Thursday, April 17, 2014

Markets: 3V Network - Vet, Validate, Vouch

This recent tax choice study...Are Taxes Beautiful? A Survey Experiment on Information, Tax Choice and Perceived Adequacy of the Tax Burden...received a lot more reddit love than I could have hoped for.  That's...encouraging.

Same thing with my previous blog entry...Value Deviation From The Crowd

Here's a reply to a reply...

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Thanks for your thought out response.  I'm terrible with analogies so bear with me.

Based on my fairly considerable research I strongly perceive that congress is blindfolded behind the wheel of a bus that we're all passengers in.  If you want to give the passengers 1% control over the steering wheel...then I would feel 1% safer.  I certainly wouldn't argue against even the tiniest step in the right direction.  But neither would I stop arguing for more steps in the right direction.

Taxpayers really don't need training wheels in the public sector.  This is because they are successfully riding bikes without training wheels in the private sector.  Physics works exactly the same in  both sectors...as does economics.

In the private sector...if you misallocate your resources...then what happens?  You'll have less resources to allocate.  If you have less resources to allocate...then it's because you misallocated your resources.  Squandering limited resources decreases your influence over how society's limited resources are used.

Shopping is the process by which we all go around and give our positive feedback (money) to the people who are good at riding bikes.  It's a triple "V" mechanism... vouch/vet/validate.  This 3V mechanism is a powerful fail safe device.  Resources are shifted from those who crash to those who don't.

For example, when it comes to our food supply...we really want the most productive farmers to have far more resources than the least productive farmers...and that's exactly what happens.  Farmers who do their homework have far better yields than farmers who don't do their homework.  Without 3V...there's nothing to prevent far too many seeds of grain from ending up in the really wrong hands.

So taxpayers have the 3V stamp of approval.  According to all our spending decisions...they are good at doing their homework.  They diligently researched the private factors that they need to produce the products that we value...and we gave them our positive feedback for doing so.

As it stands...we're shooting ourselves in the feet by preventing taxpayers from shopping in the public sector.  It's like telling a talented painter to only use half the colors.  Or telling a writer to only use words from the first half of the dictionary.  Or telling your gardener to only plant annuals.  Or telling your handy man to only shop in one half of home depot.  Or telling a carpenter not to use a hammer.  Or telling your masseuse not to use her hands.  Errrr.

Why would we prevent a bakery owner from shopping in home depot?  Is he going to buy nails when he should have bought flour?  Is he going to buy a lawnmower when he should have bought an oven?  If we allowed him to shop in the public sector...would he spend his taxes on more drug war when he should have spent his taxes on better roads?

When congress builds a bridge to nowhere...do they really suffer?  Not at all.  They just call it "stimulus".  If a bakery owner spent his taxes on a bridge to nowhere...would he suffer?  Certainly.  So who should be in charge of deciding when and where bridges are built?  The people who have nothing to lose or the people who have everything to lose?  

In summary, if people are good at allocating resources...then we really want them to be able to shop in the public sector.  If people are bad at allocating resources...then there's absolutely no reason to prevent them from shopping in the public sector.  Therefore, everybody should be allowed to shop in the public sector.

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A relevant passage...
When high roads, bridges, canals, &c. are in this manner made and supported by the commerce which is carried on by means of them, they can be made only where that commerce requires them, and consequently where it is proper to make them. Their expences too, their grandeur and magnificence, must be suited to what that commerce can afford to pay. They must be made consequently as it is proper to make them. A magnificent high road cannot be made through a desert country where there is little or no commerce, or merely because it happens to lead to the country villa of the intendant of the province, or to that of some great lord to whom the intendant finds it convenient to make his court. A great bridge cannot be thrown over a river at a place where nobody passes, or merely to embellish the view from the windows of a neighbouring palace: things which sometimes happen in countries where works of this kind are carried on by any other revenue than that which they themselves are capable of affording. - Adam Smith, Wealth of Nations
 If we don't want to majorly misallocate roads, bridges, canals, &c....then we have to create a market in the public sector.  Somebody please send the memo to Rachel Maddow, &c 

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