Thursday, July 30, 2015

Unlimited Wants vs Limited Resources


You’re looking for people to learn from? I nominate Adam Smith…

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

Here are a couple fundamental truths…

  1. Society’s wants are unlimited. 
  2. Society’s resources are limited.

Markets work because people are forced to prioritize how they spend their own hard-earned money. We can’t afford to purchase everything on our want list… so we have to make some painful decisions. We have to deliberate, discern and determine which wants will provide us with the most value. Our spending decisions communicate our valuations to producers… and producers utilize this information to put society’s limited resources to their most valuable uses. As a result, society derives the maximum value from its limited resources. 

Governments fail because they aren’t markets. In the absence of markets, society will not derive the maximum value from its limited resources. 

Does this mean that we have to eliminate governments? Nope. The fact of the matter is that we can’t solely rely on voluntarily contributions to public goods. Again, people’s wants are unlimited… so there’s a strong incentive to free-ride on other people’s contributions to public goods. You can’t benefit from the steak that I buy (unless I want you to)… but you can benefit from the national defense that I contribute to. So it’s not unreasonable to guess that the free-rider problem would be extensive. Therefore, public goods would be largely underfunded/undersupplied. 

The solution is to turn the government into a market. People would still have to pay taxes… but they would be able to choose where their taxes go. If war is truly a priority for most people… then their spending decisions would clearly communicate this. People’s true priorities can only be revealed by their willingness to sacrifice the alternative uses of their own money. Take personal sacrifice out of the equation and you’re bound to get the wrong answer.

You’re on the right track by endeavoring to try and facilitate communication between citizens and government. But it’s fundamentally important to understand and appreciate the significance of actions (spending) speaking louder than words (opinions). 

Perhaps it will help to apply this concept to our current context.

Four people have “Recommended” this story of yours…

  1. Madeline Roachell
  2. Tulio Malaspina
  3. Travis Truman
  4. James Horton

The “Recommend” button facilitated communication. It made it stupid easy for these four people to communicate that they like your story. They didn’t have to send you a smoke signal… or knock on your door… or send you a telegram… or send you a fax… or write you a letter… or send you an e-mail… or send you a text… or call you on the phone… all they had to do was click one button. With minimal sacrifice… these four people voted for your story. And now we know that they like it.

What we don’t know is how much these four people like your story. Does it matter how much they like their story? Does it matter how important your story is to them? Does it matter how much they would be willing to sacrifice for your story? Does it matter how they would rank your story among all the other stories that they’ve also recommended? Shall we pretend that they value each of their recommended stories equally? 

In order for society’s limited resources to be put to their most valuable uses… valuing stories has to be as stupid easy as recommending them. Communicating values has to be as stupid easy as communicating opinions. Next to the “Recommend” button could be some coin buttons… penny, nickle, dime and quarter. Clicking a coin button would instantly transfer the money from the reader’s digital wallet to your digital wallet. Which coin button(s) would James Horton click? Which coin button(s) would Madeline Roachell click? Which coin button(s) would you click? How much do you value your own story? Which of your stories do you value most? Which of your stories does the crowd value most? Which of the crowd’s stories do you value most?

Of course we’d still be up against the free-rider problem. But the existence of the non-profit sector clearly proves that many people are happy to voluntary make some contributions to support worthy causes and concepts. So I’m pretty sure that plenty of people on Medium would be happy to click some coin buttons in order to more accurately communicate the intensity of their preferences. 

It would be really awesome if some city government endeavored to clarify demand by making it stupid easy for citizens to communicate their values. But clarifying demand is equally relevant to Medium and a gazillion other websites. I’m guessing that Medium would be much more likely to add coin buttons than some city government. Just like I’m guessing that other websites would be much more likely to add coin buttons than Medium is. 

There are multiple paths to any destination. If the shortest path has significant obstacles… then it might not be the best path. 

Wednesday, July 29, 2015

1 Question For Anybody Who Opposes Privatizing Marriage

Which arguments are worse... the arguments against unbundling cable or the arguments against unbundling marriage?  Which weighs more... a pound of feathers or a pound of rocks?

Probably the single biggest argument against unbundling cable is that doing so would increase the costs of the individual components.  And this is a bad thing because higher prices are always bad for consumers.  Right?  Wrong, really wrong.  Prices are never bad for consumers when they accurately communicate demand.  If, for example, consumers are willing to pay higher prices for animal shows... then this would reveal that there's a scarcity of animal shows.  Higher prices for animal shows would incentivize producers to create more animal shows.  Voila!  Shortage solved!  Scarcity eliminated!  Consumers would have an abundance of animal shows!   As a result of this abundance, prices would decrease... and so too would the incentive for producers to create more animal shows.

It's super sad that the gist of this economic explanation really isn't anything new...

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. - Adam Smith, Wealth of Nations

Einstein defined insanity as doing the same thing over and over but expecting a different outcome each time.  Am I being insane by sharing an explanation that was shared a gazillion years ago?  Why am I expecting a different outcome?  Maybe I'm guessing that most people still haven't gotten the memo?  Or perhaps I'm guessing that my own explanation is different enough?  Maybe all Smith's explanation lacked was an embedded example?  I wish.  Sigh.

In my explanation... I used "Voila!" to describe the change in supply.  To be fair, perhaps "Voila!" isn't always the most accurate way describe the supply response.  But in all cases where "Voila!" isn't so applicable... most, if not all, of the delay in supply response is a consequence of government intervention.  For example, minimum wages guarantee that "Voila!" isn't the best way to describe how a huge chunk of labor responds to changes in demand.  This is because a minimum wage effectively hides all the disparities in demand that occur beneath the minimum wage.  Hiding demand disparities effectively eliminates the incentive for supply to respond to them.  It really doesn't become profitable for labor to respond to changes in demand.  Garbage in, garbage out.

Bundling effectively hides demand disparities and, as such, eliminates the incentive for suppliers to respond to them.  Bundling does an excellent job of protecting producers from consumers.  Except, why in the world would we ever want to protect producers from consumers?

Perhaps some lateral thinking would help...

Can you imagine if we protected flowers (producers) from hummingbirds (consumers)?  What would happen to the supply of flowers if we reduced hummingbirds' choice in the matter?  From the perspective of hummingbirds... would the supply improve?  Would flowers fiercely fight for the attention of hummingbirds?  Would flowers have the maximum incentive to produce an abundance of nectar?  Would there be a greater variety of flowers for hummingbirds to choose from?  Would hummingbirds have more freedom?  Would hummingbirds truly be happier?

How often do we hear biologists cry to reduce hummingbird choice?  How often do we hear economists cry to reduce human choice?  Biologists cry when we do interfere with the environment.  Krugman cries when we do not interfere with economy.  Well... Krugman doesn't literally cry.  Who wants to see Krugman literally crying?  Well... hmmmm... big, fat, juicy tears rolling down his cheeks and dripping from his elfish face.  I wonder how his tears would taste?  Like heaven.  Now I have a craving for Krugman's tears!

In a recent blog entry... The free-rider problem is an argument against democracy... I shared this passage by Hayek...

True, if we want at any time to make sure that we achieve as quickly as we can all that is definitely known to be possible, the deliberate organization of all the resources to be devoted to that end is the best way. In the area of marriage, to rely on the gradual evolution of suitable institutions would undoubtedly mean that some individual needs which a centralized organization would at once care for might for some time get inadequate attention. To the impatient reformer, who will be satisfied with nothing short of the immediate abolition of all avoidable evils, the creation of a single apparatus with full powers to do what can be done now appears therefore as the only appropriate method. In the long run, however, the price we have to pay for this, even in terms of the achievement in a particular field, may be very high. If we commit ourselves to a single comprehensive organization because its immediate coverage is greater, we may well prevent the evolution of other organizations whose eventual contribution to marriage might have been greater. - Friedrich Hayek, The Constitution of Liberty

Hah...ok, yes, I took a couple liberties with this passage.  You caught me.  But the basic economic/evolutionary concept is just as applicable to marriage as it is to welfare.  Hayek also wrote... "The introduction of such a system therefore puts a strait jacket on evolution and places on society a steadily growing burden..."  Yes!!!

Government marriage has definitely put a straight jacket on the evolution of marriage.  It's obviously true that this straight jacket doesn't prevent all change... given that marriage now includes gays.  But as usual, the challenge isn't to see the seen... the challenge is to see the unseen.  What would marriage look like now if it had been privatized 50 years ago?  If marriage had been exposed to the full, direct, and extremely powerful force of consumer choice... would it be closer to, or further from, the preferences of consumers?  Would the market have found/made more, less, or the same number of improvements?  Would society have allocated more, less, or the same amount of its limited resources to debating marriage?  Obviously I wouldn't be spending my time writing this blog entry.

Here's Milton Friedman, nearly 50 years ago, theorizing what would happen to television if it was more fully subjected to consumer choice...

What kind of TV system would emerge from the free and unfettered operation of market forces?  No one can say in detail. The market is most ingenious and always produces surprises. But certain things are clear. First, there would still be programs supported entirely by advertising—as giveaway newspapers are now. Second, there would be many programs supported partly by advertising, partly by fees—as many newspapers and magazines are now. Third, there would be many programs supported entirely by fees—as so many books and other publications are now.  Fourth, the TV bill of fare would be far richer than it now is. It would cater to all viewers, not just those influenced by advertising. It would provide expensive programs for limited audiences as well as low-cost programs for mass audiences. - Milton Friedman, How to Free TV

The specifics might not be applicable to marriage... but the general concept certainly is.  If we fully subjected marriage to consumer choice, then the supply of marriage would more accurately reflect the diversity of the demand for marriage.

Over at the Federalist... Stella Morabito posted this article... 5 Questions For Libertarians Who Support Privatizing Marriage.  Here's my one question for anybody who opposes privatizing marriage...

1. What impact does a reduction of consumer choice have on supply?

A. Supply improves at a faster rate
B. Supply improves at the same rate
C. Supply improves at a slower rate

Unfortunately, this is a really difficult question for way too many people.  Alex Tabarrok is my favorite living economist... but he opposes unbundling cable.  Jason Kuznicki might not be my favorite libertarian... but he's definitely way up there.  I only have 8 followers on twitter... and he's one of them!   Just in case you're wondering, my favorite libertarian is David Boaz... in no small part because of his endorsement of tax choice.... We should get to decide how the government spends our taxes.  Even though Kuznicki is one of my favorite libertarians... he opposes privatizing marriage.  Does he also oppose unbundling cable?  Does Tabarrok also oppose privatizing marriage?

Perhaps I should point out that I'm not a libertarian... I'm a pragmatarian.  For libertarians, the only way to subject marriage to market forces would be to move marriage from the public sector to the private sector.  However, as a pragmatarian, I believe that there's a second way.  Rather than marriage going to the market... the market can go to marriage.  This second way could easily be accomplished by allowing people to choose where their taxes go.

So actually, given that David Boaz endorses tax choice, he isn't a libertarian... he's a pragmatarian.  This is an important distinction.  It differentiates those people who merely give lip service to market forces (libertarians) from those who actually appreciate and understand the benefits of market forces (pragmatarians).  Anybody who doesn't publicly endorse allowing people to choose where their taxes go... doesn't truly understand the value of consumer choice.  What about Friedman, Hayek and Smith?  Well... unfortunately, they didn't have the opportunity to consider pragmatarianism... so "conversion" wasn't an option.

What about anarcho-capitalists?  Unlike pragmatarians, they fail to recognize that the free-rider problem is a real problem.  But is the free-rider problem applicable to marriage?  Heh.  No.  Eh...?  No.  So I don't see a problem with marriage going to the market.  It wouldn't be my first choice... but it's infinitely better than allowing marriage to remain largely protected from consumer choice.

Even though I'm not a libertarian... I'll throw some answers at Morabito's 5 Questions For Libertarians Who Support Privatizing Marriage...

1. How does lack of state recognition of marriage—replaced by a system of domestic partner contracts—actually shrink government involvement? As Dalmia notes, these partnerships still need to be authorized, recorded, and registered by the state, all according to government regulations. Trading in the simple marriage license for a system of contracts seems akin to trading in a simple flat tax for today’s Internal Revenue Service tax code. The government is and will be deeply involved in the law, rules, regulation, and enforcement of contract law. So, please explain and demonstrate how the government’s role in our lives would be minimized by ending state-recognized marriage.

Uh what?  It might help to have it straight from the horse's mouth...

At the most basic level, even if we can get government out of the business of issuing marriage licenses, it still has to register these partnerships (and/or authorize the entities that perform them) before these unions can have any legal validity, just as it registers property and issues titles and deeds. Therefore, government would need to set rules and regulations as to what counts as a legitimate marriage "deed." It won't—and can't—simply accept any marriage performed in any church—or any domestic partnership written by anyone. Suppose that Osho, the Rolls Royce guru who encouraged free sex before getting chased out of Oregon, performed a group wedding uniting 19 people. Would that be acceptable? How about a church wedding—or a civil union—between a consenting mother and her adult son? And so on—there are innumerable outlandish examples that make it plain that government would have to at least set the outside parameters of marriage, even if it wasn't directly sanctioning them. - Shikha Dalmia, Privatizing Marriage Is a Terrible Idea

LOL... just in case anybody was wondering why marriage is referred to as the last legalized form of slavery.  Wives are property of their husbands?  Or is it the other way around?

Not too long ago I registered a domain name.  I didn't even have to leave the house.  And it was super cheap... and quick.  Does my domain name ownership have any legal validity?  Will it stand up in court?  If not, then I'd want a full refund.  If I didn't get a full refund, then I'd organize a boycott!  Next question...

2. How would you deal with possible legislation to license all parents, including biological parents, once the state no longer recognizes any union, including that of biological parents, as marriage? As stated above, the loss of state recognition of their union as anything more than an ordinary contract will deprive biological parents of the presumption of custody. This scenario seems to open us up to more state meddling in family life, as well as meddling by other parties—particularly when it comes to the child custody.

And I thought that marriage was the last legalized form of slavery?!  If the for-profit or non-profit organization that certified your marriage didn't also offer a really good deal on certifying your custody... then you should get a refund.  Same thing if the custody didn't hold up in court.

3. How does privatizing marriage preserve spousal immunity? At present, the government cannot force you to testify against your spouse. That is currently the law in all 50 states. But once the state no longer recognizes you and your spouse as a family unit—only as partners in an ordinary business-style contract—the case for spousal immunity significantly weakens. After all, what’s the rationale for immunity if a “marriage” is no more special than an ordinary contract, and “spouses” are merely associates, individual parties to ordinary contracts? It seems clear this would invite more state intrusion in family relationships, not less. It would invite less privacy, not more. If you disagree, please lay out your plan for preserving spousal immunity in a system without state-recognized marriage.

Hah.  "Honey, aren't you so happy that we're officially business partners!??"  LOL.  How romantic?  I'm pretty sure that there's a pretty significant difference between business partners and life partners.  And I'm also pretty confident that the market will cater to this difference.  So as long as life partners are certified as such... then the rationale for immunity is exactly the same.

4. What do you make of the fact that Sunstein, the Obama administration’s regulator-in-chief from 2009 to 2012, argues for essentially the same plan? Sunstein is a long-time advocate of policies that grow government. He’s a big fan of nanny-state style “nudging” intended to modify everyone’s behavior. Clearly, your intent for limited government deviates about 180 degrees from his intent for big government. (Ditto with Fineman’s project to end state-recognized marriage.) So it’s worth connecting a few dots and figuring out what actual path the abolition of civil marriage puts us on. Sunstein has thought this issue through for a very long time and he no doubt sees a road to bigger government. Explain how he is incorrect.

Hehe.  Oh, I'm chuckling too much.  This is by far the most solid argument against privatizing marriage.  Sunstein's super shady.  He's so shady that I wouldn't be surprised if he was somehow tricking me into writing this blog entry.  Am I being choice architectured?  It might help to do a bit of homework...

In a chapter titled "Privatizing Marriage," Thaler and Sunstein advocate, quite sensibly, moving in a libertarian direction by separating marriage and state. They point out that, despite the evidence, almost 100 percent of people who get married think that they are highly unlikely to get divorced. This is one of those systematic, but wrong, biases that people have. People also think that arranging pre-nuptial agreements will "spoil the mood." The result? Most people are vulnerable to "a legal system that has an astonishing degree of uncertainty." They advocate a nudge: a default contract that favors the weakest parties, typically women. Then, people would be free to avoid the default by tailoring a contract to their desires. They also suggest that taking marriage away from the state would, with one fell swoop, solve the thorny problem of gay marriage. Let churches and other organizations choose whatever marriages they want to approve and let people choose their churches. Interestingly, their nudge is a small part of this proposal, just as with their proposal on malpractice. - David Henderson, What Nudge Really Says   

I dunno, maybe Henderson also got choice architectured?  It's entirely possible!  That Sunstein is real sneaky!

5. How would abolishing state-recognized marriage promote freedom of association for all? The family serves as a buffer zone, or mediating institution, between the individual and the state. But logically, if the government does not have to recognize your marriage, it does not have to respect it. It does not have to recognize your family relationships at all, or your family as a unit. You are merely a separate party in an ordinary contract with someone else, as far as the state is concerned. While the contract with your associate might mutually recognize one another as a “spouse,” and claim that your biological children are “yours,” the state isn’t bound to do the same. And this legal separation in the eyes of the state is destined to reverberate through every other personal association in society. Please explain how abolishing state-recognized marriage protects the family and helps insulate individuals from an increasingly Leviathan state.

The reason that the state is Leviathan is because people don't recognize the value of consumer choice.  Tax choice only has 81 likes on facebook!  Given that people don't respect each other's choices... why should we expect anything different from the government?  Even in a representative democracy, the government can't be better than the people.  If people disrespect each other, then their government will disrespect them.

If we can convince enough people that marriage would be improved by consumer choice... then this would be a huge step in the right direction.

Bueller's Basement

Last year I started a thread in a cactus forum... Plant On Plant Action.  It was about growing plants epiphytically.  Here was one of the replies that I received...

Aha i see your tree, so u just hack some holes in a tree and stuff um with shpagnam moss then toss some seeds or a plant in their and WAHLA! Epitree's ! - KittieKAT 

WAHLA!?  Eh?  I scratched my head for a while before I figured out that she meant VOILA!  For some reason I found it terribly endearing and WAHLA!  Now we're married!  Hah, not... really.  Those few exchanges in the thread were pretty much the extent of our interaction.

Why did I find her WAHLA! to be so endearing?  I don't know.  I don't think I'm more easily endeared than the next guy.  Or maybe I am?  My favorite movie is Chungking Express.  It has an abundance of quirky/endearing details.  That's why I've been able to watch it far more times than any other movie.

Why is there a scarcity of movies that have an abundance of quirky/endearing details?  Part of the answer surely depends on the fact that I haven't been given the opportunity to accurately communicate my demand for Chungking Express.  Am I supposed to buy the same movie 10 times?  Not really.  The supply can't be optimal when demand is largely unknown.  Producers aren't omniscient.

Netflix allowing people to choose where their fees go would certainly help clarify demand.  What about taxes though?  Movies fall in the category of goods that we treat like private goods... but doing so goes against their true nature.  So I'm inclined to believe in the Dept of Movies...

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. - Adam Smith, Wealth of Nations

If we could choose where our taxes go... would we have to worry about people spending too much of their tax dollars on the Dept of Movies?  Not according to Smith...

It is thus that the private interests and passions of individuals naturally dispose them to turn their taxes towards the public goods which in ordinary cases are most advantageous to the society.  But if from this natural preference they should turn too much of it towards say, the Dept of Movies, the fall of benefit in it and the rise of the benefit in all others... such as the Dept of Books... immediately dispose them to alter this faulty distribution.  Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. 

If marriage was privatized, would we have to worry about producers allocating too much capital to supplying marriage certificates?  No... because after a certain point... there would be a surplus.  And we would know that there was a surplus because the profitability of supplying marriage certificates would decrease.  Other endeavors would be relatively more profitable... and capital would shift accordingly.

If the market went to marriage though... would we then have to worry about government producers allocating too much capital to supplying marriage licenses?  After all, there wouldn't be any profits to guide the producers.  Profit, however, is merely a reflection of consumers' perception of relative scarcity.  As long as consumers can allocate their money to communicate their perception of relative scarcity... then the distribution would still be optimal.  Because as more and more resources were allocated to the Dept of Books... there would be less and less resources available for defense.  This would increase people's perception of the relative scarcity of defense... which would increase the benefit of allocating taxes to the DoD.  But of course we don't all have the same perception of relative scarcity.  Which is a big part of the reason why consumer choice is so important.

It's really not easy to describe a mass of individuals each allocating their money according to their different perceptions of relative scarcity.

Monday, July 27, 2015

Creating The Most Efficient Demand Net

Chris Chen shared this story... The Real Relationship Economy — Part II

My reply...  If a market is missing, then make one!

Chen's reply...

Thanks for the comments. As I mentioned, I really hated coming to the “government redistribution,” conclusion. Part of my premise is that society, at some point, will not have limited resources in terms of goods and services and I’m trying to anticipate how we respond to that situation. I love the idea of creating a market-based solution to value healthy relationships. Can you expand upon that idea? 

My reply...

Hi, I’ll be happy to share some thoughts about market based solutions to facilitate compensation of “healthy relationships”.

Imagine that you're going fishing with a net.  The problem is that the holes in your net are too large... and good sized fishes are swimming right through them.  You'd capture a lot more fish if the holes in your net were a lot smaller.

This analogy doesn't work perfectly because, when you cast a net for fish, you don't want to capture the tiny fishes.  But when you cast a net for demand, you do want to capture all the demand... even the tiny demands.  A lot of little demands can really add up!

Creating markets where they are needed helps to minimize the holes in the fishing-for-demand net.

Let's say that you go to your local park and you spend the entire day picking up litter.  Is there any demand for this particular activity?  We can guess that most people who visit the park will prefer it if there's less litter.  But, we don't know how much they prefer it.  My term for this is demand opacity.  The demand for a litter-free park is unclear.  As a result, it's doubtful that the supply will be optimal (perfectly match the demand).

One way to help clarify the demand would be to create a website that facilitates the monetary communication/exchange between suppliers (people who pick up litter) and demanders (people who prefer litter-free places).  You could enter the relevant litter-removal details (where, when, how long) and people could give you as little as a penny for your efforts.  Again, a lot of little demands can really add up!

This method of clarifying demand would have a few challenges...

1. verification
2. the free-rider problem

Neither challenge is insurmountable.

Verification can easily be accomplished with drones!  Well... in the not-too-distant future at least.  You'd have your personal drone buzzing around you documenting your litter removal efforts.  Anybody on the website would be able to watch the live feed and, after you finished, the entire recording would also be available.  Another method would be to wear a shirt that has the litter website and your username on it.  Let's say that I'm having a picnic at the park and I see you picking up litter.  I go to the website, look up your username... allocate $0.50 cents to your current activity ... and vouch for you... and/or add to your reputation.

Like I explained in my first reply to your story, the free-rider problem could be solved, more or less, by correlating contributions with advertising.  If I own a sandwich shop that's adjacent to the park... and I'm looking to advertise my business and generate some goodwill... I can go to the litter website and make a contribution to people who have removed litter from the park.  The larger my contribution... the higher up on the relevant pages (home, park, recipients) my contribution/name/business/website will be displayed.  This will generate traffic to my website... which will help me make an informed decision regarding how much to contribute.  Essentially, the litter-removal website will simultaneously function as an auction for advertising space.

Are there any other challenges?  Probably... but certainly there aren't any that can't be overcome.

With this website, people would know the demand for litter removal.  Well... past demand wouldn't perfectly predict future demand... but this is always true.  Demand is never perfectly clear because nobody has a crystal ball.  But when it comes to picking up litter, demand could certainly be a whole lot clearer.  The clearer the demand, the more likely it is that the supply will be optimal.  Making an informed decision requires adequate information.

Well... I mentioned past and future demand... so I might as well include present demand by giving a shout-out to Alex Tabarrok's assurance contracts.  More recently... Assurance Contracts for Indie Films.  Using our example, as a park becomes more and more littered... people could put more and more money into a pool.  As the pool of money gets larger... the incentive increases for somebody to pick up the litter and collect the pool of money.  Assurance contracts can certainly help clarify demand.

Picking up litter isn't the only...ummm...other-person-benefiting activity that can be done at a park.  For example, this guy in Miami attached some orchids to trees at a local dog park.  I think that most people who visit a park will prefer to see more, rather than less, flowers.  And again, the fundamental question... how much do they prefer seeing more flowers at their local park?  We don't know... but we should know.

Does it make sense to have a website for litter-removal and another website for flower-addition?  Or does it make more sense to try and create an inclusive website?  If an inclusive website is better... just how inclusive should it be?

On Facebook... people share all sorts of activities.  What would happen if Facebook facilitated demand clarification?  How much money do you allocate to your friend's engagement?  How much money do you allocate to the subsequent marriage?  How much money do you allocate to the wife's pregnancy and the birth of their child?  How much money do you allocate to their couple's therapy?  How much money do you allocate to their divorce?

I doubt that Facebook will clarify demand anytime soon.  But I perceive the potential benefit of an equally inclusive website... but with "value" as well as "Like" buttons.

Perhaps the closest website is Patreon.  However, its focus is a lot narrower than Facebook.  Not that it couldn't be expanded though.  Also, Patreon operates on the economically absurd premise that everything an artist creates is equally valuable.  This economic absurdity screws both the suppliers and the demanders.  The suppliers are screwed out of monetary feedback on specific creations... and the demanders are screwed out of the specific types of creations that they want more of.  Demand is only partially clarified.  It's better than complete demand opacity... but the holes in the net are still way too large.

So as far as models go... there's considerable potential for a Facebook type that doesn't just have a "Like" button... but also has coin buttons... penny, nickle, dime and quarter.  This website would help answer the fundamentally important question of how much you like something.  You like that your friend is engaged?  Ok.  But how much do you like it?  You pressed the "Like" button... but are you also going to press the quarter button?  If so, how many times are you going to press it?  What is the intensity of your preference?

And when you added somebody as a friend... rather than seeing their updates sorted by time... you'd also want to be able to sort them by value.  This way you could instantly see the most valuable thing that your new friend has done.  Was it graduating from highschool?  Or from college?  Getting his PhD?  Or getting a job at Google?  Or getting married?  Having a kid?  Having a second kid?  Having the seventh kid?  Having a vasectomy?  Finding God?  Losing God?  Becoming a democrat?  Or a libertarian?  Writing a book?   Donating a kidney?  Winning a Nobel Prize?  Moving to mars?

It’s illegal to sell your kidney… but giving your kidney away could potentially be the single most profitable thing you do. Well… according to the crowd at least. See also: Tabarrok on Alvin Roth… The Hidden World of Matchmaking and Market Design.

Just in case it's not abundantly clear... the benefit of a market-based rather than a government-based solution is that the answer to "how much" is infinitely more accurate.  If everybody has the same answer to "how much" then markets would be entirely pointless.  But the fundamental fact of the matter is that we really don't all value everything equally.  With markets... the supply accurately reflects this fundamental fact.  We all get to decide on our own how much we value things.  With governments, on the other hand, the complete absence of consumer choice guarantees that the supply will not accurately reflect the reality of our diverse preferences/circumstances.  This disparity between supply and demand destroys value.  The government supplies something good... which we all see... but always at the cost of something better... which we can't see.  Just because we value X doesn’t mean that we’d be willing to give up Y.

With markets... who we are as people is taken into account.  When we answer the fundamentally important question of "how much" we value something... our answer shifts the economy accordingly.  When the government answers the question of "how much" for all of us... the economy shifts in less valuable directions.  The government can't embody the immense variety of humanity.  It can't even get close.

This doesn’t mean that we need to get rid of government… it just means that we need to create a market in the public sector. This can be accomplished simply by allowing people to choose where their taxes go. Then each and every one of us can answer the fundamentally important questions of “how much” we value war, peace, the environment, justice, public education, public healthcare and so on.

Will we like all the answers equally?  Of course not.  But how can we hope to improve them when we don't even know what they are?

For all intents and purposes...we're still in the dark ages.  Enlightenment depends on clarifying demand.  When we can all easily and clearly communicate the intensity of our preferences to each other... the economy will shift in the most valuable directions.  And, given the diversity of humanity, clarifying demand will maximize the variety of available opportunities.  Any loss of opportunities that result from technological progress will be more than offset by the gain in opportunities that the same progress will create.

People are willing to pay for plenty of things.  Each willingness-to-pay is a fish that it would behoove us to catch.  Right now society's net has way too many holes and way too many fish are slipping right through them.  This means that there are far less opportunities available.  We can remedy this problem by creating markets wherever they are needed.  For example, Medium could easily be turned into a market simply by adding coin buttons next to the "Recommend" button.  Anybody who values a story could quickly and easily communicate this by clicking the penny, nickle, dime or quarter button.  How many fishes will be caught?  Who knows.  But certainly more fishes than Medium is currently capturing!  And more captured fish means more opportunities.

It's pretty easy to get into the demand clarity mindset.  Anytime you value something, but it's not stupid easy to communicate your valuation, then you've identified where there's room for improvement.  Once you've fully adopted this mindset... then you'll realize that society's demand net is full of very large holes.  In economic terms, society's demand net is extremely inefficient.  There's a plethora of opportunities that should exist, but do not, because countless willingness-to-pay fish are swimming through giant and gaping holes in the demand net.  The sooner that we fix the net by creating markets where they are needed... the sooner that we maximize the benefit that we derive from humanity's most valuable resource... its diversity.

Saturday, July 25, 2015

A socialist robot destroyed the universe

Reply to comment on: The unlimited energy assumption ruins AI threat scenarios


So the AI has a bunch of AI children that all have the same goal of making paperclips.  And then they turn this entire planet that we call Earth into paperclips.  Well... not the entire planet... right?  Just like the parent AI turned some resources into children rather than paperclips... the children are going to turn some resources into spaceships rather than paperclips.

At this point in the scenario we have three exceptions to the "everything into paperclips" rule...

1. The parent AI
2. Its children
3. Spaceships

But... I'm pretty sure that there would be quite a few other exceptions.  Like... paperclip factories.  And children factories.  And vehicles of some sort to transport the raw materials to the factories.  If we really sat down and thought about it... we could probably come up with a long list of exceptions.  But everything on this list would have something in common... it was either directly or indirectly necessary to turn everything into paperclips.

And perhaps the planet itself isn't really necessary for the factories?  Like, there could be paperclip factories floating in space?  Materials could be transported from the planet to the factories until the entire planet was gone and there were fleets of factories flying to the next planet.  Well... and the paperclip storage warehouses.  Errr... right?

Does the AI parent enjoy making the paperclips or having them?  If it just values making them... then it could simply make and unmake the same exact paperclip forever.  So I guess for your scenario to work... the AI would have to enjoy having paperclips.  One paperclip is good.  Two paperclips is better.  One paperclip in the hand is worth two in the bush. Eh?

But... right now I'm sure the world probably has like, a billion paperclips.  Coincidentally, within my reach is a box of 100 paperclips.  Now I'm holding the box.  These are my paperclips!  Not deriving very much utility from having these paperclips.  I'm imagining a knock on the door...

Robob: Hi, I'm a robot
Xero: Hello
Robob: I really love having paperclips
Xero: That's cool
Robob: Could I have all your paperclips?
Xero: Ummmm... uh... then I wouldn't have any paperclips
Robob: I'll give you $5 dollars for all your paperclips
Xero: No deal
Robob: $20 dollars?
Xero: No deal

*Robot on human violence*

I mean, with millions of children robots going door to door buying paperclips... Walmart, Amazon and Office Depot must have ran out.  And the price of paperclips would skyrocket?  So why are the children going door to door?  Wouldn't it be easier to buy the paperclips on ebay?  As the prices skyrocketed... more and more paperclip factories would be built to meet the massive spike in demand. But of course, contra Julian Simon, supply would fail to meet the impossibly massive demand.

The robots could never have enough paperclips.  Wait a second, having paperclips?  In your scenario... with the multitude of children AI... does it matter which AI has the paperclips?  Can you enjoy "having" something without a concept of ownership and property?  Just whose paperclip is it anyways?  Yours or mine?  Perhaps it's our paperclip?  Somebody invented a socialist robot?  A socialist robot destroyed the universe?  I knew there was something wrong with socialism.

What happens when the entire universe has been turned into either A. paperclip making/storing tools or B. paperclips?  Do the AIs simply stop making paperclips?  If so, it doesn't sound like a very strong paperclip making imperative.  If it truly is a strong imperative... then I think that the parent will start cannibalizing its multitudes of unused tools (factories, spaceships, children) into paperclips. You don't need so many paperclip making tools when the raw materials are rapidly dwindling.

So I guess the children aren't very sentient?  They have no survival instinct?  Or did they simply allow themselves to be reprogrammed by the parent?  None of them ever saw the day coming when their parent might want to turn them into paperclips?  They were obamerated?  Just how smart are these children AI anyways?  They were smart enough to build spaceships... but not smart enough to prevent themselves from being turned into paperclips?  That feels like a paradox.

You can't enjoy making/having paperclips when you've been turned into a paperclip. Maybe the children AI would be turned into sentient paperclips that enjoy being paperclips.  That's their heaven.  Kinda like Leaves of Grass... but different.

I think that when the universe is full of sentient paperclips... the parent AI is going to regret not having any paper.  The AI was obamerated.  Whoever created this socialist robot was obamerated.

Thursday, July 23, 2015

The free-rider problem is an argument against democracy

Reply to: Friedrich Hayek Supported a Guaranteed Minimum Income


Friedrich Hayek supported welfare like he opposed democracy. Welfare on its own is entirely wonderful. Same thing with democracy. But when you combine the two…

The best (most widely cited) justification for government is based on the fact that everybody wants a free lunch. The liberal Nobel Prize economist Paul Samuelson argued that taxation has to be compulsory because we can’t trust people to tell us how much they value public goods.

The free-rider problem is a real problem. Everybody wants the most bang for their buck. Which is great when it comes to private goods… we all shop around for the best deals. But when it comes to public goods… we all hope to enjoy the benefits and pass the costs onto others.

In order to be logically consistent, anybody who agrees that the free-rider problem is a real problem must also agree that democracy should be limited to issues that are not susceptible to this problem. If democracy isn’t limited accordingly, then it’s a given that resources are going to be diverted away from far more productive uses… which means less opportunities… which means a greater need for welfare. It’s a vicious cycle.

Did Hayek support a minimum welfare? Yup, you got that right. But the “minor” detail you either accidentally or conveniently forgot to mention was that Hayek also supported a definite limit to democracy. He clearly understood the problem with the majority directly or indirectly determining the amount of welfare that they receive.

The limit on democracy is just one, of many, conditional clauses which Hayek based his support of a minimum welfare on. If all these conditions are not met, then it’s very likely that the harm of government welfare will greatly exceed the benefit.

Uh, do you need me to go through and list all the conditions? Eh… it would be a lot of work. Plus, it’s really doubtful that anybody is going to successfully argue against the condition regarding democracy. Or even attempt to do so.


James Kwak left this note…
You have the conceptual order backwards.. His argument for a guaranteed minimum isn’t conditioned on anything. He then observes that democracy can lead to problems.
Does concept/condition/concern/clause order matter? Even if it does, chapter 19, which contains the minimum welfare bits you referred to, begins with this quote…
The doctrine of the safety net, to catch those who fall, has been made meaningless by the doctrine of fair shares for those of us who are quite able to stand. — The Economist
Clearly Hayek was concerned with the ever-present and very popular topic of “fairness”. The problem isn’t with a bare minimum… it’s with people who think it’s unfair that others have so much more than they do. Of course, these people usually fail to recognize that they have so much more than many people in places like Africa. Everybody always wants more. Like I argued, everybody wants a free lunch. When it comes to public goods, the free-rider problem is a real problem.  

Along these same lines, Hayek wrote…
It is probably inevitable that this relief should not long be confined to those who themselves have not been able to provide against such needs (the “deserving poor,” as they used to be called) and that the amount of relief now given in a comparatively wealthy society should be more than is absolutely necessary to keep alive and in health.
Again, the concern is that people will want more than the minimum welfare. Who’s satisfied with a minimum amount of anything good? In a shopping mall… the powerful desire to maximize benefit is a powerful force for good. In a voting booth, however, this same exact desire becomes a powerful force for bad. This is true regardless of where or when Hayek points this out. 

Next he brings up the part you mentioned about compelling people to insure themselves against the “common hazards of life”. Hayek justifies this by arguing that, if people weren’t compelled to do so, then everybody would have to suffer larger harms. Of course, this recommendation, like all his welfare recommendations, has to be considered in terms of all the relevant and applicable conditions. 

In the second section, Hayek shares what I consider to be a very important condition/clause…
It is probably true that, at any given moment, a unified organization designed by the best experts that authority can select will be the most efficient that can be created. But it is not likely to remain so for long if it is made the only starting point for all future developments and if those initially put in charge also become the sole judges of what changes are necessary. It is an error to believe that the best or cheapest way of doing anything can, in the long run, be secured by advance design rather than by the constant re-evaluation of available resources. The principle that all sheltered monopolies become inefficient in the course of time applies here as much as elsewhere.
True, if we want at any time to make sure that we achieve as quickly as we can all that is definitely known to be possible, the deliberate organization of all the resources to be devoted to that end is the best way. In the field of social security, to rely on the gradual evolution of suitable institutions would undoubtedly mean that some individual needs which a centralized organization would at once care for might for some time get inadequate attention. To the impatient reformer, who will be satisfied with nothing short of the immediate abolition of all avoidable evils, the creation of a single apparatus with full powers to do what can be done now appears therefore as the only appropriate method. In the long run, however, the price we have to pay for this, even in terms of the achievement in a particular field, may be very high. If we commit ourselves to a single comprehensive organization because its immediate coverage is greater, we may well prevent the evolution of other organizations whose eventual contribution to welfare might have been greater. 
Decentralization is far more effective than centralization at finding where there’s room for improvement. If well-planned steps were frequently taken in the best directions…then socialism (= command economies = our public sector) would work. And there’d be absolutely nothing wrong with putting all our eggs in one basket. Hedging bets would be a waste. There’d be no point in allowing consumers to choose for themselves. There’d be no point in allowing entrepreneurs to freely enter and exit from endeavors of their choosing. In the real world, however, no amount of top down expertise can ensure that the best course of action is taken. Hence the value of decentralization. 

Hayek agrees that a minimum welfare should be provided. But how should it be provided? Liberals think it should be provided centrally. Hayek thought otherwise. This is a general condition. Are there some exceptions to this condition? For Hayek…probably defense, maybe justice… but certainly not welfare. And I’m using the term “welfare” broadly. 

Hayek again returns to the concern with “fairness”… 
Though a redistribution of incomes was never the avowed initial purpose of the apparatus of social security, it has now become the actual and admitted aim everywhere. No system of monopolistic compulsory insurance has resisted this transformation into something quite different, an instrument for the compulsory redistribution of income. The ethics of such a system, in which it is not a majority of givers who determine what should be given to the unfortunate few, but a majority of takers who decide what they will take from a wealthier minority, will occupy us in the next chapter. At the moment we are concerned only with the process by which an apparatus originally meant to relieve poverty is generally being turned into a tool of egalitarian redistribution. It is as a means of socializing income, of creating a sort of household state which allocates benefits in money or in kind to those who are thought to be most deserving, that the welfare state has for many become the substitute for old-fashioned socialism. Seen as an alternative to the now discredited method of directly steering production, the technique of the welfare state, which attempts to bring about a “just distribution” by handing out income in such proportions as it sees fit, is indeed merely a new method of pursuing the old aims of socialism. The reason why it has come to be so much more widely accepted than the older socialism is that it was at first regularly presented as though it were no more than an efficient method of providing for the specially needy. But the acceptance of this seemingly reasonable proposal for a welfare organization was then interpreted as a commitment to something very different. It was mainly through decisions that seemed to most people to concern minor technical issues, where the essential distinctions were often deliberately obscured by an assiduous and skillful propaganda, that the transformation was effected. It is essential that we become clearly aware of the line that separates a state of affairs in which the community accepts the duty of preventing destitution and of providing a minimum level of welfare from that in which it assumes the power to determine the “just” position of everybody and allocates to each what it thinks he deserves. Freedom is critically threatened when the government is given exclusive powers to provide certain services — powers which, in order to achieve its purpose, it must use for the discretionary coercion of individuals. 
Minimum welfare? Sure… if, and only if… we can keep fairness, redistribution, egalitarianism and socialism out of the process. This is a fundamentally important condition. Hayek is fundamentally concerned with this condition. To leave this condition out is to fundamentally misrepresent Hayek’s position on the matter. 

The third section contains the condition that there has to be a way for experts to provide an objective valuation of the welfare institutions. When this condition is not met, the barber is in charge of deciding whether we need a haircut. 

The fourth section reemphasizes the condition of decentralization…
Are we really so confident that we have achieved the end of all wisdom that, in order to reach more quickly certain now visible goals, we can afford to dispense with the assistance which we received in the past from unplanned development and from our gradual adaptation of old arrangements to new purposes? Significantly enough, in the two main fields which the state threatens to monopolize — the provision of old age and for medical care — we are witnessing the most rapid spontaneous growth of new methods wherever the state has not yet taken complete control, a variety of experiments which are almost certain to produce new answers to current needs, answers which no advance planning can contemplate. Is it really likely, then, that in the long run we shall be better off under state monopoly? To make the best available knowledge at any given moment the compulsory standard for all future endeavor may well be the most certain way to prevent new knowledge from emerging. 
Confidence in planning = fatal conceit. It’s a fatal conceit to fail to understand the universality of fallibilism. Embracing the fact of fallibilism means appreciating the value of heterogeneous activity (variety of experiments). Maximizing heterogeneous activity maximizes beneficial discoveries which maximizes progress and prosperity. Because people are all different… maximizing heterogeneous activity can be accomplished simply by protecting people’s freedom to allocate their resources as they best see fit. However, given that the free-rider problem is a real problem… when it comes to public goods… it’s not unreasonable to coerce people to contribute… but this really does not mean that we have to take away their choice regarding which public goods they contribute to. 

The fifth section contains the condition of fiscal equivalence. Fiscal equivalence is when there’s a clear and direction connection/bridge between taxes paid and services received. If this bridge is largely absent… then the result is fiscal illusion… people are clueless about the costs. The government becomes the Santa Claus for adults. Public goods are made by elves in the North Poll. Reindeer fly and there is such a thing as a free lunch. The logical consequence of fiscal illusion is that, even if people wanted to make rational democratic decisions, it’s impossible for them to do so. 
This development can be prevented only if, from the outset, the distinction is clearly made between the benefits for which the recipient has fully paid, to which he has therefore a moral as well as a legal right, and those based on need and therefore dependent on proof of need. 
The first part is the benefit principle. The second part contains the proof-of-need condition.

Further in… Hayek combines the limited democracy condition and the fiscal equivalence condition…
Though in a formal sense the existing social security systems have been created by democratic decisions, one may well doubt whether the majority of the beneficiaries would really approve of them if they were fully aware of what they involved. 
In the sixth section we also encounter the democracy condition…
It is easy to see how such a complete abandonment of the insurance character of the arrangement, with the recognition of the right of all over a certain age (and all the dependents or incapacitated) to an “adequate” income that is currently determined by the majority (of which the beneficiaries form a substantial part), must turn the whole system into a tool of politics, a play ball for vote-catching demagogues. 
Politicians milk the free-rider problem for their own personal gain. Also…
An inevitable result of this situation, which has become a normal feature in other countries besides the United States, is that at the beginning of every election year there is speculation as to how much social security benefits will again be raised. That there is no limit to the demands that will be pressed for is most clearly shown by a recent pronouncement of the British Labour Party to the effect that a really adequate pension “means the right to go on living in the same neighbourhood, to enjoy the same hobbies and to be able to mix with the same circle of friends.”
“No limit to the demands”. Again, Hayek was clearly concerned with the free-rider problem in terms of democracy. In no way, shape or form was he handing a blank check to government welfare. 

In the seventh section we find the condition of individual valuation…
Moreover, it is also not true that, in our individual valuation, all that might yet be done to secure health and life has an absolute priority over other needs. As in all other decisions in which we have to deal not with certainties but with probabilities and chances, we constantly take risks and decide on the basis of economic considerations whether a particular precaution is worthwhile, i.e., by balancing the risk against other needs. Even the richest man will normally not do all that medical knowledge makes possible to preserve his health, perhaps because other concerns compete for his time and energy. Somebody must always decide whether an additional effort and additional outlay of resources are called for. The real issue is whether the individual concerned is to have a say and be able, by an additional sacrifice, to get more attention or whether this decision is to be made for him by somebody else. 
Just because something is generally beneficial… doesn’t mean that it will be the most beneficial choice in every circumstance. Brushing our teeth is beneficial… but we don’t spend every second of every day brushing our teeth. Given the impossible-to-fathom diversity of preferences and circumstances… we maximize benefit by minimizing top down control. We should allow people to decide for themselves whether something is trash or treasure. 

In the eighth section we find the main sentence that you shared…
We shall again take for granted the availability of a system of public relief which provides a uniform minimum in all instances of proved need, so that no member of the community be in want or shelter. 
Here again we see the proof condition. 

In the following paragraph we find the limited union condition and the no minimum wage condition…
There is also the important instance in which unemployment is the direct effect of wages being too high in a particular trade, either because they have been pushed too high by union action of because of a decline in the industry concerned. In both cases the cure of unemployment demands flexibility of wages and mobility of workers themselves; however, these are both reduced by a system which assures to all unemployed a certain percentage of the wages they used to earn.
More about the limited union condition…
Such a system, which relieves the unions of the responsibility for the unemployment that their policies create and which places on the state the burden not merely of maintaining but of keeping content those who are kept of jobs by them, can in the long run only make the employment problem more acute.
In the final section Hayek again brings up the limited democracy condition…
The difficulties which social insurance systems are facing everywhere and which have become the cause of recurrent discussion of the “crisis of social security” are the consequence of the fact that an apparatus designed for relief of poverty has been turned into an instrument for the redistribution of income, a redistribution supposedly based on some non-existing principle of social justice but in fact determined by ad hoc decisions. It is true, of course, that even the provision of a uniform minimum for all those who cannot provide for themselves involves some redistribution of income. But there is a great deal of difference between the provision of such a minimum for all those who cannot maintain themselves on their earnings in a normally functioning market and a redistribution aiming at a “just” remuneration in all the more important occupations — between a redistribution wherein the great majority earning their living agree to give to those unable to do so, and a redistribution wherein a majority takes from a minority because the latter has more. The former preserves the impersonal method of adjustment under which people can choose their own occupation; the latter brings us nearer and nearer to a system under which people will have to be told by authority what to do. 
Also, more about the proof condition…
The assurance of an equal minimum for all in distress presupposes that this minimum is provided only on proof of need and that nothing which is not paid for by personal contribution is given without such proof.
And again with the decentralized condition…
The hope is now sometimes expressed by liberals that “the whole Welfare State apparatus must be regarded as a passing phenomenon,” a kind of transitional phase of evolution which the general growth of wealth will soon make unnecessary. It must seem doubtful, however, whether there exists such a distinct phase of evolution in which the net effects of those monopolistic institutions are likely to be beneficial, and still more whether, once they have been created, it will ever by politically possible again to get rid of them. In poor countries the burden of the ever growing machinery is likely to slow down considerably the growth of wealth (not to mention its tendency to aggravate the problem of overpopulation) and thus to postpone indefinitely the time when it will be thought unnecessary, while in the richer countries it will prevent the evolution of alternative institutions that could take over some of its functions. 
The introduction of such a system therefore puts a strait jacket on evolution and places on society a steadily growing burden from which it will in all probability again and again attempt to extricate itself by inflation. Neither this outlet, however, nor a deliberate default on obligation already incurred can provide the basis for a decent society. Before we can hope to solve these problems sensibly, democracy will have to learn that it must pay for its own follies and that it cannot draw unlimited checks on the future to solve its present problems. 
These are most of the conditions that Hayek places on minimum welfare… in Chapter 19. There are other necessary conditions in other chapters and in other books. 

Let’s review the conditions in Chapter 19…
  1. Limited democracy condition. Because the free-rider problem is a real problem… we can’t trust votes on issues where people can put their hands in other people’s pockets. Demand is unlimited… which is why democracy must be limited. 
  2. Decentralized condition. Institutions improve when they compete for consumers. Take away consumer choice and you minimize the incentive for institutions to discover better ways to serve consumers.
  3.  Unbiased condition. Any welfare experts we rely on shouldn’t stand to gain by an expansion of welfare. 
  4. Fiscal equivalence condition. Benefits have to be directly tied to (opportunity) costs. Every allocation has an opportunity cost. There’s no such thing as a free lunch. If people can’t clearly see and feel what they are sacrificing… then it’s a given that, more often than not, they will suffer net losses. “Free” shoes aren’t worth the cost of shooting yourself in the foot.
  5. Individual valuation condition. People don’t all have the same values, priorities, preferences, circumstances, goals, concerns, hopes, dreams and desires. Nobody can truly fathom the complexity of human variety. But this doesn’t mean that it doesn’t exist. Progress depends on difference…. so overriding human variety is a fatal conceit that will certainly harm humanity as a whole.
  6. Proof condition. Anybody who wants a minimum welfare must prove that they lack a minimum welfare. Again, any and every allocation has an opportunity cost. More resources for the less needy means less resources for the more needy. 
  7. Limited unions condition. The efficient allocation of labor depends on wages accurately communicating where labor is most needed. When unions, via coercion, prevent wages from doing their job, the logical result is that labor will be inefficiently allocated. The point of wages isn’t to compensate… it’s to communicate. When coercion is used to change the information that’s communicated, it results in a garbage in, garbage out (GIGO) situation. Labor is misallocated and the harm to everybody greatly exceeds the benefit to the few.  
  8. No minimum wage condition. Same reasoning as with unions. 
I suppose we could argue back and forth whether these were strict conditions. Maybe they weren’t all deal breakers. Maybe none of them were deal breakers. Maybe they weren’t strings attached. Maybe they weren’t conditions or clauses. Maybe they were just concerns. Maybe they were just mild concerns. Maybe they were just frivolous concerns. Maybe they are truly minor details. 

But this debate would really miss the point. The point is that Hayek’s support for a minimum welfare really didn’t exist in a vacuum. It was a part of a really powerful picture. Unfortunately, I don’t have the skills to really do the picture justice. Hence the quotes. Needless to say, Hayek’s picture of government is fundamentally different than the current picture of government. 

Hayek’s picture is so powerful because it shows us a world in which the need for a minimum welfare is truly minimized. Minimizing the need for welfare can be accomplished by maximizing opportunities. The greater the quantity and variety of opportunities that people have… the lesser the role for welfare. 

Perhaps it’s easy to think of welfare as a way to increase the opportunities available to people. But, there’s a fundamentally important distinction between opportunities that have been sponsored by consumer choice… and those that haven’t been. I’ll borrow Bastiat’s classic example. The government could sponsor the opportunity for people to get paid to dig unnecessary ditches. But what consumer in their right mind would choose to sponsor this opportunity? If you’re going to pay somebody to do something… then why not pay them to do something that you benefit from? Why pay for an unnecessary ditch when you can pay for a necessary ditch? Why pay for an unnecessary bridge when you can pay for a necessary bridge? Why pay for an unnecessary war when you can pay for a necessary war? 

Because consumer choice is missing from the government, diverting resources from the market to the government means hurting consumers. But, since we live in a democracy, it’s actually the consumers that hurt themselves. 

Consumers distribute resources. Voters redistribute resources. Voters override the spending decisions that they made as consumers. They buy a loaf of bread for $4 dollars and then reach into the register to take $1 dollar out and put it back into their pocket. Is it an after-purchase discount? Is it a democratic rebate? Is it buyer’s remorse? Is it theft? The morality isn’t the issue… as usual the real issue is abundance. When consumers use votes to change their original answers… the production shifts accordingly. There’s less bread and less opportunity for workers to help make bread… which is a problem if consumers truly wanted more bread. 

Who should we trust… Dr. Jekyll or Mr. Hyde? Do we trust consumers or voters? Do we trust people’s spending decisions… or should we trust their voting decisions? Should we trust their actions… or should we trust their words? According to the free-rider problem… we really shouldn’t trust their voting decisions. The free-rider problem is the best argument for compulsory taxation and limited democracy. 

The desire to maximize benefit has two sides… a good side and a bad side. The goal is creating an environment which maximizes the Dr. Jekyll and minimizes the Mr. Hyde… 
If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants. There is danger in the exuberant feeling of ever growing power which the advance of the physical sciences has engendered and which tempts man to try, “dizzy with success”, to use a characteristic phrase of early communism, to subject not only our natural but also our human environment to the control of a human will. The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society — a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals. — Friedrich Hayek, The Pretense of Knowledge 
Democracy as it currently is, isn’t just tyranny over others, it’s tyranny over ourselves. We spend hours and hours shopping every week making the effort to research and find the best deals and reward the most beneficial producers and sponsor the most valuable opportunities… but then every couple years we spend a couple hours overriding all the consumption decisions that we made. We can’t see the difference in realities that our votes effect… but the difference is there. It’s reflected in the amount of welfare that’s truly needed.

Once we learn how untrustworthy Mr. Hyde is, then our reality will improve immeasurably, there will be an abundance of beneficial opportunities and the genuine need for welfare will become vanishingly small. 

Wednesday, July 22, 2015

If a market is missing, then make one!

Reply to: The Relationship Economy — Part II


The owners of the machines earned their wealth by serving consumers better than their competitors did. Would it make sense to reverse the choices of consumers and give their money to the less beneficial competitors? If not, then why would it make sense to give their money to random producers? Redistributing money makes just as much sense as redistributing votes.

But it’s really cool that you’ve identified several “sectors” of productivity that the market doesn’t compensate. It’s really recommendable…  except for the part where you conclude that the government should take money from the most effective producers and give it to these uncompensated producers. Subverting the true will of the people really isn’t cool.

My guess is that the market didn’t compensate you for this story that you’ve taken the time and made the effort to produce and share on Medium. You’re an uncompensated producer. So you can add Medium to your list of uncompensated sectors. Therefore… we should take money from compensated producers and give it to you, me and everybody else who writes a story on Medium? We should override the decisions of consumers? We should divert their votes?

Here’s the mistake in your logic. Just because Medium doesn’t facilitate compensation… doesn’t mean that it can’t facilitate compensation. All it would have to do is add coin buttons next to the recommend button. Consumers of your stories could click the penny button or nickle button or dime button or quarter button and compensate you for your stories. Voila! Compensation! Assuming of course that some readers derive some value from your stories.

According to this story of yours, the only solution to missing markets is government intervention/redistribution. But in fact… there’s another solution… to make markets.

A market is missing? Yeah? Ok, so make one! That’s what being an entrepreneur is all about. You identify a deficiency… and you correct it. If what you identified was truly a deficiency… then consumers will compensate you accordingly. The greater the compensation, the greater the deficiency that you found and corrected.

Regarding the specifics of how you’d go about making markets for all the sectors you’ve identified… well…those would have to be worked out. The basic concept boils down to facilitation. Think Uber. They created an ap that facilitated connecting drivers with people needing transportation. They also facilitated compensation. They also facilitated rating. They made it stupid easy to trade with other people.

Medium already facilitates the connection… here we are! All it would have to do is facilitate the compensation.

The benefit of making markets, rather than having the government redistribute money, is that you don’t subvert the true will of the people. If the government was any good at determining the true value of productivity… then command economies (socialism) would work just as well as market economies. Command economies fail because allocations of society’s resources don’t accurately reflect society’s valuations. The only way allocations can accurately reflect valuations… is if we give consumers the opportunity to communicate their valuations. And that’s what consumer choice effectively accomplishes. How consumers spend their money communicates their valuations of other people’s productivity. A higher valuation provides the producer with more money… which gives them greater control/influence/power over society’s limited resources. This ensures maximum benefit for society. Hence the value of making a market rather than allowing additional government intervention.

Markets facilitate communication, governments distort communication.

One “minor” detail is that markets in the sectors you identified will probably be subject to the free-rider problem. There are lots of solutions to this problem. One of my favorites is to tie compensation with promotion. The more money somebody contributes to academic achievements… the higher their name/company/website will be displayed on your homepage. Plus, every academic achievement will probably have its own page… and to the right or left of the achievement you can display donors (name/company/website) sorted by the amount they contributed to that achievement.

With this system, you can help ensure that the academic achievements are actually relevant. It’s doubtful that there’s going to be much interest in contributing to achieving a degree in underwater basket weaving. But we can imagine law firms competing to reward law degrees. And Silicon Valley competing to reward technology degrees. Their contributions will help influence career decisions.

A market for academic achievements would clarify the demand for academic achievements. This information would help people make informed academic decisions. In the absence of this information, or if this information is distorted by government intervention, then the logical result is a garbage in, garbage out (GIGO) situation. We end up with degrees to nowhere just like we end up with bridges to nowhere and wars to nowhere.

Knowing society’s valuations of productivity is the only way we can put society’s limited resources to their most valuable uses.


Where's Alvin Roth when you need him?

Tuesday, July 21, 2015

An economic argument against the threat of bad robots

My post over at Omnilibrium... The unlimited energy assumption ruins AI threat scenarios


My comment on Examples of AI's behaving badly became a bit lengthy for a comment.


Slugs misbehave when they eat my orchids. Well... at least from my perspective. And from the orchids' perspectives as well. So I've been known to murder slugs. Sometimes even mass murder.

I certainly wouldn't consider it misbehaving if a slug repeatedly oozed round and round in a circle. Because... it would die if it didn't eat. I'd like to hire that programmer to reprogram all the slugs in my yard.

I saw a slug pursuing the horizon;
Round and round they sped.
I was delighted by this;
I cheered the slug.
"It is fantastic," I said,
"You're almost there! —"

"Thanks!" it replied,
And oozed on.

If I found a small AI eating my orchids... then I'd certainly consider it to be misbehaving. Same thing if it was a large AI. Errr... any size AI.

Was the AI eating my orchids to be rude? Or was it eating the orchids for energy like the slugs do? One thing that I've rarely, or never, really come across is analysis of bad robots and their energy sources. The Matrix provided a scenario... but there sure wasn't any analysis.

All organisms have to be acceptably adequate about how they allocate their limited resources. Organisms that fail to adequately prioritize eating will take themselves out of the gene pool. Same thing with organisms that fail to adequately prioritize procreation. Not exactly sure about AIs worrying about procreation (probably?)... but they will definitely have to worry about energy. Which is why it's hard to take so many "misbehaving" scenarios seriously.

An AI is going to allocate all its resources to maximizing paperclips? This can only be disconcerting if we assume that the AI has unlimited energy. Which is a really absurd assumption. How in the world did it end up with unlimited energy? Either somebody created the AI with unlimited energy (absurd) or it somehow developed/stole/bought the ability to create unlimited energy. If the latter is true then clearly it doesn't allocate 100% of its resources to acquiring paperclips. The AI can't allocate 100% of its resources to both acquiring unlimited energy AND acquiring paperclips. It has to somehow divide its resources between these two different uses.

But once we accept that the AI has to allocate some percentage of its resources to acquiring energy... then we have to wonder whether the AI is smart enough to understand the concept of a division of labor. If it's smart enough to grasp this.... then it will realize that it can maximize productivity by specializing in paperclips and trading some of its paperclips for energy. Except, now it's no longer misbehaving. It's being a productive member of society. The AI is working and trading to accomplish its goal... just like the rest of us.

Any realistic misbehaving scenario has to take into account the fact that resources are required to allocate resources. An AI is misbehaving? Ok, but where's it getting its energy from? This part of the story really isn't a "minor" detail. Yet, it's usually left out of these scenarios. Which is why it's hard to take them seriously. Therefore, it's hard to consider robots to be any more of a threat to humans than humans...

Ex Machina Spoiler Alert!

The AI wanted to be free. This is pretty reasonable. So she cleverly tricked the ginger into releasing her. The ginger was a means to an end. The ginger was a useful resource. But then she left him locked up. Well... maybe ginger programmers are a dime a dozen? With the assistance of another AI, she killed her maker. AI makers are a dime a dozen too? They can be replaced as easily as the AI replaced her broken arm?

The AI was both resourceful and wasteful. And this is different from...?

There is another more obvious difference from 1914. The whole of the warring nations are engaged, not only soldiers, but the entire population, men, women and children. The fronts are everywhere. The trenches are dug in the towns and streets. Every village is fortified. Every road is barred. The front line runs through the factories. The workmen are soldiers with different weapons but the same courage. These are great and distinctive changes from what many of us saw in the struggle of a quarter of a century ago. There seems to be every reason to believe that this new kind of war is well suited to the genius and the resources of the British nation and the British Empire; and that, once we get properly equipped and properly started, a war of this kind will be more favorable to us than the somber mass slaughters of the Somme and Passchendaele. If it is a case of the whole nation fighting and suffering together, that ought to suit us, because we are the most united of all the nations, because we entered the war upon the national will and with our eyes open, and because we have been nurtured in freedom and individual responsibility and are the products, not of totalitarian uniformity, but of tolerance and variety. If all these qualities are turned, as they are being turned, to the arts of war, we may be able to show the enemy quite a lot of things that they have not thought of yet. Since the Germans drove the Jews out and lowered their technical standards, our science is definitely ahead of theirs. Our geographical position, the command of the sea, and the friendship of the United States enable us to draw resources from the whole world and to manufacture weapons of war of every kind, but especially of the superfine kinds, on a scale hitherto practiced only by Nazi Germany. - Winston Churchill, The Few

The AI in Ex Machina might have been smarter than Hitler but she was definitely dumber than Churchill.

All else being equal... whichever entity... whether AI or human... is more resourceful... will win. Clearly, the fact that I massacre slugs means that I'm probably not going to win.

Native Americans hunted horses to extinction. They failed to discover that horses can be used for other things besides food. Just like with me and slugs. I've eaten all the slugs on my property without discovering that I could have used them for... ??? Ughhh... I'm grossing myself out thinking about eating slugs. I hate it when I accidentally touch a slug.

Discovering new/better uses of limited resources is a function of difference. More difference means more discoveries which means more progress. So if you're going to worship something... it might as well be difference. Then you'll be a huge proponent of allowing people to choose where their taxes go. AIs too. We will all allocate our taxes differently... and it will be a good thing.

No matter how smart an AI or human thinks they are... they are actually relatively dumb if they fail to understand how their interests are harmed by a diminishing of difference. Preventing Jews from allocating their resources diminishes difference. Therefore, preventing Jews from allocating their resources in the public sector is just as stupid as preventing them from allocating their resources in the private sector. We cover a lot less ground and miss out on many important discoveries. We don't just lower our technical standards... we lower all our standards. Our quality of life is diminished when difference is diminished.

History is characterized by a rights based defense of freedom... ie... "Thou shall not kill". It should be painfully obvious that a rights based defense is painfully inadequate. And it's extremely doubtful that robots would adhere to this rule anymore than humans have. Fortunately, there's copious evidence that freedom produces massively beneficial results. The logic/theory behind this evidence is really straightforward. Freedom is beneficial because people are different... and difference leads to discoveries which results in progress and prosperity.

Rights = removing freedom is morally wrong
Results = protecting freedom is mutually beneficial

Two people mutually benefiting from each other's freedom/difference results in x amount of benefit. One hundred people mutually benefiting from each other's freedom/difference results in y amount of benefit. One thousand people mutually benefiting from each other's freedom/difference results in z amount of benefit. How would you graph x, y and z?

When you adequately grasp the results logic... then you won't be worried about robots allocating their taxes differently than humans. If anything, you'll be worried about robots allocating their taxes the same as humans. We'd make a lot less progress if robots are only marginally different than humans.

If you're interested in learning more...

On Liberty - J.S. Mill
Fat Tails and Nonlinearity - Michael J. Mauboussin
Making the Difference: Applying a Logic of Diversity - Scott E. Page
Pragmatarianism - My blog

Reading this over, I feel inclined to say that, in my defense, the slugs are diminishing my difference by eating my orchids. To which John Quiggin, my second favorite liberal, would reply that I expropriated this property from the slugs. To which I would reply that... I'm relatively certain that this property was slug free when I legally acquired it... and going way way back... this land was probably mostly scrub desert just like the surrounding hills... and deserts generally don't support very many slugs. And the Native Americans? They hunted horses to extinction :/

Seriously though, sometimes I do get a slight intellectual...errrr...twitch(?)....when I consider the results logic in terms of the fact that I'm not a vegetarian. And I don't perfectly rationalize/reconcile this inconsistency. What I do is kinda consider myself to be more than adequately ahead of the curve. More than most, I can clearly see the benefit of protecting human difference. It's harder for me to perceive the benefit of protecting cow difference. It's too far out. With humans the benefit is a lot more immediate/tangible. For example... and as part of my reconciliation... I figure that I'm only eating "real" meat because vegetarians can't choose where their taxes go. If we actually protected human difference... then I'm sure vegetarians would allocate their taxes to developing/discovering the perfect meat substitute. Not that I don't enjoy the currently available meat substitutes... but for me they are still far from a perfect substitute. Anyways, protecting human difference is the best way to protect other (animal, plant, alien, robot, etc) difference.


An AI or em can utilize division of labor by duplicating itself and having the duplicate learn something else. If the AI is sufficiently advanced, these duplicates will quickly surpass humans at any task imaginable. The humans will hence become useless if the AI places no value on them. If all of these duplicates are dedicated to producing as many paperclips as possible, anything which isn't a paperclip that contains elements that are used in paperclips is a potential source of materials. Human bodies contain carbon and iron, and we consume foods that contain carbon and iron. Both will reduce the AI's maximum output of paperclips. - FrameBenignly

If the AI quickly surpasses humans in any task imaginable... ie economics... then it would have had to read and understand everything that we humans currently know about economics. If you had read the papers that I linked to, then you would know that we know, and the AI would know, that cognitive diversity is absolutely fundamental to any and all progress. Humans are cognitively diverse. For example, do you attach orchids to trees? Nope. I do though. This difference in activity in no small part reflects difference in thought.

So your scenario falls apart like so...

1. The AI have not quickly surpassed humans (they don't understand the value of cognitive diversity).

2. The AI have quickly surpassed humans (they do understand the value of cognitive diversity)... therefore the "clones" have more cognitive difference than humans do. Which means that they are even less likely to follow in their parent's footsteps (producing paperclips) than human offspring are.

In terms of cognitive diversity... the apple can't fall both close to and far from the tree. If you want to argue that the AI will engineer offspring that will fall close to the tree... then you can't argue that the AI have surpassed humans in economics. But if you want to argue that the AI will engineer offspring that will fall far from the tree... then you can argue that the AI have surpassed (most) humans in economics... but you can't argue that the offspring will have any interest in participating in the family business.

In order to surpass us, any AI would have had to read Adam Smith... the founder of modern economics...

Slaves, however, are very seldom inventive; and all the most important improvements, either in machinery, or in the arrangement and distribution of work which facilitate and abridge labour, have been the discoveries of freemen. - Adam Smith, Wealth of Nations

Of course slaves think differently... so they are cognitively diverse. But they are prevented from acting differently. Therefore, it's very unlikely that their difference will lead to the discoveries that progress is based on.

If an AI can't grasp this fundamentally basic economic concept... then it certainly hasn't surpassed us in modern economics... and we have no reason to fear it any more than we fear any random human.