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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.

Sincerely,
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
...and...
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 
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