Saturday, April 18, 2015

Free-riders And Minimum Wages - Both Or Neither Are Problems





Is this a better market?  Gabe (the gay) is paying Alex (the atheist) for a cake.  Isaac, who's wondering what to do with his life, is observing this exchange take place.  Because neither Alex nor Isaac are omniscient... they can't see how much Gabe values the cake.  All they can see is how much he pays for the cake.  Only Gabe knows that he values the cake a lot more than he's paying for it.

By sharing the wrong information, Gabe increases the chances that Isaac will do the wrong thing (not supply cakes).  Garbage in, Garbage out.




Is this a better market?  In this scenario Gabe is paying a lot more than he values the cake.  Gabe is lying again.  This increases the chances that Issac will do the wrong thing (supply cakes).  Garbage in, Garbage out.

X < Y = free-rider problem
X > Y = forced-rider problem

A minimum wage is an example of the forced-rider problem.

Let's think about water.  Is Isaac always going to value water equally?




In the Sahara... Isaac is suffering from a severe shortage of water (dehydration).  In Niagara... Isaac is suffering from a severe surplus of water (drowning).  Therefore, he values water very differently in these two very different circumstances...

Y1 > Y2

Whether it's water, cake, labor, a Netflix show or national defense... what we pay should accurately communicate our valuations.  This increases the chances that other people will do the right things.  Otherwise, we all end up with more of what we want less and less of what we want more.

Accurate information = treasure in, treasure out
Inaccurate information = garbage in, garbage out

Coincidentally, Alex Tabarrok recently shared some relevant thoughts in his review (Is Capitalism Making Us Stupid?) of Joseph Heath's new book Enlightenment 2.0...
Advertising may sometimes trick us into buying products that don’t serve our interests, but the more we are tricked the greater the incentive to become informed. In the market, we can act on information to improve our purchasing decisions. In politics, it doesn’t pay to be informed because as individuals we have nearly zero power to improve collective decisions. In the market, information is power. In politics, information is impotent.
Also...
Heath’s conservatism makes him unwilling to suggest radical ideas. But big problems often need radical solutions. Voting, for example, reduces the cost of ignorance and irrationality. Raise the cost and people become more informed and rational. When pollsters ask Democrats and Republicans factual questions such as did inflation fall during Reagan’s presidency or were weapons of mass destruction found in Iraq, they answer in a highly partisan manner. But partisan bias greatly diminishes when voters are told that they will be paid if they answer correctly. Betting is a more reliable guarantor of objectivity than voting. Or, as I once wrote, “A bet is a tax on bullshit.”

Friday, April 17, 2015

Worst Idea Ever

Reply to: Tax Choice Discussion Thread

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Let me tell you the worst idea ever. Are you ready? The worst idea ever is the idea that some ideas are so good that people shouldn't be allowed to boycott them.

You think my idea is bad and you want to boycott it? Great! But if you can truly understand why your valuation of my idea matters... then you really wouldn't want to boycott it.

Right now you're choosing not to put pragmatarianism in your shopping cart. But what's pragmatarianism? It's the idea that you should be free to choose what you put in your shopping cart.

I want you to be able to shop for yourself in the public sector. Why? Because I want to subject the government to your scrutiny. It's a given that the government will be better with your scrutiny. Your scrutiny is so good. The absence of it from the public sector is no good.

Right now you can go to the mall and pick up, poke, prod and compare a gazillion frivolous products. You study the products for defects. You look for holes, nicks, scratches, dings, tears and problems. You actively search for errors. You pull up your vast mental database of past experiences and try and foresee potential complications. You're incentivized to closely examine and inspect the products because you don't want to flush your hard-earned money down the toilet.

Do I benefit from your active debugging of private goods? How could I not? For sure I'll benefit when you help fund a better vacuum cleaner. But I'd benefit a lot more from better healthcare, education and environment. Which is why I really want you to have the option to debug public goods.

I want to unleash you on the government. And if you choose to allocate your taxes rather than have congress allocate them for you... then evidently congress did not stand up to your scrutiny. And if you want to predict that congress isn't going to stand up to nearly everybody's scrutiny... then you might want to think twice about not putting pragmatarianism in your shopping cart.

100% Tax Rate

Reply to: Tax Choice Discussion Thread

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Like I already explained, congress would still be there in a tax choice system. And, they would still be in charge of the tax rate. If congress sets the tax rate too low, then people would boycott congress. If congress sets the tax rate too high, then people would also boycott congress. Therefore, the tax rate at which congress maximized its revenue would be the optimal tax rate.

What do you think the optimal tax rate would end up being?

The only thing currently wrong with the public sector is the absence of consumer choice. Once you add consumer choice... then it's entirely possible that the public sector might entirely replace the private sector. Why? Because in the public sector... what you paid would more accurately reflect your valuation.

In the private sector... it's possible to get a really great deal on shoes. What does this mean? It means that the amount you paid is far less than your valuation. The amount of money you handed to the cashier in exchange for your shoes does not accurately communicate your valuation. Basically, you lied. The logical consequence is that the supply of shoes will be incorrect. Garbage in, garbage out.

But in the public sector, with a tax choice system, it's impossible to get any kind of deal. Let's say that you perceive a shortage of environmental protection. How much are you going to pay the EPA? Well... whatever you pay is going to perfectly correspond to the marginal improvement in environmental protection. The more money you pay, the more environmental protection will be supplied to everybody. So you'll pay whatever amount matches your valuation. You can't lie. The logical consequence is that the supply of environmental protection will be correct. Treasure in, treasure out.

When we get more and more treasure from the public sector... congress will get more and more positive feedback (tax dollars) for raising the tax rate. Until eventually we have a Dept of Shoes (DoS). You'll order shoes whenever you perceive a shortage of shoes. And the amount of tax dollars you give to this DoS will perfectly correspond to your valuation of shoes.

There you go. I just predicted that we'll end up with a 100% tax rate. Your turn. Predict the tax rate that we'll end up with. And please show your work.

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The results of the poll were really surprising...




31% of respondents want some tax choice?!!  I know it's not a very credible survey but I was pretty sure that the percentage would be a lot smaller.

Wednesday, April 15, 2015

Helping Liberals Understand The Free-rider Problem

In case you were wondering... Matt Bruenig never responded to my liberal friend request. :(   But, thanks to his blog... I found a consolation prize!  My consolation prize is a liberal named "nick".  At UCLA I had good friend named Nick.  He studied econometrics and we argued about his "Zombie Apocalypse Rules".  Not all of them... just the one about not having sex with zombies.  I argued that if Jennifer Connelly was a zombie... and most of her was still there... then I might toss Nick's rule out the window.  Every rule has an exception?

What does my new "nick" friend think about the no sex with zombies rule?  I don't know... I didn't ask him.  In my most recent reply I tried to explain why the free-rider problem is a problem.

Context:  If Clueless People Shouldn’t Vote, Then Should Damon Linker?

****************************************************

You'd buy Bruenig a $5 beer because... he's male? You value his maleness at $5? If so, then is it a problem that you don't actually buy him a $5 beer for being male? Is it a problem that you don't accurately communicate how much you truly value his gender? Well... just ask all the people who didn't buy Donald McCloskey a $5 beer for being male.

That example is so terrible that I couldn't resist it. But perhaps it's so terrible that it will linger longer with you.

Let's be a bit more realistic and say that you would have bought Bruenig a $5 beer because he's liberal. If you don't actually buy him the beer... then you wouldn't accurately communicate how much you value his political orientation. Does this mean that, in the absence of your positive feedback, he's going to turn into a libertarian? Probably not.

Let's be a bit more specific and say that you would have bought Bruenig a $5 beer because he blogs about how to eliminate poverty. If you don't actually do this... then you wouldn't accurately communicate how much you value his blogging. Does this mean that he's going to stop blogging? Probably not? You hope not? But is it possible that he'd blog less frequently than you'd truly prefer?

In case you missed it... we're talking about the free-rider problem. I'm trying to help you understand how and why the free-rider problem is a problem.

If you...and all the other people who derive a positive value from Bruenig's blogging... don't accurately communicate the amount of value that you derive from his blogging... then he won't be able to correctly weigh his options. And if he can't correctly weigh his options... then this increases the chances that he will not choose the most valuable option. It increases the chances that he will not choose to blog... which would clearly hurt you... a consumer of his blog.

In this situation you're really not doing yourself any favors by not accurately communicating how much you value this blog entry and all of Bruenig's other blog entries. You're hurting yourself by lying to the hand that's feeding you.

To be fair, if you only value this blog entry at a nickle... then it's really not going to be worth it to go through all the steps of sending Bruenig a nickle. If you're the only person in this boat... then it's not a big problem. But the more people that are in this boat... the larger the problem becomes.

The solution is to facilitate one click micro giving. Well... it wouldn't eliminate the free-rider problem entirely... but "quarters up" would eliminate all the transaction costs.

If eliminating all the transaction costs turns Bruenig into a millionaire... then what does marginal utility have to do with anything? By helping to turn Bruenig into a millionaire you've essentially created a gold rush. But rather than a bunch of prospectors rushing to find some pretty rocks... there'd be a bunch of brains rushing to blog about how to eliminate poverty. And given enough eyeballs, all Easter Eggs are exposed (Linus's Law).

If you can grok all of this... then perhaps you can understand why it's a really excellent idea to allow people to choose where their taxes go. Because whether a producer is in the private sector or the public sector... we really don't want them barking up the wrong trees. We really don't want producers tilting at windmills. We really don't want producers going on wild goose chases.

Tuesday, April 14, 2015

Minimum Wage Vicious Cycle

The Nobel Prize liberal economist Paul Krugman recently argued that we need more government because people tend to make poor education/career decisions.  Shortly after reading Krugman's case for bigger government, I read an article in the LA Times about how some people in the Philippines were lured to America with the false promise of high wages.

Somewhat inspired by this very popular blog entry... A Week of Shorter Rod Drehers... I patched together some relevant snippets from Paul Krugman...

Krugman: The world economy is a system -- a complex web of feedback relationships -- not a simple chain of one-way effects
Krugman: Wages, prices, trade, and investment flows are outcomes, not givens
Krugman: Wages are a market price--determined by supply and demand
Krugman: Money still talks — indeed, thanks in part to the Roberts court, it talks louder than ever
Krugman: Raise minimum wages by a substantial amount
Krugman: The price of labor--unlike that of gasoline, or Manhattan apartments--can be set based on considerations of justice, not supply and demand, without unpleasant side effects
Krugman: Your decision to stay in school or go out and work will shape your lifetime career
Krugman: Now, the fact is that people make decisions like these badly
Krugman: Bad choices in education are the norm where choice is free
Krugman: He and his unwary readers imagine that his conclusions simply emerge from the facts, unaware that they are driven by implicit assumptions that could not survive the light of day

If you'd like the context, just click the links.  As you can see... Krugman used to be an opponent of minimum wages... but now he's a proponent.

From my perspective, a minimum wage is a problem because it doesn't accurately communicate the demand for unskilled labor in any given area.  This increases the chances that people will make really bad career/education decisions.  Here's how I've illustrated this...




And here's another attempt...




My drawing skills aren't that great... but hopefully you should get the idea that, in this drawing, the US has more than enough people pushing brooms (unskilled labor).  In economics... "more than enough" means that there's a surplus.  Usually when there's a surplus of something the price will accurately communicate this information to the entire world.  A low price says "hey, we have more than enough!".  This important information helps people make informed decisions.  When this important information changes, people's decisions will change accordingly.  So in order for the US to have ended up with such a massive surplus of unskilled labor... something must have gone wrong with the price system.  And that something is the minimum wage.  A minimum wage says, "hey, we don't have enough unskilled labor!".

A minimum wage creates a vicious cycle.  When wages falsely signal that the US has a shortage of unskilled labor... this increases the chances that people will make big mistakes.  Students are more likely to make the big mistake of dropping out of school and unskilled immigrants are more likely to make the big mistake of risking their lives to move here.  The logical consequence of so many people making big mistakes is an increase in poverty... which is then used to justify an increase in the minimum wage.





So what would happen if we eliminated minimum wages?  I'm guessing that wages for unskilled labor will decrease.  And I'm sure that proponents of a minimum wage would guess the same thing.  Right?  Because if we eliminated the minimum wage... and wages didn't decrease... then there wouldn't be a need for a minimum wage.

If proponents of a minimum wage want to guess that eliminating the minimum wage would result in a huge decrease in wages... then, assuming that they are correct, this huge decrease would reveal that there is indeed a huge surplus of unskilled labor in the US.  This would conclusively confirm the problem with lying to people about the demand for unskilled labor (aka "a minimum wage").

Would chaos ensue if we learned that there actually was a huge surplus of unskilled labor in the US?   Well... no.  Take China for example.  They used to have a huge surplus of cheap labor... but now they don't...
Costs are soaring, starting in the coastal provinces where factories have historically clustered (see map). Increases in land prices, environmental and safety regulations and taxes all play a part. The biggest factor, though, is labour. - The Economist, The end of cheap China
Wages in China really didn't skyrocket because of a minimum wage... they skyrocketed because of the massive demand for cheap labor...
While corporations may look elsewhere for still cheaper labor, there are no more Chinas out there.  Other countries that establish themselves as low-wage havens will soon be overwhelmed by the inflow of capital from the United States, Europe, Japan, and now China. They cannot possibly have the same dampening effect on wages in the United States over the next three decades as did China and other developing countries in the last three decades.  - Dean Baker, Living in the Short-Run: Comment on Capital in the 21st Century
In case you didn't actually dig through all those Krugman articles that I shared earlier, I'll point out that he vociferously argued against the idea that the massive increase in the global supply of cheap labor had anything to do with wages stagnating in the US.  Eventually he acknowledged that perhaps there were some issues with his "implicit assumptions".

Let's review!  Here are two possibilities of eliminating the minimum wage here in the US...

1. Wages don't plummet.  Then there's really no point in having a minimum wage.
2. Wages do plummet.  Then the US "will soon be overwhelmed by the inflow of capital from the United States, Europe, Japan, and now China".

We really don't help anybody by giving people bad directions.  If you truly want to help poor people... then start a business.  Give poor people a better option (builderism).  Especially if you have a strong theory that some existing business is making a stupid mistake.  Put your strong theory to the test by starting a business that doesn't make the same stupid mistake.  Maybe you want to argue that starting a business is too difficult?  Well there you go.  You've successfully identified a huge problem.  It's a huge problem when it's too difficult to give poor people better options.  Please figure out how to make it easier for somebody as intelligent as yourself to start a business.  And if you can't figure it out... then please have some respect for anybody who does manage to successfully start and run a business that employs/serves any amount of people.

Thursday, April 9, 2015

Cait Lamberton Discussing Tax Choice On NPR

Cait Lamberton recently discussed tax choice on NPR (Philadelphia)... Taxes: What we think about them, what we’d like to do with them, and some handy tips.  Her section begins around 13:00.

If you haven't seen it already... here's her tax choice article in Democracy Journal... Your Money, Your Choice.  The article is based on this paper... A Spoonful of Choice: How Allocation Increases Satisfaction with Tax Payments.

Prior to Lamberton's segment on NPR, Carroll Doherty, from the Pew Research Center, discussed the results of their latest survey on taxes.  The survey revealed that people's top tax concerns are that corporations and wealthy people aren't paying their fair share.  This is quite interesting because one frequent concern with tax choice is that the wealthy would have too much influence.

Let's think about the Koch brothers in a tax choice system.  Here are three possibilities...

A.  They don't pay their fair share of taxes = less influence in the public sector.
B.  They do pay their fair share of taxes = more influence in the public sector.
C.  They pay more than their fair share of taxes = even more influence in the public sector.

So would liberals prefer A, B or C?

Why in the world would the Koch brothers want to pay more than their fair share of taxes?  The liberal congresswoman Elizabeth Warren has the answer...
There is nobody in this country who got rich on his own. Nobody.  You built a factory out there—good for you! But I want to be clear.  You moved your goods to market on the roads the rest of us paid for.  You hired workers the rest of us paid to educate.  You were safe in your factory because of police forces and fire forces that the rest of us paid for.  You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. 
The liberal economist Paul Krugman has a different answer...
The ugliness of our politics is closely tied to the inequality of income. You start to get a society in which the elite is just not living in the same material universe as the rest of the population. The people who have the most influence are not interested in having good public services, because they don't use them. You just get a bad society.
And The Economist disagrees with Krugman's answer...
What public services is he talking about? Don't the wealthy drive (or ride) over the publicly financed roads and bridges? Do the upper-crust not use the courts or enjoy the protection of the police? Does Bill Gates now have a private mercenary army protecting his property from Canadian invasion? 
Some older answers...
During the late war, another tax of the same kind was proposed upon shops. The war having been undertaken, it was said, in defence of the trade of the country, the merchants, who were to profit by it, ought to contribute towards the support of it. - Adam Smith, Wealth of Nations
The protection of trade in general, from pirates and free-booters, is said to have given occasion to the first institution of the duties of customs. But, if it was thought reasonable to lay a general tax upon trade, in order to defray the expence of protecting trade in general, it should seem equally reasonable to lay a particular tax upon a particular branch of trade, in order to defray the extraordinary expence of protecting that branch. - Adam Smith, Wealth of Nations
That the State should leave exports to the exporters, to industry, and to the merchants, and should not identify itself with the interests of the exporting class... If industry... values the protection afforded by warships, let them go and shell out a part of the surplus profit they have captured in this way and build the cruisers for themselves. - Eckart Kehr
If you go into Home Depot you're going to find a huge variety of different private "inputs" for sale.  Why does Home Depot offer all these different private inputs for sale?  Evidently it's because people need them in order to successfully complete a huge variety of projects.

With Home Depot... the supply of private inputs follows from the demand for private inputs.  Why should it be any different with the public sector?   Why should we suffer from shortages of the public inputs that we need to successfully complete projects?  

Hopefully the next time Doherty conducts the survey he'll ask people whether they would like to choose where their taxes go.

According to Lamberton, there are two big reasons why taxes are disliked...

1. People don't feel any sense of choice.  Whenever people feel forced to do something they experience something referred to in psychology as "reactance".

2. The act of paying taxes is far removed from all the benefits that we derive from public goods.

That last point results in what is known in economics as "fiscal illusion".  The opposite of fiscal illusion is fiscal equivalence.

The Nobel Prize economist James M. Buchanan wrote at length about this concept...
Historically, legislative bodies, through which the preferences of individual citizens are most directly represented, have exercised more control over revenue or tax decisions than they have over expenditure decisions. In part this asymmetry has its origin in the development of democratic political institutions out of monarchial institutions. Representative bodies, parliaments, first achieved the power to restrict the tax-gathering privileges of the kings. Before taxes could be levied on the people, representative bodies were given the right to grant their approval. No consideration was given to the spending side of the account because public expenses were assumed to benefit primarily the royal court, at least in the early days of constitutional monarchy. Taxes were viewed as necessary charges on the people, but they were not really conceived as any part of an "exchange" process from which the people secured public benefits. It was out of this conception of the fiscal process that both the modern institutions and the modern theory of public finance developed. - James M. Buchanan, The Bridge Between Tax and Expenditure in the Fiscal Decision Process
Also...
The most sophisticated contribution was made by Knut Wicksell 1896.  He explicitly identified the fundamental methodological error in the then-orthodox approach, and he combined positive criticism with normative suggestions for reforms.  Wicksell recognized the necessity of bridging the two sides of the fiscal account, and he noted the indeterminacy of any proposed principles that were limited to tax-side considerations. - James M. Buchanan, Public Finance and Public Choice
And here's a passage from another Nobel Prize winning economist on the same topic...
The working out of financial arrangements between collective consumption units and production units is one of the most difficult problems faced by entrepreneurs in the public economy.  Without market prices and market transactions, the act of paying for a good generally occurs at a time and place far from the act of consuming the good: individual costs are widely separated from individual benefits.  Yet a principle of fiscal equivalence--that those receiving the benefits from a service pay the costs for that service--must apply in the public economy just as it applies in a market economy.  Costs must be proportioned to benefits if people are to have any sense of economic reality.  Otherwise beneficiaries may assume that public goods are free goods, that money in the public treasury is "the government's money," and that no opportunities are foregone in spending that money.  When this happens the foundations of a democratic society are threatened.  The alternative is to adhere as closely as possible to the principle of fiscal equivalence and to proportion taxes as closely as possible to benefits received. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices
Fiscal equivalence is closely tied to the benefit principle of taxation.

In her interview... Lamberton suggested that people be given, at least initially, 10% to 15% control over how their taxes are spent.  Taxpayers would be able to allocate their taxes once a year when they paid them.  I think of her approach as training wheels.  It's a very reasonable and prudent approach.

According to Lamberton's study, most people tend to diversify their allocations rather than put all their eggs in one basket.  And compared to the current allocation of taxes... defense was a loser while education, science and the environment were all winners.

When Lamberton was asked if this could really work, she noted that our current system suffers from the principal agent problem.  She went on to point out that tax choice would provide representatives with considerable information about their constituents' actual preferences.  Taxpayers would be able to clearly communicate to their elected officials which public inputs they needed more of in order to successfully complete their projects.  In other words, taxpayers would be able to use their taxes to highlight where the bottleneck is in the public sector.

In terms of the likelihood of tax choice being implemented... Lamberton referred to states as the laboratories of democracy.  I agree!  And websites can also be laboratories of democracy.  There are plenty of websites, such as Netflix, that could give their "citizens" the option to choose where their "taxes" go.

A caller to the show recently traveled to Cuba and China and experienced first hand just how bad pollution in China really is.  When our tax choice training wheels come off... I'm pretty sure that it would be a good idea if Americans could have the option to give their taxes to the Chinese EPA.  Because what are the chances that the US has the greatest need for environmental protection?  And what are the chances that the US has the greatest need for military protection?

Wednesday, April 8, 2015

Debugging Scott Alexander And Paul Krugman

Alt Title1:  Make Money vs Kill Humans
Alt Title2:  Faulty Analysis by Intelligent People
Alt Title3:  Debugging Two Intellectuals With One Entry

Scott Alexander - No Physical Substrate, No Problem
Paul Krugman - The Fiscal Future I: The Hyperbolic Case for Bigger Government

Alexander fears that AIs will become too powerful while Krugman hopes that the government will become more powerful.

Alexander argues that an AI will decide to get rich and then decide to kill us.  Krugman argues that we need a bigger government because people make poor decisions.

The bug in their analysis is that they don't really grasp the simple concept of garbage in, garbage out.  Every entity, whether it's a human, a robot, a company or a government... makes decisions based on information.  If the information is garbage, then the decisions will be garbage.
When a businessman makes a business error…a bad mistake, you'll look back and say, gee, what did I do wrong.  I made a bad decision.  I made a wrong decision. What do you mean by that? Do you mean that you made a mistake in arithmetic?  You mean your computer kicked out the wrong answer?  No, that's not what you mean. You mean you fed the wrong data into the computer.  That's what you mean.  You figured wrong.  You opened a hardware store in a place where nobody buys hardware. You went to law school in a country where nobody litigates (not this country).  That's where you make a mistake. You made a mistake where you assess the future wrongly.  You got a wrong picture of what you were choosing between.  That's a business mistake. 
And what's a correct decision.  A correct decision is one where you saw correctly.  You saw right.  You saw what the future held...more or less. Nobody's got a PhD in prophecy.  You can peer ahead and have a hunch for the future and act and if you act right...and if you're an entrepreneur... that means you see things right more of the time than you don't. - Israel M. Kirzner, Competition and Entrepreneurship
Krugman supports a minimum wage.  A minimum wage feeds the wrong data into society's allocation computer.  Here's an illustration from my entry... Jeff Madrick vs The Invisible Hand





Krugman: The world economy is a system -- a complex web of feedback relationships -- not a simple chain of one-way effects
Krugman: Wages, prices, trade, and investment flows are outcomes, not givens
Krugman: Wages are a market price--determined by supply and demand
Krugman: Money still talks — indeed, thanks in part to the Roberts court, it talks louder than ever
Krugman: Raise minimum wages by a substantial amount
Krugman: The price of labor--unlike that of gasoline, or Manhattan apartments--can be set based on considerations of justice, not supply and demand, without unpleasant side effects
Krugman: Your decision to stay in school or go out and work will shape your lifetime career
Krugman: Now, the fact is that people make decisions like these badly
Krugman: Bad choices in education are the norm where choice is free
Krugman: He and his unwary readers imagine that his conclusions simply emerge from the facts, unaware that they are driven by implicit assumptions that could not survive the light of day

Think about driving somewhere.  You want to change lanes... so you use your blinker to communicate your desire.  Somebody cuts you off... so you communicate your displeasure by honking at them and/or giving them the middle finger.  You see break lights on the cars in front of you.  What does this communicate to you?  It communicates that you need to stop.  Same thing when you see a stop sign or a red light.  A green light, on the other hand, communicates that you need to go.  When you see the sign for a street that you need to take... you take it.  You hear a siren behind you and see the flashing lights in the review mirror... what do you do?  If it's an ambulance then you get out of the way.  If it's a police car then you start hoping that you're not the target.

Safely arriving at your destination depends on a considerable amount of communication.  Would clearer communication make it easier or harder for you to get to your destination?
One doesn't need to be Thomas Gradgrind to be interested in the rules underlying the English language, or to believe that good communication and understanding depend on clarity.  Grammar is not just about learning sentence construction: it's about speaking clearly and plainly and cutting through obfustication. But even aside from that, and most importantly of all, good grammar will help you get laid. - Hadley Freeman, Humanity's future depends upon good grammar
When Paul Krugman advocates for minimum wages... he's advocating for more, rather than less, obfuscation.  A minimum wage really doesn't clarify the demand for labor... it obscures the demand for labor.

We can either clarify demand... or we can obscure it.  We can either make it easier to understand and respond to each other's demands/concerns... or we can make it harder.

Here's an illustration from my entry... Scott Alexander vs Adam Smith, J.S. Mill, Alex Tabarrok, Don Boudreaux, David Friedman, Murray Rothbard, Jason Brennan, Elizabeth Warren, Geoffrey Brennan, Loren Lomasky




If gays are going to foot vote... then what information do they need to make a correct decision?  They need to know what the demand is for gays here, there and everywhere.  When gays make poor foot voting decisions... then it's because their information was garbage.

Same thing when libertarians attack the wrong targets.  Here's the illustration from my entry... S Is Never Going To Shrug...at this rate...




In this illustration vulgar libertarians are tilting at windmills.  They are wrongly attacking taxes, public goods, welfare and fiat money.  Why are they barking up the wrong tree?  It's because their information is garbage.  If their information wasn't garbage, then they would be attacking the assumption of omniscience.

Right now we can't choose where our taxes go.  The monetary expert Scott Sumner can't use his tax dollars to communicate his concerns.  Here's the illustration from my entry... Scott Sumner vs The Fed




With our current system, no matter how bad the Fed's policies are... it would never be rational for Scott Sumner to encourage people to boycott the Fed.  This is because people can't choose where their taxes go.  Scott Sumner can't encourage us to boycott the Fed... but he can encourage us to boycott Disneyland.  We can't use our money to communicate with the DoD.... but we can use our money to communicate with McDonald's.  As if it's more important to clearly communicate with Ronald McDonald than it is to clearly communicate with Barack Obama.

With our current system... a bigger government increases demand opacity.  This means that more people will make even worse decisions.  With more garbage in, we get more garbage out.
The immense Soviet efforts to mobilize economic resources were hardly news. Stalinist planners had moved millions of workers from farms to cities, pushed millions of women into the labor force and millions of men into longer hours, pursued massive programs of education, and above all plowed an ever-growing proportion of the country's industrial output back into the construction of new factories. - Paul Krugman, The Myth of Asia's Miracle
There's nothing inherently wrong with society's limited resources being massively mobilized.  The issue is whether the allocation decisions are based on actual demand.  If the allocation decisions are based on accurate information... then the consequences will be beneficial.  If, on the other hand, the allocation decisions are not based on accurate information... then the consequences will be detrimental.  Garbage in, garbage out.

If Scott Alexander wants to paint plausible scenarios of robots making really bad decisions... then he really needs to show some basic understanding of the garbage in, garbage out concept.  If he truly understands this concept then he'll explain where the robots got their bad information from.  Alexander will clearly communicate to us exactly what information led robots to the decision to make money... and exactly how that information changed so that the robots then decided to kill humans.  But if Alexander can truly understand the garbage in, garbage out concept... and how it relates to demand... then he's going to adjust his intelligence allocation by addressing the clear and present danger of governments preventing millions and millions of people from using their tax dollars to clearly communicate their concerns/demand.

The economist Don Boudreaux recently wrote about truth vs lies...
Market-determined prices – those that are neither set nor constrained by government diktat – reflect underlying economic realities. Prices are the results of those realities. Prices – even those that are set or constrained by government diktat – also have consequences; prices affect and direct economic decision-making. So while prices that are set or constrained by government diktat affect and direct economic decision-making no less than do market-determined prices, only the latter does so in ways that are consistent with underlying economic realities. The reason is that only market-determined prices tell the truth about underlying economic realities; minimum-wage rates and other prices that are set or constrained by government diktat lie about underlying market realities. Such government-determined prices thus cause people to act on misinformation – on economic lies. And people who are misinformed and misled will not make decisions that improve underlying economic realities; quite the opposite.
Let's be truthful about the market though.  With this goal in mind... here are a couple illustrations from my entry... Accurately Communicating Value




In this illustration I'm buying the book Toleration from the author... Andrew Cohen.  Hopefully it's clear in this illustration that I'm lying.  I'm paying far less money than I value his book.  The amount that I'm paying isn't accurately communicating how much I value his book.  Garbage in, garbage out.




In this illustration I'm also lying.  I'm paying far more money than I value his book.  The amount that I'm paying isn't accurately communicating how much I value his book.  Garbage in, garbage out.

In the first illustration I'm getting a really great deal.  In the second illustration I'm really being ripped off.  And in both illustrations I'm lying.  I'm falsely reporting the underlying economic realities.  I'm miscommunicating my demand for books on the topic of tolerance.  I'm feeding bad information into the allocation computer.  I'm sending the wrong message to producers.  In the first illustration I'm sending the message that there's a surplus.  But the truth of the matter is that, in that scenario, I honestly believe that there's a shortage.  In the second illustration I'm sending the message that there's a shortage.  But the truth of the matter is that, in that scenario, I honestly believe that there's a surplus.  False messages adversely effect the future supply.

In both scenarios the amount of money that I'm paying for Cohen's book isn't accurately communicating the amount of value that I derive from his book.  The logical consequence is that society's limited resources will not be put to their most valuable uses.  Garbage in, garbage out.

Even though markets have plenty of room for improvement... the information that they supply is vastly superior to the information supplied by governments.   Vegetarians aren't going to order steaks like pacifists have to order war.

One of the most significant events in human history will be when the majority of people realize the value of knowing the actual demand for war.
There are multitudes with an interest in peace, but they have no lobby to match those of the 'special interests' that may on occasion have an interest in war. - Mancur Olson
The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. The seasons during which the ability of private people to accumulate was somewhat impaired would occur more rarely, and be of shorter continuance. Those, on the contrary, during which the ability was in the highest vigour would be of much longer duration than they can well be under the system of funding. - Adam Smith, Wealth of Nations