Saturday, December 16, 2017

Spotlight On Max Sawicky

Most people love attention, me no less than anyone... - Max Sawicky

I just finished reading Henry Farrell's response to Sawicky's review of Brink Lindsey's and Steven M. Teles' new book The Captured Economy.  Since Sawicky loves attention, I figured that I'd give him some of mine.  Will he love it?

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Dear Sawicky,

If you look above this blog entry you'll see a tab that says "Resources".  That page has a list of over 50 links to some of the most important articles, blog entries, scholarly papers and books about economics.  So far there is only one link to the jacobinmag.com website... Can We Criticize Foucault?

Have you read that article?  It's pretty great.  To be honest, I value it more than your own article...

Foucault article > your article

Which article do you value more?  Which jacobinmag article do you value most?  Does it matter? 

Personally, I think that people's valuations really matter.  So it's very troubling to me how many places there are where people aren't given the opportunity to share their valuations.  In other words, I'm troubled by all the places that aren't markets. 

Netflix, for example, is not a market.  Each month Netflix decides how to divide my $10 dollars among all its products.  This wouldn't be so problematic if Netflix was a mind-reader.  Or my best friend forever.  Or my lover.  Or my brother.  Or my mother.  But Netflix is none of these things.  It's just some company. 

Vons is also just some company.  But, unlike Netflix, Vons does give me the opportunity to decide for myself how I divide my money among all its products. 

What difference would it make if Netflix subscribers could decide for themselves how to divide their dollars?  I've already asked a few economists but they really didn't know.  How could they not know what difference the Invisible Hand would make? 

Do you know what difference the Invisible Hand would make?

The stage, and spotlight, they are all yours.  Please make good use of them. 

Sincerely,
Xero

Friday, December 15, 2017

Unburied

Dug through my Twitter page and found some tweets that I wanted to have more convenient access to. I tried to organize them a bit...


Tuesday, December 12, 2017

Public Finance In A Nutshell

Here's a reply I just posted on Medium...

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“This sounds like you’ve read a lot of mises.org…”

Evidently you haven’t read mises.org or James Buchanan. Which means that you haven’t studied austrian economics or public finance.

The Nobel economist Paul Samuelson was not an austrian economist. He was a very orthodox economist who studied public finance and other subjects. Here’s what he wrote in a paper that was published in 1954…

But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has, etc. — Paul A. Samuelson, The Pure Theory of Public Expenditure

The premise here is that the optimal supply of public goods depends on people’s true signals. The supply of defense won’t be optimal if you pretend that it is less important to you than it truly is. However, the only reason that you’d have an incentive to be dishonest is if you had the option to spend your money on private goods rather than on public goods. If this option was eliminated, then your incentive to be dishonest would also be eliminated…

Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his “true” preferences for public goods. — James M. Buchanan, The Economics of Earmarked Taxes

Imagine if Netflix gave you the opportunity to divide your subscription dollars however you wanted among all your favorite content. Would you have any incentive to be dishonest? Nope. This is simply because you wouldn’t have the option to spend your subscription dollars on things like food or clothes. Therefore, how you divided your limited dollars would accurately reflect your true preferences.

Paul Samuelson and James Buchanan were both Nobel economists. Samuelson was a liberal economist while Buchanan was a libertarian economist. Despite their ideological differences, they both agreed that the optimal supply of public goods depends on people’s true preferences for them.

Just like it would suboptimal for the private sector to supply meat if everybody was a vegetarian… it would be suboptimal for the public sector to supply war if everybody was a pacifist.

There you go, public finance in a nutshell. Any questions?

Monday, November 27, 2017

The Demand For David Friedman

My comment on Keynes on Newton--and some ideas for fantasy by David Friedman

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Have you read Adam Smith's book of essays? I was surprised that he wrote a 100 page essay on the history of astronomy. Especially since he is largely responsible for the idea of the division of labor. I think it's possible for labor to be overly divided. Take the handicap principle for example. Nowhere in the Wikipedia entry does it mention the fact that spending money is a costly signal. Smith also shared some enjoyable thoughts on music. Basically the main theme is on how things are ordered.

In the book's intro is this interesting bit...

The change in his habits which his removal to Edinburgh produced, was not equally favourable to his literary pursuits. The duties of his office, though they required but little exertion of thought, were yet sufficient to waste his spirits and to dissipate his attention; and now that his career is closed, it is impossible to reflect on the time they consumed, without lamenting, that it had not been employed in labours more profitable to the world, and more equal to his mind. - Dugald Stewart, An Account of the Life and Writings of Adam Smith

Imagine seeing Smith or Newton waiting in a line. You'd think, "Yikes! The opportunity cost is too high!" Or, "Something is really preventing the Invisible Hand from doing its job!"

While I'm here, I hope you don't mind if I share some ideas that I'd appreciate your thoughts on.

1. What if everybody had to do 100 push-ups before they purchased anything? The cost of trade would increase, so the quantity of trade would decrease, and so would the rate of progress. The reverse is true if the earliest native Americans had used horses. Horses would have reduced the cost of allocating resources, trading would have been less costly, the quantity of trade would have increased, and more progress would have been made.

2. Becoming bipedal reduced our ancestors' allocation costs. This increased the frequency of allocation, but it also meant having to more frequently solve allocation problems, which meant greater selection pressure on intelligence. The invention of bags and using other animals to carry things made the allocation problems even harder. Nowadays the allocation problems are even harder still, but good or bad allocation decisions rarely impact our reproduction. Therefore, we've reached peak intelligence.

3. Markets with prices work much better than socialism because prices transmit at least some information about people’s perception of importance. This would mean that the efficiency of allocation depends on the quantity of information about importance. Prices can never be optimal because they almost always fail to transmit all the information about importance. The economic term for the hidden information is of course “consumer surplus”. In theory, pragma-socialism would be the optimal economic system because it would entirely eliminate consumer surplus.

Pragma-socialism

What if the tax rate was 100%... but you could choose where your taxes go?  I refer to this as "pragma-socialism".  The Suburbanist asked me what would happen at airports when there were more people than seats on planes.  Here's my answer...

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In theory, with pragma-socialism, construction would be much faster than it currently is. The supply would far more quickly adapt to demand because it would far more correctly adapt to demand. There’s no unnecessary red tape. There are no unnecessary hoops to jump through. There’s no politics. There are no workers getting paid regardless of how much or how little work they do. Countless inefficiencies have been eliminated as the result of the total permeation of markets. When markets are everywhere there is no place for inefficiency to hide.

Even though construction would be much faster it still wouldn’t happen overnight. So when the demand for plane seats is greater than the supply, then perhaps the seats will be allocated based on priority.

If you think cancer research is important then you’d give more of your taxes to cancer researchers. You would empower them to compete more of society’s limited resources away from other uses.

So imagine a cancer researcher standing in line to board a plane. There are more people in line than seats on the plane. By giving more of your taxes to the cancer researcher… you would be essentially helping him move closer to the front of the line.

Same thing if a cancer researcher is waiting in line to receive a quantum computer. His place in line would be determined by the amount of tax dollars that you and other people have given him. Would he be in front of, or behind, an analyst from the DOD?

When people are driving and they hear a siren and/or see flashing lights… they pull over to the side of the road. This is because they know and recognize that emergency vehicles have the right-of-way (ROW). They accept that the emergency vehicles should reach their destination as quickly as possible.

You give more or your taxes to cancer researchers because you want them to have the ROW. You want them to reach their destination as quickly as possible. You want cancer to be cured sooner rather than later. If drivers concede the ROW to an ambulance trying to save one person, then they should definitely concede the ROW to a vehicle transporting somebody trying to save countless lives.

I imagine driverless vehicles automatically conceding the ROW to higher priority vehicles. But I’m sure that the highest priority people would probably all have their own helicopters and planes.

Markets with prices work much better than socialism because prices transmit at least some information about people’s perception of importance. This would mean that the efficiency of allocation depends on the accuracy of information about importance. Prices can never be optimal because they almost always fail to transmit all the information about importance. The economic term for the hidden information is of course “consumer surplus”.

The idea of consumer surplus should be obviously problematic when it’s applied to cancer research. You got a really great “deal” on cancer research because the amount that you spent on it was a lot less than your perception of its importance. Well no, you essentially shot yourself in the foot. You’re going to live in a world that has less cancer research than you truly want.

If we created a market in the public sector then it would be impossible for taxpayers to get “deals”. There’s no point in spending less than your true valuation on cancer research because it’s not like you can take the money that you “saved” and spend it on goods that only you can benefit from (ie a television). There won’t be any consumer surplus in the public sector so resources will be far more efficiently allocated than in the private sector. Taxpayers will appreciate the difference so they’ll want to spend more and more of their money in the public sector. The private sector will shrink and shrink until it’s completely gone. We’ll have arrived at pragma-socialism because millions and millions of taxpayers decided that the public sector market is far more efficient than the private sector market.

But again, this is simply my best guess. The important thing is that, in a pragmatarian system, each and every taxpayer will be able to decide for themselves which market (private sector or public sector) is more efficient. So I don’t have to necessarily worry about how pragma-socialism would work. It is an interesting challenge though.

Sunday, October 22, 2017

Addressing Concerns

Over on Medium, Scott Vonasek shared some concerns about pragmatarianismHere's my reply...

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The term “political market” is an oxymoron. I prefer “public sector market”. You’re right about local knowledge… but it’s equally relevant to markets in both the private and public sectors. You’re going to know where potholes are and where it’s not safe to walk at night. Politicians can only have access to a vanishingly small fraction of all the local knowledge concerning public goods.

Regarding specificity… I don’t know what necessarily prevents the same level of specificity in both sector markets. In the private sector market you can spend your money on a specific brand of cereal. But in the public sector market you could theoretically spend your taxes on a specific type of education… for example… public finance economics. I don’t see why you couldn’t give your taxes to a specific professor of economics.

Regarding free-riding… a few days ago I addressed it in a reply to Koen Smets. Your example of people funding pet projects in the non-profit sector while neglecting important and effective things like vaccinations is only an example of free-riding if people truly want more vaccinations. But how can we be certain that people truly want more vaccinations? We obviously can’t ask them. If they know their answer will determine their personal payment then they’ll have a clear incentive to pretend to value vaccinations less than they truly do. And if they know that their answer will not determine their personal payment then they’ll have an incentive to pretend to value vaccinations more than they truly do.

It’s certainly the case though that we would expect to see free-rider problems in the non-profit sector. If people voluntarily contributed their true valuations to public goods then taxation wouldn’t need to be compulsory. Since people are paying taxes anyways, if they could choose where they go, they wouldn’t have an incentive to contribute less than their valuations to vaccinations.

To be clear, it’s entirely possible that everybody incorrectly values vaccinations. Nobody is omniscient. Nobody has a crystal ball. But let’s say that there are a few people who do correctly value vaccinations. Evidently they have better information than everybody else. In a public sector market these better informed people would have the maximum incentive to share their better information with everybody else. This is because anybody they shared this better information with would have the freedom to allocate their own tax dollars accordingly.

The problem with the current system can be illustrated like so. A door to door salesman generally isn’t going to bother giving his sales pitch to little Timmy if he answers the door. Instead the salesman is going to ask to speak to whoever controls the household budget. Right now politicians control the country’s budget. This means that all the better informed citizens have an incentive to share their better information with politicians. But this is an incredibly stupid system. It would be infinitely more intelligent if better informed citizens had an incentive to share their better information with each and every taxpayer. This would allow far more brains to evaluate and process far more information in far less time. As a result, better information would be far more quickly disseminated.

Regarding wild swings… first of all there wouldn’t be a set time for people to allocate their taxes. If Godzilla attacks in June we wouldn’t want taxpayers to have to wait until April to respond to the threat. When there is an earthquake or other natural disaster in some part of the world it’s very beneficial that donors have the freedom to immediately respond.

A market in the public sector should respond faster and better than politicians to significant changes. If not, then we should replace the Invisible Hand in the private sector with the Visible Hand.

Life changes fast so we should expect organizations to quickly and correctly adjust and adapt. Those that fail to do so should be allowed to go extinct. We want organizations to quickly evolve. We want organizations to be better and faster at meeting the ever-changing needs of society. This is why it’s essential for all organizations to be directly subject to market forces. This is why it’s just as necessary to have a market in the public sector as it is to have a market in the private sector.

Besides people being free to spend their taxes whenever they want… they should also be free to shop in any country’s public sector. No country is going to have a monopoly on the best public goods. Just like no country is going to have a monopoly on the best private goods. All countries are going to be better at supplying certain public goods… just like they are better at supplying certain private goods.

American taxpayers should be free to give their taxes to Brazil’s EPA and/or Israel’s DoD and/or China’s NASA and/or Zimbabwe’s IRS. Then everyone will clearly see, and be able to support, the world’s best suppliers of public goods. With a global market for public goods the best suppliers are going to receive a lot more money. The NASAs of the world are going to be competing over a much larger pool of money. Whichever NASA is best will be able to spend a bigger portion of this much larger pool of money. So we should expect to make much faster progress with space exploration, cancer research and every other public good. Nobody is going to care which country finds the cure to cancer first. Everybody just wants it found sooner rather than later. This depends on everyone having the freedom to give their taxes to whichever organization in the world is conducting the best cancer research. In all cases we want to empower the most effective organizations to compete the best brains away from less effective organizations.

Friday, August 25, 2017

Trading Thoughts With Koenfucius

In real life, when you meet somebody for the first time, it's rarely the case that the moment is persevered like a dragonfly in amber.   It's a different story on the internet.  For example, here's the very first time that I met Koenfucius.  I replied to his story and he replied to my reply.  That was the extent of our exchange.

Around a month or so later I replied to another story of his... Trading Values.  At the time, I didn't realize that he was the same guy that I had replied to a month before.  We ended up trading many many many thoughts about economics.  At some point I realized that I had previously replied to one of his stories.

What if I hadn't replied to the second story?  I would have missed out on so much valuable economic discussion.

Recently we've been trading thoughts in the comments section of this blog entry... A Penguin Introduces Henry Farrell To Ronald Coase.  Here's my reply to his most recent comment...

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I think that I remembered the problem with unbundling WTP and WTA. How do you ensure the accuracy/legitmacy of the WTA?  Russ Roberts can input that his WTA for Trump is a gazillion dollars. Tucker Carlson can input that his WTA for Clinton is $100 gazillion dollars.  Then what?

Consider an issue like abortion.  It either is, or isn't, legal. If WTP and WTA are unbundled, then what's to stop people from entering the maximum possible WTA? We can certainly limit the amount that everybody can enter to a million dollars.  But then everybody just puts a million dollars for their WTA. So it provides absolutely no useful/trustworthy/credible info.

When it comes to the legality of abortion, is it possible that there isn't a transaction that enhances welfare?  Nope.  Maximizing the welfare enhancement of the transaction depends on determining how much each side is willing to sacrifice.  The winning side will be the side that is willing to spend the most money, all of which will be given to the losing side.

No matter which system is used, it's a logical fact that one side is going to get its way.  Should it get its way for free?  This is the premise of voting.  But I'm pretty sure that this premise is fundamentally horrible and incredibly detrimental.  Everyone would immensely benefit if everyone could clearly see and know the cost of what they want.  Then, and only then, could they make adequately informed decisions about whether what they want is truly worth it.

Imagine that Elizabeth wants abortion to be illegal.  How badly does she want it?  Is she willing to sacrifice the opportunity to buy a pair of shoes, or a laptop, or a car, or a house?  What is she willing to exchange?

Markets work because they facilitate the comparison of value/importance/relevance.  Our desires greatly exceed our dollars so we have no choice but to prioritize.  This is how society’s limited resources are put to more, rather than less, valuable uses.  This is how we minimize the irrelevant uses of society’s limited resources.

I take it as a fact that people really don’t appreciate the comparison aspect of markets.  My proof is that so many places/spaces aren’t markets!  This means that people do not directly compare the value of so many different things, which means that so many of society's limited resources are irrelevantly used. 

You asked about how coasianism, specifically bundling WTP and WTA, would work when there are several presidential candidates.  In this case, I’m not sure if coasianism would be the best option.  Coincidentally, here’s what I recently posted on the Debate.org website

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Thanks for responding to my argument. If you get a chance, check out the thread I posted in the economics forum.

My argument is that spending is always better than voting. Presidents should be chosen by spending rather than by voting. Here are three ways that this could be done...

1. coasian market design (CMD)
2. bee market design (BMD)
3. pragmatarian market design (PMD)

For CMD we will consider Clinton VS Trump. For a fixed amount of time, spenders would have the opportunity to spend as much money as they wanted on their preferred candidate. After the window of participation closed, the totals would be calculated and revealed. Whichever candidate had the biggest total would be the winner. Let's say that Trump was the winner. All the spenders for Clinton would receive a full refund. Plus, they'd proportionally receive all the money that had been spent for Trump. Unlike voting, CMD is a win-win situation. You either get your preferred candidate, or you get compensated.

BMD would be a better option if we wanted to choose the president from a larger list of candidates...

Bernie Sanders
Chris Christie
Darrell Castle
Donald Trump
Evan McMullin
Gary Johnson
Hillary Clinton
James Hedges
Jeb Bush
Jill Stein
Marco Rubio
Mimi Soltysik
Ted Cruz
Tom Hoefling
Rand Paul
Rocky De La Fuente

Spenders could use their donations to determine the best order of the candidates. Whichever candidate was at the top when the window of participation had closed would be the winner. The government would keep all the money. So BMD essentially kills two birds with one stone...

1. Valuating
2. Fundraising

With PMD, people would use their tax dollars to determine the best order of the candidates. The candidates would keep all the tax dollars that had been allocated to them.

Your concern with replacing voting with spending is that bias exists in the world. Let's say that right now everybody is biased against robot candidates. In this case, no matter whether we used voting or spending, a robot candidate would not be elected. The next decade 90% of the citizens are biased against robot candidates. If voting was used, it's definitely going to be tyranny of the biased majority and the robot candidate will not be elected. If we used spending though, there's some chance that the robot candidate will be elected.

It took over 200 years to elect our first black president. We still haven't had a woman president, or an (openly) gay president, or an (openly) atheist president, or... it's a long list. I really don't think that voting in any way, shape or form helps to overcome detrimental biases held by the majority of the citizens. Spending, on the other hand, would facilitate the elimination of detrimental biases.

Think about backpacking. Before you go backpacking you have to decide whether things you want to take are worth the effort of carrying them. Sure, you'd love to take a big bottle of Tequila, but is it worth the effort of carrying it? Knowing, considering and comparing the carrying costs/benefits of different things allows you to make more rational decisions. In the absence of knowing, or paying, the carrying costs... it's impossible for your carrying decisions to be maximally rational.

Replacing voting with spending would allow everyone to consider and compare the actual costs of the things they want. Then, and only then, will people make maximally rational decisions.

"As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market. A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom." - Loren Lomasky, Democracy and Decision

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Earlier this year the Libertarian Party (LP) used a BMD to choose its convention theme…

$6,327.00 - I"m That Libertarian!
$5,200.00 - Building Bridges, Not Walls
$1,620.00 - Pro Choice on Everything
$1,377.77 - Empowering the Individual
$395.00 - The Power of Principle
$150.00 - Future of Freedom
$135.00 - Life, Liberty and the Pursuit of Happiness
$105.00 - Rise of the Libertarians
$75.00 - Free Lives Matter
$42.00 - Be Me, Be Free
$17.76 - Make Taxation Theft Again
$15.42 - Taxation is Theft
$15.00 - Jazzed About Liberty
$15.00 - All of Your Freedoms, All of the Time
$5.00 - Am I Being Detained!
$5.00 - Liberty Here and Now

This system could work just as well for choosing presidents.  I wonder how much money the government would raise?

Classtopia’s Communication Department uses a BMD for blog entries.  So far it has raised $30 dollars. 

Next month, as you already know, my epiphyte society plans on using a BMD for show entries.

It would be quite excellent if a BMD was also used for forum threads!  Econhub provides an exceptionally good opportunity to do so.  Not sure how much you know about it, but it was recently created in order to compete the Economics Job Market Rumors (EJMR) forum out of existence.  I wrote about it here.

The response to Econhub has been underwhelming, to say the least.  So far there are only 17 members.  It would really suck to let a brand new economics forum go to waste.  So we should really put it to good use.

If we created a BMD for Econhub, then the donated money could be used to draw the public’s attention to a page that listed the most important threads.  Hopefully this would result in more people joining the forum and substantially participating in the prioritization process.

I shared this idea on Econhub but the owner hasn't responded to it yet.  It would be nice to have him on board but it isn't essential.  A Google sheet would be used to store the data, which could be displayed on a webpage of our choice.  This is the page that we'd promote with the donations.

Maybe I'm a bit biased, but it really doesn't sound so crazy to pool our money in order to promote the best economic ideas.