Saturday, February 28, 2015

Deirdre McCloskey - Revealing The Unseen

A few days ago I posted this entry...  Superstar Theory: J.K. Rowling vs Elizabeth Warren.  In that entry I shared this picture...




The point of the picture was to try and figure out how to help convey the concept that if somebody becomes a superstar... then it's because they created a lot of value for other people.

The same day I posted that entry... there was some wonderful synchronicity because over at the EconLog blog... David Henderson shared this passage from Deirdre McCloskey...
The economist William Nordhaus has calculated that the inventors and entrepreneurs nowadays earn in profit only 2 percent of the social value of their inventions. If you are Sam Walton the 2 percent gives you personally a great deal of money from introducing bar codes into stocking of supermarket shelves. But 98 percent at the cost of 2 percent is nonetheless a pretty good deal for the rest of us. The gain from macadamized roads or vulcanized rubber, then modern universities, structural concrete, and the airplane, has enriched even the poorest among us. - Deirdre McCloskey, Measured, unmeasured, mismeasured, and unjustified pessimism: a review essay of Thomas Piketty’s Capital in the twenty-first century"
In my picture... I made the benefit (hearts) the same size.  This passage helps drive the point home that the greater than sign ">" is really the correct answer.  Psy's benefit, which is visible, is a lot smaller than society's benefit, which is invisible.

Deirdre McCloskey, like any good economist, endeavors to reveal the unseen.  Here are a few more excellent passages from her...
You have to ask what the source of the inequality is. If the source is stealing from poor people, I’m against it. But if the source is, you got there first with an innovation that everyone wants to buy, so you get paid some crazy sum, you ought to be paid so much, don’t you think? - Deirdre McCloskey, Has Thomas Piketty met his match?
If bourgeois dignity and liberty are not on the whole embraced by public opinion, the enrichment of the poor doesn’t happen. You achieve through a doctrine of compelled charity the “santification of envy,” as the Christian economist the late Paul Heyne put it. The older suppliers win. Everyone else loses. You ask God to blind your neighbor. You work at your grandfather’s job in the field or factory instead of going to university. You stick with the old ideas. You remain contentedly—or not so contentedly—at $3 a day. The poor remain unspeakably poor. - Deirdre N. McCloskey, Bourgeois Dignity: Why Economics Can’t Explain the Modern World
On the topic of builderism...
Stopping people from taking terrible jobs – through prohibitions or protections or minimums, justified by the warm if mistaken feeling over one’s second cappuccino that one is thereby being generous to the poor – takes away from the poor what the poor themselves regard as a bettering option.  It’s theft from the poor of deals the poor want to make. - Deirdre McCloskey,  The Treasured Bourgeoisie
Yet even sweet ideas have consequences, and the poor are unintentionally damaged by the left wing’s belief in “wage slavery.” A choice to work for a wage at a terrible job (rather than, say, starve) is after all nothing like slavery. Slavery, pogroms, state compulsion enforced by the army make people worse off. Naturally. By contrast, the wages paid for work, even terrible work, make people better off—at any rate in their own opinion. They line up to work for the Nike shoe company in Cambodia. The people do not choose to be compelled by the army; but they choose to work. Stopping people from taking terrible jobs—with prohibitions or protections or minimum wages—takes away from what the people themselves regard as a bettering option, however nasty the work offered. Sweat shops in the New York garment trade, such as those in which the free-market economist Milton Friedman’s parents both worked all their lives, lead on to college-educated children and grandchildren. In the short run the sweat shops of New York were better than peddling on the street or digging for food in the city dump. And in the long run the acceptance of creative destruction relieved poverty. It has in fact been the only effective relief. Wage regulations and protection and other progressive legislation, contrary to their sweet (and self-satisfying) motives, have only preserved poverty, by preserving the old jobs. Innovation made the new jobs, and financed the new college graduates, and raised the tide. - Deirdre McCloskey,  Bourgeois Dignity: Why Economics Can’t Explain the Modern World
When a stable though tyrannical country like China or a turbulent though law-governed country like India started to revalue markets and innovation, and to give a partial liberty to commerce, the food and housing and education for the average person began doubling every 10 to 7 years. In a couple of generations China and India will have Hedda’s standard of living. They have already entered Collier’s Top 5½ Billions. An internal ethical change allowed it, beginning in northwestern Europe after 1700. - Deirdre McCloskey Bourgeois Dignity: Why Economics Can’t Explain the Modern World
It's really unreasonable to expect more from McCloskey... but I can't help but wonder how much more progress we'd make if she would help push for a pubmar.

Wednesday, February 25, 2015

Superstar Theory: J.K. Rowling vs Elizabeth Warren

A couple days ago, in this thread... Epiphytes and Economics... I posted a reply that was all about Sherwin Rosen's Superstar Theory (ST).  Yesterday, Paul Krugman wrote a blog entry that was also all about ST... Jenny Lind, Taylor Swift, and Me.  Coincidence?

Surely it's a coincidence.  It's extremely unlikely that Krugman reads my blog.  If it was at all likely then I might be tempted to guess that he learned about my thread from this recent entry... Who Are You?  

It's a fun coincidence though because it gives you the wonderful and exciting opportunity to compare our economic perspectives on the same theory!  

I'll share my comment with you here.  But first it might help to share the comment that I was replying to...

I googled Elizabeth Warren. Prospect for U.S. president in 2016?  I live in Canada and had no idea who she was. - Beer w/Straw

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If people could choose where their taxes go... we'd create a lot more value by allowing Canadians to spend their taxes in America's public sector and vice versa.

In other words, we create more value by expanding, rather than shrinking, people's pool of potential trading partners. If you liked what Elizabeth Warren was doing for the public more than you liked what any Canadian was doing for the public... then you should be able to give her your taxes.

It should be pretty straightforward that we'd destroy, rather than create, a lot more value by preventing non British people from trading with J.K. Rowling.

If Elizabeth Warren is truly the J.K. Rowling of the common good... then we'd create a lot of value by allowing people all over the world to give her their taxes.

In the absence of global public market... then how in the world would we be able to tell whether Elizabeth Warren truly was the J.K. Rowling of the common good?

Not sure if irony is the right word, but creating a global public market would increase income inequality nearly as much as creating a global private market does. If only Brits could give their money to J.K. Rowling then there wouldn't be as much disparity in income. As J.K Rowling's pool of potential trading partners is expanded... there's a corresponding increase in income inequality.

If we created a global public market... then if Warren was truly as big a rockstar as Rowling... then Warren, a liberal, would receive far money than any other congressperson. Perhaps then she might appreciate that income inequality wasn't the problem. A significant disparity in income simply reflects the fact that a few people are exceptionally good at creating value for others.

We want these exceptionally good value creators to be massively rewarded. Huge rewards create bright value signals which attracts the best and brightest people in the world.

So if we want cancer and poverty to be cured sooner rather than later... then we need to create a global public market.

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What do you think?  Whose perspective do you prefer?

Honestly I'm a little confused regarding what it is that Krugman is trying to say about ST's relevance to music.  It kinda seems like he's saying that it's not very relevant.  That can't be right though.

How big a superstar would the Korean pop singer Psy be if his music/videos were only accessible to people in Korea?  Would he be 1/2 the superstar he is now?  Or 1/10th the superstar?  Or 1/100th the superstar?  Would Snoop Dog have jumped at the opportunity to collaborate with him?  Prolly not.

It's easy to see how much Psy benefits by having his pool of potential trading partners as large as it currently is.  Now he's making music videos with Snoop Dog!  Not to mention the fact that he's earned millions of dollars.

Unfortunately, it's not easy to see all the benefit that Psy has provided for the people that he's traded with.  This is because Psy's benefit is concentrated and tangible while his trading partners' benefit is dispersed and intangible.

If it was easy to see consumer benefit then I wouldn't be here having to explain that giving people the freedom to shop in the public sector would greatly expand our pool of potential trading partners which would greatly increase total benefit.  Pragmatarianism would have been implemented long before I was even born.

How in the world can we make it easier for people to "see" total consumer benefit?  Here's one attempt...




Is total consumer benefit greater than, or less than, or equal to Psy's benefit?

The basic theory is that you only trade when you have the expectation that what you gain will be greater than what you have to give up.  If what you expect to gain has less value than what you have to give up... then you wouldn't want to trade because if you did then you would suffer a loss.  If what you expect to gain has the same exact value to you as what you have to give up... then there's no point in making the trade.

For example... if the amount of benefit you expect to gain from seeing Psy live in concert has the same exact value to you as the opportunity cost of the ticket... then why bother buying the ticket?
We call contentment or satisfaction that state of a human being which does not and cannot result in any action. Acting man is eager to substitute a more satisfactory state of affairs for a less satisfactory. His mind imagines conditions which suit him better, and his action aims at bringing about this desired state. The incentive that impels a man to act is always some uneasiness. A man perfectly content with the state of his affairs would have no incentive to change things. He would have neither wishes nor desires; he would be perfectly happy. He would not act; he would simply live free from care. - Ludwig von Mises, Human Action
When people buy a ticket to see Psy in concert... they aren't eager to substitute their current state of affairs for an equally acceptable state of affairs.  So when somebody does buy a ticket to see Psy it's because they are hoping to improve their circumstances as much as possible.

Of course we all know that reality doesn't always live up to expectations.  When this happens we tend not to keep it a secret.  Same thing when reality exceeds our expectations.  This means that persistent exchange generally indicates the persistence of mutual benefit.
  
It should be clear that we would decrease total benefit by preventing Koreans from trading with the rest of the world.  Just like we would decrease total benefit by preventing Americans and Canadians from trading.  Just like we would decrease total benefit by preventing Americans and Brits from trading.

These things aren't clear though.  Because if they were... then people would understand that we destroy a lot of benefit by preventing consumers from trading with producers in the public sector.

Right now it's a fact that Krugman isn't helping to clarify the value of allowing consumers to trade with Elizabeth Warren as easily as they can trade with J.K. Rowling or Psy.  This fact seems to indicate that he doesn't "see" consumer benefit.  Why doesn't he see it?

If we can imagine pragmatarianism gaining momentum, then when would be the optimal time for Krugman to address it?  If he addresses it now then he would be risking too much.  But if he addresses it too late... then he would risk losing all his credibility/relevance.

Tuesday, February 24, 2015

Optimal Government Intervention

Reply to comment on Succeeding vs Failing At Other Minds

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Imagine a cat stuck in a tree. Do you want to argue that it's a problem that the cat is stuck in the tree? Ok, I'm not going to disagree with you. We have a problem.

Where there's a point of contention is the issue of how to solve this problem.

Let's say that you want to use the bat signal so that Batman will rescue the cat from the tree. Perhaps you're assuming that Batman has nothing better to do with his time than organize his ties. If this is what you're assuming then I can understand why you perceive that we'd increase the total benefit by having Batman rescue the cat. But if, in reality, Batman was actually coming up with a plan to defeat the Joker once and for all... then we'd greatly decrease the total benefit by having Batman rescue the cat.

In economic terms, Batman is a limited resource. The opportunity cost is too high if having him rescue a cat requires that we forgo the benefit of having him figure out how to defeat the Joker. One person's small benefit doesn't outweigh an entire city's huge detriment.

So I have no problem with you wanting the government to intervene. That's not my issue. My issue is that, with the current system... people can see a public problem... and they want the government to do something about it... which is perfectly reasonable... but they can't see where the required resources are taken from and they have no idea how much benefit is lost as a result.

On the one hand, Batman rescued a cat from a tree. But on the other hand, the Joker destroyed Gotham.

Markets work because you know that any time spent replying to this comment is time that can't be spent doing other things that you also value. So you endeavor to put your time, a limited resource, to its most valuable use.

Pragmatarianism would create a market in the public sector by allowing people would choose where their taxes go. This means that if you want more government intervention in one area... then you're going to have to decide whether it's worth it to have less government intervention in other areas. This is the only way to ensure that government intervention truly maximizes society's total benefit.

For more info please see... Why I Love Your Freedom.

Let me know if you have any questions.

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Here's the relevant illustration (value signals)...




Optimal government intervention?  We don't want the government to allocate too many resources to an endeavor.  Neither do we want the government to allocate too few resources to an endeavor.  What we want is for the government to allocate the optimal amount of resources to an endeavor.

It's kind of astounding that so many people believe that optimal government intervention is possible in the absence of a market in the public sector.

You really can't have optimal government intervention without pragmatarianism.  It's ridiculous to believe that society's limited resources can be put to their most valuable uses in the absence of nearly everybody's valuations.

The problem isn't that this belief is ridiculous.  The problem is that it's extremely harmful.  You want to believe in God?  The Toothfairy?  Santa Claus?  Unicorns?  Ok, go ahead, no problem.  Knock yourself out.  You want to believe that optimal government intervention doesn't depend on earner/inclusive valuation?  Please don't.  When you hold this belief you hurt me, yourself, everybody you know and everybody I know.

How in the world can people be dissuaded from such a harmful belief?  Is my example of Batman rescuing a cat from a tree while Joker destroys Gotham really the best example?  I sincerely doubt it.  We need a better example... a better story.  A story that's so accessible that anybody who reads it will instantly see the harm caused by their long held belief.

Is that even possible though?  Can a story be so good that people have no problem relinquishing their long held beliefs?

I think it's entirely natural for the mind to fight against anything that challenges a long held belief.  This is because it's extremely disconcerting to confront the possibility that our perception of reality is fundamentally flawed.

This ties into this recent entry of mine... Who Are You?... where I expressed relief to learn that there's absolutely no evidence to support the possibility that I'm Robittybob1's sockpuppet.  It's hard for me to imagine a story so good that I'd instantly relinquish the belief that I'm not Robittybob1's sockpuppet.

Personally, I was raised to believe in God.  It wasn't a passive belief... it was an active belief... prayer, church and the bible in very frequent doses.  I'm sure that it wasn't any single story that convinced me to change my belief... which occurred when I was around 11.  It was a lot of different stories that I found in various books/magazines about science/nature.  I still remember the distinct discomfort I felt when my mind gradually replaced one long held belief for a new one.  The transition definitely wasn't pleasant or enjoyable.  And it's not like there was anybody around to support the transition.  All my family, friends and teachers believed in God.

The second major transition in my beliefs occurred when I was a libertarian recently returned from nation building in Afghanistan.  I suppose I should mention that I sure wasn't raised to be a libertarian.  My interest in politics though was nearly nonexistent up until college.  During college, while telling another friend about some thoughts on government, he told me that I was a libertarian.  Upon further research it seemed like a pretty good fit.  So it wasn't like I had to give up one strongly held belief for another.

Pretty soon after I returned from Afghanistan, I ended up fighting against anarcho-capitalists on Wikipedia.  It was my first exposure to anarcho-capitalism and the idea of abolishing the government was anathema to my limited government beliefs.  It really rubbed me the wrong way... especially after having spent a year in a country without even a basic government.  So I endeavored to defeat the anarcho-capitalists.  But you can't truly defeat something that you don't truly understand.  After a considerable amount of reading though... I began to entertain the possibility of being wrong.  It certainly wasn't enjoyable.

What made matters especially tricky was that while I was beginning to entertain the possibility that anarcho-capitalists were correct... I was also entertaining the possibility that the free-rider problem wasn't just applicable/relevant to defense, courts and police.  Essentially my belief in limited government libertarianism was being simultaneously challenged from completely opposite directions.  This doubled the discomfort.  My willingness to entertain doubt was drowning me.  This floundering encouraged me to consider the alternatives.  One of which was a hypothetical situation that for some time I had enjoyed posing to friends... what if people could choose where their taxes go?  The more I thought about it the more I realized how well it accounted for both possibilities.  I trusted that introducing the invisible hand into the public sector would reveal the truth regarding the relevance of government.

My life consists of two major transitions in beliefs.  And by "major" I mean very unsettling.

It feels like there should be a technical term for unsettling belief exchanges.  Does anybody know if one exists?  The only thing that pops into my head is "cognitive dissonance"...
...the mental stress or discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time, or is confronted by new information that conflicts with existing beliefs, ideas, or values.
It's close but I want a word for when a long held belief is replaced, at considerable mental cost, for a new one.  Maybe it's a linvoid?

So far in my life I've experienced two linvoids.  I wonder what the average is?  Does it mean anything if some people have gone through more linvoids than other people?

Not exactly sure why... but I'd be a bit suspicious if somebody has never gone through a linvoid.  They've really never been confronted with enough evidence to convince them that a long-held belief of theirs is wrong?  Either they haven't been considering enough evidence... or their fundamental beliefs have never been wrong.

What about in the other direction?  Would I also be suspicious if somebody has experienced say 10 linvoids?  I'd be like "woah!  guy!  what's going on?"

Are we looking at a continuum that ranges from entirely close minded on one extreme to entirely open minded on the other extreme?

Or is it more accurate to say that we are looking at a continuum that ranges from people who always choose the blue pill on one extreme to people who always choose the red pill on the other extreme?

Where does intelligence fit into all this?

Let's consider the illustration from this blog entry... Progress as a Function of Freedom...




It should seem straightforward that being led by evidence rather than belief will increase your chances of choosing the right path.

It also seems straightforward to argue that intelligent people are more likely to choose the right paths.

Does this mean that there's a positive correlation between linvoids and intelligence?  Eh?

Are more intelligent people less likely to irrationally cling to incorrect beliefs?

In other words, is sharing pragmatarianism with more intelligent people the same thing as sharing pragmatarianism with people who are led by evidence rather than beliefs?  For some reason I'm resisting the conclusion that it is the same thing.  Am I correct to resist the conclusion?

Perhaps, when deciding whether it's worth it share pragmatarianism with somebody, rather than asking their IQ I should ask them their linvoid quotient (LQ)?  Errr... not sure if quotient is the right word.  But you get the point.

How high is my IQ?  I don't even know.  I'm sure it's not terribly high.  It's probably barely above average.  But I've gone through two linvoids!  heh

Of course intelligence is hard to pin down.  But it sure seems like some type of smarts when somebody is willing to endure a very unsettling exchange of beliefs when the evidence requires it.  And the more evidence that somebody considers... the more likely it is that they'll confront evidence that requires a very unsettling exchange of beliefs.  

Football Fans vs Nature Fans

Reply to reply... Nature: Supply and Demand

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Lynx_Fox, if Netflix users could allocate their monthly fees... would this new information confirm, or contradict, what Netflix already knows about its users?

I gave The Man From Nowhere and The Man From Earth both 5 stars. Does this mean that I value them equally? Nope. Even though I enjoyed them both, I value Earth far more than I value Nowhere. This means that, if given the opportunity, I'd give Earth all of my dollar votes (monthly allocation).

Right now Netflix doesn't have access to my valuations. You're under the impression that Netflix doesn't need my valuations, or anybody else's valuations, in order for society's limited resources to be put to their most valuable uses.

You then blame the epic loss of nature on valuations. Uh, whose valuations? Mine? Yours? Society's? The "minor" detail is that we can't choose where our taxes go just like Netflix users can't allocate their monthly fees.

Let's review...

First you argue that our valuations are frivolous (Netflix doesn't need them) and then you argue that our valuations (Government doesn't have them) are to blame for the terribly inadequate supply of conservation.

Here in Southern California we used to have one native freshwater shrimp... Syncaris pasadenae. We don't have it anymore because of channelization and the Rose Bowl... which is only 10 minutes away from where I live.

You think this is a failure of valuation? No, it's the complete opposite. It's a failure of the absence of valuation.

To put it in perspective, imagine if Brazil was considering whether to build a soccer stadium in an area that would destroy the native habitat of a very endangered freshwater shrimp. Which do you value more... the soccer stadium or the shrimp? According to you, this information is frivolous. Unfortunately you're not the only one with this perspective. As a result, the decision to build the soccer stadium is made in a valuation vacuum.

If people were free to choose where their taxes go, and their options weren't arbitrarily limited by geography, then we would learn whether the world values an additional soccer stadium more than it values the existence of the shrimp.

At first glance it might not seem like much of a contest. Soccer is the most popular sport in the world. But with a longer glance it's not immediately apparent whether soccer fans pay more taxes than nature fans do. Also, would a soccer fan in China value this new stadium in Brazil more than an American environmentalist values the Brazilian shrimp?

Clearly I can't know the outcome, but I really wouldn't be surprised if conservationists around the world allocated enough of their taxes to the Brazilian EPA in order for them to outbid the developers for the land.

It stands to reason though that any development projects whose value was not greater than the global conservation value of the land in question wouldn't go through.

Right now conservationists have been fighting with both hands tied behind their back. The government takes a huge chunk of their money for public goods. Conservation is a public good... but the government has no idea how much conservationists value it. Therefore, of course the supply of conservation is wrong.

Allowing taxpayers to choose where their taxes go would give conservationists a fighting chance. Most taxpayers aren't going to chip in to support the development of some strip mall in Ecuador that they'll never shop at. But conservationists around the world will chip in to support the conservation of the necessary land if it's worth it to do so. Even if they never get to visit the habitat... they'll contribute to its conservation in order to give their children, and their grandchildren and their great grandchildren the opportunity to see more, rather than less, of Ecuador's nature.

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Ack, it's tripping me out.  Like, drugs man, too many drugs!  Not the kind of drugs that you smoke or swallow... but situational drugs.  Situational drugs can get you so high!

You want to get high with me?  Yeah?  Ok!

Compare what I wrote above to this passage that Rothbard wrote in 1981...
In the first place, how much of the deficient good should be supplied? What criterion can the State have for deciding the optimal amount and for gauging by how much the market provision of the service falls short? Even if free riders benefit from collective service X, in short, taxing them to pay for producing more will deprive them of unspecified amounts of private goods Y, Z, and so on. We know from their actions that these private consumers wish to continue to purchase private goods Y, Z, and so on, in various amounts. But where is their analogous demonstrated preference for the various collective goods? We know that a tax will deprive the free riders of various amounts of their cherished private goods, but we have no idea how much benefit they will acquire from the increased provision of the collective good; and so we have no warrant whatever for believing that the benefits will be greater than the imposed costs. The presumption should be quite the reverse. And what of those individuals who dislike the collective goods, pacifists who are morally outraged at defensive violence, environmentalists who worry over a dam destroying snail darters, and so on? In short, what of those persons who find other people's good their "bad?" Far from being free riders receiving external benefits, they are yoked to absorbing psychic harm from the supply of these goods. Taxing them to subsidize more defense, for example, will impose a further twofold injury on these hapless persons: once by taxing them, and second by supplying more of a hated service. - Murray Rothbard, The Myth of Neutral Taxation
Rothbard was right on.  He even mentions environmentalists being concerned about a dam wiping out a tiny species of fish... Snail darter controversy.

Now let's see where else Rothbard was right on...
One of the most absurd procedures based on a constancy assumption has been the attempt to arrive at a consumer’s preference scale . . . Through quizzing him by questionnaires. In vacuo, a few consumers are questioned at length on which abstract bundle of hypothetical commodities they would prefer to another abstract bundle, etc. Not only does this suffer from the constancy error, no assurance can be attached to the mere questioning of people. Not only will a person’s valuations differ when talking about them than when he is actually choosing, but there is also no guarantee that he is telling the truth. - Murray Rothbard, Toward a Reconstruction of Utility and Welfare Economics
Right on!  Talk is cheap.  Actions speak louder than words.  Put your money where your mouth is.

From the same paper...
Individual valuation is the keystone of economic theory.
Really right on!  Rothbard published that paper in 1956.

To help appreciate the situation we can borrow this illustration from this blog entry... Progress as a Function of Freedom




The majority of people are on the wrong path because they believe that valuation is frivolous.  Rothbard was on the right path because he appreciated the fundamental problem with congress taking money from environmentalists and spending it on the destruction of the habitats that critically endangered species depend on.

Yet, here I am!  Why in the world am I here?  Why am I having to explain to Lynx_Fox what Rothbard explained so many years ago?

In the illustration we see Rothbard all by himself taking the right path.  But in reality, Rothbard had and still has plenty of followers.  CJay Engel is a perfect example.  From my blogroll I learned that this is what he recently posted... Progressive Libertarians Against the Old Guard.

It's a really well written account of the libertarian movement.  Of course it leaves out a few essential facts, but when I read it I got the sense that CJay Engel is a smart guy... maybe even smarter than I am.  So why isn't he doing a better job than I am at helping people understand the importance of valuation?

The detail that I've left out is that Rothbard came to the conclusion that the government should be abolished (anarcho-capitalism).  He reached this conclusion because he assumed that the government was beyond repair.  For whatever reason, Rothbard never considered the possibility of allowing taxpayers to choose where their taxes go.  It evidently never occurred to him that the government could operate on the basis of valuation just by creating a market in the public sector.  Environmentalists would spend their taxes on conservation rather than destruction and pacifists would spend their taxes on peace rather than war.

Rothbard's oversight didn't just send him down the wrong path... it sent all his followers down the wrong path as well.  Rather than CJay Engel applying his intelligence to helping people understand the importance of valuation and how government can easily be repaired... his intelligence is applied to helping people understand the importance of abolishing the government.

Is the situation tripping you out now?  Rothbard took the really right path... but he also took the really wrong path.  His followers also took the really wrong path.  And here I am on the way too lonely right path.

Can you imagine where we'd be right now if Rothbard had argued that we could easily repair the government by integrating valuation?  All of his followers would have allocated their intelligence to helping people understand the immense benefit of creating a market in the public sector.  If they'd been pushing for a pubmar then we'd be so much farther along the right path.

Am I crying over spilled milk?  Maybe a little.  But primarily I'm tripping out over the situation.

Monday, February 23, 2015

Who Are You?

Reply to my thread... Epiphytes and Economics

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A comparison of the IP addresses of members Xerographica and Robittybob1 shows there is no evidence of Xerographica being a sockpuppet of Robittybob1. - Cogito Ergo Sum

Well that's a relief.

It would have been a real mind**** if Cogito Ergo Sum had shared conclusive evidence that I was Robittybob1's sockpuppet. I don't even know who Robittybob1 is... yet it turns out that I'm his marionette and he's my puppet master? Everything that I've done in my life was the result of unseen strings that he's pulled? *woah*

In the Matrix Neo had a choice between the red pill and the blue pill. Which pill would you choose? I would choose the red pill.

I don't want to be anybody's sockpuppet. If moderators on this forum determine which options that I'm allowed to choose... then I'm their sockpuppet. My options have been limited to options that they've approved. My work/perspective can only be applied to threads that they deem acceptable.

Right now we're all congress's sockpuppets. Regardless of your preference for the war on terror, or the war on drugs, or the war on poverty... a portion of your labor was used to support these wars. Strings attached to your fingers, arms, legs, eyes, ears, mouth and brain directed you to pay for my trip to Afghanistan.

Yes, I chose to join the Army. That's true. But this option was only available to me because congress approved it.

Does anybody want to argue that, because we choose them with our votes, congresspeople are actually our sockpuppets? If you vote for Elizabeth Warren... I think you're just saying that you want her to be your puppet master rather than some other guy.

I have absolutely no problem if you truly want to be somebody's sockpuppet. My problem stems from the fact that I question whether you do really want to be Elizabeth Warren's sockpuppet.

My hypothesis is that people don't truly want to be sockpuppets. It's easy enough to test this hypothesis. We just have to give people the option to directly allocate their taxes. If you really do want Warren to be your puppet master... then you'll give her your taxes to allocate for you rather than allocate them yourself.

On this forum in the general category there's this thread... The Theory Of Everything. Coincidentally my friend just posted this blog entry... A Scheme for Future Metaphysics. Let's say that a minimum contribution standard prevented me from replying to the thread with just the link to my friend's blog entry. Would you ague that the thread/forum is better off without my two cents? Would you argue that this blocking of my input would be beneficial? Would you argue that if I'm going to take the time to share a link that I should also take the additional time to explain why I think its relevant?

Well... what if I don't have the additional time to explain its relevance? I'm sure you've said... "I don't have the time...". Taken literally it means that your demise is imminent because nearly all the sand in your hourglass is at the bottom. Of course we all understand the real meaning... that you have more important things to do with your time.

Is it possible that somebody really is too busy to share a link's relevance/significance/value/meaning? Maybe you imagine that the only other thing that somebody could possibly do with their time is pick their nose?

Rather than saying "I don't have the time"... it's a lot better to say "the opportunity cost is too high". With the latter expression I think it might help people better appreciate that there are more valuable allocations of your time.

Wikipedia really wouldn't work better with a minimum contribution standard. You really don't maximize contributions by making the opportunity cost of contributing so high that for most people it's not worth it to do so.

So far GiantEvil has taken the time to share his two cents in two of my threads. In this thread, he shared a link to the cheese.com website. Personally, I value this contribution of his at less than two cents. However, in this other thread that I started... Nature: Supply and Demand... he shared a link/video that I value a lot more than two cents.

GiantEvil's contribution was a Ted Talk by Michael Sandel.... Why we shouldn't trust markets with our civic life. Anybody want to guess how much Sandel was paid for his talk? Actually, he wasn't paid at all. If you want to take this to mean that his time is worthless... then if Michael Sandel joined this forum then there's absolutely no problem with ensuring that he complies to the minimum contribution standard. Except, it would be rather strange if people were willing to pay several thousand dollars for the opportunity to listen to talks given by people whose time is worthless.

If Michael Sandel did actually join this forum then would GiantEvil really complain if Sandel started a thread that only consisted of a link? Would GiantEvil really argue that the opportunity cost of Sandel's time really wasn't that high? For some reason I doubt it.

I don't know who any of you are. I have no idea whether you're a bunch of Harvard professors or professional nose pickers. What I do know is that your sand is slipping from your hourglass just like mine is. So if you post a thread or comment that only consists of a link... then I'm going to really grasp that the opportunity cost of a greater contribution was too high for you. I might disagree with your valuation but who am I to override it? Your puppet master?

It was a relief to learn that Robittybob1 isn't my puppet master. It would be an even bigger relief to learn that I don't have AIDs or cancer or ebola or Alzheimers or Parkinsons.

What's going to steal the sand from your hourglass? Disease? The Taliban? Poverty? Cocaine? I'll tell you what's going to steal the sand from your hourglass. It's the fact that we, the people, can't allocate our taxes accordingly.

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Bueller's Basement

For a while now Ireland has been over-represented in my web statistics.  Maybe the Irish are especially interested in choosing where their taxes go?  It seems more likely that it's just one person in Ireland who regularly visits my blog.


The Basics Of Public Finance

Thread posted at The Science Forum... Nature: Supply and Demand

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Is nature a public good? In this thread in the biology category... Rapid evolution in cities... Lynx_Fox wasn't so sure that it really is. This topic is more suited for the economics category so figured that I'd post my reply here instead.

My front yard here in Southern California is the only one in my neighborhood that has a tropical dry forest (TDF) instead of a lawn. This is a pretty good clue that I demand more nature than my neighbors do.

However, several of my neighbors have remarked that they really enjoy my TDF. This is a clue that either they were just being polite or that they have some demand for nature. It also indicates that it's very possible that my TDF is a public good. This is because my neighbors can benefit from my TDF without having to chip in to help cover the costs of creation or maintenance.

Is it a problem if my neighbors are free-riding? It's hard to say. But let's pretend that, in the absence of their contributions, I decided that it was no longer worth it to keep my TDF. Then my neighbors would be worse off because they didn't chip in to support something that they benefited from.

The government addresses the free-rider problem by forcing people to pay taxes. Elected representatives decide how much of the money to give to the various public goods (defense, education, healthcare, environment, etc.). This would be the equivalent of each person in my neighborhood chipping in and electing representatives to decide how much of the money to give to my TDF, litter cleanup, graffiti removal, neighborhood watch and so on.

The problem with this system is that if elected representatives were any good at knowing just how much benefit each and every one of my neighbors derives from my TDF... then all the time we spend shopping would be a fundamental waste of time. Except, who argues that we should get rid of shopping and replace it with the valuations of elected representatives? Nobody in their right mind does... which should give you a clue that there's no reason to believe that elected representatives know how much benefit you derive from nature or any other public good.

Therefore, the current supply of nature is wrong.

If you're incredulous, then here's a more advanced, but very excellent, treatment of the subject... Handbook of Biodiversity Valuation - A Guide for Policy Makers


The easy solution is to allow taxpayers to choose where their taxes go (pragmatarianism). People would be able to shop in the public sector just like they can shop in the private sector.

For more details check out the FAQ.

Basically, in the absence of a market in the public sector... we can't look at the current supply of nature and say that society's heart is in the wrong place. Well... you can say this but it would just reveal that you don't have a basic grasp of public finance.

Once people could choose where their taxes go, then we'd see exactly where society's heart truly is. If we have reason to believe that it's in the wrong place... then it would be our responsibility to share our reasoning with others.

It might take some work to persuade others that they would benefit from more nature, but if we're successful... then it would be easy enough for them allocate their taxes accordingly. With the current system, even if we do manage to convince somebody that we should have more nature, it's not like they can choose where their taxes go. This is why our current system is the cause of rational ignorance.

For a real life conservation example of the problem of not having a market in the public sector... The Ingenious Gentleman George Monbiot.


Let me hedge my bets by using another example...

In the thread on animals rapidly evolving in cities, TomFoolery wrote that she really enjoyed watching the Coywolf documentary on Netflix. I really enjoyed it as well. Are we the only two people in this boat? Probably not.

The thing is, Netflix doesn't know just how much we enjoyed this documentary. It knows how many stars we gave it.... and whether we watched the entire thing... and whether we watched it more than once... but is this information adequate? Nope.

Imagine if we could allocate our monthly fees to the content (shows/movies/documentaries) that we valued most. How many dollars would TomFoolery allocate to the Coywolf documentary? How many dollars would I allocate to it? The amount of money that we allocated to our favorite content would far more accurately reflect our valuations than stars or views would.

It stands to reason that people would watch plenty of shows that they wouldn't allocate any of their monthly fees to. They might even derive some benefit from some of this content. It's not a problem though because they would be allocating their money to the most beneficial content. If Netflix passed this money, minus its cut, to the creators of the most beneficial content... the logical consequence is that less beneficial content would quickly be replaced with more beneficial content.

For more on the problem with content bundles... Crazy Cable Confusion: Costless Content Creation.

Let me know if you have any questions.

Saturday, February 21, 2015

Air Climbing

Perhaps any sufficiently advanced logic is indistinguishable from stupidity. - Alex Tabarrok, The Rise of Opaque Intelligence

Last night I had a dream that I was doing one arm pull ups on a tree branch.  While I was doing the pull ups I "remembered" that even at my fittest I could never do real one arm pull ups.  That's when it dawned on me that the reason that I was able to do them was because the branch was bouncing a bit.  Except, maybe the branch wasn't initially bouncy but my brain made it bouncy in order to adjust to the newly added information.

Me1: I'm doing one arm pull ups?  Shenanigans
Me2: Oh really?  Check again...
Me1: You're right, it's because the branch is bouncing

When I woke up in the morning I wondered how one might make a pull up machine with a dynamic, rather than a static, pull up bar.  I also wondered whether such a contraption would be beneficial in any way.  The benefit wasn't immediately apparent so my morning mind did a small hop over to an idea that I had a long time ago... air climbing.

Not exactly sure how to define air climbing.  It's not gliding or attaching a rocket to your back.  Human-powered helicoptering is closely related.  

Right now if you do a google image search for air climbing... there isn't a single result that's relevant to what I have mind.  Maybe there's another term for it?  If so, then please let me know.  But the lack of relevant results seems to indicate that most people would be inclined to argue that air climbing isn't possible.  Honestly I'd be surprised though if this was truly the case.

I'll share with you the apparatus/approach that I thought of... and it's probably pretty terrible... maybe even laughably terrible... but I'll share it anyways because I love the idea of air climbing.

Here we go...




Here we have a guy named Geoff holding two ultra light/strong umbrellas.  As he thrusts one umbrella up, it automatically closes.  When he pulls the other umbrella down, it automatically opens.  The problem is that, even if he was the fittest person in the world for this mission, he wouldn't be able to thrust his arms fast enough to "win" (defeat gravity for an extended period of time).  If you've got the math skills then feel free to calculate just how fast he'd have to thrust his arms in order to win (assume he's the average weight of an elite mountain climber... 125 pounds).  The basic problem here is that he's not getting enough bang (air) for his buck (thrust).  How could he get more air for his thrust?




Hah.  We could give Geoff more air for his thrust by stacking umbrellas.  Errr... I have no idea whether this is really true.  It seems true though.  If it is true, then what would be the optimal umbrella tower?  How many umbrellas would be included?  How far apart would the umbrellas need to be in order to minimize drafting / maximize drag?  What would be the optimal shape of the umbrellas?  How much would the optimal tower reduce the thrust rate he'd need to win?  Even with an optimal tower there's the problem that arms aren't nearly as strong as legs are.




There are two problems here.  The first is that most of us don't have prehensile feet and the second is that a horizontal grip would be better for the hands.




Does this make much of a difference?  Could Geoff win now?  Probably not.




Haha... yeah, it's cheating.  But what's the minimum amount of helium that it would take in order for Geoff to win?  Wouldn't that be a cool contest to see who could air climb with the least helium?  Kinda like a different version of the International Birdman competition.

It seems like a given that as the efficiency (air for the thrust) of the approaches improved over time that less and less helium would be needed until eventually air climbing didn't require any helium.  Would efficiency gains stop there?  Could you imagine if air climbing was as easy as stair climbing?

A "minor" detail is that I'm not quite sure how somebody would come down from an air climb.  Would they just decrease their thrust rate?  Imagine if the two brothers in the movie Gattaca had competed with air climbing rather than swimming... "I never saved anything for the climb down".

In a sense, air climbing is very much akin to swimming.  But you're pulling air rather than water.  If you called it "air swimming" though then people would automatically think that you were free-styling horizontally through the air.

I just texted a terrible synopsis of air climbing to Geoff, my bff, and his reply was... "I saw that movie, Mary Poppins, right?  Pixar's UP"

So what's air climbing have to do with pragmatarianism?  Well... they are both ideas that I really like.  There aren't very many people that like pragmatarianism and I'm going to be surprised if it's any different with air climbing.  This means that the opening quote by Tabarrok is applicable to both ideas... "Perhaps any sufficiently advanced logic is indistinguishable from stupidity."

That quote should come to mind whenever you're inclined to argue that something is stupid.  It's important to recognize that there's always going to be logic that's over your head.  This is true of everyone...  

Noah: I'm going to build a big boat
Arnold Kling: I doubt the business model
Alex Tabarrok: Perhaps any sufficiently advanced logic is indistinguishable from stupidity

It's great to doubt, but it's even better to appreciate that you might be wrong (fallibilism).  This is because progress depends on difference.

Maybe I'm wrong that people won't like the idea of air climbing?  If so, then the more people that like the idea, the greater the chances that an air climbing contest will be started.  And the larger the prize money, the more intelligence and creativity that will be attracted to the challenge.

This is of course the concept of value signals...




Thursday, February 19, 2015

Succeeding vs Failing At Other Minds

In the Less Wrong Discussion section I found this post... Making a Rationality-promoting blog post more effective and shareable.  The fellow who created the post, Gleb Tsipursky, was asking for feedback on this blog entry of his... Succeeding at Other Minds.  When I clicked on the link the first thing that grabbed my attention was this wonderful graphic by Cerina Gillilan...







It's quite relevant to economics... and so was the rest of the entry.  So I shared this comment on his Less Wrong post...

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One does not serve the interests of a man who wants a new coat by giving him a pair of shoes or those of a man who wants to hear a Beethoven symphony by giving him admission to a boxing match.  - Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution

Ran across that passage a few days ago and I almost didn't collect it.  But now here I am sharing it.

You're trying to teach rationality and I'm trying to teach economics.  Why are you trying to teach rationality and why am I trying to teach economics?  I'm trying to teach economics so people can understand how their interests are served.

Using your graphic... we can imagine that if the girl had $20 then she would have given it to the guy who correctly guessed that she wanted a baseball bat rather than a vampire bat.  Markets work because consumers reward whichever producers correctly guess their preferences.  To use your terminology... producers that "succeed at other minds" will gain more influence over how society's limited resources are used.  

The producer whose product turns out to have the combination of features that are closest to what the consumers really want may be no wiser than his competitors.  Yet he can grow rich while his competitors who guessed wrong go bankrupt.  But the larger result is that society as a whole gets more benefit from its limited resources by having them directed toward where those resources produce the kind of output that millions of people want, instead of producing things that they don't want. - Thomas Sowell, Basic Economics

If consumers really want baseball bats... then it would be a huge waste to supply them all with vampire bats.  Markets, because they operate on the basis of consumer sovereignty, help prevent this from happening.  Consumers don't give their money to producers who fail at other minds.

With the public sector, on the other hand, people like to believe that producers of public goods succeed at other minds...

For example, the discussion assumes that the community of consumers has a well-functioning, formal state structure.  Like a benevolent dictator, this state somehow guesses the preferences that people have for public goods. - Meghnad Desai, Providing Global Public Goods

But in the absence of consumer sovereignty in the public sector.... how can we be sure that the government supplies the public goods equivalent of baseball bats rather than vampire bats?

Anyways, this is the economic relevance of succeeding vs failing at other minds.

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With markets the supply (baseball bats) follows from the demand (baseball bats).  With command economies however, the supply (vampire bats) really does not follow from the demand (baseball bats).  When the conclusion (the supply) does not follow from the premise (our preferences)... then what you have is non-sequitur economics.  Command economies are based on non-sequitur economics.

I knew that I'd used the term "non-sequitur economics" before but turns out that I never posted the relevant entry to my blog.  Instead, I had posted it to the Nation States forum... Pseudo-demand, Pseudo-supply ... and the xkcd forum... Pseudo-demand, Pseudo-supply.  I wonder how much more effectively I would have communicated my point if I had shared Gillilan's great graphic?

Since I don't have my post "Pseudo-demand, Pseudo-supply" on my blog... and it's relevant enough to the topic of this entry... I might as well copy and paste it here...

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Minimum wages are false values. They do not accurately reflect society's true preferences. In economics "preferences" are the same as "demand". So false values/preferences are the same thing as a false demand. Pseudo-demand will always result in pseudo-supply. Minimum wages (psuedo-demand) prevent us from maximizing the value we derive from our limited resources.

Anybody a fan of Monty Python? Here's a fun clip to illustrate the concept of false values.

If somebody asks you what your favorite color is...why lie? Why risk being cast into the gorge of eternal peril? In other words, why risk having to wear an orange sweater when orange is your least favorite color? If your favorite color is green, then clearly there's going to be a value disparity between wearing a green sweater and wearing an orange sweater.

When we input false values into the impossibly complex equation which determines how society's limited resources are allocated...it's a given that the output will not be accurate. It will be less valuable than the output would have been if true values had been inputted. The size of the value disparity will depend on how false the inputted values were.

In computing, this is known as garbage in, garbage out. It's equally relevant to economics...pseudo-demand, pseudo-supply.

Just like it would be detrimental to lie about how much you value something...it would also be detrimental to have your true values ignored. Here's a funny story from the bible that perfectly illustrates the problem with command economies (our public sector)...

Genesis 29

1 Then Jacob went on his journey, and came into the land of the people of the east.
2 And he looked, and behold a well in the field, and, lo, there were three flocks of sheep lying by it; for out of that well they watered the flocks: and a great stone was upon the well's mouth.
3 And thither were all the flocks gathered: and they rolled the stone from the well's mouth, and watered the sheep, and put the stone again upon the well's mouth in his place.
4 And Jacob said unto them, My brethren, whence be ye? And they said, Of Haran are we.
5 And he said unto them, Know ye Laban the son of Nahor? And they said, We know him.
6 And he said unto them, Is he well? And they said, He is well: and, behold, Rachel his daughter cometh with the sheep.
7 And he said, Lo, it is yet high day, neither is it time that the cattle should be gathered together: water ye the sheep, and go and feed them.
8 And they said, We cannot, until all the flocks be gathered together, and till they roll the stone from the well's mouth; then we water the sheep.
9 And while he yet spake with them, Rachel came with her father's sheep; for she kept them.
10 And it came to pass, when Jacob saw Rachel the daughter of Laban his mother's brother, and the sheep of Laban his mother's brother, that Jacob went near, and rolled the stone from the well's mouth, and watered the flock of Laban his mother's brother.
11 And Jacob kissed Rachel, and lifted up his voice, and wept.
12 And Jacob told Rachel that he was her father's brother, and that he was Rebekah's son: and she ran and told her father.
13 And it came to pass, when Laban heard the tidings of Jacob his sister's son, that he ran to meet him, and embraced him, and kissed him, and brought him to his house. And he told Laban all these things.
14 And Laban said to him, Surely thou art my bone and my flesh. And he abode with him the space of a month.
15 And Laban said unto Jacob, Because thou art my brother, shouldest thou therefore serve me for nought? tell me, what shall thy wages be?
16 And Laban had two daughters: the name of the elder was Leah, and the name of the younger was Rachel.
17 Leah was tender eyed; but Rachel was beautiful and well favoured.
18 And Jacob loved Rachel; and said, I will serve thee seven years for Rachel thy younger daughter.
19 And Laban said, It is better that I give her to thee, than that I should give her to another man: abide with me.
20 And Jacob served seven years for Rachel; and they seemed unto him but a few days, for the love he had to her.
21 And Jacob said unto Laban, Give me my wife, for my days are fulfilled, that I may go in unto her.
22 And Laban gathered together all the men of the place, and made a feast.
23 And it came to pass in the evening, that he took Leah his daughter, and brought her to him; and he went in unto her.
24 And Laban gave unto his daughter Leah Zilpah his maid for an handmaid.
25 And it came to pass, that in the morning, behold, it was Leah: and he said to Laban, What is this thou hast done unto me? did not I serve with thee for Rachel? wherefore then hast thou beguiled me?

LOL...that's a really funny, but messed up story. It's interesting that Jacob only realized the trickery the morning after. Do you think that you would have realized that you were sleeping with the wrong sister? Maybe it was really dark...and/or Jacob must have been really drunk...and Leah didn't say anything before, during or after sex.

Imagine Jacob went to a drive through restaurant. Except, the menu consisted of women (Rachel, Leah, Zilpah, etc.) rather than food. Jacob ordered Rachel, drove up to the cashier and paid 7 years of his life. Unfortunately, it was only after he consumed his "meal" that he realized that he had been given the wrong woman.

Command economies are non-sequitur economies. The conclusion (Leah) did not follow from the premise (Jacob's preferences). As a result, value was destroyed. Pseudo-demand, pseudo-supply.

How much does our society truly value unskilled labor? We really don't know. And that's a problem. If students don't know how much society truly values unskilled labor...then how can they possibly make an informed decision regarding how much effort/time/money (life) to invest in acquiring skills? Why would you want to incentivize your son or daughter to drop out of school? If we say that we value unskilled labor more than we really do...then we're increasing the incentive for unskilled people to immigrate to America. Why lie to poor people in foreign countries? If wages don't truly reflect the demand, then the supply won't truly reflect our preferences.

The immediate consequences of living/minimum wages might be beneficial...but the subsequent consequences will always be far more detrimental. This is because false values prevent resources from being efficiently allocated. If you really don't believe me...then the next time you're at a bar/club...lie about your sexual preferences. Let me know how it goes.

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When we pay producers as a result of their good guesses...




... we help create value signals...




Well... things just got a little tricky here because now we have baseball bats, vampire bats and batman.  Heh.

Anyways, if we want our interests to be better served, then it would behoove us not to distort the value signals that we create through our own personal sacrifice.  In other words, let's not lie to Batman about where the Joker is.

I wonder what's the best way to put all these concepts together in a cohesive illustration...

1. Other minds (consumer preference for baseball bats or vampire bats)
2. Succeeding at other minds (being rewarded for correctly guessing baseball bats)
3. Profits attracting other producers (value signals)
4. Increased competition benefits consumers...
A. decrease in baseball bat prices
B.  increase in baseball bat variety

If people can easily understand how and why markets work... then it will be easier for them to understand how they'll benefit from the creation of a market in the public sector.

In terms of effectively conveying the greatest number of these concepts in the shortest and most accessible video... by far the best (that I know of) was recently created by Tyler Cowen and Alex Tabarrok... A Price is Signal Wrapped Up in an Incentive ...





As wonderful as this video is... I don't think that people who watch it will easily arrive at the conclusion that it's a really excellent idea to replace the command economy in our public sector with a market economy.  For some reason it kinda seems like Gillilan's great graphic might help people arrive a little closer to the correct conclusion.

What Gillilan's graphic has (or strongly suggests), that the video does not, is the logical absurdity of supplying vampire bats when it's baseball bats that consumers actually demand.

So perhaps this would be a better bundle...




Voting and other democratic procedures can help to produce information about the demand for public goods, but these processes are unlikely to work as well at providing the optimal amounts of public goods as do markets at providing the optimal amounts of private goods.  Thus, we have more confidence that the optimal amount of toothpaste is purchased every year ($2.3 billion worth in recent years) than the optimal amount of defense spending ($549 billion) or the optimal amount of asteroid deflection (close to $0).  In some cases, we could get too much of the public good with many people being forced riders and in other cases we could get too little of the public good. - Tyler Cowen, Alex Tabarrok,  Modern Principles of Economics
When the government spends $549 billion on defense... is it succeeding or failing at other minds?  It's easy enough to find out.  All we have to do is allow taxpayers to choose where their taxes go.  If the government is truly succeeding then we'll effectively confirm it.  But if the government is failing, then the greater the size of its failure... the more value we'll create by creating a market in the public sector.  As I explained in Pushing for a Pubmar... China created a lot of value when it created a market in its private sector.  This is because failing at other minds (with private goods) was no longer rewarded.  If it doesn't make sense to reward failing at other minds in terms of private goods... then why would it make sense in terms of public goods?

Well... when it comes to effectively communicating to people how their interests are better served... clearly there's a lot of room for improvement.

Wednesday, February 18, 2015

Show Me The Ignorance!

Here's yet another entry inspired by the discussion on this post... Is Pragmatarianism (Tax Choice) Less Wrong?

The following critique is fun to try and interpret...

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One obvious failure mode is things that the voters don't realize are important not getting enough money. Imagine if when people donated to charity they could choose how much went to overhead. Do you think they'd get enough overhead money to run efficiently?

There would also be problems with inconsistent budgets and all the different branches of government spending large amounts of money on advertising. - DanielLC

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DanielLC starts with concern about what "voters" don't know and finishes with concern regarding government organizations (GOs) spending a lot of money on advertising.

Here are two possible interpretations...

  1. Wasteful government spending - the second problem (advertising) wouldn't solve the first problem (ignorance).
  2. OpCost is too high - advertising would solve the problem of ignorance but all the money spent on advertising could have been put to more valuable uses.

Wasteful government spending

If GOs spend a lot of money on advertising, but this doesn't help people understand which GOs truly need more money... then the GOs wasted a lot of money.  If GOs flush money down the toilet... will taxpayers continue giving them money to flush?  I don't think so.  So any GOs that waste a lot of money on advertising probably won't be able to do so indefinitely.  That's how and why markets work.

With the current system, anarcho-capitalists (ACs) effectively blindfold taxpayers...




The point of advertising is to persuade consumers that their priorities are wrong.  In the above illustration I attempted to persuade ACs that their priorities are wrong.  Given that that they are ACs their priority is to eliminate the government.  Why do they want to eliminate the government?  The smart ones want to do so because they believe that GOs lack the incentive to provide consumers with the maximum possible value.  If smart ACs believe that this is truly the case then they should really want to allow taxpayers to shop for themselves in the public sector.  Consumers would clearly see with their own eyes just how little value the government gives them in return for their hard-earned money.  If GOs failed to change their wasteful ways, then taxpayers would boycott the IRS and/or congress.  Basically, if adding consumer choice to the public sector doesn't fundamentally fix the government... then ACs would quickly swell their ranks.  It's a win-win situation.

In my previous blog entry... Pushing For A Pubmar... I shared this illustration/advertisement...




Again with trying to convince pro-market enthusiasts that their priorities are wrong.  There's always more than one way to skin a cat and some ways are easier than other ways.

OpCost is too high

Perhaps the motto of pragmatarianism should be "show me the ignorance!"   If we created a market in the public sector then we'd see the breadth and depth of the public's ignorance.  Critics of pragmatarianism are under the impression that because this ignorance is so deep and wide that we'd be making a huge mistake by allowing people to choose where their taxes go.  But if the public's ignorance is truly a big problem... then is ignorance of ignorance truly bliss?

In a pragmatarian system DanielLC would be able to clearly see how taxpayers were allocating their taxes.  If he had reason to believe that their priorities were wrong... then would the opportunity cost of sharing his reasons/information be too high?

And just who are taxpayers anyways?  They are the people that DanielLC voluntarily gives his money to.  Why does he voluntarily give his money to them?  Because taxpayers aren't entirely ignorant of what's important to him.

Imagine that we created a list of all the people that DanielLC voluntarily gave his money to in 2014.  How long do you think this list would be?  Do you know of anybody who's created such a list?  If so, then please share your info... unless the opportunity cost is too high.

We can guess though that DanielLC's list, like most people's, would be pretty long.  How many people would you guess would be on his list?  To make it easier, I think an organization should only count as one person.  If I had to guess I'd say that there would be around 500 people on his list.

Each person on this list is largely ignorant of what's important to DanielLC.  For example, Ronald McDonald only knows how often his fish fillets are important to DanielLC... but he's largely clueless about everything else that's important to DanielLC.

In order to get a pretty good picture of what's important to DanielLC... we'd have to go around collecting a lot of different puzzle pieces.  The picture wouldn't be perfect though because the one piece of the puzzle that I have is that DanielLC spends some of his time on the Less Wrong website.  In other words, time is money.  If we add to the list all the organizations and people that DanielLC gives his time to then our list gets a bit longer.

We'd essentially be compiling a list of all of DanielLC's trading partners in 2014.  What should hopefully be clear is that any given trading partner doesn't know as well as the aggregate does what's important to DanielLC.

Would DanielLC be doing himself any favors by arguing that none of his trading partners should be allowed to shop in the public sector?  From my perspective, this is the equivalent of DanielLC shooting each one of his trading partners in the foot.  Why would he want to handicap his trading partners?  Why would he want to hamstring the people who use society's limited resources for his benefit?  Oh yeah, it's because their ignorance scares him.  Well... evidently it doesn't scare him that much.  If it did, then he probably wouldn't give them his valuable time and money.

By preventing his trading partners from shopping in the public sector, DanielLC destroys the benefit that he would have derived if he hadn't hamstrung them.  The question is... how much benefit did he destroy?  Let's try and imagine what we might do in order to harm DanielLC to the same extent that he's harming himself.

What if we prevented his trading partners from buying anything from California?  Would this harm DanielLC more or less than he harms himself by preventing his trading partners from shopping in the public sector?   What if we replaced California with China?  What if we replaced China with the the eastern hemisphere?  Or the northern hemisphere?  Or the southern hemisphere?  Or the western hemisphere?  What if we prevented his trading partners from shopping on Tuesdays and Thursdays?  What if we prevented his trading partners from trading with African Africans?  Or Asian Americans?  Or Mexican Americans?  Or Caucasians?  What if we prevented his trading partners from trading with women?  Or men?  Or gay people?  Or straight people?  Or liberals?  Or conservatives?  Or anybody over 30?  Or anybody under 30?

Which one of these restrictions is the closest to destroying as much of DanielLC's benefit as he himself destroys when he prevents his trading partners from shopping in the public sector?

Most people would agree that it would be entirely moronic to support any of these other restrictions... yet they also think it's moronic to suggest eliminating the restriction that prevents people from shopping in the public sector.

Is it me or does the public sector sound like that one tree from the bible?  From Genesis 2 ...
15 And the Lord God took the man, and put him into the garden of Eden to dress it and to keep it.
16 And the Lord God commanded the man, saying, Of every tree of the garden thou mayest freely eat:
17 But of the tree of the knowledge of good and evil, thou shalt not eat of it: for in the day that thou eatest thereof thou shalt surely die.
Well... so why can Elizabeth Warren shop in the public sector?  Oh wait, I remember why...
Apparently, then, the legislators and the organizers have received from Heaven an intelligence and virtue that place them beyond and above mankind; if so, let them show their titles to this superiority. - Frédéric Bastiat, The Law
I'm not sure how much longer it's going to take for more people to be suspicious of the fact that congresspeople have yet to show their titles.

If congresspeople really don't have these titles... then do we really want to wait around so long for more people to grow suspicious?  Not really.

The best way to motivate congresspeople to show their titles would be to give people the option to directly allocate their taxes.  If congresspeople don't want people to choose this option, then it would behoove them to show their titles.  It really wouldn't make sense for them to continue to hide their titles under a bushel.  If they did so despite the fact that more and more people chose to directly allocate their taxes then either the congresspeople were crazy or they didn't actually have any such titles.  Good thing we allowed people to directly allocate their taxes sooner rather than later.

Let's if I can't summarize what's going on here.  Perhaps the most succinct summary is like so... Lists vs Titles.  In a pragmatarian system, if Elizabeth Warren shows DanielLC her title one way or another, then he'll add her to his list.  If she doesn't show him her title, then he'll choose to directly allocate his taxes.

Right now Elizabeth Warren can shop in the public sector because enough voters were willing to assume that she has a title.  But if given the opportunity, will these same voters give Warren their taxes... or will they choose to directly allocate them?

What I'm saying is that I care more about who people dollar vote for than who they ballot vote for.  And clearly the opcost of sharing this information isn't too high!

On the Less Wrong forum... after I replied to DanielLC critique... gjm replied to my reply...

***********************

When someone says "I don't like this proposal because I worry that important things will be underfunded", they do not mean "... because I worry that things will be funded less than people's willingness to pay indicates".

They mean, e.g.,

  • ... because I worry that people may (quite reasonably) be ignorant of things that, if they knew all about them, they would want to be funded
  • ... because I worry that such a scheme will give precedence to the interests of the rich (who pay more taxes and therefore have more power to affect what is done, overall, with tax revenues) but I don't actually care 100x more about someone who pays 100x more taxes and I don't think the government should either
  • ... because I worry that even if each individual taxpayer has sensible and coherent preferences, aggregating those preferences by simple addition might send money to the wrong places
  • ... because I worry that in order to make choices that actually serve their interests, individual taxpayers would have to put an inordinate amount of effort into learning and understanding the details of what the government does and what everything costs

Let's think a little more about the last of those. An obvious solution would be for there to be organizations that put in that effort so that individual taxpayers don't have to, and propose coherent allocations of tax revenues. Obviously any such organization's recommendations will be based (implicitly or explicitly) on potentially controversial opinions on facts or values, so we'd want there to be multiple organizations of this kind, each of which gives taxpayers some indication of what they care about and what they believe, and says what they think should be done with tax revenues.

You might notice that at this point we have approximately reinvented political parties. They would probably have some advantages and some disadvantages when compared with existing parties. It is certainly not obvious to me that they would be much better. The implied mechanism for combining "votes" is rather different (a sort of weighted averaging rather than picking a single favourite); again, it has advantages and disadvantages and might end up either better or worse.

What seems perfectly obvious to me is that you can't just say "importance is a function of opportunity cost, therefore whatever this system does is optimal by definition". Or, rather, you can and you did but you shouldn't. The kind of optimality guaranteed by Economics 101 is not the same thing as "getting what we actually prefer", and couldn't possibly be. - gjm

***********************
... because I worry that people may (quite reasonably) be ignorant of things that, if they knew all about them, they would want to be funded
How about...
... because I worry that my children may (quite reasonably) not know that they should look both ways before crossing  the street (and I doubt it will be worthwhile for me to share my information with them)
Without the second part it's not a problem.  It's only a problem when a parent doesn't bother to share potentially life-saving info with their children.  Just like it's only a problem if taxpayers don't bother to share potentially life-saving info with other taxpayers.  Like so...
... because I worry that other taxpayers may (quite reasonably) not know that Godzilla is going to attack (and I doubt it will be worthwhile for me to share my information with them)
To be worried about specific ignorance logically implies that somebody has the specific information that other people do not.  Or else, how could they possible be worried?  Let me try this on for size...
.... because I worry that other people may (quite reasonably) not know that they shoot everybody in the feet when they prevent their trading partners from shopping in the public sector (and I doubt it will be worthwhile for me to share this information via blogging)
Oh wait!

Moving on to the next bullet...
... because I worry that such a scheme will give precedence to the interests of the rich (who pay more taxes and therefore have more power to affect what is done, overall, with tax revenues) but I don't actually care 100x more about someone who pays 100x more taxes and I don't think the government should either
Errr... you might want to review your list of trading partners.  If you want to start ignoring how much bang you get for your buck then feel free to give a bunch of your money to me instead.  You're certainly welcome to remove me from your list once I'm rich.

Next bullet...
... because I worry that even if each individual taxpayer has sensible and coherent preferences, aggregating those preferences by simple addition might send money to the wrong places
Again, "wrong" implies the ownership of information that either is, or isn't, worth the effort to share with others.  An allocation can't be that "wrong" if it's not worth it for you to share your information with others.

Next bullet...
... because I worry that in order to make choices that actually serve their interests, individual taxpayers would have to put an inordinate amount of effort into learning and understanding the details of what the government does and what everything costs
If Ronald McDonald wouldn't think it was worth it to figure out which public goods he needs more of... then he would always have the option to give his taxes to Elizabeth Warren...
There is nobody in this country who got rich on his own. Nobody.  You built a factory out there—good for you! But I want to be clear.  You moved your goods to market on the roads the rest of us paid for.  You hired workers the rest of us paid to educate.  You were safe in your factory because of police forces and fire forces that the rest of us paid for.  You didn’t have to worry that maurauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.  
But if Ronald doubts that Warren has more incentive and local knowledge than he does... then don't worry because I think that the transaction costs of acquiring and sharing information are going down... Information Symmetry.

See also - What Do Coywolves, Mr. Nobody, Plants And Fungi All Have In Common?