Saturday, August 29, 2015

Opposite Of Mistake


You're really starting to stretch the definition of a mistake, Xero. - Karsus

According to a quick google search...

mistake = an action or judgment that is misguided or wrong.

"Wrong" certainly has a perfect opposite... "right". And we've all acted or made judgements that were right... but there isn't a single word for this concept.

______ = an action or judgement that is correctly guided or right

what about...

eutake = an action or judgement that is euguided or right

Let's say that you decide to go for a hike. Why? Because the available evidence leads you to believe that it would be a eutake to go for a hike! So there you are in Queensland on a hike. It's a warm, humid, windy and sunny day and you're really happy to be out in nature. You're very confident that you made a eutake. Around a bend in the trail you spot some bulldozers in the distance. Bulldozers?! Yikes! That's the last thing that you want to discover when you're out in nature. A sign reveals that this large wonderful area of open woodland all around you is going to be replaced with rows and rows of houses. From your perspective... the government is making a big mistake. It's making a decision that will destroy, rather than create, value for you. As you sadly look around and silently lament the cruel fate of all this precious nature... you spot what appears to be an orchid growing on a tree. Upon closer inspection you confirm that it is indeed an orchid.

Have you actually ever seen any orchids growing on trees in Queensland? Would you be able to identify that an orchid growing on a tree was actually an orchid? Maybe not? Maybe? Let's say that you did recognize that it was an orchid... but you didn't realize that it was one of Australia's very best orchids... Dendrobium trilamellatum. Here's a good introduction...

This robust epiphyte thrives in habitats in which few other orchids can survive. It occurs from a little south of Cooktown to the islands of Torres Strait, southern New Guinea and the Top End of the Northern Territory. It is a species of the very seasonal and hot open melaleuca woodlands where the wet season usually starts in December with occasional storms building to heavy rain in January to March, followed by a dry season in which virtually no rain falls from June to November. The Yellow Antelope Orchid flowers in spring (July to November) and the flowers are attractive, long lasting and pleasantly scented. They are about three to four centimetres across. In cultivation this species does moderately well, but must be given a dry season and the medium must be well drained. - Bill Lavarack, Bruce Gray, Australian Tropical Orchids

Even though this awesome orchid can survive a long, harsh dry season... it sure can't survive a bulldozer. So the wind definitely didn't make a eutake when it carried the tiny tiny tiny seed to this tree in this doomed patch of woodland.

Orchids have the smallest seeds in the world. Unlike other plant "parents"... orchid "parents" don't pack any lunch (endosperm) for their seeds. In order to germinate... the seeds have to land on a tree that has a suitable type of microscopic fungus. The fungus will penetrate the tiny seed... and when it does so... the seed will utilize the supplied nutrients in order to germinate. The orchid doesn't kill the fungus though... the fungus actually takes up residence in the orchid's roots. It's a symbiotic relationship because... once the orchid starts photosynthesizing... it will trade different nutrients with the fungus. Plus, the orchid roots help the fungus colonize the tree... and I'm guessing that the thick, succulent roots can help the fungus survive particularly harsh dry seasons.

Having the tiniest seeds in the world provides orchids with a few advantages. First... an orchid can pack a lot of seeds into one seed pod. A lot. Like, literally a million seeds. This greatly increases its chances of success. Second... the wind can transport the seeds a considerable distance. This also increases its chances of success. Given that the orchid family is arguably the most successful family on the planet... it certainly made a eutake when it sacrificed seed nutrients (endosperm) for greater seed quantity and dispersal distance.

In the case of the specific Dendrobium that's right in front of you though... the wind didn't make a eutake... it made a mistake. It transported the seed to the wrong tree. And now the orchid is going to die. Unless you rescue it! From my perspective... you'd be making a huge eutake if you rescued it! But if you didn't have all this information that I've just shared with you... then chances are good that you'd make a huge mistake instead. You'd leave the Dendrobium trilamellatum on the tree... the government would kill it... and the world would be marginally less diverse. Plus, imagine that this one particular individual Dendrobium was marginally more drought tolerant. If, because of climate change, the future is a marginally drier place... and the additional dryness kills off all the other orchids... then this one individual Dendrobium could have helped repopulate the entire planet with epiphytic orchids. So it would be a monumentally huge eutake to rescue it and an equally huge mistake not to rescue it.

If you did happen to make the huge eutake of rescuing the orchid... then what? Then you could divide the orchid in half and send one half to me in Southern California! I'd attach my half of the orchid to my tree here in Los Angeles and you would attach your half of the orchid to your tree in Brisbane. This would be an extremely good hedge. Of course... it would be an infinitely better hedge if we could send half the orchid to a colony on Mars. Then, if a huge asteroid hit the Earth, we wouldn't lose this awesome species entirely. Unfortunately... we don't have a colony on Mars. So the other side of the world is as safe as it gets.

So what do you think? Did I convince you to send me any doomed Dendrobium trilamellatums that you might happen to find while hiking? Oooops. That's not what I meant to ask! What I meant to ask was... did I convince you that it would help if we had a single word that conveyed the concept of an "action or judgement that is correctly guided or right"?

Friday, August 28, 2015

"if no commenters were listening in"

I'm not going to even comment on the Ashley Madison case.  I've found that Americans are so deranged when it comes to matters of gender, race, and sex that it's almost impossible to have an intelligent conversation on those subjects.  So I generally try to avoid those topics.  (Actually Bryan is one of the few people I know with whom I could have an intelligent conversation on any topic, if no commenters were listening in.)  - Scott Sumner, Beyond victims and villains


This is why we can't have nice things!?!?  It's because of deranged commenters that we can't have intelligent public conversations on important and interesting topics!

Doesn't this make you really want to eavesdrop on Caplan and Sumner?  Just how good can their private conversations truly be?  Wouldn't I like to know!  Lucky for Caplan and Sumner I'm nowhere near Virginia.  But if they are ever in Southern California...

Also, it begs the question of why they wouldn't simply just banish any deranged commenters.  For example... they banished me!  Ostensibly for linking to the tax choice Wikipedia entry too many times.  That was back when it was worth linking to.  After I was banned from Wikipedia... the knockers were able to tear the content down to their heart's content.      

If Econlib hadn't banished me three years ago... I wonder how many comments I would have left on their blog?  "Too many" is of course the correct answer!  Now I simply have to settle for making deranged comments from afar... :(

How cool would it be if Sumner could, with one click, publicly highlight any deranged comments on his blog entries?  What if, 9 times out of 10, the commenters simply had no idea that their comments were deranged?  With some super quick and easy feedback from Sumner... 90% of the deranged comments would quickly improve.  Then Sumner could simply ban the 10% of commenters who were fully aware, but didn't care, that their comments were deranged.

Which brings us to the real reason that we can't have nice things.  It's because Sumner doesn't understand the value of clarifying demand!  Let me try and help correct this deficiency...

Rather than clicking to highlight the deranged comments... Sumner could spend his own money to highlight/reward the most intelligent comments!  Caplan could also spend his own money to highlight the most intelligent comments!  Same thing with Henderson!  Increasing the inclusivity of valuation would of course increase the accuracy of the total valuations.  In other words, the more people who were free to participate in the valuation process... the more trustworthy the results.

Right now the comments are sorted by date submitted.  But if the demand for comments was clarified... then the default sorting would be by value.  The comments nearest to the entry would be the most valuable (least deranged) while the comments furthest from the entry would be the least valuable (most deranged).  Near... and far.  More valuable... and less valuable.  Less deranged... and more deranged.  The efficient allocation of resources, in this case comments, is entirely dependent on clarifying demand.

The more money that the crowd would spend on the least deranged comments... the greater the incentive for people to leave less deranged comments.  It would be a virtuous cycle.  Well... at least until the robots started leaving the most valuable comments!  Darn evil robots with their extremely intelligent comments.  Then again... Tabarrok did say that, "Perhaps any sufficiently advanced logic is indistinguishable from stupidity".  So maybe robots would leave the least valuable comments?  So I'm a robot?  Ouch, my brain.

Anyways, Sumner essentially complained that his garden is overgrown with weeds.  And evidently he's not in the mood to do some weeding.  Should Sumner really be worrying about weeds though?  Nooooo... he should be focusing on facilitating the nourishment and cultivation of any plants in his garden that aren't weeds.  Over time his garden would grow larger and larger and be packed with the most incredible diversity of wonderful, colorful, fragrant, fruitful and amazing plants.  There would still be weeds... but the increasingly fierce competition for space closer to the house would constantly be pushing the weeds further and further away from his house.

To put it differently... it's like complaining about an abundance of crap bands when you should be helping to cultivate cool bands.

What I'm endeavoring to explain is how and why markets work!   Clearly, and most unfortunately, Sumner doesn't truly understand how and why markets work.  Because if he did... then he wouldn't be berating and disparaging commenters.  There wouldn't be any need to!  Because as soon as he joined Econlib, he would have pooled his pennies with Caplan and Henderson in order to hire a programmer who would have minimized payment costs.    

If Econlib had minimized payment costs when Sumner started to blog there last year... what's the total amount of money that he would have already spent on comments?  Maybe $5 dollars?  Or $20 dollars?  $100 dollars?  $300 dollars?

What would the graph have looked like?  At first... Sumner wouldn't pay very much at all... maybe he'd spend a few pennies on the very best comments.  But, because incentives matter, the quality of comments would start to increase.  Would the quality increase slowly or quickly?  How steep would the slope be?  How long would it take until Sumner was buying the best commenters the equivalent of a coffee for their comments?  How long until the best comment was worth a cheap steak?  And then a decent steak?  And then a really nice steak?

And then Sumner would complain because the quality of comments was so high that he was quickly going broke.

Small Government vs Pragmatarian Government

Reply to: Government Will Always Fail — Here’s Why


Excellent overview! If you dig a little deeper though you’d find that there’s a much more superior solution.

In 1954, the Nobel liberal economist Paul Samuelson published the most widely cited economic defense of government… The Pure Theory of Public Expenditure. In his very short paper Samuelson formally described the free-rider problem…

But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has, etc. — Paul Samuelson, The Pure Theory of Public Expenditure

It’s human nature to want a free lunch (something for nothing). Everybody wants the most bang for their buck. This fundamentally basic but extremely strong desire works wonders for private goods. We all shop around to find the very best deals to spend our limited and hard-earned money on. Our selfish individual efforts help to improve the quality, quantity and variety of private goods at the maximum possible rate. When it comes to public goods though… our selfishness doesn’t work so well. This is because public goods have a different nature. It’s possible to benefit from them without having to pay for them. Which is a problem because it’s in our nature not to buy something if we don’t have to. As the saying goes… why buy the cow when you can get the milk for free? The logical and detrimental consequence of applying human nature to the nature of public goods is that public goods will be undersupplied.

The free-rider problem is the strongest economic justification for taxation.

Nearly a decade after Samuelson published his paper, the Nobel founder of Public Choice Theory, James Buchanan, published a response…

Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his “true” preferences for public goods. — James Buchanan, The Economics of Earmarked Taxes

Basically… once the cost of contributing to public goods (aka “taxation”) is a foregone conclusion… then the incentive to lie is replaced by the incentive to tell the truth. If it’s a given that, for whatever reason, you’re required to pay $20 dollars for lunch… then you might as well shop around in order to find the lunch that’s going to provide you with the most bang for your buck.

Therefore, the much more superior solution is simply to allow taxpayers to choose where their taxes go (pragmatarianism). This would essentially create a market within the public sector. Taxpayers would be free to demonstrate their diverse preferences for public goods just like consumers are free to demonstrate their diverse preferences for private goods. Pacifists could boycott wars like vegetarians can boycott meat.

The conclusion of your story was that government “must be reduced to its smallest possible form”. A small government is certainly preferable to our current government… but it’s really not preferable to a pragmatarian government.

Reducing the size/scope of government doesn’t truly solve the preference revelation problem, or the free-rider problem or the incentive problem. So even if you limit the government’s scope to defense, courts and police… we’re still going to suffer from things like unnecessary wars, miscarried justice and police brutality. And the private sector would undersupply public goods like cancer research, environmental protection, space exploration and asteroid avoidance.

With pragmatarianism, on the other hand, we’d have the best of both worlds. The public sector would combine the higher levels of funding generated by taxation with the superior productive performance powered by taxpayer choice.

It might be argued that a small government is much more likely to be achieved than a pragmatarian government. I’ll be the first to agree that a bird in the hand is certainly worth two in the bush. However, an argument about likelihoods would be missing the huge point that in order for either system to be implemented… people have to recognize the immense value of having markets allocate more, rather than less, resources. A small government and a pragmatarian government both mean that the market would allocate more, rather than less, resources.

Markets… what are they good for? Well… I think a big part of the answer was supplied by the two most arguably important economists in the area of public finance… Samuelson and Buchanan. The main conceptual thrust in both their papers was the importance of correctly ascertaining people’s true preferences. I refer to this as “clarifying demand”.

Even though Samuelson understood that the optimal supply depended entirely on clarifying demand… for some reason he believed that ascertaining people’s true preferences was a minor detail. It was as if the economy simply boiled down to math and models… rather than consisting entirely of unique individuals in unique circumstances. As a result… Samuelson got a few other minor details wrong as well…

The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive. — Paul Samuelson, Economics

Buchanan correctly understood that no economy can truly thrive when the allocation of resources has little relevance to the true preferences of all the unique individuals that comprise the economy. This understanding formed the basis of Buchanan’s appreciation for markets. Markets are good for giving people the freedom to demonstrate their true preferences (clarify demand). Except when it comes to public goods… which is simply solved by taxation and individual allocation.

So in order to achieve either a small government or a pragmatarian government… it’s necessary to help people understand the importance of clarifying demand. This isn’t as difficult as it might sound! The fact of the matter is that the public sector really isn’t the only place suffering from demand opacity. Take Medium for example!

Thursday, August 27, 2015

Liberals Hate Mexicans More Than Donald Trump Does

Imagine that you're the Joker.  Obviously you want to kill Batman.  So what do you do?  One deviously simple plan would be to commandeer the bat signal.  Then, when Batman responds to it, you kill him.

What if Batman was an entrepreneur?  Then you would use the signal that displays the highest profit...

What if Batman was a worker?  Then you'd use the signal which displayed the highest wage.

What if Batman was a poor worker?  Then you'd use the signal which displayed the highest minimum wage.

What if Batman was a poor worker in Mexico?  Then you'd use the signal which displayed the highest minimum wage... and, rather than having to kill him yourself, you'd use the border to kill him for you.

Liberals want to increase the minimum wage (which will attract more Mexicans)...

Garcetti said county adoption of the minimum wage proposal would put the Los Angeles area “past the tipping point.” He predicted other cities would follow suit to avoid losing the most qualified workers to higher-wage areas. - Abby Sewell, Jean Merl, Sarah Parvini, Business concerns stall minimum wage vote by L.A. County board

... but they also want to make it more difficult to cross the border (which will kill more Mexicans)...

In the United States, for example, the AFL-CIO has traditionally taken a very tough stance in favour of restrictive immigration laws and border control measures aimed at stemming illegal immigration into the country from Mexico. — Michael J Hiscox, Global Political Economy

We all know that Donald Trump is also a fan of making it more deadly to cross the border.  But, unlike liberals, he's fine with the minimum wage where it is...

Trump is one of the few Republicans in the 2016 field who isn't skeptical of the usefulness of a federal minimum wage, but he doesn't think it should be increased from the current rate of $7.25 an hour. - Heather Long, So what exactly is Donald Trump's economic policy?

Clearly Trump hates Mexicans... but liberals hate Mexicans even more.

Just in case you didn't visit the Wikipedia entry on Migrant deaths that I linked to...

If your Spanish is a little rusty it says, "Caution! Do not expose your life to the elements. It's not worth it!"

The sign says one thing, but the minimum wage says another thing.

Some relevant passages....

“What concerns me are provisions in the bill that would bring low-wage workers into this country in order to depress the already declining wages of American workers,” Sanders said in May 2007. “With poverty increasing and the middle-class shrinking, we must not force American workers into even more economic distress.” - Seung Min Kim, Bernie Sanders and immigration? It’s complicated

In 1921 and 1924, Congress passed legislation that effectively shut down immigration into the US. Although much of the motivation behind these laws was to exclude ‘dangerous aliens’ such as Italian anarchists and Eastern European socialists, the broader effect was to reduce the labour surplus. Worker wages grew rapidly. - Peter Turchin, Return of the oppressed 

You know what youth unemployment is in the United States of America today? If you're a white high school graduate, it's 33 percent, Hispanic 36 percent, African American 51 percent. You think we should open the borders and bring in a lot of low-wage workers, or do you think maybe we should try to get jobs for those kids? - Bernie Sanders, Interview With Ezra Klein

Looking back over my own life, I realize now how lucky I was when I left home in 1948, at the age of 17, to become self-supporting. The unemployment rate for 16- and 17-year-old blacks at that time was under 10 percent. Inflation had made the minimum-wage law, passed ten years earlier, irrelevant.  
But it was only a matter of time before liberal compassion led to repeated increases in the minimum wage, to keep up with inflation. The annual unemployment rate for black teenagers has never been less than 20 percent in the past 50 years and has ranged as high as over 50 percent. - Thomas Sowell, Minimum-Wage Laws: Ruinous ‘Compassion’  

Legislative attempts to raise wages, limitation of competition in the labour market, taxes or restrictions on machinery, and on improvements of all kinds tending to dispense with any of the existing labour - even, perhaps, protection of the home producer against foreign industry - are very natural (I do not venture to say whether probable) results of a feeling of class interest in a governing majority of manual labourers. - J.S. Mill, Considerations on Representative Government

Even worse, this regulation will interact with the migrant flow from Latin America, to produce another set of unanticipated side effects. In some developing countries there is a huge army of unemployed who go to the cities, hoping to get one of the few high wage jobs available in the "formal" sector of the economy. With a $15 minimum wage, migrants will come from Mexico until the disutility of waiting for a good job just balances the expected utility of landing one of those good jobs. You'll have lots more angry, frustrated young Mexican illegal immigrants, with lots of time on their hands. - Scott Sumner, How bad government policies make us meaner

If the American automobile worker, railroadman or compositor says equality, he means expropriating the holders of shares and bonds for his own benefit. He does not consider sharing with the unskilled workers who earn less. At best, he thinks of equality of all American citizens. It never occurs to him that the peoples of Latin America, Asia, and Africa may interpret the postulate of equality as world equality and not as national equality. 
The political labor movement as well as the labor union movement flamboyantly advertise their internationalism. But this internationalism is a mere rhetorical gesture without any substantial meaning. In every country in which average wage rates are higher than in any other area, the unions advocate insurmountable immigration barriers in order to prevent foreign "comrades" and "brothers" from competing with their own members. Compared with the anti-immigration laws of the European nations, the immigration legislation of the American republics is mild indeed because it permits the immigration of a limited number of people. No such normal quotas are provided in most of the European laws. - Ludwig von Mises, Planning for Freedom

See also: Workers: Beggars or Choosers?

Wednesday, August 26, 2015

Workers: Beggars or Choosers?

My comment on John Cochrane's blog entry: Summers and the nature of policy advice


I remember way back in the day... when I was in the army infantry... my buddies and I would sit around discussing how easy it was for ugly army chicks to hook up with good looking army dudes. It wasn't because the ugly chicks were particularly charming... nope... it was simply because of supply and demand. I have no idea what the actual ratio was... but it sure seemed like there was at least 100 guys for every girl. Guys were a dime a dozen. And, as the saying goes, beggars can't be choosers. Ladies had the upper hand... they could quickly and easily replace guys on the slightest whim.

Can you imagine if Larry Summers had been there? "Hey!  I have an idea!  The army should make it harder for women to join!"  Even the dumbest guy in the entire army would have instantly recognized just how massively moronic Summers' idea was.

Maybe the problem is formalism?  Summers didn't join the army infantry right after high school. Instead, he went to some university... got a PhD... and now he uses so much technical jargon that regular folks aren't able to instantly recognize just how massively moronic his ideas are. I wouldn't be surprised if he was related to Paul Samuelson.

Eh, Samuelson did get the free-rider problem right. And it's not like we can get rid of technical jargon... "that one problem where people have an incentive to lie about how much they value things like national defense and it results in the wrong amount of defense being supplied."  Well... since I'm here... if you get a chance I'd appreciate a second opinion on my argument that the free-rider problem is equally applicable to democracy.

Getting back on topic... Scott Sumner recently wrote this paragraph about employers having the upper hand...

Regardless of how you feel about monetary policy, it's clear that if employers feel they have a "captive audience" of workers, who are terrified of losing their jobs, it would be easier for the employer to crack the whip and drive the employees to work extremely hard. One advantage of a healthy job market is that workers have more power to negotiate pleasant working conditions.

To reinforce my comparison...

[Justice Anthony Kennedy] ignores the fact that polygamy imposes real costs, by reducing the number of marriageable women. Suppose a society contains 100 men and 100 women, but the five wealthiest men have a total of 50 wives. That leaves 95 men to compete for only 50 marriageable women. - Richard Posner, Supreme Court Breakfast Table

Heh... half the ladies be gold diggers?  Posner's been listening to too much Kanye West. Anyways, if we did legalize polygamy... and Posner's estimate turned out to be correct... then Summers' bright idea would be to make it harder for American guys to marry foreign ladies.  "Hey!  Let's send all the foreign ladies to Mars!"

You say that Summers is a smart guy... but he wants to help workers by building up, rather than tearing down, barriers to entry. He wants there to be more workers and less employers.  He prefers barrierism over builderism.  How is that smart? Not only is it bad for workers... but it's also bad for consumers. It also increases instability/volatility. The economy has more eggs in fewer baskets.


Out of curiosity... I searched Google for the title that I chose for this entry... Workers: Beggars or Choosers?   Here's a snippet from one of the results...

Labour advocates say there are no publicly traded manufacturers in China that get this yet. Some will eventually figure it out. Until they do, companies like Yum! Brands Inc, which invests in employee development at its KFC and Pizza Hut fast-food restaurants, offer a better alternative. - Alexandra Harney, China's migrant workers: from beggars to choosers

This made me chuckle when I read it.  Isn't it funny that labor advocates are the most qualified to run businesses... yet they rarely do so... which is why we need labor advocates!

See also:

Monday, August 24, 2015

Ryan Cooper vs Economics

The other day I noticed a nice spike in my blog's web traffic.  Google wasn't extremely helpful though because this is the URL that it credited for the traffic bump...  If you clicked on that link you'd discover that it takes you to this blog entry of mine... Matt Bruenig vs Poverty.  A while back, thanks to my second favorite liberal, I finally figured out that the "" type of abbreviated URLs are actually from twitter.  So I went on twitter and searched for "pragmatarianism" and voila!

Heh.  I solved that mystery!  But...I stumbled upon two new mysteries.  Who is Ryan Cooper?  And what, exactly, did he think was so "extremely weird" about my blog entry?

The first mystery was easy enough to solve.  Ryan Cooper is a writer for The Week.  Have you heard of The Week before?  I hadn't.  Turns out that it's a very liberal magazine.

As a quick aside... when I say "liberal" I feel the tiniest twinge of guilt because I think of Daniel Klein's sincere entreaties for people to stop using the word "liberal" to refer to government lovers.  Klein even has a couple websites dedicated to the cause... Lost Language and Liberalism Unrelinquished.  It's for sure that "liberal" is a nice word... and it's too bad that the other side stole it... but we're the side of builders/entrepreneurs.  And builders aren't supposed to cry over split milk. If Klein isn't happy with the word "libertarian" then he should channel his inner wordsmith and create a better word.  Because... there's always room for improvement.

Solving the mystery of Cooper's identity was easy enough... but only he can truly solve the mystery of why he thinks that my blog entry is extremely weird.  All I can do is guess.  But I certainly do enjoy a good guessing game.

As a real writer... Cooper probably doesn't choose his words randomly... so why did he choose the word "weird" rather than "wrong"?  And it's not like he used up his allotment of characters... so he could have written... "this is extremely weird and wrong..."  

A big part of the mystery is that my blog entry was a bundle of thoughts...

1. I love Australians
2. Ranking my favorite liberals
3. Looking for a fourth favorite liberal
4. The value of clarifying demand

Does Cooper think it's extremely weird that I love Australians?  Heh.  Maybe Cooper doesn't particularly love Australians or any other group of people?  He loves everybody equally?  Is that even possible?  If I had to guess... I'd guess that Cooper doesn't think it's extremely weird that I *heart* Australians.

So does Cooper think it extremely weird that I *heart* some liberals more than other liberals?  How's this any different from *hearting* some nationalities more than other nationalities?  I'm sure that Cooper doesn't *heart* all liberals equally.  But perhaps he thinks it's extremely weird that I'm completely transparent with my *heart* rankings?  Heh.  If the Bible gets anything right it's the part about not hiding your light under a bushel.

Perhaps Cooper thinks it's extremely weird that I'm looking for a liberal to *heart* in fourth place?  Let's review my *heart* rankings of liberals!

1st Place - John Holbo!  Primarily because of this... Crooked Timber Liberals Do Not Advocate Selling Votes.  I enjoyed our rather extensive public discussion/debate/disagreement.

2nd Place - John Quiggin!  Primarily because he's Australian!  Secondly because he's writing a book about opportunity cost!  For some more insight... John Quiggin And David Boaz Fusion Food For Thought.  Thirdly because of this...

3rd Place - Noah Smith!  Smith and I go way back.  Here's an overview of our history... Noah Smith's Critique of Pragmatarianism

4th Place - ???

5th Place - ???

There are definitely a few different factors that determine my *heart* rankings of liberals... but the main factor is the quantity/quality of public interaction.

As an aside... I think it would be a lot funner if Daniel Klein tried to take back the word "intercourse".  Take it back from who though?!  Whose fault is it that "intercourse" is now synonymous with "sexual intercourse"?

The absence of liberals in 4th and 5th place doesn't reflect a lack of public interaction.  For the tip of my public interaction iceberg please see... Unglamorous but Important Things.  I've had lots of public interactions with liberals... but precious few of the interactions were quality enough to warrant any of the liberals being placed in my top 5 *heart* ranking.

In the case of Matt Bruenig... all he had to do to become my 4th favorite liberal was simply publicly address the points that I brought up.  Bruenig is intelligent enough so the quality of his response probably wouldn't have been an issue.  But unfortunately, he showed absolutely no interest in publicly addressing my points!  And he's not alone in this boat...

I'm sure that I'm forgetting a few liberals.  Admittedly, none of my... errr... "wooing attempts"...  were probably the most suave approaches to soliciting public interaction.  But my point is that my 4th and 5th spots don't remain unoccupied for lack of effort.

Does my struggle to find liberals to love strike Ryan Cooper as extremely weird?  Heh.  It's not my fault that there isn't already an app for this!  Talk about market failure!

Now, I really don't want to come off as desperate... but Ryan Cooper is looking kinda good!  He's a liberal... and his articles are intelligent enough... and he's already linked to my blog!  Linking to my blog definitely put him in my top 10 *heart* ranking... well if I had one.  Should I have one?  Isn't that just being greedy?  Do I really have enough *heart* for 10 liberals?  Probably... not.

It is tempting to make Cooper my fifth favorite liberal.  What other more or less prominent liberals have linked to my blog?  Just Quiggin!?  Even if Cooper's link wasn't exactly a ringing endorsement... his tweet was still a link!  Thanks Cooper!  So yeah, heck with it, Cooper is my fifth favorite liberal.  It will be kinda awkward not having a fourth favorite liberal but it's not like I can't handle some awkwardness... and plus... hopefully it will only be a temporary predicament.  Cooper can easily grab the fourth spot simply by responding to some of my substantial points.

Which brings us to our fourth and final suspect in the case of the mystery of the extremely weird blog entry... clarifying demand!  Clarifying demand was the the gist of my blog entry.  It's the gist of most of my blog entries.  Does Cooper think that clarifying demand is extremely weird?

Clarifying demand is simply when people use their own money to communicate their preferences.  For example... Cooper goes to Whole Foods, grabs a shopping cart, looks at his list, locates the items, puts them into his shopping cart, waits in line to check out, whips out his wallet and pays for the things that he wants.  This is how he clarifies his demand for groceries.  Does he think that this process is extremely weird?

I think that the alternative would be extremely weird!  Cooper sits at home, Whole Foods delivers some groceries to him, he pays for them... and somehow, without having to clarify his demand, the groceries he paid for are exactly the ones that he would have put into his shopping cart.  Voila!?  Abracadabra!?  As if Whole Foods was able to read his mind.  Somehow Whole Foods knew that he had a mean craving for artichokes.  That's some spooky shit for sure.  It's extremely weird to believe that any producer is omniscient.

If clarifying demand makes sense when it comes to food... then wouldn't it also make sense for everything else that we could possibly want?  I sure think so.  And so far... very few prominent liberals have even attempted to explain what's so weird about clarifying the demand for everything.  They are fine clarifying the demand for some things... but who knows where and why they draw the line?!

Let's consider one of Cooper's "blog entries"... Rand Paul compared taxation to slavery — and betrayed the emptiness of his political philosophy.

Firstly... I should probably point out that I'm really not a libertarian.  Unlike Rand Paul... I don't believe that the government is omniscient when it comes to the demand for defense/offense or anything else.  This is a hugely important distinction.  It's so important that I had to invent a new label for it... "pragmatarian".  I'm a pragmatarian.  I believe that taxpayers should be free to choose where their taxes go.  In other words... clarifying the demand for public goods is just as important as clarifying the demand for private goods.  Here's the FAQ.

Secondly... I don't see anything extremely weird about Cooper's entry/article.  It's pretty standard liberalism.  It's wrong... but it's not weird.  He concludes his critique by saying of taxation and brutal slavery, "Only a moral idiot would think to make such an equivalence."  Taxation and brutal slavery aren't equivalent?  Does this mean that taxation and gentle slavery are equivalent?  I'm pretty sure that slavery is a continuum of brutality.  If we tie the morality of slavery to the degree of brutality... it gets kinda morally iffy.  As if slavery isn't so bad if brutality is removed from the equation.  Well... yeah?  But... therefore?  Gentle slavery is morally permissible?

Pragmatarianism is so wonderful because there's no moral ambiguity... it's purely consequential.  The focus is entirely on results... progress, prosperity, abundance and so on.  Results depend entirely on clarifying demand.  More demand clarity means more progress.  Taxation and slavery are equivalent in the sense that they both prevent demand from being clarified.  Of course, it's important to note that taxation itself doesn't prevent demand from being clarified.  Demand isn't obscured when taxes are collected... it's obscured when elected representatives decide how the money is spent.  Unless of course we assume that representatives are omniscient... or that voting accurately communicates preferences.

Which brings us to the heart of this potential debate!  The issue that no liberal dares to address!  So by bringing it up I'm probably guaranteeing that Cooper won't publicly respond to this. Shucks.

Here it is:  the free-rider problem isn't just a critique of the private provision of public goods... it's also a critique of democracy.

This throws liberals for an existential loop.  When it comes to the free-rider problem... liberals are very accustomed to wielding it as a weapon.  Liberals use the free-rider problem to try and clobber libertarians.  Well... liberals who know what they are talking about.  For the most part, libertarians try their hardest to downplay the size of the free-rider problem.  If you ask 100 libertarians who aren't entirely ignorant... 99 will tell you that the free-rider problem is only a problem when it comes to "real" public goods...defense, courts and police.

Because libertarians try their hardest to downplay the size and extent of the free-rider problem... they can't very well use it to attack liberals.  Nope.  But again... I'm not a libertarian.  I'm a pragmatarian.  I perceive that the free-rider problem is a truly big and extensive problem.  It doesn't just apply to the private provision of public goods... it also applies to democracy.

I attack liberals with their very best weapon.  And they are absolutely defenseless.  What are they going to say?  The free-rider problem is big enough to warrant taxation... but it's not big enough to warrant severely limiting democracy?

If Cooper *hearts* something it's definitely democracy (his emphasis)...

That's why the democratic basis of any socialist project is absolutely indispensable — an electoral movement to legitimately win power based on the traditional political mechanisms of labor and community organization. - Ryan Cooper, Bernie Sanders is right: It's time for democratic socialism

The question is... does Cooper *heart* democracy enough to throw Paul Samuelson under the bus?  Out of curiosity I searched Google for "Ryan Cooper" and "Paul Samuelson" and didn't find any relevant results.  I had a bit more luck searching for "Ryan Cooper" and free-rider...

Getting insurance will be part of living in a decent society where everyone chips in when they can afford it, and free-riding is frowned upon — and over time, young people will come to see this as part of being a responsible citizen. - Ryan Cooper, Why millennials will come around on Obamacare

The free-rider problem is applicable to Obamacare... but it's not applicable to democracy?  What if Obamacare only exists because the free-rider problem is applicable to democracy?

I wasn't able to find any other relevant passage by Cooper on the free-rider problem.  Then again, I didn't search that hard.

In 1954... the Nobel liberal economist Paul Samuelson published the best (most widely cited) economic defense of government... The Pure Theory of Public Expenditure...

But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has, etc. - Paul Samuelson, The Pure Theory of Public Expenditure

In the private sector... people have a clear incentive to pretend to have less interest in a public good than they truly have... "No... I don't value cancer research that much..."   So it's a given that the private sector will undersupply public goods.  Hence the need for taxation.

With democracy on the other hand... most voters have the incentive to pretend to have more interest in a public good than they truly have.  This is because around half of the country doesn't pay income taxes.  And among the people who do pay income taxes, the burden is very unevenly distributed (progressive taxation).  The logical conclusion is that democracy, which Cooper loves, is untrustworthy... it will send false signals.

Cooper can argue that false signals aren't a real problem.  But he wouldn't just be throwing Samuelson under the bus... he'd also be throwing the best economic argument for taxation under the bus as well.

In his paper... Samuelson never even mentioned democracy.  Instead, he simply assumed that government planners are omniscient.  They magically and mysteriously pull our preferences out of a hat.  Voila!  Abracadabra!  Clearly Samuelson didn't really believe that planners are omniscient.  He did, however, perceive that the preference revelation problem was a minor detail.  As a result... he got a few other minor details kinda wrong...

The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive. - Paul Samuelson, Economics

What's our public sector?  It's a socialist command economy + democracy (false signals) = thriving.  That's the epitome of bad math.

Maybe Cooper will want to argue that democracy's false signals aren't that bad because there's little harm in fleecing the rich to oversupply things like welfare, healthcare and education.  He might want to consider the following...


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. — Adam Smith, Wealth of Nations


Again, it may be objected that the poor are never invested with the sole power of making the laws; but I reply, that wherever universal suffrage has been established the majority of the community unquestionably exercises the legislative authority; and if it be proved that the poor always constitute the majority, it may be added, with perfect truth, that in the countries in which they possess the elective franchise they possess the sole power of making laws. But it is certain that in all the nations of the world the greater number has always consisted of those persons who hold no property, or of those whose property is insufficient to exempt them from the necessity of working in order to procure an easy subsistence. Universal suffrage does therefore, in point of fact, invest the poor with the government of society. - Alexis de Tocqueville, Democracy in America


The last point for consideration is the supposed disposition of the people to interfere with the rights of property.  So essential does it appear to me, to the cause of good government, that the rights of property should be held sacred, that I would agree to deprive those of the elective franchise against whom it could justly be alleged that they consider it their interest to invade them. - David Ricardo, Observations on Parliamentary Reform


It is also important, that the assembly which votes the taxes, either general or local, should be elected exclusively by those who pay something towards the taxes imposed. Those who pay no taxes, disposing by their votes of other people's money, have every motive to be lavish, and none to economize. As far as money matters are concerned, any power of voting possessed by them is a violation of the fundamental principle of free government; a severance of the power of control, from the interest in its beneficial exercise. It amounts to allowing them to put their hands into other people's pockets, for any purpose which they think fit to call a public one; which in some of the great towns of the United States is known to have produced a scale of local taxation onerous beyond example, and wholly borne by the wealthier classes. That representation should be coextensive with taxation, not stopping short of it, but also not going beyond it, is in accordance with the theory of British institutions. But to reconcile this, as a condition annexed to the representation, with universality, it is essential, as it is on many other accounts desirable, that taxation, in a visible shape, should descend to the poorest class. In this country, and in most others, there is probably no labouring family which does not contribute to the indirect taxes, by the purchase of tea, coffee, sugar, not to mention narcotics or stimulants. But this mode of defraying a share of the public expenses is hardly felt: the payer, unless a person of education and reflection, does not identify his interest with a low scale of public expenditure, as closely as when money for its support is demanded directly from himself; and even supposing him to do so, he would doubtless take care that, however lavish an expenditure he might, by his vote, assist in imposing upon the government, it should not be defrayed by any additional taxes on the articles which he himself consumes. It would be better that a direct tax, in the simple form of a capitation, should be levied on every grown person in the community; or that every such person should be admitted an elector, on allowing himself to be rated extra ordinem to the assessed taxes; or that a small annual payment, rising and falling with the gross expenditure of the country, should be required from every registered elector; that so every one might feel that the money which he assisted in voting was partly his own, and that he was interested in keeping down its amount.  
However this may be, I regard it as required by first principles, that the receipt of parish relief should be a peremptory disqualification for the franchise. He who cannot by his labour suffice for his own support, has no claim to the privilege of helping himself to the money of others. By becoming dependent on the remaining members of the community for actual subsistence, he abdicates his claim to equal rights with them in other respects. Those to whom he is indebted for the continuance of his very existence, may justly claim the exclusive management of those common concerns, to which he now brings nothing, or less than he takes away. As a condition of the franchise, a term should be fixed, say five years previous to the registry, during which the applicant's name has not been on the parish books as a recipient of relief. To be an uncertificated bankrupt, or to have taken the benefit of the Insolvent Act, should disqualify for the franchise until the person has paid his debts, or at least proved that he is not now, and has not for some long period been, dependent on eleemosynary support. Non-payment of taxes, when so long persisted in that it cannot have arisen from inadvertence, should disqualify while it lasts. - J.S. Mill, Considerations on Representative Government


If once the lower classes are definitely in possession of the power to legislate and tax, there will certainly be a danger that they may behave no more unselfishly than those classes which have so far been in power. In other words, there will be danger that the lower classes in power may impose the bulk of all taxes on the rich and may at the same time be so reckless and extravagant in approving public expenditures to which they themselves contribute but little that the nation’s mobile capital may soon be squandered fruitlessly. This may well break the lever of progress. — Knut Wicksell, A New Principle of Just Taxation

1933 (regarding)...

As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market. A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. — Loren Lomasky, Geoffrey Brennan Democracy and Decision

After 9/11... plenty of people shouted for war.  Why not?  It's not like the money would come out of their pockets.

When it comes to the private provision of public goods... the free-rider problem means that war would be undersupplied.  When it comes to democracy... the free-rider problem means that war will be oversupplied.  Is it worth having welfare, healthcare and education oversupplied if it means that war will also be oversupplied?

The free-rider problem is a real problem because we really don't want public goods to be undersupplied or oversupplied.  Society thrives when all goods are optimally supplied.  And the only way to ensure that all goods are optimally supplied is by clarifying demand.

Let's summarize!

Why did Cooper think my blog entry was extremely weird?  Was it because I *heart* Australians?  Because I *heart* rank my favorite liberals?  Because I'm looking for another liberal to *heart*?  Or... because I believe that clarifying demand is so extremely important?

Cooper's a liberal!  And he's intelligent!  And he linked to my blog!  So I made him my fifth favorite liberal. w00t!!!  If he has any interest in becoming my fourth favorite liberal all he has to do is publicly share his thoughts on whether or not the free-rider problem is applicable to democracy.  Or... he could publicly share his thoughts on clarifying demand.  Or... he could publicly share his thoughts on taxpayers being free to choose where their taxes go.

While I sincerely hope that Cooper will publicly respond to my arguments... it won't be a total loss if he doesn't.  I'll simply add him to my list of liberals who chose to bravely run away.  The longer the list... the shorter their credibility.

Payment Costs

Reply to: Hey there!


Glad you appreciated the info!

Regarding volunteers… aren’t we volunteers? Here we are on Medium pouring our time, effort, energy, experiences, uniqueness, information, sweat, tears, blood, bones and brains into our stories! Well… more or less… heh. And nobody pays us for our significant sacrifices! Sheesh!

Maybe our sacrifices are worthless? Or maybe it’s the free-rider problem? Or maybe it’s the compensation barrier problem?

Here’s your story that I recommended…. Money Is A Broken System Of Value. Clearly I liked it… hence the recommendation. And recommendations are certainly useful! It’s nice to know whether people like a story. But the problem with votes/likes/recommendations is that they don’t communicate how much somebody likes something.

Does it matter how much your sacrifice is worth to other people? For sure!

Let’s say that your story was worth 10 cents to me. Is it possible for me to send you 10 cents? Of course! If paypal doesn’t allow payments as small as 10 cents then I could snail mail you a letter with 10 cents in it. The problem is that the postage would cost a lot more than 10 cents. Not to mention the time and effort involved in getting your address, finding a letter and writing your address on it, finding a dime and putting it into the envelope, sealing it and risk getting a paper cut on my tongue, looking up the correct postage, finding stamps and sticking them on the letter and putting it in my mail box.

The harder it is to give you 10 cents… the less likely it is that I will do so. This is the compensation barrier problem. Actually I just made that term up. Maybe barrier to payment would be a better term? Barriers to entry is a real term… but for a different, albeit equally important, concept. Perhaps the closest correct term would be transaction costs.  However… that entry doesn’t mention anything about the difficulties associated with making a payment (unless I missed it). So maybe “payment costs” would be a better term?

Right now the payment costs on Medium are too high. One way to reduce the payment costs would be to give us all digital wallets. I could use paypal to put $10 dollars into my Medium wallet. Then I could click the dime button that was next to the recommend button on your story. Voila! With one click 10 cents would be transferred from my wallet to your wallet! It would be sooooooo stupid easy and quick to give you 10 cents! You could either spend that 10 cents on other stories or you could save up your money and have Medium paypal it to you.

Here’s another way of looking at it…

Recommend button (free)
Really recommend button (1 cent)
Really really really really really recommend button (5 cents)
Really really really really really really really really really really recommend button (10 cents)

You get the idea. Rather than having a recommend button with 25 “reallys” in front of it… it makes more sense simply to have a 25 cent button.

With the current system… we can sort stories by popularity (number of recommendations received). But if Medium did a better job of facilitating compensation/communication… then we would be able to sort stories by value (amount of money received). I’m pretty sure that most people would prefer to sort stories by value rather than by popularity!

If valuating stories was as easy as recommending them, then Medium would have a lot less volunteers and a lot more paid writers. It stands to reason though that few, if any, of the compensated writers would be able to quit their day jobs. But… it might encourage them to quit their less profitable pastimes. The more lucrative it is to write stories… the less lucrative it becomes to play video games or watch TV or have sex.

So by giving you 10 cents for your story… I’d essentially be trying to motivate/incentivize/bribe/encourage/inspire you to continue doing something that benefits me… instead of doing something that doesn’t benefit me.

In economic terms… giving you 10 cents for your story marginally increases the opportunity cost of you doing something other than writing stories.

With this in mind… if I truly value your story at 75 cents…. but, because of the free-rider problem, I only give you 5 cents… then I’m inadequately incentivizing you to do something that I benefit from. On the other hand… 5 cents is certainly better than 0 cents!

Let’s say that only members of Medium could read stories and it cost $5,000 a year to be a member. Members would be completely free to choose which stories they spent their $5,000 dollars on. Would this eliminate the free-rider problem? Yup. But would it result in the maximum payment for stories? It seems… doubtful. Having to pay $5,000 dollars to become a member of Medium would create a pretty high barrier to entry.

x = a lot of people paying a little
y = a little people paying a lot

Eh? Midgets would have to pay the most?

x = a lot of people paying a lit
y = a lit of people paying a lot

Maybe it would be nice if “a lit” was the opposite of “a lot”? Or something like…

x = a large amount of people paying a small amount
y = a small amount of people paying a large amount

That works… but it requires too many letters! Or…

x = more people paying less
y = less people paying more

I suppose that’s the best way?


It’s entirely possible that x > y.

By minimizing payment costs… Medium would become a market. Or, it would become a better market. Who doesn’t want to participate in a better market? But it’s not like the model would be impossible to copy. So competitors would quickly emerge. And we’d see a continuum of membership fees. All else being equal… whichever website/market has the highest paid writers would have discovered the optimal membership fee.

Minimizing payment costs helps to clarify demand. Clarifying demand increases benefit. The optimal membership fee will be the fee that provides the most demand clarity… which will maximize benefit.

You know what India has? A lot of nice orchids. You know what I like? Pictures of nice orchids growing on trees. That link takes you to my favorite photos on flickr. I’ve favorited 100s and 100s of photos of orchids growing on trees. When I search my favorites for “India” there are only 47 results! That’s way too few results! There should be a lot more results!

Here’s one photo that I particularly like… Foxtail Orchid. It’s a nice photo of a really nice orchid. Here’s a photo that I might like even more… Acampe praemorsa. Even though the orchid isn’t even blooming… the photo really shows how dry the habitat is. Which is right up my alley! I live in very dry Southern California… so I’m especially interested in drought tolerant epiphytic orchids.

Dinesh Valke took the photo of the epiphytic orchid in a dry habitat… and I’m the only one who fav’d it.

So there Valke is in India. And there you are as well. He took a photo that I like and you wrote a story that I like. Both of you voluntarily did something that I benefit from. And in neither case did I accurately communicate the amount of benefit that I derived from your respective actions. And in neither case is it entirely my fault. This is because neither Flickr nor Medium have grasped the value of minimizing payment costs. In other words… neither website understands the value of clarifying demand.

My point is… yes, I’m sure that that the government in India is a problem. But it’s only a problem because people don’t understand the value of clarifying demand. And changing the government is probably the hardest thing that you could possibly do to help people understand the value of clarifying demand. It would be a lot easier to change Medium or Flickr. And, honestly, this really isn’t the first time that I’ve told Medium that it should minimize payment costs by facilitating micropayments! So if changing Medium is an epic mission… then trying to change the government would be a monumentally epic mission.

It’s probably a lot easier to grab a couple of your best programming friends and create a website that minimizes payment costs. Your website would help people understand the value of clarifying demand and our respective governments would quickly change accordingly.

Am I stereotyping you Indians by assuming that you have at least a few friends that can program? Heh.

I actually modified some code to create a forum that facilitates micropayments. This blog entry… RudeBagel… has some links to some of the code that I modified. Let me just say that I’ve spent infinitely more time studying economics than I’ve spent studying programming!! The code works… as long as there aren’t any 12 year old hacker kids around!

The website is online… but every page should, in theory, redirect to the login page and I’ve disabled the registration. I’m trying to make some modifications and am looking for any excuse to procrastinate.

You and your programming buddies are welcome to build on the micropayments forum idea or create some other type of website that minimizes payment costs. In any case, should you get stupid rich from doing so, then I’ll be sure to sue you for a huge chunk of the money! Because I’m American! And we Americans love suing people. :D

Actually… the general trend is in the direction of clarifying demand. Take Patreon for example. However, Patreon was created with the intention of helping creators get paid. It wasn’t created with the intention of clarifying demand. This is a subtle but important distinction. If the founders of Patreon had actually understood the value of clarifying demand… then they would have set it up so that sponsors would be free to pay what they wanted for specific creations.

Dinesh Valke has 275 pages of photos on flickr. Do I value all his photos equally? Noooooo.

Here’s my valuation ranking of his photos…

  1. Epiphytic orchids growing in dry habitats
  2. Epiphytic orchids
  3. Epiphytes
  4. Plants
  5. Animals
  6. Other

I don’t want to encourage Valke to take more photos in general… I want to encourage him to take more photos of epiphytic orchids growing in dry habitats. I want to encourage him to do something that creates more, rather than less, value for me.

Clarifying demand is all about increasing the accuracy of communication… which is what increases benefit.

Basically, we want treasure maps to be more, rather than less, accurate.

Let’s say that Flickr minimizes payment costs and Bob, an American, is about to spend a few months backpacking around India. Before he take his trip… he searches Flickr for “India” and sorts the photos by value. What types of photos are the most valuable? Which subjects are in the greatest demand? Perhaps after scrolling down a bit Bob will see that I’ve allocated $100 dollars (hah… I wish!) to Valke’s photo of the epiphytic orchid in the dry habitat.

Medium, like Flickr, also clarifies demand so Bob decides to search Medium for “India” as well. What stories are the most valuable? Which stories are in the greatest demand? Bob also conducts the same search on Youtube… which also clarifies demand.

Bob ends up with a fairly accurate treasure map. With some luck and skill he can cover the cost of his trip. Of course, a billion people in India will have access to the same exact treasure map! So Bob will have some pretty stiff competition when it comes to supplying the demands of consumers. Which is really wonderful for consumers.

Anyways, I’ve rambled enough! If not, then here are some more ideas on the same topic… Creating The Most Efficient Demand Net.

Sunday, August 23, 2015

Public Finance in a Nutshell

Reply to: Money Is A Broken System Of Value


The “minor” detail that you’re missing from your otherwise excellent and entertaining analysis is the free-rider problem.

Of course the private sector isn’t going to spend enough money on cancer research! Because if it did spend enough money on cancer research then the free-rider problem wouldn’t be a real problem and we wouldn’t need the government to solve it by forcing people to contribute to public goods (aka “taxation”).

So, by arguing that cancer research is undersupplied… your beef really isn’t with the private sector… it’s with the public sector. The entire point of the public sector is to ensure that public goods, such as cancer research, are not undersupplied.

The question is… why would the public sector fail to supply enough cancer research? Well… if the public sector was actually effective at supplying the optimal amounts of goods… then we really wouldn’t need markets at all. Socialism would be an adequately effective system for ensuring that society’s limited resources are put to their most valuable uses. However, as I’m sure you’re aware, there’s considerable evidence that socialism is far from effective at efficiently allocating resources.

We’re stuck between a rock and a hard place. Because of the free-rider problem… the private sector won’t supply enough cancer research. But because of the preference revelation problem… the public sector won’t supply the optimal amount of cancer research… or conservation… or welfare… or defense… or infrastructure… or any other public good.

We “unbreak” this predicament simply by creating a market in the public sector (pragmatarianism). The supply of public goods would be determined by the actual demand for public goods. If you demand more cancer research and less unnecessary wars… then you’ll spend your taxes accordingly.

Less formally… in the private sector, when it comes to public goods, you have a big incentive to be a big fat liar. “No… I don’t really value cancer research that much…” However, once the cost of contributing to public goods is a foregone conclusion (aka “taxation”)… your incentive to lie goes out the window. In fact, you have the maximum incentive to be truthful. “I might as well spend my taxes on the public goods that I have the greatest demand for! Like cancer research!”

More formally…

Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his “true” preferences for public goods. — James Buchanan, The Economics of Earmarked Taxes

Buchanan published that paper in 1963… nearly a decade after another Nobel economist published the most widely cited paper on the topic…

But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has, etc. — Paul Samuelson, The Pure Theory of Public Expenditure

But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Samuelson, now with democracy, because 1. around half the country doesn’t pay income taxes and 2. the burden isn’t evenly distributed among those who do pay income taxes (progressive taxation)… it is in the selfish interest of most voters to give false signals, to pretend to have more interest in a given collective consumer activity than he really has, etc.

If once the lower classes are definitely in possession of the power to legislate and tax, there will certainly be a danger that they may behave no more unselfishly than those classes which have so far been in power. In other words, there will be danger that the lower classes in power may impose the bulk of all taxes on the rich and may at the same time be so reckless and extravagant in approving public expenditures to which they themselves contribute but little that the nation’s mobile capital may soon be squandered fruitlessly. This may well break the lever of progress. — Knut Wicksell, A New Principle of Just Taxation

Wicksell published that in 1896. A few decades later…

As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market. A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. — Loren Lomasky, Geoffrey Brennan Democracy and Decision

After 9/11 plenty of people shouted for war… but why not? It’s not like the money was coming out of their pockets.

It should be painfully obvious that, when it comes to public goods… the free-rider problem is just as applicable to democracy as it is to the private sector. This really shouldn’t be news though. Here’s what Adam Smith, the founder of modern economics, wrote in 1776…

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. — Adam Smith, Wealth of Nations

If you read Samuelson’s very short paper… then you’d realize that he doesn’t mention democracy at all. As strange as it may sound, he simply assumes omniscience on the part of government planners. Clearly he didn’t truly believe that government planners are omniscient! But from his perspective… discerning the actual demand for public goods was a very minor detail. Because he perceived that preference revelation was a minor detail… his grasp of economic reality was… tenuous… at best…

The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive. — Paul Samuelson, Economics

Back in the day, Economics was the most widely used economics textbook!

In summary… it’s human nature to want more for less. This works great when it comes to private goods because we all have the maximum incentive to shop around for better deals. Consumer choice gives producers the maximum incentive to offer better deals. Offering better deals depends on discovering better uses of society’s limited resources.

But when it comes to public goods… human nature doesn’t work so great. There’s considerable incentive to free-ride on other people’s contributions. So it’s reasonable to conclude that the private sector will undersupply public goods. The solution only requires one step though… taxation. That’s it! Because once the cost of contributing to public goods is a foregone conclusion… then human nature can work just as well for public goods as it does for private goods.

Tuesday, August 18, 2015

Markets vs Not-markets


Encouraging the youth to engage in legal plunder probably isn’t the best way to eliminate legal plunder. In some cases it does make sense to fight fire with fire… but I’m pretty sure that this isn’t one of them. 

With politics… taxpayers put their money into one big pot and voters elect a small group of planners to decide how to spend it. Why would you want to encourage people to participate in this process? Why would you want to legitimize it? The goal should be to help people thoroughly understand just how absurd and harmful this method of allocating society’s limited resources truly is. 

Right now we have a mixed economy. This means that we have a market economy in the private sector and a not-market economy in the public sector. The fact that we have a mixed economy implies that a not-market economy creates just as much value as a market economy does. If this implication is correct though… then shouldn’t we also want a non-market economy in the private sector? 

If we replaced the market in the private sector with a not-market… then think about just how much time, effort and energy this would save consumers! For example, here’s a story on Medium that I stumbled across a few days ago…

So, there I was. Planted firmly in front of the beer fridge at the local Whole Foods, confronted with more options than I could process. I was paralyzed by choice. — Stephen Weiss, Musings in the beer aisle

Poor Stephen Weiss was paralyzed by choice! He was overwhelmed with the variety and selection of beers! Don’t you feel sorry for the guy? He was having to exert so much mental energy and effort trying to decide which beers would create the most value for Kate and himself. 

Each year Weiss spends an incredible amount of time and energy trying to decide how to spend his own hard-earned money. Multiply this time and energy by the 300 billion consumers in America and you end up with a sun’s worth of time and energy. This epic quantity of time and energy that consumers spend in one year could be saved simply by replacing the market with a not-market. 

Weiss and all the other consumers would put their private money into one big pot and voters would elect a small group of planners to decide how to spend it. Voila! A sun’s worth of time and energy would be freed-up for more valuable uses! Weiss could spend all his new-found time and energy with Kate and all the other people that he cares about. He would never have to worry about shopping again. The stress and strain of having to decide what to put into his shopping cart would quickly be replaced with the joy and happiness of outsourcing all his spending decisions to superior individuals. 

The economy would no longer be mixed. We’d have a not-market in the public sector and a not-market in the private sector. But would we really need two not-markets though?. Why would you want superior individuals spending your public dollars and less superior individuals spending your private dollars? It would make a lot more sense to have the most superior individuals spending all your dollars. 

I’m sure that you have at least a few arguments against allowing the most superior individuals to spend all your dollars. But they can’t be very good arguments. Because if they were… then they would be equally applicable against allowing superior individuals to spend your public dollars (taxes). Clearly your arguments aren’t so great though because here you are endorsing not-markets. 

Replacing the market in the private sector with a not-market would destroy value. It would destroy an immense amount of value. This is because consumer choice is the only way that we can help ensure that the maximum amount of value is created. We all greatly benefit when everybody is free to decide for themselves which items they put in their shopping carts. Yes, it does require effort and energy to decide which items will create the most value… but this is the only way to ensure that the most value is created. 

If replacing the market in the private sector with a not-market would destroy massive amounts of value… then replacing the not-market in the public sector with a market would create massive amounts of value. This value-creating replacement could easily be accomplished by giving taxpayers the freedom to choose where their taxes go (pragmatarianism).

Would giving Stephen Weiss the freedom to shop in the public sector use up even more of his limited time/energy/effort? That would be entirely up to him. Just like nobody forces him to shop at Whole Foods… nobody would force him to shop in the public sector. Congress would still be there…. so if Weiss was entirely happy with how they were spending his hard-earned money… then he wouldn’t have any to reason to stress and strain his brain trying to choose the most valuable method of protecting the environment.

Furthermore, we don’t live in a utopia where all of a sudden a new type, party or form of Government will provide an equal batch of policies that benefit old and young alike (although many seem to think this fairy tale land exists).

Not sure if you would consider pragmatarianism to be Utopian. But… you are arguing for a limited government. And a limited government means that the not-market will allocate less resources and the market will allocate more resources. So in order for your argument to be effective… you need to effectively explain why you want the market to allocate more resources. In other words, you need to effectively explain what’s so great about consumer choice. You need to help people understand what the benefit is of Stephen Weiss being free to strain his brain trying to decide which beers he puts into his shopping cart. You need to help brightly illuminate how Weiss’s beer choices positively impact the variety, quantity, quality and affordability of beer.

It’d be great if I could claim that I effectively explain the value of consumer choice… but unfortunately… my explanations fall well short of effective. Two heads are better than one though! Since we both want markets to allocate more resources… hopefully you can improve on my explanations!