Saturday, December 27, 2014

The Demand For Impersonal Shoppers

Reply to thread: Economic Ignorance


It might help to read the short tax choice FAQ.

In a tax choice system, directly allocating your taxes would be optional.  If people didn't have the time or inclination to directly allocate their taxes then they could just give them to their impersonal shoppers (congresspeople).

What percentage of taxpayers would choose to give their taxes to their impersonal shoppers?  In other words, how much demand is there for impersonal shopping?

If there was any demand then wouldn't this service be available in the private sector?  Unless there's unmet demand that nobody has taken advantage of.  If you think this is the case then you should start your own impersonal shopping service.

How would it work? would be just like the services offered by personal shoppers.  Except it wouldn't be would be impersonal.  Many different people would give you their money and you'd buy them all the same things.  If people weren't happy with the items then they could simply give their money to another impersonal shopping company.

I'm sure there has to be demand for this...right?  Because it would be fundamentally absurd to be using the public sector to supply this service to the entire country if there was absolutely no demand for it.  Wouldn't it be super crazy if it turned out that the only reason we vote for people to spend our tax dollars is because that's just the way it's always been done?

Around 1000 years ago some barons were fed up with kings spending "their" money on war after they took the power of the purse from them.  And the kings only had the power of the purse in the first place because people believed that they had "divine authority".  Voila, here we are...allowing elected officials to spend our tax dollars.  And if we're not happy with their decisions then we can simply vote the bums out of office!    

It is easy to believe; doubting is more difficult. Experience and knowledge and thinking are necessary before we can doubt and question intelligently.  Tell a child that Santa Claus comes down the chimney or a savage that thunder is the anger of the gods and the child and the savage will accept your statements until they acquire sufficient knowledge to cause them to demur.  Millions in India passionately believe that the waters of the Ganges are holy, that snakes are deities in disguise, that it is as wrong to kill a cow as it is to kill a person - and, as for eating roast beef…that is no more to be thought of than cannibalism.  They accept these absurdities, not because they have been proved, but because the suggestion has been deeply embedded in their minds, and they have not the intelligence, the knowledge, the experience, necessary to question them.
We smile…the poor benighted creatures!  Yet you and I, if we examine the facts closely, will discover that the majority of our opinions, our most cherished beliefs, our creeds, the principles of conduct on which many of us base our very lives, are the result of suggestion, not reasoning…
Prejudiced, biased, and reiterated assertions, not logic, have formulated our beliefs. - Dale Carnegie, Public Speaking for Success

Wednesday, December 24, 2014

Welfare Theorem vs Progress Theorem

My post over at Bad Economics subreddit... Welfare Theorem vs Progress Theorem


I'm a little confused...this link that I recently submitted was only upvoted by 13% of you.  Does this mean that 87% of you believe that my blog entry was an example of good economics?  Based on the few comments that were made, I'm guessing it doesn't...but then it means that most of you downvote good examples of bad economics.

It's entirely possible that my economics are truly super bad, but simply downvoting my submission doesn't show me where the badness is.   Neither does simply saying that it's bad economics.

When I was in school, the math teachers were always admonishing us to show our work.  That was a long time ago though.  I'm guessing that they don't do that anymore?  That's really too bad.  Being able to show how you reached a conclusion helps people understand whether you truly grasp the relevant concepts.  In other words, showing your work facilitates learning.

In the comments of my previous entry, abetadist was the only person who attempted to show their work.  This redditor brought up the Welfare Theorem so I thought I'd submit my reply as a new text post in order to show more of my own work and give everybody another opportunity to show their work.  If the bad economics are on my side, then I'd really like to fix the problem.  And if they are on your side, then I'd really like to help you fix the problem.

The Second Welfare Theorem (SWT) basically shows that redistributing wealth from the rich to the poor can improve total welfare.  The general logic is pretty straightforward... a poor person derives far more utility from one additional dollar than a rich person does.

My Progress Theorem (PT), on the other hand, shows that progress depends on difference.  From my perspective, this is also pretty straightforward...we can't make any progress by doing the same exact things with society's limited resources.  Therefore, the greater the variety of activity the more progress we'll make.

Both theorems want to eliminate poverty...but for different reasons.  The SWT wants to eliminate poverty because this would maximize total utility/welfare.  PT wants to eliminate poverty because this would increase the rate of progress.

By way of analogy, let's imagine a vegetable garden.  Right now a few of the veggies are really thriving, happy and productive because they are getting a lot of water while many of the other veggies are struggling, sad and unproductive because they aren't getting enough water.  In economic terms, the allocation of water is inefficient.

The logic of SWT is that redistributing water would increase the total happiness of the plants (Pareto optimal).  The logic of PT is that redistributing water would result in a much more bountiful and diverse harvest (more progress).

It might seem like PT only takes the SWT's logic one step further...

more happiness -> more difference (progress)

This in itself is pretty valuable.  A selfish person isn't going to care about the happiness of poor people.  Instead, he's going to care about his own happiness.  PT endeavors to show that we all benefit when difference is cultivated and developed.  Everybody stands to gain when we all have the opportunity to realize our full potential and share our unique contributions with society.

But the really important difference between PT and SWT is how they approach the elimination of poverty.

If we want to make real progress when it comes to the elimination of poverty...then, according to PT, we need difference in order to do so.  Trying the same approach over and over but expecting a different outcome is Einstein's definition of insanity.  It's also SWT's approach to the elimination of poverty.

If eliminating poverty was as easy as redistributing water in a vegetable garden...then poverty would have been eliminated long ago.  Clearly there's room for improvement and finding it requires facilitating different approaches.  This doesn't necessarily mean kicking welfare over to the private could also mean introducing a bottom up approach to public welfare.  Personally, I think this can be effectively accomplished by allowing taxpayers to choose where their taxes go.  People would still have to pay taxes but their direct allocations would reflect their very different perspectives.  As a result, there would be a diversity of public approaches to the elimination of poverty...which would increase the chances of room for improvement being found and progress being made.  

PT taps into Linus's Law which means that bugs (and solutions) will be spotted sooner rather than later.  Somebody with an especially keen eye might say, "The problem isn't a lack of water, it's these pesky little aphids.  All we have to do is introduce some ladybugs."

Put somewhat differently, PT makes the case for tolerance.  I'm arguing that tolerance and progress are positively correlated.  Tolerating difference, not just of opinion but of action, allows new paths to be taken and increases the chances of new discoveries being made.

So have you spotted any bugs with PT?  If so, then please show your work.

And if there's not enough economic "science" here for some of you, perhaps it might help if you realized that our current system of government is based on an economic model that assumes that congresspeople are omniscient.  You can't get any further from science than that.

Tuesday, December 23, 2014

A Preliminary Taxonomy Of Economic Ignorance

Those of us who collect and grow plants as a hobby like to complain about a few different things such as pests, diseases, prices and the weather (drought, freezes, etc).  In addition to these usual suspects we also like to complain about taxonomists.  Not all the time, just when they change the names of plants that we grow.  Which probably seems to happen more frequently than it actually does.

A recent example that comes to mind are the Aloes.  Some busybody taxonomists randomly decided to move some of my favorite species into their own genera.  No real surprise here.  It is a surprise though when a plant hobbyist deals with such drastic name changes with an abundance of equanimity...From Aloe to Aloiampelos, Aloidendron, Aristaloe, Gonialoe, Kumara.  That's too much equanimity.  I think he must have robbed an equanimity bank.

Being an open-minded guy though, I'm certainly willing to entertain the possibility that taxonomists aren't entirely useless.  So I googled "why is taxonomy important" and found this...
Taxonomy is the field of research devoted to naming and describing living organisms - everything from bacteria and viruses to whales and flowers. It is an essential yet much underappreciated aspect of scientific research and without it huge branches of biology and other sciences would be near impossible. Taxonomists provide the basic vocabulary of biology if you like, defining each new species (individual words) and making sure there are accurate definitions of those species (like a dictionary) and records of those species, as DNA or actual specimens in museums so that everyone knows exactly which species is which and what other species it is related to. Without this kind of knowledge we cannot begin to do the simplest things with any degree of accuracy - if you do not know what species any given organism belongs to, then it becomes very hard to say anything meaningful about it. - Dr David Hone, Why taxonomy is important
Hmmm...that kinda makes sense.   In fact, I might actually be a taxonomist.  Let me explain...

Don Boudreaux recently shared a link to this article...Slavery and the Harvard historian Sven Beckert.  When I got the gist of Beckert's argument, the first thing that popped into my mind was that he's a chanidget.  "Chanidget" is a label that I created to refer to a person who believes that prosperity happens because of, rather than despite, government intervention.  Of course the second thing that popped into my mind was that this designation obviously wasn't a good match.  Beckert is arguing that prosperity happened because of, rather than despite, slavery.  As far as I know, this doesn't have a label...which is an oversight that I feel a compulsion to correct.   Isn't this exactly what taxonomists do?

So it seems that I am a taxonomist...but not of biology.  Rather, I'm a taxonomist of economic ignorance.

Friday, December 19, 2014

Introducing Rodrigo Davies To Peter Boettke

Imagine we're at a holiday party sipping on some eggnog.  Across the room we spot Rodrigo Davies and Peter Boettke.  They are standing back to back and talking to some other people.  Do you think we should introduce them to each other?  Yes?  Me too!

Except, we're not at a holiday party with Rodrigo Davies and Peter Boettke.  We're on the internet...which is way better than real life.  In real life I'd stand there for a long time deliberating trying to figure out the best time to introduce them to each other.  Most likely I'd interrupt them both at the worst possible time...right before the punchlines of their favorite jokes.  This would make me even more nervous and flustered and my mind would go completely blank and I'd be tongue tied and lucky to even remember their names.  They'd end up having no idea why I thought it was so important that they should meet each other.  This scenario would flash through my mind before I even took one step in their direction.  So in order to build up the courage to introduce them to each other I'd have to drink some super stiff eggnog.  But by the time I built up enough courage, it's entirely possible that I'd end up vomiting eggnog all over their shoes.

Thank goodness for the internet!  Here on my blog I can take all the time in the world to put together something that's at least semi-coherent.

Let's start with a brief overview.  As most of you probably already know, libertarians want less government.  The challenge for them is to figure out how, exactly, to go about shrinking the government.  There's been quite a few different ideas on the topic...

One idea that's strangely absent from the libertarian blogosphere is civic crowdfunding...

Out of curiosity I also checked a couple liberal blogs...

All six results are actually for one blog entry...Snark versus Trains...which consists entirely of snippets from this blog entry by Ethan Zuckerman... Google cars versus public transit: the US’s problem with public goods.  Here's a snippet from that entry that will help me attach a few epiphytes to the same branch...
My student Rodrigo Davies has been writing about civic crowdfunding, looking at cases where people join together online and raise money for projects we’d expect a government to otherwise provide. On the one hand, this is an exciting development, allowing neighbors to raise money and turn a vacant lot into a community garden quickly and efficiently. But we’re also starting to see cases where civic crowdfunding challenges services we expect governments to provide, like security. Three comparatively wealthy neighborhoods in Oakland have used crowdfunding to raise money for private security patrols to respond to concerns about crime in their communities. Oakland undoubtably has problems with crime, in part due to significant budget cuts in the past decade that have shrunk the police force.
Not only do you now know who Rodrigo Davies also know what civic crowdfunding is and its relevance to libertarianism.  I certainly wouldn't have been able to recite that entire passage from memory at the holiday party!  Well, I suppose I could have just used my cellphone to access that blog entry.  Then I could have read it out loud.  That wouldn't have been at all awkward...nope.

For those of you who don't know who Peter Boettke is... he's an economist over at George Mason University.  Here's his Wikipedia page...Peter Boettke.    

What happens when we search his blog (Coordination Problem) for "civic crowdfunding"?

"civic crowdfunding" - 2 results

1. Richard Ebeling on the Future of the Free society
2. Sumner, Murphy, Richman, and Cantillon Effects

You have to scroll a bit to find the term "civic crowdfunding" because it's not mentioned in the blog entries's mentioned in the comment section.  Hmm...I wonder whose comments they are?

It's entirely possible that Boettke read my comments and learned about civic crowdfunding and as such, already knows knows who Davies is.  Except, Boettke's recent blog entry...'Tis the Season for Giving...leads me to a different conclusion...
While the standard political discourse is focused on a battle over the public purse --- either the state demanding more resources to finance its activities, or opponents arguing that the state should be starved of resources --- the real debate that is too rarely discussed is the appropriate scope of governmental activities.  The public discourse for those who advocate a free society must move from starving the state of resources to starving the state of responsibility.
Doesn't this sound like the perfect set up for a discussion on the merits of civic crowdfunding?  Perhaps it might help if I share another snippet from Zuckerman...
If crowdfunding parks succeeds, it supports the case that governments don’t need to build parks because they’ll get built anyway through the magic of civic crowdfunding. That, in turn, supports the Norquistian argument for a government small enough to drown in a bathtub, with services provided by the free market and by crowdfunding a thousand points of light. - How do we make civic crowdfunding awesome?
Zuckerman's fear is that civic crowdfunding has the potential to shift responsibility from the state to individuals...but you sure wouldn't know this from Boettke's blog entry or the blog entries of any of the other prominent libertarian bloggers that I listed above.

Don't get me wrong...I love all the work that they are all doing.  The economics information that they help explain and disseminate goes a really long way to slowing the steady expansion of government.  It just seems like they are missing a valuable opportunity to take an even bigger whack at the root of command economies.

Going back to Boettke's blog entry...he asks...
What is the functional equivalent in the non-profit space of property, prices and profit/loss?  There is no clear answer.
Let's consider this answer from Davies' recent blog entry...A New Way to Invest in Communities...
However, there are other methods of financing community development that can give a much stronger 'yes' to that second question, the question of scale. One of those is a very old form of crowd-based finance: municipal bonds. For just over two centuries, U.S. cities have been using them to finance critical improvements, from transport infrastructure, to schools, to the Golden Gate Bridge. Municipal bonds give individuals the opportunity to invest in improvements to their city, while receiving predictable, tax-free returns every year, and, at the end of the bond (often 5-10 years), the individual gets his or her money back. They don't offer the theoretically sky-high returns of stocks, but they do offer tax-efficient returns at very low risk (the default rate on municipal bonds is close to 1 in 1,000).
What would Boettke have to say about the clarity of this answer?   The answer that he does actually discuss in his blog entry is the idea of focusing more on individuals rather than projects.  If we can crowdfund civic projects...then why can't we also crowdfund civic individuals?  I don't see why we can't.  But sponsoring individuals doesn't only have to be could also be intellectual as well.  It would be great if Boettke wanted to share some money with Davies...but it would also be pretty wonderful if he wanted to share some constructive blog entries with him as well.

Davies announced in his blog entry that he's recently accepted a position with civic crowdfunding company.  That's pretty cool!  Hopefully their endeavor will go a long way in helping to clarify the demand for public goods.

Ok, there you go.  Rodrigo Davies and Peter Boettke have now been formally introduced.  And nobody had any eggnog vomited on their shoes.  Or, maybe, this blog entry is the virtual equivalent of eggnog being vomited on everybody's shoes.  hah.  The internet's pretty great.

Sunday, December 14, 2014

Economics, Evolution and Epiphytes

My recent post on my other blog contains quite a bit of explicit economic content... Herclivation (a theory that considers the possibility of facilitating the adaptive radiation of epiphytic orchids via translocation and/or hybridization).  And by "explicit" I mean that I debunk John Nash's theory that we all prefer blondes equally.

Is it possible for somebody to be fascinated by economics but bored by evolution or vice versa?  Do economists have a better grasp of evolution than biologists have of economics?  That would be a fun study.  Consider these two examples...
It is sufficient if all firms are slightly different so that in the new environmental situation those who have their fixed internal conditions closer to the new, but unknown, optimum position now have a greater probability of survival and growth.  They will grow relative to other firms and become the prevailing type, since survival conditions may push the observed characteristics of the set of survivors toward the unknowable optimum by either (1) repeated trials or (2) survival of more of those who happened to be near the optimum - determined ex post.  If these new conditions last "very long," the dominant firms will be different ones from those which prevailed or would have prevailed under other conditions. - Armen Alchian, Uncertainty, Evolution, and Economic Theory
Economists employ tools that can also be used to analyze the growth and body form of organisms in terms of evolution and ecology.  According to this approach, plants resemble factories because they also acquire raw materials, in this case CO2, water, light and essential ions, to fabricate value-added 'products', specifically progeny.  Like any enterprise using the same materials that other factories require to manufacture the same products, co-occurring plants compete.  Just how severely they interfere with one another depends in large part on the distinctness of the strategies used to obtain mutually required resources. - David Benzing,  Bromeliaceae: Profile of an Adaptive Radiation
These examples are kind of like different varieties of economic imperialism.  For an example of economic imperialism check out this blog entry...Can Economics Explain Human Sacrifice?

Is there a biological equivalent of economic imperialism?  Or maybe there aren't any biologists that have used the tools of biology to analyze topics in different fields?  I guess I wouldn't be surprised if biology and related fields weren't lucky enough to have their own version of Gary Becker.   Well...what about this...biological imperialism?  Does that count as an example of the biological equivalent of economic imperialism?

The stupid Wikipedia entry for economic imperialism doesn't even mention "opportunity cost"...
A corollary of maximization is that on the margin, there are always tradeoffs.  The notion that there is no free lunch is central to economics.  The simple, but crucial concept of opportunity cost lies behind much of the ability of economics to extend into other areas.  Sometimes the tradeoffs are subtle.  Prices and costs are not necessarily parameters that are observed in market data, but they affect behavior nonetheless.  Other social sciences do not place the same weight on explicit recognition of the tension between costs and benefits, which reduces the ability of these fields to grapple systematically with social phenomena.  Thinking about tradeoffs gives rise to related thoughts on substitutability.  Economists place emphasis on choice.  Things are not technologically determined.  This is true for consumers and producers alike.  There is no fixed number of jobs.  Firms can trade off between employing labor and capital and workers can choose between labor and leisure. - Edward Lazear, Economic Imperialism  
As I've mentioned before elsewhere, the opportunity cost of the minute size of the wind-disseminated orchid seeds is that they lack the nutrients that they need to germinate on their own.  They depend on certain types of fungus to supply them with adequate nutrients.  On one hand, there's no guarantee that the fungus is going to be present wherever the orchid seeds land.  But on the other hand, the seeds are so light that they can really "extend into other areas".  Evidently sacrificing the weight of nutrients for greater dispersal distance is not a bad trade-off for orchids...given that they are the most successful plant family.

I think, perhaps, generally speaking...the problem solvers (scientists, economists, etc.) who are able to borrow and effectively use tools from other fields will make a lot more progress than problem solvers who only use their own tools.