Home Finance When should we surrender to others?

When should we surrender to others?

by trpliquidation
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When should we defer to others?

Based on the indicators I look at, I expect PCE inflation to be well above 2% over the next five years. On the other hand, market indicators such as TIPS spreads point to expected inflation of roughly 2%. Which view should I trust?

I would say both. If I didn’t give weight to my own (internal) view, and if others behaved the same way, then it would be impossible to form an efficient market forecast. At the same time, the market forecast includes the ‘wisdom of the crowd’ and is therefore probably superior to my own view.

If I’m rational, I should give more weight to the market forecast. So if my view from the inside calls for inflation of 2.5% over the next five years, and the market expects inflation of 2.0%, then I could rationally form an “outside” of inflation of about 2.1 %.

Ten years ago, Bryan Caplan posted about whether we should obey unjust laws:

Philosopher Michael Huemer new essay on jury nullification presents a more convincing position on civil disobedience. . . Huemer’s criticism easily extends to civil disobedience in general. The fact that people often break just laws is a weak argument for obeying unjust laws. The proper remedy for abuse is a greater investment in moral reasoning, not blind obedience to unjust laws or masochistic submission to unjustified legal punishment.

I have no problem with people breaking unjust laws, but I would like to warn. It is very difficult to know which laws are unjust. The fact that a law has been enacted by a legislature proves that many people view the law as justified. I worry that potential lawbreakers will give too little weight to the possibility that they are wrong, just as too many investors give too little weight to the view that their predictions may be less optimal than the market forecast.

There are actually two good reasons to obey apparently unjust laws:

1. The wisdom of the crowd: Most laws (not all) reflect the opinion of the majority.

2. Chesterton’s Fence: Laws can have benefits that are not immediately apparent.

When a rational person attempts to determine whether a particular law is unjustified, he must give substantial weight to the fact that the law exists.

On the other hand, this does not mean that there is never any point in ignoring unjust laws. The fact that the law exists is not the only information we have. It is also possible to learn something about why the public supports a particular law. Suppose that in conversations with people about the possibility of legalizing the sale of kidneys, you find that the biggest objection is the fear that this would create a black market. (I’ve come across this argument many times.) Readers of this blog presumably understand that black markets arise when transactions are prohibited, not when they are legalized. At the very least, this information should allay your concern that there might be a ‘Chesterton Fence’ argument against selling kidneys. Yet you would like to know more than just the objections of the man or woman on the street; you would like to know more about the views of medical ethicists.

I can easily dismiss the views of people who worry about a black market in kidney sales. It is more difficult for me to refute the objections to the legalization of drugs. My inner opinion is that there are not many people who desire to become addicted to fentanyl and who are held back by the ban on fentanyl use. But maybe I’m wrong, and indeed, many smart people have exactly that fear of legalization. And the fear is not clearly irrational; a good argument can be made that the legalization of sports betting has significantly increased the number of sports bettors. On the other hand, while I have met many people who told me they like to bet on sports, I have never met anyone who expressed a desire to become a fentanyl addict. And for most of American history, drugs like heroin and cocaine were perfectly legal. So the issue is uncertain. But if it turned out I was wrong, I might change my opinion on the legalization of fentanyl.

In summary, I disagree with both statements:

1. We must always obey the law.

2. We must disobey laws that, from our own personal perspective (our inner view), seem unjust.

Instead, we should view laws as unjust only when we have paid sufficient attention to the fact that our own knowledge is imperfect and that the consensus of society has determined that these laws make sense. That’s not easy to do. It’s like asking someone their own (internal) opinion on how talented a pop star is, and then asking them again, except that this time their answer should include the implication of the pop star’s reputation among fans and critics. If your second answer doesn’t change often, you’re not being rational. I wish more boomers had different views on rap music, both inside and out.

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