The Angry Economist

The Columbia Accident Investigation Board results are in. Predictably there is great gnashing and wailing about how NASA has failed the astronauts and failed the country in providing inadequate safety.

They are wrong

We are in fact providing too much safety -- way too much safety -- to astronauts.

On the face of it, that sounds like a horrific thing to say. "We should be killing more astronauts?????" Can I possibly be serious? Yes, I'm serious. Consider all the other explorations that the human race has engaged in. People died by the boatload. Often there was no corpse, no last words, no black box to let us know what happened. They just disappeared.

Yet people continued to explore. People continue to explore today, and they continue to die today. Fully one quarter of the people who make it to the top of Everest die on the way back down. Everyone who goes up Everest knows this, and yet they go anyway.

We are buying too much safety for our astronauts. With a given space exploration budget, we could run many more flights with a great decrease in safety, or we could run fewer flights with greater safety. The CAIB says that we need greater safety. This translates into, realistically, fewer astronauts. I say that we need less safety. There is considerable unmet market demand for people to go into outer space. Many more people want to be astronauts than NASA's budget can lift. They could pay a huge amount of money and get NASA-like safety from the Russians, as a couple of people have done. Or they could pay with a risk of dying.

There is a way, of course, to get more flights with more safety, by simply increasing NASA's budget. Unfortunately, this isn't likely to happen. Ever since the moon shots in the early 70's, NASA's budget has been shrinking. Expecting taxpayers to pay more is just not going to happen.

So, are we better off with fewer safer flights or more unsafer flights? I think very much the latter, but you can make up your own mind. Would you like to fly to the moon? What's it worth to you? What's it worth to you to get to the top of Everest? Is it worth your life? Can we ask of anything less for the moon?

I don't know. I just don't think fair trade is very fair. A group of do-gooders picks some set of vendors who they think are being treated unfairly, and set out to treat them preferentially. How can this be fair, when some are treated better than others?

What is "fair", anyway? Let's look at the dictionary definitions. Do the people who want fair trade mean "marked by impartiality and honesty : free from self-interest, prejudice, or favoritism--a very fair person to do business with"? Probably not, since they specifically play favorites. Do they mean "conforming with the established rules : ALLOWED"? Probably not that either, since they seek to change the established rules. I think they mean this one: "consonant with merit or importance : DUE -- a fair share".

Using this definition -- a fair share -- doesn't help us much. Everybody wants the world to be fair, but nobody can particularly agree on exactly what is fair. Earlier, I wrote about price gouging. Everyone might say that price gouging is unfair, but everyone is wrong because they don't understand economics. They don't think, they just react. They notice that prices have gone up, assume the seller is getting an unfair profit, and run with it. Instead, they need to look at the existing situation. The seller is in possession of something suddenly more valuable. Why should "price gouging" be limited? Why should the buyer receive all the benefit of the increased value? Why does the buyer have merit and the seller not?

Fairness, then, is in the eye of the beholder. The more you think about fairness, the more complicated the issue gets. If you only help some, is that fair to the others? If you only help the seller and not the buyer, is that fair? If you favor the buyer over the seller, is that fair?

I don't mean to say that people should only base their decisions on price. You buy things because of their value to you, not their price. Similarly, people sell things because of their value, not the price they can get. A buyer will buy when the value exceeds the price, and a seller will sell when the price exceeds the value. By definition, an unforced transaction benefits both parties. The dancer who wants the pink tutu more than money is happy, and the former who wants the money more than the pink tutu is happy. Both have something they value more. Value has been created out of nothing. That is why unforced trade, peacable trade, free trade, is so powerful a force for improving the world.

What, then, of fair trade? Surely, you would think, if free trade is good, then fair trade is better. Maybe, but only if it's not forced -- that is, if it's still free trade. If you need to use violence to create fair trade, then by definition you have to coerce someone. They have to be coerced because they perceive an absence of the condition in the previous paragraph. They don't want the money more than the thing. Even though Alice is not dancing anymore, she still wants to keep her pink tutu. Or even though Betty wants to dance, she prefers to keep her money rather than get a dorky pink tutu.

Written into our constitution is the concept of fair trade enforced by violence. I refer to eminent domain. The Fifth Amendment says that private property shall not be taken for public use without due compensation. This isn't free trade, because the owner of the private property does not want to sell. It's fair trade because they are paid an amount of money which a judge agrees is fair. There's a ton of problems with eminent domain, which I don't want to get into right now. Suffice it to say that unwilling sellers usually don't agree that the price is fair.

So how would peaceful fair trade look? If you're using the power of government to enforce fair trade, then by definition your trade isn't peaceful. In order for it to be peaceful, it must be completely voluntary. In order for fair trade to be anything other than free trade, somebody must be making a contribution. Somebody must be kiltering the market in a voluntary way. In essence, they must be paying more for something simply because they believe that transaction to be more fair.

So, then, peaceful fair trade is nothing more than a marketing term for free trade. Instead of a direct trade of A and C, you have B intervening in the trade in some manner to make it more lucrative, or to increase the value. B might be acting as a wholesaler, accepting a price lower than their cost because they perceive their loss as increasing the fairness. B might be acting as a certification body, saying that the wood comes from plantations, thereby increasing the value of the wood in C's eye, and passing on those increased profits to A.

Voluntary and peaceful fair trade can only exist by offering extra value in a free market. That kind of fair trade is, well, fair. Any other kind of "fair trade" is as evil as the violence needed to make it happen.

What makes an economist? How can I say that I am an economist? I might have a certification mark that proudly proclaims me to be a certified economist. That's not likely to happen. Economist is too widely used to be a certification mark. You'd have to invent a new name, like Realtor, or Windows.

Nobody has an Economist™ certification mark right now, so just as anyone can call themselves a Christian, or a vegetarian, or a pacifist, or a mathematician, so may anyone call themselves an economist.

In some states, you can't call yourself an engineer unless you are a professional engineer. You can only become one if you pass the professional engineer exam. Once you have, and you are, you're qualified to put your name on various official documents, such as the plans for a bridge. This rather surprises people who have gotten a degree in software engineering from a three- or four-letter university. Without their PE, they can't call themselves engineers. Once they've gotten their PE, they can build bridges.

Many colleges hand out various degrees in economics. No doubt some of these degrees are actually worth something. The economics graduates of my acquaintance seem remarkably ignorant of economics, however. Maybe my sample size is too small? If not, I have to conclude that what economists do, and what colleges teach by way of economics are two completely different things.

Private certification marks, state certification and college degrees are all, so I claim, useless for determining the economist-ness of someone. How then, to decide, if someone is really "an economist" or not?

I rely on Henry Hazlitt's definition of economics taken from his book Economics in One Lesson:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group, but for all groups. Once you understand and grasp this lesson in its fullness, you will never hear the news the same way again. So very often you hear people talk about economics in non-economist terms. That is to say, they ignore the shorter or longer term or ignore the effect on all groups.

More than anything else, economics is a way, a method, a path, or a system of thought. If you want to have the economics nature, you must train yourself to think like an economist. You can study economics, and learn how other people have thought of things. Until you learn to think those same types of thoughts, however, you cannot call yourself an economist. Without understanding, there is only parroting.

This entire blog is filled with examples of bad economics. Read on to see how bad economics hurts everyone.