How Hedge Funds (Ab)use Human Psychology to Increase Profits

I am a professional trader. That means that I buy and sell stocks for a living. And since I am a so-called ‘day trader’, the buying and selling have to happen within one day. This means that I am extremely short term focused: I try to anticipate where a stock will be at within five minutes or an hour from now, instead of five years.

As a trader, you obviously want to buy a stock as cheaply as possible, and to sell it for as much as possible. But if you think that studying financial documents and finding out what companies appear undervalued will help you in trading, you are only very partially right. Much more important, I dare to say, is understanding and using human psychology. And when you zoom in from years to days to minutes to seconds, the more important human psychology becomes.

Let me give you an example of how big hedge funds (which I certainly do not belong to) seem to use human psychology to increase their profits. I say ‘seem’, because I cannot prove this. If only because I don’t know who is buying or selling at any moment in time (but I can see what hedge funds own what stocks, and when they bought/sold). But given my everyday experience with movements in price, and applying common sense, I am reasonably certain.

Suppose there is a stock trading a little above $3. Last time it went to $3, it recovered to $10 within three years, and to $55 within six. Last year the stock was priced at $10, and ten years ago it was priced at $55. Therefore it looks cheap (irrespective of the fundamentals of the company). Hedge funds assume that many people are willing to buy at this price. Assume that many people do. Now hedge funds, with practically unlimited financial resources, come in. They create a level of resistance in the price. They do so by offering a practically infinite amount of stocks at best offer (being the lowest price at which people are willing to sell the stock: $3,21 in Table 1). By doing this, they create an upper limit in the price, since before the price can increase, all the stocks at best offer have to be bought, which is practically impossible given that the hedge funds have so much selling power compared to the rest.

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Table 1: order book of stock

 

Now, since the price cannot go up, it will go down at a certain point. Be it because of algorithms trying to maintain certain correlations with indices, or because the hedge funds actively sell stocks at successive levels of best bid (the highest price at which people are willing to buy the stock: 3,19, 3,18 etc. in Table 1). Through doing this, the price will decrease to let’s say $3: a ‘psychological level’ in the stock. Many of the people who bought the stock thought it would never go under $3. Now people get anxious. Then the hedge funds give the final blow, and push through the $3. Now people start to panic – “maybe the stock will go to $2!”. They start selling the stock ‘at market’, meaning regardless of the price.

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Figure 1: Arcelor Mittal stock

 

Now the hedge funds can buy the stock for less than $3 from the people who are selling at market, either to go ‘long’ (to have stocks), or to cover their shorts. See Figure 1 for a graphical display of this chain of events. Combine this with the fact that high frequency traders (acting on behalf of hedge funds) can change the order book in less than the blink of an eye (thereby changing the quantities on bid and offer), they can very quickly change the price of a stock. The price of a stock is after all nothing more than the price paid for the stock in the last transaction: so if you very quickly pull away successive levels of best bid, the next person selling at market will do so at a (much) lower price, meaning that the hedge funds buy at a lower price than the general public.

Now the hedge funds have bought their stocks, they pull back, and let the market do the rest.

 

Why ISIS Is Ignorant, But Not Wrong

It is clear that we in the West do not agree with ISIS. We think that what they think is wrong, and more importantly: we think that what they do is wrong. They decapitate Western journalists, promote violence against people who don’t agree with their religious beliefs, organize terrorist attacks, and even destroy Iraq’s cultural heritage – statues that were over 5000 years old. How can they do this? Why do they do this? Is it due to their set of (religious) beliefs? And if so, can we then judge them for doing what they think is the right thing to do?

First a rather obvious observation: people from different cultures or societies have different ideas about what is right or wrong. This view is called descriptive moral relativism, and it’s a moderate, empirical claim, that is corroborated by reality. Look only at the people of ISIS, who think that what they do is spreading the true message of Allah, and who think that anyone who disobeys this message is wrong. They believe that they should stick to a very strict interpretation of the Islam, and that people who don’t do this, should be done away with. If not by words, then through force. We in the West clearly find their ideas about what is right and wrong absurd. Hence ISIS and us, clearly, disagree about what we find right and wrong.

We could go one step further than this claim, and say that ISIS and us don’t merely have different ideas about what is right and wrong, but that neither of us is more right or wrong than the other in having these ideas. There are many cultures and equally many ideas about what is right and wrong, but there simply is no absolute, culture independent interpretation of right and wrong.

And there is something to say for this so called meta moral relativism. After all, acts can hardly be judged wrong in any absolute sense; that is, without regarding the relevant context. Killing a person might seem wrong, but if you can save one hundred people by doing so, it might actually be a sin if you wouldn’t do it. So the context appears to matter for deciding whether an action is right or wrong. So it could in principle be possible that a culture’s or society’s set of beliefs, taken as the relevant context, genuinely determines whether an action is good or bad. Applied to the ISIS case: it is not only that they have the idea that destroying Iraq’s cultural heritage is right, but given their set of beliefs, it truly is the right thing to do. An equivalent way to say this is that what is right or wrong is determined by nothing but the idea of what is right and wrong. Hence, given that ISIS thinks that what they are doing is right, which I assume they do, their deeds are truly right – for them at least.

Let’s for the sake of argument assume that this meta moral relativism is a correct description of reality: that there truly is a plurality of interpretations of right and wrong floating around, none better or worse than the others. Then, applied to the ISIS case, we have to face a difficult question. Because if ISIS truly thinks to do what is right, how then can we judge them? Okay: we might have a different interpretation of what is right than they do, but we have just established that having a different interpretation doesn’t make their views wrong regardless of the context. Our conception of morality is just different from ISIS’s: different, but not superior.

And, playing the devil’s advocate, don’t we (the West) do exactly the same? It might not be the message of Allah that we try to spread throughout the world, but the message of liberalism and freedom. And we too are willing to go to great lengths to spread this message. History shows that countless of people have been killed because their actions didn’t cohere with our ‘right’ notions of freedom and liberalism – the Nazi’s being just one example.

So it appears that we cannot declare ISIS’s ideas and actions to be more wrong than ours – not while strictly assuming meta moral relativism. That’s a pity.

But there might be a way out. A way in which we can judge ISIS’s beliefs and actions to be wrong, without falling into the pitfalls of meta moral relativism. Because even though we might not be able to say that ISIS’s ideas and actions are absolutely wrong, we can say that ISIS is ignorant. We can say that they have not tried to actively refute their basic set of principles – the principles, derived from the Islam, that make their actions right. For if they would have done so, which I am quite sure they have not (because Allah’s words seem the most basic principles guiding their thinking, and even doubting these principles is wrong), it seems hard to imagine that they would have still accepted such principles.

So we can say that ISIS is ignorant, which in itself could be found immoral. But let’s not go there…

What do you think?

Why It Is Possible to Make Above Average Returns – Even in Efficient Markets

There is a well-known hypothesis in financial economics, called the Efficient Market Hypothesis (EMH), that spawns a lot of debate. The EMH states that financial markets are ‘informationally efficient’. In other words: a financial asset’s market price always incorporates and reflects all available relevant information. Hence no investor can consistently use such information to find stocks that earn him above average returns. After all: such information is already reflected in the asset’s price; so if there is a lot of ‘positive’ information about the company, the stock’s market price will have increased, and if there’s a lot of ‘negative’ information, the price will have decreased.

I want to make an argument why, even if the EMH holds, it might still be possible to consistently earn above average returns on investments. The argument is basically very simple. Let’s first recall the EMH. We know that an efficient market is a market in which the price of a financial asset (let’s say a stock) always incorporates and reflects all available information. Hence, you cannot benefit from the set of available information in such a way that you can consistently earn above average returns on investing in the asset – or any asset for that matter. But does it follow from this that you cannot consistently achieve above average returns? I don’t think so.

Because what if you are consistently better than other investors in anticipating future information? Then, even though the stock’s market price reflects all available information, you can utilize this anticipated future information to decide whether to buy or sell a stock. And if you can anticipate future information (which is information not yet incorporated and reflected in the stock’s price) better than the average investor, then you can earn above average returns, time after time.

This all sounds pretty abstract. So let’s look an example. Suppose there is a stock of a company that produces wind turbines – call it ‘stock A’. Furthermore, let’s suppose that at this point in time investors are on average not confident about wind energy’s potential. They might think that the cost of producing wind energy is too high, its profits depend solely on the current regulation, or that it will still take a long time before our fossil fuels are depleted, making the switch to wind energy not urgent yet. Given these considerations the stock trades at a price of – let’s say – 10. Let’s assume that this price indeed incorporates and reflects all available information – such as information contained in annual reports, expert analyses etc. Hence it seems reasonable to say that you cannot consistently earn above average returns on this stock by utilizing only this pool of existing information.

But what if you believe that, given the ever increasing energy consumption and ever decreasing level of fossil fuels, society has in the middle-long term no choice but to turn to alternative forms of energy – forms such as wind energy? If you think this is true, then you can anticipate that any future information about the wind-turbine producer will be positive – at least more positive than today’s information is. You can anticipate that the future information will show an increase in the firm’s revenues, or – for example, in case the firm is close to bankruptcy but you know that its managers don’t profit from a bankruptcy – a decrease in costs. Given that the market is efficient, you know that at the time this information will become public, the market price of the stock will increase to reflect this information, to a price of let’s say 20. If you can anticipate such future information consistently, then you can anticipate the future stock price consistently, allowing you to consistently earn above average returns – despite the perfectly efficient market.

An equivalent way to look at this matter is to say that you take into account more information than the average investor in calculating the stock’s fair value. Let’s say that you are doing a net present value calculation, and you have estimated the firm’s future cash flows. In case of stock A, investors used estimated cash flows that lead them to a fair value of 10. However, given your anticipation of future information, you estimate these cash flows to be higher – leading you to a higher valuation of the stock. Again: if you can consistently anticipate future information better than the average investor, you can consistently earn above average returns – even in an efficient market.

Why You Should Always Do What You’re Afraid To Do

Ralph Waldo Emerson said: ‘Always do what you are afraid to do.’ And this rule seems a reasonably good guide for self-improvement. Because it turns out that people are often afraid to do the things they are least familiar with. Whether is approaching a girl in a club, giving a speech to 50 people, or setting up a business: things make us feel anxious because we have little experience doing it. In such cases the anxiety often pushes you away from doing the thing, hence still leaving you clueless about what you will experience, or even further increasing your anxiety.

But there is something odd here: because the things that you are least familiar with provide you with the biggest opportunities to learn. After all: if you are not familiar with something, it means that you have little knowledge of it. It means that you are still at the start of the learning curve; that the ‘marginal utility per unit of experience’ is very high. Therefore, being afraid of something might be a damn good indicator that there is a lot of potential for you to learn about the thing. Hence it might be wise to always do what you are afraid to do.

This reasoning seems cogent, doesn’t it? But there is one problem with Emerson’s rule…it is not always true. There are cases in which fear should actually push you away from doing something – not pull you into doing something. Think about the fear of jumping of a building, or the fear of approaching a tiger. Given that you want to improve yourself, it seems unwise to jump of a building, or to be ripped to pieces by an angry tiger.

So the best we can do is to say that the rule is a heuristic: a guide in life, that points you – in most cases – to the areas in life where you can learn a lot. But how do you know in what cases you should act upon the rule, and in what cases you should realize that doing so might actually put you in danger? I think we have to distinguish between two kinds of fear here: socially conditioned fears and innate fears. The first are things such as being afraid to start a business or to make a move on a girl*: we have been told, or we have experienced at first hand, that such endeavours might cause emotional pain – even though they are not inherently dangerous. Innate fears, on the other hand, are things such as being afraid of tigers, which seems like a reasonable fear. Tigers are dangerous; despite your experiences with one. In other words: it seems that innate fears try to protect us from real threats, while socially conditioned fears don’t always do so.

Taking this into account, ‘Always do what you are afraid of’ is likely to make you learn a lot.

But what do you think?

*it might be true that socially conditioned fears are grounded in biology, hence being innate. If we take evolutionary psychology seriously, for example, it might be true that the fear to approach women is in fact innate. Hence there seems to be a continuum from innate to socially conditioned fears; not a categorical difference.

Why Discrimination Is Reasonable, According to Karl Popper

A while ago, I had a discussion with a friend of mine: we were talking about how people from different cultures interacted with each other. My friend claimed – and he was quite serious about it – that ‘All Moroccans are aggressive’. ‘How do you know?’ I asked him, ‘Have you met all Moroccans?’. ‘No’, he said, ‘but the ones I’ve met, were all aggressive’. Well that seems discriminating, doesn’t it? But while he said this, an idea popped into my mind: Karl Popper’s falsification theory. And I came to a rather unexpected conclusion…

You might have heard of Karl Popper. He is a big name in (the history of) philosophy of science. Popper was a proponent of a tenet called ‘critical rationalism‘, and he is best known for the notion of ‘falsifiability‘ he came up with, in which falsifiability refers to ‘the inherent testability of a scientific hypothesis’. Popper used the notion of falsifiability as a criterium to distinguish science from what he called ‘pseudo-science’, in which a pseudo-science would be any possible ‘science’ that makes unfalsifiable claims – claims that cannot be refuted. An example of an unfalsifiable claim would be: God exists. It is impossible, by means of empirical investigation, to falsify this claim. Therefore, according to Popper, religion – or at least this religious claim – is not scientific.

Given that there are unfalsifiable claims, there must also be falsifiable claims. An example of the latter would be: All swans are white. You can see why this claim is falsifiable: if you would come to see one swan that is not white, this claim has shown to be false. And even though you are unable to prove that the claim ‘All swans are white’ is true, you can prove that it’s not true – thus falsify it. The assumption underlying the notion of falsifiability is that, as long as a falsifiable claim is not falsified, it should for the time being be accepted. There is after all no reason to say it is false.

Now, let’s go back to my friend and his seemingly discriminatory beliefs. Because if you take a closer look, it appears that discrimination and falsifiability are two sides of the same coin. Why is that? Well, let’s assume that we would state the claim ‘All Moroccans are aggressive’ – like my friend did. This claim is clearly falsifiable: one not aggressive Moroccan is sufficient to prove the claim to be false. Now, let’s assume my friend and I go to a bar and meet a few Moroccans. And, as my friend expected, they are indeed aggressive. Thus far, Popper couldn’t blame my friend for holding on to the claim ‘All Moroccans are aggressive’. After all, the claim hasn’t been falsified yet.

The point being: doesn’t my friend apply the same method as is used in the sciences? Making bold conjectures and, based on data, either refute them or not? We don’t seem to have a problem with claiming that ‘All Swans are white’, until it has been proven to be false. So why would a claim applying the same ‘scientific’ methods, when applied to members of our own species, suddenly be discriminating? Isn’t it utterly reasonable to hold on to your claims until they’ve proven to be false? Or in the case of my friend: to hold on to his unfalsified ‘discriminatory’ belief?

Note that I am not claiming that discrimination is reasonable in itself. What I am claiming however is that we cannot accuse people of holding unreasonable beliefs if they (these people) haven’t been proven wrong in holding this belief. For example: although we might have had good experiences with Moroccans, they – my friend, for example – might not. And, given Popper’s theory, this makes their beliefs no less reasonable to hold than ours.

What do you think?

Come On People: Let’s Cut the Crap!

This is a plea against humanity and its deeply ingrained narrow-mindedness.

For as long as we can remember it has been the same old story: people have different beliefs –> people believe that only their beliefs are true –> people feel endangered by other people’s beliefs –> people find it okay to attack those who have different beliefs. This is the ever repeating cycle of human ignorance: a cycle we – apparently – cannot escape. Just when we think we’ve figured it all out, just when we believe peace is within reach, a new group of people takes over control and yells: ‘Listen guys: this is what we’re going to do.’ This is how far we have come as a species, and it pretty much seems like we have reached the limits of our capabilities: we simply cannot do better than this.

Instead of focusing ourselves on the real issues we earthlings could be dealing with, we are too busy feeling insecure and in need of protecting ourselves against other insecure and vulnerable people. While we could be treating each other as part of the same big earthly family, which could help us in protecting ourselves against the vast and unknown universe out there, our perspectives are so limited that we cannot even come to peace with the only ‘intelligent’ creatures we know: ourselves.

When will the time arrive that we will come to comprehend our ignorance and, which is one step further, accept it? Because only by accepting our ignorance will we be able to move on. Only by admitting that we are all the same in our journey through the absurd situation we call ‘life’, can we can shed of our cloaks of pretentiousness and appropriated authority, and come to treat the earth as our own little cosmic garden.

On a cosmic scale, we are nothing more than a group of particle-sized monkeys, fighting each other over whose banana tastes better. And although none of us has any idea of what ‘the best’ banana would taste like, we keep on acting as if we do. I am not going to beg you to throw away your banana, or to acknowledge that ‘taste is just in the tongue of the taster,’ but it would be so much better for all of us if we could just cut the crap and start making some progress. Let’s go people.

Why Economics Should Return to its Roots

Economics explains how people interact within markets to accomplish certain goals. People; not robots. And people are creatures with desires, animalistic urges that guide them into making conscious, but often unconscious, decisions. That sets them apart from robots, which act solely upon formal rules (If A, then B, etc.). But this difference between humans and robots shouldn’t have to be a problem, right? Not if economics takes into account the fact that humans are biological creatures, who (might) have got a free will; an observation which makes their actions undetermined and therefore unable to be captured in terms of laws.

It seems fair to say that we all want to increase our utility – in the broadest sense of the word. But do we always know why we want to increase our utility? Don’t we never ‘just want’ to go out, ‘just want’ to buy a new television, ‘just want’ to go on holiday? Yes we do: it seems that, sometimes, we just happen to want things: we don’t know why, we don’t have explicit motives for our desires. And if we – the people having the desires – don’t even know why we do things, how on earth could economists know, let alone capture these actions in laws? That’s only possible if you make assumptions: very limiting assumptions.

Rational choice theory is a framework used within economics to better understand social and economic behavior by means of formal modeling. But if this sense of understanding – that is possible only through formalizing humans’ behavior – is only possible by treating humans like robots, what then, on a conceptual level, is the difference between economics and artificial intelligence? Besides that the latter really works with robots and the former seems to assume to work with robots? Robots whose actions are fully predictable and explainable by a set of parameters: speed, vision, greediness etc. Or its formal economic counterpart: humans whose actions are manipulable by changing interest rates, government expenditures, taxes and other parameters that are part of the large economic machine we are all a part of. Assuming a mindless creature, following formal rules, makes it possible to capture his intentions in a formal corset. Everything should be dealt with in a formal manner: even uncertainty should be put in mathematical terms. Anything to make sure that we don’t miss out on any of the creature’s shenanigans. Even the ones that are grounded in the deep domains of irrationality.

But maybe it’s time to wake up and ask ourselves the question: have we come to forget what that we’re dealing with humans here? That the economy is not a steam engine, robot or any other mindless entity whose actions are fully explainable – let alone predictable. Have we forgotten that economics is a ‘social’ science, a science dealing with products of the human mind, related more to psychology than to mathematics?

It’s understandable that economics wants to position itself as being a ‘genuine’ science, a science that is able to objectively describe the way the world works. A science that wants to show that it is capable of capturing its findings in laws. But why should economics be dependent upon these kind of formalities in order for it to be a science? Isn’t it time for economics to stop being insecure? To realize that it’s beautiful the way it is. Why does it behave like an 18-year old girl, whining and crying about the girls who she thinks are prettier than her? Stop it economics! You’re pretty: be happy with what you are.

But this leads us to the real question: what is economics? Economics is – much like politics – a system created by the interaction between us human beings. A system that – although less explicitly than politics – is founded on the notion of morality: our ideas about what’s right and wrong. It’s no surprise that figures such as Adam Smith and Friedrich Hayek have been so influential in economics. They understood what economics was really about: economics is in the basis a philosophy of what it means to be a human being, and the fundamental rights that each one of us should have. This ethics is the starting point of their economic systems. And that’s a tradition current economists should try to continue: interweaving morality and money. Keeping an eye on the moral fundamentals underlying markets and coming up with original ideas about how to improve these markets on a moral level. So there’s plenty of work left to do for the genuine economist.

But what do you think?

Commercials: Not All Publicity is Good Publicity

Commercials: you’re likely to absorb hundreds of them per day, via media such as the TV, radio and internet. As I have written about in a previous article, the average person spends 1/24 of his life watching commercials on television. That’s a quite a lot, isn’t it? But I don’t want to focus on this act of wasting our lives by consuming useless material. I want to take a look at the effect of commercials, and of marketing in general, on the perception of a company’s brand. Most companies seem to believe that any publicity is good publicity. They seem to think that – no matter how bad a commercial might be – it’s always better to have a commercial than to have no commercial at all. But the question is: is this true?

When you’re watching television, and you see a commercial of a brand you’ve never heard of before, what will be the effect of this commercial on your perception of the brand? Marketers seem to think that they’ve increased your ‘awareness‘ of their brand, in the sense that – consciously or not – you now know about the brand‘s existence. And this might very well be true. But then the question would be: is all awareness good awareness? Or can awareness – as created by commercials – lead to a (more) negative (instead of positive) perception of the brand by the customer?

I believe it can. I believe that whenever people see terribly non-funny commercials (as there are plenty of) on television, they associate the brand promoted in the commercial with negative values such neediness, pity and lameness. I believe that the next time these people are in front of, for example, a supermarket they’ve just seen in an utterly non-funny (but intended to be funny) commercial, they will think to themselves: ‘Come on, I’m not going to support such a quasi-funny company’, and they’ll decide to skip the store. Even though these people might have entered the store if they hadn’t watched the commercial, or if the company wouldn’t have produced the commercial in the first place. But now they’ve got all kinds of negative associations with the brand, they decide to skip the store and go to another store – which might have less awareness but still more positive awareness than the supermarket of the commercial. And this goes not only for the supermarket-market, but for any other kind of market as well.

Customers usually don’t care about whether a brand is well-known – note that this doesn’t hold for clothing brands and other products that depend for their value to a large extent on marketing. We just want to buy a particular good or a particular service. And the only thing guiding us to a particular store is our perception of this brand/store. And if this perception is negative – which it very likely might be as a result of a bad commercial – you’d consciously avoid this store, and move to a next one. Even though the particular brand might have put a lot of money into its marketing efforts, they’re worse off than they would have been if they hadn’t launched the commercial.

Of course, marketing – including commercials on television and radio – can have a positive effect on a company’s brand and consequently on the sales of the company’s goods/services. But only if the company markets the relevant aspects of its brand, and not just launches a commercial for the sake of showing how ‘funny’ it is as a supermarket. Most people won’t appreciate that: the intelligent people might feel like they’re being treated like babies, and will therefore consciously avoid the brand, and the less intelligent people might not respond at all to this irrelevant kind of commercials.

If want to get people to your store (or make use of your service), you have to stay close to the product your selling, because that’s where customers are coming for or not coming for. Emphasize your low prices, your current actions/sales or your great service, and skip the bullshit. Then, and only then, can marketing attract – instead of scare away – customers.

But what do you think?

Milton Friedman’s Voucher Plan

More than 30 years ago – in 1979 – Milton Friedman and his wise Rose Friedman published the book Free to Choose, in which they made a (compelling) claim in favor of handing over authority to the free market, and taking it away from the government. The arguments they come up are profoundly grounded in empirical evidence, pointing at the inefficient and unequal spending of tax payers’ money on the ‘big issues’ of society (healthcare, Social Security, public assistance etc.). I want to focus at the expenditures on public education, about which the Friedmans say a lot, and in particular on the immoral and degrading effect this can have on citizens.

We humans are intelligent creatures. Some are – without a doubt – better equipped (mentally) for dealing with the whims of the free market than others, but still almost all of us are reasonably capable of fulfilling our needs in life. We can go the supermarket by ourselves, decide for ourselves what we want to eat for breakfast and dinner, and much more. The government doesn’t have to do this for us. We can decide for ourselves how we want to spend our leisure time: whether we want to go the movies or not. We don’t need the government to decide this for us. Not only because the government cannot know what each one of us wants – therefore inevitably being inefficient in the spending of its – or our – resources – but also because we know that we are intelligent beings, very much capable of making our own decisions in life.

And this intelligence of ours doesn’t have to confine itself to mundane decisions like how to spend our free time. We are equally competent in deciding for ourselves how we want to spend our money on more pressing issues in life: what hospital we want to attend, whether to assist our loved ones financially whenever the need might arise, and what school our children should attend. These issues are of such importance to our well-being – and our children’s – that, instead of putting the government in charge of these decisions, we should be the ones choosing what we consider to be best for our, and our children’s, future.

In 1979, the Friedmans noticed an upward trend in the government taking control of many of these decisions – decisions that, by the way, have a relatively big impact upon our financial resources. The most striking example of this might be the public financing of (elementary, secondary and higher) education. In 1979, the average US citizen paid 2.000 dollars per child that attended public education, even though not everyone’s child – assuming that you even have children – made use of public educational resources. The Friedmans found this state of affairs harming to the right of each individual to decide where to spend his money at, including the option to put one’s child at a privately financed educational institution.

Therefore they came up with a ‘voucher plan’: a plan in which every US citizen would – per child they have – get a voucher exchangeable for a certain amount of money – let’s say 2.000 dollars. They could cash in this voucher only if their child would attend an appropriate educational institution. This voucher plan would come in the place of the tax each US citizen is obliged to pay, irrespective of them having children and irrespective of their children attending a public educational institution. This plan would make sure that only the ones making use of pubic educational services would be charged, thereby excluding the non-using part of society.

The Friedmans made – primarily – financial arguments in favor of their voucher plan, saying that – on the whole – public educational costs would remain the same, and that parents would use their increase in autonomy to find the school that best suited the needs of their children. The relatively free market that would be created on the basis of the voucher plan, would improve the quality of both public and private education. I believe, however, that one argument in favor of the voucher plan, and the free market in general, has not received the attention it deserved – at least not in the Friedmans’ Free to Choose. And that argument has to do with human intelligence.

As pointed at above, humans are – for the biggest part – perfectly capable of deciding for themselves where to spend their money at. We wouldn’t want anyone else to do our groceries or schedule our leisure time for us – at least not for (our) money. But that is exactly what the government does when it comes down to public education. The government proclaims that – as the Friedmans explain – it is the only actor possessing the professional knowledge required for deciding what is best for our children – thereby implying that they are indispensable in order for our children to receive a qualitatively good education.

What this claim comes down to is the government saying – or not saying – that we (‘the crowd’) don’t understand what is important and what is not in regard to our children’s education, and that – because of that – they should step in and release us of this impossible duty of ours. We don’t understand what to do, but luckily they do. They are the father looking out for us, protecting us from doing harm to our children and to the rest of society.

I find this an insult to the basic level of intelligence the majority of the people has. We very well believe to know what is important in our children’s education – probably much better than the government, since, in contrast to the government, we know our children. Thus besides all the financial benefits of the voucher plan, by returning autonomy to the Average Joe, a voucher plan is required for respecting people’s intelligence. After all, we are no fools, are we?

What do you think?

Should State Media Stop Sharing Jihadi Propaganda-messages?

On the 23th of September 2014, the Dutch state television broadcasted a video-message of a jihadist in Syria. In this message he calls for his ‘Dutch brothers’ to support him in the war Islamic State fights against – among others – the United States. ‘If you cannot support us by coming to Syria,’ he says, ‘then at least do a severe deed in the Netherlands or Belgium.’

The full message takes 2 minutes and 43 seconds. The Dutch state television’s news-program – which is the most viewed TV-program in the Netherlands – broadcasted around 20 seconds of the message. So there he was: the jihadist in Syria, asking for Dutch people to support IS, and 1 in 8 Dutch people listened to his message. This raises the question: should the state television broadcast such a message? Doesn’t it, by giving a platform to these people, indirectly support these people? And if so, isn’t that weird, given that – at the same time – the Dutch military is fighting these same people in Iraq and Syria? Let’s take a look at these questions.

One could say that the state television shouldn’t do such a thing, because – by doing so – it gives a stage to a group of people that the state opposes. If a government is sending jets to fight a group of people in Syria, then this same government should not allow this same group of people to share its propaganda via the state’s own media. Furthermore, showing such messages – which are often violent in nature – might cause ‘the enemy’ to apply such violent measures again. After all: it worked the first time – in the sense that international media gave them free publicity. So why don’t do it again? This leads to the question: should the government want to support such violence? The obvious answer is: no.

Also, one could say, broadcasting such propaganda might cause messages most of us find wrong to be spread. The reason that a book like Mein Kampf is prohibited from being sold (in the Netherlands at least), is especially for this reason: because these ideas should – according to most of us – be banned from society. And so – one could say – it should be with jihadi messages. Therefore it is wrong for the state television to actively spread these messages.

So it seems clear, right? The state television should not broadcast such messages. But it might not be as clear-cut as it seems. For one could say that every person can think for himself, and that the government – or any news-agency for that matter – does not have to decide what is good or bad for us to hear. We can very well decide this for ourselves, after having heard the message. We are reasonable people, and seeing such a jihadi video-message does not compel us to support the messenger. And even it would compel us, what gives? Aren’t we free to decide who we want to support and who not?

Also, even though the content of the message might be ‘wrong’, it might still be newsworthy, and should therefore be distributed by the media. After all: people might find it interesting to know what is going on in the world around them, and seeing such a message provides them with a better informed perspective on the world. This cannot be wrong, can it?

I find this a difficult matter. What do you think?

Violence against Public Servants: Should It be Punished Harder?

ambulance

Should ambulance personnel receive extra protection from the state?

Ambulance personnel, police officers and firemen: people that, day in and day out, prevent our society from turning into a complete chaos. They support us so that we can live our lives without having to worry about our human rights being infringed upon. But what if these servants themselves become infringed upon their basic human rights? What if they are violated, both mentally and physically? There are governments, including the Dutch one, that have made explicit their intention to punish violence against public servants harder than violence against ‘regular’ (non-public servant) citizens. But, is this decision justified? And, more importantly, why would that be so?

Let’s think about it. You could claim that abusing a public servant is more severe than abusing a regular citizen because, by abusing a public servant, the perpetrator not only violates the rights of the servant but also the rights of the other members of society who are entitled to the services of the servant. After all, attacking the staff of an ambulance not only harms the ambulance workers, but indirectly also the patient that is (supposed to be) treated by these men and women. The same goes for police officers: abusing these men and women not only harms them, but also the citizens waiting to be helped by the police officers. Thus the physical or mental abuse of a public servant not only hurts the servants themselves, but also the citizens who are supposed to be served by the servants. And therefore, you could say, should the abuse of a public servant be punished harder than the abuse of a regular citizen.

Also, by abusing a public servant you are infringing upon what might be the controlling or correcting power of the state, which might be a violation in itself. That is, public servants are appointed to guard the laws we have set as a society, including the law condemning violence against other persons. Therefore, by abusing a pubic servant, you are not only attacking a member of our society, but you also resist the authority (ambulance personnel, police etc.) a (democratic) society has decided should safeguard our rights. Hence, abusing public servants is more wrong than abusing a regular citizen, and thus should be punished harder.

One the other hand, a public servant is just as much human as a regular citizen. Therefore, you could say, should the abuse of a public servant be punished equally hard as the abuse of a regular citizen. There is no reason why the live of a public servant would be worth more than the life of a regular citizen, right? Just because he or she fulfils a certain position within our society? Isn’t someone’s profession totally irrelevant when it comes down to our most fundamental rights, including the right not the abused by others? If that would indeed be the case, then there would be no justification for punishing the abuse of a public servant any differently from the abuse of a regular citizen.

Also, you could say, the abuse of a public servant is in no way a more severe violation against the state and its controlling power than is the abuse of a regular citizen. That is to say that the violation of another person’s well-being is just as much a violation of a fundamental right as would be the violation of the state’s controlling power, and thus should be punished equally hard. After all: the state’s integrity is no more important than any citizen’s integrity. Hence, attacking the former should be punished equally as attacking the latter.

Personally, I believe that both positions are well defensible. However, I consider the first position to be more reasonable. By taking away another person’s right to be saved or defended by a public servant, more parties seem to be hurt in abusing a public servant than in the abuse of what is ‘only’ a regular citizen. And surely, it might not only be a servants’ duty to assist other people when they are in need; you and I might be just as capable in doing that. This might cast doubt on the idea of granting them an extra form of protection. But that doesn’t change the fact that a public servant is explicitly appointed to fulfil this duty within our society; and that might have to be taken into account.

But what do you think?

What Is the Value of a Human Life?

People are getting older and older and demand better and better (medical) care. Also, advancements in technology and medical knowledge allow what once seemed to be incurable illnesses to be cured – or at least treated. These trends result in an ever increasing rise in the medical expenditures of countries. This begs the question: how far should we go in saving a patient’s life? What is the value of a human life? Should we be prepared to save someone at all costs? Or should we think about the financial consequences of our decisions? And if so, what is the (financial) limit?

There are several ways in which this question can be answered. One response would be that we should go as far as possible in trying to save a person’s life. That is, as far as possible given the boundaries set by our medical and technological knowledge. And although this might cost us (as a society) a lot of money, the money spent on saving a person’s life is nothing compared to the value gained by prolonging their stay on our planet; the emotional gain experienced by the person – and not to forget his family – is of an extraordinary value: a value that can impossibly be expressed in terms of money. Therefore any means available should be employed in order to let people experience (an extension of) life.

However, given that the value of a human life would be ‘impossible to express in terms of money’, why then should we come to the conclusion that – because of that – we should be prepared to save a person’s life at all costs? Wouldn’t that be a rather arbitrary decision? After all, given that (human) life is of a such value that it is inexpressible in terms of money, why then even bother to make the transition to talk about costs? If a human life would truly be invaluable, it would be just as nonsensical to talk about trying to save a person’s life at all cost as it would be to say that we shouldn’t be prepared to pay any money in order to do so, right? The value of life is after all of an entirely different dimension; irreducible to monetary terms in any sense – no matter whether this value is in millions or pennies.

Well, that seems a little radical, doesn’t it? Another option would be to say that we should go as far as could be considered economically reasonable. In welfare countries where civilians have to pay relatively high taxes, that for a huge part are gobbled by the nation’s medical expenses, it seems fair to not only think in the interests of the patient and his family but to also consider the economic prospects of the relevant patient. After all: would it be reasonable for society to pay a huge sum of money to save someone’s life, while the person being saved might be unable to ‘repay’ (in terms of making an economic contribution to society) the medical expenses in any sense? From a purely utilitarian viewpoint, this seems to be an unwise (and even a wrong) decision. Surely, it might be ‘fair’ to save the person’s life, in the sense that the person probably has paid taxes all his life (taxes that were used for paying the medical treatments of others). But that doesn’t change the fact that, at this point in time, it would be unprofitable/utility-degrading to pay for the patient’s treatment.

A solution to cover this seemingly unfair attitude – although it might sound counter-intuitive – would be to make people decide for themselves how much they are prepared to pay for saving a patient’s life. Subsequently, it would be this amount of money that the person would contribute (in the form of taxes) for covering the country’s medical expenses. However, the other side of this plan would be that, whenever the tax payer himself would have to be treated in hospital, this person’s treatment costs will be compared with the amount of money he contributed to society for covering its medical expenditures/saving a person’s life. Based upon this comparison will be decided whether or not the person should be treated. When the contribution-fee is decided upfront – before the person ‘officially’ enters society (let’s say at the age of 18) – no conflict of interests can occur, and everyone’s wishes are taken into account.

A totally different option would be to shove the full responsibility for covering one’s medical expenditures down to someone’s own wallet: to make people pay for their own medical costs. After all: who would mind a person spending thousands of dollars coming from his own pocket? No-one I suppose. Unless, of course, this person is you. Because what to do if you don’t have the money required to cover your medical expenses? It doesn’t seem fair to let you die just because you haven’t earned as much money as the richest ten percent of the population, right? However, even if you would be the person becoming sick and having to pay for your own medical costs, you might still consider this libertarian attitude towards ‘paying my own costs’ to be the true righteous manner to live your life.

It is in no way an easy question. It is about much more than medical costs/finance: it’s about values/ethics, which implies that there is likely to be no definite answer to this question.

But what do you think?