Wednesday, December 30, 2015

The Problem With Opportunity Cost Is Simple

Comment on: Comparative Advantage: An Idea Whose Time Has Passed by Michael Munger


Imagine King Ralph back in the day. He's trying to decide whether to start a war. He thoroughly understands that wars are very expensive. So if he does start a war... then he might have to forego something else that he also really wants. Like, a much bigger and fancier castle. After much deliberation... King Ralph decides that the war is worth foregoing a better castle.

Is this scenario an example of the concept of opportunity cost? Well yeah. For King Ralph the opportunity cost of war is a better castle. Therefore, as long as the opportunity costs are considered... then there's nothing wrong with allowing one person to decide how everybody's money is spent...

opportunity cost = monarchism/dictatorships

Errrr... what? Something is missing from the equation if the answer is "monarchism" or "dictatorships". So what's missing? Well... what's missing is the fact that King Ralph didn't actually earn the money that's he's spending. Is this a "minor" detail? If anybody thinks so then I'll be happy to give them my paypal address!

Here's how we can modify the equation...

opportunity cost + earner valuation = ?

What's it equal? Clearly it doesn't equal "monarchism"! King Ralph wasn't considering the opportunity cost of his own money. Really the only place where people consider the opportunity costs of their own hard-earned money is the market...

opportunity cost + earner valuation = market

The small problem with this equation is that it's kinda redundant. I should hope that "earner valuation" automatically conveys that the opportunity costs are considered. I don't think that you can valuate anything without considering the (opportunity) costs. The result is...

earner valuation = market

Actually, "opportunity cost" isn't the only economic concept built into "earner valuation". Another built-in concept is Quiggin's Implied Rule of Economics (QIRE)...

It basically states that society's limited resources should create more, rather than less, value for society as a whole. Without this rule there's nothing explicitly wrong with everybody's taxes being wasted on unnecessary wars. In other words, earner valuation is only desirable if our goal is to create the maximum value for society.  This means that opposing earner valuation is the equivalent of supporting the destruction of value.

Friday, December 25, 2015

Clarifying The Demand For Defense

Merry Christmas.  Here's my reply to: effectively directing the bulk of government spending

... and some relevant passages.


After 9/11, if taxpayers had been free to directly allocate their taxes, then defense would have received even more funding than it actually received?  Even though the DoD failed to do its job... not only would taxpayers have rewarded the DoD... but they would have rewarded it more than congress did?

The bottom line up front: Taxpayers are the people least likely to spend the wrong amount of money on defense.  In other words, taxpayers are the people most likely to correctly discern whether any given expenditure will provide a real or imaginary advantage.

Perhaps the best place to start would be to compare federal income tax receipts (source) with the amount of money that defense actually received (source)...

The numbers are in billions.  Here's the chart data along with defense as a percentage of income tax...

Is this right?  I'm not 100% confident that I did this correctly.  If it is correct....then, in order for taxpayers to have spent more money on defense than defense actually received... it would have been necessary for them to spend, on average, more than 55% of their taxes on defense.  Does that sound plausible?

Right now people can't choose where their taxes go.  This means that we don't know the demand for public goods.  I refer to this as demand opacity.  Even though we don't know the demand for defense... I'm pretty sure that taxpayers wouldn't have spent as much money on defense as congress did.

Let's consider some of the relevant economic concepts...

The Demand For Defense - Relevant Passages

Some passages relevant to this blog entry... Clarifying The Demand For Defense

Bang For The Buck

To satisfy our wants to the utmost with the least effort - to procure the greatest amount of what is desirable at the expense of the least that is undesirable - in other words, to maximize pleasure, is the problem of economics. - William Stanley Jevons, The Theory of Political Economy

Presumably, individuals would prefer to pay less for virtually any good or service, since doing so rationally maximizes their utility from payment (Becker 1962). - Cait Lamberton, A Spoonful of Choice

The desire of food is limited in every man by the narrow capacity of the human stomach; but the desire of the conveniencies and ornaments of building, dress, equipage, and houshold furniture, seems to have no limit or certain boundary. Those, therefore, who have the command of more food than they themselves can consume, are always willing to exchange the surplus, or, what is the same thing, the price of it, for gratifications of this other kind. - Adam Smith, Wealth of Nations

If we now turn to consider the immediate self-interest of the consumer, we shall find that it is in perfect harmony with the general interest, i.e., with what the well-being of mankind requires. When the buyer goes to the market, he wants to find it abundantly supplied. He wants the seasons to be propitious for all the crops; more and more wonderful inventions to bring a greater number of products and satisfactions within his reach; time and labor to be saved; distances to be wiped out; the spirit of peace and justice to permit lessening the burden of taxes; and tariff walls of every sort to fall. In all these respects, the immediate self-interest of the consumer follows a line parallel to that of the public interest. He may extend his secret wishes to fantastic or absurd lengths; yet they will not cease to be in conformity with the interests of his fellow man. He may wish that food and shelter, roof and hearth, education and morality, security and peace, strength and health, all be his without effort, without toil, and without limit, like the dust of the roads, the water of the stream, the air that surrounds us, and the sunlight that bathes us; and yet the realization of these wishes would in no way conflict with the good of society. - Frédéric Bastiat, Abundance and Scarcity

The produce of industry is what it adds to the subject or materials upon which it is employed. In proportion as the value of this produce is great or small, so will likewise be the profits of the employer. But it is only for the sake of profit that any man employs a capital in the support of industry; and he will always, therefore, endeavour to employ it in the support of that industry of which the produce is likely to be of the greatest value, or to exchange for the greatest quantity either of money or of other goods. - Adam Smith, Wealth of Nations

Whilst every man is free to employ his capital where he pleases, he will naturally seek for it that employment which is most advantageous; he will naturally be dissatisfied with a profit of 10 per cent., if by removing his capital he can obtain a profit of 15 per cent. This restless desire on the part of all the employers of stock, to quit a less profitable for a more advantageous business, has a strong tendency to equalize the rate of profits of all, or to fix them in such proportions as may, in the estimation of the parties, compensate for any advantage which one may have, or may appear to have, over the other. - David Ricardo, On the Principles of Political Economy and Taxation

The selective process of the market is actuated by the composite effort of all members of the market economy.  Driven by the urge to remove his own uneasiness as much as possible, each individual is intent, on the one hand, upon attaining that position in which he can contribute most to the best satisfaction of everyone else and, on the other hand, upon taking best advantage of the services offered by everyone else.  This means that he tries to sell on the dearest market and to buy on the cheapest market.  The resultant of  these endeavors is not only the price structure but no less the social structure, the assignment of definite tasks to the various individuals. The market makes people rich or poor, determines who shall run the big plants and who shall scrub the floors, fixes how many people shall work in the copper mines and how many in the symphony orchestras.  None of these decisions is made once and for all; they are revocable every day.  The selective process never stops.  It goes on adjusting the social apparatus of production to the changes in demand and supply.  It reviews again and again its previous decisions and forces everybody to submit to a new examination of his case.  There is no security and no such thing as a right to preserve any position aquired in the past.  Nobody is exempt from the law of the market, the consumers' sovereignty. - Ludwig von Mises, Human Action

Geometry presupposes an arbitrary definition of a line, "that which has length but not breadth." Just in the same manner does Political Economy presuppose an arbitrary definition of man, as a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained. - J.S. Mill, Essays on Some Unsettled Questions of Political Economy

The interest of a nation in its commercial relations to foreign nations is, like that of a merchant with regard to the different people with whom he deals, to buy as cheap and to sell as dear as possible. But it will be most likely to buy cheap, when by the most perfect freedom of trade it encourages all nations to bring to it the goods which it has occasion to purchase; and, for the same reason, it will be most likely to sell dear, when its markets are thus filled with the greatest number of buyers. - Adam Smith, Wealth of Nations

If this doctrine is true, and as all men think and invent, as all, in fact, from first to last, and at every minute of their existence, seek to make the forces of Nature co-operate with them, to do more with less, to reduce their own manual labor or that of those whom they pay, to attain the greatest possible sum of satisfactions with the least possible amount of work; we must conclude that all mankind is on the way to decadence, precisely because of this intelligent aspiration towards progress that seems to torment every one of its members. - Frédéric Bastiat, What Is Seen and What Is Not Seen

Are all men, without exception, interested in acquiring all things cheaply, that is to say, in getting the utmost possible amount of things in exchange for the smallet amount of labour?  Yes.  Therefore all men have an equal interest in hindering destruction, in countenancing production and saving. - Edmond About Handbook of Social Economy: Or, The Worker's A B C

Everybody is eager to charge for his services and accomplishments as much as the traffic can bear. In this regard there is no difference between the workers, whether unionized or not, the ministers, and teachers on the one hand and the entrepreneurs on the other hand.  Neither of them has the right to talk as if he were Francis d'Assisi. - Ludwig von Mises Planning for Freedom

Thursday, December 24, 2015

Minimum Wages - The Impossibility of "No Vacancy"

Reply to: The Aluminum Rule by Miles Kimball


I feel like I read a story about why people should have the freedom to swim in the ocean. It’s a true story… but what if you knew, for a fact, that there were sharks in the ocean? Wouldn’t it be… ummm… “iffy” to leave this “minor” detail out of your story?

Not sure if I win the award for terrible analogies but I don’t think the minimum wage problem is a minor detail when it comes to immigration.

Since it’s Christmas and all… perhaps it would be like traveling to a motel that has a big bright sign in front that says “Vacancy”. But when you talk to the person at the front desk they inform you that the only vacancy is in the stables. Stables?  Barn? Parking lot? What’s the modern day equivalent of stables?

Minimum wages are the equivalent of preventing the “No Vacancy” sign from ever being turned on. It’s as if there could never ever ever ever be such a thing as a labor surplus. Except… the point of minimum wages is that wages would be really low without them. So the very existence of minimum wages means that a labor surplus isn’t just a high probability… it’s in fact the reality. But the reality of the labor situation is obscured by the presence of minimum wages. Just like a murky ocean hides the presence of sharks.

Now, if my next door neighbor invited me over for a sleepover, which would be strange, but it turned out that the only available space he had for me was in his dog’s house… then it wouldn’t be a huge problem because I could simply take a few seconds to walk back home and sleep in my comfortable bed. The cost incurred as the direct result of false information would be very low. I was tricked but it wasn’t a big deal. I wasn’t like Jacob who worked 7 years to marry Rachel but ended up with Leah instead.

When it comes to immigration though… the cost of moving to a different country is quite high. This makes false information a very big problem. Well… certainly big enough that I feel that it would be irresponsible of me not to mention it at least once… or twice… or a dozen times.

I don’t think that I’ve actually dedicated even one blog entry to open borders. Unlike Bryan Caplan… he’s a huge fan of open borders. I do support open borders… but I don’t actively support them because the minimum wage makes me feel like I’m complicit in a major conspiracy to lie to every poor person in the world about our labor situation. Who lies to poor people about something so important as the availability, or lack thereof, of jobs? It would be a different situation if our wages accurately reflected/communicated our labor situation. Then I’d write a bunch of blog entries in support of open borders. Once the borders were open and wages accurately communicated our labor situation then poor people could make much more informed decisions whether it was worth the cost/risk to move here. Maybe poverty will be eliminated once poor people can easily avoid moving to countries that have a labor surplus.

Anyways, I know you oppose minimum wages. Well… at least that’s my impression. But my constructive criticism is that I feel it’s a bit… irresponsible… to write in support of open borders without also mentioning the importance of accurate information regarding the labor situation.

Monday, December 21, 2015

The Case Against Basic Income

John Quiggin is writing a book about opportunity cost.  Personally, I perceive that there's a scarcity of books about opportunity cost.  So I plan on buying his book when it's published.  The more people who purchase his book... the more money he will receive.  The more money he receives... the more likely it is that he, and others, will write more books about opportunity cost.  The less money he receives... the less likely it is that he, and others, will write more books about opportunity cost.

We need profits (broadly speaking) to correctly influence people's behavior.  Low profits should discourage the associated behavior while high profits should encourage the associated behavior.   The more accurate profits are... the more benefit we will derive from everybody's behavior.

Now,  if we were mind-readers and/or omniscient... then none of this would be relevant.  I wouldn't have to be here writing down and sharing what everybody already knows.  I wouldn't have to buy Quiggin's book when it comes out.  Everybody would already know what's important to everybody else and everybody would allocate their resources accordingly.  But we really aren't mind-readers and/or omniscient.  This is why accurate communication is so fundamentally important to society.

Right now society has far too many people who are struggling to survive.  Unfortunately, there are many people who believe that the solution is to implement a basic income.  The government giving people money regardless of their behavior's benefit to society will simply discourage beneficial behavior and increase the number of people who depend on a basic income to survive.  Inaccurate communication is the cause of, rather than the solution to, the problem.

Therefore, the correct solution is to increase the accuracy of what's being communicated.  This involves eliminating the minimum wage and tearing down barriers to entry.  It also involves allowing people to choose where their taxes go.  Accurate communication is just as important for public goods as it is for private goods.

So it's really not about fairness.   Worrying about fairness is barking up the wrong tree.  What should concern us most is accuracy.  When we focus on accuracy then poverty will be quickly eliminated.

Miles Kimball vs Matt Bruenig

Miles Kimball (blog) and Matt Bruenig (blog) are both liberals.  A few days ago they had a twitter discussion that was worth sharing...


Linda Tirado: I'll drop minimum wage endorsement if you drop tax/investment protections and disavow lobbyists. That'd be fair.
Miles Kimball: I lean toward requiring all lobbyist interactions with congresspeople or their staff be videotaped an posted publicly.
Tirado: that's a net good no matter what, and common ground. But minimum wage advocacy is the same pressure for favorable regulations.
Kimball: Not for favorable regulations--in this case no regulations. No regulations is the starting point, not a favor.
Tirado: that's as true of any regulation that has ever existed.
Kimball: Starting point for comparison should be no regulations except these rules: no stealing, threatening violence, or deception.


Matt Bruenig: miles way of here, the actual baseline includes only one rule: don't touch another person's body.
Kimball: I don't see how you can possible get good results without a rule against theft. Certainly no welfare theorem.
Bruenig: "theft" is a meaningless concept without an agreed upon notion of who is entitled to what, not a helpful baseline
Bruenig: in fact, paying too low wages *is* theft
Kimball: I can see lack of a basic income as theft, but not low wages. Do you have a right for me to employ you?
Bruenig: Wage floors don't force anyone to employ anyone though. It's all voluntary.
Bruenig: That's the basic problem with all min wage args that are premised upon unfairness to the employer.
Bruenig: The employer is not required to pay minimum wages. It doesn't have to operate if it doesn't like the rules.

According to Kimball... the lack of basic income is theft.  Which means that he has an obligation to pay you.  But then he immediately argues that he doesn't have an obligation to employ you.  Eh?  What?  

According to Bruenig... a wage floor is acceptable because employing people is voluntary.  If a wage floor is acceptable and beneficial... then what about a donation floor?  Donations are certainly voluntary.  So would it be beneficial to prevent people from making donations that are under $100 dollars?  

Kimball is obligated to donate money to you... and Bruenig is obligated to ensure that Kimball's donation to you is large enough.  

I can imagine Bruenig following Kimball around.  Kimball spots a homeless person and feels obligated to give him a dollar.  Bruenig quickly obligates Kimball to give the homeless person at least $100 dollars. 

See also: 

Saturday, December 19, 2015

John Quiggin vs More Weeds

In John Quiggin vs Weeds I shared what he wrote in the comment section of his blog entry... Income redistribution: Where should we start?...

Plume, I agree with other commenters here. From now on, for my post, can you limit yourself to one comment per post per day.

Catching up on some of his blog entries I just discovered another attempt by Quiggin to weed his garden.  In the comment section of Locke’s Road to Serfdom he wrote...

Brett, you were banned some time ago. I don’t want my discussion threads derailed by debates with you. Could other commenters refrain from responding to Brett, please.

Some weeds are hard to get rid of!  Clearly Quiggin doesn't value Plume's and Brett's contributions as highly as he values other people's contributions.  Just like I don't value all the different plants in my garden equally.  "Weeds" are the plants that I value the least.  I'd be happy if my garden didn't have any weeds in it!  In fact, I'd love to have a magic wand that would instantly turn each and every weed in my garden into an orchid!  How awesome would that be?  I would just wave the wand over a weed and voila!  It would be instantly transformed into an orchid!  Then my garden would provide me with much more value!   

Quiggin definitely wants his blog's comment section to provide him with much more value.   He also definitely opposes slavery.  But honestly I'm not quite sure why he opposes slavery.  I don't think that I've ever read a blog entry of his that he's dedicated to explaining why, exactly, he opposes slavery.    

What's wrong with slavery?  Let's take Brett for example.  Right now he's a weed in Quiggin's garden.  From Quiggin's perspective... all the space that Brett takes up in Quiggin's garden could be allocated to far more valuable plants.  In other words... the opportunity cost of Brett is too high.  What if Quiggin could wave his magic wand and transform Brett into an orchid?  Wouldn't that be a good thing?  And isn't slavery a magic wand that would do the trick?  Then Brett would do whatever Quiggin wanted him to do.

Crooked Timber and Australia are two different spaces.  The first is a virtual space and the second is a physical space.  Both spaces have Quiggin in common and it stands to reason that he would like to derive the maximum value from both of his spaces.  

In this blog entry... Private infrastructure finance and secular stagnation... Quiggin wrote...

Apart from the direct effect of lower investment, there’s a strong case that infrastructure investment increases the returns from private investment in general and therefore stimulates growth.

Quiggin wants the Australian government to spend more money on infrastructure.  Evidently he perceives a positive correlation between growth and infrastructure spending.  Just like he perceives a negative correlation between growth and war spending.  

Does Quiggin want to rely on slavery to ensure that people spend more of their money on infrastructure?  Well... 

Let's say that Brett is in the US.  This means that, no matter how much money the Australian government spends on infrastructure, none of that money would be taken from Brett's labor.   Brett wouldn't be forced to do something that makes Quiggin happy.  Brett wouldn't be Quiggin's slave.  

But what if Brett moved to Australia?  Then more of Brett's labor/life would be spent/sacrificed to infrastructure.  Brett would be Quiggin's partial slave.  Brett would be forced, in some part, to do something that makes Quiggin happy.  "Partial slave"?  Errr... part-time slave?  

It would make me happy if Quiggin addressed the topic of full-time vs part-time slavery.  What if I had a magic wand that would force Quiggin to stop whatever it was that he is doing and spend an hour or two... or three... or four... writing a blog entry on the topic of full-time vs part-time slavery?  Would I wave my wand?  Probably... not.  It would be very presumptuous of me to do so.  I have absolutely no idea what Quiggin is doing now!  Maybe what he's doing now is more important/valuable than what I want him to do.  Yet, Quiggin has no problem waving his magic wand (voting) trying to force millions of his fellow Australians to spend more of their money on infrastructure.  As if it's very unlikely that any of them have more important public goods to spend their money on.

Quiggin has accused Locke of hypocrisy for speaking out against slavery while profiting from the slave trade.  Is it hypocritical for Quiggin to criticize Locke while fully endorsing part-time slavery? 

Personally, as a pragmatarian, I have absolutely no problem with people being forced to pay taxes.  My problem is when people are prevented from choosing where their taxes go.  Does it make me a hypocrite that I oppose slavery but support taxation?  Well...

The reason that I oppose slavery is because I support difference.  

Progress is a function of difference.  Slavery limits progress because it diminishes difference.  Less difference means less progress.  More difference means more progress.  Sexual reproduction is superior to asexual reproduction because the outcome of sexual reproduction is more difference... which means more progress.    

Giving people the freedom to choose where their taxes go would inject a massive amount of difference into the public sector.  This massive amount of difference would yield a massive amount of progress.

Is Brett's difference diminished when he's forced to spend some of his dollars on public goods?  Nope.  Everybody needs public goods just like everybody needs private goods.  The incredibly obvious and fundamentally important yet intensely unappreciated aspect is that we don't all need the same exact amount of public or private goods at the same exact time.   Our preferences and circumstances are incredibly diverse!  This is why markets are just as necessary for public goods as they are for private goods.  And it's why the absence of a market in the public sector is directly responsible for diminishing Brett's difference.  Brett can't shop for himself in the public sector.  He can't decide for himself whether more defense or more infrastructure will maximize the value he derives from the public sector.  Brett is a slave to the extent that he can't decide for himself how his own resources are allocated.  And Quiggin supports slavery to the extent that he supports preventing Brett from deciding for himself how his own resources are allocated.  

Part of the problem is the opaqueness of the part-time slavery mechanism.  If Brett lived in Australia then Quiggin probably wouldn't go to Brett's home and force him to spend more of his dollars on infrastructure and less of his dollars on defense.  Instead, Quiggin votes for representatives who might be elected and might spend more of Brett's dollars on infrastructure and less of his dollars on defense.  Just because the mechanism is so indirect and imprecise doesn't change the fact that Brett can't choose for himself which public goods he spends his dollars on.

Admittedly, accusing anybody of supporting any amount of slavery generally isn't the best way to make friends and influence people.  But as I've pointed out numerous times before... Quiggin is my second favorite liberal.  I'm confident that he will assume good faith and correctly perceive that my criticism is entirely constructive.  It's a very important topic and it's entirely possible that my logic is fatally flawed.  Maybe Brett isn't a part-time slave?

Well... while I'm at it... perhaps I should address the very popular topic of equality from the perspective of difference.  Let's say that Brett is super poor and Quiggin is super rich.  This means that Quiggin allocates a lot more resources than Brett allocates.  Quiggin and Brett are both different... but, because of the disparity in their wealth, Quiggin's difference has far more weight than Brett's difference.  Compared to Quiggin... Brett's difference is vanishingly small.  Given that my basic premise is the importance of difference.... wouldn't there be greater progress if a good chunk of Quiggin's wealth was given, in some form, to Brett?

For some time now Quiggin has been working on a book about opportunity cost.  Do you think it's awesome that he's writing a book about opportunity cost?  I sure do!  This means that I plan to purchase his book as soon as it's published.  When I do so I will be expressing my difference.  My difference is my interest in the topic of opportunity cost.  This difference of mine will be made manifest by my choice to allocate my money, a limited resource, to the purchase of Quiggin's book on opportunity cost.

With this in mind... it should be readily apparent that the redistribution of Quiggin's wealth to Brett would diminish my difference and the difference of everybody else who's going to purchase Quiggin's book.  There would most definitely be a net loss of difference.  Which would mean less progress.

Eh, of course I don't know for a fact that this specific loss of difference would result in less progress!  Nobody can possibly know!  Nobody has a crystal ball!  Hence the value of difference.  We cover more ground when people are free to buy, or not buy, Quiggin's book when it comes out.  And by covering more ground we learn more and make more progress.

So it's not that any given different path will certainly be correct.  It's that the freedom to go down different paths is how we maximize discoveries and hedge our bets as a society.  Perhaps Quiggin is correct that spending more money on infrastructure is the right path to take.  But nobody can know this with enough certainty to prevent people from choosing different paths.  Every stagnation/recession/depression that we suffer from is caused by the widespread belief that part-time slavery doesn't have any adverse consequences.  There will always be adverse consequences when too many eggs are placed in too few baskets.

Here are some relevant passages...

Regarding slavery as a continuum...

When, as among the ancients, the slave-market could only be supplied by captives either taken in war, or kidnapped from thinly scattered tribes on the remote confines of the known world, it was generally more profitable to keep up the number by breeding, which necessitates a far better treatment of them; and for this reason, joined with several others, the condition of slaves, notwithstanding occasional enormities, was probably much less bad in the ancient world, than in the colonies of modern nations. The Helots are usually cited as the type of the most hideous form of personal slavery, but with how little truth appears from the fact that they were regularly armed (though not with the panoply of the hoplite) and formed an integral part of the military strength of the State. They were doubtless an inferior and degraded caste, but their slavery seems to have been one of the least onerous varieties of serfdom. Slavery appears in far more frightful colours among the Romans, during the period in which the Roman aristocracy was gorging itself with the plunder of a newly-conquered world. The Romans were a cruel people, and the worthless nobles sported with the lives of their myriads of slaves with the same reckless prodigality with which they squandered any other part of their ill-acquired possessions. Yet, slavery is divested of one of its worst features when it is compatible with hope; enfranchisement was easy and common: enfranchised slaves obtained at once the full rights of citizens, and instances were frequent of their acquiring not only riches, but latterly even honours. By the progress of milder legislation under the Emperors, much of the protection of law was thrown round the slave, he became capable of possessing property, and the evil altogether assumed a considerably gentler aspect. Until, however, slavery assumes the mitigated form of villenage, in which not only the slaves have property and legal rights, but their obligations are more or less limited by usage, and they partly labour for their own benefit; their condition is seldom such as to produce a rapid growth either of population or of production. - J.S. Mill, Principles of Political Economy with some of their Applications to Social Philosophy

Regarding taxation as slavery....

Taxation of earnings from labor is on a par with forced labor. Some persons find this claim obviously true: taking the earnings of n hours labor is like taking n hours from the person; it is like forcing the person to work n hours for another’s purpose. Others find the claim absurd. But even these, if they object to forced labor, would oppose forcing unemployed hippies to work for the benefit of the needy. And they would also object to forcing each person to work five extra hours each week for the benefit of the needy.  But a system that takes five hours' wages in taxes does not seem to them like one that forces someone to work five hours since it offers the person forced a wider range of choice in  activities than does taxation in kind with the particular labor specified.   (But we can imagine a gradation of systems of forced labor, from one that specifies a particular activity, to one that gives a choice among two activities, to ... ; and so on up.)  Furthermore, people envisage a system with something like a proportional tax on everything above the amount necessary for basic needs. Some think this does not force someone to work extra hours, since there is no fixed number of extra hours he is forced to work, and since he can avoid the tax entirely by earning only enough to cover his basic needs. This is a very uncharacteristic view of forcing for those who also think people are forced to do something whenever the alternatives they face are considerably worse. However, neither view is correct.  The fact that others intentionally intervene, in violation of a side constraint against aggression, to threaten force to limit the alternatives, in this case to paying taxes or (presumably the worse alternative) bare subsistence, makes the taxation system one of forced labor and distinguishes it from other cases of limited choices which are not forcings.
The man who chooses to work longer to gain an income more than sufficient for his basic needs prefers some extra goods or services to the leisure and activities he could perform during the possible nonworking hours; whereas the man who chooses not to work the extra time prefers the leisure activities to the extra goods or services he could acquire by working more. Given this, if it would be illegitimate for a tax system to seize some of a man’s leisure (forced labor) for the purpose of serving the needy, how can it be legitimate for a tax system to seize some of a man’s goods for that purpose? Why should we treat the man whose happiness requires certain material goods or services differently from the man whose preferences and desires make such goods unnecessary for his happiness? Why should the man who prefers seeing a movie (and who has to earn money for a ticket) be open to the required call to aid the needy, while the person who prefers looking at a sunset (and hence need earn no extra money) is not? Indeed, isn’t it surprising that redistributionists choose to ignore the man whose pleasures are so easily attainable without extra labor, while adding yet another burden to the poor unfortunate who must work for his pleasures? If anything, one would have expected the reverse. Why is the person with the nonmaterial or nonconsumption desire allowed to proceed unimpeded to his most favored feasible alternative, whereas the man whose pleasures or desires involve material things and who must work for extra money (thereby serving whomever considers his activities valuable enough to pay him) is constrained in what he can realize?  - Robert Nozick, Anarchy, State, and Utopia

Regarding the value of difference...

I have suggested a different model and metaphor. The world is not a single machine. It is a complex, interactive ecology in which diversity -- biological, personal, cultural and religious -- is of the essence. Any proposed reduction of that diversity through the many forms of fundamentalism that exist today -- market, scientific or religious -- would result in a diminution of the rich texture of our shared life, a potentially disastrous narrowing of the horizons of possibility. Nature, and humanly constructed societies, economies and polities, are systems of ordered complexity. That is what makes them creative and unpredictable. Any attempt to impose on them an artificial uniformity in the name of a single culture or faith, represents a tragic misunderstanding of what it takes for a system to flourish. Because we are different, we each have something unique to contribute, and every contribution counts. A primordial instinct going back to humanity's tribal past makes us see difference as a threat. That instinct is massively dysfunctional in an age in which our several destinies are interlinked. Oddly enough, it is the market -- the least overtly spiritual of concepts -- that delivers a profoundly spiritual message: that it is through exchange that difference becomes a blessing, not a curse. When difference leads to war, both sides lose. When it leads to mutual enrichment, both sides gain. - Rabbi Jonathan Sacks, The Dignity of Difference 

Saturday, November 14, 2015

Integrating vs Disintegrating Information

Reply to reply: Thanks for commenting


Debating “perfect information” is like debating “heaven”. If heaven exists… then…

It took you more than half a year to respond to my response. Why? I have absolutely no idea. I’m not omniscient. I only have a microscopic clue about your preferences and circumstances. All I know is that responding to my response was on your “to do” list… and it was very very very far down on your list. How many other activities were higher on your “to do” list? How many activities have you engaged in since I responded to your story? Can I argue that your priorities are wrong? Can I argue that responding to my response should have been at the top of your “to do” list? 

Some economists like to assume omniscience for the sake of their models. But omniscience is so far removed from reality that it’s not even funny. It’s sad that so many people think that “perfect information” is relevant to anything relevant. 

What markets do is they integrate the maximum amount of information. What not-markets do is the opposite… they disintegrate the maximum amount of information. 

The government is currently a not-market. It disintegrates the maximum amount of information. People don’t appreciate this because they can’t see the impossibly massive amount of information that’s being disintegrated. If I had overridden your own priorities and placed “responding to my response” at the top of your “to do” list then how many people would know what information was disintegrated? 

It’s a given that markets “fail”. They fail for lack of information. Which is why it’s so absurd to jump to the “government” conclusion… given that the government, as it’s currently structured, disintegrates information. 

With private goods people have the incentive to supply information about their preferences/circumstances. The same isn’t necessarily true of public goods. So it’s not unreasonable to coerce people to contribute to public goods… but it’s extremely counterproductive to override people’s public goods preferences/circumstances by preventing them from choosing for themselves which public goods their taxes are spent on. It’s as if people exist for public goods and not the other way around. 

When it comes to organs… are they a private or public good? Right now I’m free to give my kidney away… but I’m not free to sell my kidney. I’m not free to sell my kidney because society, as a whole, does not appreciate/understand the value of knowing/integrating my preferences/circumstances. So it’s kinda hard to say that any organ shortage is the result of market failure. 

Opting in vs opting out with regards to organ donation is failing to see the forest for the trees. With opting out as the default there might be a larger supply of organs… but we still haven’t integrated people’s preferences/circumstances concerning their organs. So we have a distorted sense of reality… and our decisions are going to be less than optimal as a result. 

On Facebook you can post that you gave your kidney away… and I suppose that you might receive quite a few thumbs up. What if people could also give you a quarters up? Or a dollars up? Would any of your friends and family voluntarily give you any money because you gave your kidney away? Would it be strange to receive a total of $100 or $200 or $500 dollars because you gave your kidney away? 

Incentives and information both matter. If we want people to behave in maximally beneficial ways then we have to accurately communicate how much we benefit from their behavior. 

Nobody’s omniscient. This is just as true for public goods as it is for private goods. 

Friday, November 6, 2015

Amazon vs America

Reply to: Damn Right Amazon Runs a Fucking Deficit and So Should America


The public sector. The public sector. The public SECTOR. The public SECTOR. The public SECTOR. The fucking public SECTOR. The mother fucking public SECTOR.

You: Hey, there are some companies, in the private SECTOR, and they run a deficit. They borrow a ton of money! Look how well they are doing! Therefore, let’s run the entire public SECTOR just like how some individual companies in the private SECTOR are run. 

It’s ok for companies to borrow lots of money. Because… if some companies make stupid spending decisions then we, the consumers, give our money to whichever companies are making smart spending decisions. We can choose not to give our money to Amazon. We have the freedom to spend our money elsewhere. It’s entirely up to each and every one of us to decide entirely for ourselves whether or not Amazon is making too many mistakes. Consumer choice is what keeps Amazon on its toes. Our freedom of choice is what Amazon thinks about when deciding how they should spend the money that they earned and borrowed. 

Borrowing in the private sector is ok because of consumer sovereignty. You know what you’re left with when you take away consumer sovereignty? Whatever your left with IS NOT a market. You’re left with a not-market. 

Not-markets have different feedback mechanisms. Like voting. The government wants to borrow a shit ton of money and spend it on an unnecessary war. Then what? Then we, the voters, have to use our votes to try and replace whichever numskulls are in charge borrowing/spending a shit ton of money. 

In the public sector we infrequently use votes to try and replace the leaders who are making terrible spending decisions. In the private sector we frequently move our money to whichever leaders are making the best spending decisions. 

This isn’t a subtle distinction. But here you are completely ignoring this distinction and, as a result, you come to a completely moronic conclusion. 

Here I am giving you feedback. It’s negative feedback. You wrote a shit story. Lots of other people also gave you feedback. But they gave you positive feedback by *hearting* your story. If Medium facilitated micropayments… then how much money would those people have given you? You don’t know. You’re not mother fucking omniscient. 

The point of markets is to clarify demand. People are free to spend their own hard-earned money and when they do so it reveals the truth of their preferences and priorities. Not-markets do not clarify… they obscure… which is why they invariably waste massive amounts of society’s limited resources. Which is why it’s massively moronic for the government to run a deficit. And why it’s fundamentally important that people be free to choose which government organizations they give their taxes to (pragmatarianism FAQ).

Let me try and put my main point in a nutshell… 

In order for deficit spending to work as well for America (one country) as it does for Amazon (one company)… leaving America would have to be as easy as leaving Amazon. Leaving America and moving to Canada would have to be as easy as moving your money from Amazon to Barnes and Noble. 

With Amazon we have easy exit. With America we do not. Therefore, deficit spending for America is incredibly stupid. When consumers can’t easily boycott mistakes in the public SECTOR… then we want the public SECTOR to be as small as possible. 

Thursday, October 15, 2015

Preventing Human Extinction


I love growing plants. Southern California, where I live, is a great place to grow a wide variety of plants outdoors year around. Well… it’s usually a great place. A few years back it actually got cold enough to freeze. After a few days, when the full extent of the cold damage was abundantly apparent, I realized that one of my orchids… Cattleya Portia… was a total goner. It had been happily growing on a lemon tree… but then the cold killed it completely. Surprisingly, just a few feet away on the same lemon tree, was an orchid that was entirely untouched by the freeze. What made it surprising was that it was a division of the same exact Cattleya Portia that had frozen to death just a few feet away. The two orchids were identical in every way… they were both even growing on the same tree… the only difference was their location on the tree.

This confirmed, yet again, a lesson that I had learned a long time ago… don’t keep all your eggs in one basket. Right now humans are all in the same basket… Earth. It might seem like a relatively safe and big basket… but no basket is ever safe enough to put all your eggs in it.  

So the priority, in terms of preventing human extinction, should be putting humans into as many different baskets as possible…. space stations, the moon, mars and so on. 

The problem is that people can’t choose where their taxes go. At first glance it might appear to be an absurd idea to allow everybody to decide for themselves which government organizations (GOs) they give their taxes to. But preventing people from deciding for themselves is the same thing as putting too many eggs in one basket. 

Let’s say that I convince you that getting enough humans off the planet should be our number one priority in terms of preventing extinction. Can you adjust your tax allocation accordingly? Can you go to the NASA website and give them more of your tax dollars? Nope. Neither can I. Neither can anybody else…. except for an extremely small group of government planners… congress.

Centralization blocks human diversity. This is a problem because our natural diversity naturally leads us to put our eggs in different baskets. Our natural diversity is our greatest protection against extinction. Yet our government is structured to block nearly all of our natural diversity. Therefore, the government is the greatest threat to our survival. 

This doesn’t mean that we have to get rid of the government. It simply means that taxpayers should be free to choose where their taxes go. People will put their eggs (taxes) in different baskets… and they will appreciate the importance of having their eggs in different baskets… and they will appreciate the importance of having humans in different baskets. 

So we hedge our bets and greatly increase our chances of survival by allowing people to choose where their taxes go. To learn more… here’s the pragmatarianism FAQ.

I didn’t just attach Cattleya Portia to my lemon tree. I also attached some divisions to my Cedar tree… none of which were killed by the cold. Here’s a photo of Cattleya Portia blooming on my Cedar tree

Monday, October 5, 2015

Robot Intelligence: Brain Gain vs Brain Drain

Reply to: Albert Hirschman’s Linkages, Economic Growth, and Convergence Yet Again… by J. Bradford 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?

Sunday, October 4, 2015

Missing Markets: The Bane Of Our Existence

Reply to: Traditional Economics Don’t Make Sense For Open Business Models


Imagine that you’re trying to decide whether to play golf (X) or write a story on Medium (Y). The question is… how should you allocate your time? Your time is a limited resource. Your time is scarce. Given that your time is scarce, it makes sense to allocate your time to whichever activity will provide you with the most benefit. 

Whenever people talk about post-scarcity economics… it’s a pretty good sign that they are clueless. Even if you were immortal you still wouldn’t be able to play golf and write stories at the same time. And [“Her” spoiler alert]… even if you were an incredibly advanced artificial intelligence capable of writing stories, playing virtual golf and engaging in a gazillion other activities at the same time… all the resources that you allocated to these gazillion activities couldn’t also be allocated to all the other gazillions and gazillions of possible activities. 

Scarcity will always be relevant… so prioritization will always be relevant. 

The way that market economies work is that everybody can help influence everybody’s priorities. If I had to allocate one of my dollars to X (you playing golf) or Y (you writing stories)… then I’d allocate it to Y. This is because I don’t derive any benefit from X. 

This is going to sound incredibly obvious but… you can never be me. And you are not omniscient. These incredibly obvious facts of life have incredibly powerful implications. You can never truly know how much benefit I derive from either X or Y. But, when I allocate my dollar to Y rather than X, then you can know that, from my perspective…

Y > X

It stands to reason that… the more people that give you their dollars for you to do Y… the more likely you are to do Y… and the more benefit you’d create for society. 
Let’s review the economic truisms…

  1. Scarcity is, and always will be, relevant
  2. Nobody’s omniscient
  3. Incentives matter

Is this traditional economics? Well… it’s certainly economics. And it most definitely makes sense when we’re talking about open business models.  

This is what Medium might look like if they had a half-way competent economist on their payroll…

I would be able to use paypal to put money into my digital wallet. Then, if I benefited from your story, I could click the appropriate *heart* button. Let’s say that I clicked the 25 cent button. In less than a second, 25 cents would be transferred from my digital wallet to your digital wallet. I essentially gave you 25 cents of incentive to write stories rather than play golf. I increased your opportunity cost of playing golf by 25 cents.

Our society has a lot of people in it. And each person can engage in an infinite variety of activities. Market economies work because we can help encourage people to engage in the most beneficial activities.

All the biggest problems that we face as a society are not caused by markets… they are caused by the absence of markets. 

Right now we don’t have a market in Medium just like we don’t have a market in the public sector. These markets are missing because people don’t understand basic economics. People are under the impression that “recommending” or “liking” or voting can ensure that society’s limited resources are put to their most valuable uses. 

Solving the biggest problems in the world boils down to helping people understand basic economics. Then people would understand the point of markets… markets would be created wherever they are missing… and our collective intelligence and ingenuity would eliminate the world’s biggest problems. 

To help further illustrate the problem with missing markets… let’s consider this passage that you wrote…

I find this weird in so many ways. Let me highlight just one — consumption provides utility. Under this logic a tree has no utility unless it is cut down and “consumed”. I expect all of you question the logic of this. A tree can provide great utility without being consumed. It provides shade on a hot day, its leaves cleanse the air we breath, its branches provide homes for birds, its roots prevent erosion, and to many it is a thing of beauty. To assert that a tree has no utility if it is not consumed is, to me, a bizarre premise.

Benefit is in the eye of the beholder. Benefit is entirely in the eye of the beholder. 

In theory you benefit from trees being conserved rather than developed. It’s only a theory because you do not currently have the freedom to put your own taxes where your words are. Right now we don’t have a market in the public sector. A major and fundamentally important market is missing. It’s missing because people don’t understand basic economics. 

Creating a market in the public sector would be incredibly easy. People would be given the freedom to choose where their taxes go. I refer to this as “pragmatarianism”. Here’s the FAQ

Once we created a market in the public sector… then you could decide whether more trees (X) was more important to you than more defense (Y). 

If you decided that X > Y… then you’d allocate more taxes to X and less taxes to Y. Evidently, from your perspective, the world needs more trees more than it needs more tanks. 

I’d probably be in the same boat as you. How many other people would be in the same boat? We don’t know. We don’t know the demand for conservation just like we don’t know the demand for defense.
Right now you’re saying, more or less, that the supply of conservation is wrong… but why in the world would you expect it to be right? How could it possibly be right when the demand for conservation is unknown? If the supply could possibly be right without the demand being known… then markets would be entirely pointless. 

If we created a market in the public sector then the supply of conservation would be entirely determined by the demand for conservation. And then you’d be more than welcome to argue that the demand for conservation was inadequate. Would taxpayers find your arguments/information convincing? If so, then they’d give more of their taxes to the EPA. 

Sharing information isn’t the easiest thing. It takes time and effort. So if you take the time and make the effort to share your information about the environment with other people… then it becomes a lot more worthwhile to do so when the recipients of your info have the freedom to immediately act on it. 

If you’re a door and door salesman then you’re not going to waste your time making your sales pitch to a kid that answers the door. You’re going to ask to speak to whoever can make the decision to purchase your product. 

With our current system… congress controls the purse. So all the sales pitches are made to congress rather than to the public. The public is treated like some kid. This is a problem because, with our current system… the kid is responsible for determining who controls the purse. 

The only way that the public is going to make sound decisions about the environment is if they are given the relevant information. And the only way that it’s going to be worthwhile for the public to be given relevant information about the environment is if they have the freedom to control the money that they earned.

Missing markets are the cause of rational ignorance. The effects of ignorance, rational or otherwise, are extremely detrimental. Therefore, it would be extremely beneficial to create markets wherever they are missing. 

Tuesday, September 29, 2015

Coffee Tastes Like Politics

Comment on: Libertarianism And The Politics Of Everything by Will Wilkinson


Coffee tastes like politics?  Yuck!  No wonder I don't drink the stuff!

You spend your money on coffee... I do not spend my money on coffee.  We spend our money differently because we have different preferences.  Human diversity is the basis of consumer choice.  Consumer choice is economics.  Economics is the opposite of politics.  Economics is the opportunity cost of politics.

If coffee was in the realm of politics... then one of us would have to get screwed.  Either my money would be spent on coffee... despite the fact that I can't stand the stuff... or your money wouldn't be spent on coffee... despite the fact that you love the stuff.  Would you really want coffee to be in the realm of politics?  No?  Then why in the world would you want anything to be in the realm of politics?  

Politics only exists because people don't understand economics.  If people understood economics then they would clearly see the absolute absurdity of allowing a small group of elected officials to spend everybody's taxes.

The next time that you drink coffee... don't think about politics.  Think about how you're pretty happy with your coffee despite the fact that I'm entirely free not to spend any of my money on coffee.  

To be clear... the free-rider problem is a real problem... so we need the public sector... but we really don't need it to be a political realm.   Libertarianism is the belief that we need to kick most public goods out of the public sector.  Pragmatarianism is the belief that we need to kick politics out of the public sector.

Monday, September 28, 2015

John Quiggin vs Weeds

John Quiggin is my second favorite liberal.  He's writing a book about opportunity cost!  How cool is that?  Over at Crooked Timber he's been sharing excerpts from his book so that people can share their feedback.  This is also really cool.

Here's his latest excerpt... Income redistribution: Where should we start?

Even though I love the general topic... his treatment is missing something.  The word "lackluster" comes to mind.  So does "drab".  But what, exactly, is it missing?  It's one thing to taste some soup and realize that there's something missing.  It's another thing entirely to be able to specify the missing ingredient.  Actually, nearly every dish could use more garlic!

As I was quickly scrolling through the comments... I noticed quite a few from a reader named Plume.  This is nothing new.  He is a very frequent commenter.  His comments boil down to "socialism good, capitalism bad".

What was new though was that Plume received some significant pushback from another commenter...

I know that I, at least, would be very glad if every thread even remotely related to economics didn’t devolve into an extended discussion of Plumism, or Pluminomics, or whatever it is we keep getting long dissertations on. There are lots of good topics here to be discussed, but I don’t see this as one of them. I’m almost certain that I’m not alone. I believe that it’s still free to start a blog, and perhaps starting a new one devoted just to Plumism would be a good choice for those interested in the subject. - Matt  

 Somewhat surprisingly... a few comments later... Quiggin wrote...

Plume, I agree with other commenters here. From now on, for my post, can you limit yourself to one comment per post per day.

This is the missing ingredient!  In fact, it's not just one ingredient... it's two ingredients...

Missing ingredient #1: People do different things with society's limited resources... and different people value different things differently.  This fundamentally basic but incredibly important concept is largely, or entirely, missing from Quiggin's analysis.  But there it is plain to see in the comments section!  How can any conclusion regarding the distribution/redistribution of society's limited resources possibly be correct when it doesn't take into account this essential economic truism?

Missing ingredient #2: Accessible scenarios that help convey the relevant economic concepts!  I'm pretty sure that I've read every excerpt that Quiggin has shared... and I don't think that he's ever offered an accessible scenario.  Then again... my memory isn't that great.  Then again... a really good scenario is really hard to forget!

For example...

Following a three-hour time-off-for-personal-exploration period, an excited Sylvia returns to the campsite and announces: "I've stumbled upon a huge apple tree, full of perfect apples." "Great," others exclaim, "now we can all have apple sauce, and apple pie, and apple strudel!" "Provided, of course," so Sylvia rejoins, "that you reduce my labour burden, and/or furnish me with more room in the tent, and/or with more bacon at breakfast." Her claim to (a kind of) ownership of the tree revolts the others. - G.A. Cohen, The Socialist’s Guide to Camping

It's a very simple and accessible story that wonderfully illustrates Cohen's point.  Of course I don't agree with his point... but I really admire how well he conveyed it.

Quiggin's book is the liberal sequel to Hazlitt's book... Economics In One Lesson... which was all about Bastiat's beautiful essay... What Is Seen and What Is Not Seen.  When it comes to accessible economic scenarios... nobody holds a candle to Bastiat.  He really set the standard that every economist should strive to meet.

When James Goodfellow gives a hundred sous to a government official for a really useful service, this is exactly the same as when he gives a hundred sous to a shoemaker for a pair of shoes. It's a case of give-and-take, and the score is even. But when James Goodfellow hands over a hundred sous to a government official to receive no service for it or even to be subjected to inconveniences, it is as if he were to give his money to a thief. It serves no purpose to say that the official will spend these hundred sous for the great profit of our national industry; the more the thief can do with them, the more James Goodfellow could have done with them if he had not met on his way either the extralegal or the legal parasite. - Frédéric Bastiat, What Is Seen and What Is Not Seen

A few other people have shared some noteworthy scenarios...

Now suppose that Wilt Chamberlain is greatly in demand by basketball teams, being a great gate attraction. (Also suppose contracts run only for a year, with players being free agents.) He signs the following sort of contract with a team: In each home game, twenty-five cents from the price of each ticket of admission goes to him. (We ignore the question of whether he is "gouging" the owners, letting them look out for themselves.) The season starts, and people cheerfully attend his team’s games; they buy their tickets, each time dropping a separate twenty-five cents of their admission price into a special box with Chamberlain’s name on it. They are excited about seeing him play; it is worth the total admission price to them. Let us suppose that in one season one million persons attend his home games, and Wilt Chamberlain winds up with $250,000, a much larger sum than the average income and larger even than anyone else has. Is he entitled to this income? Is this new distribution D2 unjust? If so, why? There is no question about whether each of the people was entitled to the control over the resources they held in D1; because that was the distribution (your favorite) that (for the purposes of argument) we assumed was acceptable. Each of these persons chose to give twenty-five cents of their money to Chamberlain. They could have spent it on going to the movies, or on candy bars, or on copies of Dissent magazine, or of Monthly Review. But they all, at least one million of them, converged on giving it to Wilt Chamberlain in exchange for watching him play basketball. If D1 was a just distribution, and people voluntarily moved from it to D2, transferring parts of their shares they were given under D1 (what was it for if not to do something with?), isn’t D2 also just? If the people were entitled to dispose of the resources to which they were entitled (under D1), didn’t this include their being entitled to give it to, or exchange it with, Wilt Chamberlain? Can anyone else complain on grounds of justice? - Robert Nozick, Anarchy, State, and Utopia

Quiggin will probably disagree with Nozick's point like I disagree with Cohen's point... but perhaps Quiggin will appreciate how well this scenario conveys Nozick's point.  And if Quiggin wants to argue in favor of redistribution... it would behoove him to explain, preferably by using an equally accessible scenario, how doing so does not subvert the true will of the people as revealed by the decisions that they make as consumers.

Here's another one...

Consider the following analog to Block's gardening problem. Let there be an island that contains all the known stock of Austrian Pure Snow trees. The island is inhabited by a religious sect, the first to mix their sweat and blood with the island's soil, thus satisfying Rothbard's principle of "original ownership." They worship these trees as if they were God. Never would they let them be tampered with in any way. Unknown to anyone, these trees contain an ingredient that is a sure cure for cancer, and when this is discovered a question of the ownership of this ingredient, unavailable elsewhere, arises. The religious sect will in no way, for any compensation, allow that ingredient to be extracted. Is it "evil and vicious" to believe that it would be preferable for someone else to own the right to this ingredient, requiring instead that the religious sect purchase the inviolability of this ingredient? Might not "our most cherished and precious property rights" be still more cherished and precious if the private ownership of this new resource was not confined to those who own the rest of the island? Would the answer be much different if this ingredient not only was known to the island dwellers, but was precisely that part of the trees that they worshiped? Would the answer be different if the islanders were very poor? - Harold Demsetz, Ethics and Efficiency in Property Rights Systems

As a nature lover... I appreciate all the trees in this scenario.  And, as an economics lover... I appreciate the ownership dilemma.  Although... the scenario falls apart a bit when we consider the fact that trees have seeds.  It's hard to imagine that some group wouldn't be willing to sell one seed for any price.

Here's the most recent noteworthy scenario that I've run across...

If Robinson Crusoe and Friday are on an island, and Crusoe grows seven pumpkins and Friday grows three pumpkins, Crusoe hasn’t grabbed a bigger piece of (pumpkin?) pie. He has simply created more wealth than Friday, leaving Friday no worse off. It is dishonest to say Crusoe has “taken” 70 percent of “the island’s” wealth. - Don Watkins, Turning the Tables on the Inequality Alarmists

Short and sweet.   It's unfortunate that Watkins can't keep his story straight... Limit Socialism To California.

My favorite recently-dead economist James Buchanan wasn't exactly known for his scenarios... and perhaps this is part of the reason that he is so incredibly under-appreciated.  Consider this scenario...

At some basic psychological level of choice, the demand of the citizen for more police protection by the municipality reflects the same drive as his demand for additional door locks from the local hardware store. 
Even with such a simple analogy, however, care must be taken lest the similarities be pushed too far. The person who wants to purchase a new lock goes to the local hardware store, or to several stores, surveys the array of alternatives offered for sale, along with the corresponding array of prices, makes his purchase, and is done with it. It should be evident that the person’s act of implementing his demand for additional police protection is quite different. The citizen must communicate his desires to his elected political representative, his city councilman, who may or may not listen. If he does listen, the councilman must then take the lead in trying to convince a majority of his colleagues in the representative assembly to support a budgetary adjustment. But what about quality and price? Almost anyone would desire more police protection of high quality if this should be available to him at a zero price. At one level of reaction, the citizen must understand that additional public services can be secured only at the price of either reductions in other services or increases in taxes. How can he indicate to his political representative just what quantity-quality-price mix is most preferred? And how can his political representative, in trying to please his constituents, determine this mix? - James Buchanan, Richard Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes

The scenario works... but it doesn't exactly stick.  Buchanan didn't even give the person a name!

Ok, so what is Quiggin's book missing?  Based on the drafts that Quiggin has shared... his book is missing two things.  First, it doesn't really address the fact that people value things differently.  Second, it doesn't have any accessible scenarios/stories.  My dollar vote is for a scenario involving Australia's wonderful epiphytic orchids.

While I'm at it... I should point out that the solution to the comment problem really isn't to limit Plume's comments.  The solution is to create a market in the comment section!  Quiggin could spend his pennies on whichever comments he values most.  Everybody else could do the same.  Then, if people wanted to, they could sort the comments by their value.  The most valuable comments would be at the top of the comment section and the least valuable comments would be at the bottom of the comment section.

If we think of Quiggin's blog entry as a home... then the comment section would be the garden.  Plume is a weed that grows everywhere in the garden.  He takes up way too much space in the garden.  The thing is... it's a really big garden... and not all the space is equally valuable.  The most valuable space is closest to the house.  So the problem really isn't that Plume is taking up too much space... the problem is that he's taking up too much valuable space.  All the valuable space that Plume takes up could be used for far more valuable plants.  Sure, Quiggin could manually limit the amount of valuable space that Plume occupies... but a far more effective approach would be for Quiggin to give more water, food and love to the plants that he values most.  They would grow more vigorously and, as a result, they would crowd out Plume and all the other weeds.  Pretty soon all the most valuable space in the garden would be occupied entirely by the most valuable plants.  The garden would still have weeds... but they would be located in the most remote part of the very big garden.

This is how and why markets work.  Consumers can't pull weeds... but they can help nourish the most beneficial plants.  The logical result of consumer choice is that resources are unevenly distributed among the unequally beneficial plants.  Redistribution might seem fair... but it simply provides more valuable space to less valuable plants.

Nobody truly benefits when society's limited resources are placed in less beneficial hands.  In other words, the opportunity cost of fairness is way too high.

Artificial Barriers To Entry: Humanity's Berlin Wall


You argue that nobody is better off when they trade with Martin Shkreli… but you also argue that plenty of people choose to trade with him (which is why he’s raking in the profits). 

The first time that you traded with Shkreli he ripped you off. Shame on him. But if you traded with him a second time… then shame on you. If you continued to trade with him… then here are a couple of very different conclusions…

1. you’re irrational
2. you’re benefiting

Are you irrational? If so, then you really shouldn’t be blaming Shkreli. Are you benefiting? If so, then you really should be thanking Shkreli. 

Markets wouldn’t work so well if most people continued to make trades that weren’t beneficial. The fact of the matter is that consumers want to maximize their profit just as much as producers do. The only difference is that we can’t see or measure the amount of profit that consumers derive from a trade. But, because market trades are entirely voluntary, when consumers continue to make the same trades…. we can reasonably guess that they are profiting from doing so. It’s an entirely different story when consumers don’t have the freedom to exit. In the absence of consumer choice, the only thing that we can reasonably guess is that producers have little, if any, incentive to benefit consumers. Destroying the direct connection between payment and performance has logically detrimental consequences. 

Even though your economic analysis is logically flawed… you’re right that there’s a problem. Rent-seeking is certainly a part of it. The thing is… your definition of rent-seeking is incredibly wrong. Rent-seeking really is not when people charge what the market will bear. Where did you get the idea that it was? Being able to price gouge is the reward that people receive for correctly foreseeing future conditions. We really want people to have the maximum incentive to be in the most valuable place at the most valuable time. If there are a lot of people drowning and only one lifeguard… then it’s a really bad idea to reduce the incentive for other people to become lifeguards. Evidently you didn’t learn in econ 101 that incentives matter. You should try and get a refund. 

Rent-seeking is actually when people use the government to cheat. The minimum wage is the result of rent-seeking. It’s rent seeking when unions use the government to block competition. Just like it’s rent-seeking when corporations use the government to block competition. 

Forcing drug companies to comply with extensive government regulations is a huge part of the reason that drugs are so expensive. Costly compliance creates a very high barrier to entry… and a very high barrier to entry means a lot less competition… and a lot less competition means higher prices, smaller quantities and lower qualities. Drug companies want compliance to be costly… and voters want to be protected from defective drugs. So, unfortunately, it’s a win-win situation for congress to create the maximum amount of red-tape possible. 

Therefore, the real problem is democracy. Voters think that they are getting a free lunch when they vote for politicians who promise to ensure drug safety. Instead of getting a free lunch, voters simply make drugs a lot more expensive. Saving one life really isn’t such a great deal when it costs 1000s of lives. 

People vote to make it a lot harder to become a lifeguard and then they turn around and complain that so many people are drowning. 

The solution is to allow taxpayers to choose where their taxes go (pragmatarianism). When taxpayers consider the opportunity costs of drug safety compliance… they will decide that they have much more beneficial trades to make with the government. Big pharma will cry big tears when the barrier to entry is knocked down just like the Berlin Wall was. Once the barrier is down… competition will skyrocket and this will ensure an abundance of affordable and effective drugs. 

Drug companies will still want to cut corners… but a fully functioning market with maximum competition will quickly and severely punish any companies that cost, rather than save, lives. 

Regulations are just rules… and rules are necessary. This doesn’t mean though that all rules are equally necessary. The only way to ensure that rules truly create the most benefit for society is to create a market in the public sector. Are you going to voluntarily spend your hard-earned money on rules that harm you? Not if you’re rational. Generally speaking… rational people have more money to spend than irrational people. This is because being in the right place at the right time is more profitable than being in the wrong place at the wrong time. Thank goodness! So if you’re rational… then chances are good that you’re going to have more influence…. which you’ll use to support the most beneficial rules. If circumstances change and a rule becomes less beneficial… then you’ll have the freedom to quickly use your taxes to communicate to the rest of society that the rule has become less necessary. 

It’s important to understand that benefit is entirely in the eye of the beholder. Just like it’s important to understand that incentives matter. Just like it’s important to understand that every allocation requires the sacrifice of alternative allocations.

So is it beneficial for you to reply to my reply? I have absolutely no idea. But if you do reply…. assuming that nobody forced you to do so… and assuming that you’re reasonably rational… then I’ll logically conclude that any benefit that you foresaw must have been large enough to incentivize you to spend your time sharing your thoughts on my thoughts on your thoughts.