Monday, March 28, 2016

Fully Including And Using Brains

Reply to thread: Clarifying The Popularity Of Three Economic Rules


Ad Nihilo,

1. You're not addressing my main argument. Either you know that you can't hit the target... or... you're not seeing the target. Just in case it's the latter...

I value X and Y but I value X more than Y...

X > Y

A. I vote for Y
B. Y happens to be implemented
C. Y uses resources
D. The resources that Y uses could have been used for X
E. Quiggin's Rule is broken
F. You agree that Quiggin's Rule should not be broken

2. A large chunk of your argument is relevant to anarcho-capitalism. I am not an anarcho-capitalist. I am a pragmatarian. Of course you're welcome to attack anarcho-capitalism in this thread! But please don't be under the impression that you're actually attacking my own view.

3. Yes, we pool our cognitive resources. I strongly agree with this concept. In fact, here's a slice of what I recently wrote in another thread...

Today I watched this excellent video on Youtube... Human Cognitive Evolution: How the Modern Mind Came into Being - Merlin Donald. He argues that humans form a distributed network. Our brains aren't literally linked together though. So in order for the network to process information... we each need to share our individual information. If we share inaccurate information, then the output will be inaccurate. This is the basic concept of garbage in, garbage out (GIGO).

Everybody would benefit from a network that's...

1. larger
2. more accurate
3. more efficient

"Homing in on the right solution" is inefficient and it's also inaccurate. It takes too long to access information that most likely doesn't come very close to people's valuations. Democracy is certainly efficient... but it's far less accurate than homing. Representation is a small, inefficient and inaccurate network. Removing any amount of brains from the network is extremely stupid. This is why slavery is also stupid. Unfortunately, this is not why we oppose slavery. We oppose slavery for moral reasons. In other words, we oppose slavery for the wrong reasons.

You're bored with the scenario of people selling shit to each other. You're more interested in the scenario of replacing voting with spending. From my perspective your interest is incoherent. This is because, from my perspective, both scenarios address the issue of improving the efficiency and accuracy of communication.

So I think that your incoherence stems from your failure to perceive commerce as communication. What we consume depends entirely on how and what we communicate to each other. Your analysis will become far more coherent if you manage to focus on the communication aspect.

I'm sure that you agree that slavery is stupid. But why, exactly, do you think it's stupid? As I explained, I think it's stupid because it removes brains from the network. The more brains that are removed from the network, the less powerful it is. By this same notion... the less fully a network utilizes the brains it contains, the less powerful it is.

As you pointed out... our society has different institutions. Here are three very different institutions...

A. democracy
B. representation
C. markets

These three institutions are very different. As such, they can not be equally good at...

1. including brains
2. utilizing brains

Democracy: good at including brains, bad at using them. In that same other thread I wrote...

One clear drawback of this method is that it's far more time consuming than simply voting. Even if there was an app for it then it still wouldn't be as fast as people simply raising their hands. Not only is it more time consuming... but it requires more mental effort. Unless you're Buridan's ass... it shouldn't be too difficult to decide that you prefer to eat at The Dumpling Palace. It requires more brainpower to decide exactly how much you prefer to eat at The Dumpling Palace. It's one thing to determine your preference. It's another thing to determine the intensity of your preference.

Representation: incredibly terrible at including brains, bad at using them. Elizabeth Warren doesn't get to decide for herself how she spends her portion of the budget. Which means that her brainpower isn't fully utilized.

Markets: good at including brains, good at using them. On a daily basis, each and every individual makes difficult decisions about how to allocate their limited resources. These difficult decisions fully utilize their brainpower. These difficult decisions utilize all the information that's stored in their memories. These difficult decisions utilize all their hindsight, insight and foresight. These difficult decisions utilize all their processing power.

As a pragmatarian.... I have absolutely no desire to eliminate the public sector. My desire is for human brainpower to be fully applied to public goods like it's fully applied to private goods. This could be accomplished by creating a market in the public sector. People would simply choose where their taxes go.

However, the public sector is hardly the only space that's missing a market. Right now I'd definitely be willing to pay you a penny for your thoughts! But I definitely wouldn't be willing to pay you a million dollars for your thoughts! Narrowing it down to an exact amount would require brainpower.

You can certainly argue that we are better off not knowing how much I truly value your time and thoughts. But then you'd be arguing that we're better off when networks do not fully utilize their brains.

Companies also fail to fully utilize brainpower...

Russ Roberts: Let's talk about your 1937 paper, "The Nature of the Firm." You were trying to answer a question--an interesting question, remains a good question; it was a good question in 1937, it's still a good question, which is: If capitalism and markets and prices, the Hayekian system of communicating information via price signals, if it works so well, why do firms exist? Because firms are almost by definition top down rather than bottom up. They use command and control rather than purchases within the firm, although there are exceptions to that. Some firms do use price signals for their decision-making inside the firm. But many firms do not. Their decisions are made not by prices but by fiat, by decisions on the top. Now, you wrote that paper when you were very, very young, the first part of it, correct?
Ronald Coase: That's right. I wrote it while I was an undergraduate. It seems obvious to me. If you go into a firm and you say to someone: Why did you do this? He'd say: Because I was told to do it. He doesn't talk about pricing at all. Almost of all the things you do within a firm are not controlled directly by prices at all. Your boss tells you what to do and you do it.
Russ Roberts: How did you come to write that paper as an undergraduate.
Ronald Coase: Oh, I was interested in how firms actually operate, and if you start studying how firms actually operate you find that they are not concerned with prices directly at all. A person who is working in a firm does what he's told. That's the way it operates.
Russ Roberts: So, a firm is an island of socialism in a capitalist world.


We are biased toward the democratic/republican side of the spectrum. That’s what we’re used to from civics classes. But the truth is that startups and founders lean toward the dictatorial side because that structure works better for startups. It is more tyrant than mob because it should be. In some sense, startups can’t be democracies because none are. None are because it doesn’t work. If you try to submit everything to voting processes when you’re trying to do something new, you end up with bad, lowest common denominator type results. — Peter Thiel, Girard in Silicon Valley

A firm is a network of brains. It makes sense that firms can't be democracies. As I pointed out, democracies are good at including brains, but bad at using them. Firms can clearly be dictatorships. But even the wisest and most benevolent dictatorships can't fully utilize the brains they contain. If we accept the assumption that it's desirable for brains to be fully utilized... then the logical conclusion is that firms should be markets. A firm is a boat that should be steered by the spending decisions of the people in the boat.

4. I am familiar with David Graeber's work. Just like I'm already familiar with Mariana Mazzucato's work. Unfortunately, I don't have a link to prove that I am familiar with her work. But if you look on my blog you'll see that I link to the Crooked Timber blog. I consistently take the time and make the effort to learn and understand my opponents' arguments.

The only significant cost this will impose on you is the time cost it will take to actually read shit and get properly informed. But then wouldn't you rather argue things in ignorance on the internets with people who are even more ignorant than you? The latter is certainly much more entertaining :p - Ad Nihilo

In the OP of this thread, I said that Quiggin's Rule was named after the economist John Quiggin. Quiggin is a liberal economist. He's certainly properly informed so I would definitely prefer to argue with him. So here's what I wrote to him... The Inadequacy Of The Opportunity Cost Concept. And here's the extent of his response. It's... underwhelming. To say the least.

You are extremely informed. Well... at least compared to other members of Nation States. And unlike Quiggin, your response is definitely not underwhelming. That being said, your response is nowhere near the target. You sure made a lot of shots... but none of them were even in the right direction. None of them came close to addressing my actual argument.

I'm pretty sure that Quiggin is informed enough to clearly see my target. But... I'm guessing he's also informed enough to know that he can't hit it. Therefore... he decided to simply share my target rather than attempt to hit it. Which is entirely understandable.

If you make the effort, I'm sure that you could see my target. But, to be completely honest, I'd be surprised if you could actually hit it given that Quiggin was smart enough to not even hazard a shot. Quiggin didn't link me to Graeber... but you did. Is it because Quiggin is not familiar with Graeber's work? Nope. Quiggin didn't link me to Mazzucato... but you did. Is it because Quiggin is not familiar with her work? Nope. Quiggin didn't link me to Kay... but you did. Is it because Quiggin is not familiar with Kay's work? Nope. Quiggin didn't link me to Piketty's work... and neither have you. Is it because Quiggin is not familiar with Piketty's work? Nope.

Quiggin didn't make these shots because he understands that none of them would come even close to the target.

Saturday, March 26, 2016

Consumer Surplus vs Consumer Honesty

Comment on: Why valuation economics are messing up the Internet, Inequality, and Productivity debates by Tim Kane


This blog entry is a digital good.  I just read it and derived $0.25 cents of value from it.  But, unfortunately, the payment costs of giving you 25 cents are too high.  So I'm not going to do so.  Which makes me a free-rider.  But... not by choice.  It's not my fault that your blog doesn't facilitate micropayments.  Therefore... I'm not a free-rider... I'm a forced-free-rider.  My consumer surplus is 25 cents... but it's not my fault!

Let's say that your blog did facilitate micropayments.  Right above the comment section would be some coin buttons... a penny, nickle, dime and quarter.  I could click the quarter button.  Doing so would instantly transfer 25 cents from my digital wallet to your digital wallet.

On the one hand... I would be accurately communicating my valuation of your blog entry.  But on the other hand... I wouldn't be getting any consumer surplus!

Which is more important?  Accurately communicating valuations... or getting consumer surplus?  The free-rider problem clearly indicates that too much consumer surplus is undesirable because it will result in goods being undersupplied.  Therefore... it should seem like goods can only be optimally supplied when consumer surplus is minimized.

If you get a chance I'd appreciate your thoughts on my solution (sectornomics)...

Thursday, March 17, 2016

Markets maximize the exchange of information by maximizing the rationality of persuasion

Another reply to Adam Gurri


Language isn't subjective... it isn't objective... it's conjective!  Yeah!  Thanks to our exchange I now know this!  And I'm sure it's relevant to our disagreement... but I'm not quite sure just how relevant it is.

Personally I've invented quite a few words.  But I'm not much of a wordsmith so I would be really surprised if any of them caught on.  One word that I invented is "linvoid".  It's a word for a word that needs to be invented.  McCloskey spotted a linvoid and she channeled her inner wordsmith and voila!  Now we have "conjective"!

I think that, when it comes to the topic of persuasion... there are quite a few pretty big linvoids.

Frank the salesman knocks on the Smith's door.  Billy Smith answers the door.  Billy's just a kid.  Does Frank try and persuade him to buy his product?  No.  Why not?  Because Billy's just a kid!   So Frank doesn't try and persuade him to buy his product.  Instead, Frank tries to persuade Billy to go get his mom or dad.

Billy runs to get his dad.  Bob Smith comes to the door and Frank introduces himself and tries to persuade Bob to buy what he's selling.  What's Frank trying to sell?  Something tangible like a vacuum?  Ok.  Something intangible like religion or vegetarianism?  Sure.

If Frank successfully persuades Bob to become a vegetarian... then Bob will choose to stop buying meat.  The choice is Bob's to make.  So we wouldn't be very surprised if Frank does try and persuade Bob to stop buying meat.  It's entirely rational for Frank to take the time and make the effort to share his information about the benefits of vegetarianism with Bob.  Why is it rational?  Because if Bob sees the merit/truth/validity of Frank's information... then Bob is entirely free to act on it.

Would it be rational for Frank to try and persuade Bob to become a pacifist?  Kinda!  Bob can certainly buy the idea of pacifism... but it's not like he can very easily act on this idea.  It's a lot harder to boycott war than it is to boycott meat!  Clearly it's not impossible to boycott war.  Bob could certainly stop paying taxes and risk going to jail.  He could also stop earning money... then he wouldn't have any taxes to pay.  Given that there's a much higher (transaction?) cost for boycotting war than boycotting meat... it becomes that much less likely that Frank would take the time and make the effort to persuade Bob to become a pacifist.

What comes to mind is locus of control (LOC).  Choosing to boycott meat is a decision that Bob is entirely free to make.  So the locus of control is internal.  Choosing to boycott war is a different story.  Bob is not entirely free to make this decision.  So the locus of control is more external.  The terminology doesn't work perfectly though because LOC is primarily an issue of perception.  But in the case of boycotting war... the cost of doing so is real rather than imagined.

Another thing that comes to mind is modular versus monolithic.  In terms of persuasion... vegetarianism is modular while pacifism is more monolithic.  Each time a person becomes a vegetarian... marginally less meat is purchased/produced.  But each time a person becomes a pacifist...  marginally less war is not purchased/produced.  Modularity allows for small and incremental improvements to be made.  Modularity facilitates the exchange of less desirable traits for more desirable traits.  In other words... modularity facilitates evolution/progress.

In some cases the "product" being sold has to be monolithic.  For example... when the product is mutually exclusive.  Like in the example of the confederate flag.  Other examples include gay marriage and the legality of drugs.  These are yes/no issues rather than matters of degree.

What would happen to persuasion if we replaced voting with spending?  Well... we would clearly see the intensity of people's preferences.  This would allow us to make far more informed decisions with regards to persuasion.

From my perspective... society works better when more, rather than less, information is exchanged.  We maximize the amount of information that's exchanged by maximizing people's freedom to act on information.  This is how and why markets work.  This is how and why it's a problem wherever and whenever markets are missing.

So how many linvoids did you spot?  In theory... creating words for all the biggest linvoids would facilitate a far more productive discussion on the topic of persuasion.

Wednesday, March 16, 2016

Helping the poor without breaking QIRE

Reply to reply: Dağhan Carlos E. Akkar


Your goal is to help the poor. Which is a really wonderful and important goal! But you’re trying to help poor people by breaking Quiggin’s Implied Rule of Economics (QIRE)…

QIRE: society’s limited resources should be put to more, rather than less, valuable uses

When consumers spend their hard-earned money… they endeavor to spend their money on the most valuable options. This means doing their homework and shopping around. It doesn’t mean buying the first thing that they find.

So after doing lots of homework and lots of shopping around… lots of consumers decide to give lots of money to Bob. Evidently lots of consumers highly value how he is using society’s limited resources. Evidently they want him to be able to use even more of society’s limited resources. Evidently they want him to have even more influence over society’s limited resources. Evidently they want him to have even more power and control over how society’s limited resources are used.

Then what? Then you come along and decide that too many consumers gave too much money to Bob. So you… in your infinite wisdom… decide to override their spending decisions. Not fully override…. but partially override.

You don’t fully subvert the will of the people… you partially subvert the will of the people. As if their judgement is impaired… but not entirely impaired.

What do you with all the money that you take from all these consumers? Clearly you don’t give it to Bob. That would be strange. Do you give it back to these consumers? That would also be strange. Instead… you give it to poor people.

You give it to poor people… because… why? Because… you highly value how they are using society’s limited resources? Do you really though? In this scenario you really are not giving them your own hard-earned money. You’re giving them other people’s hard-earned money.

Maybe you’re under the impression that these consumers highly value how poor people are using society’s limited resources? So then you need to explain why these consumers chose to give their money to Bob rather than to poor people. You need to explain why you can’t simply persuade these consumers to give more of their hard-earned money to poor people. You need to explain why you have to rely on partially overriding their spending decisions.

In other words… you need to explain why it’s a good idea to break Quiggin’s Implied Rule of Economics (QIRE).

I’m pretty sure that you can’t explain why it’s a good idea to break QIRE. Nobody benefits, the poor least of all, when society’s limited resources are put to less valuable uses.

Fortunately for everybody, you can achieve your worthy goal of helping the poor without breaking QIRE.

The poor are poor because they are not doing valuable things with society’s limited resources. In some cases it’s because they are dumb. But I’m pretty sure that these cases are the exception rather than the rule. If you want to argue that these cases are the rule… then we can toss your argument for basic income into the garbage.

In order to help lift the poor out of poverty… you simply need to help them do more valuable things with society’s limited resources. This can be accomplished by making everybody’s valuations more accessible.

Right now, when I scroll up, here’s what I see…

“Most popular Medium stories tagged Inequality”

Medium, in all its wonderful wisdom, wants to show me three popular stories on the topic of inequality. It’s really easy to tell just how popular these stories are. The first story has 289 hearts… the second story has 131 hearts… and the third story has 90 hearts.

This is the seen. What’s the unseen? The unseen is how valuable these stories are. Medium makes it stupid easy to “like” a story… but it’s not nearly as easy to valuate a story. Medium doesn’t make it stupid easy for readers to give their pennies, nickles, dimes, quarters or dollars to their favorite stories.

What would happen if valuing a story was as easy as liking it? People’s valuations would be more accessible. The treasure map would become more accurate. This would help everybody, but especially the poor, use society’s limited resources in more valuable ways.

If Medium, Twitter, Facebook, Youtube, Flickr, Reddit, Quora and a gazillion other websites endeavored to make people’s valuations more accessible… then the treasure map would become far more accurate…. and everybody’s decisions would be far more valuable.

Let me try and make this concept as accessible as possible. Think about an Easter Egg hunt. A little kid picks up an old white piece of dog shit. You would probably tell the kid, “Hey little dude! That’s not an Easter Egg! This is an Easter Egg! See the difference?”

Here you are reading this story of mine. Do you think it’s an old white piece of dog shit? Or do you think it’s an Easter Egg? If you think it’s an Easter Egg… just how much do you value it? I’m not a mind reader. Nobody’s a mind reader. We can only know your valuation of this story if you communicate your valuation to us. And, as the saying goes… actions speak louder than words (Tabarrok’s Rule).

We will truly eliminate poverty when everybody does a much better job of making their valuations far more accessible.

Tuesday, March 15, 2016

Persuading Puppets Is Pointless

My reply to Adam Gurri


You're correct that it's a huge leap!  But you really don't need to leap the chasm... there's a perfectly functional bridge.  It's called "diversity".  Markets are inherently diverse.  Let's say that an asteroid destroys our planet tomorrow.  Who do we blame for humanity's extinction?  Alex Tabarrok?  Nope...

Maybe we blame Mark Lutter?  Nope...

"With humanity concentrated on earth, an errant asteroid could wipe out civilization. Nuclear war could end human life. Rogue AI could eliminate humanity. Colonizing other planets limits the destructive potential of such threats. If life on earth is wiped out, Mars would still thrive. Private space exploration literally has the potential to save humanity."

Of course we don't blame these two individuals.  Do we blame the market then?  Well no... contrary to Lutter's argument for private space exploration... we're talking about a public good here.  Therefore... the not-market would be entirely to blame for human extinction.  Centralization, by definition, limits the variety of the very different paths that individuals would be naturally inclined and incentivized to take.   Centralization, by definition, puts far too many eggs in far too few baskets.

If people were free to choose where their taxes go then we would have a market in the public sector.  As a result, public goods would be just as diverse as private goods.  This is because the demand for ALL goods is inherently diverse.  You and I wouldn't put the same exact public goods in our shopping carts just like we don't put the same exact private goods in our shopping carts.

Progress is a function of difference.  Sexual reproduction is all about difference and voila!  Here we are!

Regarding Schumpeter's "corrections"... any such thing is the logical, but extremely detrimental, consequence of centralization.  With the current system there are public "shepherds" who are so confident in their information that they are very eager to limit the natural diversity of markets.

Don't get me wrong... we need rules/regulations to protect diversity.  But nearly all of our rules/regulations do the very opposite.

Regarding the physicists... you seem to appreciate the benefit of persuasion.  So do I!   Persuasion is a function of choice though.  Take away people's choices and it becomes entirely unnecessary to persuade them.  If people are marionettes... then it's pointless to try and persuade them.  If you want marionettes to behave differently... then you're going to have to try and persuade whoever is pulling the strings.

Allowing people to choose where their taxes go would cut all the strings.  So we'd have infinitely more persuasion than we currently have.

For me it's not difficult to cleanly separate not-market factors from market factors.  You're an intelligent guy.  And you can't choose where your taxes go.  If the economy struggles in any way... then it's because your difference (creativity/intelligence/knowledge/foresight) and Tabarrok's difference and Lutter's difference and the difference of millions and millions of other people has been and continues to be squandered to a significant extent.

Our system needs to be less like Hitler and more like Churchill...

"Since the Germans drove the Jews out and lowered their technical standards, our science is definitely ahead of theirs." - Winston Churchill

Sectornomics Simply Illustrated

Reply to reply: Should we create a digital sector?


If you're right, and having consumer surplus hides information and makes the economy inefficient... then that means you think every society has been continuously and actively engaged in an activity for the last 10 millennia that makes them less efficient. Yet the evidence appears to be the opposite. So either prehistoric man had some Godlike level of efficiency and we somehow still haven't managed to spiral from there to rock bottom... or your theory about consumer surplus is wrong. - Maqo

Rake is a pretty wonderful Australian show about a lawyer. A while back it would have cost you $24.28 to purchase the first season on Amazon. Here's how I illustrated this...

The less expensive the show is... the more people that would be willing to purchase it. Lots of people would buy it if it only cost a penny. A lot less people would buy it if it cost $100 dollars. I'm sure you agree with this pretty straightforward economic concept.

Amazon decided that $24.28 was a good price for the show. This is the Value Conveyed (VC) line. This is the seen. What's the unseen?

A. Everything to the left of the VC line (all the people who would have purchased the show for less money)
B. Everything to the right of the VC line (all the people who would have purchased the show for more money)

B is the consumer surplus. If you would have been willing to purchase the show for $30 dollars... then you derived $5.72 worth of consumer surplus from your purchase.

You're perfectly happy with what we currently see. And it's certainly good that we can see some valuation... but if it's good to see some valuation... then it's better to see more valuation.

A cup has a drop of water in it and you say, "Hey! The cup is .01% full!" And I'm like, "Yeah... the cup is .01% full... but it's also 99.99% empty."

If we created a digital sector then the cup wouldn't be 100% full... but we'd certainly have a far better idea of the true value of Rake and all the other digital goods.   Everybody's valuations would be far more accessible... which means that everybody's decisions would be far more valuable.

Trait A: Right now everybody (with some exceptions) is forced to spend Z% of their income in the public sector.
Trait B: However, people can not choose which public goods they spend their taxes on.

Trait C: Right now nobody is forced to spend Y% of their income in the non-profit sector.
Trait D: However, people can choose which charitable goods they spend their donations on. - Xero

To be honest, Trait A is bad. We know it's not optimal. That's one aspect of your Lord and Savior Buchanan's paper that I can agree completely with. We should be trying to minimize the areas that are affected by A.
But we know (or at least, have very significant theory and empirical evidence to believe) that A+D is worse. It has to be A+B. We accept the problem to some extent with normal taxation because we haven't yet found a way around it (and no, you haven't found that way). But for normal, private goods (or public goods which can be privatized) then we don't need to introduce the problem where none exists. - Maqo

Really... "WE" know that A+D is worse? Who's WE? I have my lord and savior James Buchanan. Who's your lord and savior? Paul Krugman? Paul Krugman's your lord and savior... because... why? Because he defeated my lord and savior in battle? Krugman has completely refuted Buchanan? No, he really hasn't. So if not Krugman... then who? The only person you consistently cite is Galloism. So Galloism is your lord and savior? If not, then who is your lord and savior?

Forcing people to spend some % of their income on some product is going to be wrong for EVERYONE. It is going to hide EVERYONE's preferences. - Maqo

If this is what you clearly see in your head... then it should be so super easy for you to draw a diagram for the rest of us. If it's hard for you to diagram it... then either....

A. you're not clearly seeing it
B. you're incompetent

I don't think you're incompetent. So if you can't quickly and easily draw a diagram... then you're not clearly seeing what you're telling us.

On the off-chance that you don't realize how easy it is to create and share a diagram... you simply go to Google Docs... select Google Slides... create a new slide and draw a diagram. Then you can download the slide as a jpg, upload it to imgur and share it with the rest of us.

Here's an illustration that I just quickly and easily created using Google Slides...

Sunday, March 13, 2016

The Democratic Definition Of "Love"

Comment on: Sovereignty Is Not Property by Adam Gurri


I'm happy that your website is back. Free-riders are a always a problem because producers are never mind-readers. True or false?

I don't spend very much time worrying about the immigration debate. Maybe I'm undervaluing it though.

One time you told me this... "The point is that thinking about alternatives is not all, or even most, of what love is about."

I didn't reply... but I can't remember why. I'm an atheist but I grew up reading the bible... a lot. When I was a little kid I didn't understand why God rejected Cain's sacrifice. Now I understand that Cain's willingness to pay (WTP) was inadequate. Abel was willing to make a much larger sacrifice.

Later on in the Old Testament we saw the same theme when Abraham was willing to sacrifice his only son Isaac. And also in the New Testament... "For God so loved the world, that he gave his only begotten Son." As opposed to... "For God so loved the world, that he voted for it." I don't think that Christianity would have spread so far so fast with the democratic definition of "love".

We're definitely not mind-readers so it sure makes sense that God used his WTP to clearly communicate his love for us. But...... God also required us to use our WTP to clearly communicate our love for him. As if God isn't a mind-reader? Solomon seemed to believe otherwise, "for thou, even thou only, knowest the hearts of all the children of men."

You seemed to argue that this... "Should anyone who wants be allowed into your home?"... is not a valid argument because of democracy. Does this mean that it would suddenly become a valid argument if we did happen to replace voting with spending?

Recently I made a fun argument on a forum full of liberals. I argued that, because of the free-rider problem, everybody should be forced to spend X% of their income on digital goods. But... we would be able to choose which digital goods we spent our "daxes" on. How cool would it be to have a "digital sector"? For sure I would spend some of my daxes on your website! Yet, as the poll demonstrates, the idea was really unpopular. It was a fun argument though because every argument that the liberals made against a digital sector was equally applicable to the public sector. It was magical. Voila! All of a sudden a bunch of liberals were deeply concerned with the forced-rider problem. But I'm pretty sure that I wouldn't spend my daxes on digital goods that I didn't value... would you?


Comment on Keynesianism in Democracy by Jason Briggeman


Neither this entry nor your entry on bullshit in economics textbooks...

... includes any acknowledgement of "Tabarrok's Rule": actions speak louder than words.  Your solution to bullshit in economic textbooks was.... ironically... a cheap-talk survey.

In this entry you're considering Buchanan and Wagner... which is wonderful.  But you're not quite acknowledging or appreciating "Buchanan's Rule": using a resource one way means sacrificing the other ways that it could also be used.

Because of Buchanan's Rule... we need Tabarrok's rule in order to ensure that we don't massively violate "Quiggin's Rule": society's limited resources should be put to more, rather than less, valuable uses.

The logical, but extremely detrimental, consequence of massively violating Quiggin's Rule is the major misallocation of society's limited resources.  Keynesianism tries to solve recessions/depressions by violating Quiggin's Rule even more.

If you're interested in learning more...

Wednesday, March 9, 2016


Forum thread: Creating A Digital Sector


There are lots of goods that we treat like private goods... photos, books, music, movies, software... but they aren't actually private goods.  Maybe they aren't technically public goods either.

In any case, hopefully most of you intuitively appreciate that sharing a couch really isn't the same thing as sharing an ebook.  Just like sharing an apple really isn't the same thing as sharing an mp3.  Just like sharing a cab really isn't the same thing as sharing a jpg.

Personally, I'm pretty sure that it's extremely detrimental to try and treat digital goods like private goods.  One solution would be to create a digital sector.  Nobody would ever have to buy anything digital ever again.  Instead... everybody would have to spend X% of their income on digital goods.  It would be entirely up to each and every person to decide which digital goods they spent their X% on.

If we created a digital sector... then it would be the epitome of "sharing is caring".  With the current system... in many cases... "sharing is criminal".  Digital pirates can end up paying hefty fines if they get caught.  We've all been thoroughly warned that "piracy is not a victimless crime".

Can you imagine living in a world where sharing digital goods was really encouraged rather than extremely discouraged?  Can you imagine living in a world without any more paywalls?  This world is entirely possible.  Concentrate concentrate... it's in your reach.   We can disrupt the shit out of the current system.

A digital sector wouldn't be without its challenges though.  What would prevent two friends from creating blogs just so that they could pay each other?  How could we minimize cheating?  I'm sure there's a solution.  Given enough eyeballs, all solutions can be found.  Given enough eyeballs, all cheaters can be caught?

One particularly fascinating challenge would involve determining the percentage of income that should be spent on digital goods.  Everybody would have to spend X% on digital goods... but what's the best X?  What's the optimal X?  Clearly there would be problems if X was suboptimal.  If X was too small... then we'd suffer from a shortage of digital goods.  But if X was too large... then we'd suffer from a shortage of non-digital goods.

One possible solution would be to create a non-profit organization dedicated to deciding what X should be.  For convenience sake we can call this non-profit the Digital Balance Society (DBS).  Let's say that you were suffering from a shortage of non-digital goods.  In order to communicate your predicament, you'd simply boycott the DBS and let them know why you were doing so.  With this financial feedback mechanism... the optimal X would be whichever X maximized the DBS's revenue.

I'm sure there's a better solution.  There's always a better solution.

Another challenge would be enforcement.  Perhaps there would have to be a government organization called the Digital Revenue Service (DRS).  Their job would be to ensure that people pay their digital "taxes" (daxes).  The DBS would determine the dax rate and the DRS would enforce it.

Of course... just like with taxes... there's absolutely no reason that the dax rate couldn't be progressive... or even extremely progressive.  Maybe people with incomes under say, $25,000 dollars, would not be required to spend any percent of their income on digital goods.

Let's imagine that poor people no longer spent any money on digital goods.  What impact would this have on digital goods?  What impact would this have on non-digital goods?

I think it's really important to understand that consumers use their cash to direct the economy like a conductor uses a baton to direct an orchestra.  Consumption is a function of direction.  Being able to read a ton of sci-fi books depends on consumers directing enough cash to sci-fi books.

This idea of creating a digital sector falls under the category of "sectornomics".  I would say that I just made this word up but a Google search for "sectornomics" reveals that there are currently 807 results for this word.  It doesn't seem like any of those uses of the word are what I have in mind.  There are relatively few search results though so I'll throw my own definition into the ring.

Just like we could create a digital sector... we could also create a non-profit sector.  Well... we already have a non-profit sector.  However, people are not currently required to spend Y% of their income in the non-profit sector.

Right now we are required to spend Z% of our income in the public sector.  Fully applying sectornomics to the public sector would only involve allowing people to choose where their taxes go.  And again, we've already had plenty of threads about pragmatarianism so please feel entirely free to not to discuss it in this thread!  Although, I would certainly be the last person to stop you from doing so!  :D

Based on what we've covered... the sectornomics breakdown would look something like this...

1. Digital sector: X%
2. Non-profit sector: Y%
3. Public sector: Z%
4. None-of-the-above sector: A%

X% + Y% + Z% + A% = 100%

Initially I wanted to create this thread to survey members about what the optimal dax rate would be.  But I suppose it's more logical to first establish how many members would even want a digital sector.


Your concept of 'making your valuation more accessible', in real economic terms, means 'voluntarily eliminating your personal consumer surplus'. If you can't see how idiotic that is I don't think anything can save you. - Maqo

Here's what a socialist economist had to say about capitalism...

The system of free competition is a rather peculiar one. Its mechanism is one of fooling entrepreneurs. It requires the pursuit of maximum profit in order to function, but it destroys profits when they are actually pursued by a larger number of people. - Oskar Lange, On the Economic Theory of Socialism: Part Two

How are profits destroyed when they are pursued by a large number of people?

Let's say that it's extremely profitable to grow and sell dragon fruit.  This means that the demand for dragon fruit is far greater than the supply of dragon fruit.  In other words... a lot of people want dragon fruit but it is very scarce.

Because it's extremely profitable to grow/sell dragon fruit... we can expect that more and more farmers would start growing/selling dragon fruit.  But what happens when the supply of dragon fruit increases?  The profitability would decrease.

This is how profits are destroyed when they are pursued by a large number of people.  On the one hand... profits were destroyed...but on the other hand... dragon fruit went from being scarce to being abundant.  Which is beneficial for consumers.

A straight line is the shortest distance between two points.  Here are the two main economic points...

Point A: scarcity
Point B: abundance

The larger the consumer surplus (the smaller the profits for producers).... the longer the distance between these two points.  The smaller the consumer surplus (the larger the profits for producers)... the shorter the distance between these two points.

Sacrificing consumer surplus means giving up momentary pleasure for future benefit.

When dragon fruits were super expensive (Point A)... who purchased them?  Poor people?  Nope.  Rich people did.  Rich people can afford luxuries.  But even though dragon fruits were expensive luxuries... we can guess that there were quite a few rich people who received some amount of consumer surplus when they purchased them.  In other words.... many rich people's valuation of dragon fruits was greater than their allocation to dragon fruits.  This makes sense to you.  You think it would be idiotic to eliminate consumer surplus.  This means that you think it's better when poor people have to wait longer for dragon fruits to become a lot more affordable (Point B).  

From my perspective... intelligent movies are super scarce right now (Point A).  Does this mean that intelligent movies are super expensive?  Nope.  This is because we pretend that movies are private goods when actually they are digital goods.  Therefore.... we should create a digital sector.  The optimal dax rate would eliminate consumer surplus.  Rich people wouldn't pay $10 dollars for intelligent movies.  Instead, they would spend $1000s of dollars on intelligent movies.  This would be the shortest path to Point B.

Would poor people benefit if we had an abundance of intelligent movies?  Of course they'd benefit.   Intelligent movies educate the public... and public education has many positive externalities.  

Everybody would really benefit if there was an abundance of movies about Adam Smith...

When by an increase in the effectual demand, the market price of some particular commodity happens to rise a good deal above the natural price, those who employ their stocks in supplying that market are generally careful to conceal this change. If it was commonly known, their great profit would tempt so many new rivals to employ their stocks in the same way, that, the effectual demand being fully supplied, the market price would soon be reduced to the natural price, and perhaps for some time even below it. If the market is at a great distance from the residence of those who supply it, they may sometimes be able to keep the secret for several years together, and may so long enjoy their extraordinary profits without any new rivals. Secrets of this kind, however, it must be acknowledged, can seldom be long kept; and the extraordinary profit can last very little longer than they are kept. - Adam Smith, Wealth of Nations

Entrepreneurs want to try and cheat by hiding their profits from other entrepreneurs.  Who does this cheating hurt?  Consumers of course.  What about when consumers try and hide their true valuations from all the entrepreneurs?  Is this cheating?  It really is.  Who does this cheating hurt?  Again... consumers!  But in this case, consumers are inadvertently hurting themselves.

It's true that right now we have lots of abundance... and we also have consumer surplus.  But our hidden valuations really didn't facilitate any of the abundance that we do have.  All the abundance that we do have is the result of entrepreneurs acting on the information that they did have access to.  Entrepreneurs really did not act on information that they did not have access to.  If a decade ago we had been far more forthcoming about our true valuations then we would now have a lot more abundance.  With this in mind... we should really sacrifice momentary pleasure for future benefit.

Popular vs Valuable

Reply to story: towards an e-voting system that people can trust


You’re working on some technology that will help us figure out which option is more popular. While you’re at it… why not also develop some technology that will help us figure out which option is more valuable?

Should we choose the more popular option? Or should we choose the more valuable option?

I’m pretty sure that we should choose the more valuable option.

If you you need a bit more explanation… then maybe this will help… 

It’s an interesting idea, the problem that I see with value is that is too subjective, I don’t see an objective way to weight value. - Jorge Garcia

You would simply make it stupid easy and fast for people to spend their bitcoins/dollars on X or Y. If people spent more money on X… then…

X > Y

For example… 10 coworkers are trying to decide what kind of restaurant to go to after work…

X = Chinese
Y = Italian

With voting… people would simply raise their hands to indicate whether they prefer X or Y….

X = 6 votes
Y = 4 votes

The advantage of voting is that it’s stupid easy and fast. The disadvantage of voting is that it doesn’t communicate the intensity of people’s preferences.

In order to solve this problem you would develop the technology to make it stupid easy and fast for people to communicate the intensity of their preferences. The coworkers would open your app and spend their money on the option that they valued most. Maybe the results would look like this…

X = $4 dollars
Y = $8 dollars

Chinese is the more popular option but Italian is the more valuable option. In fact, Italian is twice as valuable as Chinese. This means that $4 dollars worth of value would be destroyed if the coworkers went to a Chinese restaurant rather than to an Italian restaurant.

Of course this can’t simply be hypothetical spending. The money actually has to be spent or else people would just enter bogus numbers.

In my example with the coworkers… the losers would get their $4 dollars back… and they would also get $8 dollars. The $8 dollars would not be evenly distributed among the losers… it would be proportionally distributed. For example… if Bob spent $2 dollars on X… this would be 50% of the total amount spent on X. Therefore… Bob would get his $2 dollars back… plus he would also get 50% of the $8 dollars… which would be $4 dollars.

Essentially… when Bob spent $2 dollars on X… he was basically saying… “I prefer to eat at a Chinese restaurant. But… for $2 dollars I wouldn’t mind eating at an Italian restaurant.”

As it turned out, Bob was more than fairly compensated to eat at an Italian restaurant. He obviously can’t complain that the compensation wasn’t fair! After all, he’s the one who decided what was fair in the first place!

In order for this to work fast… it’s gotta be a one shot deal. Everybody can only submit one valuation. When the last person submits their valuation… the results are displayed and the money is transferred accordingly.

Here’s the basic concept in a nutshell: When everybody’s valuations are far more accessible, everybody’s decisions will be far more valuable.

To be clear… given that I have to explain all of this… this really isn’t an obvious concept! I honestly really wish that it was an obvious concept. Then everybody would already be free to choose where their taxes go. Unfortunately, tax choice only has 83 likes on Facebook. So this concept is painfully non-obvious. Therefore… if you get filthy rich developing this type of app…. then I’m going to expect fair compensation! I think that 25% of the profit is pretty fair. :D The same goes for anybody else who happens to read this.

Tuesday, March 1, 2016

Proprietary Cities vs Pragmatarian Cities

Reply to: Building Autonomous, For-Profit Cities by Mark Lutter


I’d love to hear your thoughts on proprietary cities versus pragmatarian cities. A pragmatarian city is one where people can choose where their taxes go (FAQ).

From my perspective… being able to vote with your feet should always be an option. It’s a really great option to have! But I’m pretty sure that being able to vote with your taxes is an infinitely better option. The is because it would facilitate far more precise feedback… which would result in infinitely faster evolution of cities.

When you “exit” from a city… you don’t just select against the city’s harmful traits… you also select against the city’s beneficial traits. You essentially throw the baby out with the bath water. Your feedback is far too imprecise to be of much use. Foot voting is an extremely blunt instrument.

But with tax voting… you don’t have to exit your money from all of the city’s traits… you simply exit your money from the city’s most harmful traits. You have the option to starve the least beneficial traits and feed the most beneficial traits. The least beneficial traits will be quickly removed from the gene pool. Because tax voting is an extremely precise instrument, it’s a given that the composition of public traits will reflect the preferences of consumers just as much as the composition of private traits does.

We can think of Medium itself as a proprietary city. Clearly the owners of this website have an incentive to try and discern, and eliminate, the least beneficial traits. But when was the last time that the employees of Medium have personally asked for your feedback? And even if they ask for it… how can they properly weigh your answers? Maybe they ask you on a scale from 1 to 10? Hopefully I shouldn’t have to explain to you the problems with contingent valuation techniques.

It’s great that websites compete for consumers. But I’m pretty sure that it would be infinitely better if we could use our cash to precisely and accurately communicate what works and what doesn’t work. Well… technically speaking we can never use our cash to communicate what doesn’t work. We’re obviously not going to voluntarily spend our money on something that doesn’t work!

I might as well also point out that with private markets you can’t really spend your money on something that doesn’t exist. This sounds stupid obvious. But in a public market you certainly would be able to spend your money on something that doesn’t, but should, exist.

Actually… Wikipedia is kinda close to this concept. If you think that Wikipedia is missing an important entry… then you can simply create a “stub” for that entry. You’re essentially saying, “this entry doesn’t exist, but it should exist”. Anybody who agrees with you can allocate their time, effort and info to developing the stub that you created.

You would be able to do pretty much the same thing in a public market. If you think the world is missing an important product… say a flying car… then you can simply add it to the list. People would be able to allocate their taxes to this “stub”. The more money this stub received… the more resources that would be allocated to its development.

These “value signals” would of course be visible to everyone. So private entrepreneurs would certainly be able to respond to them as well.

I suppose it all boils down to the fact that nobody is omniscient. I’m not omniscient. I can’t know for a fact that you’re going to value this “story” (product) that I took the time and effort to create. So this allocation of my limited resource is just a guess. It’s entirely up to you, and anybody else who reads this, to decide whether my guess was good or bad.

What markets do is that they allow us to make infinitely more informed guesses. If Medium was a market… then, if you did value this product of mine, it would be stupid simple for you to use your cash to clearly communicate just how much you valued it. Would this help me read your mind? Yeah… kinda. But it’s not because I was somehow able to crawl inside your head… it’s simply because Medium made it stupid easy for you to make your mind more accessible. Not all of your mind of course… just the most relevant and important part of it… your valuation.

When everybody’s valuations are far more accessible… then everybody’s decisions will be far more valuable.

Medium makes it stupid easy to make our thoughts far more accessible… which is wonderful! Unfortunately, Medium really doesn’t make it stupid easy to make our valuations far more accessible. This is proof positive that people don’t understand how and why markets work.

You mentioned that you don’t have Peter Thiel’s resources to help fund a proprietary city. Unfortunately, neither do I! :( The good news is that we really don’t need Thiel’s resources to make a pragmatarian website! :D

The owner of the Ron Paul Forums is currently brainstorming what’s next for the liberty movement. As far as I can tell he wants to put together some sort of Wikipedia for liberty website. In any case… some sort of website with lots of pro-liberty information.

It sounds like a great project! Unfortunately, just like Medium, it’s not based on a solid understanding of how and why markets work. So I’m trying to remedy this… Foundational Knowledgebase — Work Product Content Parameters. If you agree that it’s a good idea for everybody’s valuations to be far more accessible… then you should sign up and chime in! But if you disagree… then I’m all ears.