By Jonathan B. Wight

Ingenie, a UK-based car insurance company, has what they hope is a big innovation. They put a black box in your car with a GPS and a SIM card to transmit data. The technology records data on cornering, braking, acceleration, and speeding. If the algorithm used to mesh all this together says you are driving better, your rates go down every four months!  

Even better, you get instant feedback on your cell phone about the quality of your driving and suggestions for improvement. “Drive well, pay less,” is a good slogan.

Of course, you give up the privacy of where you’ve been and how you got there.  

The product is geared for new drivers, aged 17-25 only. Here why I think works: this age group has a large share of notoriously bad drivers, both because of inexperience and because of lack of self-control.

How is an insurance company supposed to price these customers? Well, here’s the trick: allow for self-selection. Kids that are willing to put the black box in their car are signaling that they have nothing to hide about their driving habits. So this plan will attract a safer group of young drivers than would a random selection.

Second, the product itself will hopefully make safe drivers even safer. By providing rapid feedback between behavior and outcomes, like we are little lab rats, we will respond. There is also something here of virtue ethics because the computer program is teaching prudence. It comes from practice, experience, and habit.

Young people are likely willing to expose their personal lives to the digital universe; what’s a bit of GPS data mean to your loss of privacy? Probably very little.

While the company maintains that it will guard the privacy of customers, I cannot imagine that this will last. It will be too tempting for the company to sell a driver’s location to businesses selling products and services in that neighborhood, just the way cell phone GPS programs do. Hopefully they will offer the option of paying more for insurance and opting out of the excessive commercialization of one’s brain waves.

A horrible innovation is by those insurance companies removing the link between conduct and accountability. Allstate’s Accident Forgiveness plan says that rates won’t go up, even you are at fault! Who would create such a goofy moral hazard?

By Jonathan B. Wight

A Virginia prosecutor has offered a man convicted of child endangerment the option of reducing his jail time by 5 years if he gets sterilized at his own expense.

The man in question has fathered at least 7 children by 6 different women. There may be others that the man doesn’t know about.

Critics say the deal smacks of the forced sterilization programs that existed in Virginia between 1920-1970, when people considered genetically unqualified were sterilized against their wills.

Jim Bacon, at Bacon’s Rebellion, thinks the criminal is getting a good deal, and voluntary trade is welfare enhancing for all sides, particularly for society.

Before we invoke the Almighty mantra of the market, let us consider whether there are any “background circumstances of trade” that might raise ethical alarm bells.

One answer clearly arises when one party to a transaction is vulnerable in a particular way, so that paternalism in preventing a voluntary trade makes sense. We generally do not let children enter into binding contracts, because we do not believe their minds are sufficiently formed to make fully rational decisions.

Another answer clearly arises if one party faces threats and intimidation: The sadist says, “Have sex with me, or I’ll kill your parents.” Clearly this is no longer a voluntary act of sex, but coerced.

Does the threat of a 5-year jail term constitute coercive circumstances that make the sterilization proposal suspect?

A Kantian might object that sterilization is a form of body mutilation that can be likened to killing a part of oneself. That is a good argument against making this choice for oneself.

However, a vasectomy can be reversed (with some risk of failure). Even after a vasectomy, the sperm can be retrieved for in-vitro fertilization. The procedure in a male is much less invasive and the implications much less onerous than for a woman’s sterilization.

With hesitation, I’m willing to back Jim Bacon: let the convict decide.  He is an adult (27 yrs. old). Yes, he is under coercion, but the coercion arises (and hence can be justified) by his conviction of a crime. The state is giving him the choice of picking his own punishment. This makes  sense in this case, and I would be much more leery if the medical procedure were more permanent and serious. Hence, this is not a blanket acceptance of trading off body mutiliation for prison time.

I also worry about safety and liability. What happens if the surgury goes awry? (No, do not go on the Internet to look at those photos--please!)  Usually when the state inflicts punishment it overseas the punishment and takes responsibility for success or failure (witness recent executions). Would the state be liable if something goes wrong in a court-mandated vasectomy?

Readers: what are your thoughts?

By Jonathan B. Wight

Paternalism. Colombian mayors have decided to take away the punch bowl during days that the Colombian World Cup team plays. Alcohol is banned, along with motorcycles, which one supposes are used to inflict mayhem during festivities.

On June 14 of this year, Colombia’s team played its first game and won against Greece.  Nine people died in the ensuing celebrations.

In a similar game in 1993, 60 people died after Colombia’s team blew out Argentina’s in a qualifying game.

The imposition of paternalistic laws preventing people from celebrating in the style to which they would prefer, dramatically lowered deaths to just two deaths on June 19 and one on June 24.

Okay—libertarians out there!—do you support or decry this public paternalism?

Motivation. Second up is the news that Ghana’s World Cup team needed an infusion of $3 million in cash to keep playing. The money is the fulfillment of a promise by Ghana’s president. Players were doubtful they would be paid if they lost, so an airplane had to be hired to jet in the money ahead of Thursday’s game against Portugal.

Generally, economists posit that greater rewards lead to greater effort. Except it is not that simple.  Sometimes large rewards can cause people to choke (see video by Dan Pink). Despite the money, and the anticipation of more, Ghana lost, 2-1. Money can’t buy everything.

By Jonathan B. Wight

I’m sure many of you have gone sleepless at night wondering where the phrase “government failure” came from.

Here’s one source, from Ronald Coase in 1964:

“[W]hatever may be the characteristics of the ideal world, we have not yet discovered how to get to it from where we are. Contemplation of an optimal system may suggest ways of improving the system, it may provide techniques of analysis that would otherwise have been missed, and, in certain special cases, it may go far to providing a solution. But in general its influence has been pernicious. It has directed economists' attention away from the main question, which is how alternative arrangements will actually work in practice. It has led economists to derive conclusions for economic policy from a study of an abstract model of a market situation. It is no accident that in the literature…we find a category "market failure" but no category "government failure." Until we realize that we are choosing between social arrangements which are all more or less failures, we are not likely to make much headway.”

--Ronald H. Coase, “The Regulated Industries: Discussion,” The American Economic Review 54(3)(1964): p. 195.

Contrary to popularm misconceptions, readers should  remember that Coase does not argue that property rights and low transactions costs will lead markets to solve all externality problems without intervention.  More on that when I have time. 

By Jonathan B. Wight

Dave Brat, who unseated House Majority Leader Eric Canter a few weeks ago, has secret plans to introduce “Calvinist Capitalism,” according to a recent opinion piece in the Richmond Times Dispatch.

Mark Malvasi is a chaired Professor of History at Randolph-Macon College, where Brat teaches. He writes:

Identifying himself as a Calvinist, Brat seems intent to use Christianity, and especially Protestantism, to justify capitalist social relations and to extol the free markets on which they rest. The argument is historically dubious, if for no other reason than it ignores the Florentine bankers and Venetian merchants of the 14th century, to say nothing of the Muslims with whom they did business, all of them engaged in nascent forms of capitalist enterprise.

Professor Brat’s theoretical contentions are at best a superficial and at worst a perverse reading of Max Weber’s “Protestant Ethic and the Spirit of Capitalism.” 

Professorial writings are, of course, abstract and idealized. Making laws is another matter. It will be interesting to see Brat’s learning curve and the adjustments he makes. (It is a foregone conclusion that he will win in November, given that it is gerrymandered a Republican district.)

The movie, Mr. Smith Goes to Washington (1939), tells the story of simple honest bumpkin (Jimmy Stewart) who finds his way into the biggest belly of pork, the U.S. Congress. Although his naiveté is eventually stripped away, he remains incorruptible, and eventually changes the world he inhabits by his purity of purpose and resolve.

One cannot help but point out the potential parallel with Dave Brat, who wants to break the cesspool relationship of big-business and big-government (modern-day mercantilism).  On that project, I wish him hearty God speed.

Mark D. White

The latest issue of the Review of Austrian Economics (27/2, June 2014) is a special issue dedicated to the life and work of Nobel laureate James M. Buchanan. It includes papers by Israel Kirzner, Gerald O'Driscoll, Mario Rizzo, Viktor Vanberg, Karen Vaughn, Leland Yeager, Douglas J. Den Uyl, Daniel Smith, and Paul Mueller.

By Jonathan B. Wight

Previous posts (here and here) have looked at the World Cup, and the questionable ethics of organizers and referees.

But what about the players themselves?

U.S. and British players, it turns out, tend to be more ethical in this sense: they are less likely to lie about injuries and penalties. The result may be that these teams win fewer games.

Today’s New York Times reports that, “Where Dishonesty Is Best Policy, U.S. Soccer Falls Short.” U.S. culture eschews the phoniness of playacting for the referee. Instead, American youth are steeped in norms of fairness:

“Absolutely that’s something we don’t do the way other teams do,” Ramos said. “I don’t know if you call it a problem or a weakness, but it’s clear that the American nature is to try and make everything fair, to try and be fair to the game. That’s just how Americans are.”

Many sports rely on self-policing. In tennis (except for tournament play at the highest levels) players are supposed to call their own balls in or out. Honesty tends to reign. The same is true in golf.

Honesty is the only way of being that pleases me in sports, so you could say I am selfish in wanting honest play. But I think there is more to it. Cultural norms become embedded (or internalized) and thus operate unconsciously and instinctively. This is why Smith’s model of moral sentiments does not fit neatly within a model of enlightened self-interest.

The connection between instincts for fair play and the growth of markets and living standards should not be underestimated. A country that imbeds chicanery and tricks into its economic system—such as Brazil—can expect to have higher transaction costs for doing business. 

The Brazilian system even has a name—the jeitinho—which is the “little way around” any ethical problem involving a law or regulation. An entire class of service providers, called despachantes, are at your disposal to expedite the jeitinho, sometimes through making timely payments to third parties (e.g., bribes). Much of the work of despachantes is mandated by excessive bureaucracy and stifling regulations, so that bad policies lead to bad ethics.

Back to soccer: many of the lapses in truth-telling can and should be handled through the technology of replays on major points. How long will it take FIFA to get there? 

By Jonathan B. Wight

Qasim Rashid, a lawyer, has just published an important work, Extremist, arguing that Islam as a religious doctrine (as opposed to its practice) is more tolerant, and more respectful of women, than ideologues on both sides admit.

Here are two reviews:

In EXTREMIST: A Response to Geert Wilders & Terrorists Everywhere, Qasim Rashid has done a great service to Muslims and non-Muslims alike by challenging the scurrilous attacks on Islam by an influential Islamophobe. The only answer to Islamophobia, which promotes, hatred, fear, and violence, is scholarship and debate. Geert Wilders and his ilk must now respond to EXTREMIST or concede defeat in the field of debate and scholarship.

--Professor Akbar Ahmed, Ibn Khaldun Chair of Islamic Studies, American University

Qasim Rashid deserves commendation for paying critics of Islam the compliment of responding to their objections in a patient point-by-point manner. There are, of course, multiple traditions of Islam and differences of opinion among Muslims as to the meaning of its authoritative teachings. So Rashid cannot, and does not claim to, speak for all Muslims. (Indeed, Rashid and his fellow Ahmadis have been persecuted by their less tolerant co-religionists in places like Pakistan and Saudi Arabia for being the wrong kind of Muslim. ) But his interpretations of Islamic teaching, here lucidly set forth and rigorously defended, give those of us who are non-Muslims a window into an important school of Islamic thought that eschews extremism, violence, and repression and seeks harmony between Muslims of different traditions and with people of other faiths.

--Dr. Robert P. George, McCormick Professor of Jurisprudence, Princeton University

For an excerpt of the book, go here.

By Jonathan B. Wight

Brazil won the opening World Cup match against Croatia today. But the unseemly way it was done leaves a bad taste in my mouth, even as I root for the home team.

Croatia stunned everyone by getting the first goal, when a Brazilian defender accidentally kicked the ball into his own goal. The Brazilians seemed slow and uncertain.

Brazilian star Neymar eventually managed a long kick between the legs of a Croatian defender and off the post into the net.  The New York Times labeled it as “brilliant” but it seemed to me a bit of  luck also.

Then in the second half things fell apart. A Brazilian attacker was slightly touched by a defender and fell to the ground.  I’ve seen this a million times; the Brazilian players are great hypochondriacs when it comes to injuries inflicted by other teams. Referees are supposed to see through this, but this time the referee issued a penalty in the box. This was bogus. There should be substantial contact before calling for a free kick.  Brazil was now up 2-1.  One news report has the headline: “Good Start for Neymar and Brazil: Bad Start for Referees.”

The Croatian coach, Niko Kovac, rightly complained:

If that’s how we start the World Cup, we’d better give it up now and go home. We talk about respect, that wasn’t respect, Croatia didn’t get any. If that's a penalty, we don't need to play football anymore. Let's play basketball instead. It's a shame.

The last disgrace was the final Brazilian goal. A Brazilian attacker should have been called for a penalty at midfield, but instead lumbered forward without referee restraint. (Lots of booing in the sports bar.)  Five or so seconds later the ball was sent into the Croatian net.  It would not have happened if the foul had been properly called.

Given all the allegations of fraud and ethical misconduct, why can’t FIFA adopt rules for instant replay (and appeals) on major penalty issues? They already have technology to tell if the ball has entered the goal.  Why not allow instant replays?  Yes, I understand the game is supposed to flow freely, and to err is human, but that would be a more persuasive argument if there were not a strong perception already that the game is fixed. Here is an easy case where you can trust—but verify with technology.

FIFA—join the 21^st century!

By Jonathan B. Wight

Well, to be more precise, Dave Brat, a colleague who teaches ethics and economics at Randolph Macon College just up the road from Richmond, has stunned the world by toppling the House Majority Leader Eric Cantor in the Republican primary.

The vote wasn’t even close, 56-44%, with a large turnout.

Brat ran against Cantor from the political right, aligning himself with the Tea Party and the nativist backlash against immigration.  According to the Richmond Times-Dispatch:

Brat called the win “a miracle from God,” and said the upcoming campaign with Democrat John “Jack” Trammell — another Randolph-Macon professor — would be about “returning the country to constitutional principles, returning the country to Judeo-Christian principles and returning the country to free-market principles.”

Brat (who has hosted me as speaker on ethics and economics at his college several times) always impressed me by his serious professionalism and unbounded energy and enthusiasm.  He is a gifted public speaker with a commanding presence.  He always stood out as a natty dresser, ramping up even as other professors, myself included, slipped into grunge. 

But public policy is not about wearing the right clothes and sounding good in sound bites.  Brat and I part company almost immediately in terms of how to use a more pluralist concept of ethics in economics—going beyond narrow concern for economic efficiency—and including in one’s analysis considerations of deontology and virtue ethics that could be motivated by religious convictions. 

Pluralism (as I conceive it) would not seek to use Christian (or any other religious) doctrines to limit the conversation.  It is misleading, for example, to imply that Judeo-Christian principles were what motivated the founding fathers of the United States.  Reading the biographies of George Washington and Thomas Jefferson would quickly dispel the idea that religious doctrines guided their actions.  Both believed in God, but thoroughly adopted the Enlightenment view that God gave us minds to use them.  Public policies should be secular.  Jefferson, remember, drafted the nation’s first Statute for Religious Freedom in 1777.

Adam Smith, whom Brat also reveres, would probably be far more pragmatic about markets than ideological, as illustrated by his desire to strongly regulate financial markets and interest rates.

Brat’s victory appears to turn Virginia sharply to the right. It is not clear if this is a fluke or a trend. What is clear is that many Virginians, including a huge contingent of Tea Partiers, are deeply concerned about the apparently dysfunctional way big government and big business work to perpetuate economic injustice across a range of policies.