Convergences

Positive Liberty & Negative Liberty

The legal and political blogs are full of discussions of "negative liberty" (rights to have the state not do things to you) versus "positive liberty" (rights to have the states actually do things for you). Some fret that Obama-appointed judges might interpret the Constitution as embodying positive rights, such as a minimum income.

But I have bad news for them -- one need not even get to the Constitution. As I wrote in a law review article a couple of decades ago, "a browse through the United States Code indicates that Congress often exhibits a great generosity -- perhaps even a grandiosity -- of spirit." The Code is full of statements such as "The Congress declares it to be the policy of the [U.S.] that every citizen is entitled to an education to meet his or her full potential without financial barriers."

In the past, the Supreme Court has resisted the idea, which has indeed been argued, that preambular language creates actual, enforceable rights, but such precedents are written in water. A truly radical judge might enjoy telling Scalia that he/she is just dong what Scalia wants, and deferring to Congress.

More Biotech

The International Herald Tribune also says "Broader financial turmoil threatens biotech's innovation":

But this crisis comes as other factors were already souring investors on biotechnology. Drug development has become longer and more costly, in part because the Food and Drug Administration has become more demanding. And there is more pressure to cut drug prices.

So far this year, public and private biotechnology companies have raised $5.6 billion . . . .  That is only one-third the amount in all of 2007 and likely to be the lowest amount since 2002.

As noted yesterday, it is cold comfort to a patient to contemplate on how cheap a drug would be if only it existed when the non-existence is due to ideologues' insistence that the price be set too low to justify investment in development.

One definition of an ideologue is someone who thinks it fine that others suffer to maintain the purity of his abstractions about how things ought to be.

The Housing Speculation Fiasco

Reading Stan J. Liebowitz (Ashbel Smith Professor of Economics at the University of Texas at Dallas) is always educational, because he explains convincingly why something one knew to be true is in fact wrong. His latest is Anatomy of a Trainwreck: Causes of the Mortgage Meltdown (Oct. 3, 2008), where he notes:

The recent rise in foreclosures is not related empirically to the distinction between subprime and prime loans since both sustained the same percentage increase of foreclosures and at the same time. Nor is it consistent with the “nasty subprime lender” hypothesis currently considered to be the cause of the mortgage meltdown. Instead, the important factor is the distinction between adjustable-rate and fixed-rate mortgages. This evidence is consistent with speculators turning and running when housing prices stopped rising.

Steve Malanga continues the discussion in Foreclosure Myths: Can the Media Handle the Truth?

But many buyers don’t qualify [for federal aid] precisely because they made speculative loans or were intent on flipping their homes, and they instead walked away from their mortgages at the first sign of home depreciation. These folks aren’t current on loans that haven’t even reset yet, and aren’t about to tough it out on a loan even if they can negotiate a lower monthly payment, because it will take years for the value of some of these homes to get back to the original selling price.

Biotech Distress

The Wall Street Journal headlines: "Cash Poor Biotech Firms Cut Research, Seek Aid," adding that this "is threatening to slow the development of new medicines and cut high-tech jobs in the U.S. and Europe."

Well, one approach to this problem would be to increase intellectual property rights in the biotech firm's creations, as recommended in Saving the Goose: Intellectual Property and Follow-On Biologics (Sept. 17, 2008).

A problem with the current emphasis on allowing rapid entry of generics is that we will wind up with a system in which generic copycat drugs would be cheap -- if only there were any original inventions to copy. Consumers' pre-eminent interest is that new drugs be created in the first place.

Energy, Finance, & Government

Considering the increasing intertangling of governments and the economy, the Cato event scheduled for Thursday is interesting: Rob Bradley, head of the Institute for Energy Research, will talk on his new book Capitalism at Work: Business, Government and Energy (Political Capitalism). From the event blurb:

The systemic failure known as Enron, Bradley argues, not only exonerates free-market capitalism but also strengthens  the capitalist worldview.  Enron's boom and bust is the story of how company founder and chairman Ken Lay developed a sophisticated business model based on rent-seeking (political  capitalism).  Of particular note, Enron tried and failed to parlay climate alarmism, "energy sustainability," and social corporate responsibility into business viability. 

Bradley's unique, insider interpretation of Enron has direct implications for today's debates over energy and climate policy, business ethics theory, and best business practices. William Niskanen, who holds a somewhat different view, will comment.

Disgust

This blog avoids politics, but enough is enough. The once-respectable magazine The Atlantic posted  yesterday, on its Andrew Sullivan blog, a pornographic satire of Sarah Palin entitled Red, White, and MILF.

The amazing thing about this is not that Sullivan, a known loon, would do it, but that the editors of the magazine apparently have no problem with it. Imagine the reaction if a conservative website posted porno pix of an Obama look-a-like.

It is also professional suicide for a magazine, which is to a large degree in the business of trying to convince readers that its editors have a judgment and perspective that makes their interpretation of the world worth heeding. How can anyone now believe that about The Atlantic? I would think that women would be particularly upset by the raw sexism. It offends even me, and I am not renowned for my sensitivity.

Aleph on the Financial Crisis

David Merkel, at Aleph.com, is consistently one of the most thoughtful financial affairs commentators around.

NOT Born and Bred in the Briar Patch is a sober assessment:

I think the wrong lessons were learned by Dr. Bernanke, and many academic macroeconomists.  They look at the ineffective remedies at the time [of the Great Depression]: negative monetary growth, Smoot-Hawley, and lack of stimulus, and they conclude that if they can stimulate a lot more, they can avoid Depression II.

Depressions occur because market actors take on too much debt, including financial institutions, and at the tipping point, cash flow proves insufficient to service the debt, starting a self-reinforcing bust cycle going the opposite direction of the prior self-reinforcing boom.  Once the self-reinforcing bust starts, I’m sorry, but there is little that can be done.  Liquidation of bad debts must happen to clear the system.  In the absence of that, we can have a Japan-style scenario where rates go to zero, and we stay in a funk, or we could inflate the mess away, harming savers and pensioners.   . . . .

A hidden cost here is that activism begets more activism, or, at least, a demand for more activism.  If the Federal Government and the Fed are now the lenders of first resort, it is no surprise that many will come-a-beggin’.  Once you are willing to lend to support one critical area of the economy, my but many areas will deem themselves critical as well.  Where does it stop?  At this point, I think it might have been better to let Bear, Fannie, Freddie, and AIG fail, but with some sort of expedited bankruptcy process that quickly disposes of equity rights, and converts all debt claims into varying degrees of new equity.  This extinguishes debt claims, and accelerates the healing of the economy.  This would be true reform.

Board of Directors at Work

Jeremy Bentham, the utilitarian economist and one of the founders of University College in London, "had himself stuffed, and on occasions was wheeled into meetings of the board of trustees where he was recorded as present but not voting."

Here he is, hard at work:

Photo by Jerry Pournelle.

One can't help but believe he would have done a better job than many members of the Boards of our most distinguished contemporary financial institutions.

Tom Whitehead - Ave Atque Vale

Clay T. (Tom) Whitehead died in July. He was head of the Office of Telecommunications policy during the Nixon Administration, and a strong advocate of introducing market forces into the moribund broadcasting business. His WaPo obituary says:

His work had an enormous impact on the cable industry, which because of his efforts could get its own programming channels via satellites to a national audience. Before, that reach was impossible unless a cable channel wanted to lease land lines from the monopoly provider AT&T.

HBO, the Turner cable networks and C-Span were among the key beneficiaries of Dr. Whitehead's decisions.

He thought that TV broadcasters should pay for spectrum rather than receive it for free, or as a quid pro quo for political contributions, and he could fairly claim to be the catalyst for the auction system that was adopted later on. (Though never for TV.) The WaPo somehow missed that one. He also told me one time that he thought this threat to charge for spectrum use was a significant factor in the media' companies' hostility to Nixon. 

Spectrum White Spaces

DrewClark.com (The Politics of Telecom, Media and Technology) discusses the spectrum white spaces issue, complete with many good links.

Clark is connected with Tom Hazlett and the George Mason crowd, and likes the idea of auctioning off the spectrum. Certainly, this is a better idea than giving it away to the broadcasters, but I still have a nagging concern that auctions put the government in the position of a rentier, charging for scarcity of a resource without contributing anything to the process of development and exploitation. I am a bit of a Lockean; I like to see investment mixed in with resources as a foundation of property rights. 

Also, if the government collects for scarcity, then it has a huge incentive to ensure that the resources remain scarce, and much of the dispute here is over this very question -- is spectrum really a scarce resource?  The last thing needed is to replace government giveaways with induced scarcity.