Friday 29 March 2024

It's Easter, so ...


Cartoon by Nick Kim
 

... so to save you searching for them, here are links to a few of my favourite Easter posts over the years here at NOT PC:

"What's the theme of Easter, and of Easter art? In a word, it's sacrifice: specifically human sacrifice. And more specifically, the sacrifice of the good to the appalling.
    "That's the Easter theme we're asked to respond to every year."

    Easter through art 

"Let’s summarise. In Pagan times, Easter was the time in the Northern calendar when the coming of spring was celebrated -- the celebration of new life, of coming fecundity. Hence the eggs and rabbits and celebrations of fertility. Indeed, the very word  'Easter' comes from Eos, the Greek goddess of the dawn, and means, symbolically, the festival celebrating the rebirth of light after the darkness of winter.
    "But with the coming of Christianity, the celebration was hijacked to become a veneration of torture and sacrifice ..."

    Easter Week, Part 4: Surely There Are Better Stories to Tell? 

"AND MAN MADE GODS in his own image, and that of the animals he saw around him, and he saw these stories were sometimes helpful psychologically in a a pre-philosophical age. But one of these gods was a jealous god. For this god was so angry at the world he sent one-third of himself to die to expiate the sins of those with whom he was angry, for sins that (in his omniscience) he would have always known they would commit.
    "It’s not just history the christian story challenges, is it. It’s logic."

    Easter Week, Part 3: The Holy Art of Sacrifice 

"Christianity didn’t start with Jesus, any more than the Easter story did. Paul, who never even met Jesus but who played the largest part in explaining his life, and his death, had a big hand in both.
    "Jesus’s death was a secular event his followers struggled to explain."

    Easter Week, Part 2: Enter Hercules…

"IT’S EASTER WEEK – a time, since human cultural life began up in the northern hemisphere, when men and women and their families came together to celebrate.
    "To celebrate what?
    "Why, to celebrate spring, of course. ..."

    Hey, hey, it’s Easter Week! 





Thursday 28 March 2024

"Politicians are not the cause of a culture’s trend, only its consequence."


"Politicians are not the cause of a culture’s trend, only its consequence. They get their notions from the cultural atmosphere, particularly from newspapers, magazines, and TV commentaries; they speak as these media teach them to speak. Who teaches the media? And now we come down to the root: of all our institutions, it is the universities that are primarily responsible for this country losing its way—and of all the university departments, it is the departments of philosophy." ~ Ayn Rand, from her 1972 essay 'How to Read (and Not to Write)'

"If you observe that for decades past the universities have been indoctrinating people with the modern philosophies, irrationality with epistemological irrationalism, moral subjectivism, with the whole complex of ideas, all tending to prove only one thing, that we can know nothing, nothing can be specific, definitions do not matter or do not exist, words and concepts are only a matter of public or social convention. When men come out with that intellectual equipment, they are helpless to deal with political abstractions, with abstract ideas." ~ Ayn Rand, from her 1964 interview 'Enemies of Extremism'

"Walk into any college classroom and you will hear your professors teaching your children that man can be certain of nothing, that his consciousness has no validity whatever, that he can learn no facts and no laws of existence, that he’s incapable of knowing an objective reality. What, then, is his standard of knowledge and truth? Whatever others believe, is their answer. There is no knowledge, they teach, there’s only faith . . . . " ~ Ayn Rand, from her 1957 novel Atlas Shrugged

"Ladies and gentlemen, higher education today has a remarkable press. We hear over and over about the value of our colleges and universities, their importance to the nation, and our need to contribute financially to their survival and growth. In regard to many professional and scientific schools, this is true. But in regard to the arts, the humanities, the social sciences, the opposite is true. In those areas, with some rare exceptions, our colleges and universities are a national menace, and the better the university ... the worse it is. Today’s college faculties are hostile to every idea on which this country was founded, they are corrupting an entire generation of students." ~ Leonard Peikoff from his 1983 article 'Assault from the Ivory Tower'

[hat tip Tal Tsafany


Wednesday 27 March 2024

Public 'service' cuts

 



"It sure would be great if news outlets appalled at 7% cuts to Ministry rosters could remind folks that that would still generally be a substantial increase on pre-Covid staffing."
~ Eric Crampton, from his post 'Public service cuts and context'

 



The 'Success Sequence' for young adults


"The 'Success Sequence' [is] a formula to help young adults succeed ... The formula involves three steps: get at least a high school education, work full time, and marry before having children. Among Millennials who followed this sequence, 97% are not poor when they reach adulthood."
~ W. Bradford Wilcox + Wendy Wang, from their post ' Power of the Success Sequence'

Tuesday 26 March 2024

“Many hundreds of thousands of jobs worldwide now depend on the climate crisis.”




"It is difficult to get a man to understand something, when his salary depends on his not understanding it."
~ Upton Sinclair
“Many hundreds of thousands of jobs worldwide now depend on the climate crisis.” 

• Dr. @RossMcKitrick, 50:18: - “You start building this enormous population whose job is to ‘manage the crisis,’ and also explicitly, to make sure that people are alarmed about the crisis, because this whole industry depends on the existence of the crisis.” 
• Dr. @MatthewWielicki50:51 - “If CO₂ isn’t having the huge negative impacts that we claimed it was having originally, how are we going to stay in business? How do we justify our existence if climate change isn’t this existential threat that we claimed it was over the last four decades or so?” 
• Also, at 51:38 - “The IPCC has a self-preservation instinct to show that climate change is an existential threat, otherwise there is no reason for them to be collecting the money and doing the work in the first place.” 
• Dr. Roy Spencer, 51:06 - “People like me, our careers depend on funding of climate research. This is what I’ve been doing just about my whole career; this is what the other climate researchers are doing with their whole careers. They don’t want this to end.” • Tony Heller (@TonyClimate) - “If NASA said ‘global warming is not a problem,’ their funding disappears. So, they can’t say that. I mean, you got the United Nations’ Intergovernmental Panel for Climate Change. If they said the climate isn’t changing, they’d have no reason to exist.”

Watch the FULL “Climate the Movie” above or here — and let us know what you think! [Hat tip Chris Martz]

Monday 25 March 2024

New Left vs the Masses


"There is one line by [New Left hero Herbert] Marcuse that is quite telling about the essence of the New Left:
"‘If the worker and his boss enjoy the same television programme and visit the same resort places, if the typist is as attractively made up as the daughter of her employer, if the Negro owns a Cadillac, if they all read the same newspaper, then this assimilation indicates not the disappearance of classes, but the extent to which the needs and satisfactions that serve the preservation of the Establishment are shared by the underlying population. (…) The people recognise themselves in their commodities; they find their soul in their automobile, hi-fi set, split-level home, kitchen equipment’. (One-Dimensional Man, pp. 10-11). 
"For Marcuse, a worker who can afford a resort place, a working-class girl having access to amenities that were previously only available to the elites, and a person of colour owning a car, are all problematic. People escaping the drudgery of millennia means they can’t anymore play the convenient role of the victim in the intellectual’s schemes of class warfare. Which is why Marcuse gives up on ordinary people as political agents, and looks instead to the ‘lumpenproletariat’ for his new revolutionary subjects. 
    "The masses and their aspirations are a problem!
    "Notice also the anti-materialism: how dare these proles enjoy amenities! How dare they enjoy that split-level home! They’ve lost their souls, but I, Marcuse, can tell them what’s good for them - know your place proles! 
    "No one saw as clearly this shift of the Left, from promising abundance to problematising working class people having stuff, than Ayn Rand: 
'The old-line Marxists used to claim that a single modern factory could produce enough shoes to provide for the whole population of the world and that nothing but capitalism prevented it. When they discovered the facts of reality involved, they declared that going barefoot is superior to wearing shoes'."

Sunday 24 March 2024

"It's wanting to know that makes us matter."


"It's wanting to know that makes us matter. Otherwise we're going out the way we came in."
~ Tom Stoppard, from his play Arcadia

 

Saturday 23 March 2024

"While Grant Robertson was talking himself up the result of his past six years as Finance Minister were clear for all to see."


"While Grant Robertson was talking himself up in Parliament [this week] about his wonderful political career and how proud he was of his achievements, the result of his past six years as Finance Minister were clear for all to see.
    "We've just fallen out of the world's top ten 'happiest' countries and are in recession, practically to the day he gave his farewell speech.
    "Our problems are largely due to Robertson's excessive fiscal expansion, done on borrowed money, during the pandemic, which amazingly was one of the largest in the world in spite of us having the least number of cases during that time of Covid compared to others. Why did Robertson not figure that our 2020 success in keeping the virus out meant that far less government borrowing & spending was required? ...
    "On top of one of the world's largest fiscal expansion, the Reserve Bank went mad & printed more money than virtually any other Central Bank. Those two decisions by Robertson & Orr threw NZ into the recession we are now experiencing today. By my account, we are one of only a tiny handful of nations on the planet in recession. Unbelievable. Robertson & Orr snatched economic defeat from the jaws of a Covid victory."

~ Robert MacCulloch, from his post 'The Day our Worst Finance Minister Ever Leaves Parliament, NZ falls into recession & drops out of the world's top 10 highest well-being countries.'

Friday 22 March 2024

CNN Is Wrong. "Deflation" Is a Good Thing.

 


This guest post by Soham Patil is for everyone who still thinks that falling prices are a bad thing, and that rising prices are, somehow, good...

CNN Is Wrong. "Deflation" Is a Good Thing.

by Soham Patil

A recent video by CNN states that lower prices are bad for the economy, and that consumers must get used to the newer, higher prices. The video goes so far as to say, “We’re never going to pay 2019 prices again.” The video claims that deflation is responsible for a long list of problems including layoffs, high unemployment, and falling incomes. Americans should simply get used to paying more and more each year, they say, and be happy about it. Except, so-called "deflation" -- falling prices, caused by rising productivity rather than by monetary collapse — is actually good for consumers despite the contentions of inflation-supporting economists.

The conclusion that inflation is a good thing is reached by the mishandling of economic terms. While Austrian economics accepts that "inflation" when used accurately is the expansion of the money supply, mainstream economics contends that inflation is simply an increase in the general price level in an economy however it is caused. This skewed definition allows one to erroneously conclude that inflation causes prosperity by raising profits and incomes through higher consumer prices. The problem with this is that “price inflation” (rising prices) is also often caused by real inflation: i..e, the increase of the money supply. An increase in the money supply comes from the creation of additional units of money. The wealth of savers is diluted by the expansion of the money supply, which leads to the hardships many Americans face.

Further, while the video contends that the pandemic may have caused rising prices, it cannot explain the continual growth of prices even after the effects of the pandemic have subsided. The pandemic is not responsible for the continual trend of increasing prices; the growth of the money supply is.

Figure 1: The M2 in the United States, 1959–2024

While the money supply of US dollars has increased steadily over the past few decades, a significant jump can be seen after 2019 when the Federal Reserve’s expansionary monetary policies caused a great rise in the money supply. This growth, uncompensated by additional production due to the pandemic, caused the price inflation that many now blame solely on the pandemic. The truth is that if the pandemic were the cause of prices rising a significant amount, the absence of the pandemic should account for a proportionally drastic deflationary period afterward. This never occurred, and thus the money supply paints a more honest picture of inflation than any index of a collection of prices ever could.

Rising prices are obviously troublesome for both consumers and producers (everyone faces rising costs). By contrast, deflation (falling prices) is often a good thing. "Deflation" in simple terms simply means that the same unit of money is worth more today than it was yesterday. Consumers thus can buy more today than they could yesterday. Instead of actively being impoverished during conditions of rising prices, during times of gently falling prices consumers would instead be made richer. There are two contrasting ways that we might see falling prices: when productivity increases faster than the money supply (a very good thing), or when the money supply collapses after a failed inflationary boom (almost always a bad thing). Unfortunately, both good and bad are tarred with the same semantic brush.

The reason many economists are quick to champion inflationary booms as somehow creating prosperity is because central banks have previously used expansionary monetary policies to temporarily boost the economy by increasing aggregate demand. Several of these policies, often specifically lowering interest rates, cause a boom-bust cycle. When the money supply is expanded and cheap credit is abundant, firms are able to take on ambitious projects that they may not have been able to previously. Malinvestment results from the unsustainable credit expansion created by extremely low interest rates. There is greater demand for the factors of production, and an increase is seen in conventional metrics of economic growth such as gross domestic product.

During the process of malinvestment, an increase in employment occurs due to the firms having access to cheap and easy credit, allowing for greater business spending. However, when firms lose access to cheap and easy credit due to the central banks having to prioritise cutting inflation, jobs are lost. These job losses are not the fault of the deflation but rather of the malinvestment during the false economic booms. Without malinvestment and inflation, resources would have been invested in more-profitable endeavours, making better use of these resources.

Artificially cheap credit causes a misallocation of resources by skewing price information. Eventually, a bust must follow the boom. In this period, deflation often occurs due to market actors coming to more-realistic valuations of the factors of production. After these realistic valuations come about, consumers are able to pay less for their goods and services . . . at least until the central bank causes the next boom-bust cycle.

In conclusion, it would be wrong to pinpoint deflation as a potential issue for the economy. To do so would be to conflate the cause and effect of how money supply affects an economy. Contrary to CNN’s video, the Federal Reserve throughout its history has not helped the cause of consumers, evidenced by the exponential growth of prices since its foundation.

* * * * 


Soham Patil is a high school senior at Symbiosis International School. He is passionate about Austrian Economics and Philosophy.
 
His post first appeared at the Mises Wire.

Thursday 21 March 2024

"Hamas is perhaps the first regime in recorded history to fight a war designed to maximise casualties among their own population."


"Hamas is perhaps the first regime in recorded history to fight a war designed to maximise casualties among their own population. And that only works for them if there is a host of outsiders, 'progressives,' who will agonise over and blame Israel for that suffering. ...
    "ISIS and Hamas learned strategy from the same playbooks. ... Hamas ... develop[ed] a jihadist strategy based on ... theological justification for ... 'attention-grabbing' atrocities to attract recruits and sow fear in the enemy's hearts.' ...
    "Westerners clearly misperceive Hamas when they imagine that their actions on October 7 were spontaneous and opportunistic; rather, it appears that the strategy of atrocity was theoretically informed, well designed, and then executed to elicit an overwhelming Israeli response and to put the Gazans at peril."

~ Michael Hochberg & Leonard Hochberg, from their post 'The Strategy of Atrocity in the Gaza War'

Wednesday 20 March 2024

How the anti-building bureaucracy works

 

HERE'S A BRIEF UPDATE for you on how the anti-building bureaucracy works to confound eager new ministers.

Bright-eyed building minister Chris Penk has just posted a gushing self-satisfied presser promising faster building consents. "The government," it says, "is taking steps to reduce delays and speed up building consents."

Exciting. Encouraging. Mighty work.

What are those steps? you ask.

Here's the first step: "requiring councils to submit data for building consent and code compliance certificates every quarter."

There are no other steps.

That's it.

Minister Penk has confused a singular with a plural.

But what about that singular step of his. Will "requiring councils to submit data for building consent and code compliance certificates every quarter" in some way "reduce delay and speed up building consents?"

Even in Minister Penk's carefully-worded boast, which many a building minister has promised before him, he can only advise that "this added scrutiny will provide greater certainty for the sector, encourage best practice and drive innovation that will help reduce delays and let Kiwi builders get on with the job."

Greater certainty! Best practice! Driving innovation! Reducing delays! Splendid!! How? Somehow. Apparently.

All he can promise, apparently, is hope. Beyond that hope, which is as eternal as some building consent applications, Minister Penk's intended causal chain for reducing delays is not entirely clear.

LET ME ADVISE MINISTER Penk of something that every Kiwi builder and everyone in the "sector" who's ever applied for a building consent already knows: that any self-respecting building processor knows how to "stop the clock" so judiciously that they're able to ensure that almost every consent will appear to have been processed swiftly and efficiently. And they can "stop the clock" simply by asking a question, however stupid. ("Please draw a detail of the backsplash for the hand basin"; "please draw nosing detail for lower stair"; "please provide a dimension for something we all already know";"please provide yet another piece of technical literature from the manufacturer"; "please provide engineering for item already covered in the Building Code" etc.) And it's not just one question — these official "requests for further information?" can often be encyclopaedic!

And they legally delay the whole process. It may have taken a year or two on the calendar to process (yes, even some simple building consents can take that long) but with some careful, cool and efficient stopping of the clock, so that most of the delay-days aren't counted, even that drawn-out unforgiving process can be made to look swift and efficient. (Even more incentive when some of the council processors are employed by the hour to dream up and send out these questions.)

Applications for building consents must, says the Building Act, be completed within 20 working days. All this questioning and encyclopaedic compilation of paperwork however ca easily keep the "official" tally of days down to the prescribed twenty. 

But all this time-wasting costs money — and more pressure from Ministers like Mr Penk will not do a single thing to reduce delays and let Kiwi builders get on with the job. Instead, it will only encourage more stupid questions from council's consent processors so that their "data for building consent and code compliance certificates every quarter" will look spick and span.

These days, as they say, the building is often the easy part.


'Taxing profits is tantamount to taxing success in best serving the public'


 

“Capital does not ‘beget profit’ as Marx thought. The capital goods as such are dead things that in themselves do not accomplish anything. If they are utilised according to a good idea, profit results. If they are utilised according to a mistaken idea, no profit or losses result. It is the entrepreneurial decision that creates either profit or loss. It is mental acts, the mind of the entrepreneur, from which profits ultimately originate. Profit is a product of the mind, of success in anticipating the future state of the market. It is a spiritual and intellectual phenomenon. ...
    “Taxing profits is tantamount to taxing success in best serving the public. The only goal of all production activities is to employ the factors of production in such a way that they render the highest possible output. The smaller the input required for the production of an article becomes, the more of the scarce factors of production are left for the production of other articles. But the better an entrepreneur succeeds in this regard, the more is he vilified and the more is he soaked by taxation. Increasing costs per unit of output, that is, waste, is praised as a virtue.”
~ Ludwig von Mises, Profit and Loss (1951)

 

Tuesday 19 March 2024

Reporting news, or manufacturing propaganda?



"If people in the media cannot decide whether they are in the business of reporting news or manufacturing propaganda, it is all the more important that the public understand that difference, and choose their news sources accordingly."
~ Thomas Sowell, from his 2012 column 'Mixing news and propaganda' [hat tip Thomas Sowell quotes]

Separating Information from Disinformation: Threats from the AI Revolution




In part one of this three-part series on so-called Artificial Intelligence (AI), our guest poster Per Bylund explained that AI's so-called large language models will not (cannot) evolve into artificial general intelligence as there is nothing therein that will give rise to consciousness. In part two he explained that neither is there any economic threat from AI —which doesn’t mean that AI will have no impact on the economy.
In part three, this final part, he distinguishes between what you should know, what you should ignore, and what real threats do exist ...

Separating Information from Disinformation: Threats from the AI Revolution

by Per Bylund

Artificial intelligence (AI) cannot distinguish fact from fiction. It also isn’t creative or can create novel content but repeats, repackages, and reformulates what has already been said (but perhaps in new ways).

I am sure someone will disagree with the latter, perhaps pointing to the fact that AI can clearly generate, for example, new songs and lyrics. I agree with this, but it misses the point. AI produces a “new” song lyric only by drawing from the data of previous song lyrics and then uses that information (the inductively uncovered patterns in it) to generate what to us appears to be a new song (and may very well be one). However, there is no artistry in it, no creativity. It’s only a structural rehashing of what exists.

Of course, we can debate to what extent humans can think truly novel thoughts and whether human learning may be based solely or primarily on mimicry. However, even if we would—for the sake of argument—agree that all we know and do is mere reproduction, humans have limited capacity to remember exactly and will make errors. We also fill in gaps with what subjectively (not objectively) makes sense to us (Rorschach test, anyone?). Even in this very limited scenario, which I disagree with, humans generate novelty beyond what AI is able to do.

Both the inability to distinguish fact from fiction and the inductive tether to existent data patterns are problems that can be alleviated programmatically—but are open for manipulation.


Manipulation and Propaganda


When Google launched its Gemini AI in February, it immediately became clear that the AI had a woke agenda. Among other things, the AI pushed woke diversity ideals into every conceivable response and, among other things, refused to show images of white people (including when asked to produce images of the Founding Fathers).

Tech guru and Silicon Valley investor Marc Andreessen summarised it on X (formerly Twitter): 
“I know it’s hard to believe, but Big Tech AI generates the output it does because it is precisely executing the specific ideological, radical, biased agenda of its creators. The apparently bizarre output is 100% intended. It is working as designed.”
What this demonstrates is that there is indeed a design to these AIs beyond the basic categorisation and generation engines. The responses are neither perfectly inductive nor generative. In part, this is necessary in order to make the AI useful: filters and rules are applied to make sure that the responses that the AI generates are appropriate, fit with user expectations, and are accurate and respectful. Given the legal situation, creators of AI must also make sure that the AI does not, for example, violate intellectual property laws or engage in hate speech. AI is also designed (directed) so that it does not go haywire or offend its users (remember Tay?).

However, because such filters are applied and the “behaviour” of the AI is already directed, it is easy to take it a little further. After all, when is a response too offensive versus offensive but within the limits of allowable discourse? It is a fine and difficult line that must be specified programmatically.

It also opens the possibility for steering the generated responses beyond mere quality assurance. With filters already in place, it is easy to make the AI make statements of a specific type or that nudges the user in a certain direction (in terms of selected facts, interpretations, and worldviews). It can also be used to give the AI an agenda, as Andreessen suggests, such as making it relentlessly woke.

Thus, AI can be used as an effective propaganda tool, which both the corporations creating them and the governments and agencies regulating them have recognised.

Misinformation and Error


States have long refused to admit that they benefit from and use propaganda to steer and control their subjects. This is in part because they want to maintain a veneer of legitimacy as democratic governments that govern based on (rather than shape) people’s opinions. Propaganda has a bad ring to it; it’s a means of control.

However, the state’s enemies—both domestic and foreign—are said to understand the power of propaganda and do not hesitate to use it to cause chaos in our otherwise untainted democratic society. The government must save us from such manipulation, they claim. Of course, rarely does it stop at mere defence. We saw this clearly during the covid pandemic, in which the government together with social media companies in effect outlawed expressing opinions that were not the official line (see Murthy v. Missouri).

AI is just as easy to manipulate for propaganda purposes as social media algorithms but with the added bonus that it isn’t only people’s opinions, and that users tend to trust that what the AI reports is true. As we saw in the previous article on the AI revolution, this is not a valid assumption, but it is nevertheless a widely held view.

If the AI then can be instructed to not comment on certain things that the creators (or regulators) do not want people to see or learn, then it is effectively “memory holed.” This type of “unwanted” information will not spread as people will not be exposed to it—such as showing only diverse representations of the Founding Fathers (as Google’s Gemini) or presenting, for example, only Keynesian macroeconomic truths to make it appear like there is no other perspective. People don’t know what they don’t know.

Of course, nothing is to say that what is presented to the user is true. In fact, the AI itself cannot distinguish fact from truth but only generates responses according to direction and only based on whatever the AI has been fed. This leaves plenty of scope for the misrepresentation of the truth and can make the world believe outright lies. AI, therefore, can easily be used to impose control, whether it is upon a state, the subjects under its rule, or even a foreign power.

The Real Threat of AI


What, then, is the real threat of AI? As we saw in the first article, large language models will not (cannot) evolve into artificial general intelligence as there is nothing about inductive sifting through large troves of (humanly) created information that will give rise to consciousness. To be frank, we haven’t even figured out what consciousness is, so to think that we will create it (or that it will somehow emerge from algorithms discovering statistical language correlations in existing texts) is quite hyperbolic. Artificial general intelligence is still hypothetical.

As we saw in the second article, there is also no economic threat from AI. It will not make humans economically superfluous and cause mass unemployment. AI is productive capital, which therefore has value to the extent that it serves consumers by contributing to the satisfaction of their wants. Misused AI is as valuable as a misused factory—it will tend to its scrap value. However, this doesn’t mean that AI will have no impact on the economy. It will, and already has, but it is not as big in the short-term as some fear, and it is likely bigger in the long-term than we expect.

No, the real threat is AI’s impact on information. This is in part because induction is an inappropriate source of knowledge—truth and fact are not a matter of frequency or statistical probabilities. The evidence and theories of Nicolaus Copernicus and Galileo Galilei would get weeded out as improbable (false) by an AI trained on all the (best and brightest) writings on geocentrism at the time. There is no progress and no learning of new truths if we trust only historical theories and presentations of fact.

However, this problem can probably be overcome by clever programming (meaning implementing rules—and fact-based limitations—to the induction problem), at least to some extent. The greater problem is the corruption of what AI presents: the misinformation, disinformation, and malinformation that its creators and administrators, as well as governments and pressure groups, direct it to create as a means of controlling or steering public opinion or knowledge.

This is the real danger that the now-famous open letter, signed by Elon Musk, Steve Wozniak, and others, pointed to: “Should we let machines flood our information channels with propaganda and untruth? Should we automate away all the jobs, including the fulfilling ones? Should we develop nonhuman minds that might eventually outnumber, outsmart, obsolete and replace us? Should we risk loss of control of our civilisation?”

Other than the economically illiterate reference to “automat[ing] away all the jobs,” the warning is well-taken. AI will not Terminator-like start to hate us and attempt to exterminate mankind. It will not make us all into biological batteries, as in The Matrix. However, it will—especially when corrupted—misinform and mislead us, create chaos, and potentially make our lives “solitary, poor, nasty, brutish and short.”
Per Bylund is the Associate Professor of Entrepreneurship and Johnny D. Pope Chair in the School of Entrepreneurship in the Spears School of Business at Oklahoma State University. 
He is the author of three full-length books: How to Think about the Economy: A PrimerThe Seen, the Unseen, and the Unrealized: How Regulations Affect our Everyday Lives; and The Problem of Production: A New Theory of the Firm. He has edited The Modern Guide to Austrian Economics and The Next Generation of Austrian Economics: Essays In Honor of Joseph T. Salerno.
His article first appeared at the Mises Institute blog.

Monday 18 March 2024

"The real bosses, in the capitalist system of market economy, are the consumers."


"The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor.
    "The consumers are merciless. They never buy in order to benefit a less efficient producer and to protect him against the consequences of his failure to manage better. They want to be served as well as possible. And the working of the capitalist system forces the entrepreneur to obey the orders issued by the consumers.
    "The consumers are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy."
~ Ludwig Von Mises from his 1944 publication Bureaucracy

Sunday 17 March 2024

The Economics of the AI Revolution



In part two of this three-part series on so-called Artificial Intelligence (AI), our guest poster Per Bylynd acknowledges that even though AI is arguably not an intelligence—at least not in the sci-fi sense—it does not mean that it is unimportant or lacks implications. The technological advance that it represents is nothing short of revolutionary and will have far-reaching implications for both the economy and society.

The Economics of the AI Revolution

by Per Bylund

In a recent article, we briefly summarised what it is that we today call artificial intelligence (AI). Whereas these technologies are certainly impressive and may even pass the Turing test, they are not beings and have no consciousness. Thus, this is neither the time nor the place to discuss philosophical issues of how to define a true or full AI—an artificial general intelligence—and whether we should recognize AI software legally as a person (after all, corporations are).

Economically speaking, AI as technology, whether it is used for entertainment or in production, is a good. As Carl Menger taught, what makes something a good is that it (whatever it may be) has the ability to satisfy a human need, that it must be recognised as such, and that a person—the consumer—has or can gain command over it to satisfy those actual needs. In other words, it must be scarce (there is less of it than we can use to satisfy wants) and understood as valuable (because we believe it can satisfy wants). AI certainly fits the criteria.

The economic system's stages of production form a 'production structure':
increasingly higher order of capital goods producing consumer goods, over time ...

AI as a Consumption Good


When people entertain themselves by “discussing” with AI (try, for example, Windows Copilot) or generating quirky images using DALL-E (try it here), it is a good of the lowest order—a consumption good. As such, the economic consequences are limited to the effect this has on consumer behavior. But this may in turn have a significant impact on production.

Some consumption goods revolutionise the economy and society. Examples of such goods include the automobile (from the introduction of Ford’s Model-T) and the smartphone (starting with Apple’s iPhone). The former disrupted transportation and infrastructure and facilitated just-in-time manufacturing and urban sprawl, just to mention a few effects. The latter changed everything from how we bank to how we travel.

The point here is that as consumer behaviour changes, the production structure follows along. For example, with the broad adoption of the smartphone, paper map production has all but disappeared; whereas, digital location services and intelligent logistics have seen enormous growth and development. And change leads to more change because entrepreneurs build on, add to, and challenge the new discoveries.

AI has the potential to change consumer behaviour well beyond its designed functionality. Exactly how and in what ways remains to be seen. But it is safe to say that it has potential. (On the other hand, many goods have had potential to disrupt but didn’t leave a mark.) For example, we may see people produce their own stories, songs, images, and even movies. So perhaps, instead of relying on television or Netflix and Hollywood producers, we’ll make movie night into a make-a-movie night where we watch content we have generated and that fits us perfectly.

AI as a Higher-Order Good


As a tool and thus a good of a higher order, AI has already had an effect and promises to disrupt several trades. Because it is very effective at producing and presenting content, including translating and editing texts, content-related professions are threatened by AI. This includes journalists and copyeditors, as AI programs can write and edit faster than humans. After all, anyone can ask AI to produce or edit a text. Students already use AI to spice up or improve their papers—or let AI write them from scratch.

AI is similarly affecting photographers and illustrators. It only takes a minute to have DALL-E produce a new image exactly as directed, or to have an AI algorithm remove or add things in a picture you snapped. Whereas, having an illustrator create something takes much longer (not to mention the cost).

Programmers and system developers are also seeing the effects of AI, which has no problem both generating new code (without bugs!) or checking already written code. Legacy software written in dated and ineffective programming languages can be run through an AI to make the coding more efficient—and converted into a modern language.

AI is also affecting academia. Why have an instructor tell students about some subject matter instead of letting AI do it? After all, the AI can easily present content in a way that the student prefers. For example, make a movie to explain, say, biology or chemistry in an entertaining way. And it can answer all kinds of questions without ever getting bothered or cranky—and it has nowhere else to be. In research, AI can analyse data more effectively and run thousands of different regressions on data to find something that is significant and important (so-called HARKing, which is very poor research practice—but who will know?). It can write up the paper too, with citations and everything, in just seconds.

AI as Production Capital


All of this means AI can and will be used in production. In fact, it already is and we have only started to see the effects.

AI is best categorised as capital, which is used to make labor more productive (more value output per hour of labor invested) through facilitating more roundabout (but more effective) production structures. Capital goods in general have one (or both) of two functions: it makes existing production processes more effective by increasing productivity, or it makes possible types of production that were not previously possible. AI checks both boxes.

We have already seen how people working in several types of content-based professions can easily be made more productive or replaced entirely by AI. It can also do things that people may have been unable to do—or never thought of doing. This of course can cause so-called technological unemployment as people lose their jobs because AI can do them better (and cheaper). But this is a dystopian way of describing something quite normal and highly useful: that we relieve people, with all their ingenuity, from comparatively simple tasks so that they can create much more value elsewhere.

It is of course problematic for any person losing their source of income, but it is highly beneficial to consumers (and therefore society at large) that these (and other) professions are “creatively destroyed.” The economic point of employment is not to provide people with an income so they can pay taxes (although politicians seem to think so) but to produce goods that can satisfy consumer wants—to make our lives better. Just like there are very few stable boys or buggy-whip producers since the automobile revolution, the future will see fewer people doing news reporting, copyediting, or coding.

Note also that this revolution is not nearly as sudden and disruptive as it may at first seem: the news media, for example, have for many years reduced the number of journalists doing reporting (most outlets nowadays merely republishing standard articles from AP or Reuters). And software development already uses increasingly effective development environments that correct and predict commands, allow for WYSIWYG and drag-and-drop development, and can debug code and suggest solutions to bugs.

AI is only another step in this process. But the threat is greatly exaggerated. We tend to overestimate the impact of technology in the short term but underestimate it in the long term.

Limitations to Overcome


There is a problem, however, and it has to do with how large language models work and what responses they generate. When used in a setting that is strictly rules-based, such as in computer programming, the AI “understanding” of code can greatly improve the productivity of coders (or replace them). AI will not introduce bugs in software unless the specifications are incomplete or contradictory, and it will not make errors.

The same is true for AI’s language generation: it draws from large troves of text data and has a good “understanding” for how humans use language. But there are no rules-based ways by which it can distinguish fact from fiction. Instead, AI draws from what statistically is more likely to be a human-sounding response. For this reason, it produces content that can be entirely wrong.

For example, I asked AI to summarise the content of my 2022 economics primer, How to Think about the Economy. [A highly recommended free book - Ed.] Since it has access to the text, it did a pretty good job summarising what is in the book. But it also added comments on content that is typically in economics books but that is not in the primer (such as equilibrium theory, perfect competition, and mathematical equations). The AI is correct that economics books typically discuss such things and thus it is statistically probable that my primer would do the same. But it doesn’t.

There is a difference between statistical probability and truth. We will look at this problem and the potential threat that AI poses to human society in the next article.

=> CONTINUED IN PART THREE: 'Separating Information from Disinformation'
PART ONE: 'Understanding the AI Revolution'
Per Bylund is the Associate Professor of Entrepreneurship and Johnny D. Pope Chair in the School of Entrepreneurship in the Spears School of Business at Oklahoma State University.
He is the author of three full-length books: How to Think about the Economy: A PrimerThe Seen, the Unseen, and the Unrealized: How Regulations Affect our Everyday Lives; and The Problem of Production: A New Theory of the Firm. He has edited The Modern Guide to Austrian Economics and The Next Generation of Austrian Economics: Essays In Honor of Joseph T. Salerno.
His article first appeared at the Mises Institute blog.


Friday 15 March 2024

"There will not be any more generic open-ended Treaty clauses."


Cartoon by Nick Kim 

"The growth of Treaty of Waitangi clauses in legislation caused so much worry that a special oversight group was set up by the last government in a bid to get greater coherence in the public service on Treaty matters.
When ministers first considered the need for tighter oversight in 2021, there were at least 50 known Treaty clauses in legislation with about 14 variations in their description of the Crown’s obligations as a Treaty partner.
    "With a growing number of references to the Treaty in legislation and a growing variety of references, it was clearly becoming a legal quagmire for the constitutional relationship between the Crown and Māori. ...
    "[These will be looked at in] the New Zealand First-driven review of existing Treaty principles in legislation later this term.
But what will be left of any new Treaty clauses to monitor is an open question because of a radical direction the coalition Government is taking already, ahead of the review.
    "It is no longer putting general Treaty clauses in legislation. ...
    "The [new] Fast-Track Approvals Bill ... did not have a general clause. 'But leaving out a general Treaty clause is not a one-off,' says New Zealand First’s Regional Development Minister Shane Jones ... 'There will be no more general Treaty clauses in any new legislation,' he said.
    “'If you look at the sentiment in the coalition agreement, it should come as no surprise to anyone that there is not and will not be any more generic open-ended Treaty clauses.'
    "'That would apply to all [new] legislation'."
~ Audrey Young from her column 'No more Treaty clause 'mission creep''

Understanding the AI Revolution



No, AI is arguably not an intelligence—at least not in the sci-fi sense, as acknowledges Per Bylund in this first part of his three-part Guest Post, but it does not mean that it is unimportant or lacks implications. The technological advance that it represents is nothing short of revolutionary and will have far-reaching implications for both the economy and society.

Understanding the AI Revolution

by Per Bylund

The artificial intelligence (AI) revolution is here, and it is bound to change the world as we know it—or so proclaimed the hype following the release of OpenAI’s ChatGPT version 3.5 in November 2022, which was only the beginning. Indeed, much has happened since then with the release of the much-improved version 4.0, which was integrated into Microsoft’s Bing search engine, and the recent beta release of Google’s Gemini.

Lots has since been written about what AI could mean for humanity and society, from the positive extremes of soon-here Star Trek technologies and the “zero marginal cost” society to the supposedly imminent “AI takeover” that will cause mass unemployment or the enslavement (if not extermination) of mankind. However, how much of this is fiction, and what is real? In this three-part article series, I will briefly discuss the reality and fiction of AI, what it means for economics (and the economy), and what the real dangers and threats are. Is this the beginning of the end or the end of the beginning?

Most people’s prior experience of the term “artificial intelligence” is from science fiction books and movies. The AI in this type of media is a nonbiological conscious being—a machine man, of sorts. The intelligent machine is often portrayed as lacking certain human qualities such as empathy or ethics. However, it is also unencumbered by human limitations such as imperfect calculability and the lack of knowledge. Sometimes the AI is benign and a friend or even servant of mankind, such as the android Data in Star Trek: The Next Generation, but AI is often used to illuminate problems, tensions, or even an existential threat. Examples of such dystopian AI include Skynet in the Terminator movies, the machines in The Matrix, and HAL 9000 in 2001: A Space Odyssey.

The “AI” in our present real-world hype, such as OpenAI’s ChatGPT and Google’s Gemini, is nothing like these sci-fi “creatures”; they are nowhere near conscious beings. In fact, what we have today is so far from what we typically would call an intelligence that a new term has been invented to distinguish the “real thing” from the existing chatbots that are now referred to as “AI”: artificial general intelligence. The conscious, thinking, reasoning, and acting nonbiological creature-machines in sci-fi are artificial general intelligences. This raises the question: What is AI?

Machine Learning and Large Language Models


Present-day AI is an intelligence in the same sense as a library of books is. Both hold loads of information that are categorised in a number of different ways, such as by topic, keyword, author, and publisher. For the regular library, the books are categorised to help users find what they are looking for.

However, imagine if all the books in the library were scanned so that all the letters, words, sentences, and so on were stored together and easily searchable. This mass of content could then be categorised inductively, which means that computer software sifting through all the content would be able to figure out its own new categories based on the data themselves. What are common words and phrases? How are words combined, in what order, and in what contexts are those orders present? What phrases are more frequent in what types of books or chapters? What combinations of words are rare or do not exist? Are there differences between word use and sentence structure between authors, books, and topics?

Such inductive sifting through the content, guided by statistical algorithms, is referred to as “machine learning” and is a powerful tool to find valuable needles in informational haystacks. Note that these needles may not already be known—machine learning finds needles we know exist but can also uncover needles we had no idea existed. For example, using such techniques to go through medical data can find (and has found) correlations and potential causes of diseases that were previously unknown. Similarly, the Mercatus Center at George Mason University has fed regulatory texts through such machine learning algorithms to create RegData, a database that allows users to analyse, compare, and track regulatory burdens in the United States and beyond.

Whereas RegData is intended to support social science research on regulations, machine learning can be used on all kinds of information. When such algorithms are run on enormous amounts of text in order to figure out how language is used, it is called a large language model (LLM). These models thus capture a statistical “understanding” of how a language is used, or as Cambridge Dictionary puts it (explaining the generative pretrained transformer (GPT) LLM, on which ChatGPT is based), “a complex mathematical representation of text or other types of media that allows a computer to perform some tasks, such as interpreting and producing language, recognising or creating images, and solving problems, in a way that seems similar to the way a human brain works.”

Indeed, based on its statistical understanding of language, an LLM chatbot can predictively generate text responses to questions and statements in a way that mimics a real conversation. It thereby gives the appearance of understanding questions and creating relevant responses; it can even “pretend” to have emotions and express empathy or gratitude based on how it understands that words can be used.

In other words, LLM chatbots like ChatGPT can arguably pass the Turing test as they make it very difficult for a human to distinguish their responses from a real human’s. Still, they are statistical prediction engines.

But Is AI Intelligent?


It is certainly an impressive feat to have software mimic human conversation to the point of tricking real humans into believing it is a person. However, the question of whether it is intelligent remains. To again refer to the Cambridge Dictionary, intelligence means “the ability to learn, understand, and make judgments or have opinions that are based on reason.” Whereas we sometimes use verbs like “learn” and “understand” for machines, they are figurative not literal uses. A pocket calculator does not “understand” mathematics just because it can present us with answers to mathematical questions or solve equations; it has not “learned” it; it also cannot “make judgments” or “have opinions.”

Certainly, AI is significantly more advanced than calculators. However, this does not take away from the fact that they are logically the same: both present results based on predetermined, prestructured, and precollected rules and data; neither of them has agency nor consciousness, and neither can create anything de novo. This is obvious for the calculator, which is comparatively stupid and only produces outputs according to simple rules of mathematics.

However, the same is true for AI. It is, of course, enormously more complex than a calculator and has the added ability to create its own categories and find relationships inductively, but it does not “have opinions that are based on [its own] reason.” It only predictively generates responses that, based on the texts that it has already processed, are statistically likely to be what a human would (or at least could) produce. This is why AI at times, despite the vast knowledge it has access to, spits out gobbledygook and has a hard time sticking to what is true. It simply cannot tell the difference. (It cannot “tell” at all.)

In other words, AI is logically speaking the very opposite of what we would expect from a human (or alien or artificial) intelligence: it is backward-looking, makes up responses based on already existing language data, and does not add anything that is not statistically (re)producible from past information. It also does not fail, flounder, or forget, and it lacks subjectivity.

An actual intelligence would of course rely on experience too, but it would have the ability to generate novel content and implications. It would be able to think anew and creatively come up with different conclusions based on the same data—an actual intelligence would forget valuable pieces of information, make errors, and use faulty inferences, and it would subjectively weigh and interpret facts—or to choose to disregard the data.

However, even though AI is arguably not an intelligence—at least not in the sci-fi sense—it does not mean that it is unimportant or lacks implications. The technological advance that it represents is nothing short of revolutionary and will have far-reaching implications for both the economy and society.
   
=> CONTINUED IN PART TWO: 'The Economics of the AI Revolution'
Per Bylund is the Associate Professor of Entrepreneurship and Johnny D. Pope Chair in the School of Entrepreneurship in the Spears School of Business at Oklahoma State University. 
He is the author of three full-length books: How to Think about the Economy: A PrimerThe Seen, the Unseen, and the Unrealized: How Regulations Affect our Everyday Lives; and The Problem of Production: A New Theory of the Firm. He has edited The Modern Guide to Austrian Economics and The Next Generation of Austrian Economics: Essays In Honor of Joseph T. Salerno.
His article first appeared at the Mises Institute blog.

Thursday 14 March 2024

"Did the West get rich from imperialism?"


"Did nations get rich on the backs of other nations? Did the West get rich from imperialism? ...
    "[W]hen most people think of plunder, they generally think colonial plunder. The problem with that, however, is that the vast majority of enrichment in the world has happened during the last 150 years, well after most colonial empires had collapsed. [But] plunder is not — and never has been — the path to national wealth. While plunder might make a nation (or a person) richer, it won’t make them rich, and that’s an important distinction ..."
~ Amy Willis, summarising Noah Smith's arguments that 'Industrialisation > Imperialism'

"Most people have a superficial conception of happiness...."


"I often tease my cat Harley for her lack of ambition. 
As far as I can tell, she’s content to eat, sleep, and 
collect belly scratches. 'Damnit, Harley. 
You’re sixteen and what have you achieved?' ”

"Most people [have a] superficial conception of happiness. But happiness is deep. It is a reverential attitude toward your life. It is a hard-won, enduring form of joy that can only be achieved through the realisation of your values, including very abstract values like reason, purpose, and self-esteem.
    "Given how superficial the conventional understanding of happiness is, it’s no surprise that the conventional understanding of how to achieve happiness is equally superficial. Tony Robbins’ website lists 17 ways to feel happier, and while much of the advice isn’t awful, claiming that happiness is primarily a matter of spending more time outdoors, listening to upbeat music, and journaling is like saying that a successful marriage is made by buying your partner flowers.
    "What Robbins and almost everyone else ignores is the role of morality in achieving happiness. And to the extent they don’t ignore it, they promote the anti-happiness morality of altruism. 'Remember,' Robbins tells us, 'the secret to living is giving.' I get it. It rhymes. But just because the words fit, don’t make ‘em legit.
    "Even many Effective Egoists, however, don’t appreciate the full implications of a pro-self morality for happiness. There is what I call a hidden art of happiness, which is easy to miss yet indispensable to understand and practice if you want to live a life that you love. ...
    "Your life is a sacred value, but you have to work to make it sacred by living up to a pro-life morality—and you have to work to experience it as sacred by practicing the hidden art of happiness: the art of making your abstract values concrete and real—and of bringing out out the abstract meaning of the concrete.
    "I have explained again and again how the biggest barrier to people adopting the morality of Effective Egoism is their embarrassingly primitive notion of self-interest—a notion nurtured so successfully by altruism’s propagandists. They equate self-interest with empty narcissism and equate the pursuit of happiness with accumulating meaningless pleasures.
    "Few people have the first clue what self-interest means. And who would tell them, when even the motivational speakers and licensed psychologists who make careers out telling you how to be happy are unable to conceive of the heart and soul of seeking joy?
    "The core of self-interest, its actual heart and soul, is conceiving of a vision of who you want to be and the world you want live in, and bringing that into reality. ...
    "That is the hidden art of happiness. It is the art of devoting your days and your thoughts to your highest values and aspirations—to your vision of the life you want to create, and do create with each day that you author."
~ Don Watkins, from his post 'The Hidden Art of Happiness'

Wednesday 13 March 2024

Defending the Slumlord



 

Since landlords are getting it in the neck, again, we figured it's time to post the classic defence of the very worst of them: of the so-called "slumlord" who gouges rent, poisons tenants , and offers decent habitat only to rats and cockroaches.  Can anyone defend that? Walter Block does in this guest post ...

Defending the Slumlord

by Walter Block

"Let's see, I have a nice three-room apartment on the upper West Side … No, no Madam, not a speck of lead paint on the woodwork … it's been all chewed off."

To many people, the slumlord — alias ghetto landlord and rent gouger — is proof that man can, while still alive, attain a satanic image. Recipient of vile curses, pincushion for needle-bearing tenants with a penchant for voodoo, perceived as exploiter of the downtrodden, the slumlord is surely one of the most hated figures of the day.

The indictment is manifold: he charges unconscionably high rents; he allows his buildings to fall into disrepair; his apartments are painted with cheap lead paint, which poisons babies; and he allows junkies, rapists, and drunks to harass the tenants. The falling plaster, the overflowing garbage, the omnipresent cockroaches, the leaky plumbing, the roof cave-ins and the fires, are all integral parts of the slumlord's domain. And the only creatures who thrive in his premises are the rats.

The indictment, highly charged though it is, is spurious. The owner of "ghetto" housing differs little from any other purveyor of low-cost merchandise. In fact, he is no different from any purveyor of any kind of merchandise. They all charge as much as they can.

We all charge as much as we can


First consider the purveyors of cheap, inferior, and secondhand merchandise as a class. One thing above all else stands out about merchandise they buy and sell: it is cheaply built, inferior in quality, or secondhand. A rational person would not expect high quality, exquisite workmanship, or superior new merchandise at bargain rate prices; he would not feel outraged and cheated if bargain rate merchandise proved to have only bargain rate qualities. Our expectations from margarine are not those of butter. We are satisfied with lesser qualities from a used car than from a new car. However, when it comes to housing, especially in the urban setting, people expect, even insist upon, quality housing at bargain prices.

But what of the claim that the slumlord overcharges for his decrepit housing? This is erroneous. Everyone tries to obtain the highest price possible for what he produces, and to pay the lowest price possible for what he buys. Landlords operate this way, as do workers, minority group members, socialists, babysitters, and communal farmers. Even widows and pensioners who save their money for an emergency try to get the highest interest rates possible for their savings.

According to the reasoning that finds slumlords contemptible, all these people must also be condemned. For they "exploit" the people to whom they sell or rent their services and capital in the same way when they try to obtain the highest return possible.

But, of course, they are not contemptible — at least not because of their desire to obtain as high a return as possible from their products and services. And neither are slumlords. Landlords of dilapidated houses are singled out for something that is almost a basic part of human nature — the desire to barter and trade and to get the best possible bargain.

The critics of the slumlord fail to distinguish between the desire to charge high prices, which everyone has, and the ability to do so, which not everyone has. Slumlords are distinct, not because they want to charge high prices, but because they can. The question that is therefore central to the issue — and that critics totally disregard — is why this is so.

What usually stops people from charging inordinately high prices is the competition that arises as soon as the price and profit margin of any given product or service begins to rise. If the price of Frisbees, for example, starts to rise, established manufacturers will expand production, new entrepreneurs will enter the industry, used Frisbees will perhaps be sold in secondhand markets, etc. All these activities tend to counter the original rise in price.

If the price of rental apartments suddenly began to rise because of a sudden housing shortage, similar forces would come into play. New housing would be built by established real-estate owners and by new ones who would be drawn into the industry by the price rise. Old housing would tend to be renovated; basements, attics and sleepouts would be pressed into use. All these activities would tend to drive the price of housing down, and cure the housing shortage.

If landlords tried to raise the rents in the absence of a housing shortage, they would find it difficult to keep their apartments rented. For both old and new tenants would be tempted away by the relatively lower rents charged elsewhere.

No.  The problem is not the slumlord — the problem is a lack of competition, which means an inability to build new apartments.

Even if landlords banded together to raise rents, they would not be able to maintain the rise in the absence of a housing shortage. Such an attempt would be countered by new entrepreneurs, not party to the cartel agreement, who would rush in to meet the demand for lower priced housing. They would buy existing housing and build new housing.

Tenants would, of course, flock to the noncartel housing. Those who remained in the high-price buildings would tend to use less space, either by doubling up or by seeking less space than before. As this occurs it would become more difficult for the cartel landlords to keep their buildings fully rented.

Inevitably, the cartel would break up, as the landlords sought to find and keep tenants in the only way possible: by lowering rents. It is, therefore, specious to claim that landlords charge whatever they please. They charge whatever the market will bear, as does everyone else.

An additional reason for calling the claim unwarranted is that there is, at bottom, no really legitimate sense to the concept of overcharging. "Overcharging" can only mean "charging more than the buyer would like to pay." But since we would all really like to pay nothing for our dwelling space (or perhaps minus infinity, which would be equivalent to the landlord paying the tenant an infinite amount of money for living in his building), landlords who charge anything at all can be said to be overcharging. Everyone who sells at any price greater than zero can be said to be overcharging, because we would all like to pay nothing (or minus infinity) for what we buy.

What about a law banning slums?


Disregarding as spurious the claim that the slumlord overcharges, what of the vision of rats, garbage, falling plaster, etc.? Is the slumlord responsible for these conditions?

Although it is fashionable in the extreme to say "yes," this will not do. For the problem of slum housing is not really a problem of slums or of housing at all. It is a problem of poverty — a problem for which the landlord cannot be held responsible. And when it is not the result of poverty, it is not a social problem at all.

Slum housing with all its horrors is not a problem when the inhabitants are people who can afford higher quality housing, but prefer to live in slum housing because of the money they can save thereby.

Such a choice might not be a popular one, but other people's freely made choices that affect only them cannot be classified as a social problem. If that could be done, we would all be in danger of having our most deliberate choices, our most cherished tastes and desires characterised as "social problems" by people whose taste differs from ours.

Slum housing is a problem when the inhabitants live there of necessity — not wishing to remain there, but unable to afford anything better. Their situation is certainly distressing, but the fault does not lie with the landlord. On the contrary, he is providing a necessary service, given the poverty of the tenants.

For proof, consider a law prohibiting the existence of slums, and therefore of slumlords, without making provisions for the slum dwellers in any other way, such as providing decent housing for the poor or an adequate income to buy or rent good housing. The argument is that if the slumlord truly harms the slum dweller, then his elimination, with everything else unchanged, ought to increase the net well-being of the slum tenant.

But the law would not accomplish this. It would greatly harm not only the slumlords but the slum dwellers as well. If anything, it would harm the slum dwellers even more, for the slumlords would lose only one of perhaps many sources of income; the slum dwellers would lose their very homes.

They would be forced to rent more expensive dwelling space, with consequent decreases in the amount of money available for food, medicines, and other necessities. No. The problem is not the slumlord — the problem is poverty. Only if the slumlord were the cause of poverty could he be legitimately blamed for the evils of slum housing.

Why damn the slumlord?


Why is it then, if he is no more guilty of underhandedness than other merchants, that the slumlord has been singled out for vilification? After all, those who sell used clothes to Bowery bums are not reviled, even though their wares are inferior, the prices high, and the purchasers poor and helpless. Instead of blaming the merchants, however, we seem to know where the blame lies — in the poverty and hopeless condition of the Bowery bum.

In like manner, people do not blame the owners of junkyards for the poor condition of their wares or the dire straits of their customers. People do not blame the owners of "day-old bakeries" for the staleness of the bread. They realise, instead, that were it not for junkyards and these bakeries, poor people would be in an even worse condition than they are now in.

Although the answer can only be speculative, it would seem that there is a positive relationship between the amount of governmental interference in an economic arena, and the abuse and invective heaped upon the businessmen serving that arena. There have been few laws interfering with the "day-old bakeries" or junkyards, but many in the housing area. The link between government involvement in the housing market and the plight of the slumlord's public image should, therefore, be pinpointed.

That there is strong and varied government involvement in the housing market cannot be denied. Scatter-site housing projects, "public" housing and urban renewal projects, rental standards and zoning ordinances and building codes, are just a few examples. Each of these has created more problems than it has solved. More housing has been destroyed than created, rental housing has been withdrawn from (or not entered0 the market, racial tensions have been exacerbated, and neighbourhoods and community life have been shattered.

In each case, it seems that the spillover effects of bureaucratic red tape and bungling are visited upon the slumlord. He bears the blame for much of the overcrowding engendered by the urban renewal program. He is blamed for not keeping his buildings up to the standards set forth in unrealistic building codes that, if met, would radically worsen the situation of the slum dweller. 

Compelling "Cadillac housing" can only harm the inhabitants of "Volkswagen housing." It puts all housing out of the financial reach of the poor.

The bad incentives of rent control


Perhaps the most critical link between the government and the disrepute in which the slumlord is held is rent-control law. For rent-control legislation changes the usual profit incentives, which put the entrepreneur in the service of his customers, to incentives that make him the direct enemy of his tenant-customers.

Ordinarily the landlord (or any other businessman) earns money by serving the needs of his tenants. If he fails to meet these needs, then with enough supply in the market the tenants will tend to move out. Vacant apartments mean, of course, a loss of income. Advertising, rental agents, repairs, painting, and other conditions involved in re-renting an apartment mean extra expenditures.

In addition, the landlord who fails to meet the needs of the tenants may have to charge lower rents than he otherwise could. As in other businesses, the customer is "always right," and the merchant ignores this dictum only at his own peril.

But with rent control, the incentive system is turned around. Here the landlord can earn the greatest return not by serving his tenants well, but by mistreating them, by malingering, by refusing to make repairs, by insulting them. When the rents are legally controlled at rates below their market value, the landlord earns the greatest return not by serving his tenants, but by getting rid of them. For then he can replace them with higher-paying non-rent-controlled tenants.

If the incentive system is turned around under rent control, it is the self-selection process through which entry to the landlord "industry" is determined. The types of people attracted to an occupation are influenced by the type of work that must be done in the industry.

If the occupation calls (financially) for service to consumers, one type of landlord will be attracted. If the occupation calls (financially) for harassment of consumers, then quite a different type of landlord will be attracted. In other words, in many cases the reputation of the slumlord as cunning, avaricious, etc., might be well-deserved, but it is the rent control program in the first place that encourages people of this type to become landlords.

If the slumlord were prohibited from lording over slums, and if this prohibition were actively enforced, the welfare of the poor slum dweller would be immeasurably worsened, as we have seen. It is the prohibition of high rents by rent control and similar legislation that causes the deterioration of housing. It is the prohibition of low-quality housing by housing codes and the like that causes landlords to leave the field of housing.

The result is that tenants have fewer choices, and the choices they have are of low quality. If landlords cannot make as much profit in supplying housing to the poor as they can in other endeavors, they will leave the field. Attempts to lower rents and maintain high quality through prohibitions only lower profits and drive slumlords out of the field, leaving poor tenants immeasurably worse off.

The slumlord does make a positive contribution to society; without him, the economy would be worse off. That he continues in his thankless task, amidst all the abuse and vilification, can only be evidence of his basically heroic nature.

* * * * * 

Walter Block is an American Austrian School economist and anarcho-capitalist theorist. 
He was the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the School of Business at Loyola University New Orleans and a senior fellow of the non-profit think-tank Ludwig von Mises Institute in Auburn, Alabama.
This post is an excerpt from his 1976 book 'Defending the Undefendable [free download here]. It previously appeared at the Mises Wire.