Saturday, December 1, 2012

An Economic Critique of Peer Progressivism

In my last entry I mentioned that I had created Wikipedia stubs for civic crowdfunding and for several prominent organizations in this field.  Immediately after creating the stubs I e-mailed the links to the four organizations and encouraged each one to flesh out their entry.  I also included my two cents on the general topic.

So far only Bryan Boyer, from Brickstarter, has responded to my e-mail.  He chose to give me his own two cents...I chose to reply with two more cents...and in his most recent reply he recommended that I read Steven Johnson's new book....Future Perfect.  Boyer also threw in a link to an excellent discussion that  Johnson and other experts had on the topic of peer progressivism...Has Politics Gone Peer 2 Peer?

Does the ongoing exchange between Boyer and myself fall within the realm of economics?  Definitely!  It's a perfect example of free-trade.  It's the market at work.  We're exchanging our time and partial knowledge with each other.  Yet...for most people...if there aren't price tags attached...or money changing hands...or greedy fat-cat capitalists exploiting everybody and anybody for profit...then the behavior is perceived to fall outside the realm of economics.  What happens when people fail to understand how all behavior can be understood in terms of the universal desire for "gain" to be greater than "loss"?  They unintentionally support conclusions, solutions, recommendations that greatly decrease society's total welfare.    

What's kind of funny is that when Boyer suggested that I read Steven Johnson's book...the name didn't ring any bells.  It wasn't until I did a google search for "peer progressivism" did I realize that, only a few days earlier, I'd read and even commented on an article specifically on Johnson's argument...Peer Progressivism vs. Network Libertarianism.

I'm not sure whether I will purchase Johnson's book...but I might because I really enjoyed the discussion on whether politics has gone peer 2 peer.  What follows is my economic analysis of that discussion.

One example that was used to illustrate the power of the internet...was how the "crowd" completely destroyed the SOPA Act.  This was put in terms of a "button" that's extremely powerful.  The "natural rights" anarcho-capitalist Murray Rothbard fantasized over a button that he could push in order to destroy the state in one fell swoop.  Who decides what's baby and what's bath water?  One person...a small group...the crowd?

Johnson, much like Margaret Flowers, wants to figure out how the button can be used for good.

Here's Flowers brainstorming...
Each of us has a finite number of resources.  So where are you going to put your resources?  Where are you going to put your time and your money?  Are you going to put it into trying to elect somebody into this current system that's broken?  Or are you going to put that into building something? - Margaret Flowers
Here's Johnson brainstorming...
If we can figure out a comparable thing that was an actual project whether it was legislation or something else.  I think there was an argument that Larry's made very persuasively over the last couple of years about campaign finance reform being potentially a great place to start.  
Is campaign finance reform really a great place to start?  Johnson immediately goes on to show his support for participatory budgeting.
I think that's one place where the local story is really important.  I mean I talk in the book about participatory budgeting when you have local communities coming together and saying here are the priorities in my neighborhood and the tax payer dollars get to fund those priorities.  The great thing about that system is that they see things get built.  They have their council meeting and they say, "we need a new sewer line extension here" and then six months later the sewer line extension is there.    
Economies don't function on the basis of merely "saying" what your priorities are.  You can't go to the grocery store, fill your cart up with groceries...and then proceed to tell the cashier that you'll be paying for your groceries with words.  You can, however, write your words down in a book and then allow others to choose whether purchasing your book is a priority for them.  If they perceive that they'll "profit" from exchanging their money for your book...then they will choose to do so.

Merely saying that you want a new sewer line is stating your preference...while spending some portion of your finite resources on a new sewer line is demonstrating your preference.

In How Economists Think...the consequentialist, anarcho-capitalist, economist David Friedman put it like so...
Economics Joke #l: Two economists walked past a Porsche showroom. One of them pointed at a shiny car in the window and said, "I want that." "Obviously not," the other replied.
This opportunity cost concept is conveyed using these two common expressions..."actions speak louder than words"...and "put your money where your mouth is".
Overall, I am for betting because I am against bullshit. Bullshit is polluting our discourse and drowning the facts. A bet costs the bullshitter more than the non-bullshitter so the willingness to bet signals honest belief. A bet is a tax on bullshit; and it is a just tax, tribute paid by the bullshitters to those with genuine knowledge. - Alex Tabarrok, A Bet is a Tax on Bullshit
Economies work on the garbage in, garbage out concept.  If the input is bullshit then the output will be bullshit.  That's why participatory budgeting is bullshit.   Political voting is perfectly fine for many things...but when it comes to determining how finite resources should be used...then it's extremely important that we solely rely on dollar voting.

The typical response from the "left" is to point out that dollar voting is very unfair because wealth is not evenly distributed.  This was the whole point of the Occupy Movement...the idea of the 1% controlling the 99%.  But as Paul Krugman would's simply a problem of liberals not thinking things through.

Understanding the dollar voting concept means understanding that it's the 100% who determines exactly how society's resources are distributed.  It's me deciding whether I should purchase Johnson's book...and it's Johnson deciding whether he should reply to my e-mail.  Is there rhyme and reason to our behavior?  Well...yeah...we all want the most bang for our buck.  If you want an artichoke ..then you'll want two for the price of one.  If you want to save a starving child...then you'll want to save two for the price of saving one.  That's why it would be unfair to disregard all our demonstrated preferences.  But to just use the word "unfair" really doesn't do justice to the inevitable...but unseen...loss of massive amounts of prosperity, progress and abundance.

People can engage in participatory budgeting and consider it progress when they take one step forward...but what they can't see are the 10 steps forward that they sacrificed as a result of disregarding the garbage in, garbage out rule of economics.

Johnson understands so many of the fundamentals...but falls short on individiual valuation...
But, I think most of us agree that by diversifying and decentralizing that process and not just allowing a small tiny slice of the population to have a voice that in the end, more interesting ideas will surface and richer perspectives and solutions to problems will surface
When we shop...we generally do not care whether our spending decisions consolidate or disperse wealth...we just care about results.  Wikipedia and Amazon both produce results and we could care less that one is non-profit while the other has concentrated massive amounts of wealth in Jeff Bezos' wallet.
If you look at Wikipedia for's extraordinary that it works. It's extraordinary that so many people are willing to contribute to this thing without even the kind of social prestige of some of these systems really doesn't exist in Wikipedia in the sense that it is very hard to get credit. It's very hard to kind of approach somebody and say, "hey, these three sentences in that Charles Dickens entry I wrote a couple years ago". That doesn't get you a free drink in the bar. But somehow it works...this miraculous thing keeps happening.
It's really not that "miraculous".  It's based on a solid understanding of libertarian economics.  Specifically...Mises' human action...
We call contentment or satisfaction that state of a human being which does not and cannot result in any action. Acting man is eager to substitute a more satisfactory state of affairs for a less satisfactory. His mind imagines conditions which suit him better, and his action aims at bringing about this desired state. The incentive that impels a man to act is always some uneasiness. A man perfectly content with the state of his affairs would have no incentive to change things. He would have neither wishes nor desires; he would be perfectly happy. He would not act; he would simply live free from care. - Mises, The Prerequisites of Human Action
...and Hayek's essay on partial knowledge.  From the Wikipedia entry on Jimmy Wales...
Wales cites Austrian School economist Friedrich von Hayek's essay "The Use of Knowledge in Society", which he read as an undergraduate, as "central" to his thinking about "how to manage the Wikipedia project".  Hayek argued that information is decentralized – that each individual only knows a small fraction of what is known collectively – and that as a result, decisions are best made by those with local knowledge rather than by a central authority.
Johnson goes on to say this...
So the whole idea of creating a stub of an entry that says, "there isn't an entry here for this...but there should be."  Everyone is kind of empowered to come along and say "hey we don't have something here but this is a blank spot in the map that needs to be filled".  Turns out to be a really interesting kind of signaling mechanism in a network.  The world is filled with people who might be at spotting blank spots on the map...but not necessarily filling them and to give them a role to inspire people.  
Thinking about that...there's an easy analogy between the Wikipedia stub and the local community where you can say, "ok, I'm good at planting the flag here and saying that this problem needs to be fixed but I'm not the one to fix it."   
...and later on...
The assumption is Democracy has become more or less synonymous with representative democracy.  And so we assume that when we mean democracy it means we vote every year, ever two years, every four years and then people go off and they make the decisions for us.  And that is not how Linux is made...right.  That's not open source software.  Wikipedia isn't a bunch of people elected to be the elites of writing encyclopedia's that everybody gets to write a little bit of the entry.
This is all great stuff...but Johnson doesn't seem to see the economics of people choosing exactly how much of their limited time they sacrifice to Wikipedia.  If he did then perhaps he'd see the economic problem with participatory budgeting.  Crowdfunding doesn't have that same problem.  The only real difference between Kickstarter and Wikipedia is that people contribute their money to the first one and their time to the second one.  In both cases they choose exactly how much of their limited resources they contribute to the "stubs" that could potentially provide the maximum return on their investment.

What Johnson gets really right is the value of diverse behavior ...
It is right to say that the internet is a force for good because what the internet and really software know Larry wrote about [?] code many years it enables basically this layer of experimentation right...this layer of creativity where it's so much easier to kind of build twenty different variations on collaborative editing of a document.  One of them turns out to be Wikipedia.  Or Kickstarter...the number of crowdfunding experiments that are out there right now probably numbers in the 1000s right. And every individual one is kind of tinkering with the model in different ways.  So we have this space...we have this kind of playground where we can try everything.
I added that passage to the stub I created for heterogeneous activity.

Lawrence Lessig's democracy vouchers...which Johnson believes should be the button that the crowd pushes to reform campaign financing...provides a perfect overview of the economic problems with peer progressivism....
If we could implement the government policy necessary to support it...the idea of democracy vouchers is exactly like the idea of spreading the vote.  So that one way to diagnosis the problem with American democracy today is that we've concentrated the funding of elections in the tiniest fraction of the 1%.  Just like in the 18th century we concentrated the voting in elections in the tiniest fraction of white male property owners.  We had 200 years of spreading the voting power out...while we concentrated the funding power.  If we could redistribute the funding power so that all of us had vouchers that we gave to people in a bottom up like way...that is the dynamic for empowering this peer like politics but it requires getting over the hurdle that makes me pessimistic which is how do you ever mass the power together to displace the current structure of funding given how enormously profitable that structure of funding is for those who sustain it. - Lawrence Lessig 
Political voting is simply stating a preference...which is exactly why we should all support children's suffrage.  Let the little bastards vote.  But redistributing funding power would disregard the contributions of the crowd.  Markets work because people only engage in trade when they perceive that they will benefit from doing so.  If the exchange does turn out to be mutually beneficial...then they will continue to trade with each other.  Therefore, the current distribution of resources makes sense because we all only trade when doing so makes sense to each and every one of us.  That's why it's nonsensical...and extremely advocate redistribution.

The solution...the button that we should all civic crowdfunding.  Let's make it as easy and rewarding as possible for people to donate to public projects.  After enough time has passed...then we can take the training wheels off and allow taxpayers to directly allocate their taxes.

See also: Civic Crowdfunding - Encouraging Participation

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