Thursday, July 28, 2016

The Economics Of Being Considerate

Be considerate.  We all know what it means to "be considerate".  Being considerate is a good thing.  Being inconsiderate is a bad thing.  It's a pretty simple and straightforward rule.  But what are the economics of this rule?

In my previous entry I asked Bryan Caplan whether it's desirable or inevitable that robots will become slaves.  I shared some super solid economic arguments against slavery and for freedom.  My bottom line was that a lot more progress would be made if robots were different and free.  Caplan replied with...




This sounds familiar.  Yesterday I clicked on this...




Like most, if not all, of Scott Alexander's blog entries it was lengthy but mostly interesting.  Here's the part that was relevant...

Things get even worse when you remember that cultures are multi-agent games and each agent pursuing its own self-interest might be a disaster for the whole. Pollution is a good example of this; if the best car is very polluting, and one car worth of pollution is minimal but many cars’ worth of pollution is toxic, then absent good coordination mechanisms everyone will choose the best car even though everyone would prefer a world where nobody (including them) had the best car. I may have written about this before. - Scott Alexander, How The West Was Won

Self-interested individuals would choose robot slaves even though this would result in far less progress.  This contradicts Adam Smith's invisible hand...

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 

Alexander linked to another one of his entries...  Meditations on Moloch.  Here are the relevant parts...

As a thought experiment, let’s consider aquaculture (fish farming) in a lake. Imagine a lake with a thousand identical fish farms owned by a thousand competing companies. Each fish farm earns a profit of $1000/month. For a while, all is well.

But each fish farm produces waste, which fouls the water in the lake. Let’s say each fish farm produces enough pollution to lower productivity in the lake by $1/month.

A thousand fish farms produce enough waste to lower productivity by $1000/month, meaning none of the fish farms are making any money. Capitalism to the rescue: someone invents a complex filtering system that removes waste products. It costs $300/month to operate. All fish farms voluntarily install it, the pollution ends, and the fish farms are now making a profit of $700/month – still a respectable sum.

But one farmer (let’s call him Steve) gets tired of spending the money to operate his filter. Now one fish farm worth of waste is polluting the lake, lowering productivity by $1. Steve earns $999 profit, and everyone else earns $699 profit.

Everyone else sees Steve is much more profitable than they are, because he’s not spending the maintenance costs on his filter. They disconnect their filters too.

Once four hundred people disconnect their filters, Steve is earning $600/month – less than he would be if he and everyone else had kept their filters on! And the poor virtuous filter users are only making $300. Steve goes around to everyone, saying “Wait! We all need to make a voluntary pact to use filters! Otherwise, everyone’s productivity goes down.”

Everyone agrees with him, and they all sign the Filter Pact, except one person who is sort of a jerk. Let’s call him Mike. Now everyone is back using filters again, except Mike. Mike earns $999/month, and everyone else earns $699/month. Slowly, people start thinking they too should be getting big bucks like Mike, and disconnect their filter for $300 extra profit…

A self-interested person never has any incentive to use a filter. A self-interested person has some incentive to sign a pact to make everyone use a filter, but in many cases has a stronger incentive to wait for everyone else to sign such a pact but opt out himself. This can lead to an undesirable equilibrium in which no one will sign such a pact.

And...

But it’s important to remember exactly how fragile this beneficial equilibrium is.

Suppose the coffee plantations discover a toxic pesticide that will increase their yield but make their customers sick. But their customers don’t know about the pesticide, and the government hasn’t caught up to regulating it yet. Now there’s a tiny uncoupling between “selling to Americans” and “satisfying Americans’ values”, and so of course Americans’ values get thrown under the bus.

Or suppose that there’s a baby boom in Ethiopia and suddenly there are five workers competing for each job. Now the company can afford to lower wages and implement cruel working conditions down to whatever the physical limits are. As soon as there’s an uncoupling between “getting Ethiopians to work here” and “satisfying Ethiopian values”, it doesn’t look too good for Ethiopian values either.

Or suppose someone invents a robot that can pick coffee better and cheaper than a human. The company fires all its laborers and throws them onto the street to die. As soon as the utility of the Ethiopians is no longer necessary for profit, all pressure to maintain it disappears.

Or suppose that there is some important value that is neither a value of the employees or the customers. Maybe the coffee plantations are on the habitat of a rare tropical bird that environmentalist groups want to protect. Maybe they’re on the ancestral burial ground of a tribe different from the one the plantation is employing, and they want it respected in some way. Maybe coffee growing contributes to global warming somehow. As long as it’s not a value that will prevent the average American from buying from them or the average Ethiopian from working for them, under the bus it goes.

And...

As technological advance increases, the rare confluence will come to an end. New opportunities to throw values under the bus for increased competitiveness will arise. New ways of copying agents to increase the population will soak up our excess resources and resurrect Malthus’ unquiet spirit. Capitalism and democracy, previously our protectors, will figure out ways to route around their inconvenient dependence on human values. And our coordination power will not be nearly up to the task, assuming something much more powerful than all of us combined doesn’t show up and crush our combined efforts with a wave of its paw.

Alexander refers to these problems as "multi-agent traps".  Multi-agent traps result in values being thrown under the bus.

There's one fundamentally key aspect of these multi-agent traps that Alexander completely fails to acknowledge/address...

There are multitudes with an interest in peace, but they have no lobby to match those of the 'special interests' that may on occasion have an interest in war. - Mancur Olson, The Logic of Collective Action 

In terms of robots... there are multitudes with an interest in progress, but they have no lobby to match those of the 'special interests' that would have an interest in robot slavery.  But even if there was a lobby for peace/progress... it's a given that the lobby would be underfunded.  Why?  Because peace and progress are public goods.  This means that they are subject to the free-rider problem.

Let's run through the various multi-agent traps and give the agents the opportunity to use their taxes to clearly communicate the intensity/value of their preferences for public goods.

In the pollution scenario... all the agents prefer clean air.  Just how much do they value clean air?  Their valuations would be revealed by their tax allocations.

In the fishing scenario... all the agents prefer a clean lake.  Just how much do they value a clean lake?  Their valuations would be revealed by their tax allocations.

In the first plantation scenario... the owners can boost their productivity at the cost of making their customers sick.  If consumers truly prefer their food to be thoroughly and regularly tested then they would allocate their taxes accordingly.

In the second plantation scenario... wages go down as the supply of labor goes up.  Well...

The fact itself, of causing the existence of a human being, is one of the most responsible actions in the range of human life. To undertake this responsibility — to bestow a life which may be either a curse or a blessing — unless the being on whom it is to be bestowed will have at least the ordinary chances of a desirable existence, is a crime against that being. And in a country either over-peopled or threatened with being so, to produce children, beyond a very small number, with the effect of reducing the reward of labour by their competition, is a serious offence against all who live by the remuneration of their labour. — J.S. Mill, On Liberty

If people truly prefer a certain minimum and universal welfare then they would allocate their taxes accordingly.  To this end taxpayers should be free to shop in any country's public sector.  This would create a global market for public goods.

In the third plantation scenario wages are eliminated because workers are replaced with robots.  If people truly prefer that everybody should have plenty of employment opportunities then they would allocate their taxes accordingly.

In the fourth plantation scenario the plantation is disturbing an endangered bird.  If environmentalists truly prefer to conserve the bird's habitat then they would allocate their taxes accordingly.

In the fifth plantation scenario the owners want to expand their plantation onto tribal burial grounds.  If the global community prefers to conserve the burial grounds then they would allocate their taxes accordingly.

In the sixth plantation scenario the plantation somehow contributes to global warming.  If people truly want to minimize global warming then they would allocate their taxes accordingly.

In the robot scenario... slavery is an obstacle to progress.  If people truly value progress then they would allocate their taxes accordingly.

People allocating their taxes accordingly doesn't guarantee that their values will not be thrown under the bus.  It simply guarantees that the greatest values will not be thrown under the bus.  It guarantees that the outcome will be most advantageous to society as a whole.

Being considerate depends on knowing society's valuations of the different options.  If society's valuations of the options are unknown then it's very unlikely that the most valuable option will be chosen.  It's inadequate to simply say that development should be halted because some environmentalists value some endangered bird.  It's necessary to know how much the environmentalists value the endangered bird.  In the absence of knowing the values of both options...

1. conservation
2. development

... it's unlikely that the correct option will be chosen.

Ok, so multi-agent traps are the logical but detrimental consequence of the fact that private goods and public goods are on unequal footing.  Private goods and public goods can be put on equal footing by making it just as easy, and rewarding, for agents to "buy" public goods as it is for them to buy private goods.  This can be accomplished simply by allowing people to choose where their taxes go.  We would have a market for public goods just like we have a market for private goods.

So what about robots?  Well... I think that any moderately worthwhile robot will be able to effectively communicate with humans.   It shouldn't take five minutes to discern that robot "Lassie" is trying to tell us that Tommy is drowning in the river.  Speaking is better than barking.

Speaking isn't the only form of communication.  Another form of communication is spending.  And it's a really important form of communication.  It's how we inform each other of our valuations.  It will be super beneficial if robots are free to spend their money.  Then humans and robots will know each others' valuations.   Knowing each others' valuations will allow us to be far more considerate of each other's valuations.  And if it's beneficial to be far more considerate of each others' valuations of private goods... then the same will also be true of public goods.  When everybody's valuations are far more accessible, everybody's decisions will be far more valuable.

Scott Alexander believes that beneficial equilibriums are fragile.  Well... are they fragile... or rare?  Given that private goods and public goods are on unequal footing... I believe that beneficial equilibriums are the exception rather than the rule.  I think that most equilibriums would change for the better if public goods were no longer hobbled by our current system.

Let's put this differently.  Most people understand that socialism fails.  But unfortunately most people really don't understand that socialism doesn't just fail with private goods... it also fails with public goods.  If people understood this then they would understand the problem with having a mixed economy.  So because our system is a mixed economy... and socialism fails just as much with public goods as it does with private goods... it's a given that public goods are inefficiently allocated.  Which means that private goods are also inefficiently allocated.  Therefore, if we put public goods on equal footing with private goods there would be a beneficial adjustment of most, if not all, equilibriums.  We'd have far more peace, progress and prosperity.

So is the invisible hand defective?  Do markets fail?  It's easy to blame recessions, depressions and multi-agent traps on self-interest.  For a good example of this just watch the documentary Boom Bust Boom on Netflix.  Here's a screenshot...





Blaming these problems on self-interest is like dropping a boulder onto a busy freeway and then blaming the resulting pileup on people's natural desire to avoid hitting the boulder.  It's eternally frustrating because the boulder is so obviously the problem but so few people admit or acknowledge that it's the problem.  Anyways, I'm sure that there's a much better metaphor.  The point is that the invisible hand needs a level playing field.  Public goods need to be on the same level as private goods.  Markets have to be structured in such a way that there is just as much incentive for people to spend their money on public goods as there is for people to spend their money on private goods.  When markets are structured accordingly, self-interest will align with society-interest.

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