Notes on The Drama of Chilean Economic History

Posted on September 17, 2025 by sebastiangarren

My handmade timeline. I didn't even try to fix my handwriting. Make a pretty version and send it to me please.

Wrath-Kindled Gentlemen

In 1975 Michel Foucault told a left-wing activist “Chile’s tragedy is not the result of the Chilean people’s failure, but the result of the serious mistakes in the monstrous responsibility of you, Marxists.”

Two years earlier on July 29th, 1973, the Second Armored Regiment of Chile rolled six tanks and several trucks into downtown Santiago towards the presidential palace to overthrow the government. Soon a host of other military units would join them to bring down the socialist government of Salvador Allende, which had taken a wrecking ball to the nation’s already precarious financial stability. The other military units did come, but not to join them; those units that put down the coup and restored democratic order were led by none other than Augusto Pinochet.

44 days later on September 11, 1973 that same general, now commander-in-chief Augusto Pinochet, would himself be leading the coup against the government. What could cause such a shift? Was it merely the insubordination of the Second Armored Officers? Or did something change between July and September? I see several reasons that could explain his shift beyond the obvious.

Firstly, the government elected in 1970 had taken farms, factories, and the world’s largest copper mine from the hands of private owners without compensation. They took direct control of nitrate, telecom companies, banking, insurance companies, “monopolistic” manufacturing, and foreign trade. The unions would go on strike at a company and the government would declare the company distressed and seize control. The dubious legality and overt ideological motivations of the government made the military uncomfortable.

Chilean firms with US financial support had tried to prevent the Marxist government from taking office in 1970. But the only result was murderous anti-communists got as far as killing a General whom they tried to kidnap. Other attempts at stopping the transition of power through the legitimate political means failed, but together the violence and attempted political maneuvers had reinforced the tragic revolutionary/counterrevolutionary dynamic of the Cold War. The Allende government tightened its grip and clenched its teeth to bear down on their ruinous agenda.

Secondly, the economy under the Finance Minister and union leader Américo Zorilla, a man with a high school degree and no economics training, was in a tailspin. Inflation had passed 300%. Foreign investment disappeared. Exports plummeted. Fernando Flores took control of the Finance Ministry in 1972, inflation hit 500+%. The paychecks of the military were at stake as well. Even in 1969 during the prior government, some soldiers led a demonstration about low pay. Everyone was striking. Doctors were striking. Miners were striking. Even the domestic workers were striking.

Thirdly, sheer inevitability. There had already been one military coup attempt by lower officers (two if you count some abandoned 1970 plans). Now on August 22nd, the lower chamber of congress acknowledged that the military and government were on a collision course. They sided with the military. In that August 22nd legislation, the lower house outlined the abuses of the Allende government and voted 81- 47 that military “presence must be directed toward the full restoration of constitutional rule and of the rule of the laws of democratic coexistence, which is indispensable to guaranteeing Chile’s institutional stability, civil peace, security, and development” and thus it “is their duty to put an immediate end to all situations herein referred to that breach the Constitution and the laws of the land with the goal of redirecting government activity toward the path of Law and ensuring the constitutional order of our Nation and the essential underpinnings of democratic coexistence among Chileans.”

Sounds like permission to do a coup.

A few weeks earlier towards the beginning of August, Allende appointed the Army’s General Pinochet to commander-in-chief of the armed forces after the previous commander resigned. According to one of Salvador Allende’s biographers, Victor Figueroa Clark, the coup was a matter not of if, but when. The bloody pendulum of military usurpation was already swinging down to strike its blow against the incompetent regime. The only question for Pinochet was whether he would align with this inexorable force.

In the darkness of morning of September 11th the coup was officially launched. The Navy returned to port during a military exercise. By mid-morning, the government understood that a full scale coup was in effect. Allende tried to call Pinochet multiple times to come save the government from the mutinous navy. “Poor Augusto, he must be under arrest,” Allende is reported as saying. Allende learned soon after who the poor man must be. It was not Pinochet.

Although he refused to surrender or to go into exile, Allende made a final radio speech to his comrades and friends and well-wishers around the world and bade adieu. In several ways, revolutionary socialism died by its own hand. Military dictatorship and the secret police followed.

Such drama demands a screenplay.

Out of three top hits for YouTube documentaries, not one mentions the state of the economy, nor the congressional resolution (of debatable legality, but interesting and important nonetheless!), nor the prior coup attempt. In one, Cambridge’s Nicholas O’Shaughnessy simply asserts that Allende’s policies were “no different from the social welfare policies of northern European nations.” Does that hold up to scrutiny? Ubiquitous price controls do not a successful Sweden make. One excellent audio documentary series, The Santiago Boys, never gives the impression that Allende’s own policies were to blame for the economic tailspin. It’s always Nixon, Kissinger, and ITT (International Telephone & Telegraph) or the vague and unjustified ideological animosity of of the military establishment and “capitalists” towards Allende.

Historical memory has settled on a misleading hagiography. The drama is better than that! It’s a Shakespearean drama: Richard II and Henry IV. We have Allende’s radical quixotic socialism with dire consequences for economy and democracy – as well as Pinochet’s sudden betrayal and violent political oppression combined with the eventual turn towards economic freedom.

Mixed emotions of catharsis and woe, of relief and horror, of wonder and awe would be much more appropriate reactions to the political degradation and economic history of Chile.

John Cochrane is licking his lips right now.

When your inflation chart is a log-scale something has gone seriously wrong.

How often does a regime's abuse record actually look like this?

The Chile Project

How did a dictator in Latin America wind up deploying the economic reforms of a Margaret Thatcher four years before she came to be prime minister?

It goes back to the University of Chicago, which trained Chilean economists as part of a program called “The Chile Project.” This government-funded project launched in 1955 was meant to provide aid to Chile. George Shultz one of the leaders of the program told the US Government that he didn’t know how to run an aid program. But he knew how to teach economics.

An agreement was negotiated with the Pontifical Catholic University of Chile (Católica) for graduate students to come to Chicago to learn economics. In exchange the students would teach at Católica for at least two years. Chicago Economics Department Chair Theodore Schultz and economist Arnold Harberger ran the program.

The Chicago Boys, as they are called, were a collection of the Chilean students who would modernize the economics department at Católica. They replaced such horrors as a capstone class in Mercería in which students would learn to identify cloths by touch so as to impose the correct tariff on them with more becoming courses on price theory, exchange rate equilibria, contract theory.

The students matriculating into Chicago were not particularly ready for the modern economics graduate curriculum and took mid-level undergraduate courses as well. There they read the first eight chapters of Alfred Marshall’s Introduction to Economics as well as Penny Capitalism: A Guatemalan Indian Economy by Sol Tax and the labor market work by Chile program director H. Gregg Lewis.

Back in Chile these students turned into demanding professors. Sergio De Castro, Emilio Sanfuentes, and others taught and wrote and researched at Católica. In 1963 they founded a research journal Cuadernos de Economía Notebooks on Economy. Pablo Baraona and Ricardo Ffrench-Davis were the editors.

In 1965, a think tank, Centro de Estudios de Sociales y Economía sprung up. Emilio Sanfuentes took over the economics wing of the think tank. The think tank was promoted by Augustín Edwards who also owned the largest newspaper El Mercurio which opened up a column on finance and economics. There popular versions of economic arguments could make a public play. In a three year period (1967-1970) the Chicago Boys and allies pumped 170 articles into the market friendly El Mercurio, putting their ideas into the arena of praise and ridicule and denigration.

El Mercurio was one of a small handful of media organizations that continued to get an additional subsidy via the United States’ CIA which feared, just as the newspaper’s owner did, a wave of Cuban-like revolutions sweeping Latin America.

During the 1970 presidential campaign a few of the Chicago Boys were asked to draft an economic proposal for the Jorge Alessandri campaign. Allegedly, the proposals were so radical in the eyes of the industrialist that he exclaimed, “Get those crazy men out of here; and make sure they never come back.” Nonetheless, the practice of writing a policy brief would be put to good use.

“Cybernetic Socialism”

Meanwhile in Allende’s government expropriation of businesses, massive state control of prices, and expansive social spending was supposed to bring about a new Republic of “endless wine and empanadas.” It was not working so well. The economy tanked (stats!). What to do?

Allende’s government was drowning in the struggles of owning the economy. If only there was some system for dynamically allocating goods and efforts under conditions of scarcity. Discover bottlenecks, push out productive possibilities frontier… It sounds like a job for the budding field of cybernetics! They called up British cybernetic consultant Stafford Beer of “the purpose of a system is what it does” fame. Stafford Beer would build the system that would save not only the economy but Allende, socialism, and the future of civilization: “cybersyn,” a dream of cybernetic socialism

Even today the romance hasn’t worn off. Evgeny Morozov writes “The Santiago Boys… try to wrestle control over technology from multinationals and intelligence agencies and use it to create a more egalitarian economy.” But narrative framing only goes so far. What is really needed to be wooed by the forces of cybernetic socialism is the wonderful mock-up of the economic control room.

It’s the Jedi council for philosopher-kings. Nous sommes l’État.

Thanks to the invitation of economist Fernando Flores, Stafford Beer comes to Chile and will save the day. First stop: the center for economic planning, Ministeria Economia. There he wants to learn what models are being used to set prices. Actually, there are no models. Businesses propose a new price, the ministry approves a smaller mark up, and they go back and forth like that. Sometimes files are “misplaced”, or expedited, or easily approved, or given special scrutiny. Depends of course on favors. Beer wants to know how general equilibrium effects are calculated. Well, they aren’t.

A mathematician in the ministry offers to be helpful. We have a computer which can calculate cross-sector supply requirements. “How many industries are included in the model?” Beer asks. The young mathematician says something like 50 or 15. The translator clarifies that it is 15. Beer, “But, my friend, you really want to determine true, social equilibrium pricing for 3,000 goods with a 15 sector input-output matrix?”

Alas, before the dream of cybernetic socialism could be realized (or even wrestle down the union leaders who objected to quantification of worker ops) Cybersyn was destroyed along with the Allende government. It had connected 12 telex machines to the main hub of a 64kb memory IBM 360 Model 50. Such rigs existed already around the world. But what made this one distinct is not that it was socialists pre-empting the Internet, but rather that it was in the service of a centralized economy. They succeeded in mapping the operations of a handful of factories. The knowledge problem went uncracked.

Origins of New Economic Policy

In December 1972 a retired Navy Officer Roberto Kelly and Admiral Toribio met and agreed that if the government was going to be toppled the military needed an economic plan so that they could get out of the economic mess. Kelly knew Emilio Sanfuentes at the Centro de Estudias Sociales y Economia would be right for the job. He approached Sanfuentes and requested a report.

Eleven economists got to work on a type of confidential white paper. 9 had Masters’ degrees in Economics from the University of Chicago, one from Harvard, one from Católica. Sanfuentes was the go between with the client, who was the Navy, and Sergio de Castro was main editor of the project.

The final document is known to history as El Ladrillo THE BRICK because it was so thick. Several inches, they said. The original name of the daring policy proposal was the very unobtrusive Programa de desarollo economico, A Program for Economic Development. I was personally disappointed to discover that the foundational document of Chilean economics only had 200 pages. For an Admiral in the Navy, though, that might be an intimidating amount: a veritable brick.

El Ladrillo has all the marks of a market based set of policy proposals written by people who were accustomed to integrating Catholic social teaching and motivations. And it came naturally. It was written by members from the Pontifical Catholic University who thought of economics as a moral science. For example, when discussing the difficulty of disbursing poverty relief, they acknowledge that in a poor country fact checking eligibility in advance will be very difficult and very expensive. But they reasoned that the optimal amount of fraud is not zero. It is preferable to have some fraud if it ensures that the poorest citizens of Chile are “able to live lives with some degree of dignity.”

The economists did not conceive or write about their project as a type of neoliberalism. At the time the term ‘neoliberalism’ was associated with German reforms under Adenauer. Instead they saw the Chicago project as a type of subsidiarity, the concept in mainly Catholic political theory that decisions should be made at the lowest possible level to solve problems. The decentralization of free markets naturally does this by allowing firms and decision-making to discover the right size for their purposes.

At the same time, the proposals found in El Ladrillo are the types of policies one would expect from modern economists taught by Gary Becker, Milton Friedman, and Arnold Harberger: tariff reduction, removing subsidies and government protections of industries, removing all price controls, decreasing fiscal spending, making the central bank independent, allowing the currency to float. The Chicago Boys had taught Marshall’s Principles and Friedman’s Price Theory at Católica. Inevitably those influences were a lion’s share.

Other specific influences include Albert Hirschmann, who had done a 1963 study on the history of Chilean inflation, and Al Harberger, who had done research on Chilean inflation dynamics.

Although not finished in the promised 90 days, the document was completed in time for the coup.

The slope of the Democracy curve is the 6 hours it took to establish a dictatorship.

Above is a Yearly Property Rights scale based on a 1-10 Index, sc. Rodrigo, Saravia 2009.

Above is an index of access to clean, unlaundered money on a 1-10 Index, sc. Rodrigo, Saravia 2009.

Three days after the coup Sergio de Castro was quickly appointed to the government as senior advisor to the military officer in charge of the economy, General Rodolfo Gonzalez. Gonzalez showed De Castro one of the 25 printed copies of The Brick and said implement this. In fact, De Castro knew the document well already; he had written it.

To fight inflation at almost 700% de Castro removed price controls on as many goods as the military would allow. (Always amazing how many goods become national security related, when you have the power to control their flow…) Nonetheless, thousands of goods started to have market floating prices. A cooking oil business shows up to de Castro’s office and requests a price increase on oil. They provide a well-prepared document showing the the need for a price increase. De Castro responds. “I don’t need to see this. Set the price to whatever you want.” The business leaders leave insulted.

They return a week later. “I don’t need to see it. Truly. Set the price to whatever you want. If you set it too high the oil won’t sell, if you set it too low, you’ll lose a lot of money.” The business leaders left confused.

They check in one last time. ‘Can we really set the price to whatever we want?’

Milton Friedman Speaks

Milton Friedman visited Chile three times, but it was his first visit that really mattered for him and for Chile.

If Fernando Flores tried to move the economy through the consultation of Stafford Beer, Rolf Lüders tried to do so through his famous invitation to his teacher Milton Friedman.

Milton Friedman had had some of the Chilean economists in classes, but mutual contact was not a big part of either of their lives. Though there was certainly indirect influence and much agreement between Friedman and the type of economic policies promoted by El Ladrillo (a document he didn’t know about), Friedman was not heavily involved with, nor in contact with, any of the Chilean economists except for Rolf. Nor did he serve an advisory role in any of their deliberations.

Nonetheless when he visited Chile for the first time in 1975, in my reading he had a big effect. Friedman along with Al Harberger met with Pinochet for 45 minutes. One condition of the meeting was Friedman wanted to be able to say whatever he wanted. Every interaction had the same drum beat. You need a price system, you need markets, in the current system there is massive waste because no one knows what to build and how much. People need freedom to choose their economic fates.

Friedman told Pinochet he needed to stop inflation through immediate fiscal austerity and that freeing finance, labor market, and prices was the only way to produce growth and reduce poverty.

Two days later, Friedman spoke to several hundred business people at an event organized by Rolf Lüders. He advocated the same immediate change of course in Chilean economy (end state owned enterprises, decrease tariff barriers) and then engaged in Q&A for over an hour. 22 questions were asked – some accusatory, some surprised.

And again he met with 200 military officers to tell them how to save their country. His drum continued to the same beat. End. Price. Controls. End them on Goods. On Labor. On Loans.

The Chicago Boys have gone out of their way to distance themselves from Milton Friedman as an influence and cause of their success. They were much closer to their friend and mentor Al Harberger. Nonetheless, based on the timeline of subsequent events, it seems that Friedman altered the political economy within Chile.

Within the military government there were two camps: the democratic leaning military leaders and the national security military leaders. The democratic leaning military leaders were more willing to release some power back to the private sector or the non-military public sector. The national security military leaders believed in a strong state that controlled many aspects of the economy and all of civil society, from universities to manufacturing, for national security reasons, of course.

Manuel Contreras, the director of national intelligence and architect behind assassinations abroad, domestic kidnappings, and frequent tortures at home, believed the Chicago boys were intellectual traitors to Chile. The true goal of these upstarts who studied abroad was to deliver Chilean industries into the hands of international actors in order to line their own pockets. By 1975 he had collected “thick files on the personal activities of each of them.”

The American ambassador in an internal memo noted that the main opposition to personal rights and just criminal proceedings in Chile was Contreras. Contreras’ own story of power ended in 1977 when Pinochet dismissed him for pulling too hard on the leash. The standard theory is that Contreras brought too many diplomatic headaches with his human rights abuses and permissionless assassination of Chileans abroad. Political oppression should be subtler.

After Friedman’s visit, military statists started to lose ground and the Chicago educated economists gained ground. Pinochet starting appointing private citizens to high cabinet posts, not merely to advisory ones.

Consider the following dates of Chicago Boys assuming senior roles in government. This first round of major hires and promotions were all after Milton’s 1975 visit. I take this as evidence of a “Milton effect.”

Sergio De Castro: Minister of Economy 1975-76, Minister of Finance 1976-82.
Pablo Baraona: President Banco de Chile 1975-76, Minister of Economy 1976-78
Sergio De la Cuadra: VP Banco De Chile 1977-81
Alvaro Bardon: President Banco de Chile 1977-81
Miguel Kast: Director of Planning 1978-81

When I look at this data my initial thought is to conceive Friedman as a kind of voice of reason for the military government. Like a CEO who wants to change the org chart and operational structure but first wants someone from McKinsey to tell him to do it, Pinochet and his military apparatus needed the little push from this famous outsider to hand over the keys to economic reform to Sergio de Castro and his American educated colleagues. An outside voice can create permission and coordination within any regime.

It is not that Friedman and the Chicago boys coordinated their actions, rather, they both pushed in the same direction. Nor was Friedman the godfather of the reforms or the secret counselor to the Chicago boys. His influence is the more diffuse – like that of a major brick layer in the grand edifice, the edifice of monetarist economics and promotion of the price system view of the world. Milton was an architect of an edifice which the Católica academic economists also worked on and eventually put into practice.

Friedman’s Reward

Friedman’s reward for his candid advice to the Chilean people was protests at all his public appearances, an interruption at the Nobel Prize ceremony, and a general vitriol that he would visit this particular dictator.

At the Nobel Prize ceremony a young activist was able to use his father’s ticket to con a seat. Then he waited for a dramatic moment of silence after the introduction of Milton Friedman to King of Sweden. He stood up with great gesticulation and shouted, “Down with Capitalism.”

Friedman reflected on those events 25 years later for a PBS interview in 2000 and had this to say:

The Communists were determined to overthrow Pinochet. It was very important to them, because Allende’s regime, they thought, was going to bring a communist state in through regular political channels, not by revolution. And here, Pinochet overthrew that. They were determined to discredit Pinochet. As a result, they were going to discredit anybody who had anything to do with him. And in that connection, I was subject to abuse in the sense that there were large demonstrations against me at the Nobel ceremonies in Stockholm. I remember seeing the same faces in the crowd in a talk in Chicago and a talk in Santiago. And there was no doubt that there was a concerted effort to tar and feather me.

We know also that Friedman’s dealing with Chile were beneficent and nonpartisan. He refused honorary degrees from government run Chilean universities, stating that state involvement as his reason. Al Harberger vouches that Friedman stated over and over again his belief that decentralization of markets would undermine centralization in politics, including in his university speech “The Fragility of Freedom.” But there is some tension in this with what he said in Capitalism and Freedom. Autocrats may coexist with free markets for a time.

Furthermore he was directly helpful to one non-Chicago educated Chilean. Our cybernetics friend Fernando Flores, the Minister of Economics from the Allende government, had been in prison for three years and not allowed to leave the country. Friedman, never having met him, intervened on behalf of his freedom.

“Like many another friend of Chile, who is also a believer in human freedom and liberty, I have been greatly distressed by the restrictions on personal and human freedom in Chile that have been widely circulated in the West. . . . The immediate occasion for this letter is the case of a former Allende cabinet minister under detention in Chile, Fernando Flores Labra. . . . I have never met Mr. Flores personally and have had no direct contact with him. However, I have been led to inform myself about him. As I understand it, Fernando Flores is legally eligible for a US visa under US immigration laws, Stanford University has offered him a position in its Computer Science Department, and Chile has not granted him permission to leave the country.

“Freedom is indivisible. Greater economic freedom promotes and facilitates greater political freedom. But equally, greater political freedom promotes economic freedom and it contributes to economic progress and development.”

After Milton’s letter, Flores was released from prison and made his home at UC Santa Barbara. The Spanish language Wikipedia page credits Amnesty International and makes no reference to Friedman’s intervention.

1982 Financial Crisis

In 1982 the Latin American Debt crisis shook Central and South America. Chile was no different. What made the crisis especially bad for Chile was that they neither abolished the central bank and dollarized, nor maintained a floating rate. They pegged, and kept the same peg for two and half years. Why Sergio did this, I don’t know.

In the 60s he had written argumentative papers and engaged in great fracas in favor of a free floating rate. But now the currency is pegged and pinned and wriggling on the wall.

The banks borrowed dollars. They lent in pesos. The investments inflows decreased when oil dropped and copper dropped, so they borrowed more dollars as a bridge loan, until as commodity prices sunk the Andean skis went flying out from under them in an avalanche of bankruptcy, state bailouts, and unemployment.

Friedman had always been against a hard peg. And when the hard peg broke down it was not surprising to Milton that Chile was one of the countries greatly wounded by the crisis. Thus it was not Chicago school orthodoxy that made the 1982 crisis especially bad.

Al Harberger points out that although the Chilean decline was greater than the others, it’s rebound was also stronger.

The Chilean [crisis] was maybe deeper than the others for reasons of it having a large amount of debt to begin with and of this problem coinciding with a copper bust, but anyway, Chile led the continent in climbing out of this recession. It was the only debt-crisis country that got back to the pre-crisis levels of GDP before the end of the decade of the ’80s, so for most of the countries, it was the full decade that they called the “lost decade.” In Chile, it was the better part of it that was lost. But Chile was the first to come out. Chile came out growing at 5, 6 percent per year — and long after. You see, you can say that when you’re in a recovery period, you’re recovering lost ground, [and] it’s reasonable to think you’ll do that fast, but after you’ve recovered the lost ground and you’re going on, if you continue on the same or even increasing trajectory, that’s even more of a miracle. And that is all part of the Chilean picture.

GDP Growth

A Long-Expected Political Transition

In 1980 Pinochet’s government installed a new Constitution. But they held on firmly to the reins of power. Civil authority and citizen freedoms were weak at best.

Even in 1986 the Universities’ top level presidents and administrators were all military officers. Friedman wrote in protest to rector of the University of Chile, General Roberto Soto MacKenney.

“Friedman noted that he had received information that ‘suggests that the universities in Chile in serious danger of having their academic integrity and performance destroyed by the application of arbitrary and irresponsible force [by the military authorities],'” pg. 153.

The Pinochet regime imposed unfreedom.

After the 1982 crisis, Pinochet fired a bunch of people in economic management. He put in more old guard traditional import substitution economists. But when their policies failed to deliver a reduction to inflation and a return to employment, he went back to Católica and found the young guard of Chicago educated economists and put them in.

(I wonder about the internal process here.)

A second round of reforms followed: an independent central bank, privatization of the remaining government owned firms, and a slower paced reopening of the economy than the shock treatment of 1975. The political economy may have worked better because when Pinochet let go the direct reins of power through the referendum of 1988 the Christian Democratic party maintained and continued the basic reform program in 1990.

Pinochet left the presidency, but not power. He retained the position of commander-in-chief of army until 1998. When he went for back surgery in a London clinic in 1998 he was arrested while bedridden with extradition orders to go to Spain, creating an international incident, which is beyond the scope of my research. That satyr play will have to wait.

In 2002 Chile equaled Argentina in GDP per capita, and surpassed them clearly by 2018.

Lingering Questions

Remaining Questions I have are in buckets.

Technical questions:

How big a problem was the peg during the Latin American debt crisis. Panama, which doesn’t have a central bank, was punished severely anyway. The other Latin American countries with crawling pegs were trounced. The U.S. sported -1.8% GDP growth! So is there really anything Chile could have done?
In the 90s Chile put in place import holding rules on capital flows to make them park in the Central bank for a year. Is that a helpful move for preventing a repeat of 1982? Just because Stiglitz thinks so, doesn’t make him wrong.
When reading the history of Japanese Finance Minister Matsukata Masayoshi, I was struck by how he altered the tax collection system regime to benefit the fiscal situation, namely by cutting back delays and increasing enforcement. He was still able in effect to decrease the debt issuance of silver-backed debt from a government that didn’t want to cut military spending. What was tax collection and the fiscal history of the dictatorship?
Did Milton Friedman really sway the government officials or am I missing details about the regime which made the eventual promotion of civilians into ministries inevitable?
Were there Mistakes in the speed and sequencing of the policy changes?
There are constant arguments about the pension reforms in Chile. I’d like to know more about these (and other aspects of pension policy theory). The actuarial part of me is excited about this potentiality.
Were there meaningful differences between the Bolivian fight against hyperinflation and Chile’s policies?

Dictator Club Questions:

Did Spain’s slow liberalization make the politics of Chilean fast liberalization easier?
What did Pinochet think of all this economics stuff? I have read once that a Spanish finance minister kept wanting to ask Franco permission to change some large policy. And Franco just waved his hand and said something to effect of “just don’t get me involved.”
What did Pinochet do with his time?
Did Peronism affect Chile?
Did the Brazilian dictatorship affect Chile domestic strategy?
How did Allende’s government exercise power?
How much were Unidad Popular funded by outside sources?
How did Pinochet think? Is it a miracle that a military government allowed these reforms?
What percentage of time does inflation over 300% result in a coup?

Annotated Bibliography

Edwards, Sebastián. The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism. Princeton: Princeton University Press, 2023.
The lion’s share of my information came from this volume. The bibliography and endnotes were particularly instructive. Clearly the best book on the subject, especially for a serious general audience.

As part of my intellectual hygiene habits to avoid words that end in “-ISM” I’ve tried to be quite sparing in this article, Nonetheless “socialism” and “capitalism” rear their ugly heads. Similarly there’s no discussion of “neoliberalism” here, although Edwards’ book does an extended treatment of the topic.

Meiselas, Susan, ed. Chile from Within. Photographs by Chilean photographers, texts by Marco de la Parea and Ariel Dorfman. New York: Pantheon Books, 1991.
The photos from the military regime were powerful for evoking a sense of political oppression and the people who resisted it. But the book also talks about the abuelitas who resisted Allende and the abuelitas who resisted Pinochet (often the same!).

Piñera, José. “Salvador Allende’s Chile in Eleven Truths.” Archived at the Internet Archive. Accessed February 7, 2017.
.
God bless archive.org which preserves this excellent website by one of the honorary Chicago Boys. Through José’s website I was able to find the National Assembly’s condemnation of Allende.

De Castro, Sergio. El Ladrillo. Santiago: Centro de Estudios Públicos, 1992.
The original text of El Ladrillo. I haven’t read all of it yet due to my still plodding Spanish. But it is a tremendous framework document. Not nearly as economically technical as I expected. It’s more of a roadmap than a series of prewritten directives for different departments of the economy.

Silva, Carola Fuentes, dir. Chicago Boys. Documentary film. Chile, 2015.
Some good interview snippets, but I wish there was a lot more. It got me thinking about the political pressures and costs of working for military dictatorship and the long-term difficulty of maintaining a positive legacy. Sergio de Castro has had to “ignorance-wash” himself beyond credulity. But to do otherwise is suicidal not only to his reputation but also treasonous to his life’s work to provide good economic policy for Chile. I especially appreciated Ernesto Fontaine’s body language. His candor and “dgaf-iness” I found endearing.

Friedman, Milton, and Rose Friedman. Free to Choose. PBS documentary series. Episode 5, 1980.
This episode had a segment on Chile and included the protests against Friedman at the Nobel Prize ceremony. It was incredibly uncomfortable waiting for the young black-tie protestor to be escorted out.

Morozov, Evgeny. The Santiago Boys. Audio series, 2022.
This series tells the story of Allende’s economic attempt to make a new world free from capitalism. I found it full of good interview snippets, excellent production value, and masterful editorializing. Yet sometimes it was also one of the worst offenders under the banner of “things meant to make the reader think they know something when in fact they know little.” Nonetheless, it was a fun romp.

Whelan, James. Allende: Death of a Marxist Dream. Washington, DC: Regnery Gateway, 1981.
Features lots of interviews with military personnel and others from the coup days. I have barely dipped into it, but it seems to be a very valuable book. I got a much better sense of the scale of the near total public rejection of Allende’s government. And honestly it is just beautiful and excellent journalism.

Larroulet, Cristián, and Fernando Soto-Aguilar. Chile: Economic Freedom 1860–2007. Serie Informe Económico No. 197. Santiago: Libertad y Desarrollo, March 2009.

Caputo, Rodrigo, and Diego Saravia. “The History of Chile.” Working paper. Centre for Experimental Social Sciences, University of Oxford; Universidad de Santiago; Central Bank of Chile, 2021.

Freire, Danilo, John Meadowcroft, David Skarbek, and Eugenia Guerrero. Deaths and Disappearances in the Pinochet Regime: A New Dataset. Working paper, May 30, 2019.

Spanish language Wikipedia was also helpful for things it said and the things it did not say.

Thank you to Sam Enright and the Fitzwilliam for setting me on this quest. I believe this essay will prove one of most definitive outlines on these matters for the general reader — in spite my tone and tense switching and undoubtedly some errors I have made.

Dare I Praise the Earth Gods?

Posted on September 27, 2024 by sebastiangarren

[This letter is part of the Little Letter Republic, a project whose purpose is to build community in St. Louis]

Dear Nick,

I am beside myself with thoughts on the matter of urbanity and the good life. But I am shaken with terror that our views might be irreconcilable. The reason this terrifies me is simple. My faith in reason is scholastic. I think that should we be talking about the same thing, but I feel we are not. We should be able to at least communicate principles of discussion and come to a shared understanding of how this “science” should work. Ideally, we could come to a full list of objections and respondeos and sed contras that demonstrate a mutual understanding, which to me counts as affection.

So, my proposition is this: let’s go to Kigali, Rwanda and Krakow, Poland and test our theories. Should these towns be more like America or more like Western Europe or stay like they are? I think we will see that Americanization is more desirable, even if not exactly replicable.

You might say this is unfair. I am stacking the deck in my favor by anchoring the discussion around actually existing states of affairs. You want to start from the platonic view of the good city and figure out what tradeoffs get us closer, while I want to start with empirical places that at first glance seem to offer the things you say are most essential for a good city.

I think we can overcome this obstacle. I am not a “status-quo-monger”; I do not think that whatever just so happens to be at this moment is the best achievable – or that whatever societal forces produce is normative by the mere fact of it being produced, rather than something else. I think we could do much better and could have made better choices in the past, which implies that I too have a platonic view about what ‘better’ may be. However, the difference so far in our conversation are that I take historical examples of the past century as strong evidence for what is preferable and what is not. When millions of people individually make a choice, I should seriously consider whether that might have been in their best interest.

Automobiles are preferable. Individual self-owned powerful machines that can move goods, children, commodities, Amazon packages (“thank you for your service!”) and groceries are amazing. They can move canoes, baseball equipment, my book boxes, furniture for my house, and musical instruments. With enough density of people and luck of location I suppose I wouldn’t need a car – provided my relatives lived nearby. But the automobile used well is a huge boon to freedom for the arts, sports, leisure, and even religion, as well as work, labor, and economy. Even the Spartan men were notorious for their one luxury: the decked-out chariot. From better transportation spring so many options for finding communities that want what I have to offer and have what I want to enjoy. By increasing the extent of the market, autos increase the quality and quantity of businesses which I want to patronize. Oh great, internal combustion engine, rise and buzz, ye electric car! The world without such machines would be poorer and sadder and less vibrant – more like Kosovo, not more like Cologne.

Those incessant sorrowful singers about the sins of the automobile do have important things to say as well. Cars are loud, deadly, polluting, and atomizing. Can these costs be mitigated? I think so, and I know so, for we have already progressed in each of these dimensions since 1960, and noisy automobiles remain merely as a hideous choice exercised by Bosnians and hot rod kids and Harley guys. Meanwhile, I drive across the metro to St. Charles listening to a Ron Chernow biography, or the excellent dj’s of 88.1 KDHX, or a Conversation with Tyler, or conversing with a distant friend over the phone. In most other historical and present cities, there is much more cost to commuting. We are not the best we could be, but we have it pretty good.

Now, I hear your objections. Firstly, “Automobiles do not allow these choices, they cause the problems they are an alleged solution to! That is not progress.” I respond that it is progress on net, though there is still more to do to improve things. Or secondly you could object, “Is your disembodied intellectualized experience of the world better than knowing the actual neighborhoods you are traversing? Lost in a technologically enabled reverie?” I respond, these are not mutually exclusive and I, desiring to live a good life study the map of neighborhoods and businesses along my routes and sometimes refuse the interstate.

The strongest objection is the poem by Dana Gioia:

The Freeways Considered as Earth Gods
by Dana Gioia

These are the gods who rule the golden land.
Their massive bodies stretch across the countryside,
Filling the valleys, climbing the hills, curving along the coast,
Crushing the earth from which they draw their sustenance
Of tar and concrete, asphalt, sand, and steel.

They are not new, these most ancient of divinities.
Our clamor woke them from the subdivided soil.
They rise to rule us, neither cruel nor kind,
But indifferent to our ephemeral humanity.
Their motives are unknowable and profound.

The gods do not condescend to our frailty.
They cleave our cities, push aside our homes,
Provide no place to walk or rest or gather.
The pathways of the gods are empty, flat, and hard.
They draw us to them, filling us with longing.

We do not fail to worship them. Each morning
Millions creep in slow procession on our pilgrimages.
We crave the dangerous power of their presence.
And they demand blood sacrifice, so we mount
Our daily holocaust on the blackened ground.

The gods command the hilltops and the valleys.
They rule the deserts and the howling wilderness.
They drink the rivers and clear the mountains in their way.
They consume the earth and the increase of the field.
They burn the air with their rage.

We are small. We are weak. We are mortal.
Ten thousand of us could not move one titan’s arm.
We need their strength and speed.
We bend to their justice and authority.
These are the gods of California. Worship them.

Do they cleave our cities, push aside our homes? Yes. Yet we a flexible and ingenious people, adjust our cities and lives bit by bit to maintain the benefits and decrease the costs of suburban disruption.

Aesthetics arguments are too often selective in their evidence. Unpleasantness can be economically modelled.

I agree that the costs of suburbanism and the auto are not properly adjusted. I agree that minimum parking requirements are stupid, that cars get a free ride and implicit subsidy in urban planning, that there is too much wasted space in business developments (especially through minimum parking requirements, and that restrictions on building housing make all this worse. Yet, I also think the vast majority of people for justified reasons want personal transportation optionality provided by car ownership. Too many localists and urbanists are willfully minimizing of this fact. They think that the goal of urbanism should be to minimize car ownership. Even in the great public transit, walkable cities of the Netherlands a majority own cars. The purpose of transportation in a whole ecosystem is to move people and goods to where they need/want to go as quickly, safely, and cheaply as possible. Thus autos need not be taxed and penalized out of oblivion because “the people have bad taste.” Cars integrated into and harmonized with cities is not only possible, but desirable.

So let me leave you with this, following the sage advice from Plato and Aristotle, the view of the good city should include a mathematical model. Now while I am a bit more mathematically sophisticated than the ancient philosophers, I am not up to contemporary standards of urban economists like Ed Glaeser. Nonetheless, the standard introductory graduate school model assumes only two needs: a workplace and a living quarters whose cost is a function of distance from work. But you can and should introduce whatever values you want into the model, create a distance-cost value function, then create a map of the resulting small world. As you as you start adding in things like heterogenous desires among residents, and agglomeration of certain types of businesses in certain districts, you start getting shapes that look strikingly similar to our actual world (but with much more density). Add in HOAs, municipal building regulations, and poor urban safety and you get the status quo. I am not saying these are good. I believe there are winnable battles to improve both urban and suburban life. Yet, it is a hard drill to get anywhere else than where we are. And I believe in the types of improvements you point to that make drama productions, religious community, and community musical concerts easier. I would just not blame “the automobile” or “American values” or “capitalism” for the current state of affairs, nor do I think Europeans have it so much better. Europeans move to the US far more often than the other way, because, at its best, US dynamism in economics and the arts and family formation are all complementary to each other.

In any case, I think my economic view of the world is the correct starting point for both ought and is, and from it we can work towards the best possible set of tradeoffs together.

Meet me in Rwanda, where we will continue the discussion.

Sympathy for the Devil: New Technology is Worth It in the Medium-Term

Posted on June 19, 2024 by sebastiangarren

My dear friend John Mulhall asks “Are you sympathetic to Tyler Cowen’s optimism about AI and technology in general?”

I am a first principles kind of person, so let’s start with finding a common starting point for how to think about technological change. One way I think of new technologies is as a new type of trade: I can now choose between exchanging money for a typewriter or for a digital word processor. On some dimensions, I favor one over the other and vice versa. When a new technology passes the market test and is implemented by users, there must be some type of “gains from trade” occurring. The trade would not occur if both parties did not perceive some real benefit along some dimension. The gains from trade ripple out throughout the economy, but they do not do so equally. While the writers’ industry and the computer engineers industry might see gains, those gains only very slowly and indirectly show up in regions which do not have those industries.

In general, the aggregate social benefit from a new type of trade requires individuals adjusting their behavior to realize the benefit. For example, electric drills change construction making those people and firms more productive and allowing them to be hired to do more for less total expense. Those are two gains: one to the firms using drills and the other to people hiring electric-drill-users. Those change to those two groups constitute the basic sum of benefits.

People and communities have to adapt to realize those benefits. Sometimes they choose not to. But they also generally do not receive those positive spillovers from the technology to the same degree as others. Though they still benefit indirectly, even when many levels removed. Many Amish communities famously use no electric powered equipment when building. Nonetheless, they do purchase high quality tools made by precision machining and electrification. So even their own agrarian-first production benefits from trade with a “high technology” society. Drills, screws, the use of electricity to power the one and drive the other, allowed America to quickly accommodate all sorts of changes. Suburbanization was made possible and cheap by precision machining!

A lot of dimensions of society are affected by even simple technologies, how much more so for more general technologies. LLM AI tools created through reinforcement learning is a very general technology, and thus how much harder must it be to predict net effects.

What are the spillovers and likely effects of AI? Many writers get bogged down in metaphor making for AI. It’s “a transformative technology”: a machine gun, a replacement for people, a complement to people, a therapist, a girlfriend, a test maker, an essay grader, a medicine finder, a coder, a nuclear physicist. It’s like electricity, the printing press, the internet on steroids, a bicycle for the mind, a parrot of intelligence, intelligence itself, a new species! Arguing over analogies does not go anywhere. At least for me it hasn’t.

So I call it quits and go back to rehashing the two standard effects of new technology (in the broad sense). One is that firms that cannot adapt to the higher productivity manner of doing things go out of business, and two, new products are created as a result of the original innovation. In the first case, much of economic growth is caused by driving low productivity organizations into the graveyard, and so we all benefit from that – even if it sounds bad.

Here’s the basic story of why. When demand is fulfilled by a more productive firm, resources are used more efficiently. When resources are used more efficiently, then savings can be used elsewhere instead. The savings caused by an increase in productivity do not go to waste, they are not hoarded by the capitalist dragon Smaug. They are used elsewhere.

And sometimes as a result of productivity and innovation better quality products can be crafted. Most people cannot predict easily a priori whether something will cause new and improved products, even less can we predict what those products will be. But at its most basic, this is what economic progress is: better use of resources and innovative uses of resources. And it’s a good thing.

Now, I always do wonder what the effect of a technology on society will likely be. I am given to speculation like that. But asking about a technology generally is a curious and overbroad question. Society is not a monolith. There are different age groups, classes, subcultures, ideological groupings, social networks which are constantly adapting to their circumstances together. As a whole, society is adaptive because it is in many parts. In the uptake of a new technology there is both a diffusion process and an adaptation process. Different groups find different uses. Different groups put in different safeguards – based upon what they see as their responsibility. If you notice this feature of our society, that disruptions are temporary, that negative externalities elicit coordinated responses, then a better equilibrium than the status quo ex ante can be expected. Better, however, does not mean costless. On some dimension for someone somewhere, value is lost. If I were handwriting this, I could be outside in warm summer air listening to the chirps of cicada-eating birds and the bestial groans of bird-eating cicadas, but instead I am inside. That is a cost to typing rather than writing, but it’s still a net gain.

This is my prior model on technology that allows me to be generally more optimistic than most others in our milieu. I believe in our collective ability to adjust to technological change, even if there is no formula to predict exactly what the adjustment will ultimately look like from the armchair. Its a lived solution.

I do worry about blocking the adaptive process too much. Strong regulation from the top can prevent a synthesis of the old and the new. A desire for total control over a technology and its diffusion in order to do damage control often does more damage than control. Perhaps biblical translation in the 16th century is an example. Shut down society’s adaptive reflexes and create a debt for a much more painful transition later. What was more painful China’s modernization or America’s? And could one have happened without the other, and would we want to go back?

In 1900 could Henry Adams have predicted the results of electricity? Or the effects of the window AC, the recorded LP, or the PC? Are not the social impacts of electricity found in the new organization and technology it allowed?

Or if the printing press is more your style. Did Erasmus know how science and politics would change as a result? Could he have drafted the perfect policies for the monarchies? How long did it take society to adapt to full literacy? We hardly know the answers to these questions even in retrospect. As W.H. Auden wrote, “Foresight as hindsight makes no sense.”

It doesn’t seem to me that we have a strong ability to forecast distributional or productivity changes from technology a priori. Too many things change in the process: the firms, the gains from the trade, the new products created are dependent upon human choices, ingenuity, and iteration. We are living an evolutionary process without an inevitable endpoint.

However, this agnosticism abdicates too much responsibility and truly is too optimistic about human nature. So allow me to walk it back a bit with some guidelines.

If I want to characterize a view about some technology, the first thing to do is to learn what is and how it works. Investigate what current users are paying for and how they are using it. If you can figure out what the average, or even better, what different clusters of users are paying for and how they are using it, you will get a factual understanding of what the technology is, rather than a merely theoretical one. Then you can just look at the current upside and downside uses. Then, insofar, as you wish to advise and craft good policy, notice the particular destructive uses, and look for ways to curb them without also destroying all positive value. Gesticulating at the bad is not a reason to slaughter them all and let God sort it out. We can almost always do better than blanket bans. We want to afford to the different parts of society the chance to maximize the upsides and minimize the downsides of technology. Consider too what happens with declining costs. Frequently claims about distributional effects between rich and poor are not true for long as costs come down.

The CEO of NVIDIA said in a Stanford School of Business talk that we need the organizations that regulate their fields to update their regulations to include AI as it relates to their mandate, but we do not need a body that oversees all. I share the spirit of the suggestion, though I will quibble. I believe in a need for standards of model robustness and model security. And eventually, the biggest problem with AI will not be misuse, which I think can be managed, but misalignment, which I worry cannot.

(I myself do in fact regulate AI and technology as head of a school. It is part of our adaptive process as schools, I would prefer to make those calls within my community though, and not have those decisions made for us.)

I think AI is an exceptional case, but if we just want to talk about automation technology in general, I strongly recommend the essay by economist Matt Clancy: ”When the Robots Take Your Job”, which covers the economic challenges of automation. He explains the assumptions and implications of a few academic models that relate Capital and Labor to automatable tasks. In these models, new creative technology does not destroy wages, but rather it increases them so long as there is enough capital to hire human necessary labor. One big caveat is that if wages in some industries are driven to zero and the number of non-automatable tasks does not increase, there could be an economy-wide wage collapse. It is a simple model, but like many of these models, it is a great intuition pump.

There are other greater worries one could and should have about General AI, mainly the misuse of AI tools to create dangerous synthetic pathogens, but the economic worries above are a good starting point for our discussion. Confer Matt Clancy’s behemoth paper, “Returns to Science in the Presence of Technological Risk” for a more rigorous take on the health and income risks and the benefits of science.

But the greatest worry of all is AI alignment, that is, whether eventually we can make technologies that both act as capable autonomous agents and don’t completely disempower or destroy humanity.

Nuclear weapons, biological pathogens, and autonomous AI systems are probably not good technologies. But in general, technology is good for human health and the cultivation of civilization.

Can School Be Different: The Barriers to Change are Very Strong

Posted on February 29, 2024 by sebastiangarren

Can school be different? Yes. Can it be very different from the status quo? Perhaps not.

Whoever wishes to innovate in the schooling side of education must decide whether they are playing a niche strategy or seeking to disrupt the ecosystem. Disruption is by far the harder road, and innovators in education need to understand the currents which work in their favor, and which do not. To think clearly about disruption, it is essential to think clearly about the status quo. This will make clear why for most innovators niche strategies will be the better, if less ambitious option.

The modal secondary school is a five day per week program starting at 7:30 am lasting until 2:30 or 3:00 pm with extracurriculars after school, some clubs, and some elective classes. Private schools usually have the same framework differentiated by added branding, ideology, curricular specialization, amenities, or access to a particular social class. Government sanctioned charter schools are public schools with a few more degrees of freedom, which while an improvement to pure geography-based schooling is not radically different in framework, though they perform modestly better than pure public schools. I will call all such programs traditional schools. Whether they be Zoroastrian Classical Schools, AP-Test-injection machines taught by Stanford graduate students, project-based transhumanist art pod, or the public school down the street, if they fit the modal description above, they are traditional schools.

This is a fine framework for the meat and potatoes of education to stew in, you can put all sorts of different ingredients in it to get different flavors, but it goes wrong so often and so often fails to teach students to learn at their capacity, let alone love to learn, that many people seek to create alternative frameworks: homeschool, hybrid school, semi-online school, travel school. There is some demand for something different. But how far can we stray from traditional schools?

The Creation of a Bundle

One way to think about secondary school is to look at colleges. Colleges have received a lot more attention in broader cultural discourse than secondary schools, but believe their dynamics shed light on the secondary school situation. While the purchases made by both secondary schools and colleges are different, I think the educational incentives facing both are similar enough that the college situation, which more people are aware of, applies to the more arcane world of secondary education.

Why is college so expensive? Is it costly signaling, the government subsidies, increased quantity of small specialized courses, administrative bloat, or the Baumol effect?

These are all interesting theories, some with more merit than others. But let’s talk about the theoretical development of a college program. As a program becomes more successful, where does it look to reinvest its money? “To attract more/better students” is a common answer. If we started with a successful yet inflexible program, we add options or amenities which unlock the marginal student cohort. Because at each moment in time the cost of an additional student to the institution is very low, the institution’s managers will make decisions to attract that additional student. It is a low cost move with a decent ROI. Every so often the institution’s ability to accommodate more students reaches some ceiling: of professors, of space, of competitive equilibrium with similar institutions, and then it must decide to either make that big capital investment or sit tight. Managers will always be tempted to make the investment, to raise the funds, to do something bigger. And because education is not one thing which you purchase but an enormous basket of something like eighteen different goods, the administration will find a reason to invest more in one of the eighteen different reasons the marginal student came to this college anyway.The absolute cheapest college program I have seen was a short-lived experiment to have four teachers and one administrator teach a specialized three-year curriculum. The specialization did not receive enough support and so it died from lack of student demand. But we can imagine one with more demand. As it grew it would add courses. And community services. And events. And extracurriculars. While unique in many interesting ways, it would still be recognizably a college of some type, requiring similar support staff and offering mutatis mutandis the same mode of programming as other places, even if the content is very different.

Students’ desires are mixed. The reasons college students get up in the morning, if they do, are many. The girl they like, the sport they compete in, the classes they enjoy, the fulfillment of long-term goals, the desire to learn, the friends who are expecting them, the clubs they participate in or lead, breakfast, lunch. Consider the student situation carefully. Students require more than academics while they are in school. They desire the full suite of things that make for a comfortable, happy life. If you accept that a purely academic existence is unattractive to most students, then students will also be looking for certain social, emotional, and recreational goods. These are hard and costly to acquire, but in a college setting they are easier to supply because a whole cohort of people is at hand. Why be lonely for a time and pay for rental gear, gym memberships, and club sports when one could get that stuff as part of the schooling package? When students choose institutions, they are choosing along these social dimensions at least as much as academic ones, provided the academic program they basically want, or suspect they want, is there.

Likewise, the institution is going to set up all sorts of sub-institutions to fulfill these social, academic, and emotional wishes: counselors, librarians, study abroad officers, post-graduation success coordinators, writing center tutors, seventeen different sports and their coaches, thirty-seven majors and their professors, arts studios, and a legion of almost-funded clubs. The university will also play host to various academic institutes and research centers for the faculty, the donors, and the prestige interested.

You might think this all sounds expensive, and it is, but the key thing to understand is that it is cheaper to do it this way. You could have the college run academics and a different institution nearby run sports clubs, but the transaction costs are higher. It is easier for the university to provide sports than to make sure that there is an allied institution nearby providing them, and then to coordinate signing up students and payments of a separate fee. Unbundling creates more economic friction. That friction might cost a student, might cost additional man-hours of coordination, and doesn’t directly show up on the college’s balance sheet. Furthermore, the college doesn’t get the knock-on benefits of a successful sports program for recruiting and PR. It’s like this for every program that a school runs. Outsourcing is, or at least appears, expensive to the school. When outsourcing, the school pays part of the transaction costs of being a middleman without reaping the full benefit of offering it themselves.

The social world has high transaction costs. But it is relatively inexpensive for schools to cover these costs. Since the marginal cost of adding some social amenity is less than marginal revenue, schools continue to add the marginal amenity.

Mission Drift

This constant small-step growth of schools leads to what seems to be mission drift.

I have so far argued that the system of marginal amenity growth as we see it is cost efficient. However, if the explicit goal of the institution is supposed to apply to all the students, then it is values-inefficient.

Whatever core demographic of hard-core fans were the founders and initial cohorts of the school, the true believers, find over time that their percentage of the base is shrinking. While this might pose political problems within the institution, in the big picture the original mission as it was enacted to serve the initial cohorts becomes only part, perhaps a noble and prominent part, of a larger suite of services and programs offered by the institution. Students within the institution then sort themselves based upon what parts of the bundle they are most keen to participate in and support.

The upshot is that from the parent/student consumer point of view the question they often ask themselves is not whether this institution is custom built to their purposes, but whether it contains a niche which fosters their current interests and optionality for future interests.

Thus, a larger institution is less likely to be exactly optimized for them, but it is more likely to reach the acceptability threshold of the next new student.

The Difficulty of Unbundling

Now we start to turn away from analysis and towards advice.

So, you are still interested in unbundling, how can we do this? In that long list of school bundles – curriculum, sports, clubs, fine arts, support services, facilities, testing, age-based friendship, childcare, community socialization – you need a ready answer for how what you provide either complements or substitutes for these preferences. If you provide a substitute for only part of the picture, you need to also explain how people will secure all the other complementary goods as well. That can be very difficult.

But many people are willing to make tradeoffs, especially in the current educational environment which lacks a ton of choice. You are providing that choice, and your high value proposition in one area can compensate for a weaker offering in another. You don’t necessarily have to satisfy in all areas all at once.

If you want to really unbundle and come to an equilibrium that resists the trend described above, you need hard limits put in place that alter the evolution trajectory of your institution. In such a case, you are selling not only a school (or school related item), but a lifestyle change.

Homeschools, Pod schools, and hybrid schools which meet a few days in person are a lifestyle platform as well as a school. There may be a ceiling on growth, but there is also insurance against mission drift and unalignment, because the barriers to mission creep are stronger. These are great substitutes to the traditional education system and are worth exploring.

If you are successful, which many of you will be, then you might be able to grow, and that growth comes with temptations to change the product rather than to find the proper student/family fit.

If you want your institution to preserve a particular character that is based on a particular vision of an education platform, then create a system whose underlying structure reflects that vision.

In Conclusion

The incentives of educational institutions tend towards “bloat”, and makes the institution unoptimized for any particular thing. Any alternative that prioritizes growth will converge on something similar to the status quo. In other words, there is a bit of tension between doing something new and effective and doing something that scales to replace meaningful parts of legacy institutions. While a common thought is to unbundle this basket and create a network of services, such a strategy commonly runs up against transaction costs and still has to manage to outcompete the institutions which gain value, status, scope etc, from their less optimized but broader offering.

This is not a doom on alternatives scenario. If you can find anything that reduces transaction costs and makes it easier to rebundle things, then on the margin you can have a thriving alternative and carve out a niche. With thousands of people doing this, ultimately, we all get a society with a thriving ecosystem of educational options that are truly different species.

Saint Louis as New Rome: the social science of building a catholic city.

Posted on February 9, 2022 by sebastiangarren

[Transcript of a talk I gave at Communio, St. Louis Young Adults. Great crowd and conversation.]

Thank you for the introduction. Events like these are a public service to the community. Those who put them together do not get the rewards of their effects. So any value we get from each other’s company tonight, we have Adam at the bar, Garrison for the mic, and Father Rennier for the invite to thank. One weird way to summarize my talk would be as a call for a lot more creative conviviality.

I spend my time deliberately studying economics, writing philosophy and poetry, and practicing math. I see my role as being as informed as possible about the dismal science of institutions, education, policy, and urban growth as well as literature, arts, and science, so that I can use and share this information with others as a Proud Dilettante.

In addition to running JPII, teaching high school classes, and being a husband and dad, I dream of a St. Louis Renaissance. St. Louis has been called The Rome of the West, and it was once-upon-a-time a first-rate city. It is a good city today, and I love it. It could be even better.

Now a lot of these ideas I am testing out. And so what I offer is not a clear answer: do this and Saint Louis will become great, all problems will disappear, and you will feel happy and fulfilled and no longer have bad breath. I don’t have an answer like that. But I do have several useful tools for thinking about metropolitan life that I think will be most useful to you. And allow us to have a very good discussion afterwards.

To start let’s talk about the city. What is the modern city all about?

You want the simple answer? culture and dating markets. If you are not interested in either of those, then the city isn’t for you. If you win in the dating market and don’t care about culture you will likely leave the city, broadly conceived, when children start coming along.

And maybe that’s your plan. You come to Communio, you go to lots of other events, meet people, eventually a spouse, maybe find a better job, and then you leave for the deepest reaches of Lincoln County. There’s nothing wrong with that. But in this talk I am going to provide an alternative vision for Saint Louis that emphasizes the need for creating a thriving cultural zone across the metropolitan area.

So keeping in mind culture and dating markets, I will present three key ideas from social science, primarily economics, about how to make a culturally vibrant Catholic city.

Those three ideas are Culture First, Agglomeration Effects, and Signaling.

1. Culture First

Cities today are about people first and commerce second.

Many people think that cities exist for jobs by which they mean big employers, like Boeing, Barnes, and Mercy. This is a fundamental mistake: successful American cities are places where businesses get made or move to to take advantage of the high skilled people who are already there. Holding skills constant, businesses, especially factories, will move to places where the cost of land and labor is lowest. Most modern American businesses are not huge enterprises that require lots of workers, rather they are small firms that need a reliable supply of skilled workers, like skilled machinists, programmers, mapping experts, nurses, biotech researchers, office organizers, and interinstitution coordinators to name but a few in demand jobs in the Saint Louis area.

In the 19th century cities were built around transportation costs. Saint Louis is on the river, Detroit was on the lakes. But as transportation costs fell, and land and labor costs went up, the businesses left the cities, first moving to the suburbs, then leaving all together… this left cities quite vulnerable.

Ed Glaeser economist at Harvard has this to say in Triumph of the City: “Cities thrive when they have many small firms and skilled citizens. Detroit was once a buzzing beehive of small-scale interconnected inventors—Henry Ford was just one among many gifted entrepreneurs. But the extravagant success of Ford’s big idea destroyed that older, more innovative city. Detroit’s twentieth-century growth brought hundreds of thousands of less-well-educated workers to vast factories, which became fortresses apart from the city and the world. While industrial diversity, entrepreneurship, and education lead to innovation, the Detroit model led to urban decline. The age of the industrial city is over.”

Today, geography counts for very little. To quote Dune, “Place is only place.” People are everything. So the question becomes what induces people to gather in one place? I see it as culture, beauty, fun, weather, desirable social ties, and yes, dating opportunities. Or as Californian poet Robinson Jeffers says, “Music and religion, honor and mirth, // renew life’s lost enchantments.”

If you build these, you attract young, energetic, quirky, intelligent people, yourselves. Firms will follow in your wake. If I am right, then the causal arrow is from culture to economic growth, meaning that the core units that makes for a successful city are community and creativity: economic growth, career opportunities, and, most importantly, more cultural investment follow from them.

Cities are about people first and commerce second. This brings us to the second economic idea:

2. Agglomeration effects. Agglomeration is a very ugly word; sounds like an ingredient in Jello, but it means the effect of having an increasing amount of something.

The idea of agglomeration effects in economics is that thirty people are not merely thirty times as productive as one person. They are often many more times as productive, because the thirty people learn from and are encouraged by one another. Take the example of prayer from Saint Louis de Montfort in The Secret of the Rosary: “Somebody who says his Rosary alone only gains the merit of one Rosary, but if he says it together with thirty other people, he gains the merit of thirty Rosaries. This is the law of public prayer.”

This idea that grace is greater in public gatherings is a distinctly Catholic one. But it is also found in economics in the guise of agglomeration effects.

Alfred Marshall’s 1890 Principles of Economics describes agglomeration in loving detail:

When a [community] has thus chosen a locality for itself, it is likely to stay there long: so great are the advantages which people following the same [mode of existence] get from near neighbourhood to one another. The mysteries of the trade become no mysteries; but are as it were in the air, and children learn many of them unconsciously.

The idea is that creative communities beget a creative, community-minded atmosphere, and trying deliberately to improve ourselves and each other through acts of community will make a great and desirable city. I think we could be doing a lot on this front.

Community is the opposite of the atomization and excessive individualization, which plagues modern American society. Robert Putnam’s book Bowling Alone outlines how American civil institutions and groups of the sort we need have progressively declined since the 1950s. The cities that are doing well today are benefiting from agglomeration effects, and those that will do well in the future will do so because they have found ways to foster the sorts of communities that create these effects.

But it does not take an army to reverse trends or change trajectory. Nassim Taleb, the pugnacious philosopher of economic uncertainty offers this note in his book Skin in the Game: “The entire growth of society, whether economic or moral, comes from a small number of people… Society doesn’t evolve by consensus, voting, majority, committees, verbose meeting, academic conferences, and polling; only a few people suffice to disproportionately move the needle.”

Renaissance Florence had a population of only 50,000 people; it only took a couple of committed workshops to initiate something special.

These people, people who move the needle, will be part of a network stubbornly committed to sharing and building culture and solving problems that arise when trying build a more substantial, beautiful, and creative Saint Louis.

Agglomeration effects create exponential creativity, which brings us to idea three.

3. Don’t “sell” people on your creative ideas, signal your ideals.

If you are at all like me, selling people on stuff can seem kind of banal, venal, or inauthentic. What could be worse than cold call telemarketing? Trying to convince people who do not want or need what you have to offer is a waste of your time and theirs. However, everyone wants to be delighted and to find their niche, so the problem is how to connect people to those for whom they have an affinity but don’t know it yet?

The key is signaling and selection effects.

Signaling Theory for economists is all about sacramentals. Those outward signs that ought to positively correlate with inner dispositions. A yellow-banded poison dart frog is jet black with neon yellow stripes; it looks poisonous because it is poisonous. It is sending out nature’s amphibious “Leave me alone” signal. On the other hand, at Urban Chestnut the plain, wooden, distraction-free, mead-hall benches, practically sing out “come, sit down, and have a conversation with friends.”

Groucho Marx once said, “I don’t want to be part of any club that’d have a guy like me as a member.” Groucho’s acceptance into the club would signal low enough club quality that he himself wouldn’t want to join. Whatever it is you are trying to build, whatever peers you are trying to attract, making sure you are sending out the signals which will attract your people is the first step to overcoming alienation and atomization, and the first step to leveraging the interconnected urban environment to attract the people who will like what you have to offer. So first comes the signal. We fire off the bat-signal into the night sky and see who shows up, having faith that those who arrive are the ones God wanted to show up.

A selection effect means that the people who are attracted to you and your creative group are not random but rather people who are inclined to what you have to offer, people compatible with your mission who had been stumbling along the edge of your social network, seeking just such an environment before they saw your bat-signal.

There are many ways to signal. The choices of how we construct our physical environment signals community values. A park with filled with children playing games doesn’t exist without local children, a safe neighborhood, and people who devote resources to upkeep. The art in our house, the design of our streets, our choice of public music, and the tabs on our computer, signal our priorities and reveal of our preferences.

The best signals are not loud the way a commercial is, but they are discoverable. Like how a Decemberists album shirt says more about you than if you simply said you liked the Decemberists. Even a shirt can lead to people approaching you because the external signals an interior disposition.

Self-selection requires a discoverable signal.

Discoverability is a technical term in social science, but it is like the “light hidden under a bushel principle.” It is a measure of the possibility for others to discover what you have to offer. If one builds the signals alongside the community, one creates discoverability. By sending off the right signals people will know who we are and what we are about. When they search online or even see St. Louis in the media, the same signals of a rich inner core may start to bleed through.

And that’s idea number three. Good signaling allows for self-selection.

Once a subculture’s signal and substance properly rub together, lightning strikes the frozen mountain of creativity; a cascade of graceful snow begins to descend. Agglomeration effects create an accelerating avalanche, and thus the signal becomes even stronger, so that even from many miles away the sight and sound of this cascade resonates through the valleys.

And those are the first three ideas which I think we can take with us for envisioning St. Louis as New Rome: 1. Culture comes first, 2. Agglomeration effects create exponential productivity, and 3. Signals allow for self-selection. Perhaps, next time, we will discuss where gladiator fights fit in to this New Rome idea.

One last takeaway is that a vibrant, distinctively Catholic culture in Saint Louis requires intentional effort. And we’ll talk more about how to do it in Q&A, though, as you know, I’m working on the school and education front. Thank you very much.

Book Dump 2021

Posted on February 5, 2022 by sebastiangarren

I dived into a lot of books in 2021, more than ever. But finished only a few. Here are my favorite and most recommended books from the year, followed up by a fairly complete and ridiculously long list of books I spent a substantial amount time with.

My favorite and most recommended books of 2021.

Pity the Beautiful by Dana Gioia. Poetry, modern. Excellent.
The Way of Kings by Brandon Sanderson. Fantasy, long. Worth it.
The Model Thinker by Scott E Page. Math and epistemology. Phenomenal.
An Aristotelian Realist Philosophy of Mathematics by James Franklin. Math and philosophy. Excellent.
Economy and Nature in the Fourteenth Century by Joel Kaye. Economics, medieval philosophy, history, and Latin. What could be better?
The Wars of the Roses by Gillingham. I checked out every book on The Wars of the Roses; this is one is clearly the best written, even if a little more out of date. When history is well written I fall in love again. Highly recommended.
The History of Chemistry by Bernadette Bensaude-Vincent and Isabelle Stengers. This is the best history of chemistry in print, and there is no coincidence that it is a translation from French.
Talmud: from Classics of Western Spirituality Series. The Classics of Western Spirituality is hit or miss frequently, but I am enjoying the the selections from the Talmud here.

Below are all the books from 2021 by category.

Fiction:

Moby Dick by Herman Melville
The Napoleon of Nottinghill by G.K. Chesterton
The Ship of Theseus by V. Straka
Pity the Beautiful by Dana Gioia
Parable of the Talents by Octavia Butler
The Way of Kings by Brandon Sanderson
Cenodoxus by Jacob Bidermann
The Golden Country by Shusako Endo
Project Hail Mary by Andy Weir

Philosophy and Social Science

The Model Thinker by Scott E Page
On Commerce, by David Hume
The Use of Knowledge in Society, F. Hayek
The Wealth of Nations Book I by Adam Smith
Protagoras by Plato
Charter schools and their Enemies by Thomas Sowell.
Universal Economics by Armen Alchian (incomplete)
An Aristotelian Realist Philosophy of Mathematics by James Franklin
Saint Ignatius’ Idea of a Jesuit University by Ganss
Economy and Nature in the 14th Century by Joel Kaye
The Interests and the Passions: Political Arguments for Capitalism before its Triumph by A. O. Hirschman
Capitalism and Freedom by Milton Friedman
Open Borders: the Science and Ethics of Immigration by Bryan Caplan and Zach Wienersmith
Range: Why Generalists Triumph in a Specialized World by David Epstein
The Cult of Smart: How our Broken Education System Perpetuates Injustice by Frederick deBoeur
The Case Against Education: Why the Education System is a Waste of Time and Money by Bryan Caplan
Jesuit Education in Light of Modern Educational Problems by Shwikerath
10% Less Democracy, Why You Should Trust Elites a Little More and the Masses a Little Less By Garett Jones.

History

Viking-age War Fleets: Ship-Building, Resource Management in Maritime Warfare in 11th century Denmark by Morten Raven
Qumran in Context reassessing in the archaeological evidence by Yizhar Hirschfeld
The Wars of the Roses by Gillingham
Book Wars: the Digital Revolution in Publishing by John B. Thompson
Battlegrounds by H. R. McMaster
Keaton by Tom Dardis
The Letters of Alcuin by Rolph Barrows 1909
Kissinger: The Idealist by Niall Ferguson

STEM

The History of Chemistry by Bernadette Bensaude-Vincent and Isabelle Stengers
Calculus for the Applied, Life, and Social Sciences
Introduction to Chemistry by John D. Mays
The Richness of Life the Selected Writings of Stephen J. Gould
The Double Helix: a Personal Account of the Discovery of the Structure of DNA by James D Watson.
Biotechnology 101 by Brian Robert Shmaefsky
Vectors and their Applications by Anthony Pettifrezzo
The Molecular Biology of the Cell by various authors (sc. Not all)

Religion

Jesuits: A Multibiography
Decreation the End of all Things by Paul Griffiths
The Life of Brother Jordan of Saxony by anonymous
Super Boethius de Trinitate by Thomas Aquinas
The Spiritual Exercises of St Ignatius of Loyola
A Rabbi Talks With Jesus by Jacob Neusner (incomplete)
Talmud Classics of Western Spirituality Series

A Liberal Arts Approach to Economics

Posted on December 17, 2021 by sebastiangarren

[This letter is part of the Little Letter Republic, a project whose purpose is to build community in St. Louis and beyond.]

Dear Nate,

Our conversation the other night provoked me to want to explain more how I teach economics. I have done two things this semester which make my economics class different from the run-of-the-mill class (not that the run-of-the-mill economics class is bad; even normie econ is pretty grand!).

Having a different approach, means more than having a different philosophy while following the old motions. It means truly different tactics. My overarching goal in teaching economics is not to teach students about financial flows, but to teach students about human choice. In this way, my outlook is broader, more humanistic, and less focused on the mathematics and more on the decision algorithms from which the mathematics is abstracted and given meaning. The math is important, but I care first and foremost about introducing the economic patterns which motivate the invention of mathematical insights.

Our standard curriculum consists of economics by McConnell, Brue, and Flynn and Marginal Revolution University videos and questions. But since we have academic freedom, we are not forcing ourselves in a speed run cram semester-long cram session to complete the entire AP curriculum. Instead, we have taken two high consequence detours. Likely a few more will follow.

The first is in expected value theory. What’s the value of this? Firstly, to think about just the simple application of algebra to normal life choices and situations. Secondly, to see that one can incorporate risk into one’s thinking about choices, and thirdly to pass on a surprisingly simple yet powerful and important mode for thinking through decisions. We calculated how many people you would want on a road trip to Juneau for cost sharing to be worth it, how to calculate the expected value of a military strike, and what the expected value of different driving habits are.

In morality, such a method is useful too. When deploying the principal of double-effect in moral decision-making after all the major hurdles have been crossed the governing issue of moral action remains prudence, to take proportional measures to achieve our goals in the face of uncertainty. Expected value along with marginal thinking and causal diagrams (discussion for another day), I think should become standard equipment in the category of prudential thinking, which means I am also happily committed to a theory of virtue which requires using tools like these.

The second difference is the way I allow international trade to alter the course. From international trade we quickly run into issues of globalization and automation. MRU has a little curriculum on the topic called Globalization, Robots, and You, an essentially depressing look at how difficult it is to compete in a globalized and automated world. I noticed as the students worked through the ideas, they both made insights and at the same time felt somewhat powerless. As much as I like the lessons, they leave something to be desired: an idea of what civilization is for and how to offer a unique contribution. On uniqueness, we talked about the combinatorics. If there are 500 skills and you possess three without being the best at any one, you can still quite easily become the best person who has that set of three skills. (500*499*498).

I then offered the students another way of thinking: two articles from 80,000 Hours on high-impact careers and career stages. And then we close with a self-assessment “flower exercise” from What Color is Your Parachute which I think forces the students to engage with their own individual preferences in the context of trying to both do good (vis-à-vis culture) and do well (vis-à-vis civilization).

Then as we dive into discussions on labor economics, the students engage the questions from a place of curiosity and personal interest.

What I’ve outlined in brief is my liberal arts approach to economics education so far: an emphasis on passing on those habits of thought and intellectual tools which make for personally free and moral characters. Some people shy away from discussion of the moral import of education. I embrace it. Intelligence must meet action, and voluntary action must be directed towards good ends.

Letter on Culture and Context

Posted on December 4, 2021 by sebastiangarren

[This letter is part of the Little Letter Republic, a project whose purpose is to build community in St. Louis and beyond.]

Dear Nilay,

You asked about “Context is that which is scarce.”

In our last conversation you expressed mild shock when I said that none of my students and almost none of their parents know what a private equity market is. So, consider this example: I want to explain to a high school student what an equity market is. The student’s parents and family neither run businesses nor engage in any active investing, nor do their parents’ friends. From the student’s perspective there are jobs which pay money and there are places to which one goes to spend that money, and that little model, for them, is the economy. Notions like a funding round, shares, ownership, ROI, and public versus private markets are foreign concepts. But more importantly, even if they are explained, they are quickly forgotten because the concepts do not map onto the student’s experience of reality. To bring a student from ignorance to starting see how this works would require knowing one or several people whose picture of reality is formed by this other context. Such a personal network would then be adjacent to their own, and they could quickly add any new information I provided to their map of reality.

If I want to convince a student that starting their own business is something to seriously consider, their soul must grasp how this could work, but the soul can only with difficulty grasp what the senses haven’t experienced.

Consider another example found in “communities of practice.” What is the best way to become good at creating software back-end architecture? Reading a book? Certainly not, for a book cannot span all eventualities and quirks. For the most part, it seems, the best way to become good at something is to work on a problem and find people who have run into the same issues as you and talk with them or read their chats. Then, when you engage in conversation, they understand the context, or the context is shared enough that they grok the problem you describe.

A community engaged in similar practices encounters similar problems, but one cannot understand the problems or their possible solutions if one lacks the context to understand the problem in the first place.

When I dip into a work of philosophy, I can become gripped and absorbed into the text when the author is exploring a series of questions that I myself have contemplated. My “philosophical literacy” helps me see the point quickly about why a particular argument or line of inquiry matters. When I know what matters I am able to gain understanding. One needs cultural literacy to grasp the significance of any fact.

The point here is that knowledge is not a set of statements outside the mind but understanding within our intelligence about what matters and why.

We live in the information age, but it’s context that is scarce.

Here’s a trivial example. Let’s say I have had a fever for a few days, I text you, “I feel like Raskolnikov.” The information contained in that statement can only be unlocked if one has the cultural passkey, knowledge of Crime and Punishment. The most difficult part of this idea that the scarcity of context is so ubiquitous that we hardly notice the phenomenon, except by example or the experience of total confusion.

If I had to explain to my mom what I have been thinking about recently, it would take many hours of discussion before we were on the same page. The implication is that it is very hard to induct people into one’s own thought and problems unless they already share significant amounts of context with you. Nonetheless, my mother and I share other things, and so can connect on those.

There is a tragic loneliness in the scarcity of context. If I have something great to offer others, but they can’t understand it, then I will languish in obscurity. Sometimes I think about the people, the websites, the communities that I would love, that I know exist out there, but that I cannot find. I could wait for someone to link me there. But the human person is not a passive receptacle of experience, but rather a creator of context, a crafter of relationships and worlds. And so whenever we interact and build something together, we are creating context.

I hope some of that makes sense.

Yours sincerely,

Verses on Shipping

Posted on October 23, 2021 by sebastiangarren

There’s a law or regulation

Near every U.S. dockyard station

That containers, stacked up to nine

On global ocean shipping lines,

May on the lots where man can see

Be only stacked up two or three.

For the sight of such a shipping tower

Causes residents to fret and glower.

But as containers come gliding in,

Those that are out, can’t get in,

And those that are in, can’t get out

Of dockyards or harbors. No turnabout.

Oh the increasing traffic jam,

Miles wide, you understand!

But at least we residents still have the might,

To keep containers out sight!

Responses to “Contra ‘New Polity’ on Capitalism”

Posted on October 8, 2021 by sebastiangarren

[These two letters written to me are part of the Little Letter Republic, a project whose purpose is to build community in St. Louis and beyond. I did not write them, and thus do not necessarily agree with everything said. I post it because them because they worth engaging with. I am always accepting letters. These are in response to “Contra ‘New Polity’ on Capitalism”.]

Hi Sebastian,

I did take a look at your letter. It was a few days ago, but I do have a few general thoughts. You are absolutely right to question this imagination of medieval Catholic ideas on exchange. Virtually all serious research in this area presents a very different understanding, but the idealization persists. On the other hand, while you cite real texts in support of your counter position, I think you go too far in the direction of imagining an understanding that can be labeled “pro-capitalist.” I’m afraid your position comes off looking tendentious as well. There are texts in both Albert and Thomas (and others) that indicate their real concern for a personalized ethics, and in Thomas, a real understanding that relying simply on market price relieves the exchanger of taking the necessary moral responsibility for his actions. (I believe I make this point in E&N). I think you need to bring this side out as well. What I find most interesting is that even if scholastic authors question the simple assent to market price, they all recognize that there is such a thing, and they all recognize that even if not the perfect personal solution, it provides the best guide to the question of economic value. That’s to say that at least from the time of Albert (and evidence has been found that takes this back to the 12th century), there is a clear understanding of the existence of “market price” and the elements contributing to everyday price formation, and that this price can be seen as “just” (but see below). I’ve only found one who speaks of economic value in everyday exchange as properly determined by primarily personal decision based on the needs of the other.

Two other points I think important.

The value that Catholic thinkers in this period allow to the Common Good is exceptional. I stress this even more in my following book, A History of Balance, and I think you might like to take a look at my first 2 chapters. This informs their “economic” thinking in a way that has surface similarities with the capitalist imagination, but is different in important respects as well.

I think both the authors you critique and you yourself should have a clearer understanding of Thomas’ attitudes toward “justice” with a small j, i.e. what is permissible by law. I discuss this, too, in E&N. I think you’ll find that it is a relatively low bar: designed to facilitate the functioning of the community, and thus many things are permitted by the “justice” of human law that are far below what divine law and justice require. So it would be good, I think, to point to this distinction.

I commend your desire to bring scholarship into this discussion.

Cheers,

Joel

—–

Dear Sebastian,

What a feisty, pugnacious essay! I enjoyed it immensely, even if it took up my whole lunch hour. I wrote down some notes in agreement or disagreement with each of your 6 points. I have to say, though, I agree with the general tone of your essay. Granted, the burden of proof is on New Polity, so your objections can be sound without the implicit foundations of your arguments correct. In general, ironically, I found your arguments in need of more empirical data and less generalization–just like your beef with New Polity, right! I think the moral argument needs to be more nuanced.

1) Alienation and Mechanization: First, what you say about mechanisms of economy is spot on. They’ve always existed, and having more intricate ones with more moving parts in the digital world is not bad, nor is it different. But you’re too dismissive of this point: where do you draw the line? How much alienation is too much, or at what point does a mechanism produce alienation that is definitively immoral?

For instance, the mechanisms of a global economy, if not immoral themselves, can certainly lead to immoral behavior, can certainly encourage it. People would be a lot less likely to buy Nike shoes, for instance, if their factories were in our own cities instead of Indonesia. That’s not at all a denunciation of this mechanism per se; I’m just pointing out that not all mechanisms are equal. Just because they’ve been around since time immemorial doesn’t mean some don’t encourage things like alienation. Of course NP’s attitude needs to be more nuanced, but it shouldn’t be dismissed outright. Some alienation is perhaps necessary, but at a certain point I think it’s reasonable to say that certain mechanisms lead to a level of alienation that is unacceptable.

2) Argument of Arbitrage: again, I agree completely that arbitrage is not only not immoral, but a good to be fostered, and a way of creating equilibrium. That’s fair. I especially appreciate the pre-Revolutionary France example. But again, just because arbitrage as a concept is praiseworthy doesn’t mean that it is in all its instances. Again, your refutation is legit: but I would be more interested in a positive argument for how to have ethical arbitrage. Surely at some point my buying and reselling of goods ceases to be itself good and praiseworthy. The crux of the question, I would argue (and NP seems to agree) is the common good.

Take the crash of the housing market for example (based entirely from my watching of The Big Short). Those investors were gaining capital by purchasing bad debt, and in gaining a prophet in this way, they ended up devaluing the market and causing an economic collapse. Granted, this problem can be solved by tweaking the mechanisms of buying and selling; you don’t have to overhaul the system and eliminate the value of debt. But again, your guiding star has to be the common good, which you don’t seem to acknowledge.

3) The theorist-phenomenon fallacy (love the name!). Once again, I find myself in complete agreement that we, self righteous academic Catholics tend to way overvalue abstract ideas. I usually commit the fallacy three or four times before breakfast. But don’t go to the opposite extreme! Don’t you think that ideas, ideologies, philosophical principles gradually inform the way a people will think, act, consider? De Tocqueville makes an entire thesis of this in his visit to America. Nobody here has read Descartes, he writes, but nowhere in the world are his ideas more implemented. Accordingly, I don’t think it’s unreasonable to say, quite simply: self-interest is the guiding principle of this economy, therefore people tend to act in this way first, before considering service to others secondarily. Is the basis of our economy not self interest? I would need to see this demonstrated.

4) Monopolists: you are very dismissive of the cries against big corporations destroying local businesses, etc. A year or two ago Amazon informed in a commercial that they really aren’t against the little guy. They showed a video clip of a small business owner smiling because he worked with Amazon, so it must be true! Your argument feels a little like this also. Again, I would like to see empirical evidence that either a) these monopolies are not, in fact, destructive to local business, or b) local business and economy is not in itself a good worth preserving.

5) Index funds: I enjoyed this section most of all. I agree with you that the fact that they’re impersonal is not bad (a sentence which I hope I’ll never utter again in any context!!). But the lack of autonomy is a serious problem. I tried to do a quick search to see what percentage of an average portfolio is going into the porn industry, but I couldn’t find good numbers. But I would like that kind of statistical info before giving my approval. That’s why we’ve been investing with Ave Maria Funds. Again, I agree with you that index funds are not inherently immoral, but that doesn’t make them inherently good either.

Which leads to my next point. Albert and Aquinas, writing 800 years ago, are pro market price. That’s fine, but you fail to acknowledge the ways the market is different now than it was in their time. The index funds are a prime example: capital is considerably more fungible now than it was in their time, leading to issues that they did not anticipate. Should an item be sold at market price if the sellers have established total control of the market? Didn’t that hedge fund this winter try to pull this, and artificially lower the market price of Game Stock, before they were foiled by Reditters? But the point is, the market price cannot remain the only consideration regarding morality when investors have gained so much more control over how these things are set. All the ways capital is different from medieval times would have to be considered before we can accept Aquinas and Albert’s teachings out of hand.

John

Sebastian Garren

Education, Philosophy, Rationality

Category Archives: Economics