Archive for the ‘Unintended Consequences’ Category

Driverless Cars and Systemic Vulnerabilities

December 29, 2012 2 comments

drivlscarSometimes it seems that the uncontrolled and non-systemic is more stable than the systemically controlled environments deliberately aimed at stability.

While the systemic model, with its top-down, consequentialist policies put in place specifically to produce stability, often produces stability over the short run, it at least as often produces unimaginably wild instability over the long run.

This is a problem that crosses platforms. A common analogy is the fires in managed forests. While top-down policies designed to systematically control and extinguish small fires prevent problems in the short run, the lack of fires to clean out the dried brush ultimately leads to uncontrollable infernos.

I am more likely to write about an almost identical problem on this blog: the Federal Reserve. While top-down policies designed to systematically control and extinguish market phenomena like inflation and unemployment often allow for stability in the short run, the lack of market responsiveness ultimately leads to catastrophic crashes, runaway inflation, and heavy unemployment.

This is something that I have been thinking on quite a bit recently, and I have come to the conclusion that we have to embrace the chaos. Ultimately, we’re in for a wild ride no matter what, so why delay the reckoning? Let’s deal with the problems in incremental and manageable ways, preferably at the level of the individual. The only alternative seems to be waiting for intractable problems later.

The reason I bring this up now is because Motor Trend magazine recently published an article called “The Beginning of the End of Driving.” Read the following excerpt and try to tell me you remain unworried about the systemic vulnerabilities.

Continental plans to have autonomous assistance available for limited freeway driving and for construction areas by 2015, says senior vice president Ralf Lenninger. It will add low-speed city capability in 2017, followed by two-lane highway and country road driverless car technology about the end of the decade. The company calls this “the car you can’t crash,” and it will meet the company’s goal for a zero-percent accident rate.
Zero percent accident rate? Kind of like the Titanic was unsinkable? The potential for systemic vulnerability to me seems greater than the individual vulnerabilities. If we go to a top-down system of driverless cars, what is to stop a rogue programmer from redirecting all of our vehicles into each other at once?
This is not to say that the technology is not potentially useful, or that it can never work. But when the impulse in government is emphatically interference, I doubt the likelihood of independent, individual driverless cars. Far more likely, we will be shunted into a system of “rational regulation,” which may very well end up shunting all of our cars into a ditch one day.
By all means, let’s let technology surge forward, but let’s ensure that we avoid the impulse toward systematic regulatory systems to go with it. I would hate to see driverless cars with the same track record as the Fed.

Complexity, the “Do Something” Instinct, and the Sandy Hook Shooting

December 27, 2012 1 comment

I have as yet avoided writing about the Sandy Hook shooting, partly because I dislike rushing to rash decisions, and partly because I believe the narrative has focused on unimportant ideology as opposed to the important ideas underlying the situation and the reaction to it. Now, however, with the benefit of some distance, I will weigh in.

What happened was horrible. There is simply no way around that. On the other hand, frantic reactions, calls to political action, and statements claiming that what happened was “obvious” do nothing but exacerbate the problem.

In reality, while it is easy to deconstruct the event with the benefit of hindsight, it is simply impossible to claim some sort of valid foresight. It is not enough to say “I knew that something like this would happen,” because that is a statement without verifiability until the proof is at hand. And when the proof is at hand, such a statement is already useless. If you had any real knowledge, you would have stopped it from happening. If you had no ability to stop it, you had had no real knowledge – simply baseless speculation masquerading as knowledge.

One can analogize this “foresight problem” to other occurrences. For example, if someone gets in a car accident, he might say later on “if only I hadn’t slept in and left 20 minutes later than I usually do, I would never have been in this mess.” This is the functional equivalent of claiming foresight about Sandy Hook. If either were valid, the problematic situation would never have obtained.

Nor is it possible to claim that, despite the lack of specific foresight, there was enough knowledge to have stopped the tragedy via preventive action. This kind of claim usually follows the “if only we had this law…” form, and it is the functional equivalent of the above. This also fails to account for the foresight problem, and it suffers from a debilitating case of confirmation bias.

The foresight problem can be extended through thought experiment. Consider a chess game.* The number of possible chess games that can be played is somewhere in the order of 10^120, or many multiples of the number of atoms in the universe. Once the chess game is, say, 50 moves in, and the chesspieces are arrayed just so, it is relatively easy to reconstruct what happened. Before the game began, however, there was an infinitesimal chance of predicting just such an arrangement. And remember, this is chess: as complicated as its game-tree complexity is, it pales in comparison to the complexity of an hour, even a minute, of human action.

We have no useful foresight, but neither does our hindsight yield much when faced with the multitude of competing and interacting causes and effects that a chessboard simplifies but real life makes manifest. After all, if the “obvious” solutions were actually obvious in hindsight, this would not be a recurring problem. We would have corrected it after the last time.

For example, getting rid of guns does not solve the problem, as countries such as Russia continue to see mass violence despite heavy gun control, while Switzerland’s rate of gun violence is comparatively miniscule despite enormous rates of gun ownership. Britain found that gun violence increased 40% after its gun ban in the late 1990s. Unlike poorly-informed pundits, I will not speculate as to why. And indeed, a majority of the mass shootings that have occurred in the United States have occurred in states, localities, and even schools that are “gun-free” or gun-restricted zones. Real life does not cooperate with our strictures. (QED.)

Nor is lack of guns an obvious problem, as the just-as-reactive NRA has suggested. What earthly purpose would stationing the equivalent of TSA agents (who, by the way, are not armed) at schools be, when the TSA has shown nothing but incompetence? Why would one expect an armed policeman to stop a shooter when armed policemen are already commonly at schools and haven’t helped? Why would a national guardsman or combat veteran be effective? Remember that one of the worst mass shootings in history took place on a military installation in Texas. No shortage of guns on a military base.

What are we to do with ourselves, then, if there are no solutions to the problem? (And, emphatically, there are none.) We do the best we can to defend ourselves, but we also accept that the real world is a dangerous, messy place and circumstances beyond our control may end our lives abruptly.

Callous? I call it realistic.

Indeed, the possibility of being the victim of a mass shooting is quite similar to the possibility of being in a fatal car accident, except for the fact that the latter occurs with startling regularity by comparison. We seem to have no problem processing the idea that, while our lives might end on the road at any moment, we have balanced the risk and accepted that, dangerous as driving may be, we will carry on. We seem to completely lack the capacity to accept the idea that, while our lives may end in a mass shooting at any moment, we are capable of balancing the risks here too. Apparently, when guns are present, rationality goes out the window. This despite the fact that cars can be at least as lethal as guns.

And capable we are of balancing the risks inherent in life. After all, we do it literally all the time. Short of locking down the entire citizenry in individual padded cells, there is simply no way to prevent the next mass shooting. That may be hard to hear. But think of the risks you take every day that are greater. Driving is a good example, but also note that you are about as likely to be killed by lightning than be killed by a mass shooter. Shall we live our lives entirely indoors?

Or can we accept the fact that there is no solution?

Once we have accepted that the risk is intractable, we can begin to accept that calls to action, proposed laws, gun controls, the “do something” instinct – all are useless in the face of a tragedy like this. We can avoid the rush to judgment. We can avoid the poison of baseless ideology. We can begin the healing process. We can resume our lives.

While the complexity of the world denies us the ability to see into the future, we can see that the fruits of the “do something” instinct, be they legal or otherwise, are poisonous to liberty. We are faced with a choice. We can keep our liberties and our dignity intact, and live with a future where mass shootings are possible. Or we could pass laws taking away fundamental individual liberties, making the people servile and impotent, and thereafter live with a future where mass shootings are possible anyway.

These are our only two choices. We should choose wisely.


*I have previously used the chess example to illustrate complexity here.

What can be done about political hatred?

November 10, 2012 Leave a comment

Bob Kerrey, loser of a senate race in Nebraska, has pointed out the growing climate of political hatred in the country. He says:

Sitting in his midtown Omaha home a day after Tuesday’s election, Bob Kerrey said a shout from outside made him reflect on what he believes is political hatred that has grown increasingly intense.

… “Hatred is a dangerous thing,” he said.

I completely agree, both about the growth of hatred in politics and about its danger to individuals and the polity itself. In the wake of a presidential election that split the country as never before, we have seen the emergence of class warfare and identity politics writ large.

Instead of changing the almost-universally unpopular status quo, Americans cast their votes as blocs, with blacks almost completely separating from whites, women and men a chasm apart, the wealthy and those of limited means at loggerheads like we haven’t seen in decades. So much for Obama being the great uniter.

However, I get the feeling that Mr. Kerrey and I would not agree about the causes or cure.

I believe it is a simple problem, and it can analogized as follows. If you are infested with mosquitoes, you can kill them one by one. You can curse the gods for plauging you with insects. You can suffer in silence. On the other hand, if you want an end to the problem, you can drain the swamp.

Political hatred is always and everywhere a product of political overreach. When people peacefully and voluntarily exchange without government interference, there is no political hatred. However, when politics reaches into our wallets, our bedrooms, our private lives – that is where hatred begins.

A vote for an intrusive public policy is akin to a personal attack, because although the state is used as proxy, the result is the same. If we do not want people picking our pockets one-on-one, how can it be legitimate just because enough people voted on it? If the natural response to theft is anger, why would we respond the opposite way just because the government is the middleman?

You want less political hatred, Mr. Kerrey? Try less political force.

Why Government Debt Blows Up

November 8, 2012 Leave a comment

Here is a link from the Daily Reckoning of Australia, showing why government debt blows up. It has a liberal dose of Bastiat (pun intended), and it draws some interesting parallels between Japan and the United States.

I suggest that you read the whole thing. (It’s not that long, you whiners!) But here’s an interesting excerpt to pique your interest:

What really happens is this: the private sector gets too deeply in debt (thanks largely to the Fed’s artificially low rates and EZ money policies). Then, it panics. It cuts spending. Lenders – who over-extended credit – should go broke.

Instead, the feds bail them out, shifting the public’s real resources to failed businesses and incompetent managers. The bad debt is transferred to the public. Then, the private sector… attempting to build up savings and improve its financial health… puts its money in the safest possible place – government bonds! Still more debt, in other words.

The government takes the money and gives it to its favourite sectors… its clients… its pets… its campaign contributors and vote-getters. The public would be appalled if it realised how its savings were being thrown around. But it wants safety above all. And it believes the feds will be good for the money; they always have been. After all, if you can’t trust the government, who can you trust?

Who can you trust indeed? I’m not in the business of giving investment advice, but I’d suggest tangible assets. Check out the article to see what the stock market has done relative to tangible assets over the last 15 years or so. It will either shock you or depress you, or possibly both.

TSA’s nude body scanners are worse than useless

March 7, 2012 Leave a comment

…because they give us the idea that we are safe while providing a far less than adequate level of safety. I found this video, courtesy of, very informative:

How To Get Anything Through TSA Nude Body Scanners

Another factoid I found interesting is that no one has brought explosives on an American-originated flight in 40 years. However, if the TSA “officers” and the traveling public are convinced that these machines will help keep that streak alive, and yet they are demonstrably worse than the old-style metal detectors, then it can reasonably be concluded that the machines are actively making us less safe by lulling us into a false sense of security while failing to catch real threats.

Then again, I simply do not accept the idea that an outfit like the TSA has moved the needle higher in security at all. The reason why most planes don’t blow up is because, out of 7 billion people in this world, all but a handful won’t ever blow up a plane. And the ones who might are marginalized otherwise.

The point of diminishing returns has been reached and exceeded long before TSA existed. At this point, TSA’s annual budget of more than $8 billion is worth about as much in actual security as your own vigilance. Possibly less.

The inevitable question that I get from security-statists upon saying that is, “well won’t that make it easier for terrorists?” Sure. But terrorists have an incredibly difficult time of it anyway (and it bears repeating that TSA has never, ever caught a single terrorist). If we spend $8 billion of federal money and have a terrorist attack every decade or two, would that really be any better than spending $0 of federal money and having a terrorist attack every decade or two?

The idea that we can make the threat completely disappear is false. What is left is a balancing act of economic interests, freedom interests, and security interests.

Let’s stop shoveling money at the TSA on the basis of boogeyman stories and start talking tradeoffs like adults.

Three ways in which the solution is the problem

March 3, 2012 Leave a comment

Just in case anyone was still curious as to why my blog is called “The Solution is the Problem,” I’ve decided to show a few examples from the recent news.  If people begin to think of policies not in terms of what they are supposed to do, but instead in terms of what they actually will do despite the best intentions of their proponents, I will be a happy Socrates.

First, an article from Smart Money about how college aid makes college more expensive. Though there has long been much conjecture about a causal connection, there is only a little evidence.  I find it entirely plausible that more government college aid causes college to become more expensive, and the data are continuing to mount:

Federal aid for students has increased 164% over the past decade, adjusted for inflation, according to the College Board. Yet three-quarters of Americans and even a majority of college presidents see college as unaffordable for most, and that sentiment has been steadily spreading, the Pew Research Center reports.

…If subsidies puff up buying power and shift prices higher, as economics courses teach, could federal aid for college help create an affordability problem? After all, the federal government began spending more on college aid with the Higher Education Act of 1965 and the full funding of Pell Grants in 1975. Since 1979, tuition and fees have tripled after adjusting for inflation. That’s much faster than the increase for real estate and teacher pay.

…After adjusting for differences among schools, the authors find that Title IV-eligible schools charge tuition that is 75% higher than the others. That’s roughly equal to the amount of the aid received by students at these schools.

Studies like these suggest that if one goal of government is to make college affordable, aid should become more thoughtful instead of merely more plentiful.

Today’s second topic comes from a Reason article called “Drug Warriors Encourage Mexican Meth Makers to Sharpen Their Chemistry Skills.” Recall that the safe and effective nasal decongestant pseudoephedrine was federally limited and tracked some seven years ago to combat meth.

Seven years later, Jacob Sullum helpfully points out that, although pseudoephedrine was never required to make meth anyway, the upshot of the law has been the emergence of a Mexican black market.

The prevalence of meth production in Mexico was driven home this month when authorities reportedly seized 15 tons of meth on the outskirts of the city of Guadalajara, a known stronghold of Sinaloa cartel leader Joaquin “El Chapo” Guzman.

“This is a cyclical drug. If you pass a precursor bill it goes down, and then it comes back up again,” Maxwell said. “The lesson on this is that we can’t congratulate ourselves for doing away with pseudoephedrine. People keep looking for other recipes.”

The results have been interesting to say the least. First, the pseudoephedrine ban has led to an increase in meth making using other ingredients. It has pushed much production over the border, which has in turn fostered more violence in what is basically a war-torn country. It has led to increased border patrol costs. It has raised the price of meth, making addicts more desperate and possibly driving more crime. It has emphatically not reduced the use of meth.

Oh, and it makes it much harder for the vast majority of innocent Americans to deal with the common cold.

Bang up job so far, drug warriors. I’d say you’ve probably lost the drug war when people are posting directions for the synthesis of useful pseudoephedrine from the much more common and less-effectively controlled meth.

Finally, Megan McArdle writes in the Atlantic about how newly proposed government rules on money market funds will likely put them out of business.

This is really just the latest in a series of government actions designed to protect people from the risks of their investment decisions, whereupon one quickly finds that, without risks, there are no rewards.

At last, the government is proposing new rules, which are supposed to make MMFs less risky.  The funds would have to raise new capital, and some minor withdrawal limitations would be imposed on customers.  They would also have to offer a floating net asset value instead of the current “guarantee” that if you deposit a dollar, you’ll always get at least that dollar back.

The last is all by itself disastrous for these funds, whose main attraction is that they act like bank accounts.  As for the rest, in a normal interest rate environment, this would be onerous.  But with interest rates as low as they are, there’s no way for MMFs to absorb the hit by offering a lower return; it looks to me as if the interest rate would probably have to be negative.  Which is to say, your MMF would actually be charging you for the privilege of giving you their money.

If passed as proposed, the rules would seemingly put the MMFs out of business.

In its zeal to protect the supposedly helpless, harebrained twits who make up the entirety of Washington’s constituency, Washington removes the possibility that people may make informed decisions and enjoy/suffer the consequences. It seems as if the prevailing regulatory wisdom is that it is better to throw the baby out with the bathwater than it is to deal with any bathwater at all.

The cynic in me sees this as just another way that the government fosters dependence, and thereby its own survival, because when people are not allowed to provide for their own old age, the only alternative is government.

A defense of Art Laffer, and tax policy news from Britain

February 28, 2012 Leave a comment

Art Laffer, among the original “supply side” economists, comes in for a lot of criticism on the left.  From what I can tell, it is mainly due to his association with Ronald Reagan, who is treated simplistically by both left and right.

But one thing cannot be disputed about Art Laffer: he was on to something.  Note the most common mischaracterization of his famous “Laffer Curve.” According to the common conception, Laffer’s point was that lowering taxes will “pay for itself.”  This is patently ridiculous, both as a statement of Laffer’s point and as a statement of reality.

Now, there very well could be cases where lowering taxes would “pay for itself,” and speaking of Ronald Reagan, the ol’ Gipper found that tax revenues actually soared when he made dramatic, across-the-board cuts (from a top marginal rate of 70.1% to 28.4%).

But what Laffer was actually saying  needed no practical application to make logical sense.  His point was that there is an efficiency point at which revenue will be maximized.  Raise taxes and you may well end up with more money, but you will likely do so with less efficiency. This all depends on where your particular tax rate is on the Laffer Curve.

For example, much of the wealth of the richest people in the country is held in equity form – in other words, aside from immediate cash needs, these people control when and how they realize their wealth.  In the case of a person with millions and even billions in corporate equity, there is nothing to be gained by selling out in a high-tax environment.

Take this to the extreme, and it is very easy to see that people with any capacity for tax deferral and/or avoidance will take the opportunity.  It is, in fact, very easy to posit a tax rate hike at which revenue will be ultimately reduced.  In the past couple of decades, we have not seen that kind of rate hike (or reduction) in this country, as going from top marginal rates of 35% to 39.6% will move the efficiency needle, but not overwhelmingly.

That is where Britain steps in.  Even though Laffer’s ultimate point makes theoretical sense without practical application, Britain’s recent experience seems like pretty overwhelming evidence.  According to the Telegraph, Britain, which recently raised its top rates from 40% to 50%, has seen an overall drop in revenue:

The Treasury received £10.35 billion in income tax payments from those paying by self-assessment last month, a drop of £509 million compared with January 2011. Most other taxes produced higher revenues over the same period.

Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.

Revenues from the tax hike were supposed to raise £1 billion more.  In actual fact, they raised £509 million less.  It is difficult to know what the “tipping point” is, but I think it is fair to say that it is less than 50%.

Again, Art Laffer was on to something.

See more links at the TaxProfBlog here.

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