Wednesday, June 17, 2015

Increasing Total Utility vs Increasing Productivity

Why do I oppose sugar subsidies?  According to Scott Sumner, here are my two options...

1.  They decrease total utility
2.  They violate natural rights

These are my only two options?  Eh, no way man!

When it comes to "natural rights"... I completely agree with Bentham that they are nonsense on stilts.  Increasing total utility, on the other hand, isn't a nonsensical option... but... it really puts the cart before the horse.

The reason that I oppose subsidies is because they decrease productivity.  Decreasing productivity will certainly decrease total utility.  And increasing productivity will certainly increase total utility.  But...increasing total utility does not always increase productivity.

Let's say that we redistributed all the wealth from the rich to the poor.  Would total utility skyrocket?  Sure.  What about productivity though?  It would plummet.  This is because many rich people are rich because they are more productive.  Once productivity plummets... then so too would total utility.

Putting scarce resources in the wrong hands decreases productivity... which decreases total utility.

Of course, with an unknown amount of rich people, their wealth does not accurately reflect their productivity.  With sugar farmers, some unknown percentage of their wealth was not earned by serving consumers.  It was earned by serving politicians.  In other words, it was earned by cheating... aka "plunder".

wealth via consumer sovereignty = earned = fair
wealth via politician sovereignty = plundered = unfair

Sumner, like myself, wants to eliminate plunder... but he puts it strangely....
Ending sugar subsidies would increase the efficiency of the American (and global) economy, boosting real GDP. It would redistribute money from relatively wealthy sugar producers to average Americans.
The first sentence is ok.  The second sentence is where it gets a bit weird.  I take issue with the word "redistribute".

A bad guy steals your wallet.  But as soon as he does so, Batman hits him over the head and returns your wallet to you.  Is this redistribution?  Not so much.

When liberals say, "Let's redistribute!!!" I really don't hear, "Let's eliminate plunder!!!".  What I hear is, "Let's embrace plunder!!!".

With liberals the focus is on total utility... not productivity.  They fail to see the forest for the trees.

Does Sumner fail to see the forest for the trees?  Well... if his blog entry was our only evidence... then the answer would be "yes".  But I'm pretty sure that Sumner grasps that utility follows from productivity.  Pretty sure.  It's just strange that he left it out.

If you're in the mood for strangeness...
I wish people bought fewer luxury goods and gave more. Still, there’s an upside to luxury consumption. GDP/capita in, e.g., South Korea and Taiwan was low in 1970. 45 years later, these are two of the richest countries on Earth. They became rich not because of charity, international aid, or effective altruism, but the way all the other rich countries became rich—they had decent institutions that encouraged markets, and people in those markets produced products other people wanted to buy. Charity is no substitute for, and does little to prompt, sustained economic growth. When we buy luxury goods, we may not thereby intend to feed the poor, but the long-term result is often that we transform the poor into the rich. Don’t take my word for it—go read any standard development economics textbook. - Jason Brennan, Q: Is it OK to have nice things?
Ouch, my brain.

In the first sentence Brennan wishes that people gave more.  Next he goes on to explain that buying more, rather than giving more, has lifted people out of poverty.  And then, in his BHL blog entry... immediately after the above paragraph, he writes, "As promised, I donated my honorarium for this post to GiveDirectly."

Yesterday, Tyler Cowen shared this link... Derek Thompson on effective giving.  Here's how the article did not go...

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Hi, my name is Derek Thompson.  I'm really interested in getting the most development for my dollar.  After I read this...
These improvements have not taken place because well-meaning people in the West have done anything to help--foreign aid, never large, has lately shrunk to virtually nothing. Nor is it the result of the benign policies of national governments, which are as callous and corrupt as ever. It is the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labor. It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better. - Paul Krugman, In Praise of Cheap Labor
.... I decided that I wanted to buy things that are made in Africa.  Unfortunately, this wasn't easy to do.  So I started a website just like Amazon.com... but it only carries products made in Africa!

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Again, that's not how the article went.  There wasn't an ounce, or hint, of awareness that the only truly effective altruism is avarice.  Altruism didn't build that... avarice did.

Here's how Thompson ended his article...
In the end, I considered making several different donations. But I kept coming back to something Robert Mather said: Malaria is not merely the greatest killer of children in the world, but also it is the greatest killer of pregnant women. The disease plunders motherhood from both sides of the equation. The loss of a mother must be quantifiable by some measure of creative accounting, but in my experience it is immeasurable. This much I knew: There is the thing that I want, I cannot have it, but I can give it to somebody else. That seemed to honor the etymology and the root of altruism. 
On Thursday, I wired the money: a thousand for every year of life for my mom, who died a few months before her birthday. To honor a family tradition, I also sent an extra thousand to GiveWell—"to grow on,” she would have said.
Nice narrative... but it's defective.  An effective narrative would have involved Thompson spending his money on products that are made by pregnant African women who spend their earned money on mosquito nets.  Or other things.

My second favorite liberal, John Quiggin, recently shared another draft from his upcoming book... To help poor people, give them money (Draft excerpt from Economics in Two Lessons).  Poor people make hard choices... and...then...and... then...?  What happens next?  What happens after people spend money?  Anything?  Well... Quiggin is a liberal.  Liberals are liberals because they have trouble connecting spending decisions with distributional outcomes.  If they could connect two and two together... then they would realize that redistribution (plunder) subverts the true will of the very people that they are ostensibly trying to help.

I was surprised to find Tim Worstall in the comments section.  He shared a link to his article... India's Basic Income, Or, Let's Abolish Food Stamps And Make Everyone Richer.  For some reason I was also a bit surprised to find Worstall on board with a basic income.

With basic income... sure, we'd increase total utility.  But we'd be putting too many resources in the wrong hands.  This would result in a decrease in productivity which would result in a decrease in total utility.

Here's the correct narrative...

Some poor people work.  They earn money.  They have to pay taxes.  They choose where their taxes go.  The distributional outcome does not subvert the will of the people.  It more accurately reflects the will of the people.  Productivity is rewarded... and increased... and so is utility.  Builderism is the source of better options.

How does this narrative sound?  Keep it in mind as we switch back to Africa.  Here's some more insight via Tyler Cowen...
There are not right now many transactions between rich countries and the bottom couple billion people on Earth. Why is that? Is it because these people have nothing of value to sell or is it because we have no way of transacting with them? We are about to find out. - Eli Dourado, Bitcoin as a medium of settlement
"Success" isn't Derek Thompson donating mosquito nets to people in Africa.  "Success" is Thompson buying products made by people in Africa.  "Success" is Thompson shopping in Africa's private sector.  Just like "success" is Thompson shopping in America's public sector.

We're not any closer to success when Thompson donates .01% of his income to Africa but spends 99.99% of his income outside of Africa.

Shopping is the process by which you find and reward people whose productivity benefits you.  Africa's a big place.  There are a lot of productive people in Africa... but they aren't all equally productive.  It stands to reason that one person is producing something that would create more value for Derek Thompson than anybody else in Africa.  The mission is to make it stupid easy for Thompson to find and reward this productive person.

The most recent and relevant story is from Alex Tabarrak...
Working closely with transplant surgeons, Mr. Roth designed a computerized kidney exchange, based on the austere theories he had developed earlier, that would search through large databases of potential donors and recipients to find the series of exchanges that would maximize the number of lives saved. Today such multi-way exchanges are becoming common. Mr. Roth, however, wants to go further. The larger the database, the more lifesaving exchanges can be found. So why not open U.S. transplants to the world? Imagine that A and A´ are Nigerian while B and B´ are American. Nigeria has virtually no transplant surgery or dialysis available, so in Nigeria patient A’ will die for certain. But if we offered a free transplant to him, and received a kidney for an American patient in return, two lives would be saved. 
The plan sounds noble but expensive. Yet remember, Mr. Roth says, “removing an American patient from dialysis saves Medicare a quarter of a million dollars. That’s more than enough to finance two kidney transplants.” So offering a free transplant to the Nigerian patient can save money and lives. It’s hard to think of a better example of gains from trade (or a better PR coup for the U.S. on the world stage). Better matching with computerized markets is saving lives, but more than 100,000 people are still waiting for kidneys in the United States alone. As Mr. Roth acknowledges, we are unlikely to solve the organ shortage completely without compensating organ donors. - Alex Tabarrok, Matchmaker, Make Me a Market
Making (better) markets facilitates trading.  We need to take the narrative of donating to Africa and replace it with the narrative of shopping in Africa.  We need to replace "GiveDirectly" with "BuyDirectly".   Poverty is weeded out by rewarding productivity.  And markets, by facilitating shopping/trading, reward productivity.

A tax choice system would create a market in the public sector.  We'd all have to spend, say, 35% of our income in the public sector...but we could choose which organizations we traded with.  Allowing the public to shop in the public sector would fundamentally improve the variety and quality of public goods.  Why?  Because productivity would be rewarded.

With an Africa choice system, we'd all have to spend, say, 5% of our income in Africa's private sector... but we could choose which organizations we traded with.  The American public shopping in Africa's private sector would fundamentally improve the variety, quantity and quality of Africa's private goods.  Why?  Because productivity would be rewarded.  

I'm not endorsing an Africa choice system.  The point is to help promote an understanding of the transformative process that shopping has on the variety, quantity and quality of goods.

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