Tuesday, January 27, 2009

Crime and Punishment

Over here is a discussion on what should happen to Bernie Madoff. Posit that he's guilty, I don't think there's much doubt of it. The author is calling for "cruel and unusual" punishment, and asking for suggestions. I'm sure he'll get many. Some will probably be morbidly amusing, some will be just morbid, perhaps a few will be insightful. Some will want him dead, others will want him in prison for the rest of his life. Interesting that the solution to someone who's stolen $50 billion is to have his food, shelter, and clothing paid for for the rest of his life by me, you, and the rest of us. (Please don't misunderstand, I think that punishment of criminals, including incarceration, is one of the few completely justifiable uses of taxpayer money, and Madoff's is an entirely appropriate place for it. I do think it gets over-used, and when someone commits a crime that harms no one but themselves, it does an injustice to us all. The criminal is harmed, the nation is deprived of whatever value the criminal could have otherwise provided during his incarceration, the taxpayers are harmed by having to support him, and we are all harmed by the loss of freedom embodied in the law)

I've always been fascinated by what people call for when it comes to the punishment for crimes. Entirely reasonable people can have wildly divergent views of what is appropriate, views so different that they simply cannot fathom the opposing point of view. Whenever intelligent and thoughtful people disagree so strongly, there's usually something interesting at the root of it all. In this case, I believe that people have fundamentally different opinions on the purpose of criminal sentencing. I can see four basic purposes for criminal sentencing: rehabilitation, revenge, deterrence, and prevention. People will generally weigh one or two of those very heavily, and often don't even acknowledge the existence of the others. This is what leads to the disjoint.

Rehabilitation is generally based on the idea that there is something about a criminal that caused him to commit his crime. Moreover, it's based on the idea that whatever that thing is, it can be changed. Perhaps he doesn't realize that what he did was wrong, or the harm that it did. I don't understand people who do not recognize that harming others is fundamentally wrong, but I acknowledge that they exist. I find it hard to believe that they can be made to understand, but perhaps there are some that can. The difficulty comes because it's difficult to distingush between those who cannot learn and those who merely haven't. If rehabilitation fails, is it because the dosage is too low, or is it the wrong medicine? There's another form of rehabilitation which is a bit trickier. If a person has no skills that he can use to acquire gainful employment, he may have little choice but to commit crimes. Crime may not pay, but it is always hiring. If such a person is given training in useful skills, then upon his release he will have an actual choice: continue to support himself by crime, in which case he falls into the former category of people who don't understand that crime is wrong; or he supports himself by creating value, in which case everyone is better off because of it. So here we have a conundrum. We can see that there is a subset of the population for whom the only path to becoming productive members of society is via crime, followed by arrest, sentencing, rehabilitation, and finally, hopefully, employment. This is far from optimal for anyone involved. It would certainly be nice if our education system produced people fit for immediate employment on graduation, and in most cases it does, but far too often it completely fails in this regard. There may be solutions to that problem, but most of the proposed solutions are either ineffective, unpopular, or both. Once the education system has failed, the next best hope is an employer who is willing to train. Unfortunately, there is a strong disincintive for any business to hire someone who is unable to create sufficient value to offset a minimum wage salary. The solution to that problem is both obvious and widely unpopular.

Next we find revenge. Here is where you will find the calls for cruel and unusual punishments. Here is where you see people clamoring for "an eye for an eye and a tooth for a tooth," at least whenever such a thing can be done. Revenge is impractical, illogical, and emotional, but very popular. It doesn't resonate with me (although I certainly feel sympathy with the victims of crimes), so I can't speak much to the underlying motiviations for it. The distinguishing characteristic here is that those who clamor for revenge often care little for rehabilitation, and in fact are often strongly opposed to it. Their primary concern is that the criminal must be harmed proportionally to his crime. I do feel that it is worth noting that much of the purpose of systems of justice lie in the prevention of revenge. Victims are not given the task of sentencing. The judges and juries who have that responsibility are, we hope, impartial.

Deterrence is somewhat similar to revenge, but the purpose is different. In a way, it is revenge made practical. Unlike both rehabilitation and revenge, which focus on the criminal, deterrence focuses on other potential criminals. It provides punishments severe enough that those who may consider commiting a crime are given a reason to reconsider, in their own best interests. While both are certainly laudable, deterrence is often at cross-purposes with rehabilitation. I found it very interesting to see the distinction in the different views during a, shall we say spirited conversation that followed a rather crude joke involving prison rape. For an advocate of rehabilitation, such a thing is completely offensive. There is no way that prison rape is in any way beneficial to rehabilitation. For the advocate of revenge, perhaps it's seen as a justified part of a criminal's punishment. If the purpose of prison is to be horrific, then that certainly qualifies. However, for the advocate of deterrence, the most important thing is the perception of prison as a horrific experience to be avoided at all costs. For that person, even if prison rape is (rightfully) considered abhorrent and should be prevented if at all possible, joking about it is actually beneficial, as it increases the percieved detriment of a prison sentence. It's easy to see how a pure advocate for each of these purposes could completely fail to understand the others.

Prevention isn't exactly the right term, so let me explain what I mean. A thief who is in prison is unable to steal, so long as he remains in prison. Or at least, he's only able to steal from his fellow inmates. Prevention in this sense has only limited utility, and is best when combined with rehabilitation. The thief is prevented from stealing by incarceration until such time as his rehabilitation is complete and he no longer has a desire or need to steal. For more serious crimes, where rehabilitation fails, prevention may be the only solution. For a serial killer, incarceration may have elements of revenge and deterrence, but it also has the practical effect of preventing the criminal from killing again. In this sense, capital punishment can be viewed as a form of permanent incarceration with no chance of parole, pardon, or escape. Unfortunately, capital punishment is usually viewed, both by its advocates and its detractors, as purely a vehicle of revenge.

So now, in light of all of that, lets return to Bernard Madoff. Besides his fraud, he was a successful businessman, so I seriously doubt that employment rehabilitation is of much use in this case. I suspect that he knows well that what he did was wrong. I also get the distinct impression that he didn't care, and probably never will. Thus, rehabilitation seems a bit pointless in this case. I'm not sure that he understands that what he did was also stupid. He is a businessman. He certainly should understand that entering into a business whose only viable exit strategies are death or prison is just plain stupid. Revenge is popular, and that is where we see the calls for cruel and unusual punishment. His crime was certainly unusual in its unprecedented magnitude, but it wasn't particularly cruel. While he certainly harmed many people, he didn't physically damage anyone. Yes, there has been one suicide, which certainly seems to me a gross overreaction to any financial calamity. Some people lost nearly all they had. As a side note, those people will hopefully act as a deterrent themselves. Hopefully someone will learn the lesson that diversification of one's investments is an important protection against many things, including but not limited to gross fraud. Acting as a teacher in such a way certainly doesn't diminish the magnitude of the fraud Madoff committed, but I do hope that at least some good came of it. As a deterrent to potential frauds of the future it's certainly important that Madoff be sent to jail. Given the stupidity of his actions, and the fact that few are ever in a position to be able to commit fraud of this magnitude without first being elected to congress, I don't know how much of an effective deterrent his punishment may be. Will a street-corner con man be given second thoughs by Madoff being handed a life sentence? Probably not. But for those few people who are in a position to commit fraud on a grand scale, I'd certainly like to see the message sent that such acts will be dealt with harshly. And then there's finally the aspect of prevention. I don't know what Madoff's sentence will be. It certainly should consist of at least the loss of all his assets and a significant time in prison. Given that he's 70 years old, any reasonable sentence will most likely be a life sentence. But I will say this: if he ever is released from prison, I do hope that at least one special condition is attached to his sentence. I hope that he is legally prohibited from ever changing his name. Given the publicity and magnitude of his crime, that should certainly prohibit anyone from ever trusting him enough to ever let him commit a similar fraud.

Sunday, January 4, 2009

Economic theory, part the first

First off, let me say that I am not in any way a trained economist. This may be a significant disadvantage when formulating an economic theory, or maybe not. It's entirely possible that my ideas are taught to every economics student in Econ 101. It's entirely possible that they are taught as an example of how to be horribly, terribly, wrong. Of course there's always some small chance that I'll think of something both novel and interesting. I wouldn't bet on it myself, but I do hope that it will be at the very least interesting and thought-provoking.

Some time ago, I was thinking about the nature of value. I thought some about what goes into anything of value. I wondered where it came from. This led me initially past the labor theory of value. I thought that it would be possible to dissect the value of a thing down to its component parts, which are necessarily some combination of labor and the use of land. While true that all value derives from these things, it didn't seem particularly useful to think in those terms. The price of a thing is what the market will bear, and if you happen to be wandering across your small property and stub your toe on a diamond the size of a baseball, the market will bear a high price for it even though you've put very little labor or land towards it. On the other end of the spectrum, though you may spend weeks putting a fine polished shine on a ball of poop, unless you're the Mythbusters, the market will probably be uninterested.

It was at this point that I came to a realization. That realization is that I was conflating several related, but distinctly different concepts. These concepts I will refer to as cost, price, and value. The value of a thing is the most subjective of the three. At an individual level, it is what someone is willing to pay to acquire a thing. On a population level, it is a distribution curve of what people are willing to pay for a thing. This is related to demand, and when combined with what people or populations are able to pay for a thing is related to effective demand. On the other side lies cost, which is most closely similar to the labor theory of value. While value is defined on the side of the buyer as what he is willing to pay, cost is defined on the side of the seller as what he has already paid. For a person providing a pure service, it is the labor he provides. For the builder, the artisan, or the machinist, it is the cost of his raw materials plus the labor that he adds to them to craft his work. For the pure trader, it is the cost he paid for a thing himself, plus any labor he has expended in the process of executing his trades. The third component is price, and this is what the market will bear. From the perspective of the seller, he has the freedom to set this as he sees fit, but his realistic constraints are that it must not be higher than the effective value assigned to it by his potential buyers, else he will not be able to sell it. It must also be above his cost, else he will incur losses with each sale. This is a situation which cannot endure. With a population both of sellers and buyers, this will also form a distribution curve. A post for a different day will hopefully contain pretty graphs to illustrate this, as soon as I can find the right software to show what I see so clearly in my mind's eye.

Note that these three distributions form one point in an overall flow of value. In general, a flow of money in one direction will induce a flow of value in the other. This value may be created, consumed, or pass through an individual. So a thing may be created at a labor cost to an individual, who will then assign it a price according to the value buyers place on it. That price then becomes the buyer's cost, which he will use to assign his own price. This flow in its own right has interesting analogs to electrical flow. When a current flows from one end of a wire to another, electrons do not move the entire length of the wire. Similarly, a flow of money in one direction (note that a particular dollar, much like an electron, does not make the whole trip) will induce a flow of value in the other, but that value does not necessarily flow all the way through. There is a certain flexibility in the value flow, corresponding the the capacity of each individual in the chain for saving and debt, but generally a person will consume value at the same rate that he creates it.

Note also that I use the term person loosely. I say individual, but is could be a family, a company, a town, or a nation. I suppose in theory you could go the other direction and analyze cellular economics, but as metabolic processes operate purely on the barter system, things become a bit more muddied and are probably best left to biologists and chemists.

And finally note that there is no particular point that I am trying to make here, it's merely a bit of insight as to how I see economics, and a reference that I can use in later posts on related topics.

Saturday, January 3, 2009

What this country needs

Now there's a broad topic not amenable to brief enumeration. Nor am I going to attempt to fully enumerate it. What I have here is a proposal for one specific thing that's needed by this country (or some country, or some state, or somewhere). What we need is a card, or badge, or some sort of certification guaranteeing the holder's acceptance of personal responsibility. Of course, I would hate to see any private business forced to change their behavior when presented with this card, but I would like to see government change its behavior with respect to it, and I'd certainly like for businesses to do so as well, preferably without the use of force. The card might not necessarily be free, but instead require that some funds be held in escrow to back up one's responsibilities. Let me see if I can enumerate some of the courtesies I'd like to see extended to cardholders:
  • Seat belts and motorcycle helmets come directly to mind. Some fraction of the escrow funds would be set aside so that, in the event of an accident in which a cardholder was not wearing his seatbelt, any damages his body caused to anyone else's property after it was flung from his vehicle would be compensated. The remainder of the escrow funds would be available to any hospital which wished to treat the cardholder. I'm not entirely sure what should happen when the escrow runs out. If the hospital wants to stop treating the cardholder and let him die, that's certainly always acceptable. If the hospital continues to help the cardholder, I'm not sure if it should be understood that they're doing it on their own dime, or if they should be able to, if successful, bill the cardholder with the understanding that he may be unable to pay, or if there should be a notation on the card as to the cardholder's wishes in that situation. Note, of course, that being a cardholder does not in any way preclude one from wearing a seatbelt or helmet. Were I a cardholder, I would probably wear both (though probably not at the same time). It merely means that I have a choice, and will accept the consequences of that choice.
  • A chardholder should have the freedom to order a rare hamburger. Not all restaurants have to comply. I certainly wouldn't expect the local fast food joint to go out of their way to accommodate a cardholder, but if a restaurant offers a choice of how a burger is cooked, and a cardholder orders it rare, that's how he should get it. If the response to a rare order is "I'm sorry, we can't serve it that way because overcooking reduces the risks of salmonella (it does), mad cow disease (it doesn't) and evil spirits (who knows? It might)," then the cardholder should be able to respond with "Here's my card. I accept those risks. Bring me a rare burger or a better excuse." I would also add to this the decision to have tomatoes on said hamburger during a country-wide salmonella outbreak that may involve tomatoes. At some point long ago, the phrase "one in a million" was used to denote an occurence of extreme unlikeliness and miniscule probability. Apparently, since that time, a one in three hundred million chance of death (or one in 1/4 million chance of illness) is such a phenomenally high risk that I cannot be permitted to run the risk of enjoying said fruit on my salad.
  • A cardholder would be permitted to make investments that might be financially risky. To some extent, this is already done. The SEC and other such bodies have a concept known as a "qualified investor". Such a person is so wealthy that it is assumed (probably rightfully so) that he or she has an understanding of the trade-offs of risk and reward inherent in investments. It is my understanding that some of the current financial unpleasantness stems from people who were not qualified investors investing in institutions that were qualified, who then turned around and put that money into investments that were significantly risky. When those investments failed, so did the qualified institutions that had invested in them, and the unqualified investors in those institutions found themselves faced with the unfortunate results of a risk they were unaware that they had been taking. If we replace the financial qualification with a personal responsibility qualification, then there is no longer a need for the institutional middle-man, and anyone who is willing to personally accept the consequences of a failed risk is permitted to do so.
  • Cardholders should have the authority (commensurate with responsibility) over how to treat the ills of their body. They should also have the authority to define what they consider to be ills. This is fairly straightforward at the core, but gets to be more controversial at the edges. Treating a headache with an analgesic is simple. Deciding not to treat a serious illness is more complex. Treating a terminal illness with an untested therapy is more complex. Considering sobriety as an illness for which there is a readily available cure is more complex. Knowing that smoking will kill you and doing it anyway is more complex. The response to these is so often "but he'll get sick, or get sicker, or die". While true, this is irrelevant. It's easy and simple to chose the option that is both popular and right. Having the freedom to make the wrong choice requires the authority to do so, and having that authority should only require the responsibility to face the consequences.
The card should absolutely not give its holder complete freedom to do anything he or she wishes. Specifically, it should only give the freedom to take actions whose consequences will be borne by the cardholder alone. Cardholders should not have the freedom to harm someone else. They shouldn't even have the freedom to indiscriminately destroy other's property, even if they will bear the responsibility of replacing it. They shouldn't have the freedom to put other's lives or property at significant risk. The scenario that comes to mind is when a person is either impaired or merely reckless while operating a potentially dangerous device, such as a motor vehicle, a firearm, or Congress. While in general I feel that negligence should merely enhance the severity of a crime once provable damage has actually been done, there comes a point where a sufficiently increased risk becomes its own form of damage. It's unfortunate that the exact location of that point is difficult to quantify.

Friday, January 2, 2009

Non-metaphorical pie

Having used pie as a failed metaphor for economic equality, let me consider for a bit some real, actual, tasty pie. A while back, I tried my hand at making some chicken pot pie. It was horrible, but instructive. My second one was pretty tasty, and they've been good ever since. So, in the pursuit of incremental improvement, I made some small changes. The result was that my last pot pie was fantastic. But now that leaves me in a quandary, because I realize that, without meaning to, I changed just about everything. Instead of chicken, I used turkey, because it's a turkey time of the year. Instead of carrots, celery, and onion, I used carrots, celery, and leeks, because I had some lying around and thought they'd be tasty. The vegetables looked a bit dry when I was cooking them, so I made a cup and a half of b├ęchamel sauce instead of the cup that I usually use. And then there's the crust. Unbeknown to me, my wife did not realize that I'd brought home two distinct bags of flour from the last grocery trip. After noticing that the piecrust cookies I'd made with the leftover crust were most especially chewy, I checked the pantry, and sure enough, there was a bag of all purpose flour there. Which means that the bag of bread flour is what ended up going in the flour canister, and thus into the crust.

So I am now left with the dicision: Do I accept that I've made a clean break to a new recipe, and stick with it? (which means, of course, that pot pie will necessarily become the terminal end of the life cycle of a roasted turkey. And means that if I want a pot pie, I'll have to roast a turkey.) Or do I experiment with ingredients, varying them individually to find out, for example, the partial differential tastiness of pot pie with respect to the leek axis? In doing so, I would almost certainly subject my family to inferior pie. But is that too high a price to pay for the chance to discover the Pot Pie of Maximal Tastiness? Perhaps it is, perhaps not. My dilemma is manifest.