For those who don’t follow the economics and politics literature obsessively, Intrade is a market in bets on various kinds of predictions, set up to follow the conventions of a share market. As I’ve discussed quite a few times in the past, the efficient financial markets hypothesis in its strong forms, implies that markets like this should give a better (more precisely, at least as good a) prediction of things like election outcomes than could be obtained from studying polls, pundit predictions and so on. I’ve been sceptical of this, on the basis of casual empiricism and some concerns about whether the empirical tests I’ve seen are biased in favor of the claim being tested.

One thing I haven’t done until now is to enter the actual market to see how it works. I finally signed up, and discovered a few items of interest. First, thanks (I assume) to US laws against online gambling, it’s quite difficult for Americans to participate in the market, which is, at least for legal purposes, based in Ireland. You can’t use a US credit or debit card, and my attempts at a wire transfer from my US bank account failed. Australia has no such restrictions.

Second, and relatedly, the market is quite thin. If the managers of Presidential campaigns cared what Intrade said, they could shift the markets a long way for a very modest outlay. For example, shares in Ron Paul, with a $10.00 payoff if we wins the Repub nomination, are currently trading at 0.27, implying a 2.7 per cent chance. But a Paul fan who wanted to raise his estimated chances could push them up to 0.40 for an outlay of $1000 (there are about 3000 shares for sale at prices between 0.27 and 0.40).

Third, there’s no margin trading, which means in particular, that you need a lot of collateral to go short on a long-odds candidate (at least if I have worked out the system right). Selling short costs $10 a share, less the current price, so if I wanted to sell short $100 worth of Paul shares at the current price (that is about 400 shares), I’d have to put up nearly $4000. I had an elegant Dutch book worked out, betting against Paul and Huntsman (zero chance, in my view) to finance a bet against my preferred dark horse whose odds were equal to the sum of the first two. But that didn’t it work, so I had to just put down my money.  Over the fold, my trackside tip ….

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A standard theme in (propertarian) libertarian thinking is that personal freedom in matters such as choice of sexual partners goes naturally with economic freedom, defined as the lack of state interference with property rights. To summarise this in a slogan, “If you want to keep the state out of your bedroom, you should support keeping it out of your (and others) business as well”.  But this is not only a false equivalence, it’s self-contradictory, as can be seen by example.

Suppose A rents a house from B, who requires, as a condition that no-one in class C (wrong race, religion, or gender) should share the bedroom with A. Suppose that A signs the lease, but decides that this contractual condition is an unreasonable violation of personal freedom, and decides to ignore it. B discovers this, and seeks the assistance (or at least the acquiesence) of the state in evicting A. On a propertarian/contractual view, B is in the right, and is entitle to call in the state into the bedroom in question.

And, this is the fundamental problem. Is it A’s bedroom or C’s? If we understand the phrase in its normal sense, no-one including a landlord, has the right to tell you what to do in your own bedroom. But, from a propertarian viewpoint, C’s ownership rights over the bedroom, derived from and ultimately enforced by, the state, trump all other considerations.

Of course, this example stands in for many others like this one

If you really want personal freedom, you can achieve it only by constraining property rights.

Posted via email from John’s posterous

Inspired by Michelle Bachmann, I’ve been thinking about what a 6-6-6 response to Herman Cain might look like. Being multiply disqualified from seeking election to the US Presidency, I decided to put in as much work as Cain and his team appear to have done, but no more. Hopefully, the magic of crowdsourcing will turn this into a comprehensive blueprint. So, here are the basic goals, and over the page, some of those devilish details.

The aim of the plan would be
(a) Reverse pro-rich and anti-worker policy changes of the past three decades to reduce, by 6 percentage points, the share of market income going to the top 1 per cent.
(b) Increase, by 6 percentage points of national income, the personal income tax revenue raised from the top 20 per cent of the income distribution
(c) Reallocate, or use more efficiently, current public expenditure equal to 6 per cent of national income

The aim would be to raise post-tax incomes for those in the bottom 80 per cent of the income distribution by around 20 per cent, while making around 10 per cent of national income available for new or better public expenditure.

For reference, US national income is currently around $13 trillion, so 1 per cent is $130 billion.

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I’ve spent the day at a workshop on benefit-cost analysis where a lot of discussion is on valuing policies that reduce risks to life of various kinds.  US policy, for better or worse, is focused on  the idea of Value of a Statistical Life. Typically a policy that reduces  risks of death will be approved if the cost per life saved is below $5million, and not otherwise.  (There are similar numbers applied to publicly funded health care services, prescription  drugs and so on, usually per year of life saved).

A striking thing I found out is that anti-terrorism policies of the Department of Homeland Security are subject to  the same benefit-cost requirements as EPA  and Transport. But Homeland Security is only one way  the  US  government spends money with the aim of protecting Americans against attacks from terrorists and other enemies. Defense spending is far bigger and not subject to BCA, even though money spent on defense is money that can’t be spent on reducing terrorism risk through DHS or more reliably on reductions in environmental, health and transport risk

The numbers are quite striking. The ‘peacetime’ defense budget is around $500 billion a  year, and the  various wars of choice have cost around $250 billion a  year for  the last decade (very round  numbers here). Allocated to domestic risk reduction, that  money would save 150 000 American lives a year.

So, since 9/11, US defense spending has been chosen in preference to measures that would have saved 1.5 million American lives. That’s not a hypothetical number – it’s 1.5 million  people who are now dead but  who could have been saved. I think its fair to say that those people were killed by the Defense Department, or, more precisely, by the allocation of scarce life-saving resources to that Department.
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Yesterday in DC, the Martin Luther King memorial was officially inaugurated. I was lucky enough to be invited to a lunch celebrating the event afterwards, where the speakers were veterans of the civil rights movement Andrew Young, John Dingell, and Harris Wofford. Video here

There were some interesting recollections of Dr King and his struggles, but not surprisingly, much of the discussion focused on the events of today, particularly the Occupy Wall Street movement. One of the speakers made the point that the Tahrir Square occupiers had been inspired by the example and ideas of Martin Luther King.

Now, of course, the circle has been closed with the example of Tahrir inspiring #OWS. There has been more direct inspiration too. When I visited the Washington occupation in McPherson Square to drop off some magazines for their library, I picked up a reproduction of a comic-book format publication of the civil rights movement (cover price, 10 cents!), describing the struggle and particular the careful preparation given to ensure a non-violent response, even in the face of violent provocation.

And that brings me to the question I want to discuss, one that is as relevant today as in the civil rights era.  When is violence justified as a response to manifest and apparently immovable injustice? My answer, with Martin Luther King is: Never, or almost never.[1]

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