Friday, January 14, 2011

Revealed preferences and liberty

I've been teaching the two year old a bit about economics. When I ask him, "Ira, how can we tell that voluntary trade is Pareto-improving", he now knows to say "General axiom of revealed preference!" It's very cute. Next job is to teach him what it means.

The latest Heritage survey puts New Zealand again above the US on economic freedom. If we care about a bundle of freedoms rather than just economic freedom, I think NZ does better than the folks above it on the Heritage list: Australia (widespread internet censorship, thuggish police), Singapore (heavy restrictions on personal liberties), and Hong Kong (much better than Singapore?).

How much libertarianism is just cheap talk? Or, rather, what price do libertarians put on liberty? I'd outlined some of NZ's advantages on EconLog four years ago. Since then, the top marginal tax rate has dropped by 6 percentage points, sales taxes have increased by two and a half points, and some of the nanny state stuff has gotten a bit worse (though Happy Meals remain happy). Most worryingly, we've recently implemented an asset forfeiture regime that kicks back seized funds to the police; this will start to bite in a decade or so. We've ranked at or above US levels of economic freedom since Heritage started keeping score. And I'm rather sure we're still better on civil liberties. If you want to have your junk mauled by someone in uniform, you'd have to pay for it in one of our numerous legal brothels; you don't get it for free at the airport.

By the general axiom of revealed preference, the increment of liberty isn't worth the loss of income (and inconvenience of moving and living abroad) for the vast majority of libertarians.

"I Chose Liberty" is Walter Block's collection of intellectual autobiographies of a bunch of libertarians, the large majority of whom live in the US and many of whom live in states like New York and California which rank in the bottom quintile of freedom.

I wonder how many will move to Seasteads.

Update: Peter Thiel, always on the vanguard, is betting on New Zealand.

33 comments:

  1. The increment in liberty from the US to New Zealand is not that great. There's a greater increment between the US and Singapore or Hong Kong, but as you say, there are other aspects to liberty and those places do not fare too well.

    Also, any attempt to put a number on something as vague as liberty is going to be iffy in the small increments, though it becomes more meaningful in larger increments. Here's an analogy: a movie that rates 100% at Rotten Tomatoes is probably a better movie than a movie that rates 70% at Rotten Tomatoes, and so on (40%, 10%). If you went to see both you could probably easily guess which was better. But if one movie rates 73% and another rates 78%, then if you saw both you would probably have a hard time deciding which one was the better one.

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  2. I'm not sure the increment from New York to New Hampshire is that small.

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  3. As a USA citizen, I have felt that we are the foremost terrorist state, how did we lose that number 1 position?

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  4. When we're talking tiny distances with no borders, such as between New York and New Hampshire, then in a real and important sense New Yorkers partake of New Hampshire freedom, as I will explain. Suppose you live in a libertopia with the following two exceptions: on Mr. McGruder's property (his house and his front and back yard) you are not allowed to smoke and on Mrs. Calloway's property (her quarter acre of land) you are not allowed to drink alcohol. Now - is this really an *exception* to libertopia? No, it isn't, because it's *part* of libertopia that people have the right to decide what happens on their own property. But... but... freedom is curtailed, isn't it? After all, you can't smoke on the one property, and you can't drink on the other. Well, no, not really - the most significant fact being (from the point of view of the rational self-interested individual) that if you happen to be on Mrs. Calloway's property and you want to drink alcohol, all you have to do is leave and you can drink alcohol no problem.

    Now, if Mrs. Calloway owned all of the United States territory and prohibited drinking on all that property then, yeah, it would be a bit of an inconvenience. (And, yeah, technically, this could be called "libertopia" too because Mrs. Calloway has the right under libertopia rules to control her own property - but you would be no less inconvenienced than if the US government prohibited alcohol, and I'm talking here about how things look from the point of view of the rational self-interested person.)

    The point is that the smaller the territory in which freedoms are curtailed and the greater the ease with which the territory can be exited and entered, then the less significant is the curtailment of liberty. It hardly matters that Mrs. Calloway doesn't permit drinking on her property if her property is small.

    New York is pretty small. If you live in the highly populated bit of New York then you live in a part where it is very easy and quick to leave New York for an afternoon, either to New Jersey or to Connecticut, and from there to Rhode Island, etc. So from the point of view of the rational self-interested New York resident, a curtailment of freedom in New York is much less significant than the same curtailment of freedom across the entire US would be.

    This is largely because going from state to state is easy. There are no border guards whatsoever. Going from country to country is typically much more tedious, so, for example, a Singapore resident is probably much more affected by Singaporean curtailments of freedom.

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  5. @anon So a despotism wouldn't be despotic if it had a freedom amusement park that folks could visit?

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  6. As appealing as living on a Seastead with my guns and the collected of Ayn Rand is, I'm not going. I could change my mind for a space-station.

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  7. There's nothing wrong with demand curves for liberty, or other things, sloping downward. But if we're happy to trade off wealth and comfort for liberty (as is obviously the case given revealed preference), we need to be careful how we complain about others wanting to trade liberty against equality or other values.

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  8. I'd move to NZ in a heartbeat if I could find a job and clear the immigration process.

    I know what you mean, though. We spend so much time lamenting the state, but seldom "vote with our feet." I am actually getting ready to relocate, and essential liberty is a primary criterion of mine.

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  9. @Eric No, because you can't live in an amusement park. However there are a lot of despotic amusement parks which folks can and do visit — to get their junk mauled (BDSM brothels) or their egos stroked (Third World countries from American etc. expats' POV)

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  10. Eric is correct. Here is some data on this issue of NY vs. NH, etc. See - forgive me for shameless self-promotion - my study with Jason Sorens here: http://mercatus.org/sites/default/files/publication/Freedom_in_the_50_States.pdf

    We also discuss what I would call the "Nick Gillespie issue" given his thrashing of more free Kansas in an old Reason article.

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  11. It would be interesting to see how many libertarians live in New England states besides New Hampshire. Moving from these states to NH would seem to impose pretty low costs.

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  12. The obvious answer is that they are fighting (or planning on fighting) for their area to become libertarian and they gain utility from that struggle. So they would rather give up a bit of their own personal liberty to improve others' personal liberty.

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  13. @R.P. Immigration here uses a points system. Advanced degree helps, right age helps, skill shortage area helps.

    @Anon. Anon previously said NY folks more free because they could visit NH. That is more like visiting an amusement park than living in one.

    @William note that I linked your study in post above. I would be curious to see how NZ would come out on the same metric.

    GU It would be mildly fun to code Block's book by state of residence. I would put even odds that the freedom enjoyed by median libertarian is lower than that enjoyed by median American. More academic jobs in unfree states.

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  14. Excellent point, Eric. You mind if I steal the argument: "But if we're happy to trade off wealth and comfort for liberty (as is obviously the case given revealed preference), we need to be careful how we complain about others wanting to trade liberty against equality or other values." ?

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  15. Sorry I missed that link, Eric. So thanks. Perhaps if I get a chance this summer I'll do a quick and dirty look at NZ and see how it would fare if it were an American state.

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  16. @Doc: I could buy it for folks who live in the state in which they were born. But who goes out on the academic job market and says, "You know, what matters most to me is getting a job in a state with middling to very low freedom so I can enjoy fighting the state all the more." I find it way more plausible that wealth, amenities, and other considerations weigh more heavily than liberty.

    @Ben: Stealing with attribution isn't theft; it's encouraged.

    @William: I either know or know who knows where the relevant NZ data is hidden; let me know.

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  17. After living in HK for a while, I agree the economic liberty isn't everything. On net, I think the US is better than HK, and probably better than Singapore or Australia too. I've been thinking a lot about visiting NZ sometime--it does sound like it could be a further improvement. I, for one, do reveal my preferences by where I choose to live.

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  18. @Eric that wasn't me. Besides, comparing a despotic state to NY is facetious and you know it.
    Supposing, for the sake of the argument, that the most 'visible' ways freedom is curtailed in NY is a smoking ban, then yes go and smoke in NH by all means. But that's a very small curtailment in the first place. If it is illegal to own a gun in NY, it's still illegal if you visit NH and come back, even if you got around that by storing the gun in NH. Your taxes are payable to NY, etc. If you live in Bronx or whatever 'bad neighborhood' NY is blessed with then having the ability to visit NH does make you a bit freer, *but* you still risk life and limb going to the corner shop for beer. Similarly for those people, e.g. scientists, living in Soviet Union who could visit capitalist countries, yes this did make them a bit freer on balance but unless they chose to defect that didn't matter all that much once they came back.
    I guess what I'm trying to say here is that intertemporal substitution doesn't work very well for freedom.

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  19. "@Anon. Anon previously said NY folks more free because they could visit NH. That is more like visiting an amusement park than living in one."

    Different anon. A real amusement park is physically small and it is highly controlled by the owner, the activities pre-planned. It therefore seems a poor hypothetical test of the idea.

    You write:

    "if we're happy to trade off wealth and comfort for liberty (as is obviously the case given revealed preference)"

    That's like saying we're happy to trade off eggs for chickens. You need chickens to have eggs, and you need liberty to have wealth and comfort.

    The liberty does not need to be enjoyed precisely where you live. It can be enjoyed nearby. For example, if you live in a residential area that does not allow any business to occur in that area (because of zoning), you can still enjoy a great deal of economic freedom by working and shopping areas zoned for business. This, as you'll recall, was my original point, so let me expand on it:

    Suppose you are trapped inside the borders of a small country that does not allow any business. That is, you live in a neighborhood not zoned for business, and there are wall all around your neighborhood preventing you from exiting the neighborhood. Assuming this is strictly enforced, you will probably be starving within days, dead within weeks, in an approximate repeat of communist famines.

    But suppose, instead, that, as above, this neighborhood is still a small country that does not allow any business and this is strictly enforced, but now you have complete freedom of movement into and out of the country. From the individual's point of view, we're right back to the situation that many of us live in, where our neighborhoods are zoned against business but where we can easily shop and work by leaving the neighborhood.

    Now the only change I have made between these two scenarios is to open the border. Everything else remains the same - all the local laws remain the same. Your neighborhood remains just as "repressive" as before (not allowing any business). But it's obvious that you personally enjoy vastly greater freedom with open borders.

    As for your amusement park idea, that in effect seems to be your version of an area zoned for business. The obvious problems are the small size, and your use of the term "amusement park" to help to define your hypothetical. Real amusement parks, like the Epcot Center, are not free trade zones. Instead, all the vendors work for the amusement park company.

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  20. When Canada was decidedly less free than America, we suffered a 'brain drain' of entrepreneurs, engineers, and doctors. Canada is now rated as more free than the U.S., and that gap will be growing over the next few years. It will be interesting to see if the brain drain reverses, or whether it was more due to the larger population and more opportunities in the U.S. for the highest-performing Canadians.

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  21. I would dearly love it if all the Anons would at least pick a handle. Come on guys. You're killing me here.

    @Anon 8:10PM 18 Jan [I will call you George]. Yes, George, New York is very far from despotism. But the view of @Anon 8:30PM 17 Jan [Who I will call Fred] was that NY's restrictions are irrelevant if NY residents can drive to NH occasionally. That doesn't sound far from "an amusement park is enough". Sure, having an amusement park is better than not. But existence of park isn't sufficient to say someone hasn't forgone liberty by living in NY instead of NH.

    @Anon 19 Jan 5:59 AM [I christen thee Steve]: There are tradeoffs between liberty and wealth. NZ is more free than the US but poorer. South Dakota is more free than NY but much poorer and way fewer amenities. Freedom encourages wealth creation, but richer places can afford more unfree policies. Agreed that presence of a nearby free place increases the effective freedom enjoyed by people living in a less free place. But they're still trading income against freedom. There's nothing wrong with that. But we oughtn't kid ourselves that libertarians' demand for freedom is inelastic.

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  22. "Steve" here.

    "But they're still trading income against freedom. There's nothing wrong with that. But we oughtn't kid ourselves that libertarians' demand for freedom is inelastic."

    Well, wait a second. Let's back up. You also say earlier:

    "How much libertarianism is just cheap talk? Or, rather, what price do libertarians put on liberty?"

    But that's not what libertarianism is. A libertarian isn't a person who says, "as a potential client of alternative polities, I value freedom above everything else, such as having access to food and shelter." If a libertarian *were* such a person, then you would have a serious point about a disconnect between what libertarians say and what they do.

    What are the sorts of things that libertarians say? They are likely to say that the vast majority of Americans would be better off with fewer economic regulations. I think that's a pretty libertarian-leaning thing to say. Now, let's see whether this statement is "cheap talk" on the part of someone who opts to stay in the US.

    If someone believes that Americans would be better off with less regulation, does it follow that that person must believe (assuming that NZ has less regulation) that New Zealanders are better off than Americans, or that an American in New Zealand would be better off than an American in America? No - because there are a lot of other differences between New Zealand and the US.

    So in fact it does not at all follow from the belief that less regulation is better (and no regulation is best) that a person would prefer to move from a particular more-regulated place to a particular less-regulated place. The refusal to move in no way invalidates or betrays a lack of belief in the claim that less regulation is better. Complete, unswerving, even fanatical belief in the claim is fully compatible with thinking that a particular more-regulated place is preferable to a particular less-regulated place.

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  23. @Steve: If liberty is just one value among many, including wealth, and someone demonstrates a preference for a policy bundle that includes a bit more wealth/amenities and a bit less liberty, then what grounds has he to critique someone else's preferred policy bundle that includes a bit more regulation and a bit less liberty or a bit more equality and a bit less liberty?

    How different is a libertarian moving to New York and complaining about the (completely foreseen) regulation from somebody who moves next door to a pig barn and complains about the (completely foreseen) smell?

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  24. "Steve" here.

    "If liberty is just one value among many, including wealth, and someone demonstrates a preference for a policy bundle that includes a bit more wealth/amenities and a bit less liberty, then what grounds has he to critique someone else's preferred policy bundle that includes a bit more regulation and a bit less liberty or a bit more equality and a bit less liberty?"

    Wealth is not part of the policy bundle. Wealth is not policy. You can't create wealth by law. Now, with amenities you are on firmer ground. Amenities - services supplied by the state - are partly dependent on wealth (since without wealth, no amenities), but are partly dependent on law.

    But that a libertarian prefers one *place* to another does not mean that he prefers one *policy bundle* to another. There is more to a place than its government's policy bundle.

    But let me assume that you are right - let me assume that the libertarian prefers one less libertarian policy bundle to another more libertarian one. That is, keeping the place constant, assume that he prefers a policy bundle with less freedom and more government-supplied amenities. Suppose for example that he prefers to live in a place with nationalized health care to a place without it but otherwise identical in every way. Well, for starters, I would like to question whether he is really a libertarian, if he indeed, ceteris paribus, prefers nationalized health care. I mean, wouldn't he rationally tend to vote for nationalized health care? And if he did that, then would it really make sense to call him a libertarian?

    I'm not sure it makes sense. But let me assume that even this makes sense, somehow. So then, we are imagining a libertarian who, ceteris paribus, prefers that his country residence have nationalized health care. You say:

    "what grounds has he to critique someone else's preferred policy bundle that includes a bit more regulation and a bit less liberty or a bit more equality and a bit less liberty?"

    But at this point I have to ask you: would he critique that? After all, he himself has a preferred policy bundle that (in my example, which is merely a more concrete specification of your idea) includes a bit more regulation (namely, nationalized health care) and a bit less liberty, and a bit more equality (nationalized health care) and a bit less liberty. He's not going to critique a policy bundle that he himself prefers - is he?

    But at this point I want to roll this all the way back to the beginning, which is your initial claim that the libertarian prefers a less than libertarian policy bundle. I think this is where you go wrong. What you really started with was a libertarian who prefers New York to New Hampshire, who prefers the US to New Zealand. This is a preference for a *place*, not for a *policy bundle*. A libertarian can prefer a maximally libertarian policy bundle, while at the same time preferring a less libertarian *place* to a more libertarian *place* for non-policy reasons, such as wealth.

    Of course, wealth is indirectly a product of policy. Sure. But wealth is a product of *freedom*. The less free a place is, the less wealth it produces. See North Korea for an extreme example of unfreedom. It's no coincidence that it is poor. Granted, the US is wealthy in large part because it *was* free for a long time, though may not be very free now. Wealth is a lagging indicator of freedom.

    So if you're going to say that wealth has a policy dimension because it is a product of policy, then I'll point to all those Mexicans who come to the US. The US is wealthier than Mexico because it is freer. So those Mexicans, who are voting with their feet for wealth, are in effect voting with their feet for freedom (albeit possibly bygone freedom).

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  25. "Steve" here, part 2 of 2.

    "How different is a libertarian moving to New York and complaining about the (completely foreseen) regulation from somebody who moves next door to a pig barn and complains about the (completely foreseen) smell?"

    The pig farmer's right to create the smell is a question of private property rights. I think that the law generally, and rightly, favors whoever was there first, favors whatever activities were going on first. If a pig farmer has all along been emitting offensive odors without any complaint, and someone new comes in and complains, then the pig farmer has a better claim. Maybe the newcomer can make it worth his while by paying him to control the odor - he could pay the pig farmer for his property right to emit the offensive odor.

    But as many libertarians do, I distinguish between private property rights and territorial claims of governments. Mencius Moldbug does not make that distinction and as a result he subscribes to a substantially different ideology from libertarianism. But I presume, and I think libertarians generally presume, that political territory is not property, and that governments do not have a property right in their territory.

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  26. "Steve" here. There was a part 1 of 2, answering your first paragraph. Not sure what happened to it.

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  27. "Steve" here, part 1 of 2, 2nd and last attempt.

    "If liberty is just one value among many, including wealth, and someone demonstrates a preference for a policy bundle that includes a bit more wealth/amenities and a bit less liberty, then what grounds has he to critique someone else's preferred policy bundle that includes a bit more regulation and a bit less liberty or a bit more equality and a bit less liberty?"

    Wealth is not part of the policy bundle. Wealth is not policy. You can't create wealth by law. Now, with amenities you are on firmer ground. Amenities - services supplied by the state - are partly dependent on wealth (since without wealth, no amenities), but are partly dependent on law.

    But that a libertarian prefers one *place* to another does not mean that he prefers one *policy bundle* to another. There is more to a place than its government's policy bundle.

    But let me assume that you are right - let me assume that the libertarian prefers one less libertarian policy bundle to another more libertarian one. That is, keeping the place constant, assume that he prefers a policy bundle with less freedom and more government-supplied amenities. Suppose for example that he prefers to live in a place with nationalized health care to a place without it but otherwise identical in every way. Well, for starters, I would like to question whether he is really a libertarian, if he indeed, ceteris paribus, prefers nationalized health care. I mean, wouldn't he rationally tend to vote for nationalized health care? And if he did that, then would it really make sense to call him a libertarian?

    I'm not sure it makes sense. But let me assume that even this makes sense, somehow. So then, we are imagining a libertarian who, ceteris paribus, prefers that his country residence have nationalized health care. You say:

    "what grounds has he to critique someone else's preferred policy bundle that includes a bit more regulation and a bit less liberty or a bit more equality and a bit less liberty?"

    But at this point I have to ask you: would he critique that? After all, he himself has a preferred policy bundle that (in my example, which is merely a more concrete specification of your idea) includes a bit more regulation (namely, nationalized health care) and a bit less liberty, and a bit more equality (nationalized health care) and a bit less liberty. He's not going to critique a policy bundle that he himself prefers - is he?

    But at this point I want to roll this all the way back to the beginning, which is your initial claim that the libertarian prefers a less than libertarian policy bundle. I think this is where you go wrong. What you really started with was a libertarian who prefers New York to New Hampshire, who prefers the US to New Zealand. This is a preference for a *place*, not for a *policy bundle*. A libertarian can prefer a maximally libertarian policy bundle, while at the same time preferring a less libertarian *place* to a more libertarian *place* for non-policy reasons, such as wealth.

    Of course, wealth is indirectly a product of policy. Sure. But wealth is a product of *freedom*. The less free a place is, the less wealth it produces. See North Korea for an extreme example of unfreedom. It's no coincidence that it is poor. Granted, the US is wealthy in large part because it *was* free for a long time, though may not be very free now. Wealth is a lagging indicator of freedom.

    So if you're going to say that wealth has a policy dimension because it is a product of policy, then I'll point to all those Mexicans who come to the US. The US is wealthier than Mexico because it is freer. So those Mexicans, who are voting with their feet for wealth, are in effect voting with their feet for freedom (albeit possibly bygone freedom).

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  28. @Steve: No clue on Part 1, but I may have answered in the new post.

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  29. @Steve: it got caught in the spam filter. Now released.

    Minor rephrasing then: A locale is a Lancasterian bundle of amenities, opportunities, policies. We trade off between them. As Patri points out elsewhere, the nicer are the other parts of the bundle, the worse can policymakers make the policy part. But none of this stops us from effectively having a demand curve for liberty, where "money" (or monetized other values of a place) is on the y-axis, and we derive the point elasticity in the standard way...

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  30. "Steve" here.

    I don't think you've successfully defended a point you seem to have implied earlier and finally made more explicitly, i.e.:

    ..."what grounds has he to critique someone else's preferred policy bundle that includes a bit more regulation and a bit less liberty"...

    Let'g go through this very carefully, step by step. You are attacking libertarian critiques of non-libertarian politics, claiming that the choice to live in NY over NH takes away his ground. I think you have lost sight of what libertarian critiques *are*. Here is an example of a libertarian critique:

    "Regulation reduces wealth, deregulation increases it". This is a critique of the statist claim that regulation increases wealth and deregulation decreases it. It is, of course, by itself a mere assertion, but as you presumably know, the libertarian can defend it.

    Now, imagine that a libertarian chooses to live in NY rather than NH. Does his choice undermine his claim? Does it remove the ground from under his claim? I say that it does not.

    Well, let's see. How might it possibly remove the ground? Here's one possible argument: by living in high-regulation NY rather than low-regulation NH, the libertarian betrays a belief that high regulation increases wealth and low regulation decreases it.

    Well, can you see a problem with that? An obvious problem is that NY might be wealthy for reasons other than its high regulation. There are other inputs into wealth aside from regulation, after all. If you deregulate a deserted island, it won't become wealthy.

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  31. I moved from California to Arizona because it is a much freer state. I have friends who moved from Cali. to Florida due to the much lower tax burden.

    NZ is a nice place to visit, but their draconian gun laws (compared to AZ) means I'd never want to live there.

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  32. @Mark: Excellent. And if gun rights weigh heavily in your preferred freedom bundle, Arizona beats New Zealand too.

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  33. @"Steve": I'm not going to disagree with you that regulation decreases wealth. But it might promote other values. And once we're trading values and wealth and amenities all off against each other, and once libertarians have demonstrated that they'll give up a fair bit of liberty fairly cheaply, it's harder to argue against other policies that erode liberty but promote other values that other people like.

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