Tuesday, March 31, 2015

Accurately Communicating Value

This blog entry is dedicated to Beth Cody.  Who's Beth Cody you ask?  According to her website... she's a libertarian writer who believes that "information and ideas should travel freely".  So it's not very surprising that our very first interaction took place in the Disqus comments section of this article by Jeffrey Tucker... Steal Our Stuff, Please.

Here's a screenshot of our interaction...

As you can see in the screenshot, Beth left a comment on Tucker's article four months ago.  Because her comment was liked by four other people, it was the very first comment that I saw after I finished reading Tucker's article.  Curious to learn why Beth's comment was the most popular... I read it.  It was well-written!  But... missing something.   So I hit the reply button, wrote some words, rearranged some words, deleted some words, added some words, reread my words and then... voila!  Beth received her first reply!  She posted her comment four months ago and that's how long it took before some random person (me!) came along and decided that what she wrote was worth replying to.  Shortly afterwords, my e-mail notified me that she had replied back.  I was also notified that she had commented on the blog entry that I had linked her to... Fee.org - Thumbs Up vs Quarters Up.

Back in February, thanks to Tyler Cowen's Assorted links... I learned that some website that I'd never heard of had actually started to charge people $2 to leave a comment on an article... Tablet magazine starts charging commenters.  According to the editor... the primary goal wasn't to raise money... it was to raise the quality of the comments.

Tablet's innovative approach to comments generated quite a bit of buzz...

The reviews were mixed... but none really got close to the economic heart of the matter.  So here I am!

If you read through my discussion with Beth Cody then you should already know that in my reply to her comment I made the case that Fee.org should charge its members a very reasonable amount...say $12 per year... but allow them to choose which articles they allocate their nickles, dimes and quarters to.  So rather than giving articles "thumbs up"... members could give them "quarters up".  Fee.org would take its cut and pass the rest of the money onto the writers.

To my pleasant surprise, Beth had absolutely no problem recognizing the value of this feedback mechanism.  In her comment on my blog entry she wrote that Fee.org and Liberty.me "are the sites that would understand and value the concept most".  She even took the additional step of sharing my blog entry with the editor of Fee.org... Max Borders.  It wasn't very surprising to learn that Borders himself had a similar idea a while back but was stymied by micropayments not being feasible yet.

I'd really love it if either Fee.org or Liberty.me was the first to implement "quarters up".  Fee.org in particular has a long and commendable history of endeavoring to help the public better understand economics.  So it would be especially fitting if they were the first to lead the way.  Hopefully this would generate a lot more buzz than Tablet generated when they started charging for comments.

While I agree with Beth that Fee.org and Liberty.me are more likely than other websites to recognize the value of "quarters up"... it's entirely possible that it's not currently feasible for them to take this small, but super significant, step in the right direction.  And because their mission is to endeavor to help the public understand economics... I'm sure that they will appreciate it if I don't put all my eggs in their basket.  The educational opportunities are just too huge!  So both Fee.org and Liberty.org should agree that "quarters up" should be implemented by some website sooner rather than later.

With that in mind...

A letter to the editor of Tablet


Dear Alana Newhouse,

I commend you on the boldness of your move to charge for comments!  However, I feel compelled to suggest a much better solution.

Rather than just using money to create a barrier to entry... why not use money to lift the most valuable comments to the top of the comments section?

You could achieve this efficient allocation of comments simply by giving your readers the opportunity to use their nickles, dimes and quarters to lift the most valuable comments higher up on the page.  If you write an article... then the comment that was lifted to the very top of the comments section would be the one comment that the crowd felt was most worthy of your attention.

If anybody didn't want to read the lesser valuable comments... or they didn't have the time to do so... then they simply wouldn't scroll any further down.

Think of it like this.  The reason that you've probably heard of Harry Potter isn't because money was used to block the bad writers... it's because the crowd used their money to lift J.K. Rowling's book to the top of the books "section".

This method works for "lengthy" writing such as books... and it will work for "short" writing such as comments... so it will also work for "medium" writing such as articles.  It would be quite excellent if members on your website could "quarters up" comments and articles.  Just like how members on Youtube can give their favorite videos a "thumbs up".   The difference is that "quarters up" would speak louder than "thumbs up" do.

This "quarters up" feedback mechanism for content would allow the crowd to...

1. ...accurately communicate their content preferences
2. ...easily find the most valuable content

Unfortunately, there aren't any examples of websites, that I know of, that use "quarters up" for content.  Which is a problem because it reflects the fact that people don't really understand how and why markets work!  But, given that you've already demonstrated considerable boldness... I figured that perhaps this same boldness could be used for our mutual benefit.  Your website would benefit from better feedback/sorting... and I'd benefit because I could refer to your website in order to help illustrate the value of crowd sponsored content.

For background, conceptual and technical aspects of this approach... please see... http://pragmatarianism.blogspot.com/2015/03/accurately-communicating-value.html


The opportunity cost of economic ignorance

Here's how I've wonderfully illustrated the concept of crowd lifting/amplification...

Shopping is the process by which we endeavor to find valuable voices.  When we find a voice that we value... we use our money to help amplify it.  Money is volume.  A dollar is a unit of volume.   The more dollars that the crowd gives to a writer... the more people that will hear her voice.   This is why nearly everybody in the world has heard of Harry Potter.  A very large crowd of people reached into their own pockets and helped to create a very large megaphone for J.K. Rowling.  This means that the size of her megaphone is proportional to the amount of value that she has created for the crowd.  A large crowd sponsors her because she sponsors a large crowd.  The value of her productivity to others has determined the amount of influence/control/power she has to allocate society's limited resources.

Unfortunately, the benefit of dollar voting really isn't understood by most people.  There's an endless supply of evidence to support this fact.  Here's just a small sample of the evidence...

Sector MMC BV DV
Kindle Unl.
Less Wrong

MMC = mandatory minimum contribution
BV = ballot voting (thumbs up, likes, favorites, etc)
DV = dollar voting (quarters up, dimes up, etc)

All these sectors, and countless more, should be MMC + DV.  Take Amazon Unlimited for example.  Every person who pays Amazon $9.99/month (MMC) to read over 700,000 titles should have the option to use their nickles/dimes/quarters to lift their favorite titles higher up.

Why MMC?  Two reasons...

1. All the goods in question are non-rivalrous
2. Everybody wants a free lunch (free-rider problem)

Right now there's a book on my coffee table.  It's Toleration by Andrew Cohen.  Here's how I've wonderfully illustrated our exchange...

In this illustration I'm buying Cohen's book from him in person.  But in reality, I purchased his book on Amazon.  Amazon really helped to facilitate this trade.  Amazon made it stupid easy for me to dollar vote for Cohen's content.

The question is... would I have given Cohen $20 if I could download his book for free?  Maybe not.  What about $10?  Or $1?

With the free-rider problem we end up shooting ourselves in the foot.  We rationalize that, in the grand scheme of things, it's not a big deal if we don't spend a dollar on a "free" book.  What difference can a dollar possibly make?  And if a dollar can't make much of a difference... then neither will anything under a dollar.

Coincidentally, I just found this article when I searched Google for "Youtube"...
No one is pulling down the kind of money internet sensation PewDiePie rakes in ($4 million a year, according to the Wall Street Journal), but you don’t have to make millions to quit your job and earn a living doing what you love. - Chris Kohler, Why Does Nintendo Want This Superfan’s YouTube Money? 
If Youtube charged a very reasonable $12/year (MMC)... but allowed members to "quarters up" their favorite videos... then I think that quite a few people would be able to quit their day job and earn a living doing what they love.  This wouldn't just benefit the creators of the content... it would also benefit the consumers of the content.  Consumers really benefit when they they use their dollars to point producers in the most valuable directions.  Consumers really don't benefit when they give producers bad directions.  If producers were omniscient then there wouldn't be any need for consumers to clearly communicate their preferences/valuations.

Maybe you need a hand visualizing the logistics?  Ok.  Here's a modified screenshot from the Youtube page of one of my favorite songs... Geppetto by Optiganally Yours.

I highly doubt that this is the best layout... and it's definitely not the best style... but hopefully you get the idea.

In this example, $3.50 is how much money that I've given to this song and $250.01 is how money much the crowd has given to it.  Giving this song a "quarters up" would be as easy as giving it a "thumbs up".  All it would take is one click to give this song a quarter.  Youtube would be making it stupid easy for me to trade with Rob Crow and all my other favorite artists.

Yes, I do realize that "truebigmacmaster" probably isn't Rob Crow.  But once Youtube makes it stupid easy for us to trade with our favorite artists... then it probably won't take very long before its stupid easy for us to find our favorite artists on Youtube.

Unlike Youtube... Netflix already has MMC... it just needs the DV.  Here are 10 of my favorite movies/shows...

  1. Amelie
  2. Black Mirror
  3. Castaway on the Moon*
  4. Rake
  5. Shaolin Soccer
  6. Sidewalls
  7. Snatch
  8. Spaced*
  9. The League
  10. The Man From Earth*

It's not my absolute top 10 list... I tried to give more weight to content that you can currently stream on Netflix.  The ones with an asterisk unfortunately are no longer available for streaming.  Castaway on the Moon isn't even available from Amazon... but I linked to it anyways just so you could read the reviews if you were so inclined.

Assuming a monthly fee of $10.00 dollars... here's what my allocation would look like for a month...

Assuming I didn't change my allocation for an entire year...

Here's the breakdown...

Movie/Show Month Year
1. Amelie $1.50 $18.00
2. Black Mirror $0.25 $3.00
3. Castaway on the Moon $0.25 $3.00
4. Rake $1.25 $15.00
5. Shaolin Soccer $0.50 $6.00
6. Sidewalls $0.25 $3.00
7. Snatch $0.25 $3.00
8. Spaced $1.00 $12.00
9. The League $0.75 $9.00
10 The Man From Earth $4.00 $48.00
$10.00 $120.00

Believe you me... it was not easy to come up with the allocation!  This is a perfect example of one of the most important economic concepts... opportunity cost.  Every allocation requires the sacrifice of alternative allocations.  A dollar that I spend on The Man From Earth is a dollar that I can't spend on any of the other movies/shows that I also love.  This is why it's informative when I do give a dollar to The Man From Earth.  If we don't have this chance to accurately communicate our valuations... then it's a given that society's limited resources will not be put to their most valuable uses.  Producers can't make informed decisions when the bulk of information is locked away in our heart of hearts.

Opportunity cost is the key to unlocking hearts.  This is why "quarters up" would speak louder than "stars up".   Do "stars up" have an opportunity cost?  Nope.  Do "thumbs up" have an opportunity cost?  Nope.  Allocating a "thumbs up" to a video doesn't require the sacrifice of alternative allocations.  Youtube gives everyone a "thumbs up" to spend on every video.  It doesn't cost Youtube a thing to supply an infinite number of thumbs.  Thumbs are cheap.  Stars are cheap.  Talk is cheap.  Quarters?  Not so cheap.  Youtube would go broke if it handed them out like thumbs.

Every valuable resource has an infinite number of different uses.  These different uses have to be prioritized... but they can't be correctly (efficiently) prioritized when consumers aren't given the chance to prioritize.  We can only arrive at the truth of people's priorities by giving people the chance to put their money where their mouths are.  True priorities are a function of personal sacrifice.

Right now there are a vast multitude of people stuck doing jobs that they really hate.  This is the logical consequence of countless sectors that haven't made it stupid easy for people to put their money where their mouths are.  If these sectors implemented MMC + DV then people who are vastly underemployed would be given significantly better options (builderism).

As more and more sectors implemented MMC + DV, the demand for cool jobs would increase.  As a result, the supply of labor would shift accordingly.  When you have more people doing cool jobs... there are less people available to do crap jobs. If the demand for crap jobs stays the same... but there's a decrease in the supply of available labor... then the cost of labor (wages) for crap jobs would increase.  This means that, if you want somebody to do a crap job... then you're going to have to pay them more to do it.

Better options are a function of the efficient allocation of resources.  And what does the efficient allocation of resources depend on?  Accurate information.

Let's get a little technical

It seems like the two main approaches to "quarters up" are in-house and out-house.  Uh.  Maybe internal and external.


This is the system that I mentioned in this blog entry... Fee.org - Thumbs Up vs Quarters Up.  You would pay Fee.org, for example, $12 dollars and they would credit your account accordingly.  This would allow you to spend 48 "quarters up" or 120 "dimes up" or 240 "nickles up".  When you gave an article a "quarters up", there wouldn't be any "real" money involved.  Your bank wouldn't be involved... Paypal wouldn't be involved... your credit card wouldn't be involved... there wouldn't be any transaction costs... it would just be Fee.org updating some numbers in its database.  Real money would only be involved when you've ran out of "quarters up"... or content creators wished to cash out.


This system would be similar to how Disqus works.  None of the comments on Fee.org articles are stored in their own database... they are all stored in Disqus databases.  In terms of micropayments... none of the transactions would be tracked by Fee.org... they would all be tracked and stored by a third party.  When you clicked the "quarters up" button for an article on Fee.org... the information would be sent to the third party who would update their database accordingly.  Just like a third party is responsible for keeping track of and "serving" how many times this article... Steal Our Stuff, Please... has been shared... a third party would be responsible for keeping track and "serving" how much money has been spent on it.

The internal approach isn't at all technically difficult.  It's not fundamentally different than Youtube keeping track of how many "thumbs up" a video has received or Flickr keeping track of how many "faves" a photo has.

Like I mentioned, I don't know of any sites that use "quarters up" for content.  According to the Wikipedia entry for micropayments... some work has been done in this area... but most of it hasn't been successful.  Perhaps Flattr is the closest example of an external "quarters up" system.  On their website they say in big bold letters... "Add money to your likes"... which is really great!  But...when you scroll down you'll discover that they also say this...
One budget for all microdonations - Support all the creators you want without thinking about the cost. The monthly budget you choose is divided by the number of flattrs you make.
Not so great.  It's better than Facebook "likes", but it's definitely not as good as a "quarters up" system.  This is because with Flattr's system you're lifting all your favorite content equally high.

Take another look at my monthly allocation for Netflix...

With Netflix's current system... all I can do is give all these shows/movies 5 stars.  There's no opportunity cost involved so there's a huge communication failure.  Flattr's system would be better because I'd only choose to allocate my money to these shows/movies. I'd be putting my money where my stars are... so there would be some opportunity cost involved.  This means that the communication wouldn't be as big of a failure.  The problem is that my favorite shows/movies would all be bundled together.  So with Flattr's system I'd be communicating that I value all these shows/movies equally.  Which, as you can see from the graph, is entirely untrue.  I really don't value Black Mirror as much as I value The Man From Earth.

Flattr's definitely on the right track though so I'll send them a link to this entry.  It would be really outstanding if they could adjust their system so that it's based on sound economics.

Doing a bit more digging into micropayments I found this Stanford project... Micropayments: A Viable Business Model?  I've only just skimmed it but it seems like a pretty great overview... especially the tab/section on solutions.  Rather than the internal/external approach that I used... they have three categories for micropayments...

1. Pay-As-You-Go
2. Prepay
3. Postpay

They give descriptions, pros/cons and examples of each.  They conclude that, because of the transaction costs, the pay-as-you-go form is a no-go.

The prepay form is pretty much what I had in mind.  Out of the examples that they give... the most relevant seems to be an online gaming website... Nexon.  You give them real money and they give you their currency which you can spend on (allocate to) whichever games of theirs most closely matches your preferences.  I think all the games are produced by Nexon.... but the mechanism is pretty much the same.  So if I had to share one website with the editor of Tablet magazine then it would probably be Nexon.  It does, however, take a bit of imagination to make the connection between "quarters up" for games and "quarters up" for articles/comments.  But as every good economist knows... every allocation is a gamble!

Tablet currently uses TinyPass online payment system in order to charge people to submit comments on their articles.  From what I read, TinyPass indicated that Tablet is the only customer they have that puts comments behind a paywall.  Looking over TinyPass's website... it seems that all their other customers use more or less standard subscription models.  I'd definitely be interested to know TinyPass's thoughts on the feasibility of their customers giving subscribers the chance to "quarters up" their preferred content.

Determining the optimal MMC

Right now neither Blogger or Medium have an MMC.  Or, we could think of it as both of them having an MMC of $0.00/year.  If Medium increases its MMC to $6.00/year... and makes it stupid easy for members to "quarters up" their favorite entries... then Medium would be more effective than Blogger is at facilitating trades. If you're going to blog... then why not blog where it's stupid easy for readers to give you money?  Google's not dumb though.  So Blogger would increase its MMC to $10/year... and also make it stupid easy for members to "quarters up" their favorite entries.  If Blogger writers started to make more money than Medium writers... then Medium would increase its MMC to $14/year.  If Blogger writers still continued to make more money than Medium writers... then perhaps $10/year is closer to the optimal MMC than $14/year.

We can imagine that with an MMC of $6.00/year... given how stupid easy it is for readers to "quarters up" their favorite entries... we can guess that lots of people are going to run out of quarters half way through the year.  That equals 4 "quarters up" per month.   And since these readers clearly enjoyed helping to lift their favorite entries... it will be worth it for them to pay for another 24 quarters.  Conversely, if the MMC is say $18.00/year... then maybe by the end of the year there would be plenty of people with unspent quarters.

We can run through the same exercise with Youtube vs Spotify.  Which sector would make it more stupid easy for me to trade with Rob Crow?

There's an infinite number of ways that a sector can help to facilitate trades.  "Quarters up" is one such way.  If Tablet successfully implements "quarters up"... then it will be extremely easy to see all the trading that is being facilitating.  We'll be able to see how much money is spent on each and every article.  We'll be able to see how much money is spent on the most valuable comments.  This information would motivate other sectors to follow suit.  They would be incentivized to adopt this superior "trait".  Any sector that failed to do so would lose resources to "fitter" sectors of the economy.

It would be survival of the fittest markets.  When a website implements "quarters up"... it's no longer just a website... it essentially becomes a market within a market.  We'd have thousands and thousands of websites all striving to become better markets.  Why?  Because there would be millions and millions of producers and consumers all striving to participate in better markets.

My main argument is that it's better when demand is clarified.  With this in mind...

The same illustration as earlier but I added a bit of insight.  You can see that there's a huge disparity between how much I paid for the book and how much I valued it.  I'm not saying this was the case in real life when I purchased Cohen's book... I'm just trying to clarify the concept.

Everybody loves getting a deal.  In this illustration you can clearly see that I'm getting an excellent deal.  It's really easy to believe that markets are quite wonderful when consumers get a bunch of really great deals.  But, when we embrace and fully appreciate the idea that money is a message... then when we pay the really wrong amounts of money... we send the really wrong messages to producers.  And consumers really don't benefit when they send the wrong messages to producers.  A much larger future benefit is sacrificed for a much smaller momentary pleasure.  We end up with more of what we want less and less of what we want more.

This concept has all sorts of broad reaching implications.  Some are easy for me to reach... while others remain tantalizingly just out of reach.  One easy implication to reach is that taxpayers should be able to choose where their taxes go.  Another easy implication is that each and every school should be a market within a market.  What's harder to reach is the implication when it comes to truly private goods...like shoes.    If we really don't want to send the wrong messages when it comes to public goods... hence the need for MMC + DV... then why in the world would we want to send the wrong messages when it comes to private goods?  But does this mean that we need MMC + DV for private goods as well?  Uhhh...

Let's shelf private goods for a second and think about MMC + DV for public goods.  When we have thousands of websites striving to become better markets... the "winners" will be the markets that do a better job of ensuring that payments accurately communicate values.  Consumers in these better markets will send more accurate messages... and, as a result, producers in these markets will be able to make better informed decisions.  The supply will more accurately reflect the demand.  Society's limited resources will be put to more, rather than less, valuable uses.  Markets with better information will produce more benefit.

When more people see, understand and study this process... then we'll be able to better determine how we might apply MMC + DV to private goods.  Given enough eyeballs, all Easter Eggs are exposed (Linus's Law).


Right now Netflix prevents non-members from "consuming" its content.  This is an example of exclusion.  If Netflix allowed its members to "quarters up" content... then would Netflix still exclude non-members?  If it did, then would this facilitate trade... or hinder it?

At first glance it seems straightforward that there might not be very many people who would pay $10.00 dollars per month for content that they can get for free.   After all... everybody wants a free lunch...
One of the selling points is that Tidal is “artist-friendly,” but as plenty of people have pointed out, if the average person cared all that much about artist royalties, Napster never would have happened. - Cortney Harding, TIDAL Wave or Shallow Pool?
Then again, the non-profit sector isn't exactly small.  More specifically... consider the musician Amanda Palmer.  She tried to raise $100,000 on Kickstarter but... she ended up with a bit more.  And thanks to Patreon (Amanda Palmer is Creating Art) she receives nearly $30,000 for every thing that she creates.  If you're even vaguely interested in the topic then I highly recommend watching her TED Talk... The Art of Asking.

Let's say that there's a knock on my door.  I open it and lo and behold... it's Frank, from the future.  He informs me that 50 years from now... exclusion and MMCs will have both been removed from the market "gene pool".  It turns out that they discovered a certain combination of different market "traits" that were far more effective at facilitating trades.  Would I be surprised to learn this?  Maybe a little bit.  Mostly about the 50 years part.  I'm pretty sure I'm the Herman Melville of economics.

Odds and ends

This entry is pretty much over... except for a few odds and ends.  If I was a better writer then I wouldn't have so much stuff left over.  Kinda like how a better surgeon doesn't have so much stuff left over after he operates.

You'd want to work harder/longer/smarter...

... if it was stupid easy to spend money in the Youtube sector of the economy.  Is this true?
If someone like Sten could individually choose the level of environmental quality, he would choose a higher level than the level set by the collective choice of society given his personal marginal cost.  In turn in order to pay for this higher level of environmental quality, Sten would work more. - Nicholas Flores, Philip E. Graves, The Valuation of Public Goods: Why Do We Work? 

Who's my Netflix buddy?  

Right now Netflix has around 50 million members.  Which of these 50 million members has a monthly allocation that most closely matches my own?  Who's my Netflix buddy!!??

In An Explanation and Some Reflections... Reed Hastings says...
For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.
He also says...
In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, “Actions speak louder than words,” and we should just keep improving our service. 
So what have we learned from Reed Hastings?

1. Become great at new things that people want
2. Actions speak louder than words

I'm sure Hastings will agree that "quarters up" speak louder than "stars up".  Right?  And then Netflix will move too fast in this direction.  Right?

Speaking of content buddies...

Who in the world gave this song the most money??!!  It would be awesome to be able to click on the $250.01 and find out.  There'd be a list of members sorted by how much they allocated to this song.  When I clicked on the member at the top of the list... Frank??... his page would have a tab for recent valuations and a tab for highest valuations.  What songs/videos would I find?  Probably other artists that I'd also want to give some "quarters up" to.  This is just one way, out of an infinite number of ways, that Youtube and other sectors could facilitate trades.

Bryan Caplain hates bad questions

In a really nice bit of synchronicity... the economist Bryan Caplan recently posted a blog entry that focused on a problem with seminars and how it can be fixed.  Here's how he starts off...
I'm sick of academic seminars.  Even if the presenter has a good paper and speaks well, the audience ruins things.  How?  Two minutes into any talk, the fruitless interruptions begin.  Half the time, they're premature quality control: "Are you going to deal with ability bias?"  "Uh, yes.  On the next slide."  The other half the time, they're bizarre pet peeves.  "How does this relate to sequential equilibrium?"  "Uh, it doesn't.  It's an empirical paper."  "Yes, but that reminds me of something Rudi Dornbusch once said.  Now I'm going to talk for four minutes."
Caplan's predicament was pretty darn close to Tablet's predicament.  But wait!  There's a twist!  Tablet's solution was a lot more economical than Caplan's solution.  Rather than attempting to determine people's willingness to pay for the opportunity to question/comment... Caplan's solution simply involves telling people to hold their questions until the end.  Somehow this would make it "easier for the speaker to filter out bad questions". 

Reading through the comments... I managed to find one that was a lot closer to the "best" solution....
The answer is simple:
Have some kind of chat room or reddit-like thread open where people can post questions and you can see them on a screen. Between slides look down, if there's something important that you're not already going to answer, answer it, if not, move on. - Borrowed_Username
Very close!  But rather than simply having the crowd ballot vote for the best questions/comments... the crowd could "quarters up" the most valuable questions/comments.  People in the audience could get paid for posting valuable questions/comments!  How cool would that be?  

In an earlier comment Tyler Cowen wrote, "I find this an oddly non-Caplanian post."  I agree.  But it's certainly quite useful for illustrative purposes.  

In defense of trolls

This may come as a huge shock, but I've been accused of trolling before.  Maybe once... or twice.  So I was very tempted to share this passage by J.S. Mill in my letter to the editor of Tablet...
Mankind can hardly be too often reminded, that there was once a man named Socrates, between whom and the legal authorities and public opinion of his time, there took place a memorable collision. Born in an age and country abounding in individual greatness, this man has been handed down to us by those who best knew both him and the age, as the most virtuous man in it; while we know him as the head and prototype of all subsequent teachers of virtue, the source equally of the lofty inspiration of Plato and the judicious utilitarianism of Aristotle, "i maëstri di color che sanno," the two headsprings of ethical as of all other philosophy. This acknowledged master of all the eminent thinkers who have since lived—whose fame, still growing after more than two thousand years, all but outweighs the whole remainder of the names which make his native city illustrious—was put to death by his countrymen, after a judicial conviction, for impiety and immorality.  To pass from this to the only other instance of judicial iniquity, the mention of which, after the condemnation of Socrates, would not be an anti-climax: the event which took place on Calvary rather more than eighteen hundred years ago. The man who left on the memory of those who witnessed his life and conversation, such an impression of his moral grandeur, that eighteen subsequent centuries have done homage to him as the Almighty in person, was ignominiously put to death, as what? As a blasphemer. - J.S. Mill, On Liberty

Epiphytic thinking

What about Uber for Welfare?  I really want to like it but, unfortunately, Miles Kimball and Scott Sumner like it.  Seriously though... I do want to like it.  But it would require ignoring everything that I've endeavored to explain in this entry.  They say that repetition helps with learning so...

Is this a better market?  Nope.  Andrew Cohen's megaphone ends up being a lot smaller than it really should be.  Now here's what Morgan Warstler is recommending...

Is this a better market?  Nope.  Andrew Cohen's megaphone ends up being a lot larger than it really should be.  Poverty is the logical consequence of society's failure to understand the problem with people's megaphones being the wrong sizes.  Nobody truly benefits when we violate Quiggin's Implied Rule of Economics.  Even when somebody ends up with a much larger megaphone than they really should have... then just imagine some rich guy who's got it all... including cancer.  I'm not saying that cancer would already have been cured by now if megaphones were the correct sizes... I'm saying that nobody's balance is as beneficial as it really should be.  Again, we end up with more of what we want less and less of what we want more.

What about Star Trek?
I sort of love that Star Trek forces us to think about a society that has no money but still operates with individual freedom and without central planning. I love that democracy is still in place. I love that people can still buy and sell things. It’s real. It’s a more realistic vision of post-capitalism than I have seen anywhere else. Scarcity still exists to some extent, but society produces more than enough to satisfy everyone’s basic needs. The frustrating thing is that we pretty much do that now, we just don’t allocate properly. And allocating properly cannot be done via central planning. - Rick Webb, The Economics of Star Trek
It's a very entertaining entry... and it's certainly true that we aren't allocating properly and central planning isn't the solution.  But Webb doesn't explain that the reason that we aren't allocating properly is because consumers aren't given the opportunity to send the right messages.

Want some more epiphyte on epiphyte action?  Ok...

Quadratic voting


I joined Medium!  Consider these snippets...
At Medium, how we work is just as important as the product we work on, and growing as an individual is just as important as contributing to the organization. We constantly look for new ways to better ourselves. -  Gianni, Watching Medium
When considering potential partnerships for your business, you might be missing a big opportunity for collaboration right in front of you — your audience. - Brian Honigman, Startups, Partner With Your Audience 
But that type of thinking— and guys like me, who work in media but haven’t done anything to help support creative industries— is why these businesses are crumbling on all sides. You can’t just take take take. You have to give back. Because these systems are vital to the creation, transmission, consumption and exchange of ideas. And those ideas are what make our society great. - Paul Cantor, Why I Started Paying for Music, Movies, Newspapers and Magazines Again
Napster was awesome because it made taking stupid easy.  Will Medium be even more awesome because it makes giving stupid easy?   Will Medium make it stupid easy to give this entry a "quarters up"?  Will Medium get the quarter rolling?  Or will it be Fee.org?  Or Tablet?  Or Reed Hastings?  Whoever it is... hopefully they'll do it sooner rather than later!

See also

See also update [3 Apr 2015]

Just stumbled upon this excellent and relevant article... Our economies are messed up. And the cause is the Internet.  I probably should have searched Medium for "micropayment" before I posted this!

Saturday, March 28, 2015

Germanwings vs Linus's Law


It's Saturday morning.  My gf, who's a therapist, is sitting on the toilet while I'm sitting on the couch.  To get an idea of the distance between our locations... if she says something like, "The cat's in the tub... why are you in the tub?"... then I can just barely hear what she's saying.  Sometimes, rather than shout back and forth, she'll call me and we'll talk on the phone.  For some reason it seems nicely absurd to talk on the phone with somebody in the same house.

So this morning I pick up my phone and learn that my gf wants to talk about the Germanwings co-pilot seeing a therapist for depression.  What's my response?  To push my gf's buttons of course.  What can I say?  I'm only human.  I blame the pilot's therapist.  We end up have a loud debate/discussion about who's to blame.

My arguments are thrown off by the fact that she's got me on speaker phone with the volume turned all the way up.  So I can clearly hear what I'm saying being broadcast in the bathroom... with a slight delay.


What do you think?  Too much context?

Linus's Law:  given enough eyeballs, all bugs are shallow

Here's the Wikipedia entry... Linus's Law... and here's my recent blog entry... Linus's Law: Narrowly vs Broadly Defined.

If we narrowly define Linus's Law... then it's only relevant to computer programming.  You write a program and it doesn't work like it's supposed to.  Why?  Because there's a "bug" in your code.

If we broadly define Linus's Law... then it's relevant to anything that doesn't work like it's supposed to.  A pilot intentionally crashes a plane full of people into a mountain.  Why?  Because there was a "bug" in his thinking.

For too many people... the "solution" to pretty much every problem is more government regulation.  But for anybody who understands Linus's Law... the solution to pretty much every problem is more eyeballs.

To be clear... there's a fundamental difference between the general solution (more eyeballs) and the specific solution.  To expect me to come up with the best specific solution for every situation where the general solution is applicable... is to really miss the point of Linus's Law!  There are a gazillion different ways to add more eyeballs... and no two ways are equally effective for every situation.

So I really don't know the best way to add more eyeballs to flying.  It just seems like a given that it's a generally good idea.

If we're going to put a lot of lives in somebody's hands... then it stands to reason that we want more, rather than less, eyeballs scrutinizing the hands in question.  We want more, rather than less, eyeballs poking and prodding hands to determine their capability.

If the passengers of the Germanwings flight had known that the pilot had just broken up with his girlfriend... and had been seeing a therapist for depression... then perhaps some of them would have thought twice about putting their lives in his hands.  And what if it was ridiculously easy for them to bring these details to the attention of other potential passengers?

Would pilots welcome all this additional scrutiny?  Would they really want to have their lives under a microscope?  The fact of the matter is that they wouldn't all mind the scrutiny equally.

Imagine you're interviewing a potential babysitter.  You ask, "would you mind if I ran a background check on you?"  If the babysitter replies that she would mind... then chances are pretty good that you'd cross her from the list.

When you're watching a crime show and the suspect isn't willing to submit a DNA sample... what do you think?

My gf argued that it's the company's responsibility to effectively screen its pilots.  Yes...but a truly effective screening process should have absolutely no problem with independent verification.

If a pilot is mentally and physically sound... then generally speaking there shouldn't be a problem with putting him under the public's microscope.

If a plane is physically sound... then generally speaking there shouldn't be a problem with putting it under the public's microscope.  

If a plan is sound... then generally speaking there shouldn't be a problem with putting it under the public's microscope.

If a program is sound... then generally speaking there shouldn't be a problem with putting it under the public's microscope.

Right now if you search google for Germanwings "Linus's Law" you'll only find four results... none of which are relevant.  This is a "bug" in our society.  And this is me pointing it out.  Given enough eyeballs, all bugs are shallow.

A couple relevant passages...
The technology for reducing the number of plane crashes in this country is available.  All we have to do is to treat every plane as though it were Air Force One.  But, if we did, how many would be willing to pay the prices to fly from their hometown to Chicago? - Richard B. McKenzie, Bound to Be Free
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 

Friday, March 27, 2015

Linus's Law: Narrowly vs Broadly Defined

Posted this in TheScienceForum.com... Linus's Law... Yay or Nay?


This started off as a reply to this thread... Should Dywyddyr be banned from the Forum?  But in my reply I brought up the topic of Linus's Law.  So I'm posting my reply as a new thread so I don't get banned again for "derailing" a thread.  And since I'm posting a thread... I figured that I might as well add some additional and relevant content.

People like you are the reason why a forum needs moderators like that. Apparently they aren't quite tough enough. - Strange

People like me?  You mean... people with unconventional views/thoughts?  If my thoughts are correct... then these moderators aren't doing the members of this forum any favors by locking/trashing my threads and banning me.  If my thoughts are incorrect, which is entirely possible... then these moderators aren't doing the members of this forum any favors by locking/trashing my threads and banning me.

Let's break this down programming style...

Case correct

Trashing/locking my thread robs forum members of the opportunity to hear myself, and possibly others, provide some arguments/evidence in support of a correct thought.

Case incorrect

Locking my thread robs forum members of the opportunity to hear different perspectives/arguments/evidence on why my thought is incorrect.

The longer a thread stays open, the greater the chances that a new forum member will be able to find and point out the error or truth of my thought.  Could the new member simply start a new thread that does so?  Well... if he wants to point out the truth of my thought... then he might not be inclined to do so given that my thread was locked/trashed and/or I was banned for a week for starting it.

And if he wants to point out the error of my thought?  Sure, he can start a thread... but will any of the participants in my locked/trashed thread see it?

There's a reason that we subscribe to threads.  It's so that we can be notified when a thread/topic that we're interested in receives new replies.  Subscribing to threads is beneficial because it helps prevent us from missing any new replies to topics/discussions that we're interested in following.  If we lose interest in the thread/topic... then it's easy enough to unsubscribe.

Allowing a thread to stay open facilitates...

1. debugging (finding the errors in a thought).
2. subscribing to any future debugging.

In this thread...  Are HUMAN SWARMS more accuate tools than POLLS or SURVEYS? I shared a link to Linus's Law and this relevant passage....

The history of Unix should have prepared us for what we're learning from Linux (and what I've verified experimentally on a smaller scale by deliberately copying Linus's methods [EGCS]). That is, while coding remains an essentially solitary activity, the really great hacks come from harnessing the attention and brainpower of entire communities. The developer who uses only his or her own brain in a closed project is going to fall behind the developer who knows how to create an open, evolutionary context in which feedback exploring the design space, code contributions, bug-spotting, and other improvements come from from hundreds (perhaps thousands) of people. - Eric Steven Raymond, The Cathedral and the Bazaar

Is this passage relevant to closed vs open threads?  I sure think it is.  When a moderator closes a thread... he prevents the "swarm" from tackling the topic of the thread.  Why does the moderator close the thread?  In too many cases it's because he, one person, is certain enough that his answer is better than any answer that the community could possibly come up with.  In economic terms this is known as the "fatal conceit".  It can also be described as "hubris".

Is Raymond's passage relevant to banned members?  I sure think it is.  Banning members decreases the number of eyeballs that this community has.  Less eyeballs means less chances that "bugs" (errors) will be found.  And the people who are most likely to be banned... ie "deviants"... are the people who are most likely to look in really different places.  Having more eyeballs isn't beneficial when everybody's looking in pretty much the same direction.   Uniformity in thinking really doesn't increase the chances that bugs will be found.  This is why it's always better to have more, rather than less, (bio)diversity.   Progress depends on difference.

Here's what you had to say about Linus's Law in that swarm thread...

You ignore the fact that the Wikipedia entry points out that this is a fallacy, as anyone with experience of professional software development would know. Quality is more important than quantity in code reviews, as in so many areas. - Strange

I would have pointed out the "bug" in your thinking shortly after you posted it... but I was banned for a week because I posted this thread.

When it comes to finding bugs in the programming code itself... then obviously you have to be able to read the code.  But the more people you have who can actually read the code... the greater the chances that somebody is going to spot the error.  Even when a program only consists of a few lines of code... I've found myself sitting there staring and staring trying to find the bug.  Sometimes it's not easy to spot things that are right under our nose.  Which is exactly why two heads are better than one.

And as anyone with experience of professional software development knows... most software isn't developed for developers... it's developed for people who aren't developers.  And the more people who are using your software... the greater the chances that somebody is going to enter some different input that "breaks" the software.  What did the user find?  A bug in the code.  Software is made for users... so it's a problem with the software when a user inadvertently "breaks" it.

It's a bug in your thinking to believe that Linus's Law is only relevant to finding errors in programming code.  Linus's Law is relevant to anything that can have bugs (errors/problems/mistakes).  This post of mine can certainly have plenty of bugs.  They can be minor errors such as misspellings and/or grammatical errors... or they can be major errors such as logical fallacies.  The more eyeballs that see this "code" (post)... the greater the chances that all the bugs will be found.   More eyeballs means more scrutiny.

In essence, a forum is decentralized (mostly) debugging process.  A member posts a thread (code) and other members are given the opportunity to try and find any errors.  If they find a large enough bug... then they have the opportunity to bring the bug to the attention of other members.

It's also a bug in your thinking to believe that Linus's Law is only relevant to finding bugs/errors/problems/mistakes.  Linus's Law is just as true for Easter Eggs as it for bugs.  Given enough eyeballs, all Easter Eggs are exposed.  The more kids that are looking for Easter Eggs (EEs)... the more EEs that will be found.

So not only is this forum a decentralized (mostly) debugging process... it's also a decentralized (mostly) treasure hunt.  We have the opportunity to point out what we perceive to be landmines/bugs/problems/errors... and we also have the opportunity to point out what we perceive to be EEs/truth/solutions/treasure.

When moderators lock/trash threads and ban members... is it because they have legitimate reasons for doing so... or is it because they fail to understand Linus's Law?  Most of my threads have been trashed/locked and I've already been banned twice.  So clearly I'm a little bit biased against Lynx_Fox and Dywyddyr.  But I'm entirely willing and able to admit that maybe I'm the one with the big bug in his code.  Maybe these two moderators understand Linus's Law a lot better than I do?

Perhaps Lynx_Fox and Dywyddyr can effectively explain the difference between Linus's Law and Proverbs 11:14?

Where no counsel is, the people fall: but in the multitude of counsellors there is safety.

A broader definition/understanding of Linus's Law has all types of relevance to our government.  If software can have bugs... and this forum post can have bugs... then it stand to reason that any plan can have bugs.  Government plans can be just as buggy as private plans.  There's a pretty big difference though.  In the private sector... if you want a lot of people to invest in your plan...  then you're going to have to subject your plan to a lot of scrutiny/eyeballs.   In the public sector however... congress doesn't have to persuade a multitude of taxpayers that a plan for a bridge will not violate Quiggin's Implied Rule of Economics.  Which is exactly why we end up with bridges to nowhere and unnecessary wars.  The solution is simply to create a market in the public sector (pragmatarianism).  If government plans are truly bug free... then they should have no problem holding up to all the additional scrutiny.  Because when it comes to government plans... ignorance of bugs truly isn't bliss.

Thursday, March 26, 2015

Fee.org - Thumbs Up vs Quarters Up

I noticed that Jeffrey Tucker commented on this Fee.org article by Robert Murphy... The Silk Road Back to Leviathan?  So I shared a link to my recent blog entry...  In Which Our Anarchist Hero Jeffrey Tucker Proves The Point Of Taxation.  Tucker hasn't replied... yet... but a couple of other people replied.  Here's my reply to their reply...


tehol and Bob_Robert... it's probably my fault but both you guys are missing the point by a million miles. Let me try again.

Imagine if Fee.org charged members $1 per/month... but members could choose which articles they spend their money on. For the sake of simplicity... let's imagine that this month there are only two articles....

1. The Silk Road Back to Leviathan? by Robert Murphy
2. How Markets Tell the Truth and Politics Tells Lies by Gary Galles

Let's also imagine that Fee.org has 50,000 members (the same number of facebook fans it has).

How would this month's $50,000 be divided between the two articles? You don't know the answer. I don't know the answer... nobody knows the answer.

If you've read Hayek, then you would know that information is dispersed. Each of us only has a piece of the puzzle. My piece of the puzzle is that I'd spend my $1 on Galles' article rather than on Murphy's article. This is because, from my perspective, Galles' article does a better job of revealing the Unseen.

The bug in Jeffrey Tucker's economics is that he believes that, just because these products (articles) aren't rivalrous, none of our pieces of the puzzle are necessary/important. Tucker believes that producers of liberty articles... such as Galles and Murphy... do not need our individual valuations in order to put society's limited resources to their most valuable uses.

But the fact of the matter is that Galles' article and Murphy's article aren't equally valuable. And it behooves consumers and producers alike to learn which article is more valuable.

The solution to this knowledge problem is really simple. Fee.org would charge its members a very reasonable monthly fee. Liberty.me already charges $5/month so there's no reason that Fee.org couldn't charge its members a buck or two a month.

This does not mean that Fee.org would have to exclude non-members from reading its articles... it just means that members would be given some special status/recognition/perks/props for their valuations/contributions. Liberty.me already does the same thing. The only difference is that Liberty.me doesn't give its members the freedom to allocate their monthly fees to the most valuable blog entries.

Can't Fee.org just rely on donations? Let's say that I only value Galles' article at $0.25 cents. In this case it's really not going to be worth it for me to take the time to track down Galles' paypal address and then log into my paypal account in order to send him $0.25 cents. There are too many steps in the process. The opportunity cost of the process exceeds my $0.25 cents worth of valuation.

But if, at the beginning of the year... I use paypal to deposit $12 into my Fee.org "bank account"... then... if Fee.org sets it up right... spending $0.25 cents on Galles' article would be as easy as giving a Youtube video a thumbs up. Kind of like how it's too easy to buy something on Amazon.

In essence, Fee.org would be creating a market within its website. They would be facilitating trades. They would be making it stupid easy for me and every other member to trade with Galles, Murphy, Tucker and anybody else who writes articles for this website. Fee.org would take its cut and pass the rest on to the intended recipients.

As far as I know, Fee.org would be the first website to try this (MMC + CC). If it worked (and why wouldn't it?)... then other websites, like Youtube and Netflix, would quickly follow suit. As a result, more and more people would wonder why we don't do the same thing with the government. If it's important to share our puzzle pieces on Fee.org articles and Youtube videos... then why isn't it important that we share our puzzle pieces on everything that the government does?

Tuesday, March 24, 2015

Debugging Education Economics - Robert Reich, Robert Murphy and Donald Boudreaux

Robert Reich recently posted the following to Facebook...


A wealthy businessman told me recently that American teachers were paid too much. I said the truth was the opposite. They’re paid far too little. I asked him: “Which is more important, the nation’s financial capital or our human capital?” He said it was our human capital. Then I asked him: “what’s the average pay for those who guide and develop our financial capital, investment bankers and portfolio managers?” He guessed $1,200,000 a year, which isn’t far off. I then asked: “What’s the average pay of those who guide and develop our human capital, America’s teachers?” He guessed $120,000 per year. I told him that, in fact, high school teachers earn an average of $56,260; elementary school teachers, $56,320; and middle school teachers, $56,630.

In other words, investment bankers and portfolio managers are earning about 20 times what teachers are earning. Yet if the nation’s human capital is more important than its financial capital, that ratio is absurd. The law of supply and demand isn’t repealed at the classroom door. If we want talented men and women to become teachers rather than bankers, we need to pay them far more. He nodded, caught in the net of his own logic.

What do you think?


Robert Murphy's response... Robert Reich Literally Doesn’t Understand the First Thing About Price of Labor

Donald Boudreaux's response... An Open Letter to Robert Reich

Murphy and Boudreaux are both excellent economists... but evidently they never saw the movie Stand and Deliver.  While there might be a surplus of teachers... there's always going to be a shortage of exceptional teachers.  If we had a truly free-market in education... then we'd expect to see roughly the same income inequality that we see in other fields.

Right now there around 3.7 million full-time elementary and secondary school teachers in the US.  There's a bell curve with a small percentage of below average teachers, a large percentage of average teachers, and a small percentage of above average teachers.  With 3.7 million teachers... it's a given that there's going to be significant disparity in talent.
Individuals differ, one from another, in important and meaningful respects.  They differ in physical strength, in courage, in imagination, in artistic skills and appreciation, in basic intelligence, in preferences, in attitudes toward others, in personal life-styles, in ability to deal socially with others, in Weltanschauung, in power to control others, and in command over nonhuman resources.  No one can deny the elementary validity of this statement, which is of course amply supported by empirical evidence.  We live in a society of individuals, not a society of equals.  We can make little or no progress in analyzing the former as if it were the latter. - James M. Buchanan, The Limits of Liberty
The fact that all teachers are paid roughly the same really doesn't mean that there aren't any exceptional teachers.

As I explained here... Raymond Fisman - Education vs Markets... the problem with schools is that, even with a voucher system, parents are paying for a bundle of teachers.  If all the teachers in a bundle were equally talented then there wouldn't be a problem.  But we've all endured more than a few lousy teachers.

The solution to our educational problems is to unbundle teachers.  This can easily be accomplished by allowing parents to choose which teachers, rather than schools, they give their money to.  The below average teachers will receive below average pay.  The average teachers will receive average pay.  The above average teachers will receive above average pay.  And the small handful of one in a million teachers will receive one in a million pay.

Unfortunately for all of us, the law of supply and demand truly is repealed at the classroom door.  Just like it's repealed in the entire public sector.  But it really shouldn't be.

See also...

Superstar Theory: J.K. Rowling vs Elizabeth Warren
Deirdre McCloskey - Revealing The Unseen

Scott Sumner vs The Fed

Not sure if you've noticed, but I haven't dedicated many, errr... any... blog entries to monetary policy.  This is because when it comes to monetary policy... I'm an expert.  Hah.  Nope.  It's the other way around.  I'm most definitely not a monetary policy expert.  Just like I'm not an expert on the government's environmental policy.  Or the government's foreign policy.  Or the government's military policy.  There are many things that fall under the current scope of government.  Monetary policy is just one of them.

When I was a libertarian... I was interested in defending my perspective on the proper scope of government.  But now that I'm a pragmatarian... I'm more interested in defending my perspective on how we should use the invisible hand to determine the proper scope of government.

So because I'm more of a big picture guy... I tend to skim... more than a bit... when it comes to Scott Sumner's posts over at EconLog.  Sumner is most definitely a monetary expert.  It's pretty easy to tell given that nearly all of his posts are on the topic of monetary policy.

Here's Sumner's most recent blog entry... Is Stanley Fischer too complacent?  While skimming over it I imagined Sumner encouraging readers to boycott the Fed.  I really enjoyed the image so here I am sharing it with you!

With the current system, I don't think that Sumner would ever say this.  Right?  How can we possibly boycott the Fed?  At best we can write a strongly worded letter to the Fed...

Dear Stanley Fischer, 
It has come to my attention that it is entirely possible that you are too complacent.  This concerns me a great deal.  Please be more... diligent.  If you fail to do so then I will be forced to... use stronger words.   
A Concerned Citizen

Would Fischer really be inclined to take heed?  Not according to Tabarrok...

It’s the threat of exit that makes people listen. - Alex Tabarrok, The Tragedy of Jonathan Kozol

I can't exit from the Fed, so why should Fischer listen?  Maybe he'd listen to congress instead?  So I should write my congressperson a strongly worded letter?  If this was the only system that I'd ever been exposed to... then it might seem like a pretty decent system.  But when I compared our political system to a market system... well... now I'm a pragmatarian.

With the current system... it would never make sense for Sumner, a monetary expert, to encourage a boycott of the Fed.  No matter how complacent Fischer was... no matter how tight or loose money was... no matter how many wheelbarrows of cash it took to pay for one loaf of bread... with the current system it would never be logical for Sumner to encourage his readers to boycott the Fed.

It's got to be a huge problem that with our current system it will always be illogical for Sumner to encourage readers to boycott the Fed.  Pragmatarianism would solve this problem.

In a pragmatarian system it would certainly be logical if Sumner ever encouraged people to boycott the Fed.  This is because in a pragmatarian system people could choose where their taxes go.  Anybody who had been cultivating the Fed with their cash... would easily be able to stop doing so (exit).

How bad would the government's monetary policy have to be before Sumner encouraged his readers to boycott the Fed?  Kinda bad?  Really bad?  Super bad?  And if Sumner did encourage his readers to boycott the Fed... how much money would the Fed lose?  A little?  A lot?  If it was only a little... how many other monetary experts would have to support the boycott in order for the Fed to get the message?

Here's another good question... how many more people would pay closer attention to Sumner's expertise if we could actually choose where our taxes go?  I often find myself explaining to people that pragmatarianism would eliminate rational ignorance.

I really want to live in a world where Sumner, a monetary expert, has the option to encourage his readers to boycott the Fed.  I really want to live in a world where I can clearly see exactly what the demand is for the government's monetary policy.  I really want to live in a world that has demand clarity rather than demand opacity.  I really want to live in a world that's enlightened.

Sumner, a monetary expert, is wondering whether Stanley Fischer is too complacent.  And I'm wondering whether Sumner would give any of his taxes to the Fed if he had the freedom to do so.  Sumner's actions would speak a lot louder than his words do.  His demand for the Fed is one piece that is missing from the puzzle.  Unfortunately, it's not the only piece that's missing.  Most pieces are missing from the puzzle.  And then there's a big mystery when we experience economic problems.

In this video you can see puzzle pieces coming together...

Why are so many economists complacent about the fact that we don't know what the demand is for government policies?  Just how great is "demand" anyways when we don't need it for monetary policy, environmental policy, military policy or any other government policy?  If we don't need demand to determine the supply of money... then why do we need demand to determine the supply of milk, shoes and cars?  Eventually economists are going to have to confront this question... let's just hope that they do so sooner rather than later.

See also...

Hyperinflation in the Weimar Republic
Holocaust - The Extremely Inefficient Allocation Of Jews

Monday, March 23, 2015

In Which Our Anarchist Hero Jeffrey Tucker Proves The Point Of Taxation

The argument has often been made that helping the poor is a public good. There's something to that. But if the government sets up programs that ostensibly help the poor, we simply shift the public good problem. Now the public good is monitoring the government. Just as we had an incentive to free-ride on the charitable activities of others, creating too little charity, so also when the government runs programs, we have an incentive to free-ride on the monitoring activities of others, creating too little monitoring. - David Henderson, A Partial Defense of David Friedman
Henderson posted that a day after another EconLog blogger, Alberto Mingardi, posted his thoughts on a  "libertarian strategies" discussion over at Liberty Matters.  I read through the discussion and found this...
In economics, the first condition of the need for economization is scarcity. For this reason, the difference between scarce and nonscarce goods is fundamental and absolute. A good is either rivalrous in ownership and control or it is not. It either has to be reproduced following consumption or not. It either depreciates in its physical integrity or it does not. If I am wearing my shoes now, no one else can wear them at the same time. But if I hold an idea and decide to share it with the world, I can retain my ownership while permitting the creation of infinite numbers of copies. In this sense, ideas evade all the limitations of the physical world. - Jeffrey Tucker, Does the Structure of Production Apply to Ideas? 
Let's put 2 + 2 together.

2 = The free-rider problem would lead to a shortage of charity (a public good)

2 = Ideas that support freedom are a public good

2 + 2 = The free-rider problem is largely to blame for our shortage of freedom

Who do you think would be more inclined to agree with my logical conclusion... Henderson or Tucker?  Probably Henderson... given that Tucker is an anarcho-capitalist.

Tucker's perspective on the public goodness of ideas inspired me to do a bit of digging into his work (ideas).  It was pretty easy to find the "bug" in his economics.  

Back to Basics on Property and Competition

That's an article that Tucker wrote in 2009.  The first part is actually quite great and relevant...
Zeroing in on a topic like “intellectual property” offers a chance to clarify fundamental notions in economics generally. You think you understand something like property rights or the nature of competition — you have studied the ideas for years! — and then a challenge comes along that blows everything up. It’s an opportunity. Time to think and think again. 
This is true!  Let's seize the opportunity to clarify our economics!  Tucker goes on to say...
Ideas, then, are what Mises calls “free goods”: copies are potentially limitless. They “do not need to be economized.”
Hmmm. This sounded curious. So I looked it up...
They called free goods those things which, being available in superfluous abundance, do not need to be economized. Such goods are, however, not the object of any action. They are general conditions of human welfare; they are parts of the natural environment in which man lives and acts. Only the economic goods are the substratum of action. They alone are dealt with in economics. - Ludwig von Mises, A First Analysis of the Category of Action
If you search that page for the word "idea"... you'll learn that Mises did not once refer to ideas as "free goods".  Maybe he did elsewhere?  If he did, then point me in the right direction!  If he didn't, then it's Tucker, rather than Mises, who is calling ideas free goods.  I'm sure Tucker wasn't intentionally trying to mislead readers into believing that Mises argued that ideas are free goods... but hopefully you'll agree that Tucker's phrasing is easily open to misinterpretation.

Here's what Mises does say in the same source...
It is customary to say that acting man has a scale of wants or values in his mind when he arranges his actions. On the basis of such a scale he satisfies what is of higher value, i.e., his more urgent wants, and leaves unsatisfied what is of lower value, i.e., what is a less urgent want. There is no objection to such a presentation of the state of affairs. However, one must not forget that the scale of values or wants manifests itself only in the reality of action.  These scales have no independent existence apart from the actual behavior of individuals. The only source from which our knowledge concerning these scales is derived is the observation of a man's actions. Every action is always in perfect agreement with the scale of values or wants because these scales are nothing but an instrument for the interpretation of a man's acting.
Tucker's actions, for example, are the only way that we can know his values.  And to be clear, just in case you missed the previous million times that I've explained the concept of louder... here it is from the same source...
Neither is value in words and doctrines. It is reflected in human conduct. It is not what a man or groups of men say about value that counts, but how they act. The oratory of moralists and the pompousness of party programs are significant as such. But they influence the course of human events only as far as they really determine the actions of men. - Ludwig von Mises
Actions (spending) speak louder than words (voting).  What people are personally willing to sacrifice provides a far more accurate insight into their values.

But why in the world should we even care about Tucker's values?  Does it truly matter which products/services he values more?  Why is this information at all important or necessary?
The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation. - Ludwig von Mises, Omnipotent Government
Socialism fails because production isn't guided by the valuations of consumers.  Tucker doesn't truly grasp this.
Let’s say I write a book and publish 1000 copies. They are all mine. When I sell one, I now have 999 remaining and the new owner of the one book, in a free society, is free to do with his copy what he wants: use it as a placemat, throw it away, deface it, photocopy, and even republish it. You can even re-republish it under your own name, though that would amount to the socially repudiated vice of plagiarism (vice, not crime). The new copies, which always involve some cost, compete with old copies.
Not sure if you noticed, but you can download Mises' book Omnipotent Government for free.  You don't even have to pay a penny!  It's a really great deal!  Right?
What are the advantages of living under intellectual freedom as described above? The authors list three main ones. 1) The number of copies is more plentiful and that price is thereby lower, which helps consumers. I like this point because it underscorces that IP is really what the old classical liberals denounced as a “producers’ policy” like protectionism or industrial subsidies. It beefs up the bottom line of specific firms at consumers’ expense. 2) The initial innovator still earns money as in the perfume or fashion or recipe industry, 3) “The market functions whether there is one innovator or many — and socially beneficial simultaneous innovation is possible.”
Does the $0 price tag on Omnipotent Government truly help consumers?  Yes... if you only focus on the Seen.  But as Bastiat pointed out, the good economist focuses on the Unseen.

The Unseen is that we don't have access to consumers' valuations of Omnipotent Government.  This essential information is hidden away in each and every consumer's heart of hearts.  Latent information doesn't factor into the decisions of producers.  This means that the compass that guides the economy is marginally less effective.

If we only look at one single product... Omnipotent Government... then the compass appears to be only slightly defective.  But what if we consider all the other free books, essays, articles, papers, Youtube videos and blog entries that promote freedom?  If you can picture all the valuation information that's missing... then it should be painfully clear that the compass isn't marginally defective... it's substantially deceptive.  It communicates the really wrong thing.  The message it sends to producers is incorrect.  The compass erroneously indicates that society doesn't highly value ideas for freedom.  And why should producers allocate significant amounts of society's limited resources to the production of something that society doesn't highly value?  They really shouldn't... so they don't.  As a result, there's a shortage of ideas that effectively promote freedom.  As they say in computing... garbage in, garbage out.

Perhaps a picture will help.  Here's one from my entry on the topic of value signals...

Imagine that the next generation's Mises or Hayek or Friedman or Buchanan is in high school right now.  His name is Roberto.  It stands to reason that we probably don't want Roberto to become a brain surgeon or a judge or an engineer.  Right?  We'd really prefer it if he would apply his considerable genius to vanquishing the obstacles that stand in the way of more freedom.  Therefore... what?  We should take our valuations of liberty "ideas" and hide them under a bushel?  We should diminish the value signal that points to liberty?  We should make a career in freedom a lot less lucrative than the alternatives?  We should decrease Roberto's incentive to forego his other options?  We should increase the opportunity cost of fighting for freedom?  We might as well shoot ourselves in the feet while we're at it.

Maybe another illustration would help...

Low prices are only beneficial when they send the right message to producers.  If the price of corn, for example, is very low... then the message that's sent to farmers is... "use your land to grow higher-priced crops".  This is the right message if there's a surplus of corn.  If, on the other hand, there's a shortage of corn... then this message is really wrong.

It's the same thing when it comes to higher prices.  Higher prices are only beneficial when they send the right message to producers.  Take the minimum wage for example...

A minimum wage communicates to (potential) producers of unskilled labor that they should drop out of school and/or move to the US.  This is the right message if the US is suffering from a shortage of unskilled labor.  If, on the other hand, the US is suffering from a surplus of unskilled labor... then a minimum wage sends the really wrong message to (potential) producers of unskilled labor.

All economic problems stem from communication failures.  And all communication failures stem from economists failing to see and/or explain the Unseen.

The solution is super simple.  Tucker would create a website just like LessWrong... but dedicated to the promotion of liberty.  Members would pay $5 per month... but they could allocate their monthly fee among the other members.  Whichever members produced the best arguments for freedom would receive the most money.  The more money that they received... the brighter the value signal.  The brighter the value signal... the more people that would join the website.  This virtuous cycle would produce freedom superstars.

The thing is... Tucker already created this website!  Liberty.me costs $5 per month and you can blog all about freedom and liberty.  The minor detail is that you can't choose which members you allocate your monthly fee to.

Tucker thinks markets are so great... but he didn't create a market within his website.  Why didn't he?  It's because there's a "bug" in his economics.  Tucker mistakenly believes that non-rivalry negates the necessity of valuations.  In no way, shape, or form does non-rivalry negate the necessity of valuation.  What non-rivalry indicates is the necessity for a mandatory minimum contribution (MMC) combined with consumer choice (CC).  Combining MMC and CC allows for economic action (spending) to more accurately communicate individual valuation of non-rivalrous goods.

Right now I'm really not going to pay $5/month to blog.  It's one thing to blog for free... but it's another thing to pay to blog.  However, I'd certainly join Liberty.me if each and every member could allocate their $5 dollars among the other members.

Consider this list...

If every single person on this list was a member of Liberty.me... who would receive the most money?   There's a "bug" in your economics if you don't want to find out.

To be clear, this list is the Seen.  Nearly all these people spend a considerable amount of their limited time promoting liberty for free.  A bad or buggy economist will look at this list and argue that the considerable supply of pro-liberty material proves that we really don't need to accurately valuate non-rivalrous goods.  So what's the Unseen?  Obviously it's not easy to see!

In order to see the Unseen... you have to imagine what would happen if we did figure out how to accurately valuate the demand for non-rivalrous goods.  It stands to reason that as the value signal grew brighter... that more people would be added to this list.  So what's the Unseen?  It's all the people who aren't on this list... but should be.

If it sounds like I'm harshly criticizing Tucker for failing to see the Unseen... then let me direct you to this blog entry that I posted a year ago... Don't Hide Marx Under A Bushel.  What inspired that blog entry was a blog entry over at the Crooked Timber liberal website... Karlo Marx and Fredrich Engels / Came to the checkout at the 7-11.  In that entry, Scott McLemee lamented the fact that a publisher (Lawrence & Wishart) forced marxists.org to stop freely sharing copyrighted material.  Here's a snippet from McLemee's blog entry...
Somehow it has not occurred to Lawrence & Wishart that, by enlarging the pool of people aware of and reading the Collected Works, the archive is actually expanding the audience (and potential market) for L & W’s books, including the somewhat pricey MECW volumes themselves, available only in hardback at $25-50 per volume. I’m stressing the bottom line here, given that the press’s decision is rational only on the narrowest conception of it. But a piece of synchronicity involving another CTer underscores just how much the left can learn from, of all things, the sectarian right: 
About the time the Marxist Internet Archive announced that it would be taking down all the MECW material, Corey and I both, by coincidence, were availing ourselves of radically under-priced materials from the enemy’s publishing apparatus. He’d received an order containing dirt-cheap copies of Bastiat from the Liberty Fund, while a day earlier I had downloaded free digital editions of the major Austrian School books on theory of value and the socialist-calculation debate from the Mises Institute website. There’s more to neoliberal hegemony than loss-leader pricing, but as ideological combatants those people know what they’re doing. - Scott McLemee
If you read my blog entry on McLemee's lament then you'd know that I found it immensely funny.  But now I find it immensely "funny" for reasons that I've endeavored to explain in this blog entry.

What I'm trying to say is that if I'm harshly criticizing Tucker for missing this "bug" in his economics... then all this harsh criticism is equally applicable to myself as well.  Well... not me now... but me a year ago.  In other words, I only just recently removed this "beam" from my own eye.

This concludes my debugging of Jeffrey Tucker's economics!  Well... I've pointed out the bug... but only Tucker himself can remove it from his economics.

Some other relevant material from Tucker...

And some other relevant material from myself...

And another relevant passage from Mises...
If profits were to be curtailed for the benefit of those whom a change in the data has injured, the adjustment of supply to demand would not be improved but impaired. If one were to prevent doctors from occasionally earning high fees, one would not increase but rather decrease the number of those choosing the medical profession. - Ludwig von Mises, Human Action