Sunday, May 22, 2011

The Laws of Physics are Protectionist

Bob Murphy responds to my post on temporal autarky here. The angle he takes in critiquing it was a little bit of a surprise to me - he writes:

"Yes, there are potentially mutually advantageous trades that aren’t occurring between people in North America and North Korea. They aren’t occurring either because of government barriers or because of “real” transactions costs. Either way, that’s not a typical market failure. Either the government is causing the problem, or the problem is due to something “real” that can’t be solved politically. Look, there are farmers who let oranges rot in Florida even though they would be willing to sell them for a penny to people in India, and even though the people in India would be willing to pay 2 pennies for them. But it costs too much to ship them. That’s not a market failure in any conventional sense of the term.

So, if Daniel wants to use the analogy of North Korean autarky to prove that the market fails in intertemporal trade, I’d like him to first spell out exactly how the market is failing us in interspatial trade with respect to North Korea

I'm indifferent about whether we want to call this "market failure" or not. We are dealing with an externality. Our decisions today have an impact on people living in 2311 or 2811, but they aren't a party to those decisions. That's an externality. An externality is pretty legitimately called a "market failure". I never called it that in the post, but there's nothing blatantly wrong with thinking about it that way. But we can also just think of it as protectionism. I'd like the market to work intertemporally, after all. It's not like I'm celebrating this! But the laws of physics have real consequences for the laws of economics, and I'm just trying to think through that.

If Bob is uncomfortable with the idea of "market failure" because he doesn't think you can be pro-free market if you think the market fails sometimes (I wouldn't agree with this, but some people do seem to think like this), then we don't need to think about it that way. We can maintain our free market credentials in the eyes of people who think market failures contradict them, and instead think of the laws of physics as protectionist laws of economics. Now the market works, and physics is the culprit! That's fine by me. These all seem to be equivalent claims.

Brian Cox, former musician of moderate fame and currently a physicist working at the Large Hadron Collider, explicitly talked about time as a protectionist force here (1:54):

So if Bob isn't comfortable talking about market failure that's fine - that's why I originally talked about "autarky" rather than "externality". I'm fine blaming the laws of physics (I'm sure they don't particularly care if we blame them). The point is, what are the consequences? The consequences are relative impoverishment. Humans figure out ways to work around autarky and market failure all the time. We innovate our way around these problems. Temporal autarky is another problem that we ought to invest some effort in innovating around.


  1. Only quasi-related... but this whole discussion of future externalities and the relentless, unidirectional march of time reminded me of an Amartya Sen article, in which he supported the principle of smoking bans. Part of his argument was premised on the notion that our future selves cannot negotiate with their younger versions:

    I agree[...] that freedom is centrally important. But how should we see the demands of freedom when habit-forming behaviour today restricts the freedom of the same person in the future? Once acquired, the habit of smoking is hard to kick, and it can be asked, with some plausibility, whether youthful smokers have an unqualified right to place their future selves in such bondage.

  2. Oh that's great - thanks for sharing that.

    I really think talk of hyperbolic discounting is missing the point. We don't act the way we do because we have some weird cognitive malfunction. We act the way we do because of the laws of physics. The Daniel of 2012 and 2013 and 2014 coexists with the Daniel of 2011. We've known this since 1916. But we really haven't digested it, particularly when it comes to economic and social thought. Daniel of 2012 coexists with Daniel of 2011. And yet Daniel 2011 has the right to impose his will on Daniel of 2012.

    Daniel of 2012 would be outraged, I imagine.

    There are a few things I'm pretty frustrated with Daniel of 2010 and 2009 over, after all.

    This all sounds a little goofy, but then we've evolved in such a way that it sounds goofy. We've evolved to think we are as a singular being moving along time. We weren't evolved to think of our future selves as coexisting in space-time with our present selves. Many of our basic insights into economics and the market were developed before 1916. That has consequences.

  3. Ya, there are some interesting philosophical permutations to work through here in the Wordsworthian sense (i.e. the child being the father of the man and so on)...

    I don't know if you read the whole Sen article, but in the following paragraph he draws some parallels to John Stuart Mill's freedom-to-sell-yourself-into-slavery paradox... Which I see Gene Callaghan also highlighted recently.

  4. Market-failure types always make so many exceptions to the notion of free markets that they might as well be anti-free market. Besides, market-failure proposals are always so riven with "baptist and bootlegger" problems that they aren't worth pursuing even from a free market perspective.


    Does Sen also count in all the death and mayhem caused by such a ban as people try to get their cigarettes in an environment where the commerce in such has been criminalized? We've already seen a dramatic increase in the level of illegal sales of nicotine products as a result of the effort to crush nicotine sales via increasing "sin taxes." Honestly, unless you count in issues like that, you are a moron. People are going to get their nicotine fix whether Sen likes it or not. Full disclosure: I don't smoke or use any other nicotine product.

  5. DK, I'm not trying to be sarcastic; this is a genuine question to make sure I understand you.

    Right now I have $100 I'm trying to decide what to do with. I could invest it, I could spend it on sushi, OR I could wire it to a hungry guy in Africa. Now if that guy in Africa could touch a rock and turn it into a gold bar, then ship it back to me, for sure I would consider that a great trade and I'd do it. By the same token, the guy in Africa would much rather have the stuff he could buy with $100 than the labor it takes him to touch a rock.

    Ah but alas, the laws of physics don't allow him to touch a rock and turn it into gold. Hence, I myopically do not take into account the fact that if I just *gave* my $100 to the guy in Africa, he would have more utility.

    Did I just spotlight another example of a problem with the laws of physics impoverishing us?

    More generally, wouldn't it be great if agricultural yields went up by 1000x tomorrow? Or if batteries never went dead?

    I'm trying to see if there's anything "deeper" to your analysis of time, than the examples above which (I think we can agree) wouldn't be worth blogging about.

    To repeat, I'm not trying to be a jerk, I'm trying to pinpoint if you're on to something here, or if this is just saying we can imagine being richer if the laws of physics were changed.

  6. "This all sounds a little goofy, but then we've evolved in such a way that it sounds goofy. We've evolved to think we are as a singular being moving along time. We weren't evolved to think of our future selves as coexisting in space-time with our present selves. Many of our basic insights into economics and the market were developed before 1916. That has consequences."

    If I didn't consider this a joke I'd consider it a sickness. This is a dead-end and DARPA won't buy it.

    Here's what's happened:

    1)Decide Keynes was right and that all humans need to be wealthy is a government-derived source of infinite demand.

    2)Find some giant, centuries-spanning energy and wealth sucking goal.

    3)Use any argument to justify government seizure of yet more power including: half-baked physics, N. Korean metaphors.

    4)More to come.

    What new skills would we have if we'd evolved to see our present selves as co-existing with our past and present selves?

  7. Gary,

    Perhaps you can't access the article[*], but Sen is discussing the ethical rationale behind smoking bans in public places; not the empirical effects of sin taxes, or even prohibition for that matter. You are conflating quite separate things.

    However, I certainly agree with you that we need to weigh up any policy in terms of whether it carries costs proportionate to the likely gains (or vice versa)... Of course, then you are veering from the realm of normative ethics to simple cost-benefit analysis.

    PS - "death and mayhem". Really?

    [*] You can read a linked versions of (most of) it <a href=">here</a>.

  8. Bob,

    I don't really want to speak for Daniel, but I'd venture that he's merely trying to point out that -- since time cuts only way -- "the future" (love that term) have no recompense for, or say in actions that stand to directly affect them.

    In other words, it's not about imagining how rich we would be if the laws of physics were suspended, but rather understanding the opportunity costs and, yes, moral obligations given those constructs.

    Your analogy would be more suitable if, for example, spending the $100 on (expensive!) sushi somehow affected the African's health and, thus, ability to work. Importantly, he'd also have no means of preventing you from doing so or claiming compensation.

    For the record, I'm pretty ambivalent on the subject of public space expenditure myself, as I think that there are more pressing concerns (and better social investments to be made in terms of cost/benefits). However, I can identify with the sentiments.

  9. Bob -
    In a way, sure. The laws of physics are the primary reason why we have scarcity, right? And scarcity is what gives us economic action.

    What's different between the gold bar and time, I think, is that the nature of time actually prevents economic agents from interacting (and yet their decisions still impact each other), whereas your gold bar example is just a cool trick we can't do.

    A better three-dimensional analogy would be a massive mountain range that can't be scaled separating two communities, where one community is upstream from the other (I suppose their river runs through the mountain). Now only do you have an inability to trade because of a physical barrier, but one community can actually influence the other community as well.

  10. stickman,

    I think whether people are killed over commerce because it is prohibited by the state has a lot of normative aspects to it actually. You can't make an ethical claim about government prohibitions against smoking or raw milk without also discussing the normative aspects associated with enforcing such moronic laws.


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