October 24, 2008

The moral inefficiency of prostitution bans.

This article on the Guardian's 'comment is free' site made interesting reading. The article got me thinking about the constant argument between those who want prostitution banned outright and those who want it regulated. As a libertarian I personally don't have any interest in interfering with what other people choose to do with their bodies or what people choose to pay for, as long as no coercion is involved and no third party is harmed. I do find it amusing how many feminists think that a womans 'right to choose' is founded on self ownership but that principle somehow no longer applies when said ownership is used to offer sex for money rather than to abort foetuses.

I also think that the need for physical intimacy is universal, and found among the disabled as well as the able-bodied, the physically repulsive as well as the beautiful and the socially inept as well as the charming. There are many many people who live lives of intense physical and psychological loneliness and who are for whatever reason unable to form satisfactory relationships. To wish to deny such people whatever brief respite and fleeting comfort that they may find with a sex worker out of some misguided sense of moral righteousness seems pig-headed and obnoxious to me. Furthermore I think legalisation leaves the women in question far less vulnerable to exploitation than they would be otherwise.

Thats MY opinion. I appreciate however, that not everyone agrees. So for the purposes of this argument I am going to look at the other side. 'Lana,' the sex worker in the article is not a drug addicted abused teenager in the grip of a violent pimp. She is a university educated single mother, who has decided that prostitution is a preferable source of income to the available alternatives such as secretarial work, mainly because it provides independence, superior income and more time with her children. Her clients are by her account not abusive but generally polite middle aged businessmen. Nevertheless lets accept for the sake of argument that its EVIL. Quite what form that evil takes, I'm not sure. Perhaps the transaction leaves deep psychological damage in both client and prostitute that will take years to reveal itself. Perhaps she is corrupting the morals of her entire community and leading them onto the path to licentiousness and decadence. Perhaps if enough Lanas ply their sinful trade in central London Yahweh, Allah or Jehovah will come from the sky and do a Sodom and Gomorrah job on the whole city. Whatever. I don't care. We'll just take it as read that its EVIL.

But is it the most EVIL thing imaginable? It stands to reason that if Lanas entirely voluntary and noncoercive transactions with her clients are evil then what happens to women who are brought to this country to be exploited and live in near slave like conditions under brutal pimps is far far more evil.

Anyone who would try to ban prostitution would have to be pretty optimistic about the power of government to do stuff generally. A desire to stamp out the world's oldest profession is nothing if not ambitious!

By banning Lana from plying her sinful trade you either force her underground or make her give up and go back to her lower paying profession. Either way you forfeit tax revenue. Less tax means you can do less stuff. Stuff such as going after and prosecuting the sex traffickers who are commiting far worse acts.

Any way you look at it, from the point of view of reducing the total amount of evil going after Lana is inefficient

Of course there are many ways you could spend the higher tax take produced by the legality of prostitution to reduce the total amount of EVIL. Alternately you could invest the money in GOOD (cancer research, third world aid, bibles in hotel rooms, organic vegetable subsidies... whatever floats your moral boat) and thus improve the GOOD/EVIL ratio. The point is that by declaring prostitution illegal you are essentially saying that it is SO evil that regardless of how highly it is taxed the GOOD thus generated can never outweigh the EVIL produced.

The humbling of Alan Greenspan

Wall Street's erstwhile spiritual leader has shed his cloak of fiscal infallibity this week

Alan Greenspan has admitted that his thinking about quite fundamental aspects of financial markets was mistaken

According to the Washington Post
The former chairman of the Federal Reserve said that the crisis had shaken his very understanding of how markets work...

In the space of mere months, Greenspan has gone from world guru of high finance and darling of the political elite to being compared to Bill Buckner, the Red Sox first baseman whose infamous fielding error cost Boston the '86 World Series.

In reality is seems probable that Greenspan is neither God nor Goat but simply a victim (like the rest of us) of assuming that the regularity of his fiscal models would be matched by a corresponding regularity in the real world. We are all vulnerable to discounting the possibility of events of great impact and rarity in favor of the seductive regularity of averages. As pattern seeking creatures such biases seem pretty much hardwired into our cognitive architecture.

In fact it seems like the last few months of financial history are playing out as an utterly perfect illustration of the arguments advanced by Trader-Philosopher Naseem Taleb in his books Fooled By Randomness and The Black Swan.

I'm not sure what I found more shocking, Alan Greenspan's utter humility in the face of a crisis
that seemingly calls core aspects of his belief system into question

"You found that your view of the world, your ideology was not right, it was not working?" said Rep. Henry A. Waxman (D-Calif.), the committee chairman.

"Absolutely, precisely," Greenspan said. "You know, that's precisely the reason I was shocked because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

Or his subsequent hubris.

"We have to recognize that this is almost surely a once-in-a-century phenomenon," Greenspan said,

Think about that. An 82 year-old man has just conceeded that the events of the past few weeks call into question fundamental assumptions, underpinning his entire professional life and body of work . Despite this, he is then willing to prognosticate with a fair degree of confidence, regarding the frequency of what we have just witnessed. Given that this is pretty much unanimously agreed to be unprecedented, we have exactly ONE data point. And from this we can work out the likely frequency of such events occuring in the future, how?
How do we know it is a once in a century deal? Perhaps this kind of thing happens on average once every twenty years or so and we have got insanely lucky over the last century. On the other hand perhaps it is staggeringly rare and only something we can expect to see once a millennium.

Is pretending to know the unknowable and proceeding to construct a brand new house of cards around that make believe knowledge on the ruins of the old, really the most advisable course of action? The question was not sarcastic I just don't know.

Such arrogance in the face of failure reminds me of a very similiar attitudes following the collapse of the ill-fated hedge fund Long Term Capital Management. (LTCM) Naseem Taleb covers the story in Fooled by Randomness

The market is very risky — far more risky than if you blithely assume that prices meander around a polite Gaussian average [i.e., the bell-shaped curve].

Anywhere the bell-curve assumption enters the financial calculations, an error can come out.

In 1993, [Scholes and Merton] joined some heavyweight Wall Street bond traders in the creation of a new hedge fund, Long-Term Capital Management... The had at one point twenty-five PhD's on the payroll... In August 1998 the Russian government defaulted on its bonds, triggering a market meltdown. LTCM... was stuck without buyers... In the end, several banks reluctantly agreed to bail out the fund... only at the behest of the Federal Reserve Board, which was concerned about a wave of bankruptcies if LTCM went under.

[Merton and Scholes] made absolutely no allowance in the LTCM episode for the possibility of their not understanding markets and their methods being wrong. That was not a hypothesis to be considered... The fact that these "scientists" pronounced the catastrophic losses a "ten sigma" event reveals a Wittgenstein's ruler problem: Someone saying this is a ten-sigma either (a) knows what he is talking about with near perfection... or (b) just does not know what he is talking about... and it is an event that has a probability higher than once every several times the history of the universe. I will let the reader pick from these two mutually exclusive interpretations which one is more plausible.

Incidentally it also strikes me that Alan Greenspan is absolutely the wrong person to look to for advice about this particular crisis, not because I necessarily think he is wrong, or to blame for it, but because it seems to me that to asking a man in his eighties to objectively consider
whether or not, current events invalidate his entire lifes work is asking for the superhuman.

Maybe the most appropriate advice is found not in the pages of John Maynard Keynes or Milton Friedman but in William Shakespeare.

To paraphrase Hamlet, 'There are more things in heaven and earth, Horatio than are dreamt of in your (economic) philosophy.'

Overconfidence that our understanding of things matches the real world seems to be at the root of a lot of tragedy.

So much of todays knowledge may prove to be founded on quicksand tommorow.

How much of todays corpus of economic and financial theory reflects an underlying reality in the external world and how much of it is mere mathematical masturbation? I don't know and I don't think the experts know either.