about the "benefits" of our current defence policy for now). This works both on the level of payment, and on the level of national service. You may pay a bigger tax bill than me, but you don't get any more protection because of it;I may not give a shit about whether the Nazis come and take your little bit of England, but I want to hang on to mine and so fly in the Battle of Britain while you stay home and reap the benefit (N.B. I know I'm too young to have flown in the Battle of Britain, and that this may make the example seem a little implausible. You try finding a more recent example of the average British person having anything to gain by fighting in a war). Paying we can manage through the tax system - the problem is deciding who does the fighting and who gets the free ride: left to their own devices, it's pretty easy to imagine that everyone would just sit round hoping someone else would do something.

Which brings us back to army recruitment: which seems to me a bit of thorny problem for anyone who takes their liberal subject seriously. You can have a draft, but that's state compulsion, so it's a no-no - no use being a liberal subject if you don't have liberty. Or you can go with "voluntary recruitment", the inverted commas around which I think are best explained with reference to this clip from the Simpsons. The solution that they're going for there is what you'd think of as a combination of problems 1 and 2. Recruits are subject to problem 1 in that they're given a certain amount of misinformation, and problem 2 in so far as they have a different set of priorities to our liberal subject - getting shot at for less than you'd make doing the accountancy doen't feature high on homo economicus's to-do list. This seems to me to pose some problems for the die-hard commitment to libertarian-type ideas of many Friedman fans (I think the man himself was actually a little more nuanced). If people were so smart and rational (in the liberal sense that makes markets and democracies work) that the government never needed to get involved in anything, then no-one would ever join the army, or at least not for the money that they're getting paid.

Two Caveats

1. It's not necessarily a problem for those of us whose subjects aren't so inflexibly liberal. The idea is that you minimise problem 1 by maximising a subset of problem 2: get your army entirely populated with people who are irrational in just the right sort of way (they value medals or esteem or excitement more than is economically rational). How much that actually happens in practice I'll let you decide for yourselves.

2. I know that I could be accused of attacking a straw-man here. For a lot of libertarian types the point isn't that their system works perfectly, but that systems based on other ideals are worse: individual freedom is a better organizing principle than, say, the rule of some supposed "collective will". I actually tend to agree with that statement as far as it goes. The problem is that as soon as they've made that (very sensible) point they often seem to return to the fantasy world where the market is a cure-all for everything and tampering with it is a special sort of blasphemy. My point is really just that that's stupid, and it stops you from seeing some very obvious things.


Blogger Steve said...

Personally, I also see Friedman as a misguided and somewhat naive idealist, much in the same way as Lenin, perhaps. Whether you're ideologically locked into Adam Smith or Karl Marx, as fantastic (in the truest sense of the word) as their theories are, you're still not entirely rooted in reality with all of its imperfections and unexpected nuances.

Greenspan, on the other hand, was/is just a con artist playing the world's biggest and most expensive game of Three Card Monte.

27 November, 2006 20:50  
Anonymous Anonymous said...
This BBC article states that an average daily wage for private security personnel is around $550. Although one must presume that mercenaries are all ex-regulars, that has to be hard to swallow for the squaddie that can't pay his council tax when he gets home.

28 November, 2006 22:27  
Blogger Steve said...

Or, indeed, has to take commercial loans out at ridiculously exorbitant rates of interest (39% per annum, anyone?) to make ends meet for his (or her) family back at home. Or has the car repossessed while away fighting the war. Etc., etc.

28 November, 2006 23:19  
Anonymous Pete Irving said...

Whilst I'm off on a tangent about mercenaries in iraq, I saw an article in the Sunday Times a couple of months ago about Jeremy Clarkson in Iraq.Clarksons impressions of Iraq were pretty much focussed on the big boys toys that the military ride around in, but there were quite a few pictures of the American 'contract soldiers'protecting mr. Top Gear. I'm not sure how dress code fits in to the rules of war, but I think it should be standard practice to ban anyone in jeans and trainers from handling machine guns. The dress code for mercenaries shouldn't, in my opinion be less stringent than the rules for getting into nightclubs. Maybe Clarkson just showed up on 'casual friday'.

29 November, 2006 15:43  
Blogger Uncle Petie said...

Dress code may indeed be a tangent, but the mercenaries seem right on the point: it's the closest thing you'll get to a competitive rate for people getting shot at in war zones, and it's far higher than anything the military will pay you. Of course you could argue that that was because private security firms were recruiting skilled soldiers and not having to train them up, but that wouldn't explain why special forces are so worried about losing men to private businesses.

Another interesting thing is the amount that the US and UK governments use expensive private firms for certain jobs you'd more usually think of as government businesses. The famous case is using civilian contractors to get round those nasty torture restrictions that they haven't yet managed to abolish, but it seems to be a pretty good way of avoiding too much democratic scrutiny in all sorts of circumstances:,3604,1103566,00.html

29 November, 2006 16:35  

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