Much of modern technology came from a collective investment, with public institutions like the US Defense Advanced Research Projects Agency (DARPA) or the European Council for Nuclear Research (CERN), leading the way in the most high-risk capital-intensive phase. What would Google be without the DARPA-funded internet? What would Uber be without the US Navy-funded GPS? What would Apple be without the CIA-funded touch-screen technology and DARPA-funded voice assistant, Siri?

Thinkers like Mazzucato seem to view the state as a sort of partner in these businesses; after all, it’s only fair that a partner should get a cut of the profits and a say in their operations.

“We need to develop a new governance structure, which starts with creating a new vocabulary,” she says. “For example, calling platform companies ‘tech giants’ implies they have invested in the technologies from which they are profiting, when it was really taxpayers who funded the key underlying technologies — from the Internet to GPS.”

This argument is particularly relevant to the case of AI, especially as both Donald Trump and Bernie Sanders have expressed support for partial government ownership of major AI companies. Mazzucato herself suggests that government officials ought “to actively steer [AI’s] development.”

At first glance, the claim that governments are entitled to help control AI companies because they helped create AI sounds plausible. If you were part of building something, don’t you deserve a share of it?

The case for government control of tech companies is far more complicated than it appears, however.

First, note that people are compelled to fund government research. To see why this makes a moral difference, consider a case inspired by the philosopher Michael Huemer.

Suppose you’re an entrepreneur in the beverage industry trying to create a new soda. One day, a rogue food scientist bursts into your office and demands money for his flavor research. He doesn’t ask politely or offer you a contract; he points a gun at you and takes your money. Years later, he develops a delicious new synthetic flavor. You discover it, add it to your soda, and your company takes off, making you a multimillionaire.

Does the food scientist now own part of your company because you used his flavor? Of course not. There’s no doubt your business benefited from his research. Without the flavor he created, your soda might never have existed. But the scientist has already been paid — and it’s worth remembering that he obtained that payment by force. The idea that he’s entitled to additional compensation because you successfully used his research is absurd. Contributing an input does not automatically confer ownership over everything built with that input. Likewise, the fact that government-funded research contributed to AI development does not automatically give the government ownership rights in AI companies.

In fact, the “government investment” argument fails even in a friendlier scenario that doesn’t involve coercion. Imagine that you voluntarily hire the food scientist to develop a new flavor. You agree to pay him $100,000 for his research, and he accepts. You then use the flavor he creates to launch a highly successful soda company.

Again, the food scientist does not own part of your company merely because he contributed to its success. He is entitled to whatever compensation the agreement specifies — nothing more and nothing less. If the contract grants him an equity stake, he has a claim to it. If it doesn’t, he doesn’t. That’s how market exchange generally works. Suppliers of inputs do not automatically acquire ownership of outputs. If the government wants to fund research in exchange for equity, it can try to negotiate those terms in advance. But that’s very different from claiming, after the fact, that successful companies partly belong to the government because some of the knowledge they relied upon emerged from government-funded research.

If merely contributing to a business entitled someone to partial ownership, every business would face endless competing claims from the countless people who helped make it possible. Imagine your local barista claiming partial ownership of the house you built ten years ago because the coffee she sold you helped fuel its construction.

This matters because property rights determine who gets to make decisions about how resources are used. A workable system of property rights requires clear rules for identifying who controls an asset. Without such rules, individuals and firms could never know whether they were free to use, improve, or exchange a resource. In market economies, ownership is generally determined by voluntary agreement, not by the mere fact of having played some causal role in a project’s success. The food scientist is paid as agreed; he does not acquire an open-ended claim on everything his work makes possible. Likewise, even if government-funded research contributed to the development of AI, it does not follow that governments thereby acquire ownership rights over AI companies. Causal contribution may explain how something came into existence, but it is not enough to establish a right to control it.

This post first appeared on The Daily Economy.

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What should we make of this argument? For one, the primary driver of Cuba’s persistent poverty is the Cuban government’s own economic policies, including state control, chronic misallocation, and long-standing restrictions on private enterprise. These institutional mistakes would keep Cuba poor even without the embargo.

That said, there’s little doubt that trade barriers cause economic harm, and socialists are right to recognize this. But here one might wonder: can socialists coherently object to trade restrictions while also opposing free market capitalism more broadly?

Many think the answer is yes. The socialist target isn’t free exchange as such, but private ownership of productive property. Socialists object to an economy where capitalists own the means of production and workers sell their labor for wages or a salary. Socialism, by contrast, would create a kind of “workplace democracy,” where firms are owned and operated by workers themselves. They’d collectively make decisions about production, investment, and distribution rather than take orders from a single boss. This could mean workers directly voting on major business decisions or periodically electing managers to act on their behalf. Suppose, for example, that a worker-owned pizzeria is deciding whether to shift from traditional pizza to a more upscale artisanal menu. In a traditional capitalist firm, the owner would have the final say. In workplace democracy, the cooks, servers, and other employees would collectively decide how to proceed. While there might be some conflicts between growth and equality, writes Mike Beggs at Jacobin, such a model would aim to “harmonize firm-level democracy with macroeconomic expansion and a solidaristic wage.”

Under this style of socialism, markets would still play an important role. Central planners wouldn’t decide how to allocate resources to the pizzeria or determine how many pizzas it has to bake. Instead, the pizzeria would compete with rival restaurants for customers just as it would under capitalism. The goal is to retain the information markets provide in the form of prices, profits, and losses while “socializing” ownership of firms.

At first glance, it seems as though this version of socialism is perfectly compatible with free trade. You could have an economy in which firms are democratically owned and still allow free trade both within and across borders.

That’s fine as far as it goes. But there’s a tension lurking in the background. Consider that a central justification for free trade is that it enables all parties to voluntarily enter into an economic agreement in the expectation of mutual benefit. As Adam Smith puts the point:

Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.

If I want the apples you have, and you want the oranges I have, we’re both better off as a result of a trade. Trade barriers — tariffs, quotas, embargoes, and the like — block these sorts of exchanges. That’s why critics of the Cuba embargo argue that it makes people worse off: it prevents them from engaging in mutually beneficial exchange, which an abundance of research shows is a source of human prosperity.

Once you see trade in this light, it becomes harder to draw a bright line between the kinds of exchanges socialists want to allow and the kinds they want to prohibit. As I mentioned earlier, to qualify as socialist, an economy must not permit capitalists to own the means of production and hire wage laborers. This means that a socialist economy must prohibit freely agreed-upon, mutually beneficial capitalist labor agreements. For instance, suppose Barry doesn’t want to take on the risks and responsibilities that come with being a co-owner of a coffee shop; he’d rather work for a steady wage as a barista for a corporate giant. Nevertheless, a socialist economy wouldn’t allow him to do so. (Otherwise, it would start drifting toward capitalism.)

It’s not clear why trading barista labor for money is all that different from trading apples for oranges. In both cases, people are making voluntary agreements in the expectation that they’ll be better off as a result. Here, then, is the tension. On the one hand, socialists criticize trade restrictions on the grounds that they block mutually beneficial exchange and thereby make people worse off. On the other hand, they want to restrict or eliminate capitalist employment of wage laborers — even when workers voluntarily choose those arrangements.

So something has to give. You can’t easily say, “Let people trade as they see fit because they expect it to benefit them,” while also saying, “But don’t let them sell their labor as they see fit, even when they expect it to benefit them.”

If mutual benefit justifies freely trading apples for oranges, it’s hard to see why it doesn’t also justify freely trading labor for wages. And if workers may trade their labor freely, they may trade it to capitalists — a conclusion that socialist defenders of free trade are sure to find unwelcome.

This post first appeared on The Daily Economy.

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There are both obvious and subtle harms created by the housing shortage. When housing prices rise (as compared to incomes) people have less money left over for other goods and services. Others might be unable to afford housing at all, increasing homelessness. Productivity slows because workers find it difficult to afford living in high-productivity cities. And fertility rates often fall as high housing costs cause families to put off or, even avoid, having children.

Naturally, people are looking to hold someone responsible for the high cost of housing. Increasingly, both the left and the right are placing blame on institutional investors — private equity firms and large corporations that buy residential properties. The Senate recently voted to advance the 21^st Century Road to Housing Act, which would, among other things, ban institutional investors from buying single-family homes.

At first glance, the argument that institutional investors are to blame for the housing crisis has intuitive appeal. Large corporations can bid up the price of housing, placing it out of reach of ordinary American families. Consequently, families who may otherwise have bought a home will turn to renting or informal arrangements.

At second glance, however, it becomes clear that this diagnosis of the housing shortage is inaccurate. Most notably, institutional investors simply do not account for most home purchases; they account for between one and two percent of the nation’s single-family housing stock and roughly three percent of single-family rental properties. In most markets, the overwhelming majority of homes are still bought by individuals. Even in dense metropolitan areas where corporate ownership has grown, institutional investors represent no more than three percent of homes in any housing market.

Plus, there are material advantages to renting compared to buying a home. When you rent, you have the flexibility to move for a better job without worrying about selling into a bad market, avoiding the costs of a massive down payment and ongoing repairs. You also don’t have to tie up a lot of wealth in a single asset whose value depends on one neighborhood and one local market.

But the core objection to banning institutional investors is that it does nothing to address the deeper problem: the lack of sufficient homes to meet demand. To understand why we don’t have enough homes, it helps to step back and think about how markets normally work.

Suppose demand for bread suddenly surges. Maybe a city’s population grows quickly, or a new gluten-heavy diet sweeps the nation. Whatever the reason, people are buying more bread than before. As a result, the price of bread rises. In turn, profit-driven bakers realize that there’s a lot of money to be made by baking more. So they produce more bread, pushing its price back down.

Rising prices encourage producers to produce more of a good, eventually making it more affordable. This is well-known. So why aren’t we seeing this play out in the housing market? If lots of people want to live in a particular city — say, because the jobs pay well or the schools are good — housing prices will initially rise. But you’d expect those higher prices to incentivize developers to build more housing, just as higher bread prices incentivize bakers to bake more bread. As more housing is built, the increase in supply should bring prices back down.

The reason why we don’t see developers building more housing in response to higher prices isn’t because they’re not interested in making more money. Rather, it’s because their ability to build is heavily restricted in much of the United States. For instance, large portions of many cities are zoned exclusively for single-family homes. Apartment buildings are prohibited in areas where developers might want to build them. Even when building is permitted, lengthy approval processes can delay projects for years. In San Francisco, it takes an average of 523 days to secure permits for a housing project. In New York, a lawsuit challenging the 2018 Inwood rezoning — intended to allow roughly 1,800 new housing units — held up the first project in the area for approximately three years before it was able to secure final approvals. And height limits, parking requirements, and other regulations can also make construction prohibitively expensive. Recent analysis estimates compliance and fees comprise 24 percent of new home prices.

In short, the root of the problem isn’t primarily increased demand for housing, though demand pressure is present. Rather, the problem is government-imposed restrictions that make it difficult, if not impossible, to adequately increase supply in response. Consequently, prices rise and stay high. Even if every institutional investor disappeared tomorrow, the housing shortage would remain.

So why do institutional investors take the blame for the housing crisis if they’re not the ones responsible? One possibility is that it’s simply easier to fault a visible, identifiable actor than a set of impersonal and poorly designed rules.

“The reason so many people misunderstand so many issues is not that these issues are so complex,” wrote the maverick economist Thomas Sowell, “but that people do not want a factual or analytical explanation that leaves them emotionally unsatisfied. They want villains to hate and heroes to cheer, and they don’t want explanations that fail to give them that.”

When people see harm being done, they want to blame someone for doing it. Large institutional investors are concrete agents, easy to name and criticize, whereas zoning restrictions and permitting delays are more diffuse and intangible.

At the same time, there’s a powerful intuition that it’s unfair that institutional investors can buy residential properties. It seems wrong that large corporations can outcompete ordinary buyers for homes. But this intuition is misleading. In a well-functioning market, being outbid by a wealthier buyer is not itself a problem, because supply expands in response. (A billionaire could easily outbid me for a particular loaf of bread, but that’s fine because he’ll induce bakers to bake more). The real issue in housing is not that some buyers have deeper pockets, but that the market is constrained in ways that prevent new supply from being built (bread being baked) when demand rises.

On the bright side, the solution is clear enough: make it easier to build more housing. Government officials should relax zoning restrictions that prohibit high-density housing and simplify approval processes that can delay projects for years. If these reforms were to happen, the same basic mechanism that works to reduce prices in countless other markets will work in housing as well. Until we remove the barriers that prevent builders from building, housing will remain unaffordable. Banning institutional investors might feel satisfying, but it won’t do much good.

This post first appeared on The Daily Economy.

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“It’s just obvious you can’t have free immigration and a welfare state.”

On this view, immigration is fine under fully free market institutions, but in the actual world with its abundant government-provided benefits, immigration restrictions are justified to protect taxpayers from the added expense that could arise if immigrants consume these benefits. But this conclusion is too quick, and even Friedman’s position is more nuanced than people on both sides of the immigration debate tend to realize.

An initial point, though: the concern about the fiscal cost of immigration is overstated. For one reason, in the United States, most welfare spending goes to the very young or the very old. Immigrants, by contrast, are disproportionately of working age.

Setting that point aside, Friedman’s own view wasn’t that immigration as such is harmful. He argued that legal immigration is the problem, precisely because it allows immigrants to access government benefits. By contrast, he thought illegal immigration was beneficial. As he put it: “It’s a good thing for the illegal immigrants. It’s a good thing for the United States. It’s a good thing for the citizens of the country. But it’s only good so long as it’s illegal.” Friedman’s reasoning was that illegal immigration enables mutually beneficial market exchange while limiting immigrants’ access to government benefits.

Now, many fiscal conservatives balk at Friedman’s recommendation—namely, if the overconsumption of government resources is the problem with lawful immigration, the solution is to encourage people to break the law. I understand this reaction, but I admit I don’t share it. In my view, whether it’s okay for someone to do something doesn’t depend on whether lawmakers give them written permission. For instance, did you know that it’s against the law to drive on Cape Cod’s National Seashore’s beach if there’s not a tire-pressure gauge in your car? Nevertheless, I have no moral objection if you drive on the beach gaugelessly. Regardless of whether government officials approve, this is just a peaceful activity that doesn’t violate anyone’s rights.

Maybe you disagree with me. Still, as others have suggested, there’s another way to accommodate Friedman’s general idea: admit immigrants as lawful permanent residents but restrict their access to certain government resources. Economists sometimes call this a “keyhole solution”—if the problem is immigrants’ consumption of benefits, then design a policy that narrowly targets that problem rather than restricts their freedom to immigrate entirely.

The main objection to this sort of policy seems to be moral rather than economic. Indeed, Friedman himself was asked about it and he replied that he found the proposal unappealing partly because it’s not “desirable to have two classes of citizens in a society.” That’s a good point. It’s unfair for a government to give some citizens taxpayer-financed benefits but not others. If two people live, work, and pay taxes within a country, government officials should treat them equally, which involves giving them both equal access to government resources.

Notice, though, that a policy of immigration restriction also treats citizens and prospective immigrants differently—it gives citizens, but not immigrants, access to domestic labor markets, private associations, educational opportunities, and more. Consequently, a principle of equal treatment actually seems to imply open borders. Given that Friedman rejects this option, the task becomes that of identifying the second-best solution. (Also, it’s not clear that Friedman can square his objection to keyhole solutions with his endorsement of illegal immigration, which would presumably also create two classes in a society.)

Why think that a policy of open immigration with restricted access to benefits is better than outright exclusion? The reason, in brief, is that admission with conditions treats prospective immigrants better than exclusion. A policy of open immigration with restricted benefits at least gives people the option to move, and it’s hard to see how giving someone a new option could make them worse off.

Here’s an analogy. Suppose John is entering the job market. One employer offers him a job with health insurance and a retirement plan. The next day, he receives another offer—this one comes with no benefits, but a much higher salary. Even if you think he should take the first job, it seems perfectly permissible to offer him the second. John is no worse off for having another option. If he doesn’t want to take it, he can simply decline it. And if he does prefer higher pay without benefits, he’s clearly better off for having the option.

John’s case is analogous to the case of a prospective immigrant who expects to earn significantly more by moving to a country where her access to government benefits is limited. If she prefers having access to a wider range of government-provided benefits in her current country to having higher earnings but fewer benefits in a new country, she can decline to move; in this case, she is no worse off for having the option. But if she prefers higher earnings with fewer benefits, the option makes her better off. Just as it’s permissible—indeed, probably good—to offer John the extra option, so too is it permissible to offer prospective immigrants the extra option.

It’s also worth highlighting another important aspect of restricting immigrants’ access to benefits rather than restricting their movement entirely. Admitting immigrants as lawful permanent residents removes the threat of deportation, among other consequences, that accompanies undocumented entry into a country. Even if you agree with Friedman (as I do) that the keyhole solution of admitting immigrants with reduced access to benefits isn’t totally fair, it’s still more fair than denying prospective immigrants the option of safely moving at all.

This post first appeared on EconLog.

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Start with a simple observation about your own economic life under capitalism. Think about this week: how many cooperative interactions have you had, and how many competitive ones?

You probably didn’t compete with anyone when you bought coffee at Starbucks this morning. You didn’t enter a zero-sum struggle when you paid your phone bill, purchased groceries and gas, or caught a movie. Instead, you took part in a series of mutually beneficial, voluntary transactions. You gave someone money and they gave you something you wanted more than the money. Everyone walked away better off. In the words of Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”

Competition, by contrast, rarely pops up in your day-to-day economic life. A business competes with other businesses for customers and you’ve probably competed with others for a job at some point. But you cooperate far more often than you compete. And notice what market competitions really are—they’re competitions to see who’s best at serving others. You might say that they’re competitions to discover the best ways to cooperate and who the best cooperators are (more on this below).

Unsurprisingly, Smith understood the cooperative nature of markets well. He writes that a wool coat

is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world!

Smith goes on, but I’ve got a word limit here—the point is that markets don’t atomize us. On the contrary, they lead strangers all over the world to cooperate.

Think back to the last time you bought a coffee. Starbucks has to coordinate with bean farmers, shipping companies, truck drivers, warehouse workers, roasters, equipment manufacturers, electricians, plumbers, accountants, and baristas. None of these people know you, and yet they manage, every day, to cooperate in ways that reliably get caffeine in your hand at 7:43 a.m. And this isn’t accidental—the prices provided by markets give people the information they need to figure out what others want, and they provide the incentive to give it to them.

There’s no denying that markets involve competition. You can go to the business section of a bookstore and find titles like Business Warfare and The Warfare of Business. But businesses are competing with each other to see who can best serve consumers. Netflix beat Blockbuster by figuring out a better way to give viewers what they wanted: convenience, selection, no late fees, and eventually streaming. In brief, Netflix won because consumers preferred cooperating with Netflix over Blockbuster.

A similar point applies to competition in the job market. Maybe you don’t merely want to buy coffee from Starbucks, you want to work there, too. But this means you’ll have to compete with other applicants who also want the job. Here again, let’s look at what it takes for an applicant to win this competition. They need to demonstrate that they’ll do the best job of making customers better off—say, by being more punctual, more efficient at making mochas, or more likely to serve drinks with a smile. Market competition is competition to see who can cooperate most effectively with others.

In any case, democratic socialists can’t be opposed to all competition. After all, democracy requires competition, and democratic socialists want democracy in the workplace as well as in politics. If competing for dollars is frigid, it’s hard to see why competing for votes would be any warmer. Market competition enables millions of people with different values, plans, and priorities to work together without agreeing on much of anything by helping them to coordinate many different choices. You and your barista don’t need to agree on the principles of justice to cooperate and make each other better off. Far from being atomizing or frigid, the free market is a system of interdependence that brings strangers together to cooperate for their mutual benefit.

This post first appeared on EconLog.

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The main moral objection to prediction markets seems to be that it’s wrong to profit from someone’s misfortune. And intuitively there does seem to be something immoral about raking in thousands of dollars because you correctly predicted that a hurricane would hit a particular city or a particular war would break out, resulting in tremendous amounts of suffering. As Moscrop puts it, “Bettors will hold financial stakes in particular outcomes, including some of the most heinous events imaginable. It’s a fundamentally cynical and dehumanizing turn.” But as natural as the gut-level unease with prediction markets is, we shouldn’t trust it. Prediction markets are both useful and morally benign.

Prediction markets are useful precisely because they incentivize accurate forecasting. The prospect of making or losing money gives participants a strong reason to seek out new information and to process that information in an unbiased way. Think about sports betting. When you don’t have any money on the line, you probably indulge in wishful thinking that your favorite team is going to win this week, even though they’re 14 point underdogs. But if you suddenly stood to lose $1,000 if you turn out to be wrong, you’ll quickly start to think more rationally about the team’s chances.

In short, prediction markets tend to deliver accurate forecasts for the simple reason that they reward accuracy and punish inaccuracy. And at the risk of making an obvious point, accurate forecasts are useful because people plan their lives around expectations about what the future holds. For instance, if you live in an area where a hurricane will hit or a war will start, that’s important information for you to know. It could quite literally be lifesaving.

This point also helps explain why you shouldn’t accept the objection that prediction markets are morally bad because they enable people to profit from catastrophes. As the ethicists Jason Brennan and Peter Jaworski have noted, many people routinely make money by accurately predicting bad things will happen without the use of prediction markets, and no one finds them immoral. Meteorologists make money forecasting hurricanes, epidemiologists make money forecasting disease outbreaks, political analysts make money forecasting electoral outcomes and wars, and so on.

The reason why no one thinks that these forecasters are doing something morally wrong is because, as already mentioned, accurately predicting bad events is actually beneficial; accurate predictions of bad events help people prepare for the bad events. (This should go without saying, but the fact that someone earns money by being right about something bad happening doesn’t mean they caused it or wanted it to happen.) Maybe the action of the bettor feels different than the action of the meteorologist, but morally, it’s the same. Someone who correctly predicts hurricanes and profits by getting a job with the Weather Channel “makes money from a catastrophe” just as much as someone who correctly predicts hurricanes and profits by placing bets on Kalshi.

You might worry that prediction markets incentivize what is in effect insider trading — they reward people for acting on information others don’t have. But that’s a feature, not a bug. If you see someone place a huge bet on an outcome that seems highly unlikely, that suggests that the outcome is more likely than you thought; maybe someone has inside information that makes them confident it’s going to happen. You don’t have to act on this signal, of course, but at least you have it in case you want to.

Critics of prediction markets also overlook the possibility that the money bettors earn can be used to mitigate the harms of the very disasters they predict. Suppose someone correctly predicts that a hurricane will make landfall and profits from a prediction market as a result. They now have additional resources that can be used to mitigate the suffering caused by the hurricane. They can donate to emergency relief, help fund rebuilding efforts, support local clinics, or contribute to flood mitigation projects. So if you’re concerned that a catastrophe is likely to occur, making an accurate prediction and allocating your winnings to help those harmed by the catastrophe is far more productive than simply watching it unfold.

Lastly, consider the objection that using prediction markets isn’t immoral, but self-destructive. These markets allow people to make risky bets that they might lose and, in turn, put them in serious financial straits.

Note, though, that it doesn’t follow from the fact that prediction markets enable people to take unwise financial risks that government officials should ban them. Suppose your neighbor asks you to make a large investment in her startup producing perpetual motion machines. That investment would be an unwise financial risk to say the least. Nevertheless, government officials shouldn’t intervene because you have the right to take that risk. It’s your money after all.

Prediction markets don’t cause or celebrate disasters, nor do they force people to gamble recklessly. Instead, they allow people to test their predictions in a system that rewards them for being right and penalizes them for being wrong. The result is accurate information that others can use to help plan their lives. If anything, that’s a positive moral good.

This post first appeared on The Daily Economy.

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Rarely does anyone argue that it’s morally wrong for a football player, or other performer, to earn tens of millions of dollars. But if a CEO earns the same amount, it’s greed, exploitation, or a symptom of the ills of late-stage capitalism.

Even when fans do complain about the high salaries of people who play a game for a living, it never comes with the vitriol that accompanies complaints about the CEO. Why do people react so differently to the wealth of an entertainer and the wealth of an executive?

I have a couple of guesses: (1) it’s harder to see the value created by executives and (2) people suspect that they make their millions by exploiting the labor of their employees. But both of these concerns miss the mark. What really matters when it comes to compensation is that it is the result of the value an individual creates. That’s why a CEO is no less deserving of their market-made wealth than the star athlete.

Let’s examine each of these guesses about different reactions to high pay. First, with athletes and entertainers, the value they create is visible. You can literally see Barkley hurdle backwards over a defender. You can also see that he’s special because other running backs in the league aren’t doing the same. So the connection between what Barkley does to help his team win games and what he earns is obvious. Similarly, you can hear Taylor Swift sing and see the packed stadiums and elated fanbase. Maybe you’re not a fan of her music, but you can understand why she became a billionaire.

In contrast, a CEO’s contribution is buried in spreadsheets and meetings. If they make good decisions, the company thrives—but you don’t see it happen in the way you see Barkley run. There’s no highlight reel for efficient logistics or better management.

Just because we can’t see the value being created doesn’t mean it’s not real. By analogy, great coaches help their teams win even though they’re not on the field themselves. They not only design plays and motivate players, but hire assistants, establish organizational culture, and advise on draft picks. A CEO is a bit like that. The CEO of Starbucks isn’t behind the counter pouring coffee, but they help create and manage the processes and institutions that make it possible for millions of people to get their lattes every morning. That someone’s contribution to an organization’s success is less visible than another’s because it takes place “behind the scenes” doesn’t mean it’s less valuable.

Second, people tend to distrust money made through employing others. It’s no problem to get rich by selling tickets to your performance—those are simply willing customers. But many object that CEOs get rich at the expense of their workers, who are really the ones generating value. This is what is meant when people say employers are exploiting workers’ labor.

However, an employer no more exploits their employees than Saquon Barkley or Taylor Swift exploits their fans. The deal that entertainers make with their fans is, in a crucial respect, economically and ethically similar to the deal that employers make with employees: they’re both the result of an agreement that people voluntarily accept because they expect it to make them better off.

Milton Friedman, a great economic communicator, said, “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” In effect, Taylor Swift makes people an offer: I’ll put on a concert for you if you’ll pay the ticket price. Someone who’s not a fan doesn’t have to take her up on it, and they’re no worse off for having been given the option. On the other hand, a devoted Swiftie probably believes buying the ticket will make them better off and will accept the deal.

Employers make prospective employees a similar offer: I’ll pay you a certain amount per hour if you’ll pour coffee for my customers. If you don’t want the job, you don’t have to take it, and you’re no worse off for having the offer. On the other hand, if you think earning money as a barista will make you better off, you’ll accept it.

One might object that employers are more exploitative than entertainers because it’s a lot worse to be unemployed than unentertained, so in a meaningful respect, someone has no choice but to take a job. Although there isn’t space to address this point in detail here, I’ll just note that even if you’re sympathetic to this objection, it makes little sense to place special blame on a worker’s employer, assuming the employer is not responsible for the worker’s bad alternatives. A worker’s employer is the person who made them the best offer they received, as evidenced by the fact that the worker accepted it over all of the other ones. So if you want to criticize someone, it should be all of the employers who offered the worker worse deals or no deal at all.

Here’s the point: just as entertainers attract viewers by offering them something they value, so too do executives attract workers by offering them something they value. They both get rich by making others better off. So the market-made wealth of a CEO is no less admirable than that of Saquon Barkley, even if that’s sometimes harder to see.

This post first appeared on EconLog.

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As one columnist recently put it, corporations “have taken advantage of Medicaid, food stamps, and other safety net programs for years to get out of paying their workers a living wage by sticking the taxpayers with the expense.” These corporations are to blame for people’s need for public assistance, and they should pay their workers more so that they’ll rely less on safety net programs funded by taxpayers.

But this complaint is morally confused. To see why, let’s start with a simple point: an employer is a buyer of labor. So when critics say that big corporations should raise their employees’ wages to the point where they don’t need public assistance, what they’re really saying is that corporations should pay more for what they buy. But we shouldn’t assume that merely buying something from someone obligates you to pay them so much that they never need public assistance, rather than simply paying them the mutually agreeable price.

Here’s an analogy. Scarlett likes to buy scarves from Wes on eBay. Whenever Wes lists a scarf for auction, Scarlett makes the highest bid. In short, she’s his best customer. But times get tough for Wes. He begins to struggle to pay rent and buy groceries. Scarlett keeps winning the auctions for Wes’s scarves and sending payments his way, but it’s not enough to keep him off SNAP.

Politicians and commentators learn about Wes’s situation and place the blame squarely on one person: Scarlett.

If only she had paid more than the auction price for his scarves, they argue, Wes wouldn’t need SNAP benefits. According to one columnist, “Scarlett is taking advantage of the government’s safety net to get out of paying Wes enough to live on and sticking taxpayers with the expense.”

The moral condemnation of Scarlett would be downright bizarre, and it’s not hard to see why. Remember, Scarlett is Wes’s best customer — she offers more for his scarves than anyone else. If anything, we should have the least complaint against her. She’s already given Wes thousands of dollars while other customers have given him less or nothing at all. Scarlett is doing more than anyone else to benefit Wes, so it’s strange to single her out for blame.

Now turn back to big businesses like Walmart and Amazon. Just as Scarlett is Wes’s best customer, so too is Walmart its employees’ best customer — that is, it made them the best offer for their labor.

We know this because if Walmart hadn’t made them the best offer, those employees would be working somewhere else instead. Workers accept the best offer for their labor just as weavers accept the best offer for their scarves. So, as with Scarlett, we should have the least complaint against Walmart, not the most. Other employers either made Walmart workers worse offers or made them no offer at all. Since Walmart is doing more than anyone else to benefit Walmart workers, it’s strange to single it out for blame.

You might reply that I’m overthinking things. The simple truth is that Walmart should pay its employees more because it can afford to pay them more. But this view assumes you’re obligated to pay more for something simply because you can afford to do so — and that’s a dubious assumption.

Think back to Scarlett. Suppose that she could afford to pay Wes more for his scarf than what turned out to be the winning bid. While it might be generous of her to do so, that seems more like charity than fulfilling an obligation. When someone sells you a scarf, a cup of coffee, a gym membership, or an hour of labor, you don’t thereby incur a duty to pay them whatever it takes to fix their personal finances. You simply owe them the agreed-upon price.

And that agreed-upon price isn’t arbitrary — it reflects supply and demand in the case of labor just as it does for anything else. A scarf sells at a price where someone is willing to buy it and someone else is willing to let it go. Labor is no different: wages settle where workers are willing to offer their time and employers are willing to buy it. If the wage is set too high, people will be less likely to hire workers; if it’s too low, people will be less likely to work.

Even if you insist that rich customers like Scarlett do have a moral obligation to pay Wes more for his scarves, it doesn’t follow that government officials should force her to do so. The mere fact that you should do something — be it paying more for a scarf, driving a good friend to the airport, or visiting your sick sibling in the hospital — doesn’t establish that it’s the government’s job to make you do it. Plus, forcing Wes to raise his prices would likely backfire: if the government required Scarlett and other customers to pay more for his scarves, they’d be less likely to buy them, leaving Wes even worse off than before.

The parallel to employers is clear. Even if you think that buyers of labor should pay more if they can afford to do so, it doesn’t follow that the state should make them. And here again, the proposed policy would probably backfire: by making workers costlier to hire, it would discourage employers from buying their labor at all — leaving them not with higher wages, but with no job. At the bare minimum, we should ensure that any policy intended to benefit workers doesn’t harm the very people it aims to help.

This post originally appeared on The Daily Economy.

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Let’s assume, at least for the sake of argument, that the above concerns are justified; even so, we shouldn’t ban artificial food dyes. The reason is simple: people have the right to decide for themselves whether they have good reason to accept risks to their own health. Suppose, as some claim, that the bans on artificial dyes would make the relevant products more expensive. For instance, the National Confectioners Association suggests that they “will make food significantly more expensive for, and significantly less accessible to, people in the states that pass them.” Someone should be free to buy and consume riskier food to save money given that people generally have the right to take health risks for financial reasons. Jane is free to quit her desk job to start work on a commercial fishing vessel for a trivial increase in salary even though commercial fishing is a lot riskier than working from an office. Similarly, someone should be free to consume products with artificial dyes to save money if they prioritize savings over safety.

Now, the claim that the artificial dye bans will make food more expensive is contested. So let’s suppose it’s false and prices won’t change at all. Maybe the only reason why these dyes are used is to make food and drinks more aesthetically appealing. Still, people have the right to take risks for purely aesthetic reasons. Imagine you’re at a car dealership choosing between a gray car and a red car. They’re the same price, but the red car has fewer safety features than the gray one. However, you simply prefer red and so you buy the red car. Maybe that’s an unwise choice, but it’s yours to make. Or suppose you’ve got a headache and you’re choosing between two pain relievers. The red pill carries greater risks than the gray pill. But here again, you simply prefer red to gray, and so you opt for the riskier pill. Few would dispute that you should be free to make this choice.

The right to make decisions regarding your own health is grounded in the right of bodily autonomy, which is sometimes summarized as “your body, your choice.” Since it’s your body, you have the right to take risks with it. You can undergo risky surgeries, climb Mount Everest, or simply refuse to take needed medication. Think of it this way: if the Picasso painting is yours, you have the right to play Frisbee with it. This risks harming the painting, but it would be wrong for others to forcibly stop you. Similarly, maybe consuming artificial food dyes is risky and unwise, but you’re taking the risk with your own body. So, it would be wrong for others to forcibly prevent you from consuming them.

Lastly, consider that the state doesn’t ban substances that are far more harmful than artificial food dyes, such as cigarettes. This is strange—it’s analogous to the state making it illegal to stub your toe to ensure that you’re taking care of your health, while at the same time legalizing dueling. If we’re unwilling to ban products that are more harmful than artificial food dyes, we shouldn’t be willing to ban artificial food dyes either.

This post first appeared on Econlog.

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Cohen says this is how people want to live. Ideally, there’d be no cutthroat competition, profit motive, or unchosen inequalities. Instead, people would cooperate and share. So if a camping trip runs best on socialist principles, why not society? If it’s good to share your stove in the woods, why not share your paycheck back home? (Granted, he recognizes practical problems when it comes to institutionalizing socialism on a larger scale, but he sets those aside to argue that socialism nevertheless represents the ideal toward which we should strive.)

There are already lots of compelling objections to Cohen’s argument. Here I only want to make a simple point inspired by the excellent work of Mark Pennington. Just because it’s best if people follow some principle in one context doesn’t mean it’s best if they follow it in another, even if the practical problems could be worked out.

Take fantasy football. Imagine running your league like Cohen’s socialist camping trip. You don’t get to draft your own team—each pick is made collectively. During the season, each player aims for ties in order to eliminate the inequality between winners and losers. And there’s no trash talk because the league wants to forgo competitiveness for camaraderie. This would be the worst fantasy football league of all time.

So the socialist principles that are (allegedly) best for a camping trip aren’t best for a fantasy football league. And it’s clear that the problem isn’t that it’s infeasible to run a fantasy football league on socialist principles—even if we could, we wouldn’t want to. The lesson here is that the mere fact that socialist principles are ideal in one context like a camping trip doesn’t imply that they’re ideal in other contexts, be it a fantasy football league or a nation.

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But things aren’t so simple. For one, there’s a straightforward economic argument against a cap on credit card interest rates: companies simply won’t extend credit to higher-risk borrowers if they aren’t able to secure a higher potential payout to offset the risk of default. (By analogy, you’re unlikely to invest in a high-risk tech startup instead of blue chip stocks unless the potential payout is high enough to offset the increased risk.) And this outcome would be bad for those borrowers since they would no longer be offered credit at all. Surely, an offer of a high interest credit card is better than no offer at all—more on this below.

But many advocates of price controls on credit card interest rates make a moral argument. They worry that credit card companies that charge high interest rates are taking advantage of borrowers’ lack of options. Generally speaking, you’d be unwilling to accept a 25% interest rate unless you ran out of alternatives. Credit card companies are therefore exploiting the vulnerability of high-risk borrowers.

However, price controls are a misguided solution. Remember that the problem here is that many borrowers lack good options to acquire the money they need. Reducing borrowers’ options by one doesn’t solve that problem—in fact, it makes the problem worse. Borrowers now have even fewer options than they had before. To take a similar case, it would be perverse for the state to ban the sale of low-cost tents to those in need of permanent housing on the grounds that these sales exploit their lack of housing options.

Consider also the following moral argument against price controls on credit card interest rates (it’s similar to one I’ve lodged against “price gouging” restrictions):

If you may offer no credit at all, you may offer credit with high interest rates.

You may offer no credit at all.

So, you may offer credit with high interest rates.

Let’s break this down. First, take the claim that if you may offer no credit at all, you may offer credit with high interest rates. The argument here is simple enough: Receiving an offer of something is potentially better, and certainly not worse, than receiving an offer of nothing. If the offer is better than nothing, the borrower will take it and thus be better off. If it’s worse than nothing, she can reject it and thus be no worse off for receiving the offer.

Critically, borrowers themselves are in the best position to know whether they should accept the offer of a high interest credit card because they know their particular economic needs and prospects better than anyone else. An outsider may not understand why someone would be willing to use a credit card with a 25% interest rate, but they are likely to be unaware of the particular circumstances that motivate the borrower to do so. Along the same lines, an outsider may not understand why someone would quit their job for one with a significantly lower salary, but here we’re happy to defer to the employee’s own judgment of their economic situation.

Lastly, the claim that you may offer no credit at all simply follows from the fact that potential creditors have the right to make their own decisions about their money. If your neighbor knocks on your door and offers to pay you $1,000 at the end of month if you’ll give her $950 today, you’re under no obligation to agree. You’re certainly under no enforceable obligation to agree—that is, no one may compel you to do so.

While the push for caps on credit card interest rates may be motivated by a laudable impulse to prevent the exploitation of the economically vulnerable, such a policy both interferes with economic freedom and is likely to harm the very people it intends to help.

This post first appeared on Econlog.

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To start, it’s helpful to consider cases where privatization might be unwise and why mail delivery is different. In particular, many economists and political philosophers are skeptical about privatizing public goods—that is, goods that are characterized by nonexcludability and nonrivalrous consumption. National defense is a classic example: when a military protects a nation from attack say, via nuclear deterrence, all individual citizens enjoy that protection (nonexcludability) and one person’s protection doesn’t diminish the protection enjoyed by others (nonrivalrous consumption).

Yet because individuals cannot be excluded from national defense once it’s provided, they have little incentive to pay for it; instead, they prefer to free ride on the contributions made by others. Since everyone (or nearly everyone) prefers to free ride, the good won’t get provided by voluntarily market transactions. So there’s a case to be made that national defense should be provided by the state.

Notice, though, that this argument doesn’t speak against the privatization of the post office. Mail delivery isn’t a public good. Critically, mail delivery is excludable—delivery companies can restrict their service to paying customers. If you don’t buy a DoorDash subscription, DoorDash won’t deliver your food. If you don’t pay FedEx to deliver your parcel, it won’t deliver your parcel. Indeed, if you don’t put a stamp on your letter, the United States Postal Service won’t deliver it.

From here, the positive case for privatizing mail delivery is straightforward. Competing private delivery providers have a strong incentive to supply fast, cheap, and reliable service. After all, if their service is slow, expensive, or unreliable, customers can simply vote with their dollars and give their business to a competitor that does a better job. This option is not available when the delivery provider is a government-run monopoly and thus the monopoly has a much weaker incentive to provide good service.

Why, then, do so many people resist the idea of privatizing mail delivery given that it’s a private good that can be efficiently provided by a free market like other delivery services such as DoorDash? Robert Reich, for instance, says that privatizing the USPS is “a terrible idea that would sacrifice the public interest to private profits.” Here’s one possibility: status quo bias. We often irrationally prefer the status quo, not because it is better than a change, but simply because it’s the status quo. So perhaps people are uncomfortable with postal service privatization simply because it disrupts the current state of affairs even though a disruption would be better.

To guard against status quo bias, we can use the reversal test. That is, imagine that the status quo were reversed such that private, competing mail delivery companies were the norm. We’d have DoorDash for mail, Uber Mail, and so on. Would we want to switch this arrangement back to the actual status quo of a government-run, monopolistic mail delivery service? Surely not. Think of it this way: if you wouldn’t support nationalizing DoorDash and banning Uber Eats, Grubhub, and the rest of its competition in the food delivery business, why would you support a similar model for mail delivery?

Now, you might worry that, just as Uber Eats won’t deliver buffalo wings to a customer when it’s unprofitable for them to do so, Uber Mail wouldn’t deliver mail to a customer when it’s unprofitable for them to do so. As the American Postal Workers Union notes, unlike private delivery companies, “The USPS can’t walk away from unprofitable neighborhoods.”

But the claim that everyone is entitled to mail delivery regardless of its profitability doesn’t justify the nationalization of mail delivery. Consider that the most effective way to ensure that everyone has access to groceries is not to nationalize grocery stores, but rather to provide those in poverty with SNAP benefits to shop at the grocery store of their choice. Similarly, the state could issue mail vouchers to those in poverty or living in particularly hard-to-reach areas. This system would maintain the advantages that result from market competition as well as ensure universal access to mail delivery.

This post first appeared on EconLog.

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Walt says, “Look, I’m enjoying my time off even more than I thought I would. And, as you know, I’ve been looking forward to this vacation day for a month and I’d really rather not come in. But I’ll tell you what—if you give me double pay for the day, I’ll put down the lemonade and get to work.” His employer agrees given that the benefit of opening the store exceeds the cost of Walt’s extra pay.

I suspect that most of you can relate to Walt and, indeed, find yourself sympathetic to his situation—it doesn’t seem like it’s wrong for him to insist upon something extra for breaking up his vacation to clock in at work.

Notice, though, that Walt is guilty of “price gouging.” A wage is just the price of labor, after all. And here Walt is taking advantage of the shortage of labor and raising his “price.” But it also seems like he is making a reasonable ask.

For one, Walt has the right to ask for double pay to come in on his day off. Here’s the argument:

If Walt is within his rights to not work at all on his day off, he is within his rights to work for double pay on his day off.

Walt is within his rights to not work at all on his day off.

So Walt is within his rights to work for double pay on his day off.

What can be said in defense of the first premise? Consider that, from his employer’s perspective, Walt’s offer of expensive labor is no worse, and potentially better, than an offer of no labor. If she rejects his offer of expensive labor because it wouldn’t benefit her, she’s no worse off than if Walt had not offered to work at all. If she accepts the offer because it would benefit her, she’s better off than if Walt had not offered to work at all.

As for the second premise, I’d imagine everyone agrees that Walt is within his rights to not work at all on his day off. It’s surely generous for him to come him, but it’s not as though his employer (or the government) may force him to come in. So we should conclude that Walt is within his rights to “wage gouge.”

Moreover, allowing Walt to “wage gouge” has good consequences. If he didn’t have the right to ask for double pay, he’d have stayed in his hammock. And this outcome would have left both Walt and his employer worse off. Walt would be worse off because he wouldn’t receive the pay that he values more than his day off and his employer would be worse off because she wouldn’t be able to open the store, which is something she values more than the double pay she’d give Walt.

If you think that these reasons justify Walt in asking for double pay, you should think that they also justify more traditional cases of “price gouging.” For instance, it seems as though people are within their rights to not offer any ice at all to those at a disaster site (although it might be the generous thing to do). That is, the government doesn’t have the right to force Walt off of his hammock to buy and transport bags of ice to the site. And if Walt may offer no ice, he may offer high-priced ice—it either makes prospective buyers better off, in which case they’ll buy it, or no worse off, since they can simply refuse the offer. Moreover, the opportunity to make an unusually high amount of money can motivate Walt to get off the hammock and bring the ice to those who need it. Although we more readily empathize with “wage gougers” than “price gougers,” we have equal reason to permit both.

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Walz’s identification of socialism with neighborliness is reminiscent of Bernie Sanders’s remark that, “to me, socialism doesn’t mean state ownership of everything, by any means, it means creating a nation, and a world, in which all human beings have a decent standard of living.” Here Sanders equates socialism not with any particular set of economic institutions, but rather with the uncontroversial idea that we should create a world in which everyone has a decent standard of living.

Even socialist philosophers and writers are guilty of this kind of rhetorical sleight of hand. G.A. Cohen once argued that voluntarily sharing food and equipment with one’s friends on a camping trip is an embodiment of socialist principles. And according to George Orwell, socialism is the notion that “everyone does his fair share of the work and gets his fair share of the provisions;” he says that the merits of socialism so defined are “blatantly obvious.”

I agree with Orwell—to a point. It is obvious that we should want an economic system that fairly distributes burdens and benefits. But it’s not obvious that socialism is this system. Merely identifying socialism with a fair economic system is no more of a convincing defense of socialism than merely identifying capitalism with a fair economic system is a convincing defense of capitalism. This is a bit like someone arguing that the paleo diet is the healthiest diet because they’ll simply label whatever foods turn out to be the healthiest as “paleo.” To fruitfully compare capitalism and socialism, then, we need an understanding of the specific economic institutions that characterize socialism and capitalism.

At the most general level, socialist economies are those that mandate the collectivization of productive property. That is, they allow you to privately own “personal property” like your shoes, but not “productive property” like a shoe factory. Collectivization can be institutionalized in different ways. For instance, old-school socialists would favor state ownership of the shoe factory. But that style of socialist economy is less popular today given the overwhelming evidence that it is not prosperous, kind, or fair (see Venezuela for a recent example).

Contemporary socialists have therefore taken to advocating for workplace democracy: roughly, workers collectively own firms and make decisions democratically. This arrangement allows for market competition—worker-owned firms may openly compete with one another—and so avoids some of the traditional Hayekian critiques of socialism.

Still, it’s not clear to me that this style of socialism is all that neighborly. Sure, some people might prefer to become worker-owners of a democratically-run firm, just as some people might prefer to work remotely rather than in an office. But others might prefer a capitalist firm—and those people are out of luck under socialism. As the philosopher Robert Nozick points out, capitalism allows socialist-minded people to pool their resources together to create democratic worker cooperatives if they so choose, but socialism does not allow capitalist-minded people to create capitalist firms.

And there are plenty of good reasons why people might prefer capitalist firms. For example, as Don Lavoie notes, workers “may not want to take on the risk, expense, and responsibility involved in managing a firm.” He continues, “After all, there are potentially several advantages to workers who choose to specialize in earning wage income in order to be insulated from the vicissitudes of market competition. There is often an advantage in allowing someone else to be the boss and thereby reducing one’s concerns to the fulfillment of a wage contract, letting the management fret about the firm’s profit and loss statements.”

To illustrate the point, suppose Lance wants to start his own landscaping business and needs to hire an employee. Moe just wants stable employment and a steady wage; he doesn’t want a piece of the business and the headaches that come along with it. So Lance hires Moe to mow some customers’ lawns.

As a result, both Lance and Moe get what they want. Yet, as Nozick would say, this is one of many “capitalist acts between consenting adults” that must be prohibited by a socialist regime if it is to remain socialist. A socialist regime would compel Lance to give Moe a share of the business if he’s hired even though both parties would be worse off as a result. But forcing people into workplace arrangements they’d rather avoid is not kind or friendly; to the contrary, it sounds downright unneighborly.

This post first appeared on EconLog.

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In an effort to avoid this outcome, Biden’s proposed price cap wouldn’t apply to new units. At first glance, it looks like this policy would deliver the best of both worlds. It aims to lower the price of existing units without discouraging the construction of new units. Yet while this proposal is an improvement over old-fashioned rent control, it suffers from two problems.

First, it threatens to produce policy uncertainty. Imposing rent control with an exemption for new units still shows that policymakers are willing to cap rents on old units. Crucially, though, new units become old units. If developers are concerned that policymakers will continue to favor caps on rental increases for old units, they have reason to fear that any new units they build will eventually be subject to a cap. As a result, they will be disincentivized from building new units because their expected long-term profitability is lessened.

Second, even if new construction is not disincentivized, rent control misallocates housing. Markets route resources to their highest value use. Suppose a seller has one bag of ice left. Alice needs the ice to chill her son’s insulin. Bob needs the ice to chill his daughter’s Mountain Dew. All else equal, Alice will outbid Bob for the ice—and this is the efficient outcome. It’s better that her son have chilled insulin than that Bob’s daughter have chilled Mountain Dew. But if price controls cap the amount that Alice is able to offer for the ice, she’s not able to outbid Bob and he may well end up with the ice instead.

Housing is no different. Suppose Caroline is an extraordinarily talented surgeon who has received a lucrative job offer at a big city hospital. She’s looking for nearby housing. Dave is a professional Youtuber who films his content in an apartment near the hospital, although he could do his job anywhere. Without rent control, Caroline could outbid Dave for the apartment, which, again, would be the efficient outcome. It’s more important that a surgeon live near the hospital so that she can perform surgeries than that a Youtuber live near the hospital because he enjoys the local coffeeshops. But if rent controls cap the amount that Caroline is able to offer for the apartment, she’s not able to outbid Dave and he may well end up with the apartment instead. And if Caroline is unable to secure nearby housing, she may be unable to accept the job. This outcome is not only bad for her, it’s also bad for the patients who would have benefited from her surgical expertise. So while rent control with exemptions is better than rent control without exemptions, it is still unable to match the productive and allocative virtues of a free market.

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One person’s freedom is another person’s unfreedom. That means that what I can do . . . I talk about freedom as what somebody could do, his opportunity set, his choices that he could make. And when one person exerts an externality on another by exerting his freedom, he’s constraining the freedom of others. If you have unfettered building — for instance, you don’t have any zoning — you can have a building as high as you want. The problem is that your high building deprives another building of light. There may be noise.

Stiglitz is no doubt right that increased construction creates negative externalities. But he’s wrong to suggest that this settles the matter.

For one, increased construction creates positive externalities that likely exceed the negative ones. Increasing the supply of housing makes it easier for workers to move to better jobs, which accelerates economic growth. And denser cities reduce the need for cars, which in turn reduces carbon emissions.

But another reply to Stiglitz spotlights a point that’s often overlooked in discussions of negative externalities—sometimes you have the right to create them.

Take a simple case inspired by the philosopher Robert Nozick. Carl proposes marriage to the love of his life, Alice. While Alice is mulling it over, Bob proposes and Alice accepts. Crucially, Alice would have accepted Carl’s proposal were it not for the one made by Bob. So Carl lives out the rest of his life alone and miserable thanks to Bob. Bob’s proposal to Alice, then, creates a grave negative externality. Indeed, the harm that Carl suffers is far worse than the harm suffered by those whose view is blocked by a freshly built high-rise.

Still, Bob has the right to marry Alice even though doing so harms Carl. In short, he has the right to propose marriage and Alice has the right to accept. Moreover, Carl does not have a right that Alice accept his marriage proposal. So while the outcome is regrettable for Carl, he has no grounds for interfering with it because no one’s rights were violated.

In the same vein, the mere fact that a new high-rise makes a resident worse off doesn’t justify blocking its construction. To sort out that question we’d need to sort out the relevant rights claims. Assuming that the property used to build the high-rise has been acquired justly, then its construction is at least presumptively permissible. The developer has the right to use her property as she sees fit, including using it to build something tall.

Of course, not everything you might do with your property is permissible. You can’t use your baseball bat to kneecap the opposing pitcher. But that’s because the pitcher has a right of bodily autonomy that protects his knees from being smashed.

Is there a similar right in the case of building that could void the developer’s property rights? I’m skeptical. At first blush, the best candidate is something like a right to not have a desirable view be obstructed. Unfortunately for the opponent of housing deregulation, this sort of right simply doesn’t seem plausible.

To see why, suppose you adore the sight of my hair. Suddenly I decide to start wearing a hat. I’ve obstructed a view that you find desirable, but clearly you have no right to stop me from doing so. At the very least, the idea that you have a right to an unobstructed view needs some refinement.

Maybe the idea can be salvaged by restricting it to cases of severe harm. Plausibly, the harm you suffer from an obstructed view of the sunset is greater than the harm you suffer from an obstructed view of my hair. But the severity of the negative externality alone isn’t enough to show that someone isn’t within their rights to impose it. The harm Carl suffers as a result of Bob’s marriage proposal is greater than he harm he suffers as a result of a new high-rise. Since Bob may propose to Alice, it seems as though he may also build a high-rise near Carl. After all, it would be strange to allow Bob to impose the more harmful negative externality (a life of solitude and misery for Carl) but not the less harmful negative externality (an obstructed view of the sunset for Carl). Or imagine that Carl owns a small bookstore and Bob moves in next door with a Barnes & Noble. Bob might end up running Carl out of business, but he’s still allowed to do it. The broader point is that an actor may be free to act even in cases where the action creates a negative externality. At most, the presence of a negative externality starts a conversation, but it doesn’t end it.

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To see why, imagine that you wake up tomorrow and everyone in the US has an equal amount of resources and all workers have joined a union. Suppose further that harmful policies like drug prohibition have been eliminated. How stable is this situation?

Suppose that police union lobbyists work to insert fine print into some otherwise mundane legislation to create a small penalty for the possession and distribution of certain “controlled substances” to increase revenue for their department. All else equal, we should expect this legislation to pass. After all, the benefits to the police union are concentrated and the costs to the rest of us are dispersed. The expected benefit of your effort to read and vote against the legislation is smaller than (e.g.) the expected cost of the gas it takes to get to the polls. So the legislation passes and the penalty is created. Police unions have enriched themselves but harmed the public.

This is merely one case that illustrates a broader point. The public choice worry that concentrated interests will tend to win out over dispersed interests applies even to a socialist society that has somehow achieved all of its goals. So whatever equality, justice, and efficiency a socialist society might initially realize will tend to unravel over time simply because of the logic of collective action.

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Here are three unconvincing arguments:

1) The rich make use of public infrastructure and so should pay their fair share.

Elizabeth Warren makes an argument along these lines:

“Nobody in this country got rich on their own. They relied on infrastructure we all paid for, employees we all paid to educate. So if you're successful, good for you—now pay it forward so everyone has a chance at success.”

This problem with this argument is that it doesn’t provide a justification for taxing the rich at a higher rate than the rest of us. If a billionaire makes use of a public toll road, they should pay the toll. The mere fact that they’re a billionaire doesn’t imply that they’re obligated to pay a higher toll than the rest of us.

2) The rich benefit more from the goods and services provided by the government and so they should pay a higher tax rate.

First, it’s far from clear that the rich do benefit more from the state than the rest of us. For instance, while it’s true that a billionaire has more to lose than others if they can’t secure their material possessions, a billionaire is also able to more easily afford private security if needed.

But this reply might move too quickly. Maybe the claim is that society will collapse without the goods and services provided by the government and billionaires will lose more than the rest of us in that scenario.

Let’s grant this claim for the sake of argument. The mere fact that someone has more to lose than someone else if they aren’t provided with some good doesn’t obligate them to pay more for that good. Suppose both Fred Durst and I need a ride to the arena for a Limp Bizkit show. Fred has more to lose than I do if he can’t get a ride—he’ll lose his share of the proceeds from the show, while I’ll lose the chance to see Limp Bizkit (which is, admittedly, almost as great of a loss). Still, Fred isn’t thereby obligated to pay more for a ride than I am. For instance, if we end up riding in the same Uber, he isn’t obligated to pay more than half even though it might be nice for him to do so. Similarly, the mere fact that a billionaire has more to lose than the rest of us if a state isn’t provided doesn’t obligate her to “pay more” for the state than the rest of us.

3) The rich have used public infrastructure to make more money than others and so they should pay a higher tax rate.

I find this argument unpersuasive for three reasons. First, it effectively advocates for a punishment for putting public infrastructure to productive use. Second, this reply grants that the rich make a larger economic contribution than the rest of us, which should presumably count toward their payment of their fair share (albeit not in the form of taxes). Third, the Fred Durst counterexample applies here as well. Fred is putting the Uber ride to a more productive use than I am, but that doesn’t imply he’s obligated to pay more for the ride.

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I’m sympathetic to this argument, but it’s unlikely to persuade libertarian land value tax skeptics. Suppose Todd is 7 feet tall and lives somewhere that suddenly starts caring a lot about basketball. Now Todd’s height has become significantly more valuable, but it’s not due to anything he has done. So we can say that Todd doesn’t deserve the economic value of his height.

Here again, I find this claim plausible. But most (deontological) libertarians will argue that Todd is entitled to the economic value of his height even though he did nothing to deserve it. After all, you can be entitled to things even if you did nothing to deserve them (for instance, your kidneys).

So the desert argument for a land value tax doesn’t pressure the deontological libertarian to a bite a bullet that they haven’t already bitten. Of course, maybe they shouldn’t bite that bullet, but that’s an issue for another post.

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I’ve already given some reasons why we should reject this argument, but I want to say more about it here. First, I’ll grant the uncontroversial claim that *some* restrictions on the use of public property are justified (restrictions that apply to citizens as well as immigrants). A public library may set hours that prevent you from entering at midnight, the state may prevent drivers from using public roads that are undergoing repairs, and so on.

The key question, though, is what to make of the reasons given in favor of restricting immigrants’ access to public roads, etc. Here’s one way to evaluate those reasons: ask yourself what you’d make of them in cases that don’t involve immigration.

Suppose someone argues that the state may prevent immigrants from entering the US via public roads because immigrants will support non-libertarian policies. Let’s aside the empirical claim here and consider whether the state may restrict someone’s use of public property when such a restriction would increase the odds of enacting libertarian policies. May the state prevent someone sitting on a bench at a public park from offering passersby a pamphlet urging them to vote for Democrats? May it prevent drivers from placing GOP bumper stickers on their cars when driving on public roads? Definitely not.

Or consider the claim that the state may prevent immigrants from entering via public roads to prevent consumption of tax-funded goods and services. If someone is severely injured at their home, may the state prevent them from being transported on a public road to a hospital that receives government funding (where they will get expensive treatment)?Again, definitely not.

The point is simply that if you’re unwilling to endorse restrictions on the use of public property in these cases, you shouldn’t endorse restrictions on the use of public property in the case of immigration.

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