Monday, July 18, 2016

Alex Tabarrok VS Paul Romer

Alex Tabarrok is my favorite living economist for two main reasons...

1. Coherence
2. Responsiveness

What do I mean by "coherence"?   I mean getting the economic story straight.  Compared to other economists... Tabarrok's economic story has a lot less contradictions.  By "responsiveness" I mean that he's taken the time and made the effort to publicly address at least some of my arguments.

Of course I'm greedy though.  I wish that Tabarrok was far more coherent and responsive.   I wish that he was perfectly coherent and responsive. So rather than simply settle, I've remained open-minded about the possibility of finding another economist who more closely matches my preferences.

Right now I'm kinda excited because I just "found" a candidate with lots of potential... Paul Romer.  Perhaps the first time I remember hearing his name was during the "mathiness" debate.   The debate was a bit interesting... but not interesting enough for me to take the time and make the effort to read Romer.  Just recently I learned that he had been selected to be the World Bank chief economist.  Eh, kinda less interesting than the mathiness debate.  Today I saw this tweet..

Did I read it?  Nope.  Scrolling down my Twitter feed I saw this other tweet...

Did I read it?  Yup!  I enjoyed reading it and immediately read and enjoyed other of his blog entries.  Here's what I've read so far...

  1. Nonrival Goods After 25 Years
  2. Human Capital and Knowledge
  3. Clear Writing Produces Clearer Thoughts
  4. Economic Growth
  5. Science Really Works: A Prize for A Careful Optimist
  6. Speeding-up and Missed Opportunities: Evidence
  7. Speeding Up: Theory
  8. Where has all the excludability gone?

Romer definitely has lots of potential to be more coherent than Tabarrok.  I'll go ahead and give Romer the opportunity.  Let's start here...

If there is no legal protection that prevents copying of books, then A is nonexcludable. Having something like copyright protection for books might or might not be a good thing. - Paul Romer, Human Capital and Knowledge

A while back a Crooked Timber liberal, Scott McLemee, tackled this issue... Karlo Marx and Fredrich Engels / Came to the checkout at the 7-11.  Basically, the website "" had been slapped for freely disseminating copyrighted material.  McLemee made the case for freely sharing the material.  What made me chuckle was that he cited the "" website...

About the time the Marxist Internet Archive announced that it would be taking down all the MECW material, Corey and I both, by coincidence, were availing ourselves of radically under-priced materials from the enemy’s publishing apparatus. He’d received an order containing dirt-cheap copies of Bastiat from the Liberty Fund, while a day earlier I had downloaded free digital editions of the major Austrian School books on theory of value and the socialist-calculation debate from the Mises Institute website. There’s more to neoliberal hegemony than loss-leader pricing, but as ideological combatants those people know what they’re doing.

Haha.  It was worth a blog entry... Don't Hide Marx Under A Bushel.  In that blog entry I had too much fun... but I wasn't very coherent.  Around a year later my economic story was far more coherent... In Which Our Anarchist Hero Jeffrey Tucker Proves The Point Of Taxation.  And recently I managed to put this coherence in a large nutshell... when everybody's valuations are far more accessible, everybody's decisions will be far more valuable.

Like I said earlier, I enjoyed reading Romer's blog entries.  And he will know this if he reads this blog entry.  My words can effectively communicate my preferences... but they cannot effectively communicate the intensity of my preferences.  Intensity of preference can only be effectively communicated by willingness to pay/spend/sacrifice.  When somebody tells you, "a penny for your thoughts"... they aren't literally offering to buy your thoughts for a penny.  But does it really matter how much they value your thoughts?

Let's consider the thoughts of my favorite economist...

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

Romer's time is valuable... and limited.  Clearly it's desirable for him to not have his time wasted.  How can he avoid a faulty distribution of his time?  He has to know the value of the different possible allocations of his time.  He's not a mind-reader though.  He can only know the value of the different possible allocations of his time when consumers communicate their valuations of his time.

I'm guessing that the World Bank will pay Romer for his time.  And clearly I have not paid him for his time... and I'm guessing that I'm not the only person in this boat.  Otherwise the free-rider problem wouldn't be a real problem.  So it's a given that there will be a faulty distribution of Romer's time.  His time will be inefficiently allocated.

Here was my attempt to make the concept of value signals as accessible as possible...

Batman's limited and valuable time should be put to the most valuable uses.  Einstein's limited and valuable time should have been put to the most valuable uses.  Romer's limited and valuable time should be put to the most valuable uses.  All our limited and valuable time should be put to the most valuable uses.  All resources should be put to their most valuable uses.

Adam Smith is my favorite economist because he did the best job, by far, of illuminating the concept of value signals.  But he wasn't very coherent because he failed to apply the concept to public goods.  Well... he didn't completely fail...

Public services are never better performed than when their reward comes only in consequence of their being performed, and is proportioned to the diligence employed in performing them. - Adam Smith, Wealth of Nations

Hayek shed even more light on value signals...

We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement. - Friedrich Hayek, The Use of Knowledge in Society

But just like Adam Smith, Hayek largely failed to come up with a coherent economic story.  Same with Mises...

The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation. - Ludwig von Mises, Omnipotent Government

Knut Wicksell's story was more coherent...

It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community's utility and sacrifice against each other.  - Knut Wicksell, A New Principle of Just Taxation

Out of all the economists... Buchanan's story has been the most coherent...

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

So far Tabarrok seems content to simply sit on Buchanan's shoulders.   Does Romer want to stand on Buchanan's shoulders?

Here's a great passage from Romer...

To understand how persistent growth, even accelerating growth is possible, it helps to step back and ask where growth comes from. At the most basic level, an economy grows whenever people take resources and rearrange them in a way that makes them more valuable. A useful metaphor for rearrangement as value creation comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes produce fewer unpleasant side effects and generate more economic value per unit of raw material. - Paul Romer, Economic Growth

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

Romer goes on to do a wonderful job of emphasizing how much room there is for more difference...

Once you get to 10 elements, there are more recipes than seconds since the big bang created the universe. As you keep going, it becomes obvious that there have been too few people on earth and too little time since we showed up, for us to have tried more than a minuscule fraction of the all the possibilities.

Further down in the same entry he applies the combination concept to developing countries...

For developing countries, the priority is to find a way to make use of the tested strategies that richer countries have already used to have a higher standard of living. One of the biggest meta-ideas of modern life is to let people live together in dense urban agglomerations. A second is to allow market forces to guide most of the detailed decisions these people make about who they interact with each other. Together, the city and the market let large groups of people cooperate by discovering new ideas, sharing them, and learning from each other. The benefits can show up as a new design for a coffee cup or wages for a worker that grow with experience acquired in jobs with a sequence of employers. People living in a large city cooperate with residents there and through many forms of exchange, with residents in other cities too. Cities connect us all together. China’s growth reflects is rapid embrace of these two big meta-ideas, the market and the city.

In Romer's blog entry... Speeding Up: Theory... he continued doing an excellent job of tying combinations and communication together...

We are lucky to in a physical world characterized by combinatorial explosion and to be creatures with an evolved capacity for communicating with each other.

Romer concludes with...

In parallel, we also discovered some meta-ideas that enhance the rate of communication across large distances and over time–written language, printing, and digital communication. Like cities, these are meta-ideas, ideas about how to produce and distribute ideas. They interact with population size to enhance the scale effects and convert them from local effects into global effects. 
It would be better to describe this as “the more you know, the better it is to have lots of other people around, not just nearby, but anywhere on earth.” 

In a following entry (Where has all the excludability gone?) Romer really seems to perceive the need for coherence...

Shouldn’t diffusion, every bit as much as innovation, depend on real things that real people do? Can’t economists come up with a theory of diffusion that does not have to invoke some mysterious form of action at a distance implied by these transmissions through the aether?  And shouldn’t prices and incentives be part of the story? Don’t they encourage real people to do more or less of the real things that real people do? Isn’t this what economics is all about, explaining behavior with incentives not assumptions? 

Like I said, Romer has lots of potential to be more coherent than Tabarrok.

Does a coherent story have blogs behind paywalls and books protected by copyright?  I sincerely doubt that these two methods will maximize the accuracy of value signals.  This is because one price really does not fit all.  Values are entirely subjective.  Different people have different valuations.

In various blog entries I've discussed different ideas for facilitating more accurate value signals.  Of course the main idea of this blog is to allow people to choose where their taxes go.

One recent idea would be to start a twitter trend of people tweeting the number of pennies that they've paid for other people's thoughts...

I just spent 1000 pennies on these thoughts by Paul Romer... #NoFreeRides

Hashtag "NoFreeRides"?  I'm certain that there's a better hashtag.  #DemandClarity  #ShowMeTheValue  #TrueLove #ActionsSpeakLouderThanWords  #ValueSignals

Anyways, I feel like I've done an adequate job of giving Romer the opportunity to come up with a coherent story.  If he publicly takes this opportunity and responds with an adequately coherent story... then there's a good chance that he might become my new favorite living economist.  Would Tabarrok be really sad if he was no longer my favorite living economist?  Heh.  I wish.  I wish that he would try and publicly compete with Romer in terms of coherence.  I wish there was at least some debate about the need for coherence.

What are the chances though that Romer will publicly share a coherent story?  I'd love it if he did so but I'm not holding my breath.  A  coherent story would involve people choosing where their taxes go.  Pragmatarianism would be a very unorthodox story to be told by the chief economist of the World Bank.  It's a tragedy that coherence is so unorthodox.  What a sad world that we live in.

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