Month: June 2014

We may need to stop calling it
the “shadow” economy, since off-the-books work, manufacturing, and
services hidden from regulators and the taxman are the rule rather
than the exception in much of the world. That’s the takeway lesson
from research published in the Asia Pacific Journal of
Management, which finds that informal entrepreneurship makes
up the majority of economic activity in developing countries.
Shadow activity is a necessity for many people trying to make a
buck, but those people would be better off, researchers say, if
their political and economic institutions were freer and more
welcoming to private enterprise so that people could operate
above-board and with the full protection of the law.

Shadow economic activity is separate from “black market”
activity, referring to the provision of labor, goods, and sevices
that would be legal if taxes were paid and regulations obeyed. It’s
also the way things are done in many places. The Imperial College
of London
press release announcing the article by Professor Erkko Autio
and Dr Kun Fu points out:

In a study of 68 countries, Professor Erkko Autio and Dr Kun Fu
from Imperial College Business School estimated that business
activities conducted by informal entrepreneurs can make up more
than 80 per cent of the total economic activity in developing
countries. Types of businesses include unlicensed taxicab services,
roadside food stalls and small landscaping operations.

This is the first time that the number of entrepreneurs
operating in the shadow economy has been estimated.

The researchers found that Indonesia has the highest rate of
shadow economy entrepreneurs, with a ratio of over 130 shadow
economy businesses to every business that is legally
registered.  After Indonesia the highest rates of shadow
economy entrepreneurs are found in India, the Philippines,
Pakistan, Egypt and Ghana.

That people choose to risk the wrath of tax collectors and
regulators—and to give up the benefits of access to the courts,
insurance, and other aspects of the above-ground economy—is taken
by economists as a sign that legal, tax, and regulatory
institutions are strangling would-be entrepreneurs and laborers.

In a
2010 paper for the World Bank, Friedrich Schneider, one of the
world’s foremost experts on shadow economic activity, writing with
Andreas Buehn and Claudio E. Montenegro, argued that “the overall
tax and social security contribution burdens are among the main
causes for the existence of the shadow economy.” They also noted
that “[i]ncreased intensity of regulations is another important
factor that reduces the freedom of choice for individuals engaged
in the official economy,” and they cite research by others
concluding that “every available measure of regulation is
significantly correlated with the share of the unofficial
economy.”

Autio and Kun, in the
current paper, come to similar conclusions. They write:

The institutional qualities of a society and its economy—such as
economic freedom (Hasan, Quibria, & Kim, 2003), the presence of
policies that condition the operation of private sector (Hasan,
Mitra, & Ulubasoglu, 2007), and institutions regulating the
balance of political power and the structure of the bureaucratic
system—play an important role in either facilitating or inhibiting
economic growth and alleviating poverty (Lakshman, 2003). By
inhibiting economic dynamism, poorly functioning institutions can
decrease the productivity and innovativeness of an economy, confine
the benefits of growth to a narrow elite, and impede the
alleviation of poverty.

Their reference to “policies that condition the operation of
private sector”
cites a paper that sees benefits from “good governance” and a
“strong commitment to the rule of law.” That paper also finds that
“less restrictive regulations pertaining to starting a business are
associated with higher economic growth as well as lower rates of
$2-a-day poverty.”

So, when you have a country, like Indonesia, where 130 out of
every 131 businesses are operating illegally, you can be pretty
sure that the local politicians and bureaucrats have made it damned
near impossible to start a business legitimately.

That’s become the norm in much of the world. And while it’s
impressive that people can innovate around obstructionist
officials, the world would be a healthier and more prosperous place
if those officials would just get the hell out of the way.

The Supreme Court will soon reach its decision on the
much-publicized
American Broadcasting Companies, Inc. v. Aereo, a case
many believe will have a profound effect on the way we watch
television.

“Aereo, the Supreme Court, and the Future of TV” is the latest
from Reason TV. Watch above or click the link below for full text,
links, and downloadable versions.

View this article.

Spoilers for last night’s
Game of Thrones episode to follow.

“You raped her. You murdered her. You killed her children.”

Prince Oberyn says this over and over again, hoping to wring a
confession out of his adversary, Ser Gregor “the Mountain” Clegane.
For the audience, their duel is about saving Tyrion’s life. But for
Oberyn, the duel is about justice for his murdered sister.

By the end of the fight, Oberyn has died gruesomely, the
Mountain is likely to follow him to the grave, and Tyrion has been
sentenced to death as well. Was anyone avenged or redeemed amid the
senseless violence? Was there any justice?

In a word: no.

While previous seasons of HBO’s Game of Thrones
primarily concerned political scheming and outright warfare, the
fourth season’s run of episodes has centered on the consequences of
medieval brutality for regular folk. Viewers have watched main
characters and side characters alike get murdered week after week.
This is the end result of a world where noblemen fight over who has
the purest bloodline, where religious fanatics burn their enemies
to death, where the outcomes of trials are decided by the gods, and
the best way to stay alive is to wield a “big fucking sword,” in
the words of the Hound.

Increasingly, the theme of the show seems to be contained
somewhere in Tyrion’s story to Jaime about their beetle-smashing
cousin. Why did Orson kill hundreds of the little creatures? Why
was that his life’s calling? There was no reason for it. Perhaps
more importantly, there was no way to stop it.

Consider Arya and the Hound’s seemingly endless march across the
bleak, war-ravaged countryside of Westeros. Everywhere they turn,
they see people suffering, dying, failing to defend their homes and
their meager possessions from roving hordes of bandits. Some of
those bandits are even official forces of the Lannister
government—there is no one left to oppose them, and they can do
whatever they want. On their way to the Eyrie, Arya and the Hound
learn that her Aunt Lysa is already dead. The entire
journey—including the life-threatening wound the Hound received—has
been for nothing. Arya, who has grown appreciably wiser about her
circumstances, can’t help but laugh.

Also wiser: Sansa Stark. She is learning how the game is played,
and wisely chooses to lie on behalf of her current protector,
Littlefinger. Westeros is full of dead Starks who always told the
truth and did the right thing. It is fitting that the two remaining
Starks with the best odds at survival—Sansa and Arya—have outgrown
that tendency.

Is there any way forward, any way out of this world where people
are just beetles waiting to be crushed? A quick line at
Littlefinger’s brief trial is telling. One of the judges, Yohn
Royce, mentions that Littlefinger was well-suited to the position
of Master of Coin, because it has “always been a grubby job; why
not let a grubby man do it?” Royce, like the rest of the ruling
elite of Westeros, holds financial matters in disdain. In their
eyes, killing each other over blood feuds is an honorable
pursuit—managing financial investments is not.

Daenerys, at least, seems sincere in her desire to build a
different sort of world. She has abolished slavery. She has
proclaimed an end to the brutalization of innocents. She has
banished her closest friend and most trusted advisor for scheming
and playing political games behind her back. Even so, the way she
deals with her enemies—crucifixion—isn’t really more humane than
what the Boltons do. (Okay, maybe it’s slightly more
humane.) Ser Barristan watches as Daeny’s soldiers take down the
corpses of the crucified men. It is difficult to be sure what he is
thinking—and we know that he remains optimistic about Daeny despite
disapproving of some of her choices—but disappointment wouldn’t be
a surprise. It always ends the same way.

More on questions of power, the rule of law and market forces

in the world of Game of Thrones here.

Last week at The Daily Beast, I posted a
story about what I called “Libertarianism
3.0.” That’s my term for demanding that our political allies in
the Republican Party, the Democratic Party, and elsewhere take
seriously our belief in social tolerance and fiscal
responsibility, in free minds and free markets, in
shrinking the size, scope, and spending of government in the
bedroom and the boardroom.

Over at The Volokh Conspiracy, now housed at The Washigton Post,
Randy (a.k.a. “Rob”) Barnett
comments on my piece:

In relating the role that Charles and David Koch have played in
this development, Gillespie is playing off a new book by
Daniel Schulman, Sons of Wichita: How the Koch Brothers
Became America’s Most Powerful and Private Dynasty, that Nick
says “is mandatory reading.” A truly fair and balanced account of
the Kochs would freely acknowledge their enormous contributions to
the growth, development, and increasing influence of the modern
libertarian movement, the impact of which is now being felt by the
Republican party. This is indeed big. But Schulman apparently is
also sensitive to what the Left’s shameful McCarthyite treatment of
the Kochs deliberately ignores: the distinctly libertarian
path they have funded, and in which they have personally
participated, that is quite different from that of either the
Republican or Democratic parties, or from either traditional
conservatives on the right and traditional progressives on the
left.

That sort of nuance does not drive campaign contributions, so
instead we have the “vast right wing conspiracy” theories with “the
Koch brothers” cast as Drs. Evil. The reality is actually far more
interesting and potentially momentous. But those who get their
talking points from Harry Reid, MSNBC and the DNC (I am on their
list so I know what they are saying, though they think my name is
“Rob”) are missing the real story. They might just start with Nick
Gillespie’s column on the Daily Beast.

Read his whole bit.

My colleague Peter Suderman has well documented
the manifold ethical lapses of Veterans Affairs Department
bureaucrats in their treatment (or lack thereof) of the men and
women who have served in our nation’s armed forces. As it happens
Veterans Affairs is looking to hire someone to provide guidance to
the agency on ethical issues. The duties of the new head of the
National Center for Ethics in Health Care at the Department of
Veterans Affairs as outlined in the job
posting include:  

The incumbent of this position establishes, measures, and
continuously improves ethical healthcare practices throughout VA’s
healthcare system so that patients, families and staff will
experience VA as a highly ethical organization.

The new executive director also…

…proactively identifies and manages controversial healthcare
ethics issues; provides practical advice to the Under Secretary for
Health and other VA leaders and staff; guides, mentors, and
supports a diverse staff of 29 that includes clinicians, ethicists,
and social workers at 3 office sites; efficiently
administers a $5+ million budget;…establishes standards for
ethics programs in each of VA’s 150+ healthcare facilities;
provides expert guidance to several thousand field-based ethics
program staff….

Interested candidates have until June 23 to apply. Good
luck!

See Peter Suderman’s superb article, “The
VA Health System Is a Tragic Warning Against Government-Run Health
Care.”