Tuesday, April 21, 2015

Market Imperialism

Forum post: David Boaz Supports Tax Choice


The vice president of Cato, David Boaz, recently wrote an article about tax choice in the Washington Post... We should get to decide how the government spends our taxes.

J.D. Tuccille, over at Reason, wrote this response... Should We Let Taxpayers Decide Where Their Money Goes?

And here's my response... John Quiggin And David Boaz Fusion Food For Thought.

I came up with a plan to implement pragmatarianism...

Right here right now I'm spending my time creating a product... this thread.  Are all of you consumers going to value this product of mine equally?  Nope.  Are any of you going to value this product at a penny or more?

In case you missed it... command economies fail because consumers aren't free to valuate products.  Right now you are free to send me a penny if that's how much you do value this thread.  But doing so really wouldn't be worth the transaction or opportunity costs.  The same would be true even if you valued this thread at a nickle or a dime or a quarter.  But if 100 people did value this thread at a quarter... then that would be $25 that should be in my pocket... but isn't.

So what if we created a market within the Ron Paul Forums?  You could use paypal to deposit money into your forum "wallet" or "bank account".  Of course the money would actually go into the forum owner's paypal account.  But your forum bank account (FBA) would be credited accordingly.  If you valued this thread at a penny... then you could click the penny button and a penny would be transferred from your FBA to my FBA.  When my FBA had enough pennies I could request a withdrawal. The forum owners would take their cut and paypal me the rest.  

Each thread would display how much you allocated to it and how much the crowd has allocated to it.  This way we could sort threads by value.

Either above or below each member's reputation would be the total amount of money that they've spent in this forum/market.

The people who create the best threads/products will of course receive the most money.  This will create a bright value signal that will attract better producers.  And when this forum has more and more valuable products... more and more consumers will sign up to participate in this forum/market.  And more and more consumers means more and more money for producers.  It's a virtuous cycle.

Sooner, rather than later, other websites are going to take notice.  When David Boaz starts posting articles here, rather than at the Washington Post (WP), then the WP is going to take notice.  When J.D. Tuccille starts posting articles here, rather than at Reason, then Reason is going to take notice.  These websites will either adapt or go extinct.  Same thing with Fee.org, Liberty.me and Mises.  Eventually The New York Times will create a market in its website. Netflix, Youtube and Spotify will follow suit.  Within a relatively short time, the only sector without a market will be the public sector.  And by then everybody will understand, more or less, the value of markets.

Check out this recent article over at Jacobin magazine... The Free-Market Fantasy.  The author, Nicole Aschoff, is an editor of the magazine.  How awesome will it be when her only option is to create a market within her website?

Here's how we're currently trying to defeat her nonsense... The Benevolent State Fantasy.

Liberals make so many stupid arguments and we spend so much time and energy trying to defeat them.  And it's not like they even bother to address our arguments.  Wouldn't it be better to simply let the market annihilate their arguments for us?  How's Nicole Aschoff going to praise the government and criticize markets when she chose to create a market within her website?  How's she going to criticize consumer valuation when consumers are determining how much money to allocate to her articles?

It's one thing for us to say that markets are so great... but it's another thing for us to actually create a market within the website where we say that markets are so great.

How much would you have to spend in this market?  That depends on the size of the free-rider problem.  If you don't believe that the free-rider problem is a real problem then you won't see any need for a yearly minimum.

Here are two economic truisms...

1. Everybody wants a free lunch
2. Incentives matter

If we create a market here.... and there's no yearly minimum... and the best thread producer only earns $1/year... then it's doubtful that David Boaz will see or respond to the value signal anytime soon. It won't be bright enough.

One way to get around the free-rider problem would be to correlate spending with advertising.  The more you spend, the more advertising you get.  Clearly this would only work for people who want to advertise something that's more or less relevant to the topics discussed here.

Right now on the homepage there's a column in the upper left hand side titled "Top Activist Efforts".  Imagine that there was a section either above it or below it that said "Top Supporters".  If I've spent the most money in this market/website, then the item at the top would look like this...

Like Tax Choice on Facebook!
Xerographica ($25,751)

Anybody who wanted this top advertising spot would know exactly how much they'd have to spend in order to get it.  Would I engage in a bidding war to try and keep this top spot?  That depends on my ROI.  The more traffic and likes the top spot generated for the tax choice facebook page... the more money that I'd be willing to spend to try and keep it.

The section title... "Top Supporters"... would contain a link to a page that listed all the supporters sorted by spending.  Each row in the table would contain the username, total amount spent and the link for the website/page that they wanted to advertise.

Of course there are other perks/benefits that could be offered to help overcome the free-rider problem.

Just how feasible is to turn this forum into a market?  It's entirely feasible.  All the necessary programming is very straightforward.  Absolutely nothing fancy would be required.  Well... maybe a bit of Ajax for when you click the penny or nickle or dime or quarter buttons.  But nothing a reasonably seasoned programmer couldn't handle.

Just because it's feasible though doesn't mean that it will be cheap.  It would take quite a few hours to modify the database and write all the code.  But it's not like all the features would have to be rolled out at once.  In order to have a basically functional system you'd need to...

  • Add the FBA column and total spending column to the members table
  • Add the total allocation column to the threads table
  • Create a table to keep track of how much each member has allocated to each thread
  • Add the coin buttons to the thread
  • Write the code to update the database accordingly
  • Write the code to hide/disable the coin buttons if a member's broke
  • Write the code to display FBA balance
  • Write the code to display the individual and total allocation for each thread

And that's it?  I'm sure that I'm forgetting a few steps.

With this very basically functional system... the forum owners would have to manually update your FBA when you paypal'd them some money.  Which would only be a lot of work if a lot of people sent them money.  If nobody paypals them any money then clearly they wouldn't want to allocate any more time/money to developing a system that there's zero demand for.  So the greater the demand, the greater the justification/rationale/incentive/funding for making further improvements.

And obviously I have no idea if this is something that the forum owners would even be interested in trying.  Heck, I don't even know who the forum owners are.

Let me know if you like this idea.  I'm not a mind reader!  Better yet, let me know how much money you'd allocate to this thread if it was stupid easy to do so.  Don't forget that you might just get the chance to put your money where your mouth is.  And if you don't like this idea... then please show your work.

Monday, April 20, 2015

John Quiggin And David Boaz Fusion Food For Thought

John Quiggin and David Boaz recently shared some tasty thoughts.  Initially my plan was to respond to their thoughts in separate blog entries.  But then Tyler Cowen shared this link... The development of Mexican-Chinese fusion food.  It sure sounds delicious!  If fusion food can work... then why not give fusion food for thought a try?

So welcome to my experimental kitchen!  Imagine there's a table that has different ingredients on it.  Some ingredients are from Quiggin and others are from Boaz.  Our conceptual culinary challenge is to select the best ingredients and figure out how to combine them in order to create the most delicious and nutritious brain food ever.

Here are some of Quiggin's ingredients... Locke’s Theory of Just Expropriation and Kelo v. City of New London and here are some of Boaz's ingredients... We should get to decide how the government spends our taxes.

For those of you who didn't hear it the first or second time that I shouted it from the rooftops... Quiggin is writing the sequel to the libertarian bible... Henry Hazlitt's Economics in One Lesson.  Hazlitt's book is largely based on Frédéric Bastiat's exceptionally wonderful essay What Is Seen and What Is Not Seen.  And Bastiat's essay is so wonderful because it's all about opportunity cost.

There's a terrifically tantalizing twist though.  Quiggin isn't a libertarian!  He's a liberal!  What?  A liberal is writing the sequel to the libertarian bible?  Yes!  And it's all kinds of wonderful because he's actually addressing/acknowledging/analyzing one of the strongest libertarian arguments.  As opposed to say, for example, the liberal Matt Bruenig who vigorously attacks Rothbard's weakest argument and conveniently ignores Rothbard's strongest argument...
In the first place, how much of the deficient good should be supplied? What criterion can the State have for deciding the optimal amount and for gauging by how much the market provision of the service falls short? Even if free riders benefit from collective service X, in short, taxing them to pay for producing more will deprive them of unspecified amounts of private goods Y, Z, and so on. We know from their actions that these private consumers wish to continue to purchase private goods Y, Z, and so on, in various amounts. But where is their analogous demonstrated preference for the various collective goods? We know that a tax will deprive the free riders of various amounts of their cherished private goods, but we have no idea how much benefit they will acquire from the increased provision of the collective good; and so we have no warrant whatever for believing that the benefits will be greater than the imposed costs. The presumption should be quite the reverse. And what of those individuals who dislike the collective goods, pacifists who are morally outraged at defensive violence, environmentalists who worry over a dam destroying snail darters, and so on? In short, what of those persons who find other people's good their "bad?" Far from being free riders receiving external benefits, they are yoked to absorbing psychic harm from the supply of these goods. Taxing them to subsidize more defense, for example, will impose a further twofold injury on these hapless persons: once by taxing them, and second by supplying more of a hated service. - Murray Rothbard, The Myth of Neutral Taxation
Rothbard clearly understood that the problem with government is that allocation occurs in a valuation vacuum.  And he did an excellent job of articulating this problem.  But unfortunately, he got the solution really wrong.  Rather than advocating that we simply add the missing ingredient to the government, Rothbard advocated that we eliminate the government entirely.

Rothbard's solution was extremely erroneous and it resulted in the massive misallocation of a significant amount of libertarian effort/energy/excellence.  He inadvertently sent way too many libertarians on a wild goose chase... barking up the wrong trees... tilting at windmills...

Libertarians should have been attacking the idea that the optimal (most valuable) allocation could be determined without earner valuation.  Libertarians should have been endeavoring to destroy the assumption of omniscience and benevolence.  A few were... but far too many were wasting their time building up strawmen.  And liberals have consistently chosen to attack these easy targets.

It's been 34 years since Rothbard wrote "The Myth of Neutral Taxation" and finally, at long last, there's an influential libertarian who's made the case for truly fixing, rather than eliminating, the government.

In his WP article, Boaz argued that taxpayers should be free to choose where their taxes go.  This solution is consistent with Rothbard's strongest argument... which is consistent with Hazlitt's and Bastiat's arguments... which are based on earner valuation.  Earner valuation is where individuals weigh the alternative uses of their own hard-earned money (consider the opportunity costs) and choose the most valuable options.

So Boaz is an exceptional libertarian just like Quiggin is an exceptional liberal.  Boaz is exceptional for being the only influential libertarian to suggest that we add earner valuation to the government... and Quiggin is exceptional for being the only influential liberal to seriously consider opportunity cost.  They are both converging on economic reality/truth from opposite directions.

And when I say "converging"... I'm trying to say that they've both placed an unnecessary ingredient on the table.  Consider this passage from Bastiat...
If the socialists mean that under extraordinary circumstances, for urgent cases, the state should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions, we will, of course, agree. This is done now; we desire that it be done better. There is, however, a point on this road that must not be passed; it is the point where governmental foresight would step in to replace individual foresight and thus destroy it. - Frédéric Bastiat, Justice and Fraternity
As far as I know, Bastiat never argues that taxation is unnecessary.  His main concern was the absence of earner valuation...
This means that the terraces of the Champ-de-Mars are ordered first to be built up and then to be torn down. The great Napoleon, it is said, thought he was doing philanthropic work when he had ditches dug and then filled in. He also said: "What difference does the result make? All we need is to see wealth spread among the laboring classes." - Frédéric Bastiat, What Is Seen and What Is Not Seen
Bastiat was all about the benefit principle...
When it is a question of taxes, gentlemen, prove their usefulness by reasons with some foundation, but not with that lamentable assertion: "Public spending keeps the working class alive." It makes the mistake of covering up a fact that it is essential to know: namely, that public spending is always a substitute for private spending, and that consequently it may well support one worker in place of another but adds nothing to the lot of the working class taken as a whole. Your argument is fashionable, but it is quite absurd, for the reasoning is not correct. - Frédéric Bastiat, What Is Seen and What Is Not Seen
So Bastiat wasn't concerned with taxation itself... he was concerned with the government vigorously violating Quiggin's Implied Rule of Economics (society's limited resources should be put to more, rather than less, valuable uses).

With this in mind... consider Quiggin's first paragraph in his recent blog entry...
For quite a few years now, I’ve been working on a response to Henry Hazlitt’s Economics in One Lesson, a defence of free-market economics first published in 1946, but still in print and popular among libertarians. Hazlitt, as he says, is essentially just reworking Bastiat’s analysis of opportunity cost, represented by the broken window parable. What I’m trying to do is take the idea of opportunity cost seriously, and apply it across the board, including to issues of income distribution and property rights. It’s obvious (to me, at any rate) that any allocation of property rights to one or more people has an opportunity cost, namely the benefits that could be realised if the property rights were allocated to someone else. This is a live issue when property rights are being created explicitly right now, as they are with various kinds of intellectual property. But it is just as relevant when we come to consider the historical origins of property. I’ve spent a fair bit of time debating the question of whether property rights have a basis (say, in natural law) for existence independent of the states or governments that typically define and enforce them. I don’t want to talk about that issue right now, but it explains why I’m taking an interest in (I think) the most prominent proponent of natural law in relation to property, John Locke.
There's a few different ingredients in here.  Taking opportunity cost seriously?  Deeeeelish!  Natural law?  Yuck!  Bastiat's arguments aren't based on nonsense on stilts.  Which is what makes them so good.  So by bringing up the "issue" of natural law... Quiggin is being less like Quiggin and more like Bruenig.  Which is unfortunate because there's a surplus of Bruenigs and a shortage of Quiggins.

Now let's take a look at this ingredient supplied by Boaz...
Real budget democracy, of course, means not just that the taxpayers can decide where their money will go but also that they can decide how much of their money the government is entitled to. Thus the last line on the 1040-D form must be “Tax refund.”  The form would indicate that none of the taxpayer’s duly calculated tax should be refunded to him; but under budget democracy the taxpayer would have the right to allocate less than the amount requested for some or all programs in order to claim a refund (beyond whatever excess withholding is already due him).
What do you think?  Does it taste like natural law?  Kinda?

I could be wrong... but I really don't think that any truly delicious and nutritious dish could have natural law as an ingredient.  It's like stuffing a turkey with foam peanuts.  I'm pretty sure that Martha Stewart would say, "It's not a good thing".

So Boaz's unnecessary ingredient tastes like natural law.  And Quiggin's unnecessary ingredient is natural law.  Let's remove all natural law type ingredients from the table.

What ingredients are left on the table?  Well... there's certainly Boaz's consumer choice.  What a wonderful ingredient!  If you'd like proof then consider this comment that was left on Boaz's article...


Dear Washington Post editors,

Please remove $0.15 off my my monthly subscription. In return, I would like you to remove any op-eds that amount to demagoguery, supported by half baked arguments. I'm sure you'll know which ones I'm referring to.

Broprah Winfrey


Awesome idea!!!

Boaz was like, "Hey, what about consumer choice in the public sector?".  Winfrey replied, "Oh yeah, what about consumer choice here at Washington Post?"

Boaz was like, "What about adding earner valuation to the public sector?"  Winfrey replied, "Oh yeah, what about adding earner valuation to the Washington Post?"

Boaz was like, "What about adding garlic to steak?"  Winfrey replied, "Oh yeah, what about adding garlic to salad?"

Right now there isn't a market in the public sector.  Boaz showed readers of the Washington Post what a market in the public sector might look like.  Winfrey took this logic and ran with it in an excellent direction.

If you start thinking about creating a market in the public sector... then you start to see all the other places that are really missing markets.

In Thumbs Up vs Quarters Up I argued that we should create a market in Youtube...

... and in Netflix...

... as well as in Fee.org, Liberty.me, Medium and a bunch of other websites.

In Visualizing The Economics of Education I argued that every school should be a market...

Markets everywhere and in everything!  Why?  Enlightenment.  So we can shed light on everything.  Communication.  So we can know what's truly important to other people.  So other people can know what's truly important to us.

Just in case you were wondering how a market in the Washington Post (WP) would work... when you paid for a subscription... your WP "wallet" or "bank account" would be credited accordingly.  Then, with one click, you could allocate as little as a penny to an article (see the Youtube picture above for a very rough idea of what "one click giving" might look like).  Each article would show you the amount of money that you allocated to it and the amount of money that the crowd allocated to it.  WP would take its cut and pass the rest onto the authors.

When you searched WP for articles.... you could sort the results by date, popularity ("likes") or value (allocations).  

Right now there's an article on WP that's more valuable than all the other WP articles.  And we don't know which article it is.  And we don't know how valuable it is.  Is it worth $1,000 dollars?  Or $10,000 dollars?

Quiggin's been allocating a lot of brain power to the opportunity cost concept.  How would he describe the most valuable WP article in terms of opportunity cost?  Wouldn't you like to know?

Here's a couple of my attempts...

The most valuable WP article is the article that readers have been willing to sacrifice the most for.  The most valuable WP article is the article that the crowd has been willing to give up the most for.

Carefully chew on the fact that we don't know which WP article is most worthy of people's sacrifice.  We don't know... because... it's not important to know?  The amount of money that people are willing to sacrifice for an article is frivolous information?

Here's my most relevant illustration...

In my response to James Kwak's response to Steven Levy's story... I shared this passage...
Chwe’s concept is readily apparent in the dynamics of social media. When a media organization posts a link to an online article on Facebook, for example, and people begin “liking” it, others will begin to assign some level of importance to the story and some will be compelled to share it and discuss it. The idea of “common knowledge” may also lend itself to thinking about advertising strategies on social media. — Richard Feloni, Mark Zuckerberg hopes this book will help shape his vision for Facebook
... and here's a passage from Steven Levy...
So what’s the solution? We need a great artificial intelligence effort to comb through our information, assess the urgency and relevance, and use a deep knowledge of who we are and what we think is important to deliver the right notifications at the right time.
There's all these intelligent people thinking about determining importance... and there's Quiggin over at Crooked Timber with his opportunity cost and Boaz over at WP with his tax choice.

It's all about creating value signals...

The most valuable WP article would be the article that the crowd would want Batman to read the most.  Does Batman even read the WP?  He would if WP allowed its members to crowdfund articles.

Check out this tweet from Quiggin...

It's a bite size fusion food for thought!  The tweet combines Quiggin's liberal thoughts with Friedman's libertarian thoughts.

If you read Friedman's article... you'll learn that he agrees with Margaret Flowers...

Each of us has a finite number of resources.  So where are you going to put your resources?  Where are you going to put your time and your money?  Are you going to put it into trying to elect somebody into this current system that's broken?  Or are you going to put that into building something?

Friedman offers four alternatives to traditional activism...

Here's an updated version by Max Borders and Jeffrey Tucker... Fifty Ways to Leave Leviathan.  What you won't find in that list is the idea of creating a market within WP, Fee.org, Liberty.me, Youtube, Netflix or any other website.

If more libertarians follow Boaz's lead... then it's a given that more and more people will start seeing market mirages.  Market mirages?  Like you're crawling around the desert seeing an oasis where there is none?  It's kind of hard to create a real oasis but it's easy enough to create a virtual oasis.  Cato could put its considerable funding to good use by creating a website where members can submit articles and allocate money to their favorite articles.  The best writers will earn the most money and this will create a bright value signal that will attract better writers.  As more and more talent foot votes for Cato's virtual oasis... and consumers follow... the Washington Post will clearly see the brilliance of Broprah Winfrey's suggestion.  When WP creates its own virtual oasis... maybe Wired will follow suit.  Who's next?  Maybe the Economist?  Eventually Huffington Post and the New York Times will suffer enough brain drainage that they will adapt or go extinct.  The same is true of Netflix, Youtube and Spotify.  Until the only sector left without an oasis will be the public sector.

They say that states are the laboratories of democracy.  There are only like 50 states so it's no wonder that democracy and states still suck.  When websites become the laboratories of markets... given that there are a gazillion websites... we're going to see markets improve exponentially.  Everybody's going to want to participate in better markets and the costs of virtual foot voting will be vanishingly small.  Better market traits will be identified and adopted at a furious pace.  It will be survival of the fittest markets.

This is relevant...
I’d make a different point: the way I’ve learned how things operate is to work with a government or organization to try out a policy and succeed or fail. This kind of trial and error seems crucial to me. Karl Popper called this the piecemeal social engineer. Deng Xiaoping called it crossing the river by feeling each stone. 
This sounds like a good way to figure out the way your world works (your model), and then to reform. A lot of people would say this is China’s secret to success: informal experimentation on a grand scale. The problem, as I see it, is that most governments and aid organizations I’ve worked with are really, really bad at this. They don’t use the lessons from past failures to try again a different, better way. They don’t throw out bad programs. - Chris Blattman, The mistakes made by most development reformers
If there's widespread failure to evolve/adapt/improve... then the problem always boils down to inadequate selection pressure...

This diagram is relevant to Washington Post, schools and the government.  As you can see, producers are not directly subject to the massively powerful selective pressure/force of consumer choice.  Nobody benefits from protecting producers from consumers.  The solution is to eliminate the bottleneck...

Bottleneck removed.  Doing so facilitates trades.  And facilitating trades is the same thing as facilitating communication.

Washington Post, schools and the government all need greater granularity.  Is there such a thing as too much granularity?  I'm sure there is... but so what?  Any website/market/sector that offers too much granularity will take itself out of the market gene pool.  Will their failure negatively impact the system?  How could it?  When the failure of a single node in a network impacts the entire system... then it's because the system isn't adequately decentralized.  Inadequate decentralization is an issue now... but it won't be by the time Crooked Timber allows readers to allocate their money to Quiggin's entries.  Once we have a gazillion markets... then none of them will ever be too big to fail.

Command economies result in the uniformity of products.   Market economies result in the diversification of products.  That's why this ingredient from Boaz's article is probably my favorite...
There would be quite a bit of debate, of course, over how to list programs in the 1040-D program. Spending interests would want to use broad categories–national defense, health, education, job training. Opponents of spending would prefer to narrow the categories so taxpayers can see what they’re really buying– defense of Japan and Korea, war in Iraq, farm subsidies, mass-transit “demonstration” projects in West Virginia, and so on. Libertarians and the arts establishment might agree on listing just “arts,” while the religious right might lobby to have the category broken into “fine arts,” “pork-barrel arts,” and “obscene art.” Language would be an issue – “corporate welfare” or “loans for small businesses”?
Compare it to this recent passage from my favorite liberal (Quiggin's my second favorite liberal)...
Bakers and florists who refuse service are colorful instances. They are burdening customers with their orthodoxies when they could be acting as ‘commmon carriers’ of whatever good/service they provide. Tax issues are less exciting but more wide-spread and consequential. Any organization that enjoys tax-exempt status is, in a sense, being subsidized by citizens who may not approve of what that organization does, or stands for. The issue here is structurally similar to the NEA ‘piss christ’ and Robert Maplethorpe controversies of yore. Should ordinary citizens, scandalized by this stuff, be forced to pay for it via taxes (or even just tax exemptions for organizations than sponsor it)? There is a certain logic to the notion that state-sponsored art should be bland, agreeable art. But if that logic is good logic, there would be a certain logic to extending it to all education and religion (that involves tax-supported or just tax-exempt status.) Most everyone is in favor of a bit of unorthodoxy somewhere along the line. Spice of life! So we would want the bland mandate of pan-agreeableness to lapse at some point. But at what point? - John Holbo, Religious liberty and the Romance of Orthodoxy
Compare it to this recent and excellent blog entry by Don Boudreaux... Insipidness Guaranteed.  I really want to quote the entire thing but I'll just share the punchline...
It’s intriguing that the people who most self-righteously criticize the likes of McDonald’s, Anheuser-Busch, pop rock, and builders of ‘cookie-cutter’ houses for being bland and failing to experiment with the Bold and the Edgy – those who condemn conformity, sneer at the crowds in Wal-Mart, and trumpet their devotion to diversity – are especially likely to be among those who glorify politics and to find in democratic elections the possibility of transcendence and of discovering and empowering the bold, the different, and the courageous trend-bucking leader. 
No one should be surprised that candidates for the U.S. presidency transact mostly in platitudes and are forever performing deeds on the campaign trail that any self-respecting person with independent judgment and a genuine sense and appreciation of his or her uniqueness would never in a million years dream of doing.  And the closer a candidate gets to the political promised land, the more intense becomes the pressure for him or her to be the political equivalent of a Bud Lite.
The forced-rider problem ties back to Rothbard's passage that I shared earlier...
And what of those individuals who dislike the collective goods, pacifists who are morally outraged at defensive violence, environmentalists who worry over a dam destroying snail darters, and so on? In short, what of those persons who find other people's good their "bad?" Far from being free riders receiving external benefits, they are yoked to absorbing psychic harm from the supply of these goods. Taxing them to subsidize more defense, for example, will impose a further twofold injury on these hapless persons: once by taxing them, and second by supplying more of a hated service. - Murray Rothbard, The Myth of Neutral Taxation
 Again, Rothbard wrote that 34 years ago.  Can you clearly see the pattern/process of truth converging/diverging/converging?

Quiggin, given that he's a liberal who has seriously studied Hazlitt and Bastiat, is in a unique position to facilitate converging on the truth.  I'm not saying that he has to agree with my version of the truth... I'm just saying if he's going to critique the true frontiers of libertarianism... then he needs to focus his efforts on Boaz's solution.  This is because Boaz's solution is entirely consistent with Bastiat.  Well... minus the hint of natural law.

Well there you go!  Some fusion food for thought!  If you can find any room for improvement then please grab these ingredients, grab some other ingredients, grab your apron and start cooking!

A couple more things...

Results of a survey/poll from this thread... Tax Choice Discussion Thread

According to this highly credible/reliable survey... more than 1/3 of the population wants some tax choice.

And how cool is this passage?
We've gone beyond the capacity of the human mind to an extraordinary degree. And by the way, that's one of the reasons that I'm not interested in the debate about I.Q., about whether some groups have higher I.Q.s than other groups. It's completely irrelevant. What's relevant to a society is how well people are communicating their ideas, and how well they're cooperating, not how clever the individuals are. So we've created something called the collective brain. We're just the nodes in the network. We're the neurons in this brain. It's the interchange of ideas, the meeting and mating of ideas between them, that is causing technological progress, incrementally, bit by bit. However, bad things happen. And in the future, as we go forward, we will, of course, experience terrible things. There will be wars; there will be depressions; there will be natural disasters. Awful things will happen in this century, I'm absolutely sure. But I'm also sure that, because of the connections people are making, and the ability of ideas to meet and to mate as never before, I'm also sure that technology will advance, and therefore living standards will advance. Because through the cloud, through crowd sourcing, through the bottom-up world that we've created, where not just the elites but everybody is able to have their ideas and make them meet and mate, we are surely accelerating the rate of innovation. - Matt Ridley, When ideas have sex
Compare it to...
The principle that the multitude ought to be supreme rather than the few best is capable of a satisfactory explanation, and, though not free from difficulty, yet seems to contain an element of truth. For the many, of whom each individual is but an ordinary person, when they meet together may very likely be better than the few good, if regarded not individually but collectively, just as a feast to which many contribute is better than a dinner provided out of a single purse. For each individual among the many has a share of virtue and prudence, and when they meet together they become in a manner one man, who has many feet, and hands, and senses; that is a figure of their mind and disposition. Hence the many are better judges than a single man of music and poetry; for some understand one part, and some another, and among them, they understand the whole. There is a similar combination of qualities in good men, who differ from any individual of the many, as the beautiful are said to differ from those who are not beautiful, and works of art from realities, because in them the scattered elements are combined, although, if taken separately, the eye of one person or some other feature in another person would be fairer than in the picture. - Aristotle, The Politics
Compare it to...
It is through the mutually adjusted efforts of many people that more knowledge is utilized than any one individual possesses or than it is possible to synthesize intellectually; and it is through such utilization of dispersed knowledge that achievements are made possible, greater than any single mind can foresee. It is because freedom means the renunciation of direct control of individual efforts that a free society can make use of so much more knowledge than the mind of the wisest ruler could comprehend. - Friedrich A. Hayek, The Case for Freedom
If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization. But this answers only part of our problem. We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used. But the "man on the spot" cannot decide solely on the basis of his limited but intimate knowledge of the facts of his immediate surroundings. There still remains the problem of communicating to him such further information as he needs to fit his decisions into the whole pattern of changes of the larger economic system. - Friedrich A. Hayek, The Use of Knowledge in Society 

Saturday, April 18, 2015

Free-riders And Minimum Wages - Both Or Neither Are Problems

Is this a better market?  Gabe (the gay) is paying Alex (the atheist) for a cake.  Isaac, who's wondering what to do with his life, is observing this exchange take place.  Because neither Alex nor Isaac are omniscient... they can't see how much Gabe values the cake.  All they can see is how much he pays for the cake.  Only Gabe knows that he values the cake a lot more than he's paying for it.

By sharing the wrong information, Gabe increases the chances that Isaac will do the wrong thing (not supply cakes).  Garbage in, Garbage out.

Is this a better market?  In this scenario Gabe is paying a lot more than he values the cake.  Gabe is lying again.  This increases the chances that Issac will do the wrong thing (supply cakes).  Garbage in, Garbage out.

X < Y = free-rider problem
X > Y = forced-rider problem

A minimum wage is an example of the forced-rider problem.

Let's think about water.  Is Isaac always going to value water equally?

In the Sahara... Isaac is suffering from a severe shortage of water (dehydration).  In Niagara... Isaac is suffering from a severe surplus of water (drowning).  Therefore, he values water very differently in these two very different circumstances...

Y1 > Y2

Whether it's water, cake, labor, a Netflix show or national defense... what we pay should accurately communicate our valuations.  This increases the chances that other people will do the right things.  Otherwise, we all end up with more of what we want less and less of what we want more.

Accurate information = treasure in, treasure out
Inaccurate information = garbage in, garbage out

Coincidentally, Alex Tabarrok recently shared some relevant thoughts in his review (Is Capitalism Making Us Stupid?) of Joseph Heath's new book Enlightenment 2.0...
Advertising may sometimes trick us into buying products that don’t serve our interests, but the more we are tricked the greater the incentive to become informed. In the market, we can act on information to improve our purchasing decisions. In politics, it doesn’t pay to be informed because as individuals we have nearly zero power to improve collective decisions. In the market, information is power. In politics, information is impotent.
Heath’s conservatism makes him unwilling to suggest radical ideas. But big problems often need radical solutions. Voting, for example, reduces the cost of ignorance and irrationality. Raise the cost and people become more informed and rational. When pollsters ask Democrats and Republicans factual questions such as did inflation fall during Reagan’s presidency or were weapons of mass destruction found in Iraq, they answer in a highly partisan manner. But partisan bias greatly diminishes when voters are told that they will be paid if they answer correctly. Betting is a more reliable guarantor of objectivity than voting. Or, as I once wrote, “A bet is a tax on bullshit.”

Friday, April 17, 2015

Worst Idea Ever

Reply to: Tax Choice Discussion Thread


Let me tell you the worst idea ever. Are you ready? The worst idea ever is the idea that some ideas are so good that people shouldn't be allowed to boycott them.

You think my idea is bad and you want to boycott it? Great! But if you can truly understand why your valuation of my idea matters... then you really wouldn't want to boycott it.

Right now you're choosing not to put pragmatarianism in your shopping cart. But what's pragmatarianism? It's the idea that you should be free to choose what you put in your shopping cart.

I want you to be able to shop for yourself in the public sector. Why? Because I want to subject the government to your scrutiny. It's a given that the government will be better with your scrutiny. Your scrutiny is so good. The absence of it from the public sector is no good.

Right now you can go to the mall and pick up, poke, prod and compare a gazillion frivolous products. You study the products for defects. You look for holes, nicks, scratches, dings, tears and problems. You actively search for errors. You pull up your vast mental database of past experiences and try and foresee potential complications. You're incentivized to closely examine and inspect the products because you don't want to flush your hard-earned money down the toilet.

Do I benefit from your active debugging of private goods? How could I not? For sure I'll benefit when you help fund a better vacuum cleaner. But I'd benefit a lot more from better healthcare, education and environment. Which is why I really want you to have the option to debug public goods.

I want to unleash you on the government. And if you choose to allocate your taxes rather than have congress allocate them for you... then evidently congress did not stand up to your scrutiny. And if you want to predict that congress isn't going to stand up to nearly everybody's scrutiny... then you might want to think twice about not putting pragmatarianism in your shopping cart.

100% Tax Rate

Reply to: Tax Choice Discussion Thread


Like I already explained, congress would still be there in a tax choice system. And, they would still be in charge of the tax rate. If congress sets the tax rate too low, then people would boycott congress. If congress sets the tax rate too high, then people would also boycott congress. Therefore, the tax rate at which congress maximized its revenue would be the optimal tax rate.

What do you think the optimal tax rate would end up being?

The only thing currently wrong with the public sector is the absence of consumer choice. Once you add consumer choice... then it's entirely possible that the public sector might entirely replace the private sector. Why? Because in the public sector... what you paid would more accurately reflect your valuation.

In the private sector... it's possible to get a really great deal on shoes. What does this mean? It means that the amount you paid is far less than your valuation. The amount of money you handed to the cashier in exchange for your shoes does not accurately communicate your valuation. Basically, you lied. The logical consequence is that the supply of shoes will be incorrect. Garbage in, garbage out.

But in the public sector, with a tax choice system, it's impossible to get any kind of deal. Let's say that you perceive a shortage of environmental protection. How much are you going to pay the EPA? Well... whatever you pay is going to perfectly correspond to the marginal improvement in environmental protection. The more money you pay, the more environmental protection will be supplied to everybody. So you'll pay whatever amount matches your valuation. You can't lie. The logical consequence is that the supply of environmental protection will be correct. Treasure in, treasure out.

When we get more and more treasure from the public sector... congress will get more and more positive feedback (tax dollars) for raising the tax rate. Until eventually we have a Dept of Shoes (DoS). You'll order shoes whenever you perceive a shortage of shoes. And the amount of tax dollars you give to this DoS will perfectly correspond to your valuation of shoes.

There you go. I just predicted that we'll end up with a 100% tax rate. Your turn. Predict the tax rate that we'll end up with. And please show your work.


The results of the poll were really surprising...

31% of respondents want some tax choice?!!  I know it's not a very credible survey but I was pretty sure that the percentage would be a lot smaller.

Wednesday, April 15, 2015

Helping Liberals Understand The Free-rider Problem

In case you were wondering... Matt Bruenig never responded to my liberal friend request. :(   But, thanks to his blog... I found a consolation prize!  My consolation prize is a liberal named "nick".  At UCLA I had good friend named Nick.  He studied econometrics and we argued about his "Zombie Apocalypse Rules".  Not all of them... just the one about not having sex with zombies.  I argued that if Jennifer Connelly was a zombie... and most of her was still there... then I might toss Nick's rule out the window.  Every rule has an exception?

What does my new "nick" friend think about the no sex with zombies rule?  I don't know... I didn't ask him.  In my most recent reply I tried to explain why the free-rider problem is a problem.

Context:  If Clueless People Shouldn’t Vote, Then Should Damon Linker?


You'd buy Bruenig a $5 beer because... he's male? You value his maleness at $5? If so, then is it a problem that you don't actually buy him a $5 beer for being male? Is it a problem that you don't accurately communicate how much you truly value his gender? Well... just ask all the people who didn't buy Donald McCloskey a $5 beer for being male.

That example is so terrible that I couldn't resist it. But perhaps it's so terrible that it will linger longer with you.

Let's be a bit more realistic and say that you would have bought Bruenig a $5 beer because he's liberal. If you don't actually buy him the beer... then you wouldn't accurately communicate how much you value his political orientation. Does this mean that, in the absence of your positive feedback, he's going to turn into a libertarian? Probably not.

Let's be a bit more specific and say that you would have bought Bruenig a $5 beer because he blogs about how to eliminate poverty. If you don't actually do this... then you wouldn't accurately communicate how much you value his blogging. Does this mean that he's going to stop blogging? Probably not? You hope not? But is it possible that he'd blog less frequently than you'd truly prefer?

In case you missed it... we're talking about the free-rider problem. I'm trying to help you understand how and why the free-rider problem is a problem.

If you...and all the other people who derive a positive value from Bruenig's blogging... don't accurately communicate the amount of value that you derive from his blogging... then he won't be able to correctly weigh his options. And if he can't correctly weigh his options... then this increases the chances that he will not choose the most valuable option. It increases the chances that he will not choose to blog... which would clearly hurt you... a consumer of his blog.

In this situation you're really not doing yourself any favors by not accurately communicating how much you value this blog entry and all of Bruenig's other blog entries. You're hurting yourself by lying to the hand that's feeding you.

To be fair, if you only value this blog entry at a nickle... then it's really not going to be worth it to go through all the steps of sending Bruenig a nickle. If you're the only person in this boat... then it's not a big problem. But the more people that are in this boat... the larger the problem becomes.

The solution is to facilitate one click micro giving. Well... it wouldn't eliminate the free-rider problem entirely... but "quarters up" would eliminate all the transaction costs.

If eliminating all the transaction costs turns Bruenig into a millionaire... then what does marginal utility have to do with anything? By helping to turn Bruenig into a millionaire you've essentially created a gold rush. But rather than a bunch of prospectors rushing to find some pretty rocks... there'd be a bunch of brains rushing to blog about how to eliminate poverty. And given enough eyeballs, all Easter Eggs are exposed (Linus's Law).

If you can grok all of this... then perhaps you can understand why it's a really excellent idea to allow people to choose where their taxes go. Because whether a producer is in the private sector or the public sector... we really don't want them barking up the wrong trees. We really don't want producers tilting at windmills. We really don't want producers going on wild goose chases.

Tuesday, April 14, 2015

Minimum Wage Vicious Cycle

The Nobel Prize liberal economist Paul Krugman recently argued that we need more government because people tend to make poor education/career decisions.  Shortly after reading Krugman's case for bigger government, I read an article in the LA Times about how some people in the Philippines were lured to America with the false promise of high wages.

Somewhat inspired by this very popular blog entry... A Week of Shorter Rod Drehers... I patched together some relevant snippets from Paul Krugman...

Krugman: The world economy is a system -- a complex web of feedback relationships -- not a simple chain of one-way effects
Krugman: Wages, prices, trade, and investment flows are outcomes, not givens
Krugman: Wages are a market price--determined by supply and demand
Krugman: Money still talks — indeed, thanks in part to the Roberts court, it talks louder than ever
Krugman: Raise minimum wages by a substantial amount
Krugman: The price of labor--unlike that of gasoline, or Manhattan apartments--can be set based on considerations of justice, not supply and demand, without unpleasant side effects
Krugman: Your decision to stay in school or go out and work will shape your lifetime career
Krugman: Now, the fact is that people make decisions like these badly
Krugman: Bad choices in education are the norm where choice is free
Krugman: He and his unwary readers imagine that his conclusions simply emerge from the facts, unaware that they are driven by implicit assumptions that could not survive the light of day

If you'd like the context, just click the links.  As you can see... Krugman used to be an opponent of minimum wages... but now he's a proponent.

From my perspective, a minimum wage is a problem because it doesn't accurately communicate the demand for unskilled labor in any given area.  This increases the chances that people will make really bad career/education decisions.  Here's how I've illustrated this...

And here's another attempt...

My drawing skills aren't that great... but hopefully you should get the idea that, in this drawing, the US has more than enough people pushing brooms (unskilled labor).  In economics... "more than enough" means that there's a surplus.  Usually when there's a surplus of something the price will accurately communicate this information to the entire world.  A low price says "hey, we have more than enough!".  This important information helps people make informed decisions.  When this important information changes, people's decisions will change accordingly.  So in order for the US to have ended up with such a massive surplus of unskilled labor... something must have gone wrong with the price system.  And that something is the minimum wage.  A minimum wage says, "hey, we don't have enough unskilled labor!".

A minimum wage creates a vicious cycle.  When wages falsely signal that the US has a shortage of unskilled labor... this increases the chances that people will make big mistakes.  Students are more likely to make the big mistake of dropping out of school and unskilled immigrants are more likely to make the big mistake of risking their lives to move here.  The logical consequence of so many people making big mistakes is an increase in poverty... which is then used to justify an increase in the minimum wage.

So what would happen if we eliminated minimum wages?  I'm guessing that wages for unskilled labor will decrease.  And I'm sure that proponents of a minimum wage would guess the same thing.  Right?  Because if we eliminated the minimum wage... and wages didn't decrease... then there wouldn't be a need for a minimum wage.

If proponents of a minimum wage want to guess that eliminating the minimum wage would result in a huge decrease in wages... then, assuming that they are correct, this huge decrease would reveal that there is indeed a huge surplus of unskilled labor in the US.  This would conclusively confirm the problem with lying to people about the demand for unskilled labor (aka "a minimum wage").

Would chaos ensue if we learned that there actually was a huge surplus of unskilled labor in the US?   Well... no.  Take China for example.  They used to have a huge surplus of cheap labor... but now they don't...
Costs are soaring, starting in the coastal provinces where factories have historically clustered (see map). Increases in land prices, environmental and safety regulations and taxes all play a part. The biggest factor, though, is labour. - The Economist, The end of cheap China
Wages in China really didn't skyrocket because of a minimum wage... they skyrocketed because of the massive demand for cheap labor...
While corporations may look elsewhere for still cheaper labor, there are no more Chinas out there.  Other countries that establish themselves as low-wage havens will soon be overwhelmed by the inflow of capital from the United States, Europe, Japan, and now China. They cannot possibly have the same dampening effect on wages in the United States over the next three decades as did China and other developing countries in the last three decades.  - Dean Baker, Living in the Short-Run: Comment on Capital in the 21st Century
In case you didn't actually dig through all those Krugman articles that I shared earlier, I'll point out that he vociferously argued against the idea that the massive increase in the global supply of cheap labor had anything to do with wages stagnating in the US.  Eventually he acknowledged that perhaps there were some issues with his "implicit assumptions".

Let's review!  Here are two possibilities of eliminating the minimum wage here in the US...

1. Wages don't plummet.  Then there's really no point in having a minimum wage.
2. Wages do plummet.  Then the US "will soon be overwhelmed by the inflow of capital from the United States, Europe, Japan, and now China".

We really don't help anybody by giving people bad directions.  If you truly want to help poor people... then start a business.  Give poor people a better option (builderism).  Especially if you have a strong theory that some existing business is making a stupid mistake.  Put your strong theory to the test by starting a business that doesn't make the same stupid mistake.  Maybe you want to argue that starting a business is too difficult?  Well there you go.  You've successfully identified a huge problem.  It's a huge problem when it's too difficult to give poor people better options.  Please figure out how to make it easier for somebody as intelligent as yourself to start a business.  And if you can't figure it out... then please have some respect for anybody who does manage to successfully start and run a business that employs/serves any amount of people.

Thursday, April 9, 2015

Cait Lamberton Discussing Tax Choice On NPR

Cait Lamberton recently discussed tax choice on NPR (Philadelphia)... Taxes: What we think about them, what we’d like to do with them, and some handy tips.  Her section begins around 13:00.

If you haven't seen it already... here's her tax choice article in Democracy Journal... Your Money, Your Choice.  The article is based on this paper... A Spoonful of Choice: How Allocation Increases Satisfaction with Tax Payments.

Prior to Lamberton's segment on NPR, Carroll Doherty, from the Pew Research Center, discussed the results of their latest survey on taxes.  The survey revealed that people's top tax concerns are that corporations and wealthy people aren't paying their fair share.  This is quite interesting because one frequent concern with tax choice is that the wealthy would have too much influence.

Let's think about the Koch brothers in a tax choice system.  Here are three possibilities...

A.  They don't pay their fair share of taxes = less influence in the public sector.
B.  They do pay their fair share of taxes = more influence in the public sector.
C.  They pay more than their fair share of taxes = even more influence in the public sector.

So would liberals prefer A, B or C?

Why in the world would the Koch brothers want to pay more than their fair share of taxes?  The liberal congresswoman Elizabeth Warren has the answer...
There is nobody in this country who got rich on his own. Nobody.  You built a factory out there—good for you! But I want to be clear.  You moved your goods to market on the roads the rest of us paid for.  You hired workers the rest of us paid to educate.  You were safe in your factory because of police forces and fire forces that the rest of us paid for.  You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. 
The liberal economist Paul Krugman has a different answer...
The ugliness of our politics is closely tied to the inequality of income. You start to get a society in which the elite is just not living in the same material universe as the rest of the population. The people who have the most influence are not interested in having good public services, because they don't use them. You just get a bad society.
And The Economist disagrees with Krugman's answer...
What public services is he talking about? Don't the wealthy drive (or ride) over the publicly financed roads and bridges? Do the upper-crust not use the courts or enjoy the protection of the police? Does Bill Gates now have a private mercenary army protecting his property from Canadian invasion? 
Some older answers...
During the late war, another tax of the same kind was proposed upon shops. The war having been undertaken, it was said, in defence of the trade of the country, the merchants, who were to profit by it, ought to contribute towards the support of it. - Adam Smith, Wealth of Nations
The protection of trade in general, from pirates and free-booters, is said to have given occasion to the first institution of the duties of customs. But, if it was thought reasonable to lay a general tax upon trade, in order to defray the expence of protecting trade in general, it should seem equally reasonable to lay a particular tax upon a particular branch of trade, in order to defray the extraordinary expence of protecting that branch. - Adam Smith, Wealth of Nations
That the State should leave exports to the exporters, to industry, and to the merchants, and should not identify itself with the interests of the exporting class... If industry... values the protection afforded by warships, let them go and shell out a part of the surplus profit they have captured in this way and build the cruisers for themselves. - Eckart Kehr
If you go into Home Depot you're going to find a huge variety of different private "inputs" for sale.  Why does Home Depot offer all these different private inputs for sale?  Evidently it's because people need them in order to successfully complete a huge variety of projects.

With Home Depot... the supply of private inputs follows from the demand for private inputs.  Why should it be any different with the public sector?   Why should we suffer from shortages of the public inputs that we need to successfully complete projects?  

Hopefully the next time Doherty conducts the survey he'll ask people whether they would like to choose where their taxes go.

According to Lamberton, there are two big reasons why taxes are disliked...

1. People don't feel any sense of choice.  Whenever people feel forced to do something they experience something referred to in psychology as "reactance".

2. The act of paying taxes is far removed from all the benefits that we derive from public goods.

That last point results in what is known in economics as "fiscal illusion".  The opposite of fiscal illusion is fiscal equivalence.

The Nobel Prize economist James M. Buchanan wrote at length about this concept...
Historically, legislative bodies, through which the preferences of individual citizens are most directly represented, have exercised more control over revenue or tax decisions than they have over expenditure decisions. In part this asymmetry has its origin in the development of democratic political institutions out of monarchial institutions. Representative bodies, parliaments, first achieved the power to restrict the tax-gathering privileges of the kings. Before taxes could be levied on the people, representative bodies were given the right to grant their approval. No consideration was given to the spending side of the account because public expenses were assumed to benefit primarily the royal court, at least in the early days of constitutional monarchy. Taxes were viewed as necessary charges on the people, but they were not really conceived as any part of an "exchange" process from which the people secured public benefits. It was out of this conception of the fiscal process that both the modern institutions and the modern theory of public finance developed. - James M. Buchanan, The Bridge Between Tax and Expenditure in the Fiscal Decision Process
The most sophisticated contribution was made by Knut Wicksell 1896.  He explicitly identified the fundamental methodological error in the then-orthodox approach, and he combined positive criticism with normative suggestions for reforms.  Wicksell recognized the necessity of bridging the two sides of the fiscal account, and he noted the indeterminacy of any proposed principles that were limited to tax-side considerations. - James M. Buchanan, Public Finance and Public Choice
And here's a passage from another Nobel Prize winning economist on the same topic...
The working out of financial arrangements between collective consumption units and production units is one of the most difficult problems faced by entrepreneurs in the public economy.  Without market prices and market transactions, the act of paying for a good generally occurs at a time and place far from the act of consuming the good: individual costs are widely separated from individual benefits.  Yet a principle of fiscal equivalence--that those receiving the benefits from a service pay the costs for that service--must apply in the public economy just as it applies in a market economy.  Costs must be proportioned to benefits if people are to have any sense of economic reality.  Otherwise beneficiaries may assume that public goods are free goods, that money in the public treasury is "the government's money," and that no opportunities are foregone in spending that money.  When this happens the foundations of a democratic society are threatened.  The alternative is to adhere as closely as possible to the principle of fiscal equivalence and to proportion taxes as closely as possible to benefits received. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices
Fiscal equivalence is closely tied to the benefit principle of taxation.

In her interview... Lamberton suggested that people be given, at least initially, 10% to 15% control over how their taxes are spent.  Taxpayers would be able to allocate their taxes once a year when they paid them.  I think of her approach as training wheels.  It's a very reasonable and prudent approach.

According to Lamberton's study, most people tend to diversify their allocations rather than put all their eggs in one basket.  And compared to the current allocation of taxes... defense was a loser while education, science and the environment were all winners.

When Lamberton was asked if this could really work, she noted that our current system suffers from the principal agent problem.  She went on to point out that tax choice would provide representatives with considerable information about their constituents' actual preferences.  Taxpayers would be able to clearly communicate to their elected officials which public inputs they needed more of in order to successfully complete their projects.  In other words, taxpayers would be able to use their taxes to highlight where the bottleneck is in the public sector.

In terms of the likelihood of tax choice being implemented... Lamberton referred to states as the laboratories of democracy.  I agree!  And websites can also be laboratories of democracy.  There are plenty of websites, such as Netflix, that could give their "citizens" the option to choose where their "taxes" go.

A caller to the show recently traveled to Cuba and China and experienced first hand just how bad pollution in China really is.  When our tax choice training wheels come off... I'm pretty sure that it would be a good idea if Americans could have the option to give their taxes to the Chinese EPA.  Because what are the chances that the US has the greatest need for environmental protection?  And what are the chances that the US has the greatest need for military protection?

Wednesday, April 8, 2015

Debugging Scott Alexander And Paul Krugman

Alt Title1:  Make Money vs Kill Humans
Alt Title2:  Faulty Analysis by Intelligent People
Alt Title3:  Debugging Two Intellectuals With One Entry

Scott Alexander - No Physical Substrate, No Problem
Paul Krugman - The Fiscal Future I: The Hyperbolic Case for Bigger Government

Alexander fears that AIs will become too powerful while Krugman hopes that the government will become more powerful.

Alexander argues that an AI will decide to get rich and then decide to kill us.  Krugman argues that we need a bigger government because people make poor decisions.

The bug in their analysis is that they don't really grasp the simple concept of garbage in, garbage out.  Every entity, whether it's a human, a robot, a company or a government... makes decisions based on information.  If the information is garbage, then the decisions will be garbage.
When a businessman makes a business error…a bad mistake, you'll look back and say, gee, what did I do wrong.  I made a bad decision.  I made a wrong decision. What do you mean by that? Do you mean that you made a mistake in arithmetic?  You mean your computer kicked out the wrong answer?  No, that's not what you mean. You mean you fed the wrong data into the computer.  That's what you mean.  You figured wrong.  You opened a hardware store in a place where nobody buys hardware. You went to law school in a country where nobody litigates (not this country).  That's where you make a mistake. You made a mistake where you assess the future wrongly.  You got a wrong picture of what you were choosing between.  That's a business mistake. 
And what's a correct decision.  A correct decision is one where you saw correctly.  You saw right.  You saw what the future held...more or less. Nobody's got a PhD in prophecy.  You can peer ahead and have a hunch for the future and act and if you act right...and if you're an entrepreneur... that means you see things right more of the time than you don't. - Israel M. Kirzner, Competition and Entrepreneurship
Krugman supports a minimum wage.  A minimum wage feeds the wrong data into society's allocation computer.  Here's an illustration from my entry... Jeff Madrick vs The Invisible Hand

Krugman: The world economy is a system -- a complex web of feedback relationships -- not a simple chain of one-way effects
Krugman: Wages, prices, trade, and investment flows are outcomes, not givens
Krugman: Wages are a market price--determined by supply and demand
Krugman: Money still talks — indeed, thanks in part to the Roberts court, it talks louder than ever
Krugman: Raise minimum wages by a substantial amount
Krugman: The price of labor--unlike that of gasoline, or Manhattan apartments--can be set based on considerations of justice, not supply and demand, without unpleasant side effects
Krugman: Your decision to stay in school or go out and work will shape your lifetime career
Krugman: Now, the fact is that people make decisions like these badly
Krugman: Bad choices in education are the norm where choice is free
Krugman: He and his unwary readers imagine that his conclusions simply emerge from the facts, unaware that they are driven by implicit assumptions that could not survive the light of day

Think about driving somewhere.  You want to change lanes... so you use your blinker to communicate your desire.  Somebody cuts you off... so you communicate your displeasure by honking at them and/or giving them the middle finger.  You see break lights on the cars in front of you.  What does this communicate to you?  It communicates that you need to stop.  Same thing when you see a stop sign or a red light.  A green light, on the other hand, communicates that you need to go.  When you see the sign for a street that you need to take... you take it.  You hear a siren behind you and see the flashing lights in the review mirror... what do you do?  If it's an ambulance then you get out of the way.  If it's a police car then you start hoping that you're not the target.

Safely arriving at your destination depends on a considerable amount of communication.  Would clearer communication make it easier or harder for you to get to your destination?
One doesn't need to be Thomas Gradgrind to be interested in the rules underlying the English language, or to believe that good communication and understanding depend on clarity.  Grammar is not just about learning sentence construction: it's about speaking clearly and plainly and cutting through obfustication. But even aside from that, and most importantly of all, good grammar will help you get laid. - Hadley Freeman, Humanity's future depends upon good grammar
When Paul Krugman advocates for minimum wages... he's advocating for more, rather than less, obfuscation.  A minimum wage really doesn't clarify the demand for labor... it obscures the demand for labor.

We can either clarify demand... or we can obscure it.  We can either make it easier to understand and respond to each other's demands/concerns... or we can make it harder.

Here's an illustration from my entry... Scott Alexander vs Adam Smith, J.S. Mill, Alex Tabarrok, Don Boudreaux, David Friedman, Murray Rothbard, Jason Brennan, Elizabeth Warren, Geoffrey Brennan, Loren Lomasky

If gays are going to foot vote... then what information do they need to make a correct decision?  They need to know what the demand is for gays here, there and everywhere.  When gays make poor foot voting decisions... then it's because their information was garbage.

Same thing when libertarians attack the wrong targets.  Here's the illustration from my entry... S Is Never Going To Shrug...at this rate...

In this illustration vulgar libertarians are tilting at windmills.  They are wrongly attacking taxes, public goods, welfare and fiat money.  Why are they barking up the wrong tree?  It's because their information is garbage.  If their information wasn't garbage, then they would be attacking the assumption of omniscience.

Right now we can't choose where our taxes go.  The monetary expert Scott Sumner can't use his tax dollars to communicate his concerns.  Here's the illustration from my entry... Scott Sumner vs The Fed

With our current system, no matter how bad the Fed's policies are... it would never be rational for Scott Sumner to encourage people to boycott the Fed.  This is because people can't choose where their taxes go.  Scott Sumner can't encourage us to boycott the Fed... but he can encourage us to boycott Disneyland.  We can't use our money to communicate with the DoD.... but we can use our money to communicate with McDonald's.  As if it's more important to clearly communicate with Ronald McDonald than it is to clearly communicate with Barack Obama.

With our current system... a bigger government increases demand opacity.  This means that more people will make even worse decisions.  With more garbage in, we get more garbage out.
The immense Soviet efforts to mobilize economic resources were hardly news. Stalinist planners had moved millions of workers from farms to cities, pushed millions of women into the labor force and millions of men into longer hours, pursued massive programs of education, and above all plowed an ever-growing proportion of the country's industrial output back into the construction of new factories. - Paul Krugman, The Myth of Asia's Miracle
There's nothing inherently wrong with society's limited resources being massively mobilized.  The issue is whether the allocation decisions are based on actual demand.  If the allocation decisions are based on accurate information... then the consequences will be beneficial.  If, on the other hand, the allocation decisions are not based on accurate information... then the consequences will be detrimental.  Garbage in, garbage out.

If Scott Alexander wants to paint plausible scenarios of robots making really bad decisions... then he really needs to show some basic understanding of the garbage in, garbage out concept.  If he truly understands this concept then he'll explain where the robots got their bad information from.  Alexander will clearly communicate to us exactly what information led robots to the decision to make money... and exactly how that information changed so that the robots then decided to kill humans.  But if Alexander can truly understand the garbage in, garbage out concept... and how it relates to demand... then he's going to adjust his intelligence allocation by addressing the clear and present danger of governments preventing millions and millions of people from using their tax dollars to clearly communicate their concerns/demand.

The economist Don Boudreaux recently wrote about truth vs lies...
Market-determined prices – those that are neither set nor constrained by government diktat – reflect underlying economic realities. Prices are the results of those realities. Prices – even those that are set or constrained by government diktat – also have consequences; prices affect and direct economic decision-making. So while prices that are set or constrained by government diktat affect and direct economic decision-making no less than do market-determined prices, only the latter does so in ways that are consistent with underlying economic realities. The reason is that only market-determined prices tell the truth about underlying economic realities; minimum-wage rates and other prices that are set or constrained by government diktat lie about underlying market realities. Such government-determined prices thus cause people to act on misinformation – on economic lies. And people who are misinformed and misled will not make decisions that improve underlying economic realities; quite the opposite.
Let's be truthful about the market though.  With this goal in mind... here are a couple illustrations from my entry... Accurately Communicating Value

In this illustration I'm buying the book Toleration from the author... Andrew Cohen.  Hopefully it's clear in this illustration that I'm lying.  I'm paying far less money than I value his book.  The amount that I'm paying isn't accurately communicating how much I value his book.  Garbage in, garbage out.

In this illustration I'm also lying.  I'm paying far more money than I value his book.  The amount that I'm paying isn't accurately communicating how much I value his book.  Garbage in, garbage out.

In the first illustration I'm getting a really great deal.  In the second illustration I'm really being ripped off.  And in both illustrations I'm lying.  I'm falsely reporting the underlying economic realities.  I'm miscommunicating my demand for books on the topic of tolerance.  I'm feeding bad information into the allocation computer.  I'm sending the wrong message to producers.  In the first illustration I'm sending the message that there's a surplus.  But the truth of the matter is that, in that scenario, I honestly believe that there's a shortage.  In the second illustration I'm sending the message that there's a shortage.  But the truth of the matter is that, in that scenario, I honestly believe that there's a surplus.  False messages adversely effect the future supply.

In both scenarios the amount of money that I'm paying for Cohen's book isn't accurately communicating the amount of value that I derive from his book.  The logical consequence is that society's limited resources will not be put to their most valuable uses.  Garbage in, garbage out.

Even though markets have plenty of room for improvement... the information that they supply is vastly superior to the information supplied by governments.   Vegetarians aren't going to order steaks like pacifists have to order war.

One of the most significant events in human history will be when the majority of people realize the value of knowing the actual demand for war.
There are multitudes with an interest in peace, but they have no lobby to match those of the 'special interests' that may on occasion have an interest in war. - Mancur Olson
The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. The seasons during which the ability of private people to accumulate was somewhat impaired would occur more rarely, and be of shorter continuance. Those, on the contrary, during which the ability was in the highest vigour would be of much longer duration than they can well be under the system of funding. - Adam Smith, Wealth of Nations