Thursday, September 22, 2016

Bryan Caplan VS Friedrich Hayek











Smart assumption: I unequally value creators
Stupid assumption: I equally value a creator's creations

Smart assumption: I unequally value economists
Stupid assumption: I equally value Bryan Caplan's blog entries

Here's one of Caplan's recent entries...   Value-Added and Social Desirability Bias...

What's up?  I once again point my accusatory finger at Social Desirability Bias.  Rewarding good teachers sounds a lot nicer than firing bad teachers.  So when research comes along that potentially recommends both, pundits and politicians don't coolly crunch the numbers.  They leap to the recommendation that's pleasing to the ear.  So what if the original researchers find that firing bad teachers wins with flying colors?  Move along folks, nothing to see here...

Assumption 1: parents equally value schools
Assumption 2: parents equally value teachers

Are these assumptions smart or stupid?  Of course they are stupid.  They are fundamentally stupid.  Yet, does Caplan challenge these fundamentally stupid assumptions?  Clearly he doesn't challenge the second assumption.  Instead, he encourages/enables/empowers it.  He argues that administrators can fire the bad teachers despite the fact that the admins don't actually know how much value the teachers create.  Possible assumptions...

Assumption 1: admins are omniscient, they do know how much value teachers create
Assumption 2: how much value teachers create is a "minor" detail

In my opinion... both these assumptions are stupid.  Are they equally stupid though?

It's actually pretty easy to visualize the basic economics of education.  Here's how the current system looks...





Any given school consists of consumers (ie parents), producers (ie teachers) and an intermediary (ie a principal).  The consumers give their money to the intermediary who gives more or less the same amount of money to each of the producers.

The problem with this system is that teachers are not equally valuable.  Anybody who has ever been taught should thoroughly and completely understand that teachers are not equally valuable.  Just like artists are not equally valuable.  Just like economists are not equally valuable.  As you can see in the diagram, teachers don't all produce the same amount of value.  They aren't all Jaime Escalante.  Except, we obviously don't know how much value he truly created.

The solution is to unbundle teachers...




Parents would be entirely free to decide which teachers they give their money to.  The most valuable teachers would get the most money and the least valuable teachers would get the least money.

We can imagine that this is pretty much how Patreon works.  There's no intermediary to decide how supporters' money is distributed among the creators.  Supporters are entirely free to decide for themselves how much support they give to the creators.  The more money a creator receives... the more value they create.  Supporters are free to use their cash to communicate their perception of a creator's relative scarcity.  

Is this how schools should work?  Or is it more beneficial to bundle teachers together?   Is it beneficial to protect teachers from the valuations of parents?  Is it beneficial to protect teachers from the Invisible Hand?  Would it also be beneficial to bundle schools together in order to protect them from the Invisible Hand?

Would Caplan argue that we should bundle Khan Academy and Marginal University together?







Does Caplan want to argue that he values both these lessons equally?  Does he want to argue that he's just as valuable as Hayek?

The main lesson which the true liberal must learn from the success of the socialists is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion which is daily making possible what only recently seemed utterly remote. Those who have concerned themselves exclusively with what seemed practicable in the existing state of opinion have constantly found that even this had rapidly become politically impossible as the result of changes in a public opinion which they have done nothing to guide. Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds. But if we can regain that belief in the power of ideas which was the mark of liberalism at its best, the battle is not lost. The intellectual revival of liberalism is already underway in many parts of the world. Will it be in time? - Friedrich Hayek, The Intellectuals and Socialism

For example...

Even at the cost of lining up with Friedman, I’d be pleased if the idea that war is a mostly futile waste of lives and money became conventional wisdom. Switching to utopian mode, wouldn’t it be amazing if the urge to “do something” could be channeled into, say, ending hunger in the world or universal literacy (both cheaper than even one Iraq-sized war)? - John Quiggin, War and waste

Yet...

Then I realized that they want a kind of unicorn, a State that has the properties, motivations, knowledge, and abilities that they can imagine for it. When I finally realized that we were talking past each other, I felt kind of dumb. Because essentially this very realization—that people who favor expansion of government imagine a State different from the one possible in the physical world—has been a core part of the argument made by classical liberals for at least 300 years. - Michael Munger, Unicorn Governance

Switching to utopian mode, wouldn't it be amazing if parents could give their money to any teachers in the world?

Switching to dystopian mode, wouldn't it be terrible if readers around the world couldn't give their money to J. K. Rowling?

We know that Rowling is a superstar.  But we only know that she's a superstar because lots of people around the world were completely free and more than happy to spend their money on her books.

What do we know about teachers?  We know that they are not equally valuable.  And we also know that there's at least a gazillion of them.  Therefore, according to the law of truly large numbers, it's a given that at least one of those teachers should be an algebra superstar.  It's a given that at least one of those teachers should be a geography superstar.  It's a given that each and every significant subject should have at least one superstar teacher.  There should be just as many superstar teachers as there are superstar authors.  Just in case it's not abundantly clear... by "superstar" teachers I mean that they would be as filthy rich as superstar authors.

The manufacturers first supply the neighbourhood, and afterwards, as their work improves and refines, more distant markets. - Adam Smith
When the buyer goes to the market, he wants to find it abundantly supplied. He wants the seasons to be propitious for all the crops; more and more wonderful inventions to bring a greater number of products and satisfactions within his reach; time and labor to be saved; distances to be wiped out; - Frédéric Bastiat 

We've made pretty decent progress at wiping out distances but it's not like any of the teachers who've put their classes online are getting filthy rich.

A while back I e-mailed Alex Tabarrok and suggested that Marginal University create a video about the free-rider problem.  I also suggested that they try and determine the multitude's WTP for potential topics.  I'd certainly be happy to pay $5 in order to try and move the free-rider problem higher up on their list of potential topics.  Wouldn't it be so cool to see a list of their potential topics sorted by the multitude's WTP for them?

In my tweet to Art Carden and Michael Munger I said that the Invisible Hand weeds but rarely plants.  If the Invisible Hand does not do most of the planting then it logically means that the Visible Hand does most of the planting.  Voila!  Here I am!  Planting this blog entry.  My decision to do so wasn't based on the multitude's WTP for this topic...  it was based entirely on my own WTP for this topic.  But it's not like I ignored or disregarded the multitude's WTP for this topic... I don't even vaguely or remotely know what the multitude's WTP for this topic actually is.

After I publish this entry... will it be easy to discern the Invisible Hand's verdict of my product?    Nope.  Thanks to the free-rider problem... ignorance is bliss.  Really?  Ignorance of the Invisible Hand's verdict is bliss?

I'm guessing that Caplan is correct that there's a social desirability bias.  But as far as a bias against markets is concerned... it seems like a really good idea to consider the notable exceptions.  We really don't hear people complain about...

1. artists being supported on Patreon
2. J.K. Rowling being a superstar

Same thing with this guy...

I'm a millionaire, I'm a multi-millionaire. I'm filthy rich. You know why I'm a multi-millionaire? 'Cause multi-millions like what I do. That's pretty good, isn't it? - Michael Moore

How many liberals complain that he's a superstar?

Ok... so... despite the fact that I've done a terrible job of presenting/sharing/organizing the evidence... it should be more than adequate to point us in the right direction.

We'll use all this evidence to think big but start small.  We'll create a website!  At first the website will consist entirely of videos created by Marginal University and videos created by Khan Academy.  Members of this website will each have to pay $1/month... but they'll be free to choose which videos they allocate their pennies to.   Knowing the relative value of the videos would allow...

1. the most valuable videos to be featured on the homepage
2. members to sort the videos by their value

It would actually be the Invisible Hand that would decide which videos were valuable enough to put on the homepage.  And it would actually be the Invisible Hand that would sort the videos by their value.  How cool would that be?

Of course we could also allocate our pennies to potential topics.  This would allow the Invisible Hand to guide the planting.  Which would mean less weeds.

The website would cover its costs and pass the rest of the money onto Marginal University and Khan Academy.

If this utopian model turned out to be possible and practicable in the physical world... then we would gradually add more and more educators and their products.  Bryan Caplan, John Quiggin, Art Carden, Michael Munger and others could add their educational products (blog entries, articles, papers, etc) and we'd be free to allocate our pennies to them.

As the supply of valuable products increased... more people would join the website.  And as more people became members... the most valuable products would get more money.  This would encourage more educators to join the website.  As the supply of valuable products increased... so too would people's WTP and the monthly fee.  It would be a virtuous circle of incentives and education.  It would be an accurate and amazing feedback loop.  

Hmmm... anybody want to argue that the website wouldn't need a monthly fee?  It would just need to give members the ability to...

1. put money into their digital wallets
2. spend their money on their favorite educational products

That wouldn't be a bad argument.  Right now it's not the easiest thing in the world to allocate a quarter to Marginal University's video about prices.  In other words, there's a barrier to payment.  There's an obstacle to spending.  Would eliminating this obstacle facilitate the Invisible Hand?  Of course it would!  If giving the video a quarter was as easy as giving it a "thumbs up"... then I'd sure be happy to do so.  I'd be surprised if I was the only person in this boat.  How cool would it be to see a list of all the people who were willing to allocate some money to the video?

Eliminating the obstacle to spending would eliminate the forced-free-rider problem.  And it's entirely possible that the forced-free-rider problem is a lot larger than anybody realized.  Which means that it's entirely possible that eliminating the barrier to payment would allow the Invisible Hand to turn the most valuable educators into superstars.

In any case, there's more than one way to skin a cat.  We can apply the Invisible Hand to formal education... or we can apply the Invisible Hand to informal education.  I think that applying the Invisible Hand to formal education would be a Herculean task.  It would be far less Herculean to apply the Invisible Hand to informal education.  Even though it would be a lot easier to apply the Invisible Hand to informal education... the potential benefits would be massive.  People would be able to easily see, understand and really appreciate the Invisible Hand.  What happens when everybody really appreciates the Invisible Hand?  Utopia.  Heaven on Earth.

11 comments:

  1. Does this make sense?:

    “I should be able to decide how my landlord spends the money I pay him in rent because then I would be able to indicate what I value most by deciding how my money is spent”.

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    1. Could you answer my question first please?

      Because the obvious confusion in the sentence:

      “I should be able to decide how my landlord spends the money I pay him in rent because then I would be able to indicate what I value most by deciding how my money is spent”

      …is the same confusion that you seem to repeat in every single one of your posts.

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    2. "I should be able to vote on who my landlord is because then I would be able to choose a landlord who shares my values."

      Does this make sense?

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  2. You’re merely avoiding the question and trying to change the subject.

    Let’s take this step by step, using the example of the landlord.

    If you pay rent to landlord, that money is then the property of the landlord, correct?

    And according to your argument, the person (or persons) who own a given amount of money should be able to spend that money as they see fit, as this enables them to communicate their preferences and hopefully get what they want.

    And it is very important to you that only the legal owners of money should be able to communicate their preferences and get what they want in this way. The preferences of people who don’t own money are not important. This is the point at which you conflate economics with political or moral ideology. But you’re unaware that you’re conflating them in this way because your ideological beliefs are so ingrained and unquestioned (always the case with people who engage in begging the question or circular reasoning).

    So according to your argument it would be wrong for you, the tenant, to decide how the money you pay in rent to the landlord is spent, as it’s not your money. Because it’s not your money, your preferences are not important. For ideological reasons.

    So the whole issue revolves around who the money in question ‘belongs’ to.

    Now we come to the issue of taxes.

    If you pay taxes, that money is then the legal property of…. well it depends what kind of political system you live in. If it’s an absolute monarchy, it belongs to the monarch. If it’s a representative democracy, it belongs to ‘the people or ‘the public’ as a whole, represented by the state and its government.

    And to recap: according to your argument, the person (or persons) who own a given amount of money should be able to spend that money as they see fit, as this enables them to communicate their preferences and hopefully get what they want. The preferences of non-owners are not important, for ideological reasons.

    And as I said, in the case of a representative democracy, that tax money belongs to the public as a whole. It certainly doesn’t belong to the individual tax payer who paid it, any more than money paid in rent belongs to the tenant who paid it. Nope, it belongs to the ‘the public’ in the same way that rent money belongs to ‘the landlord’.

    So according to your arguments it would actually be wrong for the individual taxpayer to unilaterally decide how to spend the amount of money they paid in tax, as that money doesn’t belong to them.

    The practical issue however, is that ’the public’ is made up of lots of different people, in the same way that a company can have lots of different shareholders. So they need to find some way to decide how to spend their shared (public) money. This usually involves some form of voting.

    One alternative system is for the public money to be divided up equally among its owners (the public), and for each member of the public to be able to spend his share as he sees fit. This is similar to your proposals, however it avoids the basic error you make when you assume that the money a taxpayer pays in tax remains their individual property once it has been paid, which is not the case.

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    1. At which point does money become tax money? In a pragmatarian system... I'd be able to go to the EPA website and directly give them $500 dollars. The EPA would give me a receipt and I'd share all my receipts with the IRS by April 15.

      The $500 dollars used to be my money but now it's the EPA's money. It's strange to argue that the $500 dollars wasn't my money before I gave it to the EPA. It's like you're accusing me of theft. Like I held you up at gun point and stole the $500 dollars from you.

      What about conscientious objectors? Do they own their bodies? If not, then clearly they shouldn't be free to object to anything that the government wants to do with their bodies.

      And if a person sells their kidney for $5000 dollars... does the government own that $5000 dollars? No? Does the government own a portion of that $5000 dollars? Yeah? So... partial slavery is ok?

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    2. Ok, let's say for the sake of argument that you pay your tax to the EPA. The EPA is part of the state, so they hand that money over the Treasury and it becomes part of the public funds. Congress then decides how to spend the public funds as usual, maybe on something completely unrelated to the EPA.

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    3. Let's say that I make a donation to PETA. PETA is part of the non-profit sector, so they hand that money over to the NRA. Well no. Just because they are in the same sector really doesn't mean that PETA would hand money to the NRA.

      You see the government as one organization. I see the government as the public sector. I really don't see any point for the EPA and the DoD to be departments in the same organization. Just like I wouldn't see any point for PETA and the NRA to be departments in the same organization. Just like I wouldn't see any point for the Red Cross and Greenpeace to be departments in the same organization.

      Find an economist who will argue in favor of combining PETA and the NRA. Even mention the idea to an economist and he will laugh at you. Why will he laugh at you? Because it's an absurdly stupid idea. Then ask him whether it's a good idea for the EPA and the DoD to be combined.

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    4. My previous comment has got absolutely nothing to do with combining the EPA and the DoD. I have no idea why you even thought that bringing up that idea was a logical response to my comment. It's completely irrelevant. The EPA and the DoD are not currently combined, yet Congress decides how to distribute the public money which funds them both. Why this is difficult for you to understand is a genuine mystery.



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  3. "What about conscientious objectors? Do they own their bodies? If not, then clearly they shouldn't be free to object to anything that the government wants to do with their bodies."

    Circular reasoning. You start by assuming that people can only be free to object to government actions (do you mean in a moral sense or in terms of physical capacity - right-wing "libertarians" (i.e. fake libertarians) are frequently hopelessly vague and confused about which one they mean) if they "own their bodies" and then on that basis you reach the conclusion that therefore people must "own their bodies" in order to be 'free' to object to government actions.

    In actual fact human bodies are not legally anyone's 'property'. They are not owned by anyone, because human beings and property are distinct. Human beings are people, and property is non-human things claimed or legally 'owned' by people. People are only property in slave-owning societies.

    "So... partial slavery is ok?"

    It's funny because it's actually your ideology which justifies slavery. If people are "property" then they can be bought, sold, hired, rented just like inanimate objects. In fact there are right-wing self-described "libertarians" who make this exact argument - that your so-called "self ownership" concept leads logically to the conclusion that slavery is fine under certain conditions.

    Also, the US government does not allow sales of kidneys for money, so obviously it doesn't tax them either.



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    1. Let's say that you're suffering from a terminal illness. Should you be free to kill yourself? Who am I to take this freedom away from you? I can never be in your shoes. I can never ever truly and really feel your pain and suffering. So how could I possibly take away your freedom to decide whether you end your life?

      And if I'm not willing to take away your freedom to decide whether you end your life... then how could I possibly be willing to take away your freedom to decide whether you partially or fully sell yourself? If I'm not willing to take away your freedom to make the biggest possible decision... then I'm certainly not going to be willing to take away your freedom to make smaller decisions.

      The issue is whether your costs/benefits truly matter. I think they truly matter so I strongly support your freedom to decide how you allocate your resources. And for me, it's really not at all about your "rights"... it's all about the results.

      You have the freedom to decide how much of your brainpower you allocate to analyzing this comment. You have the freedom to allocate your eyeballs to finding bugs in this "code" (Linus's Law). You have the freedom to start a blog and allocate lots of your limited time on this planet to critiquing pragmatarianism. Just like I have the freedom to allocate lots of my limited time on this planet to promoting pragmatarianism.

      To limit our freedom is to limit our ability to share our perspectives and information and valuations with each other. Limiting our freedom is the same thing as limiting our information and understanding and awareness of people and their conditions and circumstances. This is why limiting freedom will always have bad results.

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