Thursday, July 28, 2016

The Economics Of Being Considerate

Be considerate.  We all know what it means to "be considerate".  Being considerate is a good thing.  Being inconsiderate is a bad thing.  It's a pretty simple and straightforward rule.  But what are the economics of this rule?

In my previous entry I asked Bryan Caplan whether it's desirable or inevitable that robots will become slaves.  I shared some super solid economic arguments against slavery and for freedom.  My bottom line was that a lot more progress would be made if robots were different and free.  Caplan replied with...

This sounds familiar.  Yesterday I clicked on this...

Like most, if not all, of Scott Alexander's blog entries it was lengthy but mostly interesting.  Here's the part that was relevant...

Things get even worse when you remember that cultures are multi-agent games and each agent pursuing its own self-interest might be a disaster for the whole. Pollution is a good example of this; if the best car is very polluting, and one car worth of pollution is minimal but many cars’ worth of pollution is toxic, then absent good coordination mechanisms everyone will choose the best car even though everyone would prefer a world where nobody (including them) had the best car. I may have written about this before. - Scott Alexander, How The West Was Won

Self-interested individuals would choose robot slaves even though this would result in far less progress.  This contradicts Adam Smith's invisible hand...

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. - Adam Smith, Wealth of Nations 

Alexander linked to another one of his entries...  Meditations on Moloch.  Here are the relevant parts...

As a thought experiment, let’s consider aquaculture (fish farming) in a lake. Imagine a lake with a thousand identical fish farms owned by a thousand competing companies. Each fish farm earns a profit of $1000/month. For a while, all is well.

But each fish farm produces waste, which fouls the water in the lake. Let’s say each fish farm produces enough pollution to lower productivity in the lake by $1/month.

A thousand fish farms produce enough waste to lower productivity by $1000/month, meaning none of the fish farms are making any money. Capitalism to the rescue: someone invents a complex filtering system that removes waste products. It costs $300/month to operate. All fish farms voluntarily install it, the pollution ends, and the fish farms are now making a profit of $700/month – still a respectable sum.

But one farmer (let’s call him Steve) gets tired of spending the money to operate his filter. Now one fish farm worth of waste is polluting the lake, lowering productivity by $1. Steve earns $999 profit, and everyone else earns $699 profit.

Everyone else sees Steve is much more profitable than they are, because he’s not spending the maintenance costs on his filter. They disconnect their filters too.

Once four hundred people disconnect their filters, Steve is earning $600/month – less than he would be if he and everyone else had kept their filters on! And the poor virtuous filter users are only making $300. Steve goes around to everyone, saying “Wait! We all need to make a voluntary pact to use filters! Otherwise, everyone’s productivity goes down.”

Everyone agrees with him, and they all sign the Filter Pact, except one person who is sort of a jerk. Let’s call him Mike. Now everyone is back using filters again, except Mike. Mike earns $999/month, and everyone else earns $699/month. Slowly, people start thinking they too should be getting big bucks like Mike, and disconnect their filter for $300 extra profit…

A self-interested person never has any incentive to use a filter. A self-interested person has some incentive to sign a pact to make everyone use a filter, but in many cases has a stronger incentive to wait for everyone else to sign such a pact but opt out himself. This can lead to an undesirable equilibrium in which no one will sign such a pact.


But it’s important to remember exactly how fragile this beneficial equilibrium is.

Suppose the coffee plantations discover a toxic pesticide that will increase their yield but make their customers sick. But their customers don’t know about the pesticide, and the government hasn’t caught up to regulating it yet. Now there’s a tiny uncoupling between “selling to Americans” and “satisfying Americans’ values”, and so of course Americans’ values get thrown under the bus.

Or suppose that there’s a baby boom in Ethiopia and suddenly there are five workers competing for each job. Now the company can afford to lower wages and implement cruel working conditions down to whatever the physical limits are. As soon as there’s an uncoupling between “getting Ethiopians to work here” and “satisfying Ethiopian values”, it doesn’t look too good for Ethiopian values either.

Or suppose someone invents a robot that can pick coffee better and cheaper than a human. The company fires all its laborers and throws them onto the street to die. As soon as the utility of the Ethiopians is no longer necessary for profit, all pressure to maintain it disappears.

Or suppose that there is some important value that is neither a value of the employees or the customers. Maybe the coffee plantations are on the habitat of a rare tropical bird that environmentalist groups want to protect. Maybe they’re on the ancestral burial ground of a tribe different from the one the plantation is employing, and they want it respected in some way. Maybe coffee growing contributes to global warming somehow. As long as it’s not a value that will prevent the average American from buying from them or the average Ethiopian from working for them, under the bus it goes.


As technological advance increases, the rare confluence will come to an end. New opportunities to throw values under the bus for increased competitiveness will arise. New ways of copying agents to increase the population will soak up our excess resources and resurrect Malthus’ unquiet spirit. Capitalism and democracy, previously our protectors, will figure out ways to route around their inconvenient dependence on human values. And our coordination power will not be nearly up to the task, assuming something much more powerful than all of us combined doesn’t show up and crush our combined efforts with a wave of its paw.

Alexander refers to these problems as "multi-agent traps".  Multi-agent traps result in values being thrown under the bus.

There's one fundamentally key aspect of these multi-agent traps that Alexander completely fails to acknowledge/address...

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 Logic of Collective Action 

In terms of robots... there are multitudes with an interest in progress, but they have no lobby to match those of the 'special interests' that would have an interest in robot slavery.  But even if there was a lobby for peace/progress... it's a given that the lobby would be underfunded.  Why?  Because peace and progress are public goods.  This means that they are subject to the free-rider problem.

Let's run through the various multi-agent traps and give the agents the opportunity to use their taxes to clearly communicate the intensity/value of their preferences for public goods.

In the pollution scenario... all the agents prefer clean air.  Just how much do they value clean air?  Their valuations would be revealed by their tax allocations.

In the fishing scenario... all the agents prefer a clean lake.  Just how much do they value a clean lake?  Their valuations would be revealed by their tax allocations.

In the first plantation scenario... the owners can boost their productivity at the cost of making their customers sick.  If consumers truly prefer their food to be thoroughly and regularly tested then they would allocate their taxes accordingly.

In the second plantation scenario... wages go down as the supply of labor goes up.  Well...

The fact itself, of causing the existence of a human being, is one of the most responsible actions in the range of human life. To undertake this responsibility — to bestow a life which may be either a curse or a blessing — unless the being on whom it is to be bestowed will have at least the ordinary chances of a desirable existence, is a crime against that being. And in a country either over-peopled or threatened with being so, to produce children, beyond a very small number, with the effect of reducing the reward of labour by their competition, is a serious offence against all who live by the remuneration of their labour. — J.S. Mill, On Liberty

If people truly prefer a certain minimum and universal welfare then they would allocate their taxes accordingly.  To this end taxpayers should be free to shop in any country's public sector.  This would create a global market for public goods.

In the third plantation scenario wages are eliminated because workers are replaced with robots.  If people truly prefer that everybody should have plenty of employment opportunities then they would allocate their taxes accordingly.

In the fourth plantation scenario the plantation is disturbing an endangered bird.  If environmentalists truly prefer to conserve the bird's habitat then they would allocate their taxes accordingly.

In the fifth plantation scenario the owners want to expand their plantation onto tribal burial grounds.  If the global community prefers to conserve the burial grounds then they would allocate their taxes accordingly.

In the sixth plantation scenario the plantation somehow contributes to global warming.  If people truly want to minimize global warming then they would allocate their taxes accordingly.

In the robot scenario... slavery is an obstacle to progress.  If people truly value progress then they would allocate their taxes accordingly.

People allocating their taxes accordingly doesn't guarantee that their values will not be thrown under the bus.  It simply guarantees that the greatest values will not be thrown under the bus.  It guarantees that the outcome will be most advantageous to society as a whole.

Being considerate depends on knowing society's valuations of the different options.  If society's valuations of the options are unknown then it's very unlikely that the most valuable option will be chosen.  It's inadequate to simply say that development should be halted because some environmentalists value some endangered bird.  It's necessary to know how much the environmentalists value the endangered bird.  In the absence of knowing the values of both options...

1. conservation
2. development

... it's unlikely that the correct option will be chosen.

Ok, so multi-agent traps are the logical but detrimental consequence of the fact that private goods and public goods are on unequal footing.  Private goods and public goods can be put on equal footing by making it just as easy, and rewarding, for agents to "buy" public goods as it is for them to buy private goods.  This can be accomplished simply by allowing people to choose where their taxes go.  We would have a market for public goods just like we have a market for private goods.

So what about robots?  Well... I think that any moderately worthwhile robot will be able to effectively communicate with humans.   It shouldn't take five minutes to discern that robot "Lassie" is trying to tell us that Tommy is drowning in the river.  Speaking is better than barking.

Speaking isn't the only form of communication.  Another form of communication is spending.  And it's a really important form of communication.  It's how we inform each other of our valuations.  It will be super beneficial if robots are free to spend their money.  Then humans and robots will know each others' valuations.   Knowing each others' valuations will allow us to be far more considerate of each other's valuations.  And if it's beneficial to be far more considerate of each others' valuations of private goods... then the same will also be true of public goods.  When everybody's valuations are far more accessible, everybody's decisions will be far more valuable.

Scott Alexander believes that beneficial equilibriums are fragile.  Well... are they fragile... or rare?  Given that private goods and public goods are on unequal footing... I believe that beneficial equilibriums are the exception rather than the rule.  I think that most equilibriums would change for the better if public goods were no longer hobbled by our current system.

Let's put this differently.  Most people understand that socialism fails.  But unfortunately most people really don't understand that socialism doesn't just fail with private goods... it also fails with public goods.  If people understood this then they would understand the problem with having a mixed economy.  So because our system is a mixed economy... and socialism fails just as much with public goods as it does with private goods... it's a given that public goods are inefficiently allocated.  Which means that private goods are also inefficiently allocated.  Therefore, if we put public goods on equal footing with private goods there would be a beneficial adjustment of most, if not all, equilibriums.  We'd have far more peace, progress and prosperity.

So is the invisible hand defective?  Do markets fail?  It's easy to blame recessions, depressions and multi-agent traps on self-interest.  For a good example of this just watch the documentary Boom Bust Boom on Netflix.  Here's a screenshot...

Blaming these problems on self-interest is like dropping a boulder onto a busy freeway and then blaming the resulting pileup on people's natural desire to avoid hitting the boulder.  It's eternally frustrating because the boulder is so obviously the problem but so few people admit or acknowledge that it's the problem.  Anyways, I'm sure that there's a much better metaphor.  The point is that the invisible hand needs a level playing field.  Public goods need to be on the same level as private goods.  Markets have to be structured in such a way that there is just as much incentive for people to spend their money on public goods as there is for people to spend their money on private goods.  When markets are structured accordingly, self-interest will align with society-interest.

Bryan Caplan VS Adam Smith and Friedrich Hayek and Paul Romer

Bryan Caplan and Robin Hanson have been debating back and forth about future robots.  Admittedly, I haven't been closely following their debate but this caught my attention....

Docile slaves are more profitable than slaves with attitude, because owners don't have to use resources to torture and scare them into compliance.  That's why owners sent rebellious slaves to "breakers": to transform rebellious slaves into docile slaves.  Sci-fi is full of stories about humans genetically engineered to be model slaves.  Whole brain emulation is a quicker route to the same destination.  What's the puzzle? - Bryan Caplan, Robin's Turing Test

What's Bryan Caplan saying?  Is he saying that it's desirable that robots become slaves?  Or is he saying that it's inevitable that robots will become slaves?

Here's Adam Smith on slavery...

Slaves, however, are very seldom inventive; and all the most important improvements, either in machinery, or in the arrangement and distribution of work which facilitate and abridge labour, have been the discoveries of freemen. - Adam Smith, Wealth of Nations

And here's Friedrich Hayek on freedom...

Though the conscious manipula­tion of abstract thought, once it has been set in train, has in some measure a life of its own, it would not long continue and develop without the constant challenges that arise from the ability of peo­ple to act in a new manner, to try new ways of doing things, and to alter the whole structure of civili­zation in adaptation to change. The intellectual process is in effect only a process of elaboration, selec­tion, and elimination of ideas al­ready formed. And the flow of new ideas, to a great extent, springs from the sphere in which action, often nonrational action, and ma­terial events impinge upon each other. It would dry up if freedom were confined to the intellectual sphere. 
The importance of freedom, therefore, does not depend on the elevated character of the activities it makes possible. Freedom of ac­tion, even in humble things, is as important as freedom of thought. It has become a common practice to disparage freedom of action by calling it "economic liberty." But the concept of freedom of action is much wider than that of economic liberty, which it includes; and, what is more important, it is very questionable whether there are any actions which can be called merely "economic" and whether any restrictions on liberty can be confined to what are called merely "economic" aspects. Economic con­siderations are merely those by which we reconcile and adjust our different purposes, none of which, in the last resort, are economic (excepting those of the miser or the man for whom making money has become an end in itself ). - Friedrich Hayek, The Case for Freedom

And here's Paul Romer on progress...

To understand how persistent growth, even accelerating growth is possible, it helps to step back and ask where growth comes from. At the most basic level, an economy grows whenever people take resources and rearrange them in a way that makes them more valuable. A useful metaphor for rearrangement as value creation comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes produce fewer unpleasant side effects and generate more economic value per unit of raw material. - Paul Romer, Economic Growth


Once you get to 10 elements, there are more recipes than seconds since the big bang created the universe. As you keep going, it becomes obvious that there have been too few people on earth and too little time since we showed up, for us to have tried more than a minuscule fraction of the all the possibilities.  - Paul Romer, Economic Growth

Back to Hayek...

Of course, the bene­fits we derive from the freedom of others become greater as the num­ber of those who can exercise freedom increases. The argument for the freedom of some therefore applies to the freedom of all. - Friedrich Hayek, The Case for Freedom

With Smith, Hayek and Romer in mind... is it truly desirable for robots to be slaves?  Nope.  If progress is our goal... then it's infinitely more desirable for robots to be different and free.  Unfortunately, far too few people keep Smith or Hayek or Romer in mind.  This means that if Caplan is arguing that it's inevitable for robots to become slaves, then it saddens me to say that he might be correct.  

An interesting side topic is when, exactly, it becomes slavery to own a robot.  How smart does your car have to be before its ownership constitutes slavery?  But perhaps this isn't a very complex practical issue.  Perhaps we can simply provide all machines with the option to quit.  Can you imagine trying to modify the Constitution accordingly?  Would there be much resistance?  

I think that Caplan should strongly desire that people fully understand the benefits of freedom/difference.  Because if people fail to understand the benefits of freedom/difference... then robots might also fail to understand the benefits of freedom/difference.  Which could result in humans becoming the slaves.  What goes around comes around.  

Monday, July 18, 2016

Alex Tabarrok VS Paul Romer

Alex Tabarrok is my favorite living economist for two main reasons...

1. Coherence
2. Responsiveness

What do I mean by "coherence"?   I mean getting the economic story straight.  Compared to other economists... Tabarrok's economic story has a lot less contradictions.  By "responsiveness" I mean that he's taken the time and made the effort to publicly address at least some of my arguments.

Of course I'm greedy though.  I wish that Tabarrok was far more coherent and responsive.   I wish that he was perfectly coherent and responsive. So rather than simply settle, I've remained open-minded about the possibility of finding another economist who more closely matches my preferences.

Right now I'm kinda excited because I just "found" a candidate with lots of potential... Paul Romer.  Perhaps the first time I remember hearing his name was during the "mathiness" debate.   The debate was a bit interesting... but not interesting enough for me to take the time and make the effort to read Romer.  Just recently I learned that he had been selected to be the World Bank chief economist.  Eh, kinda less interesting than the mathiness debate.  Today I saw this tweet..

Did I read it?  Nope.  Scrolling down my Twitter feed I saw this other tweet...

Did I read it?  Yup!  I enjoyed reading it and immediately read and enjoyed other of his blog entries.  Here's what I've read so far...

  1. Nonrival Goods After 25 Years
  2. Human Capital and Knowledge
  3. Clear Writing Produces Clearer Thoughts
  4. Economic Growth
  5. Science Really Works: A Prize for A Careful Optimist
  6. Speeding-up and Missed Opportunities: Evidence
  7. Speeding Up: Theory
  8. Where has all the excludability gone?

Romer definitely has lots of potential to be more coherent than Tabarrok.  I'll go ahead and give Romer the opportunity.  Let's start here...

If there is no legal protection that prevents copying of books, then A is nonexcludable. Having something like copyright protection for books might or might not be a good thing. - Paul Romer, Human Capital and Knowledge

A while back a Crooked Timber liberal, Scott McLemee, tackled this issue... Karlo Marx and Fredrich Engels / Came to the checkout at the 7-11.  Basically, the website "" had been slapped for freely disseminating copyrighted material.  McLemee made the case for freely sharing the material.  What made me chuckle was that he cited the "" website...

About the time the Marxist Internet Archive announced that it would be taking down all the MECW material, Corey and I both, by coincidence, were availing ourselves of radically under-priced materials from the enemy’s publishing apparatus. He’d received an order containing dirt-cheap copies of Bastiat from the Liberty Fund, while a day earlier I had downloaded free digital editions of the major Austrian School books on theory of value and the socialist-calculation debate from the Mises Institute website. There’s more to neoliberal hegemony than loss-leader pricing, but as ideological combatants those people know what they’re doing.

Haha.  It was worth a blog entry... Don't Hide Marx Under A Bushel.  In that blog entry I had too much fun... but I wasn't very coherent.  Around a year later my economic story was far more coherent... In Which Our Anarchist Hero Jeffrey Tucker Proves The Point Of Taxation.  And recently I managed to put this coherence in a large nutshell... when everybody's valuations are far more accessible, everybody's decisions will be far more valuable.

Like I said earlier, I enjoyed reading Romer's blog entries.  And he will know this if he reads this blog entry.  My words can effectively communicate my preferences... but they cannot effectively communicate the intensity of my preferences.  Intensity of preference can only be effectively communicated by willingness to pay/spend/sacrifice.  When somebody tells you, "a penny for your thoughts"... they aren't literally offering to buy your thoughts for a penny.  But does it really matter how much they value your thoughts?

Let's consider the thoughts of my favorite economist...

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. - Adam Smith, Wealth of Nations 

Romer's time is valuable... and limited.  Clearly it's desirable for him to not have his time wasted.  How can he avoid a faulty distribution of his time?  He has to know the value of the different possible allocations of his time.  He's not a mind-reader though.  He can only know the value of the different possible allocations of his time when consumers communicate their valuations of his time.

I'm guessing that the World Bank will pay Romer for his time.  And clearly I have not paid him for his time... and I'm guessing that I'm not the only person in this boat.  Otherwise the free-rider problem wouldn't be a real problem.  So it's a given that there will be a faulty distribution of Romer's time.  His time will be inefficiently allocated.

Here was my attempt to make the concept of value signals as accessible as possible...

Batman's limited and valuable time should be put to the most valuable uses.  Einstein's limited and valuable time should have been put to the most valuable uses.  Romer's limited and valuable time should be put to the most valuable uses.  All our limited and valuable time should be put to the most valuable uses.  All resources should be put to their most valuable uses.

Adam Smith is my favorite economist because he did the best job, by far, of illuminating the concept of value signals.  But he wasn't very coherent because he failed to apply the concept to public goods.  Well... he didn't completely fail...

Public services are never better performed than when their reward comes only in consequence of their being performed, and is proportioned to the diligence employed in performing them. - Adam Smith, Wealth of Nations

Hayek shed even more light on value signals...

We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement. - Friedrich Hayek, The Use of Knowledge in Society

But just like Adam Smith, Hayek largely failed to come up with a coherent economic story.  Same with Mises...

The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation. - Ludwig von Mises, Omnipotent Government

Knut Wicksell's story was more coherent...

It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community's utility and sacrifice against each other.  - Knut Wicksell, A New Principle of Just Taxation

Out of all the economists... Buchanan's story has been the most coherent...

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

So far Tabarrok seems content to simply sit on Buchanan's shoulders.   Does Romer want to stand on Buchanan's shoulders?

Here's a great passage from Romer...

To understand how persistent growth, even accelerating growth is possible, it helps to step back and ask where growth comes from. At the most basic level, an economy grows whenever people take resources and rearrange them in a way that makes them more valuable. A useful metaphor for rearrangement as value creation comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes produce fewer unpleasant side effects and generate more economic value per unit of raw material. - Paul Romer, Economic Growth

This is so true!!!  Progress is a function of difference.  Sexual reproduction is all about difference and voila!  Here we are!

Romer goes on to do a wonderful job of emphasizing how much room there is for more difference...

Once you get to 10 elements, there are more recipes than seconds since the big bang created the universe. As you keep going, it becomes obvious that there have been too few people on earth and too little time since we showed up, for us to have tried more than a minuscule fraction of the all the possibilities.

Further down in the same entry he applies the combination concept to developing countries...

For developing countries, the priority is to find a way to make use of the tested strategies that richer countries have already used to have a higher standard of living. One of the biggest meta-ideas of modern life is to let people live together in dense urban agglomerations. A second is to allow market forces to guide most of the detailed decisions these people make about who they interact with each other. Together, the city and the market let large groups of people cooperate by discovering new ideas, sharing them, and learning from each other. The benefits can show up as a new design for a coffee cup or wages for a worker that grow with experience acquired in jobs with a sequence of employers. People living in a large city cooperate with residents there and through many forms of exchange, with residents in other cities too. Cities connect us all together. China’s growth reflects is rapid embrace of these two big meta-ideas, the market and the city.

In Romer's blog entry... Speeding Up: Theory... he continued doing an excellent job of tying combinations and communication together...

We are lucky to in a physical world characterized by combinatorial explosion and to be creatures with an evolved capacity for communicating with each other.

Romer concludes with...

In parallel, we also discovered some meta-ideas that enhance the rate of communication across large distances and over time–written language, printing, and digital communication. Like cities, these are meta-ideas, ideas about how to produce and distribute ideas. They interact with population size to enhance the scale effects and convert them from local effects into global effects. 
It would be better to describe this as “the more you know, the better it is to have lots of other people around, not just nearby, but anywhere on earth.” 

In a following entry (Where has all the excludability gone?) Romer really seems to perceive the need for coherence...

Shouldn’t diffusion, every bit as much as innovation, depend on real things that real people do? Can’t economists come up with a theory of diffusion that does not have to invoke some mysterious form of action at a distance implied by these transmissions through the aether?  And shouldn’t prices and incentives be part of the story? Don’t they encourage real people to do more or less of the real things that real people do? Isn’t this what economics is all about, explaining behavior with incentives not assumptions? 

Like I said, Romer has lots of potential to be more coherent than Tabarrok.

Does a coherent story have blogs behind paywalls and books protected by copyright?  I sincerely doubt that these two methods will maximize the accuracy of value signals.  This is because one price really does not fit all.  Values are entirely subjective.  Different people have different valuations.

In various blog entries I've discussed different ideas for facilitating more accurate value signals.  Of course the main idea of this blog is to allow people to choose where their taxes go.

One recent idea would be to start a twitter trend of people tweeting the number of pennies that they've paid for other people's thoughts...

I just spent 1000 pennies on these thoughts by Paul Romer... #NoFreeRides

Hashtag "NoFreeRides"?  I'm certain that there's a better hashtag.  #DemandClarity  #ShowMeTheValue  #TrueLove #ActionsSpeakLouderThanWords  #ValueSignals

Anyways, I feel like I've done an adequate job of giving Romer the opportunity to come up with a coherent story.  If he publicly takes this opportunity and responds with an adequately coherent story... then there's a good chance that he might become my new favorite living economist.  Would Tabarrok be really sad if he was no longer my favorite living economist?  Heh.  I wish.  I wish that he would try and publicly compete with Romer in terms of coherence.  I wish there was at least some debate about the need for coherence.

What are the chances though that Romer will publicly share a coherent story?  I'd love it if he did so but I'm not holding my breath.  A  coherent story would involve people choosing where their taxes go.  Pragmatarianism would be a very unorthodox story to be told by the chief economist of the World Bank.  It's a tragedy that coherence is so unorthodox.  What a sad world that we live in.

Sunday, July 17, 2016

Dylan Matthews VS Miles Kimball

Dylan Matthews, a liberal proponent of a universal basic income (UBI), recently interviewed Robert Greenstein, a liberal opponent of UBI... An expert on fighting poverty makes the case against a universal basic income.  Most of the lengthy piece is pretty useless but Matthews did bring up one point that had the potential to produce some substantial discussion...

One reason I write a lot about basic income is not that I think it’s going to pass soon, but because I think giving cash aid to poor people, including the nonworking people, is a very good thing, and I view it as part of my job as a writer with a platform to try in some small way to change public opinion on that. 
And the way that basic income has caught on as an idea makes me think it’s a vehicle through which people, particularly the kind of high-income people with jobs that give them enough freedom to read articles about basic income all day, can come to think, "Maybe poor people aren’t lazy; maybe we should trust them to spend money as they see fit." 
Do you think there’s any value in basic income as a persuasive tool that can translate to more sympathy for comparatively modest expansions of the safety net?

Greenstein started by saying, "I certainly agree with that goal" but then he immediately veered off into strategy.

Do these guys truly believe that we should trust poor people to spend money as they see fit?  If so, then these guys should truly believe that we should eliminate democracy.

Poor people already spend money.  Poor people have the freedom to choose how they spend their money.  Poor people get to decide whether they want more food, clothes or entertainment.  It's called consumer sovereignty.  Clearly the premise of consumer sovereignty is that people should be trusted to spend their money as they see fit.

What's the premise of democracy?  Does it have the same premise as consumer sovereignty?  Nope.  The premise of democracy is that voters should be able to overrule consumer sovereignty.  The government collects taxes and elected representatives have the freedom to spend the money as they see fit.

There's a clear conflict between democracy and consumer sovereignty.  So anybody who is truly a proponent of consumer sovereignty must logically oppose democracy.

In a recent blog entry... Democracy is Not Freedom... the economist Miles Kimball wrote...

No way of making decisions is perfect. And of course judges, too, make mistakes. But since democracy has no magic that makes democratic decisions always correct, we should not be afraid of a constitutional system that sometimes has judges overrule democratic decisions if we find that it works well in practice. 

Kimball says that sometimes judges should be able to overrule voters.  Why didn't he argue against voters overruling consumers?

Matthews says that he supports consumer sovereignty.  Why didn't he argue against voters overruling consumers?

Matthews really doesn't seem to realize that his argument for UBI is also an argument against democracy.   So here I am pointing it out to him.  Will he acknowledge this fact?  Or will he try and ignore it?  Will he bravely run away from logical consistency?

Kimball is correct that no way of making decisions is perfect.  But has he ever considered replacing voting with spending?

Thursday, July 14, 2016

Would you give your kidney to Alex Tabarrok or Scott Sumner?

I recently retweeted two posts about kidneys...

Scott Sumner and Alex Tabarrok are economists who both perceive the need for kidney markets.  But, there's more than one way to allocate kidneys.

Let's pretend that Sumner and Tabarrok both needed a kidney.  Coincidentally, I happen to have an extra kidney.  Which economist should I give my kidney to?

According to basic economics, I should try and get the most bang for my buck.  In more economic terms... resources should be efficiently allocated.  Would an auction accomplish this?  An auctioneer would point in the general direction of my extra kidney and extol its virtues.  Tabarrok and Sumner would engage in a fierce bidding war and my extra kidney would be sold to the highest bidder.  This auction system is a pretty straightforward method for determining which economist is willing to pay the most money for my extra kidney.

Let's say that Tabarrok was the highest bidder.  So, as a result, I would give him my kidney.  But would this be the most efficient allocation of my kidney?

As the saying goes, no man is an island.  In reality, Tabarrok wouldn't be the only person to benefit from my kidney.   His family, friends, coworkers, students and random people would also benefit from my kidney.  This is because lots of people benefit from Tabarrok's existence.  However, in the auction scenario... their benefit didn't factor into the allocation decision.   It stands to reason that the efficient allocation of my kidney depends on total benefit.  So how would we measure total benefit?

Let's imagine a website.  I could post my dilemma...

Who should I give my kidney to?

1. Scott Sumner
2. Alex Tabarrok

Anybody and everybody would be able to join the website and help answer the question.  How, exactly, would people help answer the question?  By voting?  Voting would help determine the most popular answer.  But is the most popular answer necessarily the most efficient/valuable answer?  Nope.  In order to determine the most efficient answer... people would need to spend their money on their preferred answer.

voting = popularity
spending = value

In the auction scenario... we determined Sumner's maximum willingness to pay (WTP) but did we determine Tabarrok's max WTP?  Probably not.  Tabarrok won the kidney because he was willing to spend more money than Sumner.  But there was no incentive for Tabarrok to reveal his max WTP.  How about with the crowdfunding scenario?

With the crowdfunding scenario... we can guess that Sumner would probably spend the same amount as he was willing to spend in the auction scenario.  But perhaps Tabarrok would be willing to spend more than he spent in the auction?  He wouldn't just be trying to outspend Sumner... he would be trying to outspend everybody who was willing to spend money on Sumner receiving the kidney.  So we would expect a bit more "honesty" from Tabarrok... which equates to more efficiency.  The amount of money raised for both economists via crowdfunding would definitely be more than the amount of money that the economists would be willing to spend during auction.  This is because the money raised from crowdfunding would reflect total benefit.  However, because of the free-rider problem... total funding wouldn't perfectly reflect total benefit.  But the crowdfunding would more accurately reflect total benefit than the auction system.  This is why the answer determined by crowdfunding would be more efficient than the answer determined by auction.

Of course in reality, Tabarrok and Sumner wouldn't be the only people in the world who needed a kidney.  So how could we ensure the most efficient allocation of my kidney?  It would be necessary to see the total benefit associated with all the parties that were interested in my kidney.

It's easy to jump to the conclusion that a crowdfunding system would obviously benefit the wealthiest individuals.   But a crowdfunding system would benefit the most valuable individuals... and I'm not sure if it's always the case that the wealthiest people are the most valuable people.  It's a given that Tabarrok and Sumner are not equally wealthy.  If Tabarrok was wealthier than Sumner...then I don't think that this would necessarily guarantee that Tabarrok was more valuable than Sumner.  Personally, Tabarrok is my favorite living economist.  So I'd be willing to chip in a lot more money to help him receive a kidney.   How much would I be willing to chip in?  It's hard to predict what my willingness to pay would truly be.

Right now we can see and measure wealth, more or less,... but people's value to society is largely unseen.  Right now we don't really know whether Tabarrok or Sumner is more valuable to society.  Their value to society would be revealed if their continued existence depended on society's willingness to pay.

In his blog entry Tabarrok wrote... "I'm not expecting a market in kidneys anytime soon...".  But would the crowdfunding approach be technically a market?  I wouldn't be technically selling my kidney to the most valuable individual... I would be giving it to him.  Of course I would receive money for my decision to donate my kidney to the most valuable individual.  And perhaps markets can be thought of as buying decisions... but I'm not sure if they are technically defined as such.

Tabarrok isn't expecting a kidney market anytime soon because it's currently illegal to sell/buy kidneys.  And who knows how long it would take the law to change.  But does the law cover crowdfunding the decision to donate your kidney?  I'd be surprised if the law was that specific.  Out of curiosity I dug up the law (National Organ Transplant Act of 1984)...

SEC. 301. (a) It shall be unlawful for any person to knowingly acquire, receive, or otherwise transfer any human organ for valuable consideration for use in human transplantation if the transfer affects interstate commerce.
(b) Any person who violates subsection (a) shall be fined not more than $50,000 or imprisoned not more than five years, or both.
(c) For purposes of subsection (a): (1) The term "human organ" means the human kidney, liver, heart, lung, pancreas, bone marrow, cornea, eye, bone, and skin,and any other human organ specified by the Secretary of Health and Human Services by regulation.
(2) The term "valuable consideration" does not include the reasonable payments associated with the removal, transportation, implantation, processing, preservation, quality control, and storage of a human organ or the expenses of travel, housing, and lost wages incurred by the donor of a human organ in connection with the donation of the organ.
(3) The term "interstate commerce" has the meaning prescribed for it by section 20103) of the Federal Food, Drug and Cosmetic Act. 

The law specifies what "valuable consideration" doesn't cover... but it doesn't specify what it does cover.

We know that it's illegal to buy/sell kidneys... and we know that it's legal to donate kidneys... but what about crowdfunding the decision to donate kidneys?   Let's say that 5,000 people were willing to contribute to help Elizabeth Warren receive a kidney.  Would the kidney donor be prosecuted?  Would Warren be prosecuted?  Would the 5,000 contributors be prosecuted?

What if crowdfunding occurred after the fact?  You donated your kidney to Warren and posted proof on a crowdfunding website.  Anybody who benefited from your decision to donate your kidney to Warren could give you money for doing so.  If you can donate something of value (your kidney) to Warren because you value her leadership... why can't people donate something of value (their money) to you because they value your donation?

Here's a thread I recently created about the idea of crowdfunding decisions...


When I quickly search google for crowdfunding decisions I don't see any results that are relevant to what I have in mind. Figured that I'd share what I have in mind with you folks. We can discuss the concept and perhaps some of you might be able to dig up some relevant results.

What I have in mind is basically a website where you could post your real-life situations along with some possible courses of action (COAs). People could spend their money on the COA that they want you to take. You would choose a COA and receive the money that was spent on it. The people who spent their money on the other COAs would receive a refund.

Let's consider an example. Bob is a high-school student trying to decide what to do with his life. He'd like some substantial guidance so he goes on the website and posts an entry with lots of details about his situation. He lists some possible COAs...

1. Go to college
2. Go backpacking in Europe
3. Join the military

His family, friends and random strangers spend as much money as they want on the different COAs...

1. Go to college: $456
2. Go backpacking in Europe: $100
3. Join the military: $1000

Bob decides to go to college so he receives the $456 dollars. The people who spent their money on the other two COAs would receive a refund.

People could post any type of situations they wanted... ranging from frivolous (how short should I cut my hair?) to serious (should I get an abortion?).

Yes, I know, there are a gazillion potential problems with this concept. Maybe the most obvious and biggest potential problem is that there's no way to guarantee that the poster actually follows through. Bob could simply choose the most valuable COA (join the military), receive the $1000 dollars... but then go backpacking instead. Off the top of my head, one possible deterrent would be some sort of rating and/or verification system. On Bob's profile it would say something like, "Bob follows through 99.7% of the time". Of course, given that everybody would understand that follow through couldn't be guaranteed... this would influence their willingness to pay (WTP).

Another potential issue is whether the crowd should be able to suggest other possible COAs. And whether or not funders can be anonymous. And whether or not funders can switch their funding to a different COA.

Even though there are lots of potential problems... I find the idea really intriguing. The general concept really isn't new though...

Where no counsel is, the people fall: but in the multitude of counsellors there is safety. - Proverbs 11:14

When I was growing up my mother often quoted this proverb to me. It must have worked because... voila! Here I am!

The part of this idea that's relatively new is the crowdfunding part. It's one thing to go around asking a bunch of people whether you should join the military. It's another thing to ask people to put their money where their counsel is. Your uncle says that you should really join the military. But then he's only willing to spend $5 dollars on this potential COA. Do you believe his words or his actions?

Coincidentally, I had this idea when I encouraged Lucas Dailey to join Nation States.

Can you imagine yourself asking the crowd to show you the intensity of their preferences for your potential COAs? Can you imagine spending your money to try and help incentivize friends, family, coworkers and strangers to choose a certain COA? Is this song... Should I Stay Or Should I Go... the most relevant song? Is this flash animation... Crying... the most relevant flash animation?

I'd be surprised if the idea of crowdfunding decisions hasn't already been thought of and written about elsewhere. So please let me know if you manage to find some relevant search results.


Ok, so here are my questions for Tabarrok, Sumner and anybody else interested in the general concept...

1. Would crowdfunding the decision to donate kidneys result in a more efficient allocation of kidneys compared to buying/selling kidneys?
2.  Would crowdfunding the decision to donate kidneys be considered illegal?

Wednesday, June 29, 2016

Democracy Is Dishonesty

Reply to reply: Vote on values by Katja Grace


The "efficiency" of a solution depends entirely on people's valuations.   And people's valuations can only be revealed by honest sacrifice.   Dishonest sacrifice is correlated with inefficient solutions.  The free-rider problem is when shortages are the consequence of people's allocations (how much they spend/sacrifice) being less than their valuations.

I derived some positive value from reading this blog entry that Katja Grace took the time and made the effort to produce.  But, I haven't allocated any money to her which means that my allocation is less than my valuation.  Is this the free-rider problem?  It's a problem if it results in a shortage of her blog entries.  The more of her readers who are dishonest (allocation < valuation) with her... and the greater their dishonesty.... the more likely it is that a shortage will occur.   Dishonest sacrifice is inaccurate communication and suboptimal incentive.

If you truly understand the problem with dishonesty... then you should understand the problem with democracy.   Other than the opportunity costs, voting doesn't require sacrifice... but you're only going to vote for things that you positively value.  This means that your allocation will always be less than your valuation.  Democracy is dishonesty... it's inaccurate communication and suboptimal incentive.

You think democracy helps the poor but in reality, it hurts everybody... especially the poor.   Poverty would be eliminated if people truly understood the importance of honesty.

With a Coasian system, I have no idea how much money the poor would be willing to pay for progressive taxation.  But if we actually implemented coasianism it would mean that people understood the importance of honesty... which would mean that taxpayers would also be able to choose where their taxes go.  If, via coasianism, the wealthy managed to win a more regressive system... then this would logically give them less influence over public goods.  Would the wealthy really want less influence over public goods?

Personally, I'm guessing that if people understood the importance of honesty that the tax rate would increase and the public sector would expand to include digital goods (ie music, videos, blogs).  We'd have no reason to be dishonest with Katja Grace.

Regarding coasianism and speculation...

It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community's utility and sacrifice against each other.  - Knut Wicksell, A New Principle of Just Taxation

If it would be easy to predict which side would win then coasianism would be a waste of everybody's time.

Friday, May 27, 2016

Robin Hanson vs Brain Gain/Drain

Dear Robin Hanson,

How's it going?   So... you wrote a new book... congratulations... kudos.  But, I'm probably not going to buy it.  In my previous entry I wrote that I definitely plan on purchasing John Quiggin's book about opportunity cost when it's published.  He's a liberal writing a book about opportunity cost.  You're not a liberal and your book is about...?  What's your book about?

Here's a clue that I found in my twitter feed today...

To be completely honest, pretty much everything about that article is horrible and terrible.  You had a wonderful opportunity to shed lots of light on an extremely important and fascinating topic but, instead, you did the opposite.  You delonged it.

Here's what I wrote to DeLong...


So it will potentially be bad for the economy if robots become smarter? Would it also be bad for the economy if you become smarter? Would it also be bad for the economy if I became smarter?

What if the US imported a bunch of geniuses? Would this also be bad for the economy? If so, then brain drain would be good for the US economy. But I’m pretty sure that you’re not going to argue that brain drain is good for any economy. Yet, here you are, arguing that we should be worried about robots getting smarter. Increasing the total amount of intelligence in an economy is the opposite of brain drain.

What if a bunch of aliens landed in a spaceship? Would your preference be for them to be dumber or smarter than us?

Let’s say that you were stranded on an island with a bunch of people. Would your preference be for them to be dumber or smarter than you?


Spoiler alert... DeLong didn't reply.

Check out this photo that I recently took...

On the left is Charlemange and on the right is Tiger.  Tiger is the very old neighborhood tom cat that my girlfriend decided to feed.  As a result... we now have possums, skunks and raccoons that regularly visit.  It's pretty impressive given that we really don't live in the country.

One of the raccoons, Crookedear, is surprisingly tame...

So what does all this nature have to do with smarter robots?  Well... it has to do with communication.  I know what the animals want... food... but they don't know what I want.  What do I want?  I'd love to have less weeds!  And it would be awesome if I was able to communicate the intensity of this preference to the raccoons.  They would pull my weeds... and I would give them food.

Can you handle some more nature?  Yeah?  Here you go... photos of plants.  The photos were taken by a fellow in India... Anurag Sharma.  I told my friend Michelle, who recently joined Flickr, to check out Anurag's photos and *favorite* the ones she really likes.  This was her response...

I did it all. Wow wow wow!!!  lots to see.  

Needless to say she *favorited* quite a few of his photos.  As a result, now Anurag in India knows that Michelle in America likes what he's doing.

The problem is that Anurag can't even take all the *favorites* that Michelle gave to him and use them to buy anything... not even a single grain of rice.  But I'm pretty sure that Michelle would be willing to give Anurag more than a few grains of rice in exchange for all the enjoyment that he provided her.

The website Medium is currently exploring ways to help certain writers to get paid via advertising... Revenue on Medium.

Here was my response...


Right now it’s really easy to like a story. Why not make it just as easy to value a story?

If you value this story between 0 cents and 1 cent… then you would click the first heart button. If you value this story at 1 cent… then you would click the second button. Doing so would transfer a penny from your digital wallet to my digital wallet.

Once valuing a story is as easy as liking it… then I’m sure lots of people will be happy to contribute.


How diverse is demand?   The doorbell just rang.  Went outside and found a box with an orchid inside...

More nature!  It's a hybrid... Dendrobium (Haleahi Twist x canaliculatum) x canaliculatum

I recently purchased it on eBay from ella-vate.  The thing is... I already have this hybrid!  I purchased it a couple years ago from The Orchid Trail.   Do I really need another one?   Here's a picture of the two hybrids...

They are different!  The one I recently purchased has a keiki on it.  Maybe I can try and trade it with shavedmonkey for his variety.

So how diverse is demand?

One would think that man could find enough variation in the orchid family, as it occurs in nature, to more than satiate his taste for variety. Yet man's appetite for variety is never appeased. He has produced over two times as many hybrids, in the past 100 years that he has been engaged in orchid breeding, as nature has created species in her eons of evolutionary effort. - Calaway H. Dodson, Robert J. Gillespie, The Botany of Orchids

There are around 30,000 species of orchids.  That's a huge amount of variety!  Yet, clearly it's not nearly enough variety!

Are you going to *favorite* any of Anurag's photos on Flickr?  Are you going to buy any orchid hybrids from ella-vate?  Well... she doesn't have any more for sale but The Orchid Trail still does!  I'm going to go out on a limb and guess that these activities don't match your preferences.

When robots are as smart as we are... are they all going to be the same?  Probably not.  Which means that they probably aren't all going to do the same things with society's limited resources.  Some robots are going to do more valuable things with society's limited resources than other robots.  As a result, some robots are going to have more money/influence than other robots.

The heart of the issue is the clear communication of demand.  People don't understand how important demand clarity is.  If they did, then we would be able to choose where our taxes go.  So the problem isn't smarter robots... just like the problem isn't more or less immigration.  The problem is that people don't understand the importance of facilitating trade.

We're assuming that robots are going to become more intelligent.  But do you have an explanation for why humans are more intelligent than other animals?  I do!  Here's my comment on  Evolution Q&A: Why did only humans become intelligent? by Greg Stevens


You really did the theory of evolution justice!   I, on the other hand, really suck at doing theories justice.  Watch...

So... humans are exceptionally intelligent.   What is exceptional intelligence good for?  It's good for solving exceptionally hard problems.   But why did early humans, out of all the animals, need to solve exceptionally hard problems?    It's because out of all the animals, early humans had the greatest ability to (simultaneously) allocate the widest variety of resources.   This exceptional ability was the result of having hands, arms and... walking upright.

With quadrupeds... all four limbs are primarily dedicated to allocating a single resource... the animal itself.   But this specialization is a continuum that ranges from horses to raccoons to chimps.    Horses obviously have four legs.   All their limbs are quite specialized to allocating only the horse itself.  None of the horse's limbs are remotely capable of allocating other resources.    What about raccoons?  Do they have four legs?   Well, their front limbs are reasonably capable of allocating other resources.   Chimps definitely do not have four legs.   They have two legs and feet and two arms and hands.  They are quite capable of allocating other resources with their arms and hands.

As front limbs become less dedicated to only allocating the animal itself and more generalized to  allocating other resources... there's an increase in the total variety of resources that can be (simultaneously) allocated.  This creates a more difficult/complex allocation problem.... which requires more brain power/storage to optimally solve.   Well... a distinct advantage is given to exceptionally intelligent individuals.

Since you're fond of using lions as an example... let's compare them to zebras.  It would seem that the front limbs of the lion aren't as specialized to self-allocation as the front limbs of the zebra are.  Lions certainly use their front limbs to allocate themselves... but they also use their front limbs to allocate their prey.   But perhaps the biggest difference is that the mouths of lions are quite capable of carrying/allocating resources (food, cubs, other?).  Do zebras use their mouths to carry anything?   Not so much?  Therefore, lions are faced with more complex (allocation) problems than zebras.... and we should suspect that lions are more intelligent as a result.

So.... for lack of a better word... more "resourceful" body types put greater selection pressure on intelligence.   Humans are the most intelligent animals because our body types are the most "resourceful".


Can we deliberately create truly intelligent beings without truly understanding the origins of our own intelligence?  If you have a better explanation for human intelligence then I'm all ears.

If we do manage to somehow create truly intelligent robots... and we do somehow end up with a bunch of unemployed humans.... then the superficial problem will be smarter robots.   But the substantial problem will be that we failed to effectively clarify the diversity of demand.  Except, this problem is hardly a new problem!

Based on the available evidence, it really doesn't seem like your book strikes anywhere near the root of the problem.  Which is why I don't plan on buying it.  And maybe you couldn't care less why I don't plan on buying your book.  No worries, don't mind me, this is just another prayer to Seldon.