Wednesday, January 29, 2014

Hey Mungerfesto, Prices OR Consumer Sovereignty?

Over at the Bleeding Heart Libertarian blog... Mike Munger posted this entry...A Libertarian Mungerfesto, Part IV: Consumer Sovereignty, and Getting “The Things” There

It's pretty long, but pretty good...except for this part...
We have no basis for assuming that “the things” will be there, unless prices and profits can perform their directive functions. Without the promise of profit, the things are not there. In fact, the things are not even “things” yet, but rather ideas that no one has ever thought about until some entrepreneur imagines them.
It reminds me of this blog entry of mine...Prices and the Efficient Allocation of Resources...where Nicholas and I went back and forth discussing the necessity of prices.

If we created a market in the public sector...there wouldn't be prices or profits.  Taxpayers would be able to spend as much or as little as they wanted on any public good.  And obviously there wouldn't be profits. But there would certainly be consumer sovereignty...taxpayers would shop for themselves and government organizations would gain or lose revenue accordingly.   So it would definitely be a market...there would certainly be a directive function..."the things" would be there...and this would take place without any prices or profits.

It's not prices or profit that are essential...it's opportunity cost.  You don't have to spend $1 to read this and reply...but any time you spend here can't also be spent doing the other things that you also value.  Which use of your limited time do you value most?  Whichever use you choose is the one that you value most at that point in time.  So as long as we can choose how we use/allocate our own limited resources...the result will be the most valuable distribution of society's limited resources (efficient allocation).  Maybe understanding that it's opportunity cost rather than prices/profit is part of the difference between libertarianism and pragmatarianism.

Speaking of which...this is probably the best I've ever described the difference between libertarianism and pragmatarianism (Division of Representation) ...

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Well...in some cases...perhaps the more you study something the more likely you are to see certain differences as more significant than somebody who hasn't studied the same thing. Take for example Platyceriums.

But I think there's a pretty significant difference between abolishing the government (anarcho-capitalism) and limiting the scope of government (libertarianism). It's like the difference between killing somebody and putting them on a diet.

Practically speaking...in terms of communicating...it's extremely inefficient (hence annoying) if somebody says they are a libertarian instead of just saying that they are actually an anarcho-capitalist. It's a waste of time to needlessly drill down to figure out somebody's real stance on the proper scope of government...especially when there's already a perfectly good word for it. So for practical purposes...if somebody is an anarcho-capitalist then they should just say so.

Regarding the difference between pragmatarianism and libertarianism/anarcho-capitalism...I don't believe it's a small difference either. Those two ideologies both advocate throwing the baby out with the bath water (obviously to different degrees)...while pragmatarianism advocates allowing each and every taxpayer to use their taxes to protect/support the parts that they believe are most valuable (baby).

Libertarians and anarcho-capitalists have a vision of exactly what the government should look like. They want to impose that vision on the entire country by attacking the government with scalpels. As a pragmatarian, I fundamentally disagree with that approach. I want each and every taxpayer to use their own taxes to add some clay where they feel it is most needed. I have no idea what the final sculpture will look like...but given the collaborative process of individual valuation...it's a given that it will be the most valuable form possible.

Basically...libertarianism/anarcho-capitalism are tearing down (destructive)...while pragmatarianism is building up (constructive). I can't remove a piece you added to the sculpture...I can't take away the $500 you gave to the EPA...all I can do is spend my own tax dollars where I feel they are most needed.

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A Bit Of Fry And Laurie to lighten things up?  From the Library Vs Cricket Sketch...

Librarian: Because may I say that I find your continued efforts to drag down and smear this country of ours to be frankly disgusting.
Laurie: I'm not trying to smear and drag down anybody.
Librarian: I suppose you'd rather read books about England losing at cricket than winning, wouldn't you?
Laurie: Well, yes, if it's true.
Librarian: Then I feel sorry for you.
Mrs Pert: He's a knocker, that's what he is.
Librarian: I agree with you, Mrs Pert.
Mrs Pert: Oh, it's very easy to knock, isn't it? You with your snide university ways.
Laurie: Snide University?
Mrs Pert: Or wherever it is you went.
Librarian: So often these days, sir, we see, don't we, these so-called clever people who just can't wait to tear down and destroy.
Mrs Pert: And knock.
Librarian: And knock, yes.  But do they ever have anything to put in the place of things that they destroy? No.  It's wanton destruction.

Libertarians and anarcho-capitalists are knockers.  Yup.  I'm not a knocker because even though I'm tearing libertarianism and anarcho-capitalism down...I have something better to put in their place...pragmatarianism.

So it seems that I made a mistake with this illustration I created a while back (Our Mixed Economy - Capitalism vs Socialism)...




Pragmatarianism wouldn't be millions and millions of taxpayers chiseling away the parts of government that they don't value...it would be millions and millions of taxpayers contributing to the parts of government that they do value.  I think this is a fundamentally important distinction.

So libertarianism/anarcho-capitalism is kind of like Eric Cantor's YouCut...while pragmatarianism would be more like YouBuild...or YouConstruct.

Of course...the resources used to construct one building can't also be used to construct another...
But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much "God" sacrificed every time?  If a temple is to be erected a temple must be destroyed: that is the law - let anyone who can show me a case in which it is not fulfilled! - Friedrich Nietzsche
If you help "erect" pragmatarianism...the resources you use will be taken from libertarianism and anarcho-capitalism.  As pragmatarianism goes up...they will go down.  It's creative destruction.

A few passages that Munger shared in his Mungerfesto...
Entrepreneurs are innovators who use a process of shattering the status quo of the existing products and services, to set up new products, new services. - Joseph Schumpeter
The introduction [of new products] is achieved by founding new businesses, whether for production or for employment or for both.  What have the individuals under consideration contributed to this?  Only the will and the action; not the concrete goods, for they bought these—either from others or from themselves; not the purchasing power with which they bought, for they  borrowed this—from others or, if we also take account of acquisition in earlier periods, from themselves.  And what have they done?  They have not accumulated any kind of good, they have created no original means of production, but have employed existing means of production differently, and more appropriately, more advantageously.  They have “carried out new combinations.”  They are entrepreneurs.  And their profit, the surplus, to which no liability corresponds, is an entrepreneurial profit. - Joseph Schumpeter
An entrepreneur is an economic agent who unites all means of production- land of one, the labour of another and the capital of yet another and thus produces a product. By selling the product in the market he pays rent of land, wages to labour, interest on capital and what remains is his profit. He shifts economic resources out of an area of lower and into an area of higher productivity and greater yield. - J.B. Say  
Personally, I'm certain (enough) that pragmatarianism will result in higher productivity and greater yield than libertarianism/anarcho-capitalism.  Maybe I'm wrong?  Maybe I'm right?  You can certainly try and hedge your bets.  It's easy enough to like both the libertarian party and the tax choice party on facebook.  It only takes a second to invite your friends to do the same.  Who knows...maybe some of your friends that aren't interested in the libertarian party will be interested in the tax choice party?  Only one way to find out.  So go ahead and put both options on the table and let your friends choose which one they prefer.  That's how and why markets work.  And it's exactly why we should create a market in the public sector.  Let's find out which public goods people value most.

Monday, January 27, 2014

The Actual Demand For Public Goods

Reply to: Public vs Private System of Representation

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Henry Rogue, the bottom line is that we don't know what the actual demand for public goods truly is. This is the problem with the current system. It's a problem that we don't know what the actual demand for salted roads truly is...and it's an even bigger problem that we don't know what the actual demand for war truly is.

Let's imagine a scenario where there are only two public goods...salted roads and defense. The question is, and always is, how should society's limited resources be divided between these two uses? The more resources we direct to one use...the less resources we will have for the other. Any additional person that we employ to salt the roads...is one less person that we'll be able to employ to defend the US against an attack from Canada. If we employ our brightest minds to determine how to prevent tires from slipping...we won't be able to employ our brightest minds to determine how to prevent Canada from attacking. What is the optimal balance? How should society's limited resources be divided between these two possible uses? We're dealing with a utility maximization problem.

Given the fact that people have different preferences, circumstances and partial knowledge...we would create the most value by allowing each and every taxpayer to choose how much of one public good they'll sacrifice for more of the other. How much defense against Canada is each and every taxpayer willing to forego for more salted roads? This is the opportunity cost concept. The freedom to evaluate the alternative uses of our limited resources is what helps ensure that they are put to the most valuable uses (efficient allocation). The efficient allocation of resources is the use/distribution of resources which provides the total maximum utility.

It's basically an equation. There's input...and there's output. When you can shop for yourself...when you decide how much of each public good you put into your shopping cart...your choices reflect your preferences, circumstances, priorities, interests, concerns, partial knowledge...all this is the input. The greater the variety of input...the more people that are allowed to shop for themselves...the more valuable the output. The more accurately that the supply of public goods matches the true preferences of citizens...the more value that is created. The greater the disparity between what is supplied and what is actually demanded...the more value that is destroyed.

Once we create a market in the public sector...then we'll learn what the actual demand for salted roads truly is. The more money that people spend on salted roads...the less money they'll have to spend on public education, sewage treatment, the post office, the DMV, roads, bridges, street lighting, foodstamps, public healthcare, public education, pubic museums, public botanical gardens, police, firemen and so on. Again, this is the opportunity cost concept. This is how we will determine what the actual demand for public goods truly is.

So wondering whether there will be a shortage of salt is a purely academic exercise...given that we have no idea what the actual demand for salted roads truly is. Maybe when confronted with the alternative uses of their limited taxes people will decide that there are far more important things that they can spend their taxes on. Maybe they will decide that they'd rather risk injury from slippery roads than risk injury from invading Canadians. Maybe the actual demand for salted roads will be so high...that many entrepreneurs will be incentivized to create tires that don't slip. If they did so, then this would free up society's limited resources for more valuable uses.

The point is, resources can't be used to create the most value when we don't know what people value most. This is why it's imperative that we allow people to shop for themselves in the public sector. Tax choice will reveal what the actual demand for public goods truly is.

Wednesday, January 15, 2014

Public Craps < Public Oks < Public Goods < Public Greats < Public Awesomes

Reply to:  Public vs Private System of Representation

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TNAR, what if 50% of taxpayers didn't value any option in the public sector? You're looking at it all wrong. I can guarantee that 100% of taxpayers are going to want better options in the public sector...just like 100% of consumers want better options in the private sector. Who doesn't want better options?

So consider the factors...
  1. 100% of taxpayers will want better options
  2. taxpayers will be able to choose how they spend their taxes
  3. 100% of government organizations are going to want more revenue
What do you get when you put these three things together? What is the result? Do we end up with fewer options? Does the variety of options decrease?

Once we implement pragmatarianism...the government will be like putty in the hands of taxpayers. Why? Because taxpayers will incentivize government organizations to do better things with society's limited resources.

Right now you're attacking pragmatarianism by describing the supply of public goods on the first day of pragmatarianism. This is why I said that your view is shortsighted. You have to understand and look at the market process over time. What happens to the supply of goods over time?

It shouldn't be that difficult to predict the general result. This is because there have been several instances where countries have transitioned from command economies to mixed economies. What happened when they created markets in their countries?

In 1978 when Deng Xiaoping created a market in China...how would you have described the supply of goods on the very first day? Would you say it was optimal? Would you say that there was a wide variety of goods to choose from? Of course not...it was only the first day. So would you point to the variety, quality and quantity of goods on the first day to criticize the decision to create a market in China? Of course not...yet that's exactly what you're doing here.

"Oh, pragmatarianism isn't that great because 50% of taxpayers wouldn't find any public goods that they wanted to spend their taxes on." You're going to blame the crappy supply of public goods on pragmatarianism? Really?

A crappy supply of public goods is the logical consequence of allowing 500 people to choose how an entire country's taxes are spent. A small variety and quantity of poor quality goods is the logical consequence of command economies. Yet this is what you are using as an argument AGAINST creating a market in the public sector.

You're using the symptom of the disease to argue against the cure.

When we create a market in the public sector...the supply of public goods won't perfectly match taxpayers' preferences the next day...or the next week...or the next year. But the trend in the supply of public goods will be towards the preferences of taxpayers. How could it not be when they are the ones choosing how to spend their taxes?

Why spend your taxes on public craps when you could spend your taxes on public oks? Why spend your taxes on public oks when you can spend your taxes on public goods? Why spend your taxes on public goods when you can spend your taxes on public greats? Why spend your taxes on public greats when you can spend your taxes on public awesomes?

We won't have public awesomes on the first day that pragmatarianism is implemented. Yes, this is true. But if we don't implement pragmatarianism then we'll never have public awesomes.

Monday, January 13, 2014

The Persuasion Process is Priceless

"The Persuasion Process is Priceless"

No results found!  What a great discovery!

Reply to: Division of Representation

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Again, I find the premise extremely workable because I've studied economics. What you wrote demonstrates that you don't understand the significance of the opportunity cost concept. Given your example...perhaps you're interested in conservation? If so, then I highly suggest you read this...Handbook of Biodiversity Valuation

How many times is the opportunity cost concept discussed in that book? Why is it mentioned so often?

Let's pretend that there are only two things to spend our money on...producing food and studying spotted elk. If we correctly assume limited funding...then the more money we spend on studying the elk...the less money we'll have to spend on the production of food. More elk information comes at the cost of less food. There's a definite trade-off...and there's always a trade-off.

I think you agree we'd screw ourselves if everybody spent all their money on studying elk. If no money was spent on food we'd all starve to death. So clearly there's some optimal allocation...which is also known as "efficient allocation". That's the distribution of funding which will provide the maximum benefit to society.

We could easily determine the efficient allocation simply by allowing people to decide for themselves how they'll divvy their money between the two options. It's necessary to do this because we can't determine the most valuable allocation for society if we don't receive direct input from each and every citizen. How can we know how much of each good should be supplied if we don't know how much of each good people want more of? People have different preferences, concerns, interests and circumstances. If we didn't then we wouldn't be debating!

In reality, we have far more than just two goods. Where should the resources that are used to study the spotted elk be taken from? They have to come from somewhere. Should they be taken from studying Florida's Ghost Orchid? Should they be taken from studying how to reduce pollution? Maybe they should be taken from the war on drugs? It's a really really really long list to choose from.

Markets work because each and every consumer has the freedom to decide what they'll give up for the things that they want. Without this prioritization...it's a given that society's limited resources are going to be wasted on less valuable uses. They are going to flow the wrong directions.

There absolutely has to be a way to accurately communicate exactly how much value is derived from the various uses of society's limited resources. So we create a market in the public sector and allow taxpayers to communicate just how much value they derive from learning about spotted elk. And chances are good that perhaps you're not going to be happy with the preferences of society as a whole. But how can you complain that society's heart is in the wrong place when you don't even know where it's at?

I want more people to value tax choice. So here I am. Spending my time accordingly. Trying to change the preferences of society. The alternative is anathema. Shall I hack your facebook page and like tax choice for you? No way. The persuasion process is priceless. Here you are participating in it and arguing against its importance.

Thursday, January 9, 2014

Public vs Private System of Representation

We have two completely different systems of representation...private and public.  Which system is better?

Elena uses society's limited resources to make an excellent Greek Salad.  I give her my dollar votes because she represents my interest in good food.  Elena is my representative...I value how she uses society's limited resources so I give her positive feedback.

Elizabeth Warren is also my representative.  I didn't vote for her though.  Why bother voting?  I'm supposed to vote for somebody who represents all my public interests?  If this makes any sense why don't I also vote for somebody who represents all my private interests?

With the private system of representation...I have a robust repertoire of representatives.  Everybody I give my money to is my representative.  And I give my money to a lot of different people because I have a lot of different interests.  If I could replace all these representatives with a couple of people...then I could save all the time that I spend shopping.

But there's a problem with trying to find one person to represent all my interests...nobody comes even close.  So if I did give all my money to one person...I'd be really worse off.  My interests would suffer incredibly.  Especially if this one person also had to represent the interests of 100,000 other people.  My interests would be lost like tears in rain.  Chances are that my Greek Salad would be replaced with a hamburger...without pickles, jalapenos, onions, lettuce or tomatoes.  Elena would be flipping generic burgers instead of doing something that she really loves.  So if the public system can't adequately represent our interest in food...then why do you think it can adequately represent our interest in anything?

All of you who share my interest in economics...for goodness sake!  Choose you this day whom you will serve.  Use some brain grease to compare both systems of representation and ask yourself which one provides better coverage.  You're not thinking hard enough if you don't grasp how tax choice would far better protect our interests.

Tuesday, January 7, 2014

Rational Ignorance: Cause, Consequence and Cure

Over on the facebook page for tax choice...Scott Thurston wrote...
How? If you give more responsibility to citizens they are more likely to research it? How does it naturally follow, and how is rational ignorance the logical consequence of the current system?
The current system takes the power of the purse away from the citizens and gives it to congress.  This means that taxpayers don't have the option to shop for themselves in the public sector.  So even if you take the time to research and study how effective the EPA is...no matter what you learn...you're not going to be able to change the percentage of your money that goes to the EPA.  Any effort to do so will greatly exceed the potential benefit.  This is why it's logical not to make the effort to learn about the EPA.

The consequence of rational ignorance is that benefits are concentrated and costs are dispersed.  The EPA will cater to special interests and the costs will be dispersed among the rationally ignorant taxpayers.

The cure is simply to implement tax choice.  Taxpayers don't want their hard-earned money to be wasted...so once they can shop for themselves in the public sector they'll make the effort to ensure that they get the most bang for their buck.  This requires due diligence.

Here are some passages on the topic...
It is often worthwhile for an individual beneficiary to find out the value of promised benefits, as these tend to be concentrated, and hence large for each beneficiary. But it is often not worthwhile for the individual voter to put any effort into calculating the costs of the financing of benefits, as these costs are highly dispersed, and hence small for the individual voter in each case. Indeed, it is likely that people are much less informed about such abstract macroeconomic matters as the 'excess burden' of taxes, than about their own, much more concrete needs for economic security in the future, even though the latter type of misinformation
is ofted used as an argument for compulsory social security (the 'paternalistic' argument). - Assar Lindbeck, Overshooting, Reform and Retreat of the Welfare State
People employ what economists call rational ignorance. That is, we all spend our time learning about things we can actually do something about, not political issues that we can’t really affect. That’s why more than half of us can’t name either of our U.S. senators. And why most of us have no clue about how much of the federal budget goes to Medicare, foreign aid, or any other program. Even if a citizen studies the issues and decides to vote accordingly, he has a one in a hundred million chance of influencing the outcome of the presidential election, after which, if his candidate is successful, he faces a Congress with different ideas, and in any case, it turns out the candidate was dissembling in the first place. Instinctively realizing all this, most voters don’t spend much time studying public policy. - David Boaz, What Big Government Is All About
Imagine buying cars the way we buy governments. Ten thousand people would get together and agree to vote, each for the car he preferred. Whichever car won, each of the ten thousand would have to buy it. It would not pay any of us to make any serious effort to find out which car was best; whatever I decide, my car is being picked for me by the other members of the group. Under such institutions, the quality of cars would quickly decline. - David Friedman, The Machinery of Freedom
Not only does a consumer have better information than a voter, it is of more use to him. If I investigate alternative brands of cars or protection, decide which is best for me, and buy it, I get it. If I investigate alternative politicians and vote accordingly, I get what the majority votes for. The chance that my vote will be the deciding factor is negligible. - David Friedman, The Machinery of Freedom
Externalities play an enormously greater role in institutions controlled by voting. If I invest time and energy in discovering which candidate will make the best President, the benefit of that investment, if any, is spread evenly among 200 million people. That is an externality of 99.9999995 percent. Unless it is obvious how I should vote, it is not worth the time and trouble to vote 'intelligently', except on issues where I get a disproportionately large fraction of the benefit. Situations, in other words, where I am part of a special interest. - David Friedman, The Machinery of Freedom
Before going to UCLA to do graduate work, I had been reading books and articles by Gordon Tullock, James Buchanan, and Anthony Downs. They had shown that the probability of affecting the outcome of a typical election was so close to zero that the expected value of voting was substantially less than its cost. Therefore, they concluded, there was no point in voting, no matter which way you would vote, even in a close election. - David Henderson, Voting, Public Goods, and Free Riders
Imperfect models of the complex environment that the politician (and constituent) is attempting to order, institutional inability to get credible commitment between principal and agent (voter and legislator, legislator and policy implementer), the high cost of information, and the negligible payoff to the individual constituent of acquiring information all conspire to make political markets inherently imperfect. - Douglass North, Understanding the Process of Economic Change
In a statewide election, the probability that a voter will be killed in an auto accident on the way to the polls is quite likely larger than the probablility that his vote will affect the outcome of the election. - Dwight R. Lee, Overcoming Taxpayer Resistance by Taxing Choice and Earmarking Revenues
In the real world, demand revelation meets with the same problem that has long confounded students of democracy. As Anthony Downs and others have shown, rational voters have little or no incentive to spend their time or effort gathering or providing information about their preferences. And even if the information were available, what is the incentive for a bureaucratic (monopolistic) supplier of a public good to give voters the greatest amount of value at the minimum of cost? - Edward H. Clarke, Demand Revelation and the Provision of Public Goods
If anyone insisted on deliberating with maximum scrupulousness every one of the economic acts he undertakes every day, if he insisted on rendering a judgment of value throughout to the last detail concerning the most trifling good that he has to deal with by way of receipt or expenditure , by utilization or consumption, such a person would be too much occupied with reckoning and deliberating to call his life his own. The correct maxim and the one which would be observed in economic life is "Be no more accurate than it pays to be." In really important things, be really exact; in moderately important things be moderately exact; in the myriad trifles of everyday economic life, just make the roughest sort of valuation. - Eugen Böhm-Bawerk, Capital and Interest
Since each person has a fixed number of votes - either 1 or 0 - regardless of the amount of information he has and the intelligence used in acting on this information, and since minorities are usually given no representation, it does not "pay" to be well-informed and thoughtful on political issues, or even to vote. - Gary S. Becker, The Economic Approach to Human Behavior
Although choices in the private sector are also affected by advertising and other selling activities, rational individuals become reasonably well informed about most private decisions because they and their families usually bear the main consequences of their mistakes. The incentive to become well informed about political issues is weaker because each individual has only a minor effect on political outcomes decided by the majority (or by similar rules). Hence the average person knows far more about supermarket prices or the performance of cars than about import quotas or public wages. Although rational political behavior has appeared to be contradicted by widespread voter ignorance and apathy, the opposite conclusion is justified because rational voters do not invest much in political information. - Gary S. Becker, A Theory of Competition Among Pressure Groups for Political Influence
This greater complexity of political choice is compounded by an inability to gain from any investment in knowledge. In a market setting, a person can gain by storing food during the boom periods; it is a simple task to profit directly from knowledge. In a political setting, however, even if a person has acquired knowledge about the more complex question of "why," there is no way that he can profit from his knowledge because a change in policy will take place only after a majority of people have come to the same conclusion. Consequently, it is rational to be considerably more ignorant about general policy matters than about matters of market choice. - James M. Buchanan, The Theory of Public Choice: II
In addition to the uncertainty factor, which can be readily understood to limit the range of rational calculus, the single individual loses the sense of decision-making responsibility that is inherent in private choice. Secure in the knowledge that, regardless of his own action, social or collective decisions affecting him will be made, the individual is offered a greater opportunity either to abstain altogether from making a positive choice or to choose without having considered the alternatives carefully. In a real sense, private action forces the individual to exercise his freedom by making choices compulsory. These choices will not be made for him. The consumer who refrains from entering the market place will starve unless he hires a professional shopper. Moreover, once having been forced to make choices, he is likely to be somewhat more rational in evaluating the alternatives before him. - James M. Buchanan, Gordon Tullock, Individuality Rationality in Social Choice
In markets for private goods, consumers internalize the benefits and costs of their purchases. If you don't like your new car or the cup of coffee you've purchased, you have an incentive to spend more time comparing alternative brands of cars and coffee, and adjust your behavior accordingly. But if a new kind of pollutant is thought by scientists to deplete the earth's ozone layer, to warm the planet, or to threaten the ecosystem of an endangered species, there is little reason for most people to study the issue carefully, since each person's consumption choices have a negligible impact on whether the atmosophere is altered, or another species becomes extinct. This line of reasoning suggests that ignorance by respondents to CV surveys is not anomalous; it is a predictable fact explained by the incentive structure of public goods problems. - Jonny Anomaly, Public Goods and Government Action
Overall, government action seems likely to reduce the robustness of institutions and to exacerbate collective-good problems because removing the ‘exit’ option prevents individuals from judging how their personal contributions affect outcomes. When taxpayers who fund failing programmes cannot exit with their own money, then the only form of accountability left is that of democratic voice. Yet, given the minuscule chance of affecting the result of a large-number election it is rational for voters to remain ignorant about the relative effectiveness of specific programmes. It is precisely this ignorance that may allow opportunistic behaviour to go unchecked. - Mark Pennington, Robust Political Economy
Where citizens have little choice about the quality of public services supplied to them they will also have little incentive to do anything about it. The costs of attempting to do anything about the services they receive are likely to exceed any tangible benefit that they themselves will receive. As a result, individuals face situations in which anticipated costs exceed anticipated benefits. The rational rule of action in such cases is to forego the "opportunity" to accrue net losses. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices
Public choice theory, developed by George Mason University Professors Gordon Tullock and James Buchanan, recognizes that the probability of any voter's ballot making any difference in the outcome of any election, including last year's Florida election, is essentially nil. In other words, the only way my vote changes the outcome of an election is if my vote breaks a tie and the probability of a tie is close to zero. - Walter E. Williams, Rational Ignorance

Shit Everywhere

You clicked on the title of this blog entry and here you are.  Perhaps you have some expectations about what I'm going to talk about.  Maybe you want to be pleasantly surprised?  Doesn't everybody?

Aziz Ansari has a routine where he discusses how a lady doing sign language for one of his shows signed "jizz everywhere".  Do you agree with Ansari that it's a helpful to know how to sign/read this?  If somebody walked out of a room and signed "jizz everywhere"...would you walk into the room?  Probably not.  It's kinda like how bees dance to communicate where the nectar is...but the opposite.

If you haven't watched Trainspotting...then don't read this paragraph.  I wouldn't want to spoil one of the best scenes in the movie.  If you have seen Trainspotting then you know exactly which scene I'm talking about.  Errr...maybe I might have already spoiled it.  I hate that.

If it's important to know how to sign/read "jizz everywhere"...then I think it would probably be more important to be able to sign or read "shit everywhere".  Except, I don't know how to sign/read "shit everywhere".  Can everybody upload a video to youtube of how to sign this?  We'll have a contest to see who can come up with the best sign.

Here's what Schadenboner had to say about my comment on Noah Smith's blog entry...Quartz article: Is China going to be #1?
Unbundling public services will run into the same problems that philanthropy-reliant public services do/would (everyone wants the "John Doe Foundation Theater" and no one wants the "John Doe Foundation Water Treatment Plant" so we end up with a dozen theaters and hot and cold running sewage) combined with the popular misunderstanding of where government spending actually goes (in the States see the surveys where we see people wanting to balance the budget by cutting the 25% they have decided that we spend on Foreign Aid but this is not solely a US phenomenon.)  
My reply...

Schadenboner, since you're omniscient...I'm sure you know what the demand for sewage treatment is for every single country...not just the US.  Let's say that every single country implemented pragmatarianism.  Would each and every government receive absolutely no money for sewage treatment?  Or would some governments receive more money for sewage treatment than other governments?

Have you ever lived in a country that spent very little money on sewage treatment?  I have...I lived in Afghanistan for a year.  There was shit everywhere.  The circumstances were extremely unpleasant.  There was considerable and obvious room for improvement.

Let's say that you know that Brazil is the country that would spend the most money on sewage treatment.  If we implemented pragmatarianism they would absolutely deal with their shit...while the US wouldn't spend any money on sewage treatment.  Would you vote with your feet for Brazil?  Would the US suffer from severe brain drain?  Would Brazil end up with all the citizens in the world who were smart enough to understand the value of sewage treatment?

But rather than making the huge effort of quitting your job...selling your house and most of your belongings...saying good bye to all your friends and family...pulling your kids out of their school...and having to start all over in Brazil and learn Portuguese...wouldn't it be a lot less effort to simply vote with your taxes for sewage treatment in the US?

If every country unbundled their government...no two countries would end up with exactly the same supply of public goods.  Some countries would have a more optimal balance...and it's a given that these countries would do better than countries that really didn't get the balance right.  And there would be convergence towards the optimal balance.

Regarding clueless citizens...it's called rational ignorance.  The ignorance is rational because it doesn't make sense for people to make the effort to learn about public goods when they can't shop for themselves in the public sector.  The money is out of their hands so it doesn't pay for them to do their homework.  Markets work because there's a correlation between effort and reward.  Everybody hates buying lemons so they strive to ensure that they don't get ripped off.  If people can't shop for themselves...do you think it's any surprise that the public sector is full of lemons?

In 1978 when Deng Xiaoping created a market in China...do you think it's any surprise that the quality, quantity and variety of available private goods has increased exponentially since then?  When the first country creates a market in their public sector...do you think it will be any surprise when the quality, quantity and variety of public goods increases exponentially?

When we put the money back into the hands of 300 million people with diverse preferences and unique circumstances...the suppliers of public goods will compete with each other to receive that money.  They'll do so by trying to figure how they can best improve our circumstances.  Taxpayers will incentivize them to come up with better uses of society's limited resources.

Shopping is communicating...it's direct input from citizens on their priorities, preferences and circumstances.  If this input isn't needed in order to efficiently allocate society's limited resources...then we've been wasting a lot of valuable time.  Because people spend a lot of time communicating their circumstances to suppliers.  If the outcome is better without people shopping for themselves...then let's give all our money to congress and let them determine for us how our circumstances can best be improved.  Except this has already been tried.  Society's limited resources are wasted when consumers aren't given the freedom to communicate their circumstances.

Having spent more time thinking about a global free trade agreement on public goods...I'm pretty sure it's a good idea that taxpayers should be able to spend their taxes on any country's public goods.  Then I could point to Afghanistan on a map and sign "shit everywhere".  People all over the world would be able to spend their taxes on helping Afghanistan deal with its shit.  That would be significant progress.

FYI...I added your comment to my collection...Unglamorous but Important Things.

Sunday, January 5, 2014

China Please Read This Before Canada

Comment on: Quartz article: Is China going to be #1?

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Will China be the first country to truly understand that demand can't accurately be determined without a market? Maybe? Probably not though.

The Canadian government has mandated cable unbundling. They'll probably unbundle themselves next. It will be embarrassing when Canada spanks us because they allow their citizens to pick and choose which public goods they spend their taxes on.

Of course I'll blame you. Why? Because you never wrote a single post about the significance of the opportunity cost concept! You're like the poster boy for why physics majors should never become economists.

Naw, it's not your fault. Watch...

Step 1: Opportunity cost
Step 2: ?
Step 3: Efficient allocation of resources

There's no economic term for step 2. That's probably not your fault. Is it my fault? I guess. Why? Because I studied International Development Studies. I studied why China got beat by the Asian Tigers. I learned why all the efforts of "developed" countries to help developing countries failed so miserably.

Resources can't be efficiently allocated if they aren't allowed to freely flow in the most valuable directions. And the value of any given direction can't be determined without knowing the true values of citizens. And true value can only be determined when each and every individual has the freedom to decide between having their cake and eating it (opportunity cost).

I honestly hope that China reads this before Canada does.

Shopping is Communicating

There are only four search results (all irrelevant) for "Shopping is Communicating"

Reply to: How do you feel about choosing where your taxes go?

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In the past year...how many different people in the private sector did you give your money to? How many different people in the public sector did you give your votes to? How much time did you spend shopping? How much time did you spend voting?

We have two completely different systems of representation...so they can't be equally effective. Choose you this day which system you will serve.

I choose the system that allows me to communicate changes to my circumstances as soon as they occur. That's why I choose pragmatarianism.