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Putting Innovation to a Vote? Majoritarian Processes versus Open Playing Fields – Article by G. Stolyarov II

Putting Innovation to a Vote? Majoritarian Processes versus Open Playing Fields – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
February 4, 2014
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Putting innovation to a vote is never a good idea. Consider the breakthroughs that have improved our lives the most during the 20th and early 21st centuries. Did anyone vote for or ordain the creation of desktop PCs, the Internet, smartphones, or tablet computers? No: that plethora of technological treasures was made available by individuals who perceived possibilities unknown to the majority, and who devoted their time, energy, and resources toward making those possibilities real. The electronic technologies which were unavailable to even the richest, most powerful men of the early 20th century now open up hitherto unimaginable possibilities even to children of poor families in Sub-Saharan Africa.

On the other hand, attempts to innovate through majority decisions, either by lawmakers or by the people directly, have failed to yield fruit. Although virtually everyone would consider education, healthcare, and defense to be important, fundamental objectives, the goals of universal cultivation of learning, universal access to healthcare, and universal security against crime and aggression have not been fulfilled, in spite of massive, protracted, and expensive initiatives throughout the Western world to achieve them. While it is easy even for people of little means to experience any art, music, literature, films, and games they desire, it can be extremely difficult for even a person of ample means to receive the effective medical care, high-quality formal education, and assurance of safety from both criminals and police brutality that virtually anyone would desire.

Why is it the case that, in the essentials, the pace of progress has been far slower than in the areas most people would deem to be luxuries or entertainment goods? Why is it that the greatest progress in the areas treated by most as direct priorities comes as a spillover benefit from the meteoric growth in the original luxury/entertainment areas? (Consider, as an example, the immense benefits that computers have brought to medical research and patient care, or the vast possibilities for using the Internet as an educational tool.) In the areas from which the eye of formal decision-making systems is turned away, experimentation can commence, and courageous thinkers and tinkerers can afford to iterate without asking permission. So teenagers experimenting in their garages can create computer firms that shape the economy of a generation. So a pseudonymous digital activist, Satoshi Nakamoto, can invent a cryptocurrency algorithm that no central bank or legislature would have allowed to emerge at a proposal stage – but which all governments of the world must now accept as a fait accompli that is not going away.

Most people without political connections or strong anti-free-enterprise ideologies welcome these advances, but no such breakthroughs can occur if they need to be cleared through a formal majoritarian system of any stripe. A majoritarian system, vulnerable to domination by special interests who benefit from the economic and societal arrangements of the status quo, does not welcome their disruption. Most individuals have neither the power nor the tenacity to shepherd through the political process an idea that would be merely a nice addition rather than an urgent necessity. On the other hand, the vested and connected interests whose revenue streams, influence, and prestige would be disrupted by the innovation have every incentive to manipulate the political process and thwart the innovations they can anticipate.

It is only when some subset of reality is a fully open playing field, away from the notice of vested interests or their ability to control it, that innovation can emerge in a sufficiently mature and pervasive form that any attempts to suffocate it politically become seen as transparently immoral and protectionist. The open playing field can be any area that is simply of no interest to the established powers – as could be said of personal computers through the 1990s. Eventually, these innovations evolve so dramatically as to upturn the major economic and social structures underpinning the establishment of a given era. The open playing field can be a jurisdiction more welcoming to innovators than its counterparts, and beyond the reach of innovation’s staunchest opponents. Seasteading, for example, would enable more competition among jurisdictions, and is particularly promising as a way of generating more such open playing fields. The open playing field can be an entirely new area of human activity where the power structures are so fluid that staid, entrenched interests have not yet had time to emerge. The early days of the Internet and of cryptocurrencies are examples of these kinds of open playing fields. The open playing field can even occur after a major upheaval has dislodged most existing power structures, as occurred in Japan after World War II, when decades of immense progress in technology and infrastructure followed the toppling of the former militaristic elite by the United States.

The beneficent effect of the open playing field is made possible not merely due to the lack of formal constraints, but also due to the lack of constraints on human thinking within the open playing field. When the world is fresh and new, and anything seems possible, human ingenuity tends to rise to the occasion. If, on the other hand, every aspect of life is hyper-regimented and weighed down by the precedents, edicts, compromises, and traditions of era upon era – even with the best intentions toward optimization, justice, or virtue – the existing strictures constrain most people’s view of what can be achieved, and even the innovators will largely struggle to achieve slight tweaks to the status quo rather than the kind of paradigm-shifting change that propels civilization forward and upward. In struggling to conform to or push against the tens of thousands of prescriptions governing mundane life, people lose sight of astonishing futures that might be.

The open playing fields may not be for everyone, but they should exist for anyone who wishes to test a peaceful vision for the future.  Voting works reasonably well in the Western world (most of the time) when it comes to selecting functionaries for political office, or when it is an instrument within a deliberately gridlocked Constitutional system designed to preserve the fundamental rules of the game rather than to prescribe each player’s move. But voting is a terrible mechanism for invention or creativity; it reduces the visions of the best and brightest – the farthest-seeing among us – to the myopia of the median voter. This is why you should be glad that nobody voted on the issue of whether we should have computers, or connect them to one another, or experiment with stores of value in a bit of code. Instead, you should find (or create!) an open playing field and give your own designs free rein.

The Minimum Wage Forces Low-Skill Workers to Compete with Higher-Skill Workers – Article by George Reisman

The Minimum Wage Forces Low-Skill Workers to Compete with Higher-Skill Workers – Article by George Reisman

The New Renaissance Hat
George Reisman
January 4, 2014
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The efforts underway by the Service Employees International Union, and its political and media allies, to raise the minimum wage from $7.25 to $15 per hour would, if successful, cause major unemployment among low-skilled workers, who are the supposed beneficiaries of those efforts.

The reason is not only the fact that higher wages serve to raise costs of production and thus prices, which in turn serves to reduce physical sales volume and thus the number of workers needed. There is also another equally, if not more important reason in this case, and it is a reason which is only very inadequately described by reference to the substitution of machinery or automation for the direct labor of workers when wages are increased.

This is the fact that a low wage constitutes a competitive advantage for less-skilled workers that serves to protect them from competition from more-skilled workers. In other words, a wage of $7.25 per hour for fast-food workers serves to protect those workers from competition from workers able to earn $8 to $15 per hour in other lines of work. The workers able to earn these higher wage rates are not interested in seeking employment at the lower wage rates of the fast-food workers.

But if the wage of the fast-food workers, and all other workers presently earning less than $15 per hour, is raised to $15 per hour, then these more capable workers can now earn as much as fast-food workers as they can in any of the occupations in which they had been working up to now.

Moreover, the widespread rise in wage rates to $15 per hour will cause unemployment in all of the occupations affected. The unemployed clerks, telemarketers, factory workers, and whoever, who otherwise would have earned between $8 and $15 per hour, will have no reason not to apply for work in fast food, which will now pay as much as any other occupation that is open to them. And since those workers are more capable, it is overwhelmingly likely that to the extent that they do seek employment as fast-food workers, they will be preferred over the low-skilled workers who presently work in fast-food establishments. Thus, the rise in the wage of the fast-food workers will serve as an invitation to the competition of large numbers of workers who do not presently think of working as fast-food workers and who, being better qualified, will almost certainly take away their jobs.

Between less employment overall in the least-skilled lines of work such as fast food, and the incentive created for vastly increased competition for employment in those lines coming from more qualified workers, the effect could well be to close those lines altogether to the employment of workers at the low end of skill and ability. That, of course, would deprive these people of the opportunity to acquire skills and abilities from work experience that otherwise would have enabled them to become capable of performing more demanding jobs later on.

What the demand for a $15 an hour minimum wage represents is a case of low-skilled workers being led to reach for a high-wage “bird in the bush,” so to speak. Unfortunately, at the high wage, there are both fewer birds in the bush than are presently in hand and most or all of them will fly away into the hands of others, who possess greater skills and abilities, if the attempt is made to reach for them.

This must ultimately be the result even if somehow the present fast-food workers and the like could be enabled to keep their jobs for a time. Even so, practically every time that it became a question of hiring someone new, the new employees would almost certainly be drawn from the ranks of workers of greater skill and ability than those who had customarily been employed in these jobs. Thus, even if not immediately, in time there would simply be no more room in the economic system for workers at or near the bottom of the skills ladder.

No one can question the desirability of being able to earn $15 an hour rather than $7.25 an hour. Still more desirable would be the ability to earn $50 an hour instead of $15 an hour. However, it is necessary to know considerably more than this about economics before attempting to enact sweeping changes in economic policy, changes to be achieved by attempting to organize a mass movement that is based on nothing but a desire for economic improvement and no real knowledge whatever of how actually to achieve it.

George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). See his Amazon.com author’s central page for additional titles by him. His website is www.capitalism.net and his blog is www.georgereismansblog.blogspot.com. Follow him on Twitter.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Advancing Pharmaceutical and Medical Technology Does Not Depend on Patents – Article by Nathan Nicolaisen

Advancing Pharmaceutical and Medical Technology Does Not Depend on Patents – Article by Nathan Nicolaisen

The New Renaissance Hat
Nathan Nicolaisen
January 1, 2014
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Pharmaceutical drug manufacturers are often regarded as the successes of the intellectual property regime. It is assumed that their willingness to take risks by investing heavily in R&D is justified by the awarding of patents over their lifesaving discoveries. Proponents of intellectual property claim that without patents many lifesaving drugs would not exist. They assert that generic drug manufacturers would diminish profit margins and dissipate the original manufacturer’s market share and innovation would come to a virtual standstill. Further, manufacturers once willing to create new drugs will no longer do so without sufficient returns on investment. Research into the matter suggests, however, that patent protection may not be required for medical advances.

Unpatented Medical Technologies

The notion that unpatented medical technologies are not feasible is historically false. Surveys of important medical breakthroughs provide insight into whether patents are absolutely necessary and conducive to innovation in medicine. In 2006, the British Medical Journal challenged its readership to submit a list of the most noteworthy medical and pharmaceutical inventions throughout history. The original list contained over 70 different discoveries before being narrowed down to 15. The list goes as follows in no particular order: penicillin, x-rays, tissue culture, ether anesthetic, chlorpromazine, public sanitation, germ theory, evidence-based medicine, vaccines, the pill, computers, oral rehydration therapy, DNA structure, monoclonal antibody technology, and smoking health risk. Of these discoveries, only two of them have remotely anything to do with patents, chlorpromazine and the pill.[1] In another survey conducted by the United States Centers for Disease Control the results are strikingly similar. Of the ten most important medical discoveries of the twentieth century, none of them had anything to do with patents.[2]

Natural Market Advantages and Trade Secrecy

Contrary to popular belief, large pharmaceutical companies may maintain significant market share advantages after the introduction of generics through the help of natural barriers to entry. Large pharmaceutical companies have a first-mover advantage and an established internal and external structure that competitors, large and small, do not. Regardless of how fast competitors can manufacture a generic drug (never mind the fact that they must hire new labor, train new employees, buy raw materials, establish suppliers, organize logistics, create a marketing and advertising plan, and set up competitive shelf space), it can be extremely difficult to make a dent in the market dominance of an already-established drug. Competition data from India suggests that it takes approximately four years for generic drugs to enter the market.[3] In addition, the Congressional Budget Office calculated that an original drug manufacturer could still maintain a market share of more than 20 percent after the introduction of generics. Expanding the scope of research beyond pharmaceutical drugs, a survey of R&D labs and company managers revealed that between 23 percent and 35 percent believe a patent is an effective way of getting a return on investment. At the same time 51 percent believe trade secrets to be an effective way of ensuring returns.[4]

The Truth about R&D Costs and Generic Drugs

Pharmaceutical drug manufacturers enjoy large margins in spite of large R&D. The claim that R&D for pharmaceuticals is high is not unfounded. The cost to bring a new drug to market varies between estimates of $402 million on the lower end and $800 million on the upper end.[5],[6] Regardless of high R&D costs, drug companies still command high margins. For the past two decades pharmaceutical drugs have been one of the most profitable industries in the United States, never dropping below third place.[7] The profitability of pharmaceuticals can be explained away under the assumption that people are living longer and consuming more pharmaceutical drugs. It may also be suggested that the human population is less healthy than in the past and the demand for pharmaceutical drugs is inelastic. But, analysis of the profit margin on pharmaceutical drugs and lack of any serious innovation suggests that this is not always the case.

The pharmaceutical industry globally maintains about a 25 percent operating margin as opposed to 15 percent for consumer goods. In the United States, this number achieved its zenith at almost 35 percent. The high margin on the drugs may not be due directly to high R&D costs, either. As of 2006, the ratio of R&D to sales revenue was about 0.19.[8] Further, the top 30 pharmaceutical firms in the world incur costs for promotions and advertising that are nearly double the costs of R&D. This is not to imply that there is a perfect amount of R&D spending each firm must do, rather it is to show that the inability to recoup R&D costs is greatly exaggerated.

Generic drugs are not just manufactured by small companies that seek to ride on the coattails of the giants. It is believed that generics add nothing innovative to the realm of lifesaving drugs, they merely manufacture competing drugs that are already in the public domain; the real innovation comes from the companies willing to invest in research and development. The National Institute of Health Care Management conducted a survey of drugs that received approval from the FDA from 1989 to 2000 with revealing results. Just over half the drugs in the survey, 54 percent, were using active ingredients that were already in use in the market. Of the drugs that were approved by the FDA, 23 percent were given a priority rating on the basis that they were a sufficient clinical improvement compared to existing alternatives. As a corollary, 77 percent of the approved drugs did not exhibit any kind of significant clinical improvement.[9] In other words, these drugs are functionally generic drugs, offering no kind of advantage over existing treatments. Large drug companies are ironically engaging in the kind of behavior they abhor by developing functionally generic drugs while wasting valuable R&D resources.

Conclusion

In a truly free market, whoever has the resources to manufacture an invention is permitted to do so, and the firms that enter the market first with a new drug enjoy a significant advantage. Moreover, the fact remains that the best way to protect an idea is to keep it a secret, which is why the trade-secret method remains effective. The federal government, however, has made it profitable to conclude that the best way to protect an idea is twisting the wrists and shoulders of one’s competitors with government force. Yet in spite of overwhelming federal-government intervention, innovation and ingenuity prevail, even if to a lesser degree.

Nathan Nicolaisen is a senior at Luther College in Decorah, Iowa studying business management and mathematics. 

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Notes

[1] This means that the inventions were not patented, due to some previous patent, or discovered out of desire to obtain a patent. Michele Boldrin and David K. Levine, Against Intellectual Monopoly, (Cambridge University Press, January 2010), 258, 259.

[2] ibid, 259.

[3] ibid, 266

[4] ibid, 186

[5] $402 million is in 2000 dollars. James Bessen and Michael J. Meurer, Of Patents and Property, Boston University Shool of Law, 2008), http://object.cato.org/sites/cato.org/files/serials/files/regulation/2008/11/v31n4-4.pdf

[6] $800 million is in 2000 dollars. Michele Boldrin and David K. Levine, Against Intellectual Monopoly, (Cambridge University Press, January 2010), 241.

[7] ibid, 256

[8] ibid, 255

[9] ibid, 261

Dead Models vs. Living Economics – Article by Sanford Ikeda

Dead Models vs. Living Economics – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
November 23, 2013
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Since 2008, straw-man versions of free-market economics have popped up whenever someone needs an easy villain. Keynes roared back to prominence, and it looks like this reaction might be gaining steam.

According to an article in The Guardian, students at a few British universities, prompted by “a leading academic,” are demanding that economics professors stop teaching what they refer to as “neoclassical free-market theories.”

Michael Joffe, an economics professor at Imperial College, said, “The aim should be to provide students with analysis based on the way the world works, not the way theories argue it ought to work.”

Joffe is right on that point. But his target is wrong: It’s not free-market economics that’s the problem, it’s the model of perfect competition that often gets conflated with free-market economics. A commenter on my recent columns addressing falsehoods about the free market (here and here) suggested I discuss this conflation.

I was thinking of putting it into a third “falsehoods” column. But the Guardian story makes me think the issue deserves more attention. Here’s the key passage:

The profession has been criticised for its adherence to models of a free market that claim to show demand and supply continually rebalancing over relatively short periods of time—in contrast to the decade-long mismatches that came ahead of the banking crash in key markets such as housing and exotic derivatives, where asset bubbles ballooned [emphasis added].

Why Do You Support the Free Market?

“Free-market economists,” on the other hand, typically have confidence in free markets owing to our understanding of economics, although we often (notoriously) disagree on exactly what the correct economics is. A number of free-market economists base their confidence on what is known as the model of “perfect competition.” Briefly, that model shows how in the long run the price of a good in a competitive market will equal the additional cost of producing a unit of that good (i.e., its marginal cost), and it shows that no one has the power to set prices on her own. How do you get those results? By making something like the following assumptions:

  1. Free entry: While buyers and sellers may incur costs to consume and to produce, there are no additional costs to enter or leave a market.
  2. Product homogeneity: From the point of view of any buyer in the market, the output of one seller is a perfect substitute for the output of any other seller.
  3. Many buyers and sellers: No single buyer or seller is large enough to independently raise or lower the market price.
  4. Perfect knowledge: All buyers and sellers have so much information that they will never regret any action they take.

From these assumptions you can derive not only marginal-cost pricing but also nice efficiency properties as well: There is no waste and costs are minimized. Which is why people like the model.

Moreover, for some important questions the analysis of supply and demand under perfect competition is quite useful. Push the legal minimum wage too high and you’ll generate unemployment; push the maximum rent-control rate too low and you’ll get housing shortages. Also, financial markets sometimes—though as we have seen, not always—conform to the predictions of perfect competition. It’s a robust theory in many ways, but if you base your support for the free market on the model of perfect competition, you’re on shaky ground. The evidence against it is pretty devastating.

Free Entry, Not Perfect Knowledge

In fact, it doesn’t even take the Panic of 2008 to shake up the model; any comparison of the model with everyday reality would do the job. Assumptions two and three about product homogeneity and many buyers and sellers are pretty unrealistic, but it’s the last assumption about perfect knowledge that’s the killer. (I’m aware of Milton Friedman’s “twist” (PDF), which argues that this is irrelevant and only predictions matter, but it’s a methodology I don’t agree with.) Markets are rarely if ever at or near equilibrium, and people with imperfect knowledge make disequilibrating mistakes, even without the kind of government intervention that caused the Panic of 2008.

When the institutions are right, however, people learn from the mistakes that they or others make, and there’s a theory of markets—certainly neither Keynesian nor Marxist—that fits the bill better than perfect competition.

It’s Austrian theory. Its practitioners argue competition is an entrepreneurial-competitive process (PDF). This theory not only says that competition exists in the presence of ignorance, error, and disequilibrium, it explains how profit-seeking entrepreneurs in a free market positively thrive in this environment. The principal assumption that the theory rests on, besides the existence of private property, is No. 1: free entry.

As long as there are no legal barriers to entry, if Jack wants to sell an apple for $1 and Jill is asking $2 for that same quality apple—that is, there is a disequilibrium here in which either Jack or Jill (or both) is making an error—you can profit by buying low from Jack and selling high to Jill’s customer, Lucy. If another entrepreneur, Linus, spots what you’re doing, he can bid up the price you’re giving Jack and bid down the price at which you’re selling to Lucy. Bottom line: A process of entrepreneurial competition tends to remove errors. There is no need to assume perfect knowledge to get a competitive outcome; instead, competition itself improves the level of knowledge.

So Joffe and the critics are wrong about the theory. You don’t knock out the theoretical legs from under the free market by “debunking” the model of perfect competition. He is also wrong about the history. As I’ve referenced many times, economists Steve Horwitz and Pete Boettke have documented how a government-led, interventionist dynamic, and not the free market, led to the Panic of 2008.

Joffe, the Imperial College professor, “called for economics courses to embrace the teachings of Marx and Keynes to undermine the dominance of neoclassical free-market theories.” He also complains that “there is a lot that is taught on [sic] economics courses that bears little relation to the way things work in the real world.” I agree. But that complaint would apply at least as much to the Keynesian and Marxian economics he hypes as to the static, equilibrium-based models of competition he slams.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.
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This article was originally published by The Foundation for Economic Education.
That Cold-Hearted Discipline – Article by David J. Hebert

That Cold-Hearted Discipline – Article by David J. Hebert

The New Renaissance Hat
David J. Hebert
November 6, 2013
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But of all the duties of beneficence, those which gratitude recommends to us approach nearest to what is called a perfect and complete obligation. What friendship, what generosity, what charity, would prompt us to do with universal approbation, is still more free, and can still less be extorted by force than the duties of gratitude. —Adam Smith, The Theory of Moral Sentiments

A recent article by Wharton Professor Adam Grant has been popping up here and there, most recently in Psychology Today. Grant suggests that studying economics breeds greed, and he cites several studies to support his claim. The studies conclude economics professors give less money to charity than other professions, economics students are more likely to deceive others for personal gain, and people who study economics have less of a concern for fairness and tend to think that “greed” is okay.

To his credit, Grant does consider the alternative: that maybe economics actually attracts greedy people or that greedy people tend to thrive by studying economics. He dismisses these possibilities by noting that “there is evidence for selection . . . but this doesn’t rule out the possibility that studying economics pushes people further toward the selfish extreme.” He goes on to chide practitioners of the discipline for teaching self-interest in the classroom.

Finally, he concludes with four points that are meant to provide evidence of the social harm in studying economics, which can be summarized in two overarching points:

1) Economics justifies greedy behavior, and

2) Studying economics makes people less altruistic.

I want briefly to discuss these two points here.

Economics Justifies Greedy Behavior?

Studying economics, and specifically the role of incentives, teaches us that relying on altruism is a brave assumption that has but limited applicability. For example, among people we know, we can rely on a certain degree of altruism or benevolence. I know, for example, that my family and friends will be there for me not because I pay them to do so, but because they care about me. Similarly, they know I will be there for them. However, I don’t know the same thing about random people I encounter on the street.

And yet in order to enjoy the immense wealth that the division of labor affords us, society demands that we have interactions both with people we know well and people we do not know at all. These two distinct spheres of activity require two distinct forms of cooperation, which one might get from reading Adam Smith’s twin pillars of economics: The Theory of Moral Sentiments and The Wealth of Nations.

More tidily, perhaps, F. A. Hayek describes this situation in The Fatal Conceit by noting the difference between the macroeconomy and the microeconomy. Macro, in this context, refers to society as a whole, while micro refers to just the people to whom we are close. Hayek says that if we were to apply the same rules of the family unit to the macro, as would be the case if we were to allocate resources altruistically, we would destroy the macro. This is because there would be a complete lack of economic calculation, resources would be misallocated, and plans would fail to be coordinated (see these articles for more on economic calculation).

Hayek also notes that the reverse is true: If we were to apply the rules of the market to the family, we would destroy it as well. We don’t need prices and incomes at the dinner table to allocate the food. Even the most ardent defender of markets would agree that having prices and such as the means of allocating food at the dinner table would be wrong, just like paying your friends to help you move across town would be strange. (Beer and pizza don’t count.)

Instead, students of economics recognize not that greed is good, as the saying goes, but that greed can be transformed into the service of others given the proper institutional setting. That institutional setting, which has been thoroughly discussed elsewhere, is one that celebrates the role of property rights, prices, and profits (and losses) and recognizes their role in creating the incentives to properly husband resources, generates the information about the relative scarcities of various goods and transmits this information to consumers and producers in a quick and efficient manner, all of which provides a feedback mechanism to drive continued innovation.

Economics Makes People Less Altruistic?

Grant cites a 2005 article by Neil Gandal et. al. as concluding that “students who planned to study economics rated helpfulness, honesty, loyalty, and responsibility as just as important as students who were studying communications, political science, and sociology,” but that by the third year, economics students rated these values “significantly less important than first-year economics students.”

While the Gandal study does include such conclusions, it also includes much more. For example, economics students attribute less importance to fairness. Evidencing this, Gandal points out that, when questioned about the allocation of radio frequencies to different mobile-phone service providers, students who study economics are more likely to advocate selling the rights to the highest bidder while students of other disciplines are more likely to advocate for allocating the rights to “anybody who meets some minimal eligibility criteria.”

Students of economics do not advocate for property rights because we are greedy; we advocate for property rights because we understand and take seriously potential incentive problems in politics. The notion of minimal eligibility requirements may sound nice, for example, but problems may lie in who gets to draw that line, by what process that line gets drawn, and the incentives faced by the line-drawers. As Madison points out in Federalist 51, “If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.”

Economics students know men are no angels. And as Nobel laureate James Buchanan points out, government officials are human beings, too, with their own hopes, dreams, and aspirations—and yes, forms of avarice. Supporting the allocation of resources to the highest bidder sidesteps the issues raised by these potential incentive problems. This means that the choice of how to allocate resources fundamentally comes down to a choice of institutions.

We can have a central authority establish guidelines by which anyone who wants can use the radio frequencies, or we can let the market decide. The former leads to a standard tragedy of the commons problem, whereby the radio frequency gets overused. In the case of cell phones, this means that the frequency would be crowded with multiple conversations simultaneously; imagine trying to shout to your friend across a crowded bar. The latter leads to the frequencies being allocated to the person who is best able to utilize them to serve the general population. So AT&T, for example, gets exclusive rights to a certain bandwidth and then tries to figure out how to best serve its customers. In this case, the customer gets to enjoy a clear phone call without the distraction of several other conversations in their ear simultaneously.

In any case, these are not examples of quelling altruism, but of keeping it in its place.

Less Greed, More Cooperation

Viewed in this light, economics does not so much teach greed but rather the beauty of cooperation. How else could we explain how a woolen coat gets made, how Paris gets fed, or how a pencil gets made? And if allocating, say, radio frequencies based on highest valued use makes people learn to discard fairness, well, how exactly is that a bad thing?

David Hebert is a Ph.D. student in economics at George Mason University. His research interests include public finance and property rights.

This article was originally published by The Foundation for Economic Education.

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Editor’s Note by Gennady Stolyarov II: Mr. Hebert’s article is excellent in focusing on the true significance of economics and the need for private property rights. In one important respect, though, my position differs from his when it comes to the allocation of radio frequency to highest bidders such as AT&T and other entities exercising similar coercively granted monopoly and quasi-monopoly powers.

My position, arising out of similar libertarian principles, is that the allocation of radio frequencies to AT&T (and similar local/regional telecommunications monopolies) through the political process would not result in an economically optimal allocation, even if AT&T were the highest bidder. The reason for this is that AT&T’s very bidding ability arises out of (1) its decades-long history as the telephone monopoly in the United States and (2) the protections from competition that it enjoys in certain jurisdictions as a local or regional monopoly provider of certain services wrongly considered “natural monopolies” – such as high-speed cable services. In a pure free-market system, there would likely need to be some sort of allocation process for radio frequencies, so long as the use of radio frequencies by some parties has the physical ability to interfere with the use of the same frequencies by other parties. However, the outcome of such a free-market allocation process would differ considerably from the outcome of a bidding process in today’s status quo, conditioned by decades of deleterious path-dependency arising out of the privileges granted to AT&T and similar local/regional monopolists. Probably, an auction of radio spectrum on a purely free market would result in many smaller firms buying up many smaller ranges of spectrum and competing with one another more vigorously to provide superior customer service than do a handful of large, politically privileged telecommunications companies (AT&T, Comcast, Verizon, et al.) today. In this path-dependent, partially unfree environment it may be, in some cases, that allocations to lower bidders would result in better uses of resources and improved consumer outcomes, as long as institutional political privilege (e.g., enforced monopolies or historical insulation from competition) of the higher bidders can be incorporated into the bidding process in the form of some reasonable handicap used in considering their bids.

The FDA: A Pain From the Neck to the Big Toe – Article by Mark Thornton

The FDA: A Pain From the Neck to the Big Toe – Article by Mark Thornton

The New Renaissance Hat
Mark Thornton
October 25, 2013
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I recently experienced severe pain in my feet, particularly in the big toes. In my imagination it felt like my feet had been run over by a truck and that several of my toes had been broken. But I knew that was not the case, and that the pain came on slowly at first, and then spread to other parts of my feet until I could barely walk.

My first approach was to take some ibuprofen to relieve the pain and swelling. When this did not resolve the matter, I thought perhaps a new pair of soft shoes might work. That idea also failed, and with a little internet research I realized I had a classic case of the gout. I was soon off to see my doctor to determine what the problem was and to get it solved with the powers of modern medicine.

The doctor confirmed that I had the gout. I was not pleased to find out, that in my case, the gout was probably brought on by another drug that I had been taking daily, against my better judgment. However, I was pleased to learn that I would no longer have to take it, that as part of my treatment I was being prescribed an ancient and natural drug, and that I would only have to take this drug “as needed.”

I was off to get my prescription filled at the pharmacy when a thought came to mind: if this drug was as natural and ancient as advised by my doctor, why did I need a prescription in the first place? Upon inspection the prescription was for Colcrys, the brand name of the drug colchicine. Furthermore, when I picked up my prescription the price was much higher than I anticipated given that it was a natural drug. When questioned, the pharmacy technician replied that the actual price was much higher and that my insurance paid for more than three-quarters of the bill. The cash price (without insurance) was $198.99 which is $6.63 per pill if taken daily, or nearly $20 per dose if used to treat flare-ups.

An extremely high price for an ancient natural drug? I knew I had a new case to solve and that the solution was probably the same old answer.

After conducting some research on Wikipedia, I learned the following: Colchicine can be used to treat gout, Behcet’s disease, pericarditis, and the Mediterranean fever. It has been in use as a medicine for over 3,000 years. After serving as ambassador to France, Benjamin Franklin brought colchicum plants back to America in order to treat his own gout. Modern science has further refined the drug for better medicinal use.

Colcrys has been used to treat gout for a very long time, although the Food and Drug Administration (FDA) had not approved Colcrys specifically for the treatment of gout prior to 2009. Alternative drugs, such as Allopurinal, are also used to treat gout and related ailments. Until recently, you could treat your own gout using one of these medicines for pennies a day.

In the summer of 2009, the Food and Drug Administration approved Colcrys as a treatment for gout flare-ups and the Mediterranean fever. The FDA gave pharmaceutical company URL Pharma an exclusive marketing agreement for selling Colcrys in exchange for completing studies on Colcrys and paying the FDA a $45 million application fee.

This deal effectively created a patented drug with no generic alternative. Therefore it gave the company a monopoly for the duration of the agreement. URL Pharma immediately raised the price from less than a dime to nearly $5 dollars per pill. Comprehensive medical insurance does substantially reduce the price to consumers, but it does not reduce the cost. Insurance only spreads the cost-burden across policy holders.

At the same time, doctors are encouraged by pharmaceutical companies to employ more expensive and profitable treatments. As a result the overall cost burden increases. Evidence suggests that doctors are prescribing Colcrys in large volumes to treat gout flare-ups and as a long-term preventative measure.

Once again the federal government has taken something that was both cheap and beneficial and turned it into a monopoly that hurts the general public and drives up the cost of medical care to the benefit of Big Pharma.

Note: Just because it is natural and produced in a pharmaceutical environment, does not mean that Colcrys is harmless. It can be considered toxic in large amounts, has a long list of possible side effects, and is not recommended for people with certain conditions.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory. Send him mail. See Mark Thornton’s article archives.

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This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Free Your Talent and the Rest Will Follow – Article by Orly Lobel

Free Your Talent and the Rest Will Follow – Article by Orly Lobel

The New Renaissance Hat
Orly Lobel
October 17, 2013
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Imagine two great cities. Both are blessed with world-class universities, high-tech companies, and a concentration of highly educated professionals. Which will grow faster? Which will become the envy and aspiration for industrial hubs all around the world?

Such was the reality for two emerging regions in the 1970s: California’s Silicon Valley and the high-tech hub of Massachusetts Route 128. Each region benefited from established cities (San Francisco and Boston), strong nearby universities (University of California-Berkeley/Stanford and Harvard/MIT), and large pools of talented people.

We’ve all heard about Silicon Valley, but not so much Route 128. Despite their similarities, and despite the Bostonian hub having three times more jobs than Silicon Valley in the 1970s, Silicon Valley eventually overtook Route 128 in number of start-ups, number of jobs, salaries per capita, and invention rates.

The distinguishing factor for Silicon Valley was an economic environment of openness and mobility. For more than a century, dating back to 1872, California has banned post-employment restrictions. The California Business and Professions Code voids every contract that restrains someone from engaging in a lawful profession, trade, or business. This means that unlike most other states, California’s policy favors open competition and the right to move from job to job without constraint. California courts have repeatedly explained that this ban is about freeing up talent, allowing skilled people to move among ventures for the overall gain of California’s economy.

The data confirm this intuition: Silicon Valley is legendary for the success of employees leaving stable jobs to work out of their garages, starting new ventures that make them millionaires overnight. Stories are abundant of entire teams leaving a large corporation to start a competitive firm. Despite these risks, California employers don’t run away. On the contrary, they seek out the Valley as a prime location to do business. Despite not having the ability to require non-compete clauses from their employees, California companies compete lucratively on a global scale. These businesses think of the talent wars as a repeat game and find other ways to retain the talent they need most.

In fact, the competitive talent policy is also supported by a market spirit of openness and collaboration. Even when restrictions are legally possible—for example, in trade secret disputes—Silicon Valley firms frequently choose to look the other way. Sociologist Annalee Saxenian, who studied the industrial cultures of both Silicon Valley and Route 128 in Massachusetts, found that while Boston’s Route 128 developed a culture of secrecy, hierarchy, and a conservative attitude that feared exchanges and viewed every new company as a threat, Silicon Valley developed an opposing ethos of fluidity and networked collaborations. These exchanges of the Valley gave it an edge over the autarkic environment that developed on the East Coast. In Massachusetts, firms are more likely to be vertically integrated—or to have internalized most production functions—and employee movement among firms occurs less frequently.

New research considering these different attitudes and policy approaches toward the talent wars supports California’s modus operandi.

A recent study by the Federal Reserve and the National Bureau of Economic Research examined job mobility in the nation’s top 20 metropolitan areas and found that high-tech communities throughout California—not only Silicon Valley—have greater job mobility than equivalent communities in other states. Network mapping of connections between inventors also reveals that Silicon Valley has rapidly developed denser inventor networks than other high-tech hubs have.

Researching over two million inventors and almost three million patents over three decades, a 2007 Harvard Business School study by Lee Fleming and Keon Frenken observes a dramatic aggregation of the Silicon Valley regional networks at the beginning of the 1990s. Comparing Boston to Northern California, the study finds that Silicon Valley mushroomed into a giant inventor network and a dense superstructure of connectivity, as small isolated networks came together. By the new century, almost half of all inventors in the area were part of the super-network. By contrast, the transition in Boston occurred much later and much less dramatically.

Michigan provides a natural experiment for understanding the consequences of constraining talent mobility. Until the mid-1980s, Michigan, like California, had banned non-competes. In 1985, as part of an overarching antitrust reform, Michigan began allowing non-competes, like most other states. Several new studies led by MIT Sloan professor Matt Marx look at the effects of this change on the Michigan talent pool. The studies find that not only did mobility drop, but that also once non-competes became prevalent, the region experienced a continuous brain drain: Its star inventors became more likely to move elsewhere, mainly to California. In other words, California gained twice: once from its intra-regional mobility supported by a strong policy that favors such flows, and once from its comparative advantage over regions that suppress mobility.

A virtuous cycle can be put into motion geographically where talent mobility supports professional networks, which in turn enhance regional innovation. Firms can learn to love these environments of high risk and even higher gain. Rather than thinking of every employee who leaves the company as a threat and an enemy, smart companies are beginning to think of their former employees as assets, just as universities wish for the success of their alumni. Companies like Microsoft and Capital One have established networks of alumni. They showcase their former employees’ achievements and practicing rehiring of their best talent, hoping that at least some of those who leave will soon realize that the grass is not always greener elsewhere.

Most importantly, motivation and performance are triggered by commitment and positive incentives to stay, rather than threats and legal restrictions against leaving. In behavioral research I’ve conducted with my co-author On Amir, we find that restrictions over mobility can suppress performance and cause people to feel less committed to the task. Cognitive controls over skill, knowledge, and ideas are worse than controls over other forms of intellectual property because they prevent people from using their creative capacities, they don’t just prevent firms from using inventions that are already out there. So instead of requiring non-competes or threatening litigation over intellectual property, California companies use rewards systems, creating the kind of corporate cultures where employees want to work and do well. Again, a double victory.

Unsurprisingly, when Forbes recently looked at the most inventive cities in the country for 2013 using OECD data, the two top cities were in California: bio-tech haven San Diego, and the legendary home of Silicon Valley, San Francisco. Boston, still vibrant and highly innovative despite its most restrictive attitudes, came in third. Competition is the lifeblood of any economy, and fierce competition over people is the essence of the knowledge economy.

Orly Lobel is the Don Weckstein Professor of Law at the University of San Diego and founding faculty member of the Center for Intellectual Property and Markets. Her latest book is Talent Wants to be Free: Why We Should Learn to Love Leaks, Raids, and Free-Riding (Yale University Press, September 2013).

This article was originally published by The Foundation for Economic Education.
Internet Sales Tax Could Crush Small Businesses – Article by Ron Paul

Internet Sales Tax Could Crush Small Businesses – Article by Ron Paul

The New Renaissance Hat
Ron Paul
September 26, 2013
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One unique aspect of my homeschool curriculum is that students can start and manage their own online business. Students will be responsible for deciding what products or services to offer, getting the business up and running, and marketing the business’s products. Students and their families will get to keep the profits made from the business. Hopefully, participants in this program will develop a business that can either provide them with a full-time career or a way to supplement their income.

Internet commerce is the most dynamic and rapidly growing sector of the American economy. Not surprisingly, the Internet is also relatively free of taxes and regulations, although many in Washington are working to change that. For example, earlier this year the Senate passed the Marketplace Fairness Act, more accurately referred to as the national Internet sales tax act. This bill, which passed the Senate earlier this year, would require Internet businesses to collect sales tax for all 10,000 American jurisdictions that assess sales taxes. Internet business would thus be subject to audits from 46 states, six territories, and over 500 Native American tribal nations.

Proponents of the bill deny it will hurt small business because the bill only applies to Internet business that make over a million dollars in out-of-state revenue. However, many small Internet businesses with over a million dollars in out-of-state revenues operate on extremely thin profit margins, so even the slightest increase in expenses could put them out of businesses.

Some businesses may even try to avoid increasing their sales so as to not have to comply with the Internet sales tax. It is amazing that some of the same conservatives who rightly worry over Obamacare’s effects on job creation and economic growth want to impose new taxes on the most dynamic sector of the economy.

Proponents of the law claim that there is software that can automatically apply sales taxes. However, anyone who has ever dealt with business software knows that no program is foolproof. Any mistakes made by the software, or even errors in installing it, could result in a small business being subject to expensive and time-consuming audits.

Some say that it is a legitimate exercise of Congress’s Commerce Clause power to give state governments the authority to force out-of-state businesses to collect sales taxes. But if that were the case, why shouldn’t state governments be able to force you to pay sales taxes where you physically cross state lines to make a purchase? The Commerce Clause was intended to facilitate the free flow of goods and services across state lines, not to help states impose new burdens on out of state businesses.

The main proponents of this bill are large retailers and established Internet business. Big business can more easily afford to comply with a national Internet sales tax. In many cases, they are large enough that they already have a “physical presence” in most states and thus already have to collect state sales taxes. These businesses are seeking to manipulate the political process to disadvantage their existing and future small competitors. The Internet sales tax is a bad idea for consumers, small Internet business, and perhaps most importantly, the next generation of online entrepreneurs.

For more information about the small business program well as all other aspects of the Homeschool curriculum, please go here. And to purchase a copy of my new book, The School Revolution: A New Answer for Our Broken Education System, please go here.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

Bookstore Wars: Creativity versus Scale – Article by Sanford Ikeda

Bookstore Wars: Creativity versus Scale – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
August 22, 2013
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Independent bookstores appear to be making a comeback after several years of decline. As reported by MSNBC, the number of independent bookstores has risen significantly.

Some 1,000 independent bookstores went out of business between 2000 and 2007, according to the American Booksellers Association (ABA), as consumers turned to online buying, downloading e-books, or flocking to Barnes & Noble and (now defunct) Borders. But the ABA said that since 2009, the number of independent bookstores has risen 19 percent, to 1,971.

If my arithmetic is right, that still means the industry hasn’t rebounded to where it was in 2000 (about 2,600 stores), but it’s not bad. Meanwhile e-book sales, which had been rising at triple-digit rates, have evidently lost a bit of steam, last year growing at about 5 percent overall.

These facts perhaps illustrate two important lessons:  First, the scale of a business’s operations is not the same thing as its competitiveness; and second, the kind of competition that counts in free markets has much less to do with efficiency than with creativity.  Selling books and digital media in massive volume seems to make firms sluggish in addressing customer preferences for more personalized service and responsiveness.

Efficiency and Scale Are Important

Free-market economists are typically painted by friends and foes alike as cheerleaders for efficiency. Indeed, many economists do tout efficiency as the prime virtue of the free market, keeping prices low and employment high. In standard economics, efficiency refers to using the lowest-cost means to reach a given end.

If Jack is in New York and wants to be in Philadelphia, then among the alternative means available to him—walking, boating, flying, driving, or taking the train—efficiency implies that Jack chooses the one that minimizes the cost to him of getting to Philadelphia. In manufacturing, the production process that, other things equal, produces a given rate of output at the lowest cost is the efficient one.

(Note:  Cost, like benefit, always refers to the cost to someone of doing something.  Sometimes the chooser experiences the costs, sometimes someone else does, but neither costs nor benefits are ever disembodied.)

One form of efficiency is economies of scale. Economies of scale occur when using more of all inputs (scaling up) increases output so much that the cost per unit of output falls. (In econ-speak that’s when the long-run average-cost curve slopes downward.) Critics pick up on this and argue that the free market therefore necessarily favors big businesses over small businesses because the bigger a firm is, the more efficient in terms of unit costs it tend to be, and that allows it to charge lower prices and drive smaller firms out of the market.

But Not as Important as Competition

That story, however, only looks at the relative efficiencies of existing firms and markets. If the fundamental goal is to improve the well-being of people as they see it, then you have to pay more attention to competition, particularly entrepreneurial competition. In that sense, competition trumps efficiency (as Israel M. Kirzner has explained).

That’s because, again, efficiency means choosing from among given alternatives the one that achieves a given goal at the lowest cost. Where the standard economic concept of efficiency falls short is that in the real world neither ends nor means are simply given to anyone. Ends and means, outputs and inputs, have at some point to be discovered by someone. Yes, efficiency is a good thing, like having a clean and orderly workplace, but it’s entrepreneurship in the competitive process that does the heavy lifting of finding the work to be done and putting you in a position to do it.

The resurgence of independent bookshops in the face of book megastores, I think, is an example of how creative competition overcomes the scale efficiency of providing a particular product. There’s nothing inherently wrong or uncompetitive about megastores or inherently virtuous about small businesses. Big and small businesses have their niches, whether online or in brick-and-mortar shops. But central to the competitive process is the ability, whatever your size, to be aware of changing circumstances and to adjust appropriately to them. The MSNBC article quotes an independent bookseller as saying, “We learned how to get books that people couldn’t find online, and to cater as much as we could to the customer. When a customer walks in, we try to make them feel wanted and at home.”

Scale economies in both the online and brick-and-mortar parts of the industry do little to win over customers who prefer personalized service or the intangibles of local businesses. Independent bookstores are more flexible, for example, at staging readings of local authors and other neighborhood events. The giant bookseller Borders Books, one of the pioneers of book retailing, apparently didn’t do a good job adjusting and closed a couple of years ago (I wrote about it here). Today Barnes & Noble scrambles to cope with competition from the e-book, Amazon.com, and, it seems, local bookshops.

While the diminished growth of e-book sales is hardly a harbinger of decline—5 percent is nothing to sneeze at—it does suggest that sometimes the demand side of the market doesn’t change quite as fast as the supply side—that is, a lot of innovation is just discovering better ways to satisfy fairly stable tastes. Still, it’s competition—for new markets, new techniques, new resources, and yes, new tastes—and not efficiency that drives, and is driven by, the creative discovery of ends and of means.

The Lesson Applied

The other day a friend told me that, when she told her fiancé she couldn’t understand why a mildly alcoholic beverage called “Chu-hi,” which is very popular in Japan, isn’t sold in stores here, his response was something like, “If there were a demand for it, it would be.” Knowing that I write this column she then said to me, “That’s the free market, right?”

Okay, class, what do you say?

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.
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This article was originally published by The Foundation for Economic Education.
Refutation of RockingMrE’s “Transhuman Megalomania” Video – Essay and Video by G. Stolyarov II

Refutation of RockingMrE’s “Transhuman Megalomania” Video – Essay and Video by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
August 11, 2013
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Video

Essay

As a libertarian transhumanist, I was rather baffled to see the “Transhuman Megalomania” video on the Rocking Philosophy YouTube channel of one, RockingMrE. Rocking Philosophy appears to have much in common with my rational individualist outlook in terms of general principles, though in not in terms of some specific positions – such as RockingMrE’s opposition to LGBT rights. The channel’s description states that “Above all Rocking Philosophy promotes individualism and a culture free of coercion. Views are based on the non-aggression principle, realism, and a respect for rationality.” I agree with all of these basic principles – hence my bewilderment that RockingMrE would attempt to assail transhumanism in extremely harsh terms – going so far as to call transhumanism “a mad delusion” and a “threat looming over humanity” – rather than embrace or promote it. Such characterizations could not be more mistaken.

In essays and videos such as “Liberty Through Long Life” and “Libertarian Life-Extension Reforms”, I explain that  libertarianism and transhumanism are natural corollaries and would reinforce one another through a virtuous cycle of positive feedback. If people are indeed free as individuals to innovate and to enter the economic and societal arrangements that they consider most beneficial, what do you think would happen to the rate of technological progress? If you think that the result would not be a skyrocketing acceleration of new inventions and their applications to all areas of life, would that position not presuppose a view that freedom would somehow breed stagnation or lead to sub-optimal utilization of human creative faculties? In other words, would not the view of libertarianism as being opposed to transhumanism essentially be a view that liberty would hold people back from transcending the limitations involuntarily imposed on them by the circumstances in which they and their ancestors found themselves? How could such a view be reconcilable with the whole point of liberty, which is to expand and – as the term suggests – liberate human potential, instead of constricting it?

RockingMrE criticizes transhumanists for attempting to reshape the “natural” condition of humanity and to render such a condition obsolete. Yet this overlooks the essence of human behavior over the past twelve millennia at least. Through the use of technology – from rudimentary hunting and farming implements to airplanes, computers, scientific medicine, and spacecraft – we have already greatly departed from the nasty, brutish, and short “natural” lives of our Paleolithic ancestors. Furthermore, RockingMrE falls prey to the naturalistic fallacy – that the “natural”, defined arbitrarily as that which has not been shaped by deliberate human influence, is somehow optimal or good, when in fact we know that “nature”, apart from human influence, is callously indifferent at best, and viciously cruel in most circumstances, having  brought about the immense suffering and demise of most humans who have ever lived and the extinction of 99.9% of species that have ever existed, the vast majority of those occurring without any human intervention.

RockingMrE characterizes transhumanism as a so-called “evil” that presents itself as a “morally relativist and benign force, where any action can be justified for the greater good.” I see neither moral relativism nor any greater-good justifications in transhumanism. Transhumanism can be justified from an entirely individualistic standpoint. Furthermore, it can be justified from the morally objective value of each individual’s life and the continuation of such life. I, as an individual, do not wish to die and wish to accomplish more than my current  bodily and mental faculties, as well as the current limitations of human societies and the present state of technology, would allow me to accomplish today. I exist objectively and I recognize that my existence requires objective physical prerequisites, such as the continuation of the functions of my biological body and biological mind. Therefore, I support advances in medicine, genetic engineering, nanotechnology, computing, education, transportation, and human settlement which would enable these limitations to be progressively lifted and would improve my chances of seeing a much remoter future than my current rate of biological senescence would allow. As an ethically principled individual, I recognize that all beings with the same essential faculties that I have, ought also to have the right to pursue these aspirations in an entirely voluntary, non-coercive manner. In other words, individualist transhumanism would indeed lead to the good of all because its principles and achievements would be universalizable – but the always vaguely defined notion of the “greater good” does not serve as the justification for transhumanism; the good of every individual does. The good of every individual is equivalent to the good for all individuals, which is the only defensible notion of a “greater good”.

RockingMrE states that some of the technologies advocated by transhumanists are “less dangerous than others, and some are even useful.” Interestingly enough, he includes cryopreservation in the category of less dangerous technologies, because a cryopreserved human who is revived will still have the same attributes he or she had prior to preservation. Life extension is the most fundamental transhumanist aim, the one that makes all the other aims feasible. As such, I am quite surprised that RockingMrE did not devote far more time in his video to technologies of radical life extension. Cryonics is one such approach, which attempts to place a physically damaged organism in stasis after that organism reaches clinical death by today’s definition. In the future, what is today considered death may become reversible, giving that individual another chance at life. There are other life-extension approaches, however, which would not even require stasis. Aubrey de Grey’s SENS approach involves the periodic repair of seven kinds of damage that contribute to senescence and eventual death. A person who is relatively healthy when he begins to undergo the therapies envisioned by SENS might not ever need to get to the stage where cryopreservation would be the only possible way of saving that person. What does RockingMrE think of that kind of technology? What about the integration of nanotechnology into human bodily repair systems, to allow for ongoing maintenance of cells and tissues? If a person still looks, talks, and thinks like many humans do today, but lives indefinitely and remains indefinitely young, would this be acceptable to RockingMrE, or would it be a “megalomaniacal” and “evil” violation of human nature?  Considering that indefinite life extension is the core of transhumanism, the short shrift given to it in RockingMrE’s video underscores the severe deficiencies of his critique.

RockingMrE further supports megascale engineering – including the creation of giant spacecraft and space elevators – as a type of technology that “would enhance, rather than alter, what it means to be human.” He also clearly states his view that the Internet enhances our lives and allows the communication of ideas in a manner that would never have been possible previously. We agree here. I wonder, though, if a strict boundary between enhancing and altering can be drawn. Our human experience today differs radically from that of our Paleolithic and Neolithic ancestors – in terms of how much of the world we are able to see, what information is available to us, the patterns in which we lead our lives, and most especially the lengths of those lives. Many of our distant ancestors would probably consider us magicians or demigods, rather than the humans with whom they were familiar. If we are able to create giant structures on Earth and in space, this would surely broaden our range of possible experiences, as well as the resources of the universe that are accessible to us. A multiplanetary species, with the possibility of easy and fast travel among places of habitation, would be fundamentally different from today’s humanity in terms of possible lifestyles and protections from extinction, even while retaining some of the same biological and intellectual characteristics.   As for the Internet, there are already studies suggesting that the abundance of information available online is altering the structure of many humans’ thinking and interactions with that information, as well as with one another. Is this any less human, or just human with a different flavor? If it is just human with a different flavor, might not the other transhumanist technologies criticized by RockingMrE also be characterized this way?

RockingMrE does not even see any significant issues with virtual reality and mind uploading, aside from asking the legitimate question of whether a copy of a person’s mind is still that person. This is a question which has been considerably explored and debated in transhumanist circles, and there is some disagreement as to the answer. My own position, expressed in my essay “Transhumanism and Mind Uploading Are Not the Same”,  is that a copy would indeed not be the same as the individual, but a process of gradual replacement of biological neurons with artificial neurons might preserve a person’s “I-ness” as long as certain rather challenging prerequisites could be met. RockingMrE’s skepticism in this area is understandable, but it does not constitute an argument against transhumanism at all, since transhumanism does not require advocacy of mind uploading generally, or of any particular approach to mind uploading. Moreover, RockingMrE does not see virtual copies of minds as posing a moral problem. In his view, this is because “a program is not an organic life.” We can agree that there is no moral problem posed by non-destructively creating virtual copies of biological minds.

Still, in light of all of the technologies that RockingMrE does not consider to be highly concerning, why in the world does he characterize transhumanism so harshly, after spending the first 40% of his video essentially clarifying that he does not take issue with the actualization of many of the common goals of transhumanists? Perhaps it is because he misunderstands what transhumanism is all about. For the technologies that RockingMrE finds more alarming, he appears to think that they would allow “a level of social engineering that totalitarians could only dream of during the 20th century.” No transhumanist I know of would advocate such centrally planned social engineering. RockingMrE aims his critique at technologies that have “the potential to create human life” – such as gene therapy, which can, in RockingMrE’s words, “dictate the characteristics of life to such an extent that those making the decisions have complete control over how this forms”. This argument appears to presuppose a form of genetic determinism and a denial of human free will, even though RockingMrE would affirm his view that free will exists. Suppose it were possible to make a person five centimeters taller through genetic engineering. Does that have any bearing over how that person will actually choose to lead his life? Perhaps he could become a better basketball player than otherwise, but it is just as possible that basketball would not interest him at all, and he would rather be a taller-than-average chemist, accountant, or painter. This choice would still be up to him, and not the doctors who altered his genome or the parents who paid for the alteration. Alteration of any genes that might influence the brain would have even less of a predetermined or even determinable impact. If parents who are influenced by the faulty view of genetic determinism try everything in their power to alter their child’s genome in order to create a super-genius (in their view), who is to say that this child would necessarily act out the parents’ ideal? A true super-genius with a will of his own is probably the most autonomous possible human; he or she would develop a set of tastes, talents, and aspirations that nobody could anticipate or manage, and would run circles around any design to control or limit his or her life. What genetic engineering could achieve, though, is to remove the obstacles to an individual’s self-determination by eliminating genetic sub-optimalities: diseases, weaknesses of organs, and inhibitions to clear self-directed brain function. This is no qualitatively different from helping a child develop intellectually by taking the child out of a violent slum and putting him or her into a peaceful, nurturing, and prosperous setting.

RockingMrE fears that gene therapy would allow “ideologues to suppress certain human characteristics”. While this cannot be ruled out, any such development would be a political problem, not a technological one, and could be addressed only through reforms protecting individual freedom, not through abolition of any techniques of genetic engineering. The vicious eugenics movement of the early 20th century, to which RockingMrE wrongly compares transhumanism, attempted to suppress the characteristics of whole populations of humans using very primitive technologies by today’s standards. The solution to such misguided ideological movements is to maximize the scope for individual liberty, so as to allow the characteristics that individuals consider good or neutral to be preserved and for individual wishes to be protected by law, despite what some eugenicist somewhere might think.

Transhumanism is about giving each person the power to control his or her own destiny, including his or her genotype; transhumanism is certainly not about ceding that control to others. Even a child who was genetically engineered prior to birth would, with sufficient technological advances, be able to choose to alter his or her genotype upon becoming an adult. Just as parental upbringing can influence a child but does not determine a person’s entire future, so can genetic-engineering decisions by parents be routed around, overcome, ignored, or utilized by the child in a way far different from the parents’ intentions. Furthermore, because parents differ considerably in their views of what the best traits would be, engineering at the wishes of parents  would in no way diminish the diversity of human characteristics and would, on the contrary, enhance such diversity by introducing new mixes of traits in addition to those already extant. This is why it is unfounded to fear, as RockingMrE does, that a transhumanist society which embraces genetic engineering would turn into the society of the 1997 film Gattaca, where the non-engineered humans were excluded from non-menial work. Just as today there is no one hierarchy of genotypes and phenotypes, neither would there be such a hierarchy in a society where genetic engineering is practiced. An even greater diversity of people would mean that an even greater diversity of opportunities would be open to all. Indeed, even Gattaca could be seen as a refutation of RockingMrE’s feared scenario that genetic modification would render un-modified humans unable to compete. The protagonist in Gattaca was able to overcome the prejudices of his society through willpower and ingenuity, which would remain open to all. While the society of Gattaca relied on coercion to restrict un-modified individuals from competing, a libertarian transhumanist society would have no such restrictions and would allow individuals to rise on the basis of merit alone, rather than on the basis of genetics.

RockingMrE further expresses concern that the unintended consequences of genetic manipulation would result in viruses that reproduce out of control and “infect” humans who were not the intended targets of genetic engineering. This is not a philosophical argument against transhumanism. If such a possibility even exists (and I do not know that it does, as I am not a biologist), it could be mitigated or eliminated through careful controls in the laboratories and clinics where genetic engineering is performed. Certainly, the existence of such a possibility would not justify banning genetic manipulation, since a ban does not mean that the practice being banned goes away. Under a ban, genetic engineering would continue on the black market, where there would be far fewer safeguards in place against unintended negative consequences. It is much safer for technological innovation to proceed in the open, under a legal system that respects liberty and progress while ensuring that the rights of all are protected. Certainly, it would be justified for the legal system to protect the rights of people who do not wish to undergo certain medical treatments; such people should neither be forced into those treatments, nor have the side effects of those treatments, when they are performed on others, affect their own biology. But libertarian transhumanists would certainly agree with that point of view and would hold it consistently with regard to any technology that could conceivably impose negative external effects on non-consenting parties.

RockingMrE thinks that “it is essential that the creation and destruction of life be protected by a code of morality that respects and recognizes natural law – natural law being values derived from nature.” He describes one tier of this natural system as comprised of relationships of trade, “where all individuals have unalienable rights derived from natural action, but free of coercion and the initiation of force, voluntarily associating with one another for mutual gain.” He then says that “only this sort of philosophy can truly prevent nihilists from justifying their evil intentions to play God and […] destroy or alienate any individual that doesn’t adhere to a rigid set of socially engineered parameters.”  The latter statement is a severe misrepresentation of the aims of transhumanists, who do not support centrally planned social engineering and who are certainly not nihilists. Indeed, transhumanist technological progress is the very outcome of voluntary individual association that is free from coercion and the initiation of force. I wonder whether the “fierce defense” envisioned by RockingMrE would involve the initiation of force against innovators who attempt to improve the human genome in order to cure certain diseases, enhance certain human faculties, and lengthen the human lifespan. It is not clear whether RockingMrE advocates such coercion, but if he does, then his opposition to the emergence of these technologies would be inimical to his own stated libertarian philosophy. In other words, his conclusions are completely incompatible with his premises.

Toward the end of his video, RockingMrE uses the example of three-person in vitro fertilization (IVF) as an illustration “of how far down the road of transhumanism we are”. What, dare I ask, is wrong with three-person IVF? RockingMrE believes that it is a contributor to “gradually destroying the natural definition of parenting” – yet parenting is a set of actions to raise a child, not a method of originating that child. If RockingMrE has any problems with children who are brought into this world using three-person IVF, then what about children who are adopted and raised by parents who had no part in their conception? Is that not even more removed from parents who contributed at least some of their genetic material? Furthermore, IVF has been available in some form since the birth of Louise Brown in 1978 – 35 years ago. Since then, approximately 5 million people have been created using IVF. Are they any less human than the rest of us? Have we, as a species, lost some fraction of our humanity as a result? Surely not! And if similar consequences to what has already happened are what RockingMrE fears, then I submit that there is no basis for fear at all. New techniques for creating life and enhancing human potential may not be in line with what RockingMrE considers “natural”, but perhaps his view equates the “unnatural” to the “unfamiliar to RockingMrE”. But he does not have to personally embrace any method of genetic engineering or medically assisted creation of life; he is free to abstain from such techniques himself. What he ought to do, though, as a self-professed libertarian and individualist, is to allow the rest of us, as individuals, the same prerogative to choose to use or to abstain from using these technologies as they become available. The shape that the resulting future takes, as long as it is based on these freedom-respecting principles, is not for RockingMrE to decide or limit.